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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 1999
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
(Exact name of registrant as specified in its charter)
Nevada 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. [X ]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant on February 29, 2000, based on the closing
price at which such stock was sold on the NASDAQ National Market on such date,
was $25,354,705.
As of February 29, 2000, 5,090,405 shares of the Registrant's Common Stock were
outstanding.
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement for its 2000 Annual Shareholders' Meeting are incorporated by
reference in Part III of this report. The Registrant's Proxy Statement will be
filed within 120 days after December 31, 1999.
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<PAGE>
PART I
ITEM 1. BUSINESS
General
RELM Wireless Corporation (together with its subsidiaries, "RELM" or the
"Company") designs and manufactures wireless communication products sold to the
land mobile radio ("LMR") markets, which consist of public safety, government,
and commercial/business/industrial users.
During 1999, the Company completed its exit from businesses and products that
were outside its focus in wireless communications. All remaining properties
owned by the Company's commercial real estate subsidiary were sold during the
first and second quarters of 1999. Also, the Company sold its RXD, Inc.
subsidiary, a distributor of electronics components, during the third quarter of
1999.
In March 2000, the Company sold its facility in West Melbourne, Florida and
leased approximately 54,000 square feet of comparable space at a nearby
location.
The Company leases a 37,600 square foot facility located in Indianapolis,
Indiana that was used primarily for engineering. This office was closed and
Engineering operations were consolidated at the Florida facility in April 1998.
Efforts to sublease the facility have been unsuccessful. The Company will
terminate the lease in 2000. A reserve was established in 1997 for the present
value of the lease commitment.
The Company's sales and marketing efforts have been reorganized under the
direction of two seasoned and successful LMR sales executives to address two
distinct markets. Thom Morrow will guide the Company's sales and marketing
initiatives in the government and public safety segment while Scott Henderson
will be in charge of the commercial/business/industrial segment.
The principal executive offices of RELM are located at 7505 Technology Drive,
West Melbourne, Florida 32904 and the telephone number is (407) 984-1414. More
information about the Company and its products are also available through the
Internet at RELM.com. The information provided on
1
<PAGE>
ITEM 1. BUSINESS -- Continued
General - Continued
the Company's website is not incorporated into this report. As of December 31,
1999 RELM employed 179 people located primarily at the West Melbourne, Florida
facility.
Reincorporation of Adage, Inc. into RELM Wireless Corporation
RELM Wireless Corporation 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 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.
Recent Developments
On March 13, 2000 the Company completed the acquisition of the private radio
communications product from Uniden America Corporation for approximately $1.8
million. Under the terms of the transaction, Relm acquired all of Uniden's
current land mobile radio inventory, certain non-exclusive intellectual property
rights, and assumed responsibility for service and technical support. Uniden
Corporation will provide manufacturing support for certain Uniden land mobile
radio products, which will be
2
<PAGE>
ITEM 1. BUSINESS -- Continued
Recent Developments - Continued
marketed by Relm. This acquisition significantly broadens the Company's product
offerings.
On March 16, 2000, the Company completed the private placement of $3.25 million
of convertible subordinated notes. The notes earn interest at 8% per annum, are
convertible at $3.25 per share, and are due on December 31, 2004. The notes have
not been registered under securities laws and may not be sold in the U.S. absent
registration or an exemption. Registration rights have been granted to the note
holders. Portions of the proceeds from this private placement were used to
acquire the Uniden land mobile radio products. The remaining proceeds will be
used for working capital purposes and completing the development of new
products.
On March 24, 2000, the Company completed the sale of its 144,000 square foot
facility in West Melbourne, Florida for $5.6 million. The transaction will
result in a gain of approximately $1.2 million and will provide approximately
$1.3 million in cash after related expenses. These funds will be used for
working capital purposes including the completion of the development of our APCO
25 compliant digital products. The Company will lease approximately 54,000
square feet of comparable space at a nearby location.
Concurrent with the sale of the facility, the Company entered into a contract
manufacturing agreement for the manufacture of certain land mobile radio
subassemblies. As part of this agreement, the contract manufacturer employed
approximately 69 of the Company's direct manufacturing workforce and purchased
approximately $2.4 million of the Company's related raw materials inventory.
Also in March 2000, the Company retained Simmonds Capital Limited (SCL) as an
advisor on matters pertaining to wireless communications business development.
Under the terms of the agreement, SCL will receive a fee of 150,000 shares of
RELM common stock plus warrants to purchase 300,000 shares at $3.25 per share.
These fees are inclusive of services rendered in connection with the acquisition
of the Uniden America private radio products. SCL will also be entitled to
reimbursement of its
3
<PAGE>
ITEM 1. BUSINESS -- Continued
Recent Developments - Continued
expenses through the issuance of 50,000 shares of RELM common stock. SCL
presently owns 4 units of RELM's 8% convertible subordinated notes. Upon
registration, these notes are convertible into 61,538 RELM common stock.
On February 12, 1999, the Company filed criminal and civil suits in Sao Paulo,
Brazil against its Brazilian dealer, RELM Chatral Telecomunicacoes Ltda.
("Chatral") for failure to pay for product shipments totaling $1.4million.
Chatral had been the Company's distributor in Brazil since 1991, and was its
largest international customer. On December 8, 1999, Chatral filed a counter
claim against the Company that alleges, among other things, damages totaling $8
million as a result of the Company's discontinuation of shipments to Chatral.
In June 1999, the Company initiated collection and legal proceedings against TAD
radio Inc. ("TAD") in Canada for failure to pay for product shipments totaling
$108,000. On December 30, 1999, TAD filed a claim against the Company for
damages estimated to be $400,000. This action is filed with the United States
District Court, Southern District of Florida. Generally, the plaintiff contends
unfair and malicious conduct on the part of RELM, in product sales and warranty
claim matters. As a result, the plaintiff alleges loss of profits, goodwill, and
market share. The Company has retained counsel to represent it in these actions.
The Company and its counsel believe that it has defenses of merit. The out come
of these actions are uncertain. An unfavorable outcome could have a material
adverse effect on the financial position of the Company.
Please refer to item 3 of this report for additional discussion of these
matters.
4
<PAGE>
ITEM 1. BUSINESS -- Continued
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:
$In Millions
-------------
1999 1998 1997
---- ---- ----
LMR - Gov't & Pub. Safety $13.5 $12.3 $22.4
LMR - Bus./Indus./Comm. 7.0 10.9 11.8
Digital Data Communications (1) - 1.6 3.1
Access Controls (1) .1 1.3 2.3
Electronic Components (1) .9 1.7 1.8
--------- ------- -------
Total Wireless Comm. Equipment 21.5 27.8 41.4
Commercial Real Estate .9 1.7 4.0
--------- ------- -------
Total Company $22.4 $29.5 $45.4
========= ======= =======
(1) - Consistent with its strategy to focus on higher margin LMR products, the
Company has exited the digital data communications and access controls and
Electronic Components businesses, see "Discontinued Products and Product Lines."
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, serving the LMR markets by designing,
manufacturing, and marketing wireless communications equipment consisting of
land mobile radios and base station components and subsystems. These products
are sold under the RELM and Bendix King brand names.
5
<PAGE>
ITEM 1. BUSINESS -- Continued
Principal Business and Products of Subsidiaries
Wireless Communications Equipment - RELM Communications, Inc -Continued
In September 1993, RELM purchased the assets and business of Bendix/King Mobile
Communications Division of Allied Signal. This product line (Bendix King)
consists of higher-specification land-mobile radios whose primary market focus
is professional radio users in the government and public safety sectors. The
Bendix King products, with more extensive features and capabilities, provide a
strong complement to the original line of RELM radios.
In March 2000, the Company purchased the private radio communications product
inventory from Uniden America Corporation. These products primarily serve the
commercial/business/industrial segment of the LMR market, and significantly
broaden and modernize the Company's offerings there. It is anticipated that
these products will be sold under both the RELM and Bendix King radio brand
names.
Description of Products & Markets
Government and Public Safety
Users in this market include the military, law enforcement, emergency medical
personnel, and various agencies of federal, state, and local government. Most
products and systems in this market utilize conventional analog technology. Some
users, however, operate digital LMR equipment and systems that are compliant
with the new specifications established by the Association of Public
Communication Officials ("APCO"). The Company is developing products that are
compliant with these specifications.
The Company offers products to this market under the Bendix King brand name.
These products include mobile radios for mounting in vehicles, portable
(hand-held) radios, base stations, and repeaters that enable two-way radios to
operate over a wider area. The Company also manufactures and sells 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. Most sales are made
directly to the end-users.
6
<PAGE>
ITEM 1. BUSINESS -- Continued
Principal Business and Products of Subsidiaries- Continued
Business/ Industrial / Commercial
Users in this market are businesses and enterprises of all sizes that require
fast, push-to-talk communication among a defined body of users. Examples of
these users include hotels, construction companies, schools, taxicabs, and
airlines. The Company serves this market with both RELM and Bendix King brand
products, including mobile radios, portable radios, base stations, and
repeaters. The products that were recently acquired from Uniden America will
also serve the market. These products are sold to original equipment
manufacturers, and dealers who resell the products to end-users. During 1999,
the Company continued design efforts to expand the offerings of its Bendix-King
line of radios, including its new Aurora family of analog products. The initial
manufacturing pilot run of these radios is currently underway.
Research and Development
RELM employed 12 people as of December 31, 1999 who devote all or a portion of
their time to research, development and engineering. The Company also utilizes
third party alliances as a supplement to internal research and development.
Expenses for sustaining engineering as well as research and development totaled
$1.5 million, $2.3 million, and $5.5 million for the years ended December 31,
1999, 1998, and 1997, respectively. The Company anticipates that R&D spending
will remain at approximately the same level in 2000 as it was in 1999.
Patents
RELM holds patents and patent licenses covering various land-mobile radio
products that are currently marketed. These patents have various expiration
dates out to the year 2001. It is difficult to precisely assess the importance
of the patents and licenses; however, the Company believes that they enhance its
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. The Company secured more favorable pricing and
terms from many of these suppliers in 1998 and was able to maintain them in
1999.
7
<PAGE>
ITEM 1. BUSINESS -- Continued
Principal Business and Products of Subsidiaries- Continued
Raw Materials - Continued
Under the terms of the acquisition of the Uniden private radio communications
inventory, Uniden corporation will continue to manufacture certain Land Mobile
Radio products for the Company.
The Company has entered into a contract manufacturing agreement for the
manufacture of certain Land Mobile Radio subassemblies. Under this agreement,
the contract manufacturer employed approximately 69 (68%) of the Company's
direct manufacturing workforce and purchased $2.4 million (69%) of the Company's
related raw material inventories. The contract manufacturer will in the future
purchase raw materials related to the manufacturing of these subassemblies. The
Company will continue to perform value-added manufacturing functions including
final test and assembly.
Certain components are 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, 1999, 1998, and 1997, the
Company'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 Bendix King LMR 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 with no specified
minimum purchase requirement. Shipments commenced in 1998 and totaled $10.4
million, representing 22.9% of total sales for that year. Shipments were
suspended in 1998 because the customer had inventory that was sufficient to meet
its requirements throughout the year. Shipments in 1999 under this contract
totaled $1.8million.
8
<PAGE>
ITEM 1. BUSINESS -- Continued
Backlog
The Company's order backlog was approximately $2.0 million and $1.5 million as
of December 31, 1999 and 1998, respectively. This included only the current
portion of the U.S. Army contract.
Competition
The worldwide land mobile radio markets are estimated to be $7.5 billion with
annual growth of approximately 10%. RELM competes with many domestic and foreign
companies in these markets. One competitor holds an estimated market share of
approximately 70%. The Company competes in these markets by capitalizing on its
strengths, including quality, speed, and customer responsiveness. The Company
believes that it is competitive with regard to these factors.
Employees
The Company employed 179 people as of December 31, 1999.
In March 2000, the Company entered into a contract manufacturing agreement for
the manufacture of certain land mobile radio subassemblies. Under this
agreement, the contract manufacturer employed approximately 69 of the Company's
direct manufacturing workforce.
Information Relating to Domestic and Export Sales
The following table summarizes the Company's sales of wireless communications
equipment by location of its customers:
($ In Millions)
1999 1998 1997
---- ---- ----
United States $20.7 $24.9 $36.9
South America - 2.1 2.1
Europe .7 .6 1.7
Other International .1 .2 .7
-------- ------- -------
Total $21.5 $27.8 $41.4
======== ======= =======
9
<PAGE>
ITEM 1. BUSINESS -- Continued
Discontinued Products and Product Lines
Electronic Components
Relm has marketed electronic components, primarily crystals and clock
oscillators, to electronic component distributors and original equipment
manufacturers through its RXD subsidiary. These components are used in various
electronic products including computers, scales, keyboards, and toys. This
product line was sold in September 1999 for approximately $500,000, which was
slightly more than its net book value.
Digital Data Communications Equipment
RELM has manufactured 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. This product line was sold to the Company's
former product line manager in August 1998 for $105,000, which represented the
approximate fair market value of its net assets.
Radio Controls for the Garage Door and Gate Operator Industry RELM has
manufactured small, low-powered receivers, transmitters, and control circuit
boards designed by Allister Access Controls, a former subsidiary of RELM
("Allister"). 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. Allister was sold by the Company in
1997. These products did not meet the Company's margin requirements and
negotiations with Allister for increased pricing were unsuccessful. Accordingly,
Allister purchased these components from an alternate source.
10
<PAGE>
ITEM 1. BUSINESS -- Continued
Discontinued Products and Product Lines - Continued
Redgo Properties, Inc.
Redgo Properties, Inc. is a Pennsylvania corporation and wholly owned subsidiary
of the Company engaged in developing and managing real estate. In 1995, the
Company decided to discontinue this segment. The Company sold its two remaining
holdings in the first and second quarters of 1999.
ITEM 2. PROPERTIES
Owned
The Company owned a 144,000 square foot office and industrial building on 20
acres located in West Melbourne, Florida. This building was utilized for the
manufacture of wireless communications equipment and includes engineering and
headquarters functions. In the fourth quarter of 1999, the Company entered into
a contract to sell the facility. This transaction was closed during the first
quarter of 2000. The Company has leased approximately 54,000 square feet of
comparable space in West Melbourne, Florida for engineering and headquarters
functions. The lease has a term of five years. Estimated rental, maintenance and
tax payments in 2000 will be approximately $291,000.
Leased
The Company leases a 37,600 square foot facility located in Indianapolis,
Indiana that was used primarily for engineering. This office was closed and
engineering operations were consolidated at the Florida facility in April 1998.
Efforts to sublease the facility have been unsuccessful. The Company will
terminate the lease in 2000. A reserve was established in 1997 for the present
value of the lease commitment.
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 are
for a preferential transfer, conspiracy
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS - Continued
and common law fraud arising from a 1987 transaction between RELM and Corporate
Investment Company ("CIC"), the parent Company of Corporate Life, pursuant to
which RELM and CIC exchanged promissory notes in the amount of $1,700,000 (the
"Note Transaction"). In connection with the Note Transaction, CIC pledged to
RELM as security for its note payment obligation its shares of stock of
Corporate Life. CIC subsequently defaulted on its note. In 1991, at the demand
of the Insurance Commissioner, CIC sold Corporate Life to American Homestead,
Inc. ("AHI") and, in connection with such sale, RELM assigned its note
receivable from CIC along with the collateral to AHI. As consideration for this
assignment, AHI agreed to assume RELM's obligations under its note to CIC in the
amount of $1,700,000. Accordingly, although the complaint alleges a claim for a
preferential transfer, RELM received no payment of funds from CIC. The
conspiracy claims are non-specific but pertain to the sale of Corporate Life to
AHI in 1991. Mr. Goebert was an officer and director of CIC.
In one of two related actions, in 1994, the Trustee and statutory liquidator of
CIC, in connection with the current bankruptcy proceedings of CIC, brought an
adversarial proceeding in the United States District Court for the Eastern
District of Pennsylvania against RELM, Mr. Goebert and other individuals and
entities that were involved in the sale of Corporate Life to AHI.
This adversarial proceeding alleges the same claims as in the action brought by
the Insurance Commissioner in connection with the Note Transaction and the sale
of Corporate Life. In the other related action, in 1993 two individual creditors
of CIC filed a complaint against, among others, RELM and Mr. Goebert in the
United States District Court for the Southern District of New York. The specific
claims alleged against RELM and Mr. Goebert in the complaint are for fraud,
fraudulent conveyance, securities fraud and RICO in connection with the Note
Transaction, the sale of Corporate Life and other investments made by CIC in an
effort to raise capital for Corporate Life. Each of the above-related matters is
in civil suspense. RELM believes that an adjudication of the action brought by
the Insurance Commissioner will in effect resolve both of the related matters on
the legal principles of collateral estoppel and/or issue preclusion. RELM
believes that there will be no material adverse effect on the financial position
of the Company as a result of these actions.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS - Continued
There are approximately 4 pending claims against the Company 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 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. Additionally, the Company has established reserves
totaling $148,000 for the estimated uninsured liability associated with these
claims.
On February 12, 1999, the Company initiated criminal and civil proceedings in
Sao Paulo, Brazil against its Brazilian dealer, Chatral, for failure to pay for
product shipments totaling $1.4 million. Exhaustive negotiations were conducted
by the Company's executive management team, resulting in multiple proposals to
satisfy the debt. One proposal was accepted by Chatral's principals, including a
signed debt confession and promissory notes. As economic conditions in Brazil
deteriorated in the next several days, additional disputes arose and Chatral
defaulted on the terms of these documents. Subsequent attempts to negotiate were
unsuccessful. The Company is vigorously pursuing all avenues to collect the
outstanding balance. Currently, the amount of recovery, if any, is uncertain.
Accordingly in 1998, the Company established a $1.4 million allowance for
doubtful accounts. On December 8, 1999, Chatral filed a counter claim against
the Company that alleges damages totaling $8 million as a result of the
Company's discontinuation of shipments to Chatral. The Company has retained
counsel to represent it in these actions. Although the Company believes that it
has defenses of merit, the outcome of this action is uncertain. An unfavorable
outcome could have a material adverse effect on the financial position of the
Company.
In June 1999, the Company initiated collection and legal proceedings against TAD
radio Inc. ("TAD") in Canada for failure to pay for product shipments totaling
$108,000. On December 30, 1999, TAD filed a claim against the Company for
damages estimated to be $400,000. This action is filed with the United States
District Court, Southern District of Florida. Generally, the plaintiff contends
unfair and malicious conduct on the part of RELM, in product sales and warranty
claim matters. As a result, the plaintiff alleges
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS - Continued
loss of profits, goodwill, and market share. The Company has retained counsel to
represent it in these actions. The Company and its counsel believe that it has
defenses of merit. The out come of these actions are uncertain. An unfavorable
outcome could have a material adverse effect on the financial position of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
14
<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 System. 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.
1998 Quarter Ended High Low
------------------ ---- ---
March 31, 1998 7.500 5.750
June 30, 1998 5.750 3.063
September 30, 1998 4.500 1.000
December 31, 1998 2.875 1.125
1999 Quarter Ended High Low
------------------ ---- ---
March 31, 1999 2.375 1.406
June 30, 1999 4.000 1.750
September 30, 1999 4.500 1.938
December 31, 1999 5.688 2.000
On March 1, 2000, there were 1,194 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 the Company's
ability to make dividend payments.
On March 16, 2000, the Company completed the private placement of $3.25 million
of convertible subordinated notes (see note 16 of notes to consolidated
financial statements). The notes were sold to the following participants:
Stephen Dulmage, Russell Henderson (RELM Senior Vice President of Sales and
Marketing), Steven Howard, Richard Laird (RELM
15
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANT COMMON
EQUITY AND RELATED STOCKHOLDERS MATTERS Continued
President and CEO), Ted Markovits, Omro Investments LTD, Stuart McGregor,
Tropical Cave (Bahamas) LTD, Moisha Schwimmer, Brian Usher-Jones, Richard L.
Zord, Lorraine Dipaolo, William Barrett, Special Situations Private Equity Fund,
L.P., and Simmonds Capital LTD. The notes earn interest at 8% per annum, are
convertible at $3.25 per share, and are due on December 31, 2004. The proceeds
from this offering were used to purchase the Uniden assets (see disclosure of
Uniden acquisition) and to satisfy the Company's delinquent mortgage obligation.
Remaining proceeds will be utilized for working capital requirements. A
commission of $90,000 was paid to Janney Montgomery Scott for the placement of
$1.8 million of the notes. The notes were sold under rule 506 of Regulation D
under the Securities Act in an issue not involving a public offering. The notes
have not been registered under securities laws and may not be sold in the U.S.
absent registration or an exemption. Registration rights have been granted to
the note holders. Portions of the proceeds from this private placement were used
to acquire the Uniden land mobile radio product lines. The remaining proceeds
will be used for working capital purposes, including strengthening the balance
sheet and completing the development of new products.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data of the Company and should
be read in conjunction with the Consolidated Financial Statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this report:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net Sales & Revenues $22,404 $29,530 $45,376 $47,646 $45,266
Loss From Continuing Operations (2,294) (4,907) (11,974) (1,347) (533)
Income (Loss) From - - - - -
Discontinued Operations - (725) (2,836) (2,679) 1,645
Extraordinary Gain - 227 - - -
Net Income (Loss) $(2,294) $(5,405) $(14,810) $(4,026) $1,112
======= ======= ======== ======= ======
Loss Per Share From
Continuing Operations $(0.45) $(0.97) $(2.36) $(0.26) $(0.10)
Earnings (Loss) Per Share From
Discontinued Operations (0.15) (0.56) (0.52) 0.32
Earnings Per Share From
Extraordinary Item 0.05
Net Earnings (Loss) Per Share $(0.45) $(1.06) $(2.92) $(0.78) $0.22
======== ======= ======= ======= =====
BALANCE SHEET 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working Capital $5,676 $6,573 $10,307 $27,008 $29,904
Total Assets 22,853 26,827 31,665 54,028 64,916
Long-Term Debt 9,072 8,755 7,440 15,554 14,906
Total Shareholders Equity $6,377 $8,671 $14,034 $29,214 $32,620
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
General
During the past two years, the Company has been significantly restructured to
focus on wireless communications and the LMR markets. In 1999, these actions
were largely completed with the sale of all remaining commercial real estate
holdings and the Company's electronic components product line.
The restructuring actions reduced the Company's revenue base in both 1998 and
1999. In response, the Company has reduced all operating expenses and
employment. As a result, the gross profit margin percentage has improved
significantly from 1998 to 1999, and operating expenses have declined by 28%.
Interest expense increased 35% from the previous year as the Company utilized
its revolving credit facility for operating cash requirements.
In March 2000, the Company completed aggressive initiatives for revenue growth
and to further reduce manufacturing overhead. For revenue growth, the Company
completed the acquisition of certain private radio communications products from
Uniden America Corporation. In addition, the Company has been organized into two
distinct business units and recruited two seasoned and successful LMR executives
to lead aggressive growth campaigns in each. Tom Morrow, Senior Vice President
of sales and marketing will be in charge of the government and public safety
business while Scott Henderson will lead the commercial/business/industrial
business.
To further reduce manufacturing overhead and improve margins, the Company
executed an agreement to out-source a portion of its manufacturing activities to
a contract manufacturer. Under this agreement, the contract manufacturer
employed approximately 69 of the Company's direct manufacturing workforce and
purchase approximately $2.4 million of the Company's related raw material
inventory. Also, the Company has sold its 144,000 square foot facility in W.
Melbourne Florida. The Company will lease reduced square footage nearby at a
substantially lower cost.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
General - Continued
R&D spending in 1999 was reduced from the previous year as the Company's new
product initiatives were largely completed. The Company's development of digital
products that are compliant with the APCO25 standard is continuing and is
expected to be completed during 2000.
Results Of Operations
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 For Year Ended December 31,
1999 1998 1997
---- ---- ----
Sales 100.0% 100.0% 100.0%
Cost of Sales 74.2 77.4 86.0
------ ----- ----
Gross Margin 25.8 22.6 14.0
Selling, General, and
Administrative Expenses (33.5) (33.4) (26.7)
Restructuring Charge - - (4.1)
Impairment Loss - (3.3) -
Interest Expense (4.8) (2.7) (2.0)
Other Income Expense 2.3 .2 .9
------ ----- -----
Pretax Loss
from Continuing Operations (10.2) (16.6) (17.9)
Income Tax Expense - - ( 8.5)
------ ----- -----
Loss
from Continuing Operations (10.2%) (16.6%) (26.4%)
====== ====== =====
Fiscal Year 1999 Compared With Fiscal Year 1998
Net Sales
Net Sales for the year ended December 31, 1999 decreased $7.1 million or 24.1%
from the prior year. Of the total decrease, $2.3 million is attributed to
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Fiscal Year 1999 Compared With Fiscal Year 1998 - Continued
Net Sales - Continued
LMR products, while $4.8 million is attributed to businesses and product lines
that have been sold or discontinued.
The decreases reflect the Company's strategy to focus on wireless businesses and
to exit or discontinue products and businesses that do not fit this focus or
that perform poorly. Specifically, in 1999 the Company sold its electronic
components business and the remainder of its commercial real estate holdings.
Furthermore, the Company completed it exit from the consumer products and access
controls businesses.
Sales of the Company's Bendix King products in 1999 increased $1.3 million
(11.2%) compared to the previous year. This increase was due primarily to the
resumption of shipments to the U.S. Army. During 1998, the Army did not take any
product shipments from the Company because of its high product inventory levels
at that time.
Sales of the Company's RELM products decreased $3.6 million (45.2%) compared to
the previous year. This decrease was due in large part to the default of the
Company's Brazilian dealer on amounts due to the Company totaling $1.4 million.
As a result of the default, the Company discontinued shipments to this dealer.
Shipments to this dealer in the previous year totaled approximately $2.1
million. The decline in RELM sales are also indicative of the Company's aging
product designs in this segment. The Company's strategy is to modernize and
broaden its product offerings through acquisitions and alliances (see disclosure
of Uniden acquisition).
Cost of Sales
Cost of Sales as a percent of net sales for the year ended December 31, 1999
decreased to 74.2% from 77.4% in the prior year. This decrease was primarily the
result of the Company's focus on higher margin LMR products and discontinuing
other less profitable products and product lines.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Fiscal Year 1999 Compared With Fiscal Year 1998 - Continued
Cost of Sales--Continued
Furthermore, a larger percentage of the Company's total LMR net sales were in
higher margin Bendix King products. Additionally, the Company has negotiated
more favorable pricing and terms from major suppliers, particularly those in the
Pacific Rim. Also, 1999 was the Company's first full year of operations after
the implementation of a Company-wide quality program. This program has been
instrumental in first-pass yield improvements and cost reductions.
In continuing to respond to the lower shipments and manufacturing volumes,
employment and manufacturing support expenses were significantly reduced during
the year. The number of employees decreased by 31, while approximately $912,000
of expenses was trimmed. The Company has sold its Florida facility and has
leased reduced square footage at a nearby location. Also, the Company has
out-source a portion of its manufacturing activities to a contract manufacturer.
The Company believes that these actions will further reduce costs and improve
margin performance.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses (SG&A) include commissions,
marketing, sales, sustaining engineering, product development, management
information, accounting, and headquarters. For the year ended December 31, 1999,
SG&A expenses totaled $7.5 million or 33.5% of net sales compared with $9.9
million or 33.4% for the prior year. As a result of the Company's restructuring
and the sale or discontinuation of certain businesses and product lines, 16
employees and approximately $1.2 million in expenses were eliminated from the
SG&A cost structure. R&D spending, was reduced 794,000 compared to the prior
year as the Company's major R&D project were largely completed.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Fiscal Year 1999 Compared With Fiscal Year 1998 - Continued
Selling, General and Administrative Expenses--Continued
Legal expenses increased during the year as a result of defending litigation
that was brought against the Company. Costs for these actions will likely
continue in 2000.
Interest Expense
Interest expense increased $282,000 for the year ended December 31, 1999 to
approximately $1,079,000 from approximately $797,000 during the prior year. Due
to reduced revenues, the Company increased its borrowing under its revolving
credit facility.
Income Taxes
Income taxes represented effective tax rates of 0% for the years ended December
31, 1999 and 1998. 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. Because the
Company believes that it has not met the more-likely-than-not criteria of SFAS
No. 109, no tax benefit has been recognized for 1999. The Company has
established valuation allowances against net deferred tax assets.
Fiscal Year 1998 Compared With Fiscal Year 1997
Net Sales
Net Sales for the year ended December 31, 1998 decreased $15.8 million or 34.9%
from the prior year. Of the total decrease, $11.0 million is attributed to LMR
products, $2.2 million to commercial real estate, $1.5 million to digital data
communications, $1.0 million to access controls, and $0.1 million to electronic
components.
The decreases were reflective of the Company's strategy to exit non-LMR
businesses and to discontinue products and lines that were inadequately
profitable. Specifically, the Company sold its digital data communications
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Fiscal Year 1998 Compared With Fiscal Year 1997 - Continued
Net Sales--Continued
business and exited from the access controls and consumer electronics
businesses. LMR sales were impacted by the lack of shipments to the U.S. Army.
Throughout the year the U. S. Army had inventory quantities that were sufficient
to meet its users' requirements. Its inventory was depleted to reorder points
late in the year.
In the fourth quarter of 1998, the Company introduced its new Bendix King "Gold
Series" radio. This radio has been favorably reviewed by its customers, which
are primarily public safety and government entities such as the U. S. Forestry
Service.
During the prior year, as the Company continued its strategy to exit the
commercial real estate business, most of its remaining real estate holdings were
sold. Several additional holdings were sold in 1998, although substantially less
than in 1997. The selling price of the real estate was approximately the same as
its book value.
Cost of Sales
Cost of Sales as a percent of net sales for the year ended December 31, 1998
decreased to 77.4% from 86.0% in the prior year. This decrease was primarily the
result of the Company's focus on higher margin LMR products and discontinuing
other less profitable products and product lines. Additionally, under the
direction of David Storey, Executive Vice President and COO, the Company
negotiated more favorable pricing and terms from major suppliers, particularly
those in the Pacific Rim. Additionally, Mr. Storey spearheaded the
implementation of a comprehensive, Company-wide quality program that has
resulted in first-pass yield improvements and cost reductions.
In responding to the lower manufacturing volumes, employment and manufacturing
support expenses were significantly reduced during the year. The number of
employees decreased by 69, while $1.5 million of expenses was trimmed.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Fiscal Year 1998 Compared With Fiscal Year 1997 - Continued
Selling, General and Administrative Expenses
Selling, general, and administrative expenses (SG&A) include commissions,
marketing, sales, sustaining engineering, product development, management
information, accounting, and headquarters. For the year ended December 31, 1998,
SG&A expenses totaled $9.9 million or 33.4% of net sales compared with $12.1
million or 26.7% for the prior year. As a result of the Company's restructuring,
37 employees and $3.8 million in expenses were eliminated from the SG&A cost
structure. R&D spending, however, was approximately $1.5 million higher than
normal levels in order to complete critical product development projects. Also
impacting SG&A expenses was a $1.4 million allowance for doubtful accounts for
the amounts that are owed to the Company from Chatral, its Brazilian dealer.
Interest Expense
Interest expense decreased $135,000 for the year ended December 31, 1998 to
approximately $797,000 from approximately $932,000 during the prior year. Cash
flows from the previous sales of discontinued operations resulted in overall
lower debt levels during the year.
Income Taxes
Income taxes represented effective tax rates of 0% and 47.8%, for the years
ended December 31, 1998 and 1997, 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. Because the Company believe that it has not met the
more-likely-than-not criteria of SFAS No. 109, no tax benefit provision was
recognized for 1998. In the prior year, the Company established valuation
allowances against net deferred tax assets.
Discontinued Operations
The Company recognized a loss of $725,000 for worker's compensation and product
liability claims related to the sale of its former recycled paper manufacturing
and specialty manufacturing subsidiaries. As part of the sales of these
subsidiaries in 1997, the Company commissioned various insurance
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Fiscal Year 1998 Compared With Fiscal Year 1997 - Continued
Discontinued Operations - Continued
professionals to estimate the related liabilities and established reserves
accordingly during the prior year.
In 1998, the Company, with the guidance of risk management consultants, analyzed
all remaining liabilities and negotiated a contract under which the insurance
carrier assumes all of the remaining workers compensation liabilities. In
connection with the analysis and contract, the Company recognized an additional
$725,000 of expenses.
Year 2000 Discussion
General
The Company completed year 2000 readiness procedures during 1999. The Company
has not experienced any material adverse impact from any issue related to the
year 2000. Total aggregate cost to complete the year 2000 readiness was
approximately $25,000.
Internal Company Systems
The Company implemented a new enterprise-wide information system in 1997. The
current release of this software is year 2000 compliant. The Company implemented
the current release. Costs associated with the upgrade were approximately
$20,000 and were recognized as they were incurred. It is the Company's policy to
utilize the most current releases of software. The aforementioned upgrade would
have been performed regardless of the year 2000 issue. No other information
technology projects were impacted by the upgrade.
Third Party Relationships
The Company has material relationships with certain suppliers and customers.
Generally, suppliers provide components that are necessary to manufacture a
finished product. The Company's products are sold primarily to dealers and
distributors who resell to end-users. The Company determined the state of
readiness of material third parties through the use of
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Third Party Relationships - Continued
questionnaires. Other than the U. S. Government, no single customer represents a
significant portion (greater than 10%) of the Company's sales. The cost of
administering the questionnaire program was less than $5,000. The Company has
not experienced any material adverse impact from supplier or customer issues
related to the year 2000.
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
On December 31, 1999, the Company had working capital totaling $5.7 million, a
decrease of $900,000 from December 31, 1998. This decrease was primarily the
result of reduced product revenues and the payment of accrued expenses..
The Company has a $7 million revolving line of credit. As of December 31, 1999,
unused credit on this line was approximately $2.4 million. As of December 31,
1999, the Company was in violation of certain financial covenants on this
facility. In March of 2000, the lender amended the credit agreement to cure the
violation effective December 31, 1999.
Capital expenditures for the year ended December 31, 1999, were $681,000 These
expenditures were primarily for tooling required to manufacture new products and
for manufacturing and test equipment. Capital expenditures for 2000 are expected
to be approximately $1.0 million. These expenditures will support the
manufacturing of the Company's two new product families and will upgrade old,
obsolete equipment. As a result of out-souring a portion of its manufacturing
activities, equipment with a net book value of
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
Liquidity and Capital Resources - Continued
approximately $1.1 million will be sold. The current credit line agreement
contains capital expenditure restrictions. The Company believes that the
restrictions will not impact the execution of its capital investment plans. The
Company anticipates that capital expenditures will be funded through operating
cash flow and financing sources.
On March 16 2000, the Company sold $3.25 million of convertible subordinated
debt. The proceeds from this offering were used to purchase the Uniden assets
(see disclosure of Uniden acquisition) and to satisfy the Company's delinquent
mortgage obligation (see note 16 of notes to consolidated financial statements).
Remaining proceeds will be utilized for working capital requirements.
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 acquisitions; 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 words "believe", "estimate", "expect",
"intend", "anticipate" and similar expressions an variations thereof identify
certain of such forward-looking statements. 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
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Liquidity and Capital Resources - Continued
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements.
28
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has been subject to the risk of fluctuating interest rates in the
ordinary course of business for borrowings under a mortgage of its primary
operating facility. The Company had entered into an interest rate swap to reduce
its exposure to such fluctuations. Under this arrangement, the Company converted
its variable LIBOR-rate mortgage into a mortgage with a fixed rate of 8.85%. As
of December 31, 1999, the amount outstanding on the mortgage was approximately
$3.7 million. In March 2000, the Company completed the sale of its West
Melbourne Facility and satisfied its obligations under the terms of the mortgage
and the related interest rate swap contract (see note 16 of notes to
consolidated financial statements).
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The financial statements required by this item are contained in pages F-1
through F-22 of this report.
30
<PAGE>
Relm Wireless Corporation
Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Certified Public Accountants.......................F-2
Consolidated Financial Statements
Consolidated Balance Sheets..............................................F-3
Consolidated Statements of Operations...................................F-5
Consolidated Statements of Stockholders' Equity.........................F-6
Consolidated Statements of Cash Flows....................................F-7
Notes to Consolidated Financial Statements...............................F-8
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 sheets of RELM Wireless
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RELM
Wireless Corporation at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/Ernst & Young LLP
Orlando, Florida
February 18, 2000 except for Notes 4 and 16
as to which the date is March 24, 2000
F-2
<PAGE>
Relm Wireless Corporation
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31
1999 1998
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1 $ 464
Accounts receivable (net of allowance for doubtful accounts of $1,672
in 1999 and $1,565 in 1998) 1,966 3,498
Inventories 10,211 10,566
Notes receivable 400 400
Prepaid expenses and other current assets 501 239
Investment securities--trading 1 749
Real estate investments held for sale - 58
---------------------------
Total Current Assets 13,080 15,974
Property, plant and equipment:
Land 233 233
Buildings and improvements 4,183 4,183
Machinery and equipment 10,358 9,736
Accumulated depreciation (6,750) (5,323)
---------------------------
8,024 8,829
Notes receivable, less current portion 1,295 1,695
Other assets 454 329
---------------------------
Total assets $ 22,853 $ 26,827
===========================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Relm Wireless Corporation
Consolidated Balance Sheets (continued)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31
1999 1998
---------------------------
<S> <C> <C>
Liabilities and stockholders' equity current liabilities:
Current maturities of long-term liabilities $ 1,807 $ 1,355
Accounts payable 4,447 4,617
Accrued compensation and related taxes 514 2,547
Accrued expenses and other current liabilities 636 704
Accrued restructuring liability - 178
---------------------------
Total current liabilities 7,404 9,401
Long-term liabilities, less amounts classified as current liabilities:
Loans, notes and mortgages 8,281 7,313
Capital lease obligations 791 1,442
---------------------------
9,072 8,755
Stockholders' equity:
Common stock; $.60 par value; 10,000,000 authorized shares: issued and
outstanding shares 5,090,405 at December 31, 1999 and 5,046,416 at
December 31, 1998 3,053 3,027
Additional paid-in capital 20,195 20,221
Accumulated deficit (16,871) (14,577)
---------------------------
Total stockholders' equity 6,377 8,671
---------------------------
Total liabilities and stockholders' equity $ 22,853 $ 26,827
===========================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Relm Wireless Corporation
Consolidated Statements of Operations
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Sales $ 22,404 $ 29,530 $ 45,376
Expenses:
Cost of products 16,618 22,864 39,003
Selling, general and administrative 7,508 9,871 12,099
Impairment loss - 961 -
Restructuring charge - - 1,872
-------------------------------------------
Total operating expense 24,126 33,696 52,974
-------------------------------------------
Operating loss (1,722) (4,166) (7,598)
Other income (expense):
Interest expense (1,079) (797) (932)
Net gains (losses) on investments 49 (132) 158
Other income 458 188 268
-------------------------------------------
Total other expense (572) (741) (506)
-------------------------------------------
Loss from continuing operations before income taxes (2,294) (4,907) (8,104)
Income tax expense - - 3,870
-------------------------------------------
Loss from continuing operations (2,294) (4,907) (11,974)
Discontinued operations:
Loss from discontinued operations net of taxes - (725) (266)
Loss on disposal of discontinued segments net of taxes - - (2,570)
-------------------------------------------
Loss on discontinued operations - (725) (2,836)
Extraordinary:
Gain on debt forgiveness - 227 -
-------------------------------------------
Net loss $ (2,294) $ (5,405) $ (14,810)
===========================================
Earnings (loss) per share--basic and diluted:
Continuing operations $ (.45) $ (.97) $ (2.36)
Discontinued operations - (.15) (.56)
Extraordinary - .05 -
-------------------------------------------
Net loss $ (.45) $ (1.07) $ (2.92)
===========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
RELM Wireless Corporation
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 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
Sale of common stock 10,637 6 36 - 42
Net loss - - - (5,405) (5,405)
------------------------------------------------------------------
Balances at December 31, 1998 5,046,416 3,027 20,221 (14,577) 8,671
Other 43,989 26 (26) - -
Net loss - - - (2,294) (2,294)
------------------------------------------------------------------
Balances at December 31, 1999 5,090,405 $3,053 $20,195 $(16,871) $ 6,377
==================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
RELM Wireless Corporation
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,294) $ (5,405) $ (14,810)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,497 1,344 1,796
Net (gain) loss on investment securities (49) 132 (158)
Valuation allowance on real estate - 961 -
(Gain) loss on disposal of assets (142) - 2,570
Deferred income taxes - - 3,870
Other - - 39
Changes in current assets and liabilities:
Accounts receivable 1,346 1,881 3,327
Inventories 100 938 3,508
Accounts payable (170) 2,682 (2,049)
Other current assets and liabilities (2,665) (3,361) 1,898
Real estate investments held for sale 58 814 2,677
Discontinued segments - working capital charges
- - 545
-------------------------------------------
Cash provided by (used in) operating activities (2,319) (14) 3,213
Cash flows from investing activities
Purchases of property and equipment (681) (1,368) (2,694
Collections on notes receivable 400 600 -
Loans and advances - (95) -
Net cash from sale of subsidiaries 525 - 7,643
Proceeds from disposals of assets 46 - -
Proceeds from sale of investment securities 797 - -
-------------------------------------------
Cash provided by (used in) investing activities 1,087 (863) 4,949
Cash flows from financing activities
Repayment of debt and capital lease obligations (1,973) (1,184) (2,248)
Proceeds from debt 1,880 - 4,802
Net increase (decrease) in revolving credit lines 862 2,270 (11,071)
Proceeds from issuance of common stock - 42 -
Retirement of stock - - (31)
-------------------------------------------
Cash provided by (used in) financing activities 769 1,128 (8,548)
-------------------------------------------
Increase (decrease) in cash (463) 251 (386)
Cash and cash equivalents, beginning of year 464 213 599
-------------------------------------------
Cash and cash equivalents, end of year $ 1 $ 464 $ 213
===========================================
Supplemental disclosure
Interest paid $ 1,079 $ 797 $ 1,266
Income taxes paid - 29 12
Capital lease additions - - 1,755
</TABLE>
See accompanying notes
F-7
<PAGE>
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1999
(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 primarily of land mobile radios and
base station components and subsystems.
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.
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.
Depreciation and amortrization expense on property, plant, and equipment for
1999, 1998 and 1997 was $1,497, $1,344 and $1,220, respectively.
F-8
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the cost of assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down to market value or discounted cash flow value is required.
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
Sales revenue is recognized as goods are shipped.
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 and cash equivalents, accounts
receivables and investments. The Company places its cash, cash equivalents, 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 and cash
equivalents, accounts receivable, accounts payable and other accrued liabilities
approximates fair value because of the short-term nature of these financial
instruments. The fair value of notes receivable and short-term and long-term
debt
F-9
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments - Continued
approximates market, as the interest rates on these financial instruments are
market rates. The Company has entered into an interest rate swap to reduce
exposure to interest rate fluctuations on its long-term mortgage debt. The
interest differential from the swap is recorded as interest expense as incurred.
Advertising Costs
The cost for advertising is expensed as incurred. The total advertising expense
for 1999, 1998 and 1997 was $133, $241 and $456, respectively.
Research and Development Costs
Included in selling, general and administrative expenses for 1999, 1998 and 1997
are research and development costs of $1,483, $2,277 and $5,466, respectively.
Stock Based Compensation
The Company follows APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock-based
compensation plans.
Earnings (Loss) Per Share
Earnings (loss) per share amounts are computed and presented for all periods in
accordance with SFAS No. 128, Earnings per Share.
Comprehensive Income
Pursuant to SFAS No. 130, Reporting Comprehensive Income, the Company is
required to report comprehensive income and its components in its financial
statements. The Company does not have any significant components of other
comprehensive income to be reported under SFAS No. 130. Total comprehensive
income (loss) is equal to the net income (loss) reported in the financial
statements.
Business Segments
The Company follows SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in reporting segment information and information about
products and services, geographic areas, and major customers. The Company has
only one reportable business segment
Impact of Recently Issued Accounting Standard
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company will be required to implement
SFAS No. 133 for the year ending December 31, 2001. SFAS No. 133 will require
the Company to recognize all derivatives on the balance sheet at fair value. The
Company does not anticipate that the adoption of SFAS 133 will have a
significant effect on its operations or financial position.
F-10
<PAGE>
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. Inventories
Inventory which is presented net of the allowance for obsolete and slow moving
inventory consisted of the following:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------------------
<S> <C> <C>
Finished goods $ 5,065 $ 4,641
Work in process 1,645 1,945
Raw materials 3,501 3,980
--------------------------------
$10,211 $10,566
--------------------------------
</TABLE>
The allowance for obsolete and slow moving inventory is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $1,985 $2,805 $ 850
Charged to cost of sales (12) 137 2,572
Disposal of inventory (39) (957) (617)
--------------------------------------------------
Balance, end of year $1,934 $1,985 $2,805
==================================================
</TABLE>
3. Allowance for Doubtful Accounts
The allowance for doubtful accounts is composed of the following:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $ 1,565 $ 133 $165
Provision for doubtful accounts 176 1,514 140
Uncollectible accounts written off (69) (82) (147)
Discontinued operations - - (25)
--------------------------------------------------
Balance, end of period $1,672 $ 1,565 $133
==================================================
</TABLE>
F-11
<PAGE>
4. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31
1999 1998
-----------------------------
<S> <C> <C>
Line of credit. $ 4,632 $ 3,770
Note payable to bank, secured by real estate, with monthly payments of $24
plus interest at 8.85% through August 2012. This note was paid in full
on March 24, 2000. See Note 16. 3,666 3,905
Notes payable to finance company, secured by surety bond, with monthly
payments of $61 including interest at 6.04% through July 2001. 1,048 -
Notes payable to a third party. - 400
-----------------------------
Total debt 9,346 8,075
Amounts classified as current liabilities (1,065) (762)
-----------------------------
Long-term debt $ 8,281 $ 7,313
=============================
</TABLE>
On February 26, 1999, the Company refinanced its revolving credit facility. The
new credit agreement, which was amended for the third time on March 24, 2000,
provides for a maximum line of credit of $7,000 reduced by outstanding letters
of credit. Included in the $7,000 line is a $500 term loan with monthly
principal payments of $8 which commenced on April 1, 1999. The term loan has a
balance of $425 at December 31, 1999. Interest on the unpaid principal balance
accrues at the prime rate (8.50% at December 31, 1999) plus 1.25%. There is an
annual fee of .25% on the line. The credit agreement requires, among other
things, maintenance of financial ratios and limits certain expenditures. The
line of credit is secured by substantially all of the Company's non-real estate
assets and expires on February 26, 2002. At December 31, 1999 and 1998, the
Company had $2,368 and $3,230 of availability on the revolving credit facility.
The Company has entered into an interest rate swap related to its $3,666 note to
reduce exposure to interest rate fluctuations. Under this arrangement, the
Company converted the variable LIBOR-rate debt into 8.85% fixed-rate debt (see
note 16).
On November 17, 1998, an agreement was reached with the third party debtor
whereby principal and interest of $227 was forgiven and a new agreement for $500
was signed. The agreement required interest free monthly payments of $50. This
debt was paid in full in 1999. The gain on debt forgiveness is classified as an
extraordinary item in the 1998 statement of operations.
F-12
<PAGE>
4. Debt - Continued
Maturities of long-term debt for years succeeding December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 1,065
2001 807
2002 4,719
2003 288
2004 288
Thereafter 2,179
---------
$9,346
=========
</TABLE>
5. 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 related to the
abandonment of certain leases and the write-off of leasehold improvements. Total
rental expenses for all operating leases for 1999, 1998 and 1997 were $280, $220
and $397, respectively (see note 16).
Property, plant and equipment includes equipment purchased under capital leases
at December 31 as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Cost $3,672 $3,672
Accumulated depreciation (2,197) (1,671)
------------------------------------
$1,475 $2,001
====================================
</TABLE>
Amortization of equipment under capital leases is included in depreciation
expense.
At December 31, 1999, the future minimum payments for the capital leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 873
2001 593
2002 249
-------------
Total minimum lease payments 1,715
Less amounts representing interest (182)
-------------
Present value of net minimum lease payments 1,533
Less current maturities (742)
-------------
Long-term obligations under capital-leases $ 791
=============
</TABLE>
F-13
<PAGE>
6. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
-----------------------------------------------
- - -
Deferred:
Federal - - 3,309
State - - 561
-----------------------------------------------
- - 3,870
-----------------------------------------------
$ - $ - $3,870
===============================================
</TABLE>
The components of consolidated income taxes (benefit) for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Federal income taxes (benefit) at statutory
rates (34.0)% (34.0)% (34.0)%
State income taxes (benefit) net of federal
income tax benefit (3.6) (3.6) (3.5)
Change in valuation allowance 37.2 37.6 86.0
Permanent differences and other 0.4 - (0.7)
-----------------------------------------------
Effective income tax rate -% -% 47.8%
===============================================
</TABLE>
F-14
<PAGE>
6. Income Taxes (continued)
The deferred tax effect of temporary differences between financial and tax
reporting at December 31 is as follows:
1999 1998
-----------------------------
Deferred tax assets:
Operating loss carryovers $12,042 $9,589
Tax credits 49 49
Asset reserves:
Bad debts 629 589
Inventory reserve 737 940
Inventory capitalization 128 128
Real estate sales - 740
Accrued expenses:
Compensated absences 100 100
Health insurance claims - 707
Restructuring accrual 21 67
All other 87 105
Valuation allowances (13,066) (12,212)
-----------------------------
727 802
Deferred tax liabilities:
Depreciation (727) (727)
Unrealized capital gain - (75)
-----------------------------
Net deferred tax assets $ - $ -
=============================
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 does not
believe it has met the more likely than not criteria; therefore, the Company has
established a valuation allowance in the amount of $13,066 in 1999 and $12,212
in 1998 against its net deferred tax assets.
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--$2,667; 2018--$3,401; 2019--$2,453.
F-15
<PAGE>
7. 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
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net loss (numerator for basic and diluted earnings
per share) $ (2,294) $ (4,907) $ (11,974)
--------------------------------------------------
Denominator:
Denominator for basic and diluted earnings per
share-weighted average shares 5,090,405 5,045,459 5,076,438
==================================================
Basic earnings (loss) per share $ (.45) $ (.97) $ (2.36)
==================================================
Diluted earnings (loss) per share $ (.45) $ (.97) $ (2.36)
==================================================
</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.
F-16
<PAGE>
8. 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 five-year or
ten-year periods, expire. Other conditions and terms apply to stock option
plans.
The following is a summary of all stock option plans:
<TABLE>
<CAPTION>
Shares
Under Option Weighted Average
Option Price Per Share Exercise Price
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Options granted 190,000 3.06-3.50 3.20
Options exercised (10,637) 4.00 4.00
Options expired or terminated (44,907) 3.06-6.88 5.94
--------------
Balance at December 31, 1998 427,979 3.06-6.88 4.46
Options granted 495,000 1.50-4.25 3.08
Options expired or terminated (171,313) 3.50-6.88 4.34
-----------------------------
Balance at December 31, 1999 751,666 $1.50-$6.25 3.54
=============================
Exercisable at December 31, 1999 155,000 $1.50-$6.25 4.23
=============================
</TABLE>
The weighted average contractual life of stock options outstanding was 8.5 and
2.7 years at December 31, 1999 and 1998, respectively.
At December 31, 1999, 948,334 of unissued options were available under the two
plans.
Pro forma information regarding net income or loss is required by SFAS No. 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 1999, 1998 and 1997: expected
volatility of 90% (1999), 59% (1998) and 44% (1997); risk-free interest rate of
6%; dividend yield of 0%; and a weighted-average expected life of the options of
3.5 years.
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
1999, 1998 and 1997 was $2,545, $5,520 and $14,835, respectively, or $50, $1.09
and $2.92, respectively, per share. The proforma net loss reflects only
F-17
<PAGE>
8. Stock Option and Other Stock Plans (continued)
options granted after December 31, 1994. 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 1999, 1998 and 1997 was $2.08, $1.63 and $2.41,
respectively. The option price equaled the market price on the date of grant for
all options granted in 1999, 1998 and 1997.
9. Significant Customers
Sales to the United States government and to foreign markets as a percentage of
the Company's total sales were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
U.S. government 26% 24% 32%
Foreign markets .7 9 10
</TABLE>
10. Pension Plans
The Company sponsors a participant contributory retirement (401k) plan, which is
available to all employees. The Company's contributions to the plan 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 $109, $137 and $248 for 1999, 1998 and 1997, 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 for 1997.
11. 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.
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 receivables were established totaling $200.
These notes plus interest at 7% were paid in 1998. During 1998, the Company's
commercial real estate subsidiary sold real estate to an entity that was
controlled by the Company's principal shareholder for $1,056 cash.
F-18
<PAGE>
12. 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 and $1,426 relating to
the termination of both factory and support employees in Indiana and Florida. In
1998, the Company reduced the liability by $1,694 for lease and severance
payments. The remaining liability of $178 at December 31, 1998 related to the
remaining lease payments on the Indiana facility. During 1999, the Company
completed its transactions related to the restructuring and reduced the
liability to zero.
13. Real Estate Assets Held for Sale
The Company sold its remaining real estate assets that were being held for sale
during the first and second quarters of 1999. The real estate assets included
subdivided units of commercial land, completed residential properties, and
commercial properties, and were presented net of valuation allowances of $1,966
at December 31, 1998. The real estate valuation allowance was composed of the
following:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Balances, beginning of period $1,966 $1,005 $2,920
Provision for impairment loses - 961 -
Reduction due to sales (1,966) - (1,915)
------------------------------------------------------
Balance, end of period $ 0 $1,966 $ 1,005
======================================================
</TABLE>
The summarized results of operations of the real estate business are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Sales $ 908 $ 1,805 $ 3,937
Cost of sales (58) (851) (4,006)
Impairment loss - (961) -
Selling, general and administrative expenses (60) (100) (522)
------------------------------------------------------
Operating income (loss) $(790) $ (107) $ (591)
======================================================
</TABLE>
14. 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, which totaled $1,600 and $2,000 at December 31, 1999 and
1998, respectively, is receivable over five years in annual payments of $400 for
the first four years and $800 in the final year and
F-19
<PAGE>
14. Discontinued Operations - Continued
Paper Manufacturing- Continued
is secured by the assets of Fort Orange. Interest at 11.5% is receivable
quarterly. Summarized results of Fort Orange's discontinued operations for 1997
were as follows:
Net revenues $10,335
Operating loss (415)
Net income from discontinued operations 335
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 was recorded in 1996 and an additional loss on sale of $486 was
recorded in 1997. Summarized results of Allister's discontinued operations for
1997 were as follows:
Net revenues $4,332
Operating profit 69
Net income from discontinued operations 69
RXD, Inc.
During the third quarter of 1999, the Company sold the assets associated with
its subsidiary, RXD, Inc. (RXD), for $525. The assets sold included accounts
receivable and inventory valued at $186 and $255, respectively. The gain
recorded from the sale is $84 and is included in other income in the statement
of operations. The Company's sales for 1999, 1998 and 1997 includes
approximately $910, $1,710 and $1,420 of sales generated by RXD.
15. 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
is 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 are 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 are included in accrued
expenses. The amounts accrued are included in accrued compensation and related
taxes in the balance sheets.
F-20
<PAGE>
15. 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.
Counter Claims
In February 1999, the Company initiated collection and legal proceedings against
its Brazilian dealer, Chatral, for failure fo pay for 1998 product shipments
totaling $1,400. On December 8, 1999, Chatral filed a counter claim against the
Company that alleges damages totaling $8,000 as a result of the Company's
discontinuation of shipments to Chatral.
In June 1999, the Company initiated collection and legal proceedings against TAD
Radio Inc. (TAD) for failure to pay for product shipments totaling $108. On
December 30, 1999, TAD filed a claim against the Company for damages estimated
to be $400. Generally, the plaintiff contends unfair and malicious conduct in
product sales and warranty claim matters. As a result, the plaintiff alleges
loss of profits, goodwill, and market share.
Although the Company and its counsel believe the Company has defenses of merit,
the outcome of these actions are uncertain. An unfavorable outcome could have a
material adverse effect on the financial position of the Company.
16. Subsequent Events
Acquisition of Uniden Land Mobile Radio Products
On March 13, 2000, the Company completed the acquisition of certain private
radio communications products from Uniden America Corporation (Uniden) for
approximately $1,800. Under the terms of the transaction, the Company acquired
certain land mobile radio inventory, certain non-exclusive intellectual property
rights, and assumed responsibility for service and technical support. Uniden
will continue to provide manufacturing support for certain Uniden land mobile
radio products, which will be marketed by the Company.
Private Placement
On March 16, 2000, the Company completed the private placement of $3,250 million
of convertible subordinated notes. The notes earn interest at 8% per annum, are
convertible at $3.25 per share, and are due on December 31, 2004. The notes have
not been registered under securities laws and may not be sold in the U.S. absent
registration or an exemption. Registration rights have been granted to the note
holders. Portions
F-21
<PAGE>
16. Subsequent Events (continued)
Private Placement - (continued)
of the proceeds from this private placement were used to acquire the Uniden land
mobile radio products. The remaining proceeds will be used for working capital
purposes, and developing new products.
Sale of West Melbourne, Florida Facility and Completion of Manufacturing
Agreement
On March 24, 2000, the Company completed the sale of its 144,000 square foot
facility located in West Melbourne, Florida for $5,600 million. The transaction
will result in a gain of approximately $1,200 million and will provide
approximately $1,600 million in cash after related expenses and after payoff of
the note and satisfaction of the mortgage on the property. The Company will
lease approximately 54,000 square feet of comparable space at a nearby location.
The Company has entered into a contract manufacturing agreement for the
manufacture of certain land mobile radio subassemblies. Under this agreement,
the contract manufacturer employed approximately sixty nine of the Company's
direct manufacturing workforce and purchased approximately $2,400 of the
Company's raw materials inventory.
F-22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
F-23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item is incorporated by reference to the definitive
proxy statement to be filed by the Company for the Annual Meeting of the
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the definitive
proxy statement to be filed by the Company for the Annual Meeting of the
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to the definitive
proxy statement to be filed by the Company for the Annual Meeting of the
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to the definitive
proxy statement to be filed by the Company for the Annual Meeting of the
Shareholders.
F-24
<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
------ -------
3(i) Articles of Incorporation **
3(ii) By-Laws **
4(ii) 8% Convertible Subordinate Promissory Note
10(a) 1996 Stock Option Plan for Non-Employee Directors *
10(b) 1997 Stock Option Plan **
10(c) Loan and Security Agreement ****
10(d) Workers Compensation Close Out Agreement ****
10(e) Amendment to Security and Loan Agreement
10(f) 2nd Amendment to Security and Loan Agreement
10(g) 3rd Amendment to Security and Loan Agreement
10(h) Simmonds Agreement
10(i) Contract for Sale of West Melbourne Fl. Real Estate
10(j) Sub Lease Agreement
10(k) Uniden Asset Purchase Agreement
10(l) OEM Uniden Manufacturing Agreement
10(m) Uniden ESAS Technology Agreement
10(n) Manufacturing Agreement
10(o) Transaction Agreement for Real Estate Sale and Contract
Manufacturing
21 Subsidiaries of Registrant ***
27 Financial Data Schedule
__________________________________________
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
(b) No reports on Form 8-K have been filed during the period ended December 31,
1999 by the Company.
*Incorporated by reference from the Adage, Inc. (predecessor to RELM
Wireless Corporation) report on form 10K for the year ended December 31,
1996.
**Incorporated by reference from the Company's report on form 10K for the
year ended 31, 1997.
***Incorporated by reference from the Company's report on form 10K for
the year ended 31, 1998.
****Incorporated by reference from the Company's report on form 10Q
quarter 1 for the year ended 31, 1999.
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.
Date: March 30, 2000 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 March 30, 2000
- ----------------------------
Donald F. U. Goebert
/s/Richard K. Laird President, Chief March 30, 2000
- ---------------------------- Executive Officer and
Richard K. Laird Director
/s/William P. Kelly Vice President - Finance March 30, 2000
- ---------------------------- Secretary
William P. Kelly
/s/Buck Scott Director March 30, 2000
- ----------------------------
Buck Scott
/s/James C. Gale Director March 30, 2000
- ----------------------------
James C. Gale
/s/Robert L. MacDonald Director March 30, 2000
- ----------------------------
Robert L. MacDonald
/s/Ralph R. Whitney, Jr. Director March 30, 2000
- ---------------------------
Ralph R. Whitney, Jr.
/s/George N. Benjamin, III Director March 30, 2000
- ---------------------------
George N. Benjamin, III
F-26
<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: RELM, INC.
By:____________________________
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
___________________________ Chairman
Donald F. U. Goebert
___________________________ President and Chief
Richard K. Laird Executive Officer and
Director
___________________________ Vice President - Finance
William P. Kelly Secretary
___________________________ Director
Buck Scott
___________________________ Director
James C. Gale
___________________________ Director
Robert L. MacDonald
___________________________ Director
Ralph R. Whitney, Jr.
___________________________ Director
George N. Benjamin, III
F-27
<PAGE>
INDEX
Number Exhibit
------ -------
3(i) Articles of Incorporation **
3(ii) By-Laws **
4(ii) 8% Convertible Subordinate Promissory Note
10(a) 1996 Stock Option Plan for Non-Employee Directors *
10(b) 1997 Stock Option Plan **
10(c) Loan and Security Agreement ****
10(d) Workers Compensation Close Out Agreement ****
10(e) Amendment to Security and Loan Agreement
10(f) 2nd Amendment to Security and Loan Agreement
10(g) 3rd Amendment to Security and Loan Agreement
10(h) Simmonds Agreement
10(i) Contract for Sale of West Melbourne Fl. Real Estate
10(j) Sub Lease Agreement
10(k) Uniden Asset Purchase Agreement
10(l) OEM Uniden Manufacturing Agreement
10(m) Uniden ESAS Technology Agreement
10(n) Manufacturing Agreement
10(o) Transaction Agreement for Real Estate Sale and Contract
Manufacturing
21 Subsidiaries of Registrant ***
27 Financial Data Schedule
________________________________________
(b) No reports on Form 8-K have been filed during the period ended December 31,
1999 by the Company.
*Incorporated by reference from the Adage, Inc. (predecessor to RELM
Wireless Corporation) report on form 10K for the year ended December 31,
1996.
**Incorporated by reference from the Company's report on form 10K for the
year ended 31, 1997.
***Incorporated by reference from the Company's report on form 10K for
the year ended 31, 1998.
****Incorporated by reference from the Company's report on form 10Q
quarter 1 for the year ended 31, 1999.
Exhibit 4(ii)
THIS CONVERTIBLE UNSECURED PROMISSORY NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH NOTE REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH NOTE AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS.
RELM WIRELESS CORPORATION
8% Convertible Subordinated Promissory Note
Due December 31, 2004
$[_________________] No. [ ]
[________________________, 2000]
RELM WIRELESS CORPORATION, a corporation organized under the laws of
the State of Nevada (the "Company"), for value received, hereby promises to pay
to [ ], or registered assigns (the "Payee" or "Holder") upon due presentation
and surrender of this Note, on December 31, 2004 (the "Maturity Date"), the
principal amount of [ ] ($_________) and accrued interest thereon as hereinafter
provided.
This Convertible Subordinated Promissory Note (this "Note") was issued
by the Company on ______, 2000 (the "Issuance Date") pursuant to a certain
Confidential Term Sheet dated as of March ___, 2000 (together with the Schedules
and Exhibits thereto, the "Term Sheet") relating to the purchase and sale of 8%
Convertible Subordinated Promissory Notes maturing December 31, 2004
(collectively, the "Notes") in the aggregate principal amount of up to
$3,250,000. The holders of such Notes are referred to hereinafter as the
"Holders."
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT
1.1 Payment of the principal and accrued interest on this Note
shall be made in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts. Interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid portion of said principal amount from time to time
outstanding shall be paid by the Company at the rate of eight percent (8%) per
annum (the "Stated Interest Rate"), in like coin and currency, payable to the
Payee in three (3) month intervals on each January 1, April 1, July 1 and
October 1 during the term of this Note (commencing April 1, 2000) (an "Interest
Payment Date") and on the Maturity Date. Interest shall accrue from the Issuance
Date. Both principal hereof and interest thereon are payable at the
<PAGE>
Holder's address above or such other address as the Holder shall designate from
time to time by written notice to the Company. The Company will pay or cause to
be paid all sums becoming due hereon for principal and interest by check, sent
to the Holder's above address or to such other address as the Holder may
designate for such purpose from time to time by written notice to the Company,
without any requirement for the presentation of this Note or making any notation
thereon, except that the Holder hereof agrees that payment of the final amount
due shall be made only upon surrender of this Note to the Company for
cancellation. Prior to any sale or other disposition of this instrument, the
Holder hereof agrees to endorse hereon the amount of principal paid hereon and
the last date to which interest has been paid hereon and to notify the Company
of the name and address of the transferee.
1.2 If this Note or any installment hereof becomes due and
payable on a Saturday, Sunday or public holiday under the laws of the State of
New York, the due date hereof shall be extended to the next succeeding full
business day. All payments received by the Holder shall be applied first to the
payment of all accrued interest payable hereunder.
ARTICLE II
CONVERSION
2.1 Conversion at Option of Holder. At any time and from time
to time until the earlier of (i) the Maturity Date or (ii) the conversion of the
Note in accordance with Section 2.2 hereof, this Note is convertible in whole or
in part at the Holder's option into shares of common stock, par value $0.60 per
share, (the "Common Stock") of the Company upon surrender of this Note, at the
office of the Company, accompanied by a written notice of conversion in the form
of Attachment II hereto, or otherwise in form reasonably satisfactory to the
Company duly executed by the registered Holder or its duly authorized attorney.
This Note is convertible into shares of Common Stock at a price per share of
Common Stock equal to $3.25 per share (the "Conversion Price"). Interest shall
accrue to and including the day prior to the date of conversion and shall be
paid on the last day of the month in which conversion rights hereunder are
exercised. No fractional shares or scrip representing fractional shares will be
issued upon any conversion, but an adjustment in cash will be made, in respect
of any fraction of a share which would otherwise be issuable upon the surrender
of this Note for conversion. As soon as practicable following conversion and
upon the Holder's compliance with the conversion procedure described in Section
2.3 hereof, the Company shall deliver a certificate for the number of full
shares of Common Stock issuable upon conversion and a check for any fractional
share and, in the event the Note is converted in part, a new Note of like tenor
in the principal amount equal to the remaining principal balance of this Note
after giving effect to such partial conversion.
2.2 Conversion at Option of the Company. Provided that an
Event of Default as provided herein (relating to the failure to pay principal
and interest under the Note) shall not have occurred and then be continuing, in
the event that (i) the closing price per share of the Company's Common Stock on
the NASDAQ National Market System or such other exchange as
2
<PAGE>
the Common Stock may then be listed exceeds $6.50 per share for each ninety (90)
consecutive trading days; and (ii) the Common Stock to be issued to holder upon
conversion of the Note is registered under an effective registration statement
under the Securities Act of 1933, as amended, then at any time thereafter until
the Maturity Date, the Company may upon written notice to the Holders of all
Notes (the "Mandatory Conversion Notice") require that all, but not less than
all, of the outstanding principal amount of the Notes be converted into shares
of Common Stock at a price per share equal to the Conversion Price. The
Mandatory Conversion Notice shall state (1) the date fixed for conversion (the
"Conversion Date") (which date shall not be prior to the date the Mandatory
Conversion Notice is given), (2) any disclosures required by law, (3) the
trading dates and closing prices of the Common Stock giving rise to the
Company's option to require conversion of the Notes, (4) that the Notes shall
cease to accrue interest after the day immediately preceding the Conversion
Date, (5) the place where the Notes shall be delivered and (6) any other
instructions that Holders must follow in order to tender their Notes in exchange
for certificates for shares of Common Stock. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such conversion, except as to a Holder (x) to whom notice was
not mailed or (y) whose notice was defective. An affidavit of the Secretary or
an Assistant Secretary of the Company or an agent employed by the Company that
notice of conversion has been mailed postage prepaid to the last address of the
Holder appearing on the Note registry books kept by the Company shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. On and
after the Conversion Date, except as provided in the next two sentences, Holders
of the Notes shall have no further rights except to receive, upon surrender of
the Notes, a certificate or certificates for the number of shares of Common
Stock as to which the Note shall have been converted. Interest shall accrue to
and include the day prior to the Conversion Date and shall be paid on the last
day of the month in which Conversion Date occurs. No fractional shares or scrip
representing fractional shares will be issued upon any conversion, but an
adjustment in cash will be made, in respect of any fraction of a share which
would otherwise be issuable upon the surrender of this Note for conversion.
2.3 Registration of Transfer; Conversion Procedure. This Note
and all rights hereunder may be sold, transferred or otherwise disposed of, in
whole or in part, to any person in accordance with and subject to the provisions
of the Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations promulgated thereunder The Company shall maintain books for the
transfer and registration of the Notes. Upon the transfer of any Note with
notice attached hereto as Attachment I and in accordance with applicable law or
regulation, the Company shall issue and register the Note in the names of the
new holders. The Notes shall be signed manually by the Chairman, Chief Executive
Officer, President or any Vice President and the Secretary or Assistant
Secretary of the Company. The Company shall convert, from time to time, any
outstanding Notes upon the books to be maintained by the Company for such
purpose upon surrender thereof for conversion properly endorsed and, in the case
of a conversion pursuant to Section 2.1 hereof, accompanied by a properly
completed and executed Conversion Notice attached hereto as Attachment II and
any documentation deemed necessary by the Company showing the availability of an
exemption under applicable state and federal securities laws. Subject to the
terms of this Note, upon surrender of this Note, the Company shall issue and
deliver with all reasonable dispatch to or upon the written order of the Holder
of such Note and in such name or names as such Holder may designate, a
certificate or certificates for the number
3
<PAGE>
of full shares of Common Stock due to such Holder upon the conversion of this
Note. Such certificate or certificates shall be deemed to have been issued and
any person so designated to be named therein shall be deemed to have become the
Holder of record of such shares of Common Stock as of the date of the surrender
of this Note. Upon conversion, the Holder will be required to execute and
deliver any documentation deemed necessary by the Company showing the
availability of an exemption under applicable state and federal securities laws.
2.4 Company to Provide Common Stock. The Company has shares of
Common Stock available to reserve for issuance upon the conversion of the Notes.
The shares of Common Stock which may be issued upon the conversion of the Notes
shall be fully paid and non-assessable and free of preemptive rights. The
Company will comply with all securities laws regulating the offer and delivery
of the shares upon conversion of the Notes and will list such shares on each
national securities exchange or quotation system upon which the Common Stock is
listed or quoted. Each share of Common Stock issued upon exercise of this Note
shall bear a legend containing the following words:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH SUCH ACT.
The requirement that the above legend be placed upon
certificates evidencing any such securities shall cease and terminate upon the
earliest of the following events: (i) when such shares are transferred in an
underwritten public offering, (ii) when such shares are transferred pursuant to
Rule 144 under the Securities Act or (iii) when such shares are transferred in
any other transaction if the seller delivers to the Company an opinion of its
counsel, which counsel and opinion shall be reasonably satisfactory to the
Company, or a "no-action" letter from the Staff of the Securities and Exchange
Commission, in either case to the effect that such legend is no longer necessary
in order to protect the Company against a violation by it of the Securities Act
upon any sale or other disposition of such shares without registration
thereunder. Upon the occurrence of such event, the Company, upon the surrender
of certificates containing such legend, shall, at its own expense, deliver to
the holder of any such securities as to which the requirement for such legend
shall have terminated, one or more new certificates evidencing such securities
not bearing such legend.
2.5 Dividends; Reclassifications, etc. In the event that the
Company shall, at any time prior to the earlier to occur of (i) exercise of
conversion rights hereunder and (ii) the Maturity Date: (i) declare or pay to
the holders of the Common Stock a dividend payable in any kind of shares of
capital stock of the Company; or (ii) change or divide or otherwise reclassify
its Common Stock into the same or a different number of shares with or without
par value, or in shares of any class or classes; or (iii) transfer its property
as an entirety or substantially as an entirety to any other company or entity;
or (iv) make any distribution of its assets to holders of its Common Stock as a
liquidation or partial liquidation dividend or by way of return of capital;
4
<PAGE>
then, upon the subsequent exercise of conversion rights, the Holder thereof
shall receive, in addition to or in substitution for the shares of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or scrip of the Company, or such reclassified shares of stock of
the Company, or such shares of the securities or property of the Company
resulting from transfer, or such assets of the Company, which it would have been
entitled to receive had it exercised these conversion rights prior to the
happening of any of the foregoing events.
2.6 Reorganization of the Company. If the Company is a party
to a merger or other transaction which reclassifies or changes its outstanding
Common Stock, upon consummation of such transaction this Note shall
automatically become convertible into the kind and amount of securities, cash or
other assets which the Holder of this Note would have owned immediately after
such transaction if the Holder had converted this Note at the Conversion Price
in effect immediately before the effective date of the transaction. Concurrently
with the consummation of such transaction, the person obligated to issue
securities or deliver cash or other assets upon conversion of this Note shall
execute and deliver to the Holder a supplemental Note so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided in this Section 2.6 The successor company
shall mail to the Holder a notice describing the supplemental Note.
If securities deliverable upon conversion of this Note, as
provided above, are themselves convertible into the securities of an affiliate
of a corporation formed, surviving or otherwise affected by the merger or other
transaction, that issuer shall join in the supplemental Note which shall so
provide. If this section applies, Section 2.5 does not apply.
2.7 (a) Sale of Common Stock Below the Conversion Price. If
after the date hereof, the Company shall (except as hereinafter provided), issue
any shares of Common Stock for a consideration less than the Conversion Price
then in effect, then the Conversion Price upon each such issuance shall be
adjusted to that price (calculated to the nearest one cent) determined by
multiplying the Conversion Price in effective immediately prior to such event by
a fraction:
(i) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock plus the number of shares of Common
Stock which the aggregate consideration for the total number of such additional
shares of Common Stock so issued would purchase at the then effective Conversion
Price, and
(ii) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock plus the number of such additional
shares of Common Stock so issued.
(b) Anything in this Section 2.7 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made in
connection with:
5
<PAGE>
(i) the grant, issuance or exercise of any
Common Stock pursuant to the Company's qualified or non-qualified employee stock
option plans or any other bona fide employee benefit plan or incentive
arrangement, adopted or approved by the Company's Board of Directors or approved
by the Company's shareholders, as they may be amended from time to time, or
under any other bona fide employee benefit plan hereafter adopted by the
Company's Board of Directors;
(ii) the grant, issuance or exercise of any
Common Stock in connection with the hire or retention of any officer, director
or key employee of the Company, provided such grant is approved by the Company's
Board of Directors;
(iii) the issuance of any shares of Common
Stock pursuant to the grant or exercise of convertible securities outstanding as
of the date hereof; or
(iv) shares issued, subdivided or combined
in transactions described in Section 2.5 if and to the extent that the number of
shares of Common Stock received upon conversion of this Note shall have been
previously adjusted pursuant to Section 2.5 as a result of such issuance,
subdivision or combination of such securities.
(c) For purposes of this Section 2.7, the following
provisions shall also be applied:
(i) In case of the issuance or sale of
additional shares of Common Stock for cash, the consideration received by the
Company therefor shall be deemed to be the amount of cash received by the
Company for such shares, before deducting therefrom any commissions,
compensation or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance or sale of such
shares.
(ii) In the case of the issuance of shares
of Common Stock for a consideration in whole or in part, other than cash, the
consideration other than cash shall be deemed to be the current market price
thereof as reasonably determined in good faith by the Board of Directors of the
Company (irrespective of accounting treatment thereof); provided, however, that
if such consideration consists of the cancellation of debt issued by the
Company, the consideration shall be deemed to be the amount the Company received
upon issuance of such debt (gross proceeds) plus accrued interest and, in the
case of original issue discount or zero coupon indebtedness, accrued value to
the date of such cancellation.
(iii) In case of the issuance of additional
shares of Common Stock upon the conversion or exchange of any obligations, the
amount of the consideration received by the Company for such Common Stock shall
be deemed to be the consideration received by the Company for such obligations
or shares so converted or exchanged, before deducting from such consideration so
received by the Company any expenses or commissions or compensation incurred or
paid by the Company for any underwriting of, or otherwise in connection with,
the issuance or sale of such obligations or shares, plus any consideration
received by the Company in connection with such conversion or exchange. If
obligations or
6
<PAGE>
shares of the same class or series of a class as the obligations or shares so
converted or exchanged have been originally issued for different amounts of
consideration, then the amount of consideration received by the Company upon the
original issuance of each of the obligations or shares so converted or exchanged
shall be deemed to be the average amount of the consideration received by the
Company upon the original issuance of all such obligations or shares.
(d) Anything in this Section 2.7 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least $0.15 in such
Conversion Price; provided, however, that any adjustments which by reason of
this subsection 2.7(d) are not required to be made shall be carried forward and
taken into account in making subsequent adjustments.
2.8 Notice to Holder. If, at any time while this Note is
outstanding, the Company shall pay any dividend payable in cash or in Common
Stock, shall offer to the holders of its Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights, shall
enter into an agreement to merge or consolidate with another corporation, shall
propose any capital reorganization or reclassification of the capital stock of
the Company, including any subdivision or combination of its outstanding shares
of Common Stock or there shall be contemplated a voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall cause
notice thereof to be mailed to the registered Holder of this Note at its address
appearing on the registration books of the Company, at least thirty (30) days
prior to the record date as of which holders of Common Stock shall participate
in such dividend, distribution or subscription or other rights or at least
thirty (30) days prior to the effective date of the merger, consolidation,
reorganization, reclassification or dissolution.
ARTICLE III
SUBORDINATION
3.1. Agreement to Subordinate. The Company agrees, and each
Holder by accepting this Note agrees, that the indebtedness evidenced by this
Note is subordinated in right of payment, to the extent and in the manner
provided in this Article III, to the prior payment in full of all Senior
Indebtedness, and that the subordination is for the benefit of the holders of
Senior Indebtedness (as defined below).
3.2 Company Not to Make Payment With Respect to Note in
Certain Circumstances.
(a) Upon the maturity of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all principal thereof and interest thereon
and any other amounts owing in respect thereof shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Indebtedness before any payment is made on account of the
principal or interest on this Note or to acquire this Note.
7
<PAGE>
(b) Upon the occurrence of an event of default (or if any
event of default would result upon any payment upon or with respect to this
Note) with respect to any Senior Indebtedness as such event of default is
defined therein or in the instrument under which it is outstanding, in payment
of the principal or interest on or any other amount owing in respect of such
Senior Indebtedness, (and, if the default is other than default in payment of
the principal or interest on or any other amount owing in respect of such Senior
Indebtedness, upon written notice thereof given to the Company by the holders of
Senior Indebtedness), then, unless (i) such an event of default shall have been
cured or waived or shall have ceased to exist or (ii) the Company receives
written notice from the holder of the Senior Indebtedness with respect to which
such event of default relates approving payment on this Note, no payment shall
be made by the Company with respect to the principal or interest on this Note or
to acquire this Note; provided that no such default will prevent any payment on,
or in respect of, this Note for more than 90 days unless the maturity of such
Senior Indebtedness has been accelerated. Not more than one such 90 day delay
may be made in any consecutive 360 day period, irrespective of the number of
defaults with respect to Senior Indebtedness during such period.
3.3 Senior Indebtedness. "Senior Indebtedness" means the
principal of, premium, if any, and interest, fees and costs under, the Loan and
Security Agreement dated February 26, 1999 by and between Summit
Commercial/Gibralter Corp. and Relm Communications, Inc., Relm Wireless
Corporation and RXD, Inc., as amended from time to time (the "Loan Agreement"),
and any documents or agreements executed in connection with the Loan Agreement
(such documents together with the Loan Agreement are hereinafter referred to as
the "Loan Documents"), and all increases, deferrals, replacements, extensions,
renewals, refundings, or refinancings thereof.
3.4 Payments Improperly Received. In the event that any
payment (including any pre-payment) on account of principal of or interest on
this Note shall be received by any Holder of this Note before all Senior
Indebtedness is paid in full, and at a time when the Company shall be prohibited
from making such payment(s) by Article III hereof, such payment(s) shall be held
in trust by such Holder for the benefit of and shall be paid over to the holder
of the Senior Indebtedness to the extent necessary to make payment in full of
the Senior Indebtedness (including, without limitation, principal, interest at
the applicable rate specified in the Loan Agreement, and any other sums due and
owing under the Loan Agreement or any of the other Loan Documents, whether or
not such sums are an allowable claim in any bankruptcy proceeding).
ARTICLE IV
MISCELLANEOUS
4.1 Default. If one or more of the following described events
(each of which being an "Event of Default" hereunder) shall occur and shall be
continuing,
(a) any of the representations, covenants, or warranties
made by the Company herein shall have been incorrect when made in any material
respect; or
8
<PAGE>
(b) the Company shall breach, fail to perform, or fail to
observe in any material respect any material covenant, term, provision,
condition, agreement or obligation of the Company under this Note (or any
security of the Company held by the Holder), and such breach or failure to
perform shall not be cured within thirty (30) days after written notice to the
Company; or
(c) a trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within thirty (30) calendar days after
such appointment; or
(d) any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within thirty (30) calendar days
thereafter; or
(e) bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, Company shall by any action or answer approve
of, consent to or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding
or such proceedings shall not be dismissed within thirty (30) calendar days
thereafter; or
(f) the Company shall have failed to pay interest within
five business days of when due hereunder and/or principal within three business
days of when due hereunder; in each case, after receipt of written notice of
such payment default; or
(g) the Company shall have failed to timely deliver shares
of Common Stock issuable upon conversion of this Note pursuant to the terms of
this Note;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) or cured as
provided herein, at the option of the Holder, and in the Holder's sole
discretion, the Holder may consider the entire principal amount of this Note
(and all interest through such date) immediately due and payable in cash,
without presentment, demand protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law (including but not limited to consequential damages if any). It is agreed
that in the event of such action, the Holder shall be entitled to receive all
reasonable fees, costs and expenses incurred, including without limitation such
reasonable fees and expenses of attorneys. Nothing contained herein shall limit
the rights of the Holder to collect liquidated damages as provided herein or in
any other agreement entered into between the Holder and the Company, or any
other damages that the Holder may otherwise be entitled to under the terms of
this Note.
9
<PAGE>
4.2 Collection Costs. In the event that this Note shall be
placed in the hands of an attorney for collection by reason of any Event of
Default hereunder, the undersigned agrees to pay reasonable attorney's fees and
disbursements and other reasonable expenses incurred by the Holder in connection
with the collection of this Note.
4.3 Rights Cumulative. The rights, powers and remedies given
to the Holder under this Note shall be in addition to all rights, powers and
remedies given to it by virtue of any document or instrument executed in
connection therewith, or any statute or rule of law.
4.4 No Waivers. Any forbearance, failure or delay by the Payee
in exercising any right, power or remedy under this Note, any documents or
instruments executed in connection therewith or otherwise available to the
Holder shall not be deemed to be a waiver of such right, power or remedy, nor
shall any single or partial exercise of any right, power or remedy preclude the
further exercise thereof.
4.5 Amendments in Writing. No modification or waiver of any
provision of this Note, or any documents or instruments executed in connection
therewith shall be effective unless it shall be in writing and signed by the
Holder, and any such modification or waiver shall apply only in the specific
instance for which given.
4.6 Governing Law. This Note and the rights and obligations of
the parties hereto, shall be governed, construed and interpreted according to
the laws of the State of New York, without giving effect to its conflicts of
laws rules wherein it was negotiated and executed, and the undersigned consents
and agrees that the State and Federal Courts which sit in the State of New York,
County of New York shall have exclusive jurisdiction of all controversies and
disputes arising hereunder.
4.7 No Counterclaims. The undersigned waives the right to
interpose counterclaims or set-offs of any kind and description in any
litigation arising hereunder and waives the right in any litigation with the
Payee (whether or not arising out of or relating to this Note) to trial by jury.
4.8 Successors. The term "Payee" and "Holder" as used herein
shall be deemed to include the Payee and its successors, endorsees and assigns.
4.9 Stamp Tax. The Company will pay any documentary stamp
taxes attributable to the initial issuance of the Common Stock issuable upon the
conversion of this Note; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for the Common Stock in
a name other than that of the Holder in respect of which such Common Stock is
issued, and in such case the Company shall not be required to issue or deliver
any certificate for the Common Stock until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
10
<PAGE>
4.10 Mutilated, Lost, Stolen or Destroyed Notes. In case this
Note shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Note, or in lieu of and substitution for the Note, mutilated, lost, stolen or
destroyed, a new Note of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and an indemnity, if requested, also
reasonably satisfactory to it.
4.11 No Rights as Shareholders. Nothing contained in this Note
shall be construed as conferring upon the Holder the right to vote or to receive
dividends (except as provided in Section 2.5 of this Note) or to consent or to
receive notice as a shareholder in respect of any meeting of shareholders for
the election of directors of the Company or of any other matter, or any rights
whatsoever as shareholders of the Company.
IN WITNESS WHEREOF, Relm Wireless Corporation has caused this
Note to be signed by its President and to be dated the day and year first above
written.
ATTEST [SEAL] RELM WIRELESS CORPORATION
________________________________ By:_________________________________
Name:
Title:
11
<PAGE>
ATTACHMENT I
Assignment
For value received, the undersigned hereby assigns to ______________
$________________ principal amount of the 8% Convertible Subordinated Promissory
Note due December 31, 2004 evidenced hereby and hereby irrevocably appoints
_______________ attorney to transfer the Note on the books of the within named
corporation with full power of substitution in the premises.
Dated:
In the presence of:
______________________________
<PAGE>
ATTACHMENT II
CONVERSION NOTICE
TO: RELM WIRELESS CORPORATION
The undersigned holder of this Note hereby irrevocably exercises
the option to convert $____________ principal amount of such Note (which may be
less than the stated principal amount thereof) into shares of Common Stock of
Relm Wireless Corporation, in accordance with the terms of such Note, and
directs that the shares of Common Stock issuable and deliverable upon such
conversion, together with a check (if applicable) in payment for any fractional
shares as provided in such Note, be issued and delivered to the undersigned
unless a different name has been indicated below. If shares of Common Stock are
to be issued in the name of a person other than the undersigned holder of such
Note, the undersigned will pay all transfer taxes payable with respect thereto.
____________________________________
Name and address of Holder
___________________________________
Signature of Holder
Principal amount of Note to be converted $
If shares are to be issued otherwise then to the holder:
Name of Transferee
Address of Transferee
____________________________________
____________________________________
____________________________________
Social Security Number of Transferee
____________________________________
Exhibit 10(e)
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is made
effective as of the ____ day of December, 1999, by and between RELM
COMMUNICATIONS, INC., RELM WIRELESS CORPORATION, RXD, INC. (jointly, severally
and collectively, "Borrower") and SUMMIT COMMERCIAL/GIBRALTAR CORP. ("Lender").
BACKGROUND
A. Pursuant to that certain Loan and Security Agreement dated February
26, 1999, by and between Borrower and Bank, Bank agreed to extend certain credit
facilities to Borrower.
B. Borrower and Bank have agreed to amend the Loan Agreement as
described herein.
C. All capitalized terms used herein and not separately defined shall
have the meanings provided for such terms in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. Definitions.
1.1 Borrowing Base. Section 1.5 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"1.5 "Borrowing Base" means (a) the sum of (i) an amount up to 85%
of the Eligible Receivables, plus (ii) the lesser of (A)
$3,750,000.00 or (B) the sum of (1) an amount up to 50% of the Value
of that portion of Eligible Inventory consisting of finished goods
and (2) an amount up to 20% of the Value of that portion of Eligible
Inventory consisting of raw materials, minus (b) the Letter of
Credit Reserve, minus (c) the sum of (i) a reserve in the amount of
One Hundred Thousand Dollars ($100,000.00), (ii) the Fort Orange
Note Reserve and (iii) the Mortgaged Property Reserve."
1.2 Fort Orange Note Reserve. The following definition is hereby
added to and made a part of Section 1 of the Loan Agreement as Section 1.27A
thereof:
"1.27A "Fort Orange Note Reserve" means, at all times after the sale
of the Fort Orange Note, an amount equal to Three Hundred Fifty
Thousand Dollars ($350,000.00)."
1.3 Mortgaged Property Reserve. The following definition is hereby
added to and made a part of Section 1 of the Loan Agreement as Section 1.41A
thereof:
"1.41A "Mortgaged Property Reserve" means, at all times after the
sale of the Mortgaged Property, an amount equal to Six Hundred Fifty
Thousand Dollars ($650,000.00)."
2. Sale of Fort Orange Note. Lender consents to the sale by Borrower of
the Fort Orange Note for an amount equal to One Million Two Hundred Fifty
Thousand Dollars ($1,250,000.00) (the "Note Sale Proceeds"). Borrower shall
cause the purchaser of the Fort Orange Note to pay the Note Sale Proceeds
directly to Lender. Lender shall apply the Note Sale Proceeds to reduce the
outstanding principal balance under the Line. Upon receipt by Lender in
immediately available funds of the Note Sale Proceeds, Lender shall deliver the
original Fort Orange Note to the purchaser thereof and shall release its
security interest therein.
<PAGE>
3. Sale of Mortgaged Property. Lender consents to the sale by Borrower
of the Mortgaged Property. Borrower represents and warrants that the proceeds of
the sale of the Mortgaged Property remaining after paying all indebtedness
secured by any mortgage liens encumbering the Mortgaged Property and all closing
costs in connection with the sale of the Mortgaged Property shall equal One
Million Two Hundred Thousand Dollars ($1,200,000.00) (the"Property Sale
Proceeds"). Borrower shall cause the purchaser of the Mortgaged Property to pay
the Property Sale Proceeds directly to Lender. Lender shall apply the Property
Sale Proceeds to reduce the outstanding principal balance under the Line.
4. Amendment Fee. On the date hereof, Borrower shall pay to Lender an
amendment fee equal to Ten Thousand Dollars ($10,000.00), which fee may be
charged to the Line.
5. Additional Documents; Further Assurances. Borrower shall execute and
deliver or cause to be executed and delivered to Lender any and all documents,
agreements, corporate resolutions, certificates and opinions as Lender shall
request in connection with the execution and delivery of this Amendment or any
documents in connection herewith, all of which shall be in form and content
acceptable to Lender in its sole discretion.
6. Further Agreements and Representations of Borrower. Borrower does
hereby:
(1) ratify, confirm and acknowledge that, as amended hereby,
the Loan Agreement and the other Loan Documents are valid, binding and in full
force and effect;
(2) covenant and agree to perform all of its obligations under
the Loan Agreement and the other Loan Documents, as amended;
(3) acknowledge and agree that as of the date hereof Borrower
has no defense, set-off, counterclaim or challenge against the payment of any
sums owing under the Lender Indebtedness or the enforcement of any of the terms
of the Loan Agreement or the other Loan Documents, as amended;
(4) acknowledge and agree that all representations and
warranties of Borrower contained in the Loan Agreement and/or the other Loan
Documents, as amended, are true, accurate and correct on and as of the date
hereof as if made on and as of the date hereof;
(5) represent and warrant that no Event of Default exists or
will exist upon the delivery of notice, passage of time or both, and all
information described in the foregoing Background is true and accurate; and
(6) acknowledge and agree that nothing contained herein and no
actions taken pursuant to the terms hereof is intended to constitute a novation
of the Loan Agreement or any of the other Loan Documents and does not constitute
a release, termination or waiver of any of the liens, security interests, rights
or remedies granted to the Bank therein, which liens, security interests, rights
and remedies are hereby ratified, confirmed, extended and continued as security
for the Bank Indebtedness.
7. Costs and Expenses. In addition to the fee set forth in Section 4
hereof, upon execution of this Amendment, Borrower shall pay to Lender all costs
and expenses incurred by Lender in connection with the review, preparation and
negotiation of this Amendment and all documents in connection therewith,
including, without limitation, all of Lender's attorneys' fees and costs.
8. Inconsistencies. To the extent of any inconsistency between the
terms, conditions and provisions of this Amendment and the terms, conditions and
provisions of the Loan Agreement or the other
2
<PAGE>
Loan Documents, the terms, conditions and provisions of this Amendment shall
prevail. All terms, conditions and provisions of the Loan Agreement and the
other Loan Documents not inconsistent herewith shall remain in full force and
effect.
9. Construction. All references to the Loan Agreement therein or in any
other Loan Documents shall be deemed to be a reference to the Loan Agreement as
amended hereby.
10. No Waiver. Nothing contained herein is intended to nor shall it
constitute a waiver by Lender of any rights and remedies available to it at law
or in equity or as provided in the Loan Agreement or in the Loan Documents.
11. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
12. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed the day and year first above written.
RELM COMMUNICATIONS, INC.
By: ____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RELM WIRELESS CORPORATION
By: ____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RXD, INC.
By: ____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By:___________________________________
Name/Title:___________________________
3
<PAGE>
The undersigned, intending to be legally bound hereby, acknowledge and
agree (a) to the terms of the foregoing Amendment; (b) that the foregoing
Amendment shall not in any way adversely affect or impair the obligations of the
undersigned to Lender under those certain Surety Agreements from the undersigned
to Lender, each dated February 26, 1999, or under any documents in connection
therewith or collateral thereto; and (c) that such Surety Agreement and all such
other documents are hereby ratified, confirmed and continued as of this ______
day of December, 1999.
EDGO PROPERTIES, INC.
By: ____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RELM COMMUNICATIONS OF FLORIDA, INC.
By: ____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
4
Exhibit 10(f)
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is
made effective as of the 10th day of March, 2000, by and between RELM
COMMUNICATIONS, INC., RELM WIRELESS CORPORATION ("Relm Wireless"), RXD, INC.
(jointly, severally and collectively, "Borrower") and SUMMIT
COMMERCIAL/GIBRALTAR CORP. ("Lender").
BACKGROUND
1. Pursuant to that certain Loan and Security Agreement dated February
26, 1999 by and between Borrower and Lender (as amended by that certain
Amendment to Loan and Security Agreement dated December 17, 1999 and as the same
may be amended, modified, supplemented or restated from time to time, the "Loan
Agreement"), Lender agreed to extend certain credit facilities to Borrower.
2. Pursuant to that certain letter agreement dated February 11, 2000
(the "Letter Agreement") by and between Relm Wireless and Lender, Lender
consented to the issuance by Relm Wireless of eight percent (8%) convertible
subordinated notes in an amount totaling Three Million Two Hundred Fifty
Thousand Dollars ($3,250,000.00) (the "Notes"). Funds realized from the sale of
the Notes will be used by Relm Wireless to fund the purchase of a land mobile
radio product line from Uniden America Corporation (the "Asset Purchase") and to
provide working capital.
3. Borrower and Lender have agreed to amend the Loan Agreement as
described herein.
4. All capitalized terms used herein and not separately defined shall
have the meanings provided for such terms in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. Consent to Issuance of Notes; Use of Debenture Sale Proceeds. Lender
hereby consents to the issuance of the Notes and agrees that issuance of the
Notes shall not constitute a violation of Section 7.3 of the Loan Agreement.
Borrower hereby covenants and agrees that the proceeds of the sale of the Notes
shall be applied by Borrower in the following amounts for the following
purposes:
(1) approximately Two Million Dollars ($2,000,000.00) shall be used
for the Asset Purchase; and
(2) approximately One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00) shall be used for working capital purposes.
2. Payment of Notes. Borrower covenants that, if a Default or an Event
of Default has occurred and is continuing under the Loan Agreement (or a Default
or Event of Default would result therefrom), Borrower shall not make any payment
under the Notes.
3. Consent to Asset Purchase. Lender hereby consents to the Asset
Purchase and agrees that the Asset Purchase shall not constitute a violation of
Section 7.7 of the Loan Agreement.
4. No Liabilities. Borrower represents and warrants that Borrower is
not incurring or assuming, either directly or indirectly, any debt or
liabilities in connection with the Asset Purchase other than the Notes and those
certain liabilities described in that certain Asset Purchase Agreement dated on
or about March 10, 2000 by and among Uniden America Corporation, Relm Wireless
Corporation and Simmonds Capital Limited (the "Asset Purchase Agreement").
Borrower hereby represents and warrants that the aggregate amount
<PAGE>
of warranty claims assumed by Borrower under the Asset Purchase Agreement (the
"Warranty Claims") will not exceed Three Hundred Fifty Thousand Dollars
($350,000.00). If the aggregate amount of Warranty Claims exceeds Three Hundred
Fifty Thousand Dollars ($350,000.00), such event shall constitute and Event of
Default under the Loan Agreement.
5. Financial Covenants. Effective December 31, 1999, Sections 8.1 and
8.2 of the Loan Agreement are hereby deleted in their entirety and replaced with
the following:
"8.1 Cash Flow Coverage Ratio. Borrower shall have a
Cash Flow Coverage Ratio as of the end of each fiscal
quarter of Borrower, measured on a cumulative year to
date basis, of not less than (a) .14 to 1.0 as of
December 31, 1999; (b) .91 to 1.0 as of June 30,
2000; and (c) 1.0 to 1.0 as of each fiscal quarter of
Borrower ending thereafter. There shall be no Cash
Flow Coverage Ratio requirement for Borrower for the
fiscal quarter ending March 31, 2000.
8.2 Tangible Net Worth. Borrower shall have a
Tangible Net Worth of not less than (a) Six Million
Two Hundred Thousand Dollars ($6,200,000.00) as of
December 31, 1999; (b) Five Million Six Hundred
Thousand Dollars ($5,600,000.00) as of each of March
31, 2000 and June 30, 2000; (c) Six Million Three
Hundred Thousand Dollars ($6,300,000.00) as of
September 30, 2000; and (d) Seven Million Dollars
($7,000,000.00) as of December 31, 2000 and as of the
end of each fiscal quarter of Borrower thereafter."
6. Letter Agreement. The Letter Agreement and the terms and conditions
thereof shall be deemed superseded and replaced by this Amendment and the Letter
Agreement shall hereafter be deemed null and void. All issues regarding the
issuance of the Notes (including, without limitation, any covenant breaches
resulting therefrom) shall be governed by this Agreement.
7. Amendment Fee. On the date hereof, Borrower shall pay to Lender an
amendment fee equal to Twelve Thousand Dollars ($12,000.00), which fee may be
charged to the Line.
8. Additional Documents; Further Assurances. Borrower shall execute and
deliver or cause to be executed and delivered to Lender any and all documents,
agreements, corporate resolutions, certificates and opinions as Lender shall
request in connection with the execution and delivery of this Amendment or any
documents in connection herewith, all of which shall be in form and content
acceptable to Lender in its sole discretion.
9. Further Agreements and Representations of Borrower. Borrower does
hereby:
(1) ratify, confirm and acknowledge that, as amended hereby, the
Loan Agreement and the other Loan Documents are valid, binding and in full force
and effect;
(2) covenant and agree to perform all of its obligations under the
Loan Agreement and the other Loan Documents, as amended;
2
<PAGE>
(3) acknowledge and agree that as of the date hereof Borrower has no
defense, set-off, counterclaim or challenge against the payment of any sums
owing under the Lender Indebtedness or the enforcement of any of the terms of
the Loan Agreement or the other Loan Documents, as amended; (1)
(4) acknowledge and agree that all representations and warranties of
Borrower contained in the Loan Agreement and/or the other Loan Documents, as
amended, are true, accurate and correct on and as of the date hereof as if made
on and as of the date hereof;
(5) represent and warrant that no Event of Default exists or will
exist upon the delivery of notice, passage of time or both, and all information
described in the foregoing Background is true and accurate; and
(6) acknowledge and agree that nothing contained herein and no
actions taken pursuant to the terms hereof is intended to constitute a novation
of the Loan Agreement or any of the other Loan Documents and does not constitute
a release, termination or waiver of any of the liens, security interests, rights
or remedies granted to the Lender therein, which liens, security interests,
rights and remedies are hereby ratified, confirmed, extended and continued as
security for the Lender Indebtedness.
10. Costs and Expenses. In addition to the fee set forth in Section 7
hereof, upon execution of this Amendment, Borrower shall pay to Lender all costs
and expenses incurred by Lender in connection with the review, preparation and
negotiation of this Amendment and all documents in connection therewith,
including, without limitation, all of Lender's attorneys' fees and costs.
11. Inconsistencies. To the extent of any inconsistency between the
terms, conditions and provisions of this Amendment and the terms, conditions and
provisions of the Loan Agreement or the other Loan Documents, the terms,
conditions and provisions of this Amendment shall prevail. All terms, conditions
and provisions of the Loan Agreement and the other Loan Documents not
inconsistent herewith shall remain in full force and effect.
12. Construction. All references to the Loan Agreement therein or in
any other Loan Documents shall be deemed to be a reference to the Loan Agreement
as amended hereby.
13. No Waiver. Nothing contained herein is intended to nor shall it
constitute a waiver by Lender of any rights and remedies available to it at law
or in equity or as provided in the Loan Agreement or in the Loan Documents.
14. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
15. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed the day and year first above written.
RELM COMMUNICATIONS, INC.
By:_____________________________________
William P. Kelly, Vice President/CFO
3
<PAGE>
(CORPORATE SEAL)
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
(SIGNATURES CONTINUED FROM PREVIOUS PAGE)
RELM WIRELESS CORPORATION
By:____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RXD, INC.
By:____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By:____________________________________
Name/Title:____________________________
The undersigned, intending to be legally bound hereby, acknowledge and
agree (a) to the terms of the foregoing Amendment; (b) that the foregoing
Amendment shall not in any way adversely affect or impair the obligations of the
undersigned to Lender under those certain Surety Agreements from the undersigned
to Lender, each dated February 26, 1999, or under any documents in connection
therewith or collateral thereto; and (c) that such Surety Agreement and all such
other documents are hereby ratified, confirmed and continued as of this 10th day
of March, 2000.
EDGO PROPERTIES, INC.
By:____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
RELM COMMUNICATIONS OF FLORIDA, INC.
By:____________________________________
William P. Kelly, Vice President/CFO
(CORPORATE SEAL)
4
Exhibit 10(G)
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is
made effective as of the 24th day of March, 2000, by and between RELM
COMMUNICATIONS, INC., RELM WIRELESS CORPORATION, RXD, INC. (jointly, severally
and collectively, "Borrower") and SUMMIT COMMERCIAL/GIBRALTAR CORP. ("Lender").
BACKGROUND
A. Pursuant to that certain Loan and Security Agreement dated February
26, 1999, by and between Borrower and Lender (as amended and as the same may be
amended from time to time the "Loan Agreement"), Lender agreed to extend certain
credit facilities to Borrower.
B. Borrower and Lender have agreed to amend the Loan Agreement as
described herein.
C. All capitalized terms used herein and not separate defined shall
have the meanings provided for such terms in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. Amendments. Contingent upon the sale of the Mortgaged Property, (i)
Section 5.3 of the Loan Agreement is deleted, and (ii) Lender releases Lender's
security interest in and to the plans and specifications for the improvements
located on the Mortgaged Property; warranties, applications, permits, approvals
and licenses related to the ownership or maintenance of the Mortgaged Property;
insurance proceeds and condemnation awards or claims related to the Mortgaged
Property; and all books and records relating to the Mortgaged Property.
2. Additional Documents: Further Assurances. Borrower shall execute and
deliver or cause to be executed and delivered to Lender any and all documents,
agreements, corporate resolutions, certificates and opinions as Lender shall
request in connection with the execution and delivery of this Amendment or any
documents in connection herewith, all of which shall be in form and content
acceptable to Lender in its sole discretion.
3. Further Agreements and Representations of Borrower. Borrower does
hereby:
<PAGE>
(a) ratify, confirm and acknowledge that, as amended hereby, the
Loan Agreement and the other Loan Documents are valid, binding
and in full force and effect.
(b) covenant and agree to perform all of its obligations under the
Loan Agreement and the other Loan Documents, as amended;
(c) acknowledge and agree that as of the date hereof Borrower has no
defense, set-off, counterclaim or challenge against the payment
of any sums owing under the Lender indebtedness or the
enforcement of any of the terms of the Loan Agreement or the
other Loan Documents, as amended;
(d) acknowledge and agree that all representations and warranties of
Borrower contained in the Loan Agreement and/or the other Loan
Documents, as amended, are true, accurate and correct on and as
of the date hereof as if made on and as of the date hereof.
(e) Represent and warrant that no Event of Default exists or will
exist upon the delivery of notice, passage of time or both, and
all information described in the foregoing background is true
and accurate; and
(f) Acknowledge and agree that nothing contained herein and no
actions taken pursuant to the terms hereof is intended to
constitute a novation of the Loan Agreement or any of the other
Loan Documents and, except as provided in Section 1 hereof, does
not constitute a release, termination or waiver of any of the
liens, security interests, rights or remedies granted to the
Lender therein, which liens, security interests, rights and
remedies are hereby ratified, confirmed, extended and continued
as security for the Lender Indebtedness.
4. Costs and Expenses. Upon execution of this Amendment, Borrower shall
pay to Lender all cost and expenses incurred by Lender in connection with the
review, preparation and negotiation of this Amendment and all documents in
connection therewith, including, without limitation, all of Lender's attorneys'
fees and costs.
5. Inconsistencies. To the extent of any inconsistency between the
terms, conditions and provisions of this Amendment and the terms, conditions and
provisions of the Loan Agreement or the other Loan Documents, the terms,
conditions and provisions of this Amendment shall prevail. All terms, conditions
2
<PAGE>
and provisions of the Loan Agreement and the other Loan Documents not
inconsistent herewith shall remain in full force and effect.
6. Construction. All references to the Loan Agreement therein or in any
other Loan Documents shall be deemed to be a reference to the Loan Agreement as
amended hereby.
7. No Waiver. Nothing contained herein is intended to nor shall it
constitute a waiver by Lender of any rights and remedies available to it at law
or in equity or as provided in the Loan Agreement or in the Loan Documents.
8. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
9. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed the day and year first above written.
RELM COMMUNICATIONS, INC.
By:____________________________________
William P. Kelly
Vice President/CFO
(CORPORATE SEAL)
RELM WIRELESS CORPORATION
By:____________________________________
William P. Kelly
Vice President/CFO
(CORPORATE SEAL)
3
<PAGE>
RXD, INC.
By:____________________________________
William P. Kelly
Vice President/CFO
(CORPORATE SEAL)
SUMMIT COMMERCIAL/
GIBRALTAR CORP.
By:____________________________________
Name: _________________________________
Title: ________________________________
(CORPORATE SEAL)
4
<PAGE>
The undersigned, intending to be legally bound hereby, acknowledge and
agree (a) to the terms of the foregoing Amendment; (b) that the foregoing
Amendment shall not in any way adversely affect or impair the obligations of the
undersigned to Lender under those certain Surety Agreements from the undersigned
to Lender, each dated February 26, 1999, or under any documents in connection
therewith or collateral thereto; and (c) that such Surety Agreement and all such
other documents are hereby ratified, confirmed and continued as of this 24th day
of March, 2000.
REDGO PROPERTIES, INC.
By:____________________________________
William P. Kelly
Vice President/CFO
(CORPORATE SEAL)
RELM COMMUNICATIONS OF FLORIDA, INC.
By:____________________________________
William P. Kelly
Vice President/CFO
(CORPORATE SEAL)
5
Exhibit 10(h)
March 23, 2000
Richard K. Laird
Relm Wireless Corporation
7505 Technology Drive
West Melbourne, FL 32904
Dear Richard:
This letter will confirm the mutual intent of RELM Wireless Corp ("RELM") and
Simmonds Capital Limited ("SCL") regarding the matters set forth herein. This
letter supersedes all prior agreements and understandings, whether written or
oral, between the parties hereto.
1. Advisory Services The parties hereto acknowledge that for the period
commencing on December 14, 1999 and ending on March 31, 2000, SCL has provided
strategic consulting and advisory services to RELM in connection with RELM's
analysis and pursuit of opportunities to expand its land mobile radio business.
a. Consulting Fees. As compensation for such services, subject to RELM
stockholder approval, RELM agrees to issue to SCL
i. 50,000 shares of common stock, $.60 par value per share, of RELM
(the "Common Stock"); and
ii. warrants to purchase 300,000 shares of Common Stock, which warrants
shall be issued in three installments, the first of such installments
to be issued as soon as practicable after the receipt by RELM of
stockholder approval of the warrant issuance, and the second and third
of such installments to be issued on first and second monthly
anniversaries of the issuance date of the first installment. The
warrants shall have a three year term and an exercise price of $3.25
per share and shall otherwise have terms which are mutually agreeable
to RELM and SCL; and
b. Consulting Expenses. RELM also agrees to reimburse SCL for expenses
incurred in connection with these advisory services in an amount not to exceed
$25,000 payable upon submission of valid receipts.
2. Uniden Asset Acquisition. The parties hereto acknowledge that SCL negotiated
the letter agreement with Uniden America Corporation for the purchase of the
Uniden PRC division, and SCL paid to Uniden a deposit on the purchase of the
assets in the amount of $500,000, which deposit was credited towards the
purchase price of the assets.
a. Reimbursement of Deposit. SCL will be reimbursed for such deposit by
RELM as follows
<PAGE>
Richard K. Laird
March 23, 2000
Page 2
i. $300,000 in cash to be paid by RELM upon closing of Uniden Asset
Purchase.
ii. $200,000 in the form of $200,000 aggregate principal amount of 8%
Convertible Subordinated Notes due December 31, 2004 which were issued
to SCL on March 16, 2000.
b. Reimbursement of Expenses. RELM will reimburse SCL for $300,000 of
expenses incurred by SCL in connection with the negotiation of (and related due
diligence regarding) the Uniden letter agreement as follows:
i. $137,500 in cash to be paid by RELM by March 31, 2000.
ii. subject to stockholder approval, 50,000 shares of Common Stock.
c. Finder's Fee. Subject to stockholder approval, RELM will issue
100,000 shares of Common Stock to SCL as a finder's fee in connection with the
Uniden acquisition.
3. Midland International Assets. The parties hereto agree that they will
negotiate definitive agreements pursuant to which RELM will agree to purchase
all of Midland tooling, inventory and intellectual property rights owned by SCL
in exchange for 300,000 shares of Common Stock. The parties acknowledge that the
consummation of this transaction is subject to (i) negotiation and execution of
definitive agreements and (ii) stockholder approval. In connection with this
acquisition, SCL will agree to provide assistance to RELM in the development of
an OEM manufacturing relationship with Hitachi Denshi for the production of land
mobile radio products.
4. Canadian Distribution Rights. The parties hereto agree that they will
negotiate an agreement with mutually agreeable terms whereby SCL or its designee
will act as the Canadian distributor for RELM land mobile radio products. SCL to
receive $100,000 of Uniden product at RELM's cost.
5. Stockholder Approval. SCL expressly acknowledges and agrees that all grants
of Common Stock and warrants provided for in this letter are conditioned upon
RELM's obtaining prior approval of the stockholders of RELM of such grants. RELM
agrees that it shall seek stockholder approval as soon as practicable, but in no
event sooner than RELM's 2000 Annual Meeting of Stockholders. Any common stock
not approved by stockholders, with respect to sections 1,2, and 5 will be paid
in cash equivalent.
The parties hereto acknowledge and agree that the provision of Section 1, 2 and
5 shall be binding agreements of the parties hereto, and that the provisions of
Section 3 and 4 are non-binding provisions which reflect the intentions of the
parties and are subject to the execution by the parties of definitive
agreements.
<PAGE>
Richard K. Laird
March 23, 2000
Page 3
Sincerely,
Simmonds Capital Limited
_______________________________
By:____________________________
Its:___________________________
Acknowledged and agreed on this
__ day of March, 2000
Relm Wireless Corporation
_______________________________
By:____________________________
Its:___________________________
Exhibit 10(j)
SUBLEASE
BY AND BETWEEN
Johnson Matthey Electronic Assembly Services, Inc.,
a Florida corporation,
SUBLESSOR
AND
RELM WIRELESS CORPORATION,
a Nevada corporation
SUBLESSEE
DATED March 24, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Provisions.....................................................................................1
2. Premises.......................................................................................1
3. Term...........................................................................................1
4. Minimum Rent, Payment of Minimum Rent, Additional Rent, Net Sublease and Security Deposit......1
(a) Minimum Rent...........................................................................1
(b) Payment of Minimum Rent................................................................2
(c) Additional Rent........................................................................2
(d) Net Sublease...........................................................................2
(e) Security Deposit.......................................................................3
5. Use and Compliance With Law....................................................................3
(a) Use....................................................................................3
(b) Compliance With Law....................................................................3
6. Incorporation of Master Lease..................................................................3
7. Brokers........................................................................................4
8. Care of the Premises...........................................................................4
9. Condition of the Premises......................................................................4
10. Obligations of Sublessee Under the Master Lease................................................5
11. Insurance......................................................................................5
12. Indemnification................................................................................5
(a) Sublessee Indemnification..............................................................5
(b) Sublessor Indemnification..............................................................6
13. Sublease and Assignment by Sublessee...........................................................6
14. Sale and Assignment by Sublessor...............................................................6
15. Damage, Destruction or Condemnation............................................................6
16. Sublessee Alterations..........................................................................7
17. Sublessor Alterations..........................................................................7
18. Holding Over...................................................................................8
19. Entry by Sublessor.............................................................................8
20. Master Lease...................................................................................8
21. Limitation of Liability........................................................................8
22. Waiver.........................................................................................9
23. Successors and Assigns.........................................................................9
24. Captions.......................................................................................9
25. Relationship of Parties........................................................................9
26. Defined Terms..................................................................................9
27. Notices........................................................................................9
28. Signage........................................................................................10
29. Environmental Matters..........................................................................10
(a) Environmental Laws.....................................................................10
(b) Hazardous Substances...................................................................10
(c) Use of Hazardous Substances............................................................10
(d) Radon..................................................................................10
30. Counterparts/Facsimile Signature...............................................................12
31. Quiet Enjoyment................................................................................12
32. Attorneys' Fees................................................................................12
33. Jurisdiction and Venue.........................................................................12
</TABLE>
<PAGE>
Exhibits
- --------
A - Master Lease
B - Sublessee Improvements
C - Sublessor Environmental Matters
<PAGE>
SUBLEASE
This Sublease is made and entered into as of this 24th day of March,
2000, by and between Johnson Matthey Electronic Assembly Services, Inc., a
Florida corporation ("Sublessor") and Relm Wireless Corporation, a Nevada
corporation ("Sublessee"), as a Sublease under the Lease dated April 23, 1991,
by and between American Equities Limited, No. 4 as Landlord ("Master Landlord")
and Targ-It-Tronics, Inc. as Tenant (Johnson-Matthey Electronic Assembly
Services, Inc. being the successor to Targ-It-Tronics, Inc.), as amended by
Addendum to Lease [undated but notarized April 23, 1991, Addendum to Lease dated
January 9, 1992, First Amendment to Lease dated January __, 1992, Second
Amendment to Lease dated October 1, 1993, Third Amendment to Lease dated
September __, 1994, Fourth Amendment to Lease [dated by Landlord 10/21/98], and
Fifth Amendment to Lease [undated] (collectively, the "Master Lease"). A copy of
the Master Lease is attached hereto as Exhibit A and incorporated herein by
reference.
WITNESSETH, that the parties hereto agree as follows:
1. Provisions. This Sublease is subject to all of the terms, covenants
or conditions of the Master Lease (except as provided in Section 6
hereof) and Sublessee shall assume and perform all of the obligations of
Sublessor as Tenant in said Master Lease to the extent said terms, covenants or
conditions are applicable to the Premises (as defined in Section 2 hereof)
subleased hereunder. Sublessee shall not commit or permit to be committed any
act or omission which shall violate any term, covenant or condition of the
Master Lease or cause Sublessor to be in default under the Master Lease.
2. Premises. Subject to all terms, covenants and conditions hereof,
Sublessor does hereby sublease to Sublessee and Sublessee hereby agrees to
sublease from Sublessor the "Premises" (as defined pursuant to the Master Lease)
located in the "Building" (as defined pursuant to the Master Lease) and located
at 7100 Technology Drive, West Melbourne, Florida. The Premises contain
approximately 54,000 square feet.
3. Term. The term ("Term") of this Sublease shall commence on March 24,
2000 ("Commencement Date") and shall expire on June 30, 2005 ("Expiration
Date"), unless sooner terminated pursuant to any provision hereof.
4. Minimum Rent, Payment of Minimum Rent, Additional Rent, Net Sublease
and Security Deposit.
(a) Minimum Rent Subject to any escalation which may be
provided for in the Master Lease, Sublessee shall pay, for each
calendar month of the Term, net minimum monthly rent ("Minimum Rent")
in the amount of Twenty-three
<PAGE>
Thousand Three Hundred Eighteen and 26/100 Dollars ($23,318.26) per month during
the Term.
(b) Payment of Minimum Rent. Minimum Rent shall be payable in
advance on or before the first day of each calendar month of the Term
of this Sublease, without deduction, offset, prior notice or demand, in
lawful money of the United States. Minimum Rent for any period during
the Term hereof which is for less than one month shall be prorated. The
Minimum Rent for the first month (or fractional month) of the Term
hereof, shall be due and payable upon execution of this Sublease.
Minimum Rent shall be paid directly to Master Landlord at American
Equities Ltd, No. 4, 1717 North Bayshore Drive, Suite 208, Miami,
Florida 33132, or at such place as Master Landlord may from time to
time designate in writing. Sublessee shall pay all applicable Florida
sales tax with respect to Minimum Rent.
(c) Additional Rent. All amounts which Sublessee is required
to pay or discharge pursuant to this Sublease (in addition to Minimum
Rent), together with any interest or penalty which may be added for
late payment thereof, shall constitute additional rent hereunder
("Additional Rent"). Sublessee shall pay all applicable Florida sales
tax with respect to Additional Rent. In the event of any failure by
Sublessee to pay or discharge any such amount, Sublessor shall have all
rights, powers and remedies provided for herein or by law or otherwise
in the case of nonpayment of Minimum Rent. Any Additional Rent payments
due pursuant to the terms, covenants and conditions of the Master Lease
shall be paid pursuant to the terms, covenants and conditions of the
Master Lease. In the event Sublessor receives any demand for payment of
Additional Rent, Sublessee shall remit payment to Sublessor within ten
(10) days of receipt of invoice by Sublessee from Sublessor.
The amount of Additional Rent payable to the Master Landlord
as of the Commencement Date is Four Thousand Seven Hundred Twenty-five
and No/100 Dollars ($4,725.00) which Sublessee shall pay to Master
Landlord in conjunction with Sublessee's monthly Minimum Rent payment.
In addition, as of the Commencement Date, Florida sales tax payable to
the Master Landlord in conjunction with Sublessee's payment of monthly
Minimum Rent and Additional Rent is One Thousand Six Hundred Eighty-two
and 59/100 Dollars ($1,682.59).
(d) Net Sublease. This Sublease is a "net sublease" and
Sublessee's obligations to pay all Minimum Rent and Additional Rent
shall be absolute and unconditional, and Sublessee shall pay all
Minimum Rent and Additional Rent required to be made by Sublessee
without notice or demand and without abatement, offset or deduction
whatsoever. All costs, expenses and obligations of every kind and
nature whatsoever relating to the Premises and the appurtenances
thereto and the use and occupancy thereof which may arise or become due
and payable with respect to the period constituting the Term hereof
(whether or not the
2
<PAGE>
same shall become payable during such Term or thereafter) shall be paid
by Sublessee. Minimum Rent and Additional Rent for the month of March
2000 shall be prorated between Sublessor and Sublessee as of the
Commencement Date. Hence, Sublessee shall tender to Sublessor the sum
of Seven Thousand Three Hundred Eighty-Six and 10/100 Dollars
($7,386.10) for the period March 24, 2000 through March 31, 2000.
(e) Security Deposit. Receipt of Twenty-eight Thousand Six
Hundred Twenty-one and 11/100 Dollars ($28,621.11) is hereby
acknowledged as non-interest bearing security for performance under
this Sublease by Sublessee. In the event Sublessee has performed all of
the terms, covenants and conditions of this Sublease throughout the
Term, Sublessor shall, within thirty (30) days after Sublessee vacates
the Premises, return to Sublessee the amount paid as a security deposit
after first deducting any sums owing to Sublessor.
5. Use and Compliance With Law.
(a) Use. Sublessee shall use the Premises only for those uses
which are normal and customary for businesses in the technology,
electronics, communications, or telecommunications industries.
Sublessee shall not (i) permit any waste upon or do any damage to the
Premises, (ii) use or permit the use of the Premises for any unlawful
purpose, or (iii) permit any rubbish, refuse or garbage to accumulate
or create a fire hazard in, on or about the Premises. If, as a result
of Sublessee's use and occupancy of the Premises, Sublessor's costs and
expenses associated with the Premises or Master Lease are increased in
any manner whatsoever, Sublessee shall be responsible for one hundred
percent (100%) of such additional cost to Sublessor. In such event,
Sublessor shall deliver to Sublessee a statement identifying
Sublessee's activity which resulted in such increased cost and
Sublessee shall reimburse Sublessor for such increased cost within ten
(10) days of receipt of such statement.
(b) Compliance With Law. Sublessee, at Sublessee's sole cost
and expense, shall comply with any covenants or restrictions of record,
or any applicable building codes, laws, ordinances, orders, rules and
regulations whether state, federal, municipal or promulgated by other
agencies or bodies having jurisdiction over the Premises or the
Building of which the Premises are a part including, without
limitation, the Americans With Disabilities Act ("ADA"), Environmental
Laws (as hereinafter defined) and obtaining any and licenses, permits,
certificates of occupancy or similar such requirements necessary or
applicable to Sublessee or Sublessee's use or occupancy of the Premises
(collectively, "Legal Requirements").
6. Incorporation of Master Lease. The terms, covenants and conditions
of the Master Lease are, except as otherwise herein specifically provided,
hereby incorporated in this Sublease with the same effect as if entirely
rewritten herein, and shall
3
<PAGE>
fix the rights and obligations of the parties hereto with respect to the
Premises with the same effect as if Sublessor and Sublessee were, respectively,
the landlord and tenant named in the Master Lease. Sublessee hereby covenants to
perform the covenants and undertakings of Sublessee as tenant under the Master
Lease, and agrees not to do or permit to be done any act which shall result in a
violation of any of the terms, covenants and conditions of said Master Lease.
Except as otherwise specifically provided herein, Sublessee is to have the
benefit of the covenants and undertakings of Master Landlord in the Master
Lease. It is expressly understood and agreed, however, that Sublessor is not in
the position to render any of the services or to perform any of the obligations
required of Sublessor by the terms of this Sublease, and that performance by
Sublessor of its obligations hereunder are conditioned upon due performance by
Master Landlord of its corresponding obligations under the Master Lease. It is
further understood and agreed, therefore, that notwithstanding anything to the
contrary contained in this Sublease, Sublessor shall not be in default under
this Sublease for failure to render such services or perform such obligations
required of Sublessor by the terms of this Sublease which are the responsibility
of the Master Landlord under the Master Lease, but Sublessor (upon reasonable
advance written notice from Sublessee) agrees to take all reasonable measures to
cause Master Landlord to provide said services and perform said obligations. The
term "reasonable measures" shall not include legal action against Master
Landlord for its failure to so perform unless Sublessee agrees to pay all costs
and expenses in connection therewith.
7. Brokers and Related Parties. Each party represents that it has not
had dealings with any real estate broker, finder or other person with respect to
this Sublease in any manner. Each party shall hold the other party harmless, and
Sublessee and Sublessor shall hold Master Landlord harmless, from all damages
resulting from any claims that may be asserted against the other party by Sutton
Properties, Fred Sutton, Harold Sutton, any broker, finder or other person with
whom the indemnifying party has or purportedly has dealt.
8. Care of the Premises. Sublessee agrees that Sublessee will take good
care of the Premises, and will commit no waste, and will not do, suffer or
permit to be done any injury to the same. If any maintenance or repairs in, on
or about the Premises or Building are caused in part or in whole by the act,
neglect, fault or omission of Sublessee, its agents, employees or invitees,
Sublessee shall undertake such maintenance or repairs or shall pay to Sublessor
the cost of such maintenance and repairs and Sublessor shall undertake such
maintenance and repairs. Further, any damage to the Premises or Building done by
Sublessee or Sublessee's agents (i) in taking in or removing Sublessee's
personal property from the Premises, or (ii) in bringing in building materials
or removing construction debris during construction of alterations and/or other
improvements, shall be repaired by Sublessee, at Sublessee's sole cost and
expense.
9. Condition of the Premises. Except with respect to Sublessor's
Obligations (as hereinafter defined), Sublessee shall accept the Premises in an
"AS IS WITH ALL FAULTS" condition and hereby acknowledges that the Premises are
in good
4
<PAGE>
condition and satisfactory in all respects for Sublessee's occupancy. Sublessor
shall have no construction or improvement obligations with respect to the
Premises. Sublessee further acknowledges and agrees (a) that Sublessor makes no
representation or warranty whatsoever as to the condition of the Premises
including, without limitation, whether or not the Premises is in compliance with
Legal Requirements, and (b) that Sublessor shall not be required to comply with
the provisions of the ADA as such arises from or extends to the use or occupancy
of the Premises, or any portion thereof, by Sublessee. All costs, expenses and
disbursements of every kind and nature resulting from, relating to, or arising
out of ADA compliance as a result of Sublessee's use and occupancy of the
Premises shall be at Sublessee's sole cost and expense.
10. Obligations of Sublessee Under Master Lease. It is hereby
understood and agreed that Sublessee's right to use, possess and enjoy the
Premises are subject to the terms, covenants or conditions of the Master Lease
and the rights and remedies of Master Landlord thereunder.
11. Insurance. Sublessee agrees, during the Term hereof, to carry and
maintain insurance in accordance with Paragraph 6.1 of the Master Lease, naming
Sublessor, Master Landlord and Master Landlord's agent as additional insureds.
Notwithstanding liability limits, said limits shall not diminish or otherwise
impact or affect Sublessee's obligations hereunder. If annual premiums paid by
Master Landlord or Sublessor for fire and extended coverage insurance at the
Building shall exceed standard rates because of Sublessee's operations, the
contents of the Premises, or improvements or alterations made by Sublessee with
respect to the Premises result in extra-hazardous exposure, Sublessee shall
promptly pay the excess amount of the premium upon demand of Sublessor.
Sublessee shall deposit certificate(s) evidencing said insurance with Sublessor
on or before the Commencement Date.
12. Indemnification.
(a) Sublessee Indemnification. Sublessee agrees to indemnify Sublessor
and Master Landlord, their partners, officers, directors, employees, lenders,
successors and assigns against, and to hold Sublessor and Master Landlord, their
partners, officers, directors, employees, lenders, successors and assigns
harmless from, any and all claims, obligations, liabilities, demands, damages,
judgments, costs or expenses of any kind or nature, including court costs and
reasonable attorney's fees, arising out of, resulting from and/or relating to
(i) the use or occupancy of the Premises by Sublessee, its agents, employees,
invitees or contractors, (ii) any failure by Sublessee to perform, keep and obey
the terms, covenants or conditions of the Master Lease, (iii) any failure by
Sublessee to perform, keep and obey the terms, covenants or conditions of this
Sublease, (iv) any act, omission, accident, incident or occurrence on, in or
about the Premises during the Term hereof resulting from the use or occupancy of
the Premises by Sublessee, its agents, employees, invitees or contractors, (v)
Sublessee's causing or permitting any Hazardous Substances (as hereinafter
defined) to be installed, used, generated, stored, treated, transported,
released, discharged or disposed of in, on, under, from or about the Premises.
5
<PAGE>
Sublessee's obligations hereunder shall survive the expiration or earlier
termination of this Sublease; provided, however, that Sublessee's obligations
pursuant to this Paragraph 12(a) and Sublessee's representations and warranties
contained in Paragraph 29(c) hereof shall terminate and be of no further force
and effect, and Sublessor may make no claim for indemnification pursuant to this
Paragraph 12(a), (x) after the first anniversary of the expiration or earlier
termination of this Sublease with respect to obligations and claims arising
pursuant to subparagraphs 12(a)(i)-(iv) hereof, and (y) after the seventh
anniversary of the expiration or earlier termination of this Sublease with
respect to obligations and claims arising pursuant to subparagraph 12(a)(v) or
Paragraph 29(c) hereof.
(b) Sublessor Indemnification. Except as otherwise provided pursuant to
paragraph 29 hereof, Sublessor agrees to indemnify Sublessee, their partners,
officers, directors, employees, lenders, successors and assigns against, and to
hold Sublessee, their partners, officers, directors, employees, lenders,
successors and assigns harmless from, any and all claims, obligations,
liabilities, demands, damages, judgments, costs or expenses of any kind or
nature, including court costs and reasonable attorney's fees, arising out of,
resulting from and/or relating to (i) any failure by Sublessor, as tenant under
the Master Lease, to perform, keep and obey the terms, covenants and conditions
of the Master Lease prior to the Commencement Date of this Sublease, or (ii) any
inaccuracy of any representation or warranty contained in Section 29(e) of this
Sublease. Sublessor's obligations pursuant to this Paragraph 12(b) and
Sublessor's representations and warranties contained in Paragraph 29(e) hereof
shall survive for the periods specified in Section 7.1(c) of the Transaction
Agreement signed on even date herewith by Sublessor and Sublessor.
13. Sublease and Assignment by Sublessee. In addition to any
prohibitions contained in the Master Lease, it is mutually agreed that Sublessee
may not assign this Sublease, sublease any portion of the Premises or otherwise
"Transfer" (as defined pursuant to paragraph 8.1 of the Master Lease) this
Sublease. In the event Sublessee requests Sublessor's consent to an assignment
and/or sublease, Sublessor hereby agrees that Sublessor shall not unreasonably
withhold Sublessor's consent.
14. Sale and Assignment by Sublessor. Sublessor may sell, assign,
convey or otherwise transfer its interest in the Premises and this Sublease at
any time, without notice to or the consent of Sublessee, and that upon the
occurrence of any such sale, assignment, conveyance or other transfer, Sublessor
shall have no further obligation or liability whatsoever hereunder, except to
transfer the security deposit held by Sublessor to Sublessor's successor or
assign hereunder.
15. Damage, Destruction or Condemnation. In the event of damage or
destruction of the Premises or the taking of all or any part thereof under the
power of eminent domain, this Sublease shall terminate if, but only if, the
Master Lease is terminated as a result thereof, and the Minimum Rent and
Additional Rent payable hereunder shall abate only as long as and in the same
proportion as the rent due from
6
<PAGE>
Sublessor to Master Landlord abates as a result thereof. Sublessee shall other
comply with Sublessor's obligations as Tenant under paragraph 7.1 of the Master
Lease.
16. Sublessee Alterations. Sublessee shall make no alterations,
additions or improvements in, on or about the Premises, without the prior
written consent of both Sublessor and Master Landlord. Prior to commencing any
such alterations, additions or improvements, Sublessee shall provide such
assurances to Sublessor and Master Landlord including, without limitation,
waivers of lien, surety company performance and payment bonds, and personal
guarantees of persons of substance, as Sublessor or Master Landlord shall
require to assure payment of the costs thereof and to protect Sublessor and
Master Landlord against any loss from mechanics', laborers', materialmen's or
other liens.
Attached hereto and made a part hereof as Exhibit B is a detailed
description of the Sublessee Improvements which Sublessee wishes to make to the
Premises. Subject to Sublessee obtaining the Master Landlord's prior written
consent to Sublessee's installing and constructing said Sublessee Improvements,
Sublessor consents to Sublessee installing and constructing said Sublessee
Improvements. Notwithstanding the foregoing, Sublessor shall have no liability
whatsoever with respect to said Sublessee Improvements including, without
limitation, removal and/or restoration of said Sublessee Improvements from the
Premises upon Sublease expiration. Sublessee shall obtain Master Landlord's
acknowledgement and agreement that said Sublessee Improvements may remain a part
of the Premises upon Sublease expiration or, if such acknowledgement and
agreement is not obtained, Sublessee shall be responsible for removal and/or
restoration of said Sublessee Improvements. In addition, Sublessor's approval
shall not be a representation or warranty of Sublessor, and shall create no
responsibility or liability on the part of the Sublessor, with respect to the
adequacy of the Sublessee Improvements for any use, purpose or condition, their
completeness, design sufficiency, or compliance with any laws, rules or
regulations of governmental agencies or authorities, but shall merely be the
acknowledgement by Sublessor that Sublessee wishes to install and construct said
Sublessee Improvements. Sublessor agrees to tender to Sublessee the sum of One
Hundred Thousand and No/100 Dollars ($100,000.00) with respect to Sublessee's
installation and construction of said Sublessee Improvements and shall tender
said payment to Sublessee on the Commencement Date.
17. Sublessor Alterations. Sublessor reserves the right to make
alterations to the Premises as and if required by the terms, covenants or
conditions of the Master Lease or by any governmental authority in connection
with the use and occupancy of the Premises by Sublessor and any subtenants of
Sublessor.
Sublessor and Sublessee hereby acknowledge and agree that Sublessor's
obligations with respect to Sublessor's removal of any leasehold improvements,
personal property and trade fixtures from the Premises including the nitrogen
tank, concrete slab, related wiring and plumbing as contemplated by paragraph 8
of the Fourth Amendment to the Sublease, is governed by the terms, covenants and
conditions of that certain
7
<PAGE>
Transaction Agreement by and between Sublessor, Honeywell International Inc. and
Sublessee dated as of March 24, 2000.
18. Holding Over. If Sublessee holds over after the expiration or
earlier termination of the Term of this Sublease without the express written
consent of Sublessor, Sublessee shall become a tenant at sufferance only, at a
rental rate equal to 115% of the rental rate in effect upon the date of such
expiration and otherwise upon the terms, covenants or conditions herein
specified, so far as applicable. Acceptance by Sublessor of Minimum Rent after
such expiration or earlier termination shall not constitute a consent to
holdover hereunder or result in a renewal. The foregoing provisions of this
Section are in addition to, and shall not limit Sublessor's right of reentry or
any other rights of Sublessor hereunder or as otherwise provided by law. In the
event of any unauthorized holding over, Sublessee shall pay and reimburse
Sublessor for, and indemnify Sublessor against, any loss, cost, damage,
liability, claim or expense (including reasonable attorney's fees) incurred or
arising as a result of Sublessee's holding over including, without limitation,
(a) any and all rental and other obligations and liabilities incurred by
Sublessor under the Master Lease as a consequence of Sublessee's holding over,
whether or not such rent and other obligations of Sublessor under the Master
Lease continue beyond the period of Sublessee's holding over, and (b) any losses
due to the interruption of Sublessor's and/or Master Landlord's conduct of
business at the Premises.
19. Entry by Sublessor. Sublessee shall permit Sublessor, Master
Landlord, and their respective agents, representatives and designees to enter
into and upon any part of the Premises at all reasonable hours to inspect or
view the same, clean or make repairs, alterations or additions thereto, as
Sublessor or Master Landlord may deem necessary or desirable, and Sublessee
shall not be entitled to abatement or reduction of Minimum Rent by reason
thereof.
20. Master Lease. It is understood and agreed by and between the
parties hereto that the existence of this Sublease is not dependent nor
conditioned upon the continued existence of the Master Lease, and in the event
of the expiration, cancellation or termination of the Master Lease for any
reason whatsoever, this Sublease shall coincidentally and automatically continue
and Sublessee shall assume all of the obligations, rights and privileges under
the Master Lease and in such event it shall be in the sole discretion of the
Master Landlord to approve or disapprove of the continued Tenancy by Sublessee
and its substitution of Sublessor.
21. Limitation of Liability. Sublessor shall not be liable for the
failure by Master Landlord to keep and perform, according the terms of the
Master Lease, Master Landlord's duties, covenants, agreements, obligations,
restrictions, provisions or conditions, nor for any delay or interruption in
Master Landlord's keeping or performance of the same. Under no circumstances
shall Sublessor be liable to Sublessee for any incidental, indirect, special or
consequential damages resulting from either Sublessor's performance or failure
to perform pursuant to this Sublease or Master Landlord's performance or failure
to perform pursuant to the Master Lease, whether due to breach of
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contract, breach of warranty, negligence or otherwise. In no event shall
Sublessee be entitled to damages in the event of a breach of this Sublease by
Sublessor in excess of the then outstanding balance of Minimum Rent due and
payable during the then existing Term of this Sublease.
22. Waiver. A waiver by Sublessor of any default, breach or failure of
Sublessee under this Sublease shall not be construed as a waiver of any
subsequent or different default, breach or failure.
23. Successors and Assigns. All of the terms, covenants, or conditions
of this Sublease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
24. Captions. The captions used on the Sections of this Sublease are
for convenience only, are not a part of this Sublease, and are not to be
considered in the interpretation hereof.
25. Relationship of Parties. This Sublease does not and shall not
create the relationship of principal and agent, or of partnership, or of joint
venture, or of any other association between Sublessor and Sublessee, the sole
relationship between the parties hereto being strictly that of Sublessor and
Sublessee.
26. Defined Terms. All terms used herein and defined in the Master
Lease shall have the definitions assigned to such terms in the Master Lease,
except as otherwise provided herein.
27. Notices. Whenever in this Sublease it shall be required or
permitted that notice or demand be given or served by either party to this
Sublease, such notice or demand shall be given or served in writing and sent to
Sublessor and Sublessee at the addresses set forth below:
Sublessor: Honeywell International Inc.
101 Columbia Road
Morristown, New Jersey 07962
Attn.: Director, Corporate Real Estate
Facsimile: (973) 455-6022
With copy to: Johnson Matthey Electronic Assembly Services, Inc.
7505 Technology Drive
West Melbourne, Fla 32904
Attn.: General Manager
Facsimile: 321-725-3397
Sublessee: RELM Wireless Corporation
7100 Technology Drive
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West Melbourne, Fla 32904
Attn: Vice President and Chief Financial Officer
Facsimile: 321-984-0168
All such notices shall be sent by (i) certified or registered mail, return
receipt requested, and shall be effective three (3) days after the date of
mailing; (ii) Federal Express or similar overnight courier and shall be
effective one (1) day after delivery to Federal Express or similar overnight
courier; (iii) facsimile transmission and shall be effective on the date of
transmission; or (iv) personal service and shall be effective on the same day as
service. Any such address may be changed from time to time by either party
serving notices as provided above.
28. Signage. Any signage requirements of Sublessee shall be subject to
the terms, covenants and conditions of the Master Lease and shall further
require the prior written consent of Sublessor (which consent shall not be
unreasonably withheld or delayed) and Master Landlord.
29. Environmental Matters.
(a) Environmental Laws. The term "Environmental Laws" shall
mean and refer to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"); 42 U.S.C. Section
9601, et seq, the Federal Resource Conservation and Recovery Act of
1976 ("RCRA"); 42 U.S.C. Section 6901, et seq, the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251, et seq, the Clean Air
Act, 42 U.S.C. Section 7401, et seq, all as the same may be from time
to time amended, and any other federal, state, county, municipal,
local or other statute, law, ordinance, or regulation which relates to
or deals with human health or to the environment including, without
limitation, all regulations promulgated by a regulatory body pursuant
to any such statute, law, ordinance or regulation;
(b) Hazardous Substances. The term "Hazardous Substances"
shall mean and refer to asbestos, radon, urea-formaldlehyde,
polychlorinated biphenyls ("PCBs"), or substances containing PCB's
nuclear fuel or materials, radioactive materials, explosives, known
carcinogens, petroleum products and bi-products, and any substances
defined as hazardous or toxic or as a contaminant or pollutant in or
the release or disposal of which is regulated by an Environmental Laws.
(c) Use of Hazardous Substances. Sublessee shall not install,
use, generate, store, treat, transport, release, discharge or dispose
of in, or, under, from or about the Premises as Hazardous Substances
without Sublessor's and Master Landlord's prior written approval.
(d) Radon. Sublessor is providing to Sublessee the following
radon notice: "Radon is a naturally occurring radioactive gas that,
when it has
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accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may
be obtained from your county health department.
(e) Sublessor Representations and Warranties. Sublessor hereby
represents and warrants that, to the actual knowledge of Bill
Cunningham, General Manager of Sublessor, after reasonable inquiry, and
except as set forth in Exhibit C:
(1) no Hazardous Substances are now or have been located,
produced, treated, stored, transported, incorporated, discharged,
emitted, released, deposited or disposed of by Sublessor in, upon,
under, over or from the Premises;
(2) no threats exist of a discharge, release or emission of
Hazardous Substances by Sublessor in, upon, under, over or from the
Premises into the environment;
(3) the Premises has not been used by Sublessor as or for a
mine, a landfill, a dump or other disposal facility, auto repair, a dry
cleaner, or a gasoline service station;
(4) during the term of the Master Lease and as of the date of
this Sublease, neither the Premises nor any part thereof is in
violation of any Environmental Law, no notice of any such violation or
any alleged violation thereof has been issued or given by any
governmental entity or agency, and there is not now nor has there been
any investigation or report involving the Premises by any governmental
entity or agency which is in any way related to Hazardous Substances;
(5) no person, party or private or governmental agency or
entity has given to Sublessor any notice of or asserted any claim,
cause of action, penalty, cost or demand for payment or compensation,
directly or indirectly, resulting from or allegedly resulting from any
activity or event described in (1) above;
(6) there are not now, nor have there been during the term of
the Master Lease, any actions, suits, proceedings or damage settlements
relating in any way to Hazardous Substances in, upon, under, over or
from the Premises;
(7) the Premises is not listed in the United States
Environmental Protection Agency's National Priorities List of Hazardous
Waste Sites, CERCLIS, or any other list of hazardous sites maintained
by any federal, state or local governmental agency;
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(8) the Premises is subject to no lien or claim for lien in
favor of any governmental entity or agency as a result of any release
or threatened release of any Hazardous Substances by Sublessor;
(9) no aboveground or underground tanks are located under, in,
on or about the Premises by Sublessor, or have been located under, in,
on or about the Premises and have been subsequently removed or filled
by Sublessor;
(10) all sewers, sumps and drains are in good working order;
and
(11) the Premises do not include any equipment, machinery,
device, or other apparatus that contains polychlorinated biphenyls that
is now or has been leaking, nor any asbestos that is or reasonably may
be anticipated to become in friable condition within the next five
years.
30. Counterparts/Facsimile Signature. This Sublease may be executed
simultaneously in two or more counterparts each of which shall be deemed an
original, but all of which shall constitute one and the same Sublease. Sublessor
and Sublessee agree that the delivery of an executed copy of this Sublease by
facsimile shall be legal and binding and shall have the same full force and
effect as if an original executed copy of this Sublease had been delivered.
31. Quiet Enjoyment. So long as Sublessee is not in default of the
terms, covenants and conditions of this Sublease, Sublessor shall not interfere
with Sublessee's occupancy of the Premises and Sublessee shall have quiet and
peaceful possession of the Premises.
32. Attorneys' Fees. If any legal action is instituted to enforce this
Sublease, the prevailing parties shall be entitled to recover reasonable
attorneys' fees and court costs from the other party, including the cost of any
appellate proceedings.
33. Jurisdiction and Venue. The parties agree that in the event any
claim or action arises out of or is related to the Master Lease and or this
Sublease, in which the Master Landlord is named, joined, made a party to or
otherwise initiates or joins any action, claim or suit, that they will submit to
the jurisdiction of and agree to the venue being Dade County, in the State of
Florida.
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IN WITNESS WHEREOF, the respective parties hereto have executed this
Sublease or caused this Sublease to be executed by their duly authorized
representatives the day and year set forth above.
SUBLESSOR:
JOHNSON MATTHEY ELECTRONIC
ASSEMBLY SERVICES, INC.
By: __________________________
Its: _______________________
SUBLESSEE:
RELM WIRELESS CORPORATION
By: _______________________________
Its: ___________________________
The foregoing Sublease is made with the full knowledge and consent of
Master Landlord, and Master Landlord approves the Sublease herein in accordance
with Article VIII of the Master Lease, but retains all rights to disapprove any
further sublease of the Premises. Notwithstanding such consent, Sublessor shall
not be released from any of its obligations under the Master Lease. Master
Landlord acknowledges and agrees (i) that the expiration date of the Master
Lease and this Sublease is June 30, 2005, (ii) to send notices of default under
the Master Lease to both Sublessor and Sublessee, and (iii) to deal directly
with Sublessee on issues affecting the Premises which are the Master Landlord's
obligations under the Master Lease including, without limitation, repairs,
signage approval, consent to alterations, etc.
Dated: March 24, 2000
MASTER LANDLORD:
AMERICAN EQUITIES LIMITED, NO. 4, a
Florida limited partnership
By: Upside, Inc., a Florida corporation,
Its general partner
By: __________________________
Steven J. Feldman
Vice President
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Exhibit A
(Master Lease)
<PAGE>
Exhibit B
(Sublessee Improvements)
<PAGE>
Exhibit C
(Environmental Matters)
The matters referenced on the attached Phase I Site Assessment of the
Premises dated March, 1999.
EX 10(l) TO COME
EX 10(m) TO COME
Exhibit 10(o)
TRANSACTION AGREEMENT
TRANSACTION AGREEMENT, dated as of March 24, 2000, between Johnson
Matthey Electronic Assembly Services, Inc., a Florida corporation ("JMEASI"),
Honeywell International Inc., a Delaware corporation and the ultimate parent
corporation of JMEASI ("HII"), and RELM Communications of Florida, Inc., a
Florida corporation ("RELM Communications"), RELM Communications, Inc., a
Florida corporation ("RELMCI") and RELM Wireless Corporation, a Nevada
corporation and the parent corporation of RELM Communications and RELMCI ("RELM
Wireless") (RELM Communications, RELMCI and RELM Wireless collectively being
referred to herein as "RELM").
RECITALS
WHEREAS, the overall intent of the transaction described herein (the
"Transaction") is for the Parties to exchange facilities and to have JMEASI
offer employment to certain personnel currently employed by RELMCI, and for
JMEASI to become the primary manufacturing source for RELMCI;
WHEREAS, JMEASI is the tenant at the property located at 7100
Technology Drive, West Melbourne, Florida ("Facility A"), which Facility A
includes a building with approximately 54,000 square feet divided approximately
80% for manufacturing and 20% for administrative offices.
WHEREAS, RELM Communications is the owner of the property located at
7505 Technology Drive, West Melbourne, Florida ("Facility B"), which Facility B
includes a parcel of land having two buildings thereon that have approximately
141,000 gross square feet divided approximately 75% for manufacturing and 25%
for administrative offices.
WHEREAS, JMEASI is currently in the business of manufacturing and
assembling for original equipment manufacturers ("OEMs") electronic products and
components that are used in electronic products;
WHEREAS, RELMCI is an OEM in the business of designing, manufacturing
and marketing electronic products, and desires to restructure its business to
focus on marketing and design and outsource its manufacturing and assembly
business to JMEASI;
WHEREAS, in connection with the proposed outsourcing of RELMCI's
manufacturing and assembly business to JMEASI, the parties propose to exchange
facilities and enter into certain other agreements relating to certain affected
employees of RELMCI, the sale of certain equipment, the use of inventory and
equipment, the orderly relocation of each party into the other's facility, the
smooth transition of RELMCI's manufacturing and assembly business to
<PAGE>
JMEASI and such other matters as the parties shall agree, all on the terms and
subject to the conditions set forth in this Agreement and the Ancillary
Agreements;
WHEREAS, JMEASI and RELM Wireless desire to enter into a Sublease (the
"Sublease") subleasing Facility A to RELM Wireless, conditional upon the Closing
(as defined in Section 2.1 hereof), and American Equities Limited, No. 4, a
Florida limited partnership ("AEL"), JMEASI's landlord under its lease for
Facility A, has indicated it will consent to the Sublease;
WHEREAS, pursuant to a Contract for Sale and Purchase dated by Sutton
Properties, a Florida partnership ("Sutton") on November 15, 1999, and by RELM
Communications on November 16, 1999, as amended by Addendum dated November 16,
1999 (the "Addendum"), Modification to Contract for Sale and Purchase dated
December 15, 1999, Second Modification to Contract for Sale and Purchase dated
January 14, 2000 (the "Second Modification"), Third Modification to Contract for
Sale and Purchase dated January 25, 2000, Fourth Modification to Contract for
Sale and Purchase dated January 31, 2000, Fifth Modification to Contract for
Sale and Purchase dated February 16, 2000, Sixth Modification to Contract for
Sale and Purchase dated March 3, 2000, Seventh Modification to Contract for Sale
and Purchase dated March 10, 2000, Eighth Modification to Contract for Sale and
Purchase dated March 17, 2000, and Ninth Modification to Contract for Sale and
Purchase dated March 22, 2000 (collectively, the "Facility B Contract"), RELM
Communications has arranged to sell Facility B to Sutton (the "Facility B
Sale").
WHEREAS, HII, RELM and Sutton desire to have Sutton assign its rights
under, and HII assume Sutton's obligations under, the Facility B Contract, and
whereas HII desires to reassign its rights to BMO Global Capital Solutions, Inc.
("BMO"), to enable BMO to close the Facility B Sale and lease Facility B to HII
in a synthetic leasing transaction.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein and in the Ancillary
Agreements, the Parties hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 For purposes of this Agreement, the following terms shall have the
meaning set forth below:
1. "Agreement" means this Transaction Agreement together with
all Schedules hereto, as modified or amended from time-to-time.
2. "Ancillary Agreements" means, collectively, (i) the
Sublease, (ii) the Facility B Contract, (iii) the First Assignment,
(iv) the Second Assignment, (v) the Synthetic Lease Documents, (vi) the
Manufacturing Agreement, (vii) the Purchase Order,
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(viii) the RELM Bill of Sale, and (ix) the JMEASI Bill of Sale. When
used in the singular, such term means each of the foregoing.
3. "Commission Agreement" means as defined in Section 2.2(b).
4. "Facility B Contract" means as defined hereinabove.
5. "Facility B Sale" means as defined hereinabove.
6. "First Assignment" means the Assignment of Contract for
Sale and Purchase, of even date herewith, between Sutton and HII,
assigning Sutton's rights under the Facility B Contract to HII.
7. "JMEASI Bill of Sale" means the Bill of Sale, of even date
herewith, for certain equipment being sold by JMEASI to RELMCI.
8. "Manufacturing Agreement" means the Manufacturing
Agreement, of even date herewith, between RELMCI and JMEASI, providing
for contract manufacturing by JMEASI for RELMCI for five (5) years.
9. "Parties' Agreement" means as defined in Section 9.1
hereof.
10. "Party" means JMEASI, HII or RELM, and "Parties" means
JMEASI, HII and RELM.
11. "Purchase Order" means the Purchase Order, of even date
herewith, from RELMCI to JMEASI for the initial forecast of product
needed under the Manufacturing Agreement, as listed in Exhibit C to the
Manufacturing Agreement.
12. "RELM Bill of Sale" means the Bill of Sale, of even date
herewith, for certain equipment being sold by RELMCI to JMEASI.
13. "Second Assignment" means the Assignment of Contract for
Sale and Purchase, of even date herewith, between HII and BMO assigning
HII's rights under the Facility B Contract to BMO.
14. "Synthetic Lease Documents" means those agreements and
documents necessary for HII to induce BMO to enter into the Second
Assignment and complete the Facility B Sale, including a Secretary
Certificate, a Certificate of Good Standing in Delaware for HII, an
Opinion of HII Counsel, a Funding Notice, a Participation Agreement
Amendment, a Responsible Employee Certificate, a Deed executed by RELM
Communications (the "Deed"), an Appraisal of Facility B showing a fair
market value of at least $6,300,000, a Bill of Sale and Assignment of
Leases and Contracts from RELM Communications to BMO (the "Bill of Sale
and Assignment"), a Supplement No. 3 to Assignment of Leases and Rents,
a Lease Supplement No. 3, a Phase I Environmental Audit issued in the
name of BMO, a Reliance Letter issued to BMO, a Master Lease and
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<PAGE>
Deed of Trust, an ALTA As-Built Survey, a Zoning Certification Letter
reissued in the name of BMO, UCC-1's for existing and new properties, a
Title Insurance Policy acceptable to HII and BMO, a Seller's Affidavit
and Solicitation from RELM Communications (the "Affidavit"), an Opinion
of Florida counsel satisfactory to HII and BMO, Insurance Certificates,
an Acquisition Closing Statement executed by HII, Sutton and RELM
Communications (the "Closing Statement"), a Settlement Statement, a
Disbursement Statement, Escrow Instructions to a title company, a
DR-219 form executed by RELM Communications (the "DR-219 Form"), and
Resolutions of Sutton and RELM acceptable to BMO authorizing the
Facility B Sale.
15. "Sublease" means as defined hereinabove, along with
associated estoppel certificates.
Other capitalized terms are used as defined elsewhere herein.
ARTICLE 2
CLOSINGS
2.1 Closing. The actions referred to in Section 2.2(a) shall be taken
at a closing (the "Closing") to be held at Facility A at 8:00 AM local time on
the date hereof, and the actions referred to in Section 2.2(b) shall be taken by
execution of documents at the Chicago, Illinois offices of BMO, on the date
hereof subsequent to the Closing (the "Second Closing").
2.2 Actions to be Taken at the Closing. (a) At the Closing, each of the
parties shall take or cause to be taken, the following actions:
(i) RELM Wireless will pay to JMEASI $28,621.11 for the
security deposit due under the Sublease and $7,386.00 for the prorated
rent due under the Sublease, and such payment shall be made by wire
transfer of immediately available funds to a bank account designated by
JMEASI;
(ii) RELMCI will pay to JMEASI $38,391.60 for amounts
currently due and owing to JMEASI and $19,000.00 for Transferred
Employee medical deductible payments pursuant to Section 4.3(e) hereof,
and such payment shall be made by wire transfer of immediately
available funds to a bank account designated by JMEASI;
(iii) Sutton and HII will execute and deliver the First
Assignment;
(iv) RELMCI and JMEASI will execute and deliver the
Manufacturing Agreement, RELM Wireless and JMEASI will execute and
deliver the Sublease, and AEL will consent to the Sublease;
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<PAGE>
(v) RELMCI will execute and deliver to JMEASI the Purchase
Order and the RELM Bill of Sale; and
(vi) JMEASI will execute and deliver to RELMCI the JMEASI Bill
of Sale and a purchase order for the RELM Parts (as defined in the
Manufacturing Agreement;
(vii) HII, JMEASI and RELM will execute and deliver this
Agreement; and
(viii) JMEASI will pay to RELM Wireless $100,000.00 for
leasehold improvements pursuant to the Sublease, and to RELMCI
$25,000.00 for the purchase price differential for the items of
personal property sold pursuant to the RELM Bill of Sale and the JMEASI
Bill of Sale, and such payments shall be made by wire transfer of
immediately available funds to a bank account designated by RELM
(b) At the Second Closing, each of the parties shall take or cause to
be taken, the following actions:
(i) HII and BMO will execute and deliver the Second
Assignment;
(ii) HII and BMO will execute and deliver the Synthetic Lease
Documents, and RELM Communications will execute and deliver the Deed,
the Bill of Sale and Assignment, the Affidavit and the DR-219;
(iii) BMO will pay to RELM Communications $ 5,433,555.56 for
Facility B, and such payment shall be made by wire transfer of
immediately available funds to a bank account designated by RELM;
(iv) BMO will pay to Sutton $ 710,000.00 as additional
purchase price for Facility B, and such payment shall be made by wire
transfer of immediately available funds to a bank account designated by
Sutton; and
(v) RELM Communications will pay to Coldwell Banker Commercial
Sun Land Realty of Florida, Inc. ("Coldwell Banker") $224,000.00 as
commission for the sale of Facility B pursuant to the Exclusive Right
of Sale Listing Agreement between RELM Communications and Coldwell
Banker (the "Commission Agreement"), and such payment shall be made by
wire transfer of immediately available funds to a bank account
designated by Coldwell Banker.
2.3 Other Actions and Deliveries. In addition, the parties shall take
such action and execute and deliver such other documents at the Closing and the
Second Closing as the Parties, with the advice of their counsel, shall deem to
be necessary or appropriate to evidence or give effect to the transactions
contemplated hereby, including without limitation board resolutions certified by
each Party's secretary approving the execution, delivery and performance of this
Agreement and each Ancillary Agreement to which it is a party, and certificates
of incumbency and signatures of the officers executing documents on behalf of
such Party.
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<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 RELM hereby represents and warrants to JMEASI and HII as follows:
(a) Due Incorporation. RELM was duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with the corporate power to own
and operate its property and to carry on its businesses as now being
conducted.
(b) Power and Authority. RELM has all necessary corporate
power and authority to enter into, and to carry out its obligations
under, this Agreement and each Ancillary Agreement to which it is a
party. The execution and delivery of this Agreement and each Ancillary
Agreement to which RELM is a party, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action on the part of RELM. This Agreement
and each Ancillary Agreement have been duly executed and delivered by
RELM.
(c) No Default. The execution, delivery and performance by
RELM of this Agreement and of each Ancillary Agreement to which it is a
party will not, (i) conflict with or contravene the Certificate of
Incorporation or By-Laws (or other comparable governing instruments
with different names) of RELM or (ii) conflict with, result in a breach
of or entitle any party to terminate or call a default with respect to,
any material agreement or instrument to which RELM is a party or by
which RELM or any of its properties or assets are bound.
(d) Enforceability of Obligations. This Agreement and each
Ancillary Agreement to which RELM is a party constitute the valid and
binding obligations of RELM and shall be enforceable against RELM in
accordance with their respective terms, subject, however, to any
limitations with respect to enforcement which may be imposed in
connection with bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally,
and except that no representation or warranty is made as to the
availability of any equitable remedy in connection with the enforcement
of any term hereof or thereof.
(e) Consents, Etc. No consent, license, permit, approval,
order or authorization of, or registrations, declaration, qualification
or filing with, any foreign, federal, state or local governmental
authority or any person is required to be obtained or made by RELM on
or prior to the date of this Agreement in connection with the
execution, delivery or performance by RELM of this Agreement or any
Ancillary Agreement to which RELM is a party.
(f) Absence of Litigation. There is no action, suit,
litigation, claim, governmental or other proceeding or investigation
pending or, to the best knowledge of RELM, threatened against RELM
which might materially affect (i) the consummation of
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<PAGE>
the transactions contemplated by this Agreement or any Ancillary
Agreement to which RELM is a party or (ii) the full performance of the
obligations of RELM hereunder or thereunder.
(g) Environmental Matters.
RELM hereby represents and warrants that, to the actual
knowledge of Dave Storey, Executive Vice President and Chief Operating
Officer of RELM Wireless, after reasonable inquiry, and except as set
forth in Schedule 3.1(g):
(1) no Hazardous Substances are now or have been located,
produced, treated, stored, transported, incorporated, discharged,
emitted, released, deposited or disposed of in, upon, under, over or
from Facility B;
(2) no threats exist of a discharge, release or emission of
Hazardous Substances in, upon, under, over or from Facility B into the
environment;
(3) Facility B has not been used as or for a mine, a landfill,
a dump or other disposal facility, auto repair, a dry cleaner, or a
gasoline service station;
(4) as of the date of this Agreement, neither Facility B nor
any part thereof is in violation of any Environmental Law, no notice of
any such violation or any alleged violation thereof has been issued or
given by any governmental entity or agency, and there is not now nor
has there been any investigation or report involving Facility B by any
governmental entity or agency which is in any way related to Hazardous
Substances;
(5) no person, party or private or governmental agency or
entity has given any notice of or asserted any claim, cause of action,
penalty, cost or demand for payment or compensation, directly or
indirectly, resulting from or allegedly resulting from any activity or
event described in (1) above;
(6) there are not now, nor have there been, any actions,
suits, proceedings or damage settlements relating in any way to
Hazardous Substances in, upon, under, over or from Facility B;
(7) Facility B is not listed in the United States
Environmental Protection Agency's National Priorities List of Hazardous
Waste Sites, CERCLIS, or any other list of hazardous sites maintained
by any federal, state or local governmental agency;
(8) Facility B is subject to no lien or claim for lien in
favor of any governmental entity or agency as a result of any release
or threatened release of any Hazardous Substances;
(9) no aboveground or underground tanks are located under, in,
on or about Facility B, or have been located under, in, on or about
Facility B and have been subsequently removed or filled;
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(10) all sewers, sumps and drains are in good working order;
and
(11) Facility B does not include any equipment, machinery,
device, or other apparatus that contains polychlorinated biphenyls that
is now or has been leaking, nor any asbestos that is or reasonably may
be anticipated to become in friable condition within the next five
years.
The representations and warranties contained in this Section 3.1(g) shall
replace and supersede those contained in Special Clauses 6 and 7 of the Addendum
in their entirety.
For the purposes of this Section 3.1(g):
(i) the term "Environmental Law" shall mean and refer to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), 42 U.S.C.ss.9601, et seq.; the Federal Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.ss.6901, et
seq.; the Federal Water Pollution Control Act, 33 U.S.C.ss.1251, et
seq.; the Clean Air Act, 42 U.S.C.ss.7401, et seq.; all as the same may
be from time to time amended, and any other federal, state, county,
municipal, local or other statute, law, ordinance or regulation which
relates to or deals with human health or the environment, including,
without limitation, all regulations promulgated by a regulatory body
pursuant to any such statute, law, ordinance or regulation; and
(ii) the terms "Hazardous Substance" and "Hazardous
Substances" shall mean and refer to asbestos, radon, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), or substances containing PCBs,
nuclear fuel or materials, radioactive materials, explosives, known
carcinogens, petroleum products and bi-products, and any substance
defined as hazardous or toxic or as a contaminant or pollutant in, or
the release or disposal of which is regulated by any Environmental Law.
(h) Title to and Condition of Equipment. RELMCI has good,
valid and marketable title to all of the equipment listed on the RELM
Bill of Sale free and clear of all liens. The equipment listed on the
RELM Bill of Sale is in good repair and good condition, except for
ordinary wear and tear and the need for normal maintenance.
(i) Employees; Labor Relations.
(a) Schedule 3.1(i) contains a true and complete list of the following:
(i) All arrangements, written or oral, which compel the
employment of any person in the status of "employee" or "employees" in
the manufacturing of Products (as defined in the Manufacturing
Agreement) (the "Employees");
(ii) All agreements, written or oral, and letters of
understanding with labor unions or associations representing the
Employees;
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(iii) Consulting relationships with the Products business;
(iv) Strikes, slowdowns, picketing, work stoppages, threats to
organize non-union Employees or other labor issues, or other
occurrences, events or conditions of a similar character in which any
of the Employees are participating or have threatened to participate
since January 1, 1997;
(v) Any charges or complaints or petitions filed with or by
the N.L.R.B., the O.F.C.C.P. of the United States Department of Labor,
the Occupational Safety and Health Administration, the E.E.O.C. or any
similar foreign, state or local agency or commission, including charges
of race, sex, national origin, religious, handicap or age
discrimination or similar complaints against the Products business,
grievance and arbitration proceedings and litigation matters including
breach of contract/wrongful discharge, and other personnel related
actions, from January 1, 1997 to Closing;
(vi) Any claims by the Employees made to applicable state or
local agencies or other organizations for workers compensation benefits
or payments from January 1, 1997 to Closing;
(vii) Any commitment or agreement to increase wages or modify
the conditions or terms of employment of the Employees;
(viii) The names and current salary rates of all Employees and
their hourly or yearly salary, together with a summary of all bonus,
incentive compensation or other additional compensation or similar
benefits paid to such persons for the 1999 calendar year and estimated
for the 2000 calendar year;
(ix) Each contract, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, supplemental retirement,
severance or termination pay, salary continuation, hospitalization,
medical, dental, life insurance, disability, sick leave or other leave
of absence, vacation, defined benefit, defined contribution, profit
sharing, stock bonus, retirement, pension, supplemental unemployment
benefit plan, union contracts, and each other employee benefit plan,
policy or arrangement maintained, contributed to, or required to be
contributed to, by RELM with respect to any Employee, beneficiary,
former Employee, retiree or other worker of RELM, whether or not any of
the foregoing is funded, subject to ERISA, or legally binding
(collectively referred to as the "Benefit Plans"); and
(x) Employee lease agreements relating to the Product
business.
(b) Except as provided in Schedule 3.1(i),
(i) the Benefit Plans have been established and maintained in
all material respects in accordance with their terms and in compliance
with all applicable laws, including, to the extent applicable, but not
limited to, the requirements of ERISA and the Code;
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(ii) none of the Benefit Plans subject to Part 3 Subtitle B of
Title I or Title II of ERISA has incurred any "accumulated funded
deficiency" within the meaning of Section 302 of ERISA or Section 412
of the Code (whether or not waived);
(iii) no liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any of the Benefit Plans subject to
Title IV of ERISA;
(iv) RELM has not incurred liability for any tax imposed under
Section 4975 of the Code or Part 5 Subtitle B of Title I of ERISA with
respect to any of the Benefit Plans;
(v) none of the Benefit Plans is a multiemployer plan within
the meaning of Section 3(37)(A) of ERISA;
(vi) no "reportable event" (within the meaning of Section 4043
of ERISA) has occurred with respect to any of the Benefit Plans since
the effective date of said Section 4043;
(vii) each Benefit Plan which is a "group health plan", as
defined in Section 607(1) of ERISA, has been administered in material
compliance with the continuation coverage requirements of Part 6
Subtitle B of Title I of ERISA;
(viii) no suit, action, litigation or claim (excluding claims
for benefits incurred in the ordinary course of plan activities) has
been brought against or with respect to any of the Benefit Plans.
Except as otherwise provided in this Agreement, all contributions to
the Benefit Plans that were required to be made under such Benefit
Plans as of the Closing have been (or will have been by the Closing)
paid, accrued or otherwise fully reserved as of such date, and RELM has
performed (or will have performed by the Closing) all obligations
required to be performed as of such date under such plans;
(ix) no event has occurred which provides a basis for the
Pension Benefit Guaranty Corporation to assert a lien on the assets of
any Benefit Plan;
(x) each individual who is characterized by RELM as an
independent contractor for employment tax and Benefit Plan purposes has
been appropriately classified as an independent contractor under
Revenue Ruling 87-41 or Section 530 of the Revenue Act of 1978 and has
been properly taken into account under the eligibility or participation
provisions of the Benefit Plans; and
(xi) RELM has paid or made provision for the payment of all
salaries, accrued wages and benefits and has complied with all
applicable laws, rules and regulations relating to the employment of
the Employees, including those relating to wages, hours, collective
bargaining and the payment and withholding of taxes, and has withheld
and paid to the appropriate governmental authority, or is holding for
payment
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not yet due to such governmental authority, all amounts required by law
or agreement to be withheld from the wages or salaries of the
Employees.
(j) Brokers or Finders. No broker or finder is entitled to any
brokerage or other fee from RELM based upon arrangements made by or on
behalf of any of RELM in connection with the transactions contemplated
hereby or by the Ancillary Agreements, except for the commission fee of
$224,000.00 due pursuant to the Commission Agreement.
(k) Accuracy of Information. The information furnished by RELM
to JMEASI and HII with respect to Facility B, the Facility B Contract
and the Commission Agreement is true, complete and accurate.
(l) Information. RELM has disclosed or provided to JMEASI and
HII all information and documents directly or indirectly relating to
the Facility B Contract, and the Commission Agreement. RELM has
delivered or will deliver to HII within five (5) days of date of this
Agreement copies of all plans, permits, drawings, studies, tests,
development orders and other reports and information in RELM's
possession concerning Facility B including, without limitation,
environmental reports, soil test reports, zoning and wetlands
information, development orders and other regulatory requirements
concerning land use affecting Facility B or the development of which
Facility B is a part, surveys, title reports, covenants and
restrictions, easements and plats. Prior to Closing, HII may, at HII's
sole cost and expense, obtain such additional reports and information
as it deems necessary to fully evaluate Facility B.
(m) Facility B Contract. The Facility B Contract sets forth
all of the agreements and understandings of Sutton and RELM with
respect to Facility B, there are no other written or oral agreements or
understandings between Sutton and RELM with respect to Facility B, the
Facility B Contract is in full force and effect in accordance with its
terms, there are no defaults (either by RELM or Sutton) under the
Facility B Contract or facts or circumstances which with the passage of
time or giving of notice would constitute a default, and the Facility B
Contract is unmodified (except as described above).
3.2 JMEASI and HII Represent and Warrant to RELM.
(a) Due Incorporation. JMEASI and HII were duly incorporated
and are validly existing as corporations in good standing under the
laws of the jurisdiction of their incorporations, and JMEASI has the
corporate powers to lease and operate its property and to carry on its
business as now being conducted.
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(b) Power and Authority. JMEASI and HII have all necessary
corporate power and authority to enter into, and to carry out their
obligations under, this Agreement and each Ancillary Agreement to which
they are parties. The execution and delivery of this Agreement and each
Ancillary Agreement to which JMEASI and HII are parties, and the
consummation of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action on the part of
JMEASI and HII. This Agreement and each Ancillary Agreement have been
duly executed and delivered by JMEASI and HII.
(c) No Default. The execution, delivery and performance by
JMEASI and HII of this Agreement and of each Ancillary Agreement to
which they are parties will not, (i) conflict with or contravene the
Certificate of Incorporation or By-Laws (or other comparable governing
instruments with different names) of JMEASI or HII or (ii) conflict
with, result in a breach of or entitle any party to terminate or call a
default with respect to, any material agreement or instrument to which
JMEASI or HII is a party or by which JMEASI or HII or any of its
properties or assets are bound.
(d) Enforceability of Obligations. This Agreement and each
Ancillary Agreement to which JMEASI and HII are parties constitute the
valid and binding obligations of JMEASI and HII and shall be
enforceable against JMEASI and HII in accordance with their respective
terms, subject, however, to any limitations with respect to enforcement
which may be imposed in connection with bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally, and except that no representation or
warranty is made as to the availability of any equitable remedy in
connection with the enforcement of any term hereof or thereof.
(e) Consents, Etc. No consent, license, permit, approval,
order or authorization of, or registrations, declaration, qualification
or filing with, any foreign, federal, state or local governmental
authority or any person is required to be obtained or made by JMEASI or
HII on or prior to the date of this Agreement in connection with the
execution, delivery or performance by JMEASI and HII of this Agreement
or any Ancillary Agreement to which JMEASI and HII are parties.
(f) Absence of Litigation. There is no action, suit,
litigation, claim, governmental or other proceeding or investigation
pending or, to the best knowledge of JMEASI and HII, threatened against
JMEASI or HII which might materially affect (i) the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement
to which JMEASI and HII are parties, or (ii) the full performance of
the obligations of JMEASI and HII hereunder or thereunder.
(g) Title to and Condition of Equipment. JMEASI has good,
valid and marketable title to all of the equipment listed on the JMEASI
Bill of Sale free and clear of all liens. The equipment listed on the
JMEASI Bill of Sale is in good repair and good condition, except for
ordinary wear and tear and the need for normal maintenance.
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(h) Brokers or Finders. No broker or finder is entitled to any
brokerage or other fee from JMEASI or HII based upon arrangements made
by or on behalf of JMEASI or HII in connection with the transactions
contemplated hereby or by the Ancillary Agreements.
3.3 Survival of Representations and Warranties. The
representations and warranties contained in this Agreement and any
Ancillary Agreement shall survive (and not be affected in any respect
by) the Closing for the time periods stated in Section 7.1(c) and any
investigation conducted by any Party or any information which any Party
may have from time-to-time.
ARTICLE 4
EMPLOYEE MATTERS
4.1 Scope of Article. This Article 4 contains the covenants
and agreements of the parties with respect to (a) the status of
employment of the Employees upon the Transaction, and (b) the employee
benefits and employee benefit plans provided or covering such Employees
and former employees of RELM who terminated employment or retired from
employment with RELM prior to the Closing ("Former Employees"). Nothing
herein expressed or implied confers upon any Employee or Former
Employee of RELM any rights or remedies of any nature or kind by reason
of this Article 4.
4.2 Employment.
(a) JMEASI shall offer employment at a rate of pay at least
equal to that in effect immediately prior to the Closing, subject to
JMEASI's employment conditions of a completed employment application,
background investigation, drug screen and confidentiality agreement,
effective as of the Closing to (i) each Employee who is actively at
work and capable of performing work duties satisfactory to JMEASI on
the Closing or who is not actively at work due solely to vacation
("Active Employees") and (ii) to each Employee who is not actively at
work on the Closing due solely to leave of absence, sick leave, short
or long-term disability leave, military leave and who returns to active
employment immediately following such absence and within 180 days of
the Closing or such later date as required under applicable law
("Inactive Employees"), as listed on the attached Schedule 3.1(i).
Notwithstanding the preceding sentence, JMEASI shall not be required to
make any offer of employment to any Inactive Employee until RELM
notifies JMEASI that such Inactive Employee's leave, disability or
other absence has terminated and the Inactive Employee is capable of
commencing work duties satisfactory to JMEASI. Subject to Section
4.2(e) below, the period of such employment shall, in the case of
Active Employees, begin on the Closing and, in the case of Inactive
Employees, on the date that they first commence employment with JMEASI.
For purposes of this Agreement, Active Employees and Inactive Employees
who accept the JMEASI's offer of employment, who satisfy JMEASI's
employment conditions and who
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become employees of JMEASI shall be referred to herein collectively as
the "Transferred Employees." RELM shall be responsible for any
obligation to provide employee benefits to a Transferred Employee prior
to such employee's date of hire by JMEASI.
(b) RELM agrees to use reasonable efforts to facilitate the
transition of Employees to employment with JMEASI. Such reasonable
efforts shall include affording JMEASI reasonable opportunities to
review employment and personnel records of Employees, to discuss with
Employees terms and conditions of employment that will exist with
JMEASI as of the Closing and to distribute to Employees forms and
documents relating to employment with JMEASI.
(c) Except to the extent prohibited by law, RELM shall deliver
to JMEASI originals of all personnel files and records relating to
Employees, and RELM shall have reasonable continuing access to such
files and records thereafter as such files and records existed on the
Closing.
(d) It is expressly agreed and understood that nothing in this
Agreement shall, or shall be construed to, limit the ability of JMEASI
to at any time terminate the employment of any Employee or to amend or
terminate any employee benefit plan or arrangement.
(e) Notwithstanding any provision of this Section 4 to the
contrary, Employees who within fifteen (15) business days of the
Closing fail to satisfy JMEASI's employment conditions described in
Section 4.2(a) above shall remain employees of RELM and shall not be
employees or Transferred Employees of JMEASI for any purpose and shall
not be eligible for any employee benefits, compensation or other
remuneration of any kind from JMEASI. JMEASI shall reimburse RELM for
its actual wage costs attributable to any Employee described in the
preceding sentence for the period between the Closing and the date RELM
is notified that such Employee failed to satisfy JMEASI's employment
conditions described in Section 4.2(a) above.
4.3 Employee Benefit Plans.
(a) Except as otherwise specifically provided in this Article
4, effective on the first day of the month coincident with or next
following the Closing (the "Effective Date"), each Transferred Employee
shall cease to be an active participant in RELM's Benefit Plans (other
than "employee pension benefit plans" as defined in Section 3(2) of
ERISA) and shall become eligible to participate in the benefit plans,
policies and arrangements of JMEASI subject to the terms and conditions
of this Agreement and of such plans, policies and arrangements.
(b) RELM shall be responsible for any claims for medical or
dental benefits incurred by an Employee or his or her covered
dependents prior to the Effective Date in accordance with the terms of
RELM's medical and dental plans, and JMEASI shall be responsible for
any medical or dental claims incurred by any Transferred Employee or
his or her covered dependents on or after the Effective Date in
accordance with the terms of
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JMEASI's medical and dental plans. For purposes of this Section 4.3, a
medical or dental claim shall be deemed to be incurred when the
services giving rise to the claim are performed and not when the
Employee is billed for such services or submits a claim for benefits.
(c) JMEASI shall be responsible in accordance with their
applicable disability plans for all short-term and long-term disability
income benefits payable to any Transferred Employee with respect to a
disability incurred on or after the Effective Date pursuant to
elections made by Transferred Employees under such plans. RELM shall be
responsible in accordance with their applicable disability plans for
all other short-term and long-term disability benefits payable with
respect to a disability incurred by any Employee or Former Employee
prior to the Effective Date.
(d) RELM shall cause each Transferred Employee to become fully
vested in the benefits accrued as of the Closing Date under any
"employee pension benefit plans" maintained by RELM. JMEASI shall grant
to each Transferred Employee credit for his or her service with RELM
prior to the Closing Date for purposes of (i) participation
eligibility, vesting and retirement eligibility, but not for benefit
accrual, under any "employee pension benefit plan" maintained by
JMEASI, and (ii) entitlements under JMEASI's vacation, holiday, sick
pay and severance programs or policies; provided, however, that the
amount of any such service recognized by JMEASI shall not exceed five
(5) years.
(e) RELM shall make a single sum payment of $19,000.00 to HII
at Closing, to be paid by JMEASI to Transferred Employees during the
first three (3) months after Closing by crediting to Transferred
Employees a "Medical Plan Cost Differential" in their wage payments,
and RELM shall have no further liability with respect to the Medical
Plan Cost Differential. The "Medical Plan Cost Differential" shall be
the difference between (i) a Transferred Employee's premium payment
required to participate in JMEASI's medical and dental plans for three
(3) months and (ii) such Transferred Employee's premium payment
required to participate in the RELM medical and dental plans for three
(3) months.
4.4 Health Care Continuation Coverage. RELM shall be
responsible for any continuation of group health coverage required
under Section 4980B of the Code or Sections 601 through 608 of ERISA
with respect to any Transferred Employee or any "qualified beneficiary"
(as defined in Section 4980B of the Code) of any such employee who
incurs a "qualifying event" (as defined in Section 4980B of the Code)
prior to such Transferred Employee's date of hire by JMEASI, including
any such qualifying event incurred by reason of the Transferred
Employee's termination of employment with RELM. JMEASI shall be
responsible for any continuation of group health coverage required
under Section 4980B of the Code or Sections 601 though 608 of ERISA
with respect to any Transferred Employee or any "qualified beneficiary"
(as defined in Section 4980B of the Code) of any such employee who
incurs a "qualifying event" (as defined in Section 4980B of the Code)
after such employee's date of hire by JMEASI.
4.5 Accrued Vacation, Holidays, Sick Pay. and Wages. All
accrued but unpaid holiday, vacation or sick pay of any Transferred
Employee as of the Closing in
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excess of 120 hours shall be paid in cash by RELM to such Transferred
Employee within thirty (30) days of Closing, and JMEASI shall have no
liability or obligation with respect to any such pay to any Transferred
Employee. All accrued but unpaid holiday, vacation or sick pay of any
Transferred Employee as of the Closing equal to or less than 120 hours
shall be credited and available to Transferred Employees under JMEASI's
holiday, vacation, or sick pay policies or arrangements made available
to such Transferred Employees. RELM shall pay JMEASI an amount equal to
the aggregate amount of Transferred Employees' accrued but unpaid
holiday, vacation or sick pay described in the preceding sentence
within thirty (30) days of the Closing and RELM shall have no further
liability or obligation with respect to any such pay to any Transferred
Employee. All unpaid wages, salaries and bonuses earned for periods
prior to the Closing shall be paid by RELM after the Closing in
accordance with Seller's normal pay practices.
4.6 Severance and WARN Act Liability. As JMEASI will offer
employment to the Employees, the parties do not expect or contemplate
any WARN Act obligations in connection with this transaction. RELM
agrees to pay and be responsible for all liability, cost or expense for
severance, termination indemnity payments, salary continuation, special
bonuses and like costs, with respect to any of the Employees or Former
Employees, including any Employees described in Section 4.2(e), and
agrees to pay and be responsible for all liability, cost, expense and
sanctions resulting from any failure to comply with the WARN Act, or
any similar state or local law, to the extent attributable to the
events or occurrences on or prior to the Closing. JMEASI agrees to pay
and be responsible for all such liability, costs, expense or sanctions
with respect to any Transferred Employee to the extent attributable to
events or occurrences following the Closing.
4.7 Workers Compensation. RELM shall be responsible for all
workers compensation claims filed by or on behalf of a Transferred
Employee to the extent attributable to events, occurrences or exposures
prior to the Closing. JMEASI shall be responsible for all workers
compensation claims filed by or on behalf of a Transferred Employee to
the extent attributable to events, occurrences or exposures following
the Closing.
4.8 Cooperation; Employment Records. The parties agree to
furnish each other with such information concerning employees and
employee benefit plans, and to take all such other action, as is
necessary and appropriate to effect the transactions contemplated by
this Article 4.
4.9 Excluded Employee Liabilities. Except as otherwise
provided in the Agreement, RELM retains all liabilities or obligations
of any nature to any of RELM's Employees or Former Employees, including
without limitation (a) workers compensation, disability and medical
benefits payable as a matter of law, contract or pursuant to benefit
programs or otherwise with respect to any injury, illness or medical
conditions arising out of events or exposures prior to Closing, (b) any
wages, vacations, severance pay or other benefits under any Benefit
Plan, contract, bonus, deferred compensation, incentive compensation,
stock purchase, stock option, supplemental retirement, severance or
termination pay, sick leave or other leave of absence, vacation,
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and each other employee benefit plan, policy or arrangement maintained,
contributed to, or required to be contributed to, by RELM with respect
to any Employee, beneficiary, Former Employee, or other worker of RELM,
whether or not any of the foregoing is funded, subject to ERISA, or
legally binding, (c) withholding tax liabilities or unemployment
compensation premiums attributable to services performed by Employees
or Former Employees prior to Closing, and (d) claims for
discrimination, unfair labor practices, violations of the collective
bargaining agreements or wrongful discharge which are attributable to
events occurring prior to Closing. Except as otherwise provided in this
Agreement, JMEASI shall be liable for all liabilities or obligations of
any nature to any Transferred Employee which are attributable to events
following the Closing.
ARTICLE 5
CERTAIN COVENANTS OF THE PARTIES
5.1 Confidential Information.
(a) General. Except as expressly set forth in this Section,
each Party shall, and shall cause its affiliates and its and their
officers, directors, employees, agents and subcontractors
(collectively, "Representatives") to, keep secret and retain in
strictest confidence any and all technical, commercial and other
documents or other information (whether in oral or written form),
including, without limitation, any trade secrets, which is or has been
disclosed to it by any other Party or any of such other Party's
affiliates or Representatives prior to or after the date of this
Agreement and which relates to (i) such other Party or any of such
other Party's affiliates or their respective businesses or (ii) this
Agreement, any Ancillary Agreement or any of the transactions
contemplated hereby or thereby ("Confidential Information"), and shall
not disclose directly or indirectly, and shall cause its and their
Representatives not to disclose directly or indirectly, any
Confidential Information to anyone outside such Party, such affiliates
and their respective agents. The foregoing obligations shall extend to
copies, if any, of Confidential Information made by any of the persons
or entities referred to in this paragraph (a) and to documents prepared
by such persons or entities which embody or contain Confidential
Information.
(b) Protection of Confidential Information. Each Party shall
deal with Confidential Information so as to protect it from disclosure
with a degree of care not less than that used by it in dealing with its
own information intended to remain exclusively within its knowledge and
shall take reasonable steps to minimize the risk of disclosure of
Confidential Information which shall include, without limitation,
ensuring that only its affiliates and its and their Representatives who
have a bona fide "need to know" such Confidential Information for
purposes permitted or contemplated by this Agreement or any Ancillary
Agreement shall have access thereto. Each Party shall notify all of its
Representatives who have access to Confidential Information of its
confidentiality and
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the care therefor required, and shall obtain from any third party who
is permitted access to such Confidential Information in accordance with
this Article (other than attorneys and accountants referred to in
Section 4.5 hereof), an agreement of confidentiality incorporating the
restrictions set forth herein.
(c) Exceptions. Notwithstanding the foregoing, the
confidentiality obligations set forth in this Section shall not extend
to Confidential Information which a party (the "Receiving Party") can
show by written documents:
(i) was known to the Receiving Party or was in the
public domain prior to the time that such Confidential
information was disclosed to the Receiving Party by any other
Party (such Party being the "Disclosing Party") or any
affiliate or Representative thereof;
(ii) is or has become generally known to the trade or
public without breach of this Agreement or any Ancillary
Agreement, through no fault of the Receiving Party or any of
its affiliates or Representatives;
(iii) has been made public by the Disclosing Party or
any affiliate or Representative thereof;
(iv) has become available to the Receiving Party on a
non-confidential basis from a third party who has not received
the information directly or indirectly from the Disclosing
Party or any affiliates or Representatives thereof under an
obligation of confidentiality;
(v) was developed by the Receiving Party or any of
its affiliates independently and not as a result of the
disclosure of any Confidential Information hereunder; or
(vi) based on the Receiving Party's good faith
judgment with the advise of counsel, is required to be
disclosed under complusion of law pursuant to oral questions,
interrogatories, subpoena, civil investigative demands or
similar process.
Whenever the Receiving Party becomes aware of any state of facts which
would or might result in disclosure of Confidential Information
pursuant to clause (vi) above, it shall, if possible, promptly notify
the Disclosing Party prior to any such disclosure so that the
Disclosing Party may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement.
In any event, if the Receiving Party is unable to promptly notify the
Disclosing Party or if such protective order or other remedy is not
obtained, or if the Disclosing Party waives compliance with the
provisions of this Agreement, the Receiving Party will furnish only
that portion of the information which it is advised by counsel is
legally required and will exercise reasonable efforts to obtain
assurance that confidential treatment will be accorded the Confidential
Information.
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(d) Survival of Obligations. The obligations set forth in this
Section shall survive the expiration, termination or assignment of this
Agreement or any Ancillary Agreement.
5.2 Consent to Rights and Remedies Upon Breach. Each Party agrees that
money damages will not be adequate to compensate the other Party for any
violation by such Party of any provision of Section 5.1 hereof , and each Party
hereby agrees that in addition to any legal or other rights that may be
available to the other Parties in the event of such breach, equitable relief may
be sought to enforce such covenants in any court of competent jurisdiction,
including entry of a preliminary injunction, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable injury to such
other Parties and that money damages will not provide an adequate remedy to such
other Parties.
5.3 Publicity. Neither Party, without the prior written consent of the
other Party, shall issue any press release or make any other public announcement
or furnish any statement to any third party concerning the terms and conditions
of this Agreement or any Ancillary Agreement and the transactions contemplated
hereby and thereby except for (i) disclosures made in compliance with Section
5.1 hereof, (ii) disclosures made on a confidential basis to attorneys,
consultants and accountants retained to represent such Party, or to BMO or the
attorneys, consultants and accountants retained to represent BMO, in connection
with the transactions contemplated hereby or thereby, and (iii) occasional,
brief comments by the respective officers of the Parties consistent with the
press release issued jointly by the Parties on March 29, 2000, and such other
guidelines for public statements as may be mutually agreed by the Parties in
connection with routine interviews with analysts or members of the financial
press. In addition, either Party, after consultation with counsel, in its own
right may make such further announcements and disclosure, if any, as may be
required by applicable law, in which case the Party making the announcement or
disclosure will use its best efforts to give advance notice to, and discuss such
announcement or disclosure, with the other. Once any information is publicly
disclosed in accordance with this Section, it shall no longer be considered
Confidential Information.
5.4 First and Second Assignments. RELM hereby acknowledges and consents
to the First and Second Assignments.
ARTICLE 6
TRANSITION
6.1 Transition Plan. Attached hereto as Exhibit A is a Transition Plan
for the movement of RELMCI employees, furniture and equipment from Facility B to
Facility A, and for the movement of JMEASI's employees, furniture and equipment
from Facility A to Facility B (the "Transition"). JMEASI and RELMCI shall move
all of their personal property out of their respective facilities during the
Transition, unless expressly agreed otherwise by JMEASI and RELMCI, and except
for the items listed in the RELM Bill of Sale and the JMEASI Bill of Sale. In
the interests of clarity, Exhibit A further lists certain items that will be
moved and thus kept by JMEASI and RELMCI, respectively. The treatment of an item
in Exhibit A shall be
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conclusive with respect to the Parties' rights to such item. JMEASI and RELMCI
shall cooperate closely and shall use their best efforts to ensure that the
Transition is performed in an orderly manner according to the Transition Plan,
with the minimum amount of disruption to their operations during the Transition.
If JMEASI or RELMCI becomes aware that a particular event or set of
circumstances may delay one or more steps of the Transition Plan, it shall
immediately inform the other and consult with the other to minimize the overall
delay to the Transition Plan and any additional disruption to JMEASI's and
RELMCI's operations. JMEASI and RELMCI shall amend the Transition Plan in
writing to reflect any agreement between them with respect to accommodating and
minimizing any such delay.
6.2 Use of Facilities and Equipment. During the Transition, RELM shall
have such rights of ingress, egress, possession and use of Facility B and the
equipment listed in the RELM Bill of Sale, and JMEASI shall have such rights of
ingress, egress, possession and use of Facility A and the equipment listed in
the JMEASI Bill of Sale, as is necessary or desirable for each such Party to
continue its operations according to the Transition Plan. The rights granted
under this Section 6.2 shall terminate with the completion of the Transition
Plan, and in any event shall be terminated no later than ninety (90) days after
the date of this Agreement. If after the termination of the Transition Plan an
item of personal property is left by JMEASI or RELMCI in the respective facility
that it is leaving, then the entering Party may provide written notice of such
item to the leaving Party and, if the leaving Party has not removed the item
within ten (10) business days of such notice, the entering Party may at its
option keep the item or arrange for disposal of the item and bill the leaving
Party for the cost of such disposal.
6.3 Risk of Loss. As between the Parties, risk of loss with respect to
Facility B and the equipment listed on the RELM Bill of Sale shall pass to HII
and JMEASI, and risk of loss with respect to Facility A and the equipment listed
on the JMEASI Bill of Sale shall pass to RELM, as of the Closing, provided that
RELM, HII and JMEASI shall care for such respective facilities and equipment on
the same basis as it cared for such facilities and equipment prior to the
Closing until the termination of its rights pursuant to Section 6.2.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification. The Parties shall indemnify each other as set
forth below:
(a) RELM shall indemnify and hold harmless JMEASI and HII and
each of their directors, officers, employees and affiliates from any
and all losses (i) arising out of, based upon or resulting from any
inaccuracy as of the Closing of any representation or warranty, or
breach of any covenant or agreement, of RELM which is contained in this
Agreement or any Ancillary Agreement to which RELM is a party or (ii)
relating to Facility B, the Employees, or the equipment listed on the
RELM Bill of Sale, to the extent such losses arise out of, are based
upon or result from any act, omission, event or
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condition occurring or existing prior to the Closing or during the
Transition (including, without limitation, any environmental
liabilities).
(b) JMEASI and HII shall indemnify and hold harmless RELM and
each of its directors, officers, employees and affiliates from any and
all losses (i) arising out of, based upon or resulting from any
inaccuracy as of the Closing of any representation or warranty, or
breach of any covenant or agreement, of JMEASI or HII which is
contained in this Agreement or any Ancillary Agreement to which JMEASI
or HII is a party or (ii) relating to the equipment listed in the
JMEASI Bill of Sale, to the extent such losses arise out of, are based
upon or result from any act, omission, event or condition occurring or
existing prior to the Closing or during the Transition.
(c) The Parties agree that, regardless of any investigation
made at any time by the Parties, (i) the representations and warranties
contained in Section 3.1(g) of this Agreement and Paragraph 29(e) of
the Sublease, shall survive the Closing and shall terminate, and be of
no further force and effect, and no claims with respect thereto may be
made by any Party, after the seventh anniversary of the Closing, and
(ii) all other representations and warranties contained in this
Agreement and the obligations contained in Paragraph 12(b)(i) of the
Sublease, shall survive the Closing and shall terminate, and be of no
further force and effect, and no claims with respect thereto may be
made by any Party, after the first anniversary of the Closing.
7.2 Indemnification Procedures.
(a) General. The provisions of Sections 7.2 - 7.5 hereof shall
govern the procedures to be followed for any indemnification claim
between any two of the Parties arising as a result of an
indemnification contained in this Agreement or any Ancillary Agreement.
Promptly after receipt by any Party of written notice of the
commencement (or threatened commencement) of any civil, criminal,
administrative or investigative claim, action or proceeding involving
this Agreement or any Ancillary Agreement, or any matter contemplated
hereby or thereby, such Party shall notify the other Party or Parties
in writing; provided, however, that no failure to so notify any Party
shall relieve it of its indemnity obligations hereunder except to the
extent that such failure substantially prejudices the rights of such
Party hereunder. Except as provided in paragraph (b) (i) below, the
Indemnifying Party shall be entitled to have sole control over the
defense and/or settlement of such claim, provided that, within 30 days
of receipt of such written notice, the Indemnifying Party acknowledges
responsibility therefor and notifies the Indemnified Party in writing
of its election to so assume full control; provided, however, that:
(i) the Indemnified Party shall be entitled to
participate in the defense of such claim and to employ counsel
at its own expense to assist in the handling of such claim;
(ii) the Indemnifying Party shall obtain the prior
written approval of the Indemnified Party (not to be
unreasonably withheld) before entering into any
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settlement of such claim or ceasing to defend against such
claim if, pursuant to or as a result of such settlement or
cessation, injunctive or other relief would be imposed against
the Indemnified Party; and
(iii) the Indemnifying Party shall not consent to the
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by
each claimant or plaintiff to each Indemnified Party and its
directors, officers, employees and affiliates of a release
from all liability in respect of such claim.
The Indemnified Party shall use reasonable efforts to obtain an
extension to the time period for filing an answer or other response to
such claim reasonably requested by the Indemnifying Party. After
written notice by the Indemnifying Party to the Indemnified Party of
its election to assume full control of the defense of any such claim,
(i) the Indemnifying Party shall not be liable to such Indemnified
Party for any further legal expenses incurred by such Indemnified Party
in connection with the defense thereof (other than reasonable costs of
investigation) and (ii) if, prior to such notice, the Indemnified Party
filed an answer or other response by reason of the inability to obtain
an extension referred to in the preceding sentience, such action shall
not affect the Indemnifying Party's obligations hereunder; provided,
however, that the Indemnifying Party shall have a reasonable
opportunity to review such answer or other response prior to the filing
thereof. If the Indemnifying Party does not assume sole control over
the defense of such claim as provided in this paragraph (a), the
Indemnifying Party may participate in such defense at its own expense
and the Indemnified Party shall have the right to defend and/or settle
the claim in such manner as it may deem appropriate at the cost and
expense of the Indemnifying Party, and the Indemnifying Party shall
promptly reimburse the Indemnified Party therefor in accordance with
this Article. In the event that any award or other judgment rendered in
any action, claim or proceeding is appealed by any Party or by any
third party, the party which controlled such action, suit or proceeding
shall be entitled to control the appeal, and the Parties shall
cooperate with each other in connection therewith. The reimbursement of
fees, costs and expenses required by this Article shall be made by
periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
7.3 Receipt of Information, Etc. The obligations of the Parties under
this Article 7 shall not in any way be affected by any investigation by or on
behalf of any party or any of its affiliates or by any information which any
Party or any of its affiliates may have obtained with respect thereto.
7.4 Tax Effects. All indemnification payments hereunder shall be made
on a net after-tax basis if such payment, or the losses to which such payment
relates, has a tax effect on the Indemnified Party.
7.5 Subrogation. In the event that any Party shall be obligated to
indemnify another Party or its directors, officers, employees or affiliates
pursuant to this Agreement, the Indemnifying Party shall, upon payment of such
indemnity in full, be subrogated to all rights of
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the Indemnified Party and its directors, officers, employees and affiliates with
respect to the claims to which such indemnification relates.
ARTICLE 8
DISPUTE RESOLUTION/ARBITRATION
8.l Good Faith Settlement; Arbitration. With respect to a dispute
solely between two or more of the Parties, each of the Parties agrees to use
reasonable efforts to resolve amicably any such dispute which arises under this
Agreement or any Ancillary Agreement and will not take any action inconsistent
therewith. If such dispute cannot be resolved amicably, then the dispute shall
be submitted to binding and final arbitration in accordance with the rules of
the American Arbitration Association, as in effect from time-to-time, and this
Article 8. In any arbitration proceeding, there shall be three arbitrators, one
selected by RELM, one selected by HII and one selected by the other two
arbitrators. In the event that the two arbitrators do not select a third
arbitrator within ten (10) business days after the appointment of the second
arbitrator, the third arbitrator shall be selected and appointed by the American
Arbitration Association. The arbitrators shall have full power to resolve the
dispute for which they are appointed; provided, however, that the arbitrators
shall not have the power to expand, amend, modify or otherwise change any
provision of this Agreement or any Ancillary Agreement. The arbitration
proceedings shall be held in Miami, Florida. The decision of the arbitrators
shall be final and binding upon each of the Parties with respect to the matters
submitted to such arbitrators and judgment upon the decision may be entered in,
and enforced by, any court of competent jurisdiction.
8.2 Absence of Material Interest or Relationship. No person may serve
as an arbitrator pursuant to this Article 8 if such person has a material
interest or relationship (through employment, stock ownership, business dealings
or otherwise) in any Party or any of their respective affiliates, directors,
officers or employees.
8.3 Confidentiality. The arbitration shall be confidential and the
arbitrators may issue appropriate protective orders to safeguard the
Confidential Information of any Party. Except as required by law, none of the
parties shall make (or request any arbitrator to make) any public announcement
with respect to the proceedings or decisions of any arbitrators without the
prior written consent of the other Party. The existence of any dispute submitted
to arbitration, and the decision of the arbitrators, shall be kept in strict
confidence by the Parties and the arbitrators, except as required in connection
with the enforcement of such decision or as otherwise required by applicable
law.
8.4 Exceptions to Arbitration Requirement. This Article 8 shall not
limit the rights of the Parties to seek in any court of competent jurisdiction
equitable relief in the event of any violation of the provisions of Section 5.1
and/or such interim relief as may be needed to maintain the status quo, to
prevent irreversible harm or otherwise protect the subject matter of an
arbitration until the arbitrators shall have been appointed and shall have had
an opportunity to
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act. Any such interim relief so ordered shall not determine or prejudge the
substantive issues to be decided by arbitration.
ARTICLE 9
MISCELLANEOUS
9.1 Assignment. Except for the Second Assignment, no Party shall assign
this Agreement or any Ancillary Agreement to which at least one of RELM and at
least one of JMEASI and HII are parties, including the Manufacturing Agreement
(collectively, the "Parties' Agreements") or any of its rights or obligations
thereunder without the prior written consent of the other Party, and any
purported assignment in violation of the foregoing shall be void.
Notwithstanding the provisions of this Section 9.1, any Party may assign the
Parties' Agreement in connection with the sale of all or substantially all of
its assets to which this Agreement pertains. In any merger with, acquisition by,
acquisition of, or any other business combination between one of RELM or JMEASI
on the one hand, and a third party on the other hand, during the term of the
Manufacturing Agreement, RELM and JMEASI shall use their best efforts to ensure
that the Parties' Agreements remain in full force and effect with the
appropriate entity that survives such combination, and the Parties' Agreements
shall be enforceable against any permitted successor or assign of RELM or JMEASI
including any such entity.
9.2 Entire Agreement. This Agreement and the Ancillary Agreements set
forth the entire agreement and understanding between the Parties as to the
subject matter hereof and merge all prior discussions, negotiations and
agreements between the Parties, and none of the Parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or
therein or as fully set forth subsequent to the date hereof in a written
instrument signed by a proper and duly authorized officer or representative of
the Party to be bound thereby.
9.3 Binding Effect. This Agreement and the Ancillary Agreements shall
inure to the benefit of and be binding upon each of the Parties upon such
Party's execution and delivery hereof or thereof, and upon its successors and
permitted assigns.
9.4 Force Majeure. No Party shall be responsible or liable to the other
Party for any failure to perform or delay in performing any of its covenants or
obligations under this Agreement or any Ancillary Agreement (other than
obligations regarding payment of money) if such failure or delay results from
events or circumstances reasonably beyond the control of such Party, including,
without limitation, war (whether or not declared) or other national emergency;
riot; fire, explosion, flood or other act of God; strike, lockout or other labor
difficulty; epidemic; any injunction, order, decree, law or regulation of any
court or governmental authority; or inability to obtain electricity or other
fuel, provided such inability is beyond the control of such Party (collectively,
"Events of Force Majeure"); provided, however, that the affected Party shall
exert all reasonable efforts to eliminate, cure or overcome any such Event of
Force Majeure and to resume performance of its covenants with all possible
speed; and provided, further that nothing contained herein shall require any
party to settle on terms unsatisfactory to such Party any strike, lockout or
other labor difficulty, any investigation or proceeding by any governmental
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authority or any litigation by any third party. Notwithstanding the foregoing,
to the extent that an Event of Force Majeure continues for a period in excess of
six (6) months, the Parties agree to negotiate in good faith either (i) to
resolve the Event of Force Majeure, if possible, (ii) to extend by mutual
agreement the time period to resolve, eliminate, cure or overcome such Event of
Force Majeure or (iii) to terminate the applicable agreement(s).
9.5 Notices. Any notice, request or other communication under or with
respect to any Parties' Agreement shall be in writing and shall be sent by
registered or certified mail, return receipt requested, postage prepaid, or
delivered by hand or by nationally recognized air courier service, or sent by
facsimile transmission directed to the address or facsimile transmission number
of such Party set forth below:
If to JMEASI or HII:
Honeywell International Inc.
101 Columbia Road
Morristown, New Jersey 07962
Attention: Deputy General Counsel, Corporate and Finance
Fax No. 973-455-4413
with a copy to:
Johnson Matthey Electronic Assembly Services, Inc.
7505 Technology Drive
West Melbourne, Florida 32904
Attention: General Manager
Fax No. 321-725-3397
If to RELM:
RELM Wireless Corporation
7100 Technology Drive
West Melbourne, Florida 32904
Attention: Vice President and Chief Financial Officer
Fax No. 321-984-0168
Any such notice shall become effective when received by the addressee,
provided that any notice or communication that is received other than during
regular business hours of the recipient shall be deemed to have been given at
the opening of business on the next business day of the recipient. Any of the
addresses set forth above may be changed from time-to-time by written notice
from the Party requesting the change. Notice not given in writing shall be
effective only if acknowledged in writing by a duly authorized representative of
the Party to whom it was given.
9.6 Waiver; Modification.
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(a) Waiver. Any term or condition of the Parties' Agreements
may be waived or qualified at any time by any Party entitled to the
benefit hereof or thereof by a written instrument executed by such
Party. No omission, delay or failure on the part of any party is
exercising any rights hereunder or thereunder, and no partial or single
exercise hereof or thereof, will constitute a waiver of such rights or
of any other rights hereunder or thereunder.
(b) Modifications. The Parties' Agreements may be amended,
modified or supplemented only by a written instrument duly executed by
each Party thereto, which instrument shall specifically indicate that
it is the desire of such Parties to amend, modify or supplement such
Agreement, as the case may be.
9.7 Governing Law. The Parties' Agreements shall be governed by and
construed in accordance with the laws of the State of Florida, without giving
effect to its conflict of law rules.
9.8 Severability. If any provision of any Parties' Agreement is
ultimately held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions hereof or thereof shall not in
any way be affected or impaired thereby, unless the absence of the invalidated
provision materially adversely affects the substantive rights of a Party. To the
extent permitted by applicable law, each Party waives any provision of law which
renders any provision hereof or thereof invalid, illegal or unenforceable in any
respect. In the event that any provision of any Parties' Agreement shall be held
to be invalid, illegal or unenforceable, the Parties shall in such an instance
use their best efforts to replace the invalidated provision by a valid, legal
and enforceable provision which, insofar as practical, implements the purposes
hereof or thereof.
9.9 No Third Party Beneficiaries. Except as otherwise provided
expressly herein or therein, (i) nothing in any Parties' Agreement is intended
to confer on any person or entity other than the Parties or their respective
successors or permitted assigns, any rights or obligations under or by reason of
the Parties' Agreement, and (ii) there are no third party beneficiaries to any
such agreements.
9.10 Further Assurances. Each Party shall give such further assurances
and perform such further acts as are or may become necessary or appropriate to
effectuate and carry out the provisions of this Agreement and the Ancillary
Agreements.
9.11 Expenses. Except as otherwise expressly provided herein or
therein, each Party shall bear the costs and expenses incurred by it in
negotiating, entering into and performing any of its obligations under this
Agreement or any Ancillary Agreement.
9.12 Execution. This Agreement and the Ancillary Agreements may be
executed in several counterparts, each of which shall be deemed to be an
original.
9.13 Headings. The Article and Section headings in this Agreement and
the Ancillary Agreements are solely for the convenience and reference of the
Parties hereto and thereto and are
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not intended to be descriptive of the entire contents of, or to affect, any of
the terms or provisions hereof or thereof.
9.14 Relationship of Parties. Nothing herein or in any of the Ancillary
Agreements shall be deemed to create a joint venture, or any employer-employee
relationship or principal-agency relationship, between the Parties. Nothing
under this Agreement or any Ancillary Agreement shall be deemed to authorize any
Party to act for, represent, or bind another or any affiliate thereof.
9.15 Consent to Jurisdiction; Receipt of Process. Each Party hereby
consents to the jurisdiction of, and confers non-exclusive jurisdiction upon,
any federal or state court or tribunal located in the State of Florida over any
action, suit or proceeding arising out of or relating to any Parties' Agreement.
Each Party hereby irrevocably waives, and agrees not to assert as a defense in
any such action, suit or proceeding, any objection which it may now or hereafter
have to venue of any such action, suit or proceeding brought in any federal or
state court or tribunal located in the State of Florida and hereby irrevocably
waives any claim that any such action, suit or proceeding brought in any such
court or tribunal has been brought in an inconvenient forum. Each Party hereby
appoints the Secretary of State of the State of Florida as its agent for receipt
of service of process arising out of or relating to any Parties' Agreement in
any such action, suit or proceeding, and shall at all times maintain such agent
for service of process in the State of Florida so long as any part of any
Parties' Agreement is in full force and effect. Each Party hereby agrees that
service upon such agent in accordance with the laws of the State of Florida
shall be deemed in every respect personal service upon such Party.
9.16 Schedules and Exhibits. All schedules and exhibits are an integral
part of this Agreement and are incorporated in this Agreement by this reference.
[The remainder of this page has been left intentionally blank.]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the date first above written.
JOHNSON MATTHEY ELECTRONIC
ASSEMBLY SERVICES, INC.
By:___________________________
Name:
Title
HONEYWELL INTERNATIONAL INC.
By:___________________________
Name:
Title:
RELM WIRELESS CORPORATION
By:___________________________
Name:
Title:
RELM COMMUNICATIONS OF
FLORIDA, INC.
By:___________________________
Name:
Title:
RELM WIRELESS CORPORATION
By:___________________________
Name:
Title:
28
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SCHEDULE 3.1(g)
ENVIRONMENTAL MATTERS
The matters referenced on the attached Phase I Environmental Site
Assessment dated January 1, 1997 and the attached Letter dated
February 6, 1997, referencing Additional Assessment Activities.
29
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SCHEDULE 3.1(i)
EMPLOYEE MATTERS
30
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EXHIBIT A
TRANSITION PLAN
31
Exhibit 10(n)
MANUFACTURING AGREEMENT
This Agreement is made and entered into as of the 24th day of March,
2000, by and between RELM COMMUNICATIONS, INC., a Florida corporation ("RELM")
and JOHNSON MATTHEY ELECTRONIC ASSEMBLY SERVICES, INC., a Florida corporation
("JMEASI").
WITNESSETH:
WHEREAS, RELM and JMEASI have executed on even date herewith a
Transaction Agreement providing for various transactions by and between the
Parties, including the execution of this Manufacturing Agreement;
WHEREAS, RELM and JMEASI desire to work together in a cooperative
manner with open communication to attempt to improve the quality and quantity of
the Parties' businesses; and
WHEREAS, RELM desires JMEASI to manufacture certain products and
perform certain related services, and JMEASI desires to perform such
manufacturing and related services.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Manufacturing Services:
(a) JMEASI hereby agrees to manufacture for RELM the products
identified in Exhibit A (the "Products") throughout the term of this
Agreement. Unless otherwise
<PAGE>
indicated, JMEASI's services shall include the procurement of raw
materials for the Products, and the assembly and testing of the
Products.
(b) From time to time during the term of this Agreement,
JMEASI shall provide reasonable amounts of new product development
support services to RELM. The scope of and price for such services
shall be agreed upon by the Parties on a case-by-case basis.
(c) During the term of this Agreement, JMEASI shall have a
right of first negotiation with respect to the provision of any other
manufacturing services to RELM, such as the manufacture of products
other than the Products. In furtherance thereof, the Parties shall meet
from time to time to negotiate in good faith the addition of products
to Exhibit A.
(d) In the event JMEASI has insufficient capacity to
manufacture such additional products or to meet requirements for
Products, RELM may solicit and use alternate suppliers for as long as
such insufficiency remains.
2. RELM Equipment:
(a) RELM shall allow the equipment described in Exhibit B (the
"RELM Equipment") to remain in JMEASI's manufacturing facility during
the term of this Agreement, and shall allow JMEASI to use the RELM
Equipment to manufacture Products. The RELM Equipment shall at all
times remain the property of RELM. RELM owns the RELM Equipment and it
is in good repair and good condition, except for ordinary wear and tear
and the need for normal maintenance.
(b) JMEASI shall be responsible for and bear the cost of
ordinary maintenance of the RELM Equipment. RELM shall be responsible
for and bear the cost of major repairs and refurbishment of the RELM
Equipment. If RELM fails to repair or refurbish,
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or replace RELM Equipment within two (2) days of notice of the need for
such repair, refurbishment or replacement, JMEASI may perform such
repair, refurbishment or replacement and can either invoice RELM or
offset against any payments due RELM the cost of such repair,
refurbishment or replacement.
(c) For new products added to Exhibit A, special tooling and
equipment required to make such products shall be priced and upon a
proposal accepted by RELM produced by JMEASI and paid for and owned by
RELM unless otherwise provided by RELM. Maintenance on such tooling and
equipment will be as per Section 2(b) above. General capital equipment
required to make such products shall be the responsibility of JMEASI.
3. Quantity; Forecasts:
(a) JMEASI shall have the exclusive right to manufacture all
of RELM's requirements for the Products during the term of this
Agreement.
(b) RELM's initial forecast of its requirements for each of
the Products for each of the first twelve(12) months of the term of
this Agreement is attached hereto as Exhibit C (the "Forecast") and
RELM hereby issues a purchase order for all of the quantities listed in
each of the first four (4) months of the Forecast. Within fifteen (15)
days of the beginning of each new calendar month, RELM shall submit to
JMEASI an updated Forecast. Within five (5) days of receipt, JMEASI
shall accept such Forecast in whole or in part, and RELM shall issue
purchase orders for all quantities listed in the Fourth Month of the
Forecast.
(c) To the extent accepted by JMEASI, a Forecast shall be
binding upon JMEASI and RELM, except that RELM can modify the
quantities listed in the Forecast by the following percentages:
3
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First Month 0%
Second Month 10%
Third Month 20%
Fourth Month 30%
As a particular calendar draws nearer through succeeding Forecasts the
above-noted percentages shall be applied restrictively to RELM, such
that the percentage corresponding to the calendar month from any
applicable Forecast that would allow RELM the least deviation shall be
applied, unless JMEASI otherwise consents in an acceptance of a
Forecast. For example, if (i) JMEASI accepts a Forecast that provides
that in the Fourth Month RELM will purchase 100 units of a product, and
(ii) two months later RELM submits and JMEASI accepts a Forecast that
provides that in the Second Month RELM will purchase 120 units of the
product, then one further month later RELM's Forecast for that calendar
month could not be, and JMEASI would not be obligated to accept a
Forecast of nor supply, more than 130 units (i.e., 100 + 30, which is
the maximum upper limit from the Fourth Month Forecast) nor less than
108 units (i.e., 120 - 12, which is the maximum lower limit from the
Second Month Forecast).
(d) RELM shall accept delivery within seven (7) months on all
purchase orders issued pursuant to the forecasting procedure contained
in this Section. To the extent that RELM does not accept delivery
within such seven (7) month time period, JMEASI may, at its sole
option, require RELM to pay as liquidated damages the costs of material
purchased by JMEASI to fill such purchase orders, plus freight and
handling charges of five percent (5%). If there is a drastic, continued
reduction in the forecasted quantities of a Product which result in the
aforementioned failure to accept delivery, such liquidated damages
amount shall be the cost of material purchased to fill such purchase
orders plus the cost of an additional four weeks of material purchased,
plus freight and handling charges of five percent (5%).
4
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(e) It is the intent of the Parties that RELM will purchase
and JMEASI will supply in any month at least the minimum forecasted
dollar-value of sales of Products pursuant to the forecasting procedure
contained in this Section (each individually a "Minimum Sale"). If RELM
becomes aware of information that would lead it to believe that a
Minimum Sale will not be made in any calendar month, it shall promptly
meet with JMEASI and attempt in good faith to add products to Exhibit A
to allow JMEASI to make such Minimum Sale.
(f) With all Product schedules, both parties will act
reasonably to enhance the overall business relationship and the mutual
success of both parties. Recognizing the possibility of sharp increases
in demand, JMEASI will act reasonably to attempt to satisfy such
demand.
4. Price: (a) The prices for the Products are set forth in Exhibit A.
(b) In the event of any change that would have a significant
negative effect on the profitability of this Agreement for either
Party, such as an increase in the price of parts or raw materials or a
significant downward trend in the market price for Products, the
parties shall renegotiate the prices of the Products in good faith.
(c) Both Parties agree to work cooperatively toward
engineering changes that enable profitable reductions in the cost of
the Products, to help to continue and enhance the competitiveness of
the Products in the marketplace and the profitability of the Parties.
As an example, RELM will help to qualify with its customers changed
Products that will further this stated goal. The Parties will meet
regularly, at least once every four months,
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to develop and discuss general cost reduction opportunities. Cost
reductions that are realized shall be shared equally between the
Parties.
(d) The parties will negotiate in good faith the price of new
products added to Exhibit A and of Products changed pursuant to an
engineering change notice.
(e) Raw material and parts that are owned by JMEASI to make
Product and that are obsoleted in any manner, such as by an engineering
change notice, a removal of a Product from Exhibit A or the failure of
RELM to continue to order a Product, shall be the responsibility of
RELM. Within forty-five (45) days of notice from JMEASI of the
obsolescence of a raw material or part, RELM shall make payment to
JMEASI in the amount of JMEASI's inventory of the material or part and
JMEASI shall ship such inventory to RELM. JMEASI will make reasonable
efforts to return, or otherwise receive credit or partial credit for
any obsoleted part.
5. RELM Parts:
(a) RELM owns certain parts and raw materials in the
quantities listed on Exhibit D (the "RELM Parts"). JMEASI hereby
purchases the RELM Parts at the prices listed in Exhibit D.
(b) RELM hereby warrants that the RELM Parts (i)are located at
and will be left by RELM at RELM's facility at 7505 Technology Drive,
West Melbourne, Florida, (ii) are necessary for and fit for JMEASI's
intended use thereof in the manufacture of Products, (iii) are in good
and usable condition and are free of defects, and (iv) can reasonably
be anticipated to be used within 90 days after the date hereof to make
Products pursuant to the Forecast.
(c) JMEASI shall inform RELM by written notice within five (5)
business days of the time that JMEASI actually uses a RELM Part. Within
30 days
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after notification JMEASI will issue payment to RELM for the RELM Parts
so used. JMEASI shall have no obligation to pay for defective RELM
Parts, and shall be entitled to request reimbursement for or offset in
the amount of any defective RELM Parts for which JMEASI has already
paid. After 150 days after the date hereof, JMEASI shall be entitled to
return all unused RELM Parts and shall have no further obligation or
liability with respect thereto.
6. Efficiency; Quality: JMEASI shall maintain a quality control system
and shall make all quality control inspection and test data related to the
Products available to RELM at RELM's request. If JMEASI discovers any serious
quality issue related to the Products, it shall notify RELM of the issue within
five (5) days. JMEASI will use reasonable efforts to maintain six sigma
principles and world class quality.
7. Delivery Terms: The terms shall be FCA JMEASI's facility in West
Melbourne, Florida, or, when agreed between the Parties, in Juarez, Mexico.
Packaging will be best commercial practices unless otherwise noted by contract.
8. Management Review Meetings: In order to foster a close working
relationship between the Parties and enable the frequent identification of
further opportunities for the Parties to increase their business relationship,
the management of the Parties shall meet on at least a monthly basis to discuss
their performance under this Agreement, potential opportunities to increase the
value of this Agreement to the Parties, and such other opportunities as may
arise.
9. Term; Termination:
(a) The term of this Agreement shall commence on the date
first hereinabove written and shall have an initial term of five (5)
years. Thereafter, this Agreement shall automatically renew for
subsequent one (1) year periods, unless either party notifies the
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other party within one hundred twenty (120) days before the end of the
initial term or any subsequent term of its intent not to renew this
Agreement, or unless this Agreement is earlier terminated pursuant to
this Section.
(b) Either party may terminate this Agreement upon the filing
of a petition in bankruptcy or commencement of any insolvency
proceeding in respect of the other party hereto.
(c) Either party at its option may terminate this Agreement
upon the occurrence of any material breach by the other party,
provided, however, (i) that the non-breaching party shall have
delivered to the breaching party a written notice specifying the breach
in reasonable detail, and (ii) that the breaching party shall not have
cured the breach within thirty (30) days after receipt of the notice.
In the event of a breach of this Agreement, the right of termination
provided in this Section shall not be exclusive of any remedies to
which either party may be entitled at law or in equity (as limited by
the express terms of this Agreement).
10. Invoices; Payment: JMEASI shall submit to RELM an invoice for
Products when shipped by JMEASI to RELM. All invoices issued pursuant to this
Agreement, including JMEASI invoices for Product and RELM invoices for raw
material and parts, shall be paid within thirty (30) days of their mailing date.
11. Liability:
(a) Except as provided in this Section, neither Party shall be
liable for special, incidental, punitive or consequential damages
related to or arising out of this Agreement whether any such damages
are based upon a claim of negligence, strict liability, breach of
warranty or otherwise.
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(b) RELM hereby indemnifies JMEASI against any and all costs,
damages, expenses and liabilities related to or arising out of any
claim of infringement of a third party's intellectual property rights
or any claim of personal injury with respect to Products manufactured
by JMEASI's according to a design or specification provided by RELM.
12. Miscellaneous:
(a) In the event of any inconsistency between any term or
condition of the Transaction Agreement and any term or condition of
this Agreement, the term or condition of the Transaction Agreement
shall prevail. The parties acknowledge that by their terms Articles 5,
8 and 9 and Sections 7.2 - 7.5 of the Transaction Agreement are
specifically applicable to this Agreement and are incorporated in this
Agreement by this reference.
(b) Purchase orders and invoices issued pursuant to this
Agreement, and any other notices, directions or instructions issued by
either JMEASI or RELM, shall be consistent with this Agreement, and any
additional terms or conditions stated in any such purchase orders,
invoices or other notices directions or instructions shall not be
binding upon JMEASI or RELM unless separately agreed to in writing by
the receiving party, and in the event of any inconsistency between any
such purchase orders, invoices or other notices, directions or
instructions and the terms and conditions of this Agreement, the terms
and conditions of this Agreement shall prevail.
(c) All exhibits are an integral part of this Agreement and
are incorporated in this Agreement by this reference.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
RELM COMMUNICATIONS, INC. Johnson Matthey Electronic
Assembly Services, Inc.
By:_______________________________ By:__________________________________
Title:____________________________ Title:_______________________________
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Index to Exhibits
A Products and Prices
B RELM Equipment
C Initial Forecast
D RELM Parts
<PAGE>
Exhibit A
PRODUCTS AND PRICES
<PAGE>
Exhibit B
RELM EQUIPMENT
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Exhibit C
INITIAL FORECAST
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Exhibit D
RELM PARTS
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[Exhibit 27 TO COME]
