-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CQq0+Ro6uPgj/8tWPHJ8hLLFaDIYRIVF3dGI9/aTei+j7qO4FgvzbKsgqAxs665j 7H4wBzcl5Mpx9tLcaiE62A== 0001116502-02-000156.txt : 20020414 0001116502-02-000156.hdr.sgml : 20020414 ACCESSION NUMBER: 0001116502-02-000156 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20020208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RELM WIRELESS CORP CENTRAL INDEX KEY: 0000002186 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 593486297 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-75512 FILM NUMBER: 02530538 BUSINESS ADDRESS: STREET 1: 7100 TECHNOLOGY DRIVE CITY: WEST MELBOURNE STATE: FL ZIP: 32904 BUSINESS PHONE: 321-984-1414 MAIL ADDRESS: STREET 1: 7100 TECHNOLOGY DRIVE CITY: WEST MELBOURNE STATE: FL ZIP: 32904 FORMER COMPANY: FORMER CONFORMED NAME: ADAGE INC DATE OF NAME CHANGE: 19920703 S-1/A 1 relm-s1a1.txt AMENDMENT NO. 1 TO FORM S-1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- RELM WIRELESS CORPORATION (Exact name of registrant as specified in its charter) Nevada 3600 59-3486297 ------ ---- ---------- (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.) 7100 Technology Drive, West Melbourne, Florida 32904 (321) 984-1414 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------------- David Storey, President and Chief Executive Officer 7100 Technology Drive, West Melbourne, Florida 32904 (321) 984-1414 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------- Copies of communications to: John E. Tober, Esq. Zack Kosnitzky, P.A. 100 S.E. Second Street, Suite 2800 Miami, Florida 33131 ------------------ Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. THIS OFFERING WITH RESPECT TO THE UNITS TO BE ISSUED UPON THE EXERCISE OF THE RIGHTS IS EXPECTED TO BE QUALIFIED OR IS BELIEVED TO BE EXEMPT FROM QUALIFICATION IN THE FOLLOWING JURISDICTIONS: ALABAMA, ALASKA, ARKANSAS, CALIFORNIA, COLORADO, CONNECTICUT, DELAWARE, DISTRICT OF COLUMBIA, FLORIDA, GEORGIA, GUAM, HAWAII, IDAHO, ILLINOIS, INDIANA, IOWA, KANSAS, LOUISIANA, MAINE, MARYLAND, MASSACHUSSETTS, MICHIGAN, MISSISSIPPI, MISSOURI, MONTANA, NEBRASKA, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, NORTH DAKOTA, OHIO, OKLAHOMA, PENNSYLVANIA, PUERTO RICO, RHODE ISLAND, SOUTH CAROLINA, SOUTH DAKOTA, TENNESSEE, TEXAS, UTAH, VERMONT, VIRGINIA, WASHINGTON, WEST VIRGINIA, WISCONSIN, AND WYOMING. RESIDENTS OF OTHER JURISDICTIONS MAY NOT PURCHASE THE UNITS OFFERED HEREBY UNLESS THEY CAN DEMONSTRATE TO OUR SATISFACTION THAT THEY SATISFY CERTAIN SPECIFIC CRITERIA FOR EXEMPTIONS SET FORTH IN THE APPLICABLE STATES SECURITIES LAWS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OTHER THAN THOSE TO WHICH IT SPECIFICALLY RELATES, OR A SOLICITATION OF AN OFFER TO BUY FROM ANY PERSON OR ENTITY IN ANY JURISDICTION IN WHICH SUCH OFFER, OR SOLICITATION IS UNLAWFUL. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION DATED FEBRUARY 8, 2002 PROSPECTUS RELM WIRELESS CORPORATION Units composed of One Share of Common Stock and One Common Stock Purchase Warrant, to be Issued Upon Exercise of Non-Transferable Rights ------------------------ Each equity holder, which is an owner of our shares, warrants, options or conversion rights, as of February 4, 2002 will receive, at no cost, one right for each equity position, which is a share, warrant, option and conversion right, owned, or held, on such date by such equity holder. Each right will entitle you to purchase one unit, which consists of one share of common stock and one common stock purchase warrant, subject to pro rata reduction as a result of an oversubscription. The purchase price of each unit is $1.04, which was 90% of the closing bid price for our common stock on February 4, 2002. In the event the closing bid price for our common stock on the date your rights expire is less than $1.04, the purchase price shall be reduced to an amount equal to 90% of the closing bid price of our common stock on the date your rights to purchase units expire, but in no event, less than $0.84 per unit. In the event the units are re-priced, the number of units you receive will be increased proportionately. We will accept subscriptions to purchase up to 2,500,000 units, subject to an increase of up to 3,000,000 units to directly reflect any re- pricing of units. The rights received by each equity holder are non-transferable. The share of common stock and the common stock purchase warrant comprising a unit are divisible one year after the date hereof, or earlier, at the discretion of the standby underwriter. Each common stock purchase warrant will entitle the holder to purchase one share of common stock for $1.25 per share (120% of the subscription price of the unit). We will not issue fractional rights or fractional units. The equity holders' rights to purchase units expire on _____________, 2002. If any equity holders fully exercise their rights and other equity holders do not fully exercise their rights, those equity holders fully exercising their rights may elect to subscribe to purchase any and all remaining unsubscribed units, which will be made available, on a pro-rata basis. Our common stock is listed for trading on The NASDAQ SmallCap Market under the symbol "RELM". On February 6, 2002, the last reported sales price for our common stock on the NASDAQ SmallCap Market was $1.10 per share. We will pay all expenses with respect to the offering of these units, including the cost of registration under the Securities Act of 1933. We i have applied to list our units and warrants on the NASDAQ SmallCap Market under the symbol "RELMU" and "RELMW", respectively, where it is anticipated that they will trade for at least 30 days, after which, they may be divided at the discretion of the underwriter. We are offering any remaining units not purchased by our equity holders pursuant to a standby underwriting agreement with Noble International Investments, Inc. Noble will purchase all unsubscribed units at the closing of the offering. We will use the proceeds received from this offering as unrestricted working capital which will include the further implementation of our plan to develop our own proprietary digital radios compliant with Association of Public Communications Officials Project 25 standards. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS TO READ ABOUT IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE UNITS. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ The date of this prospectus is _________, 2002. ii You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. This prospectus may be used only where it is legal to sell these securities. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the securities. iii TABLE OF CONTENTS CALCULATION OF REGISTRATION FEE................................................................................ ii SUMMARY OF THE PROSPECTUS...................................................................................... 1 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA................................................................ 4 RISK FACTORS................................................................................................... 6 WE HAVE INCURRED SUBSTANTIAL LOSSES IN THE PAST............................................................. 6 WE HAVE A LIMITED AND VARIED OPERATING HISTORY ON WHICH INVESTORS CAN EVALUATE OUR FUTURE PROSPECTS......... 6 WE RELY ON OUR LINE OF CREDIT WITH SUMMIT BUSINESS CAPITAL TO FINANCE OPERATIONS............................ 7 OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND LIMIT OUR ABILITY TO FINANCE FULL OPERATIONS AND PLANNED GROWTH BECAUSE OF DEBT SERVICE OBLIGATIONS............................. 8 OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY................................................ 8 WE DEPEND ON THE SUCCESS OF OUR LMR PRODUCT LINE............................................................ 8 WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY............................................................. 9 WE DEPEND ON A FEW MANUFACTURERS TO PRODUCE OUR PRODUCTS.................................................... 10 WE DEPEND HEAVILY ON SALES TO THE UNITED STATES GOVERNMENT.................................................. 10 RETENTION OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL IS CRITICAL TO OUR BUSINESS........................... 11 WE MAY NOT BE ABLE TO MANAGE OUR GROWTH..................................................................... 11 WE ARE SUBJECT TO GOVERNMENT REGULATION..................................................................... 11 WE ENGAGE IN BUSINESS WITH MANUFACTURERS LOCATED IN CHINA................................................... 12 WE CARRY SUBSTANTIAL QUANTITIES OF INVENTORY................................................................ 12 WE RELY ON A COMBINATION OF CONTRACT, COPYRIGHT, TRADEMARK AND TRADE SECRET LAWS TO PROTECT OUR PROPRIETARY INFORMATION AND TECHNOLOGY..................................................................... 12 OUR FLUCTUATING QUARTERLY OPERATING RESULTS COULD CAUSE VOLATILITY IN OUR STOCK PRICE....................... 13 RISK OF WAR AND TERRORISM................................................................................... 13
iv WE MAY BE SUBJECT TO COSTLY LITIGATION RESULTING IN AN ADVERSE AFFECT ON OUR FINANCIAL CONDITION............ 13 CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS AND NEVADA LAW MAY DISCOURAGE A POTENTIAL TAKEOVER.............. 14 OUTSTANDING STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES MAY CAUSE DILUTION TO EXISTING SHAREHOLDERS AND LIMIT OUR ABILITY TO RAISE CAPITAL........................................................ 14 THERE IS NO GUARANTY THAT A PUBLIC MARKET FOR OUR UNITS OR WARRANTS WILL DEVELOP............................ 14 RISKS ASSOCIATED WITH LISTING ON THE NASDAQ SMALLCAP MARKET................................................. 14 NON-REGISTRATION OF THIS OFFERING IN CERTAIN JUSRISDICTIONS................................................. 15 INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............................................................... 15 USE OF PROCEEDS................................................................................................ 15 PRICE RANGE OF COMMON STOCK.................................................................................... 16 DIVIDEND POLICY................................................................................................ 16 CAPITALIZATION................................................................................................. 16 SELECTED CONSOLIDATED FINANCIAL DATA........................................................................... 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 18 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.................................................... 28 BUSINESS....................................................................................................... 29 MANAGEMENT..................................................................................................... 40 PRINCIPAL STOCKHOLDERS......................................................................................... 46 DESCRIPTION OF THE UNITS....................................................................................... 48 DESCRIPTION OF CAPITAL STOCK................................................................................... 48 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS........................................................ 53 PLAN OF DISTRIBUTION........................................................................................... 55 DISTRIBUTION OF RIGHTS AND SUBSCRIPTION PROCEDURES............................................................. 58
v LEGAL MATTERS.................................................................................................. 65 EXPERTS........................................................................................................ 65 WHERE YOU CAN FIND ADDITIONAL INFORMATION...................................................................... 65 INDEX TO FINANCIAL STATEMENTS.................................................................................. F-1
vi SUMMARY OF THE PROSPECTUS ------------------------- You should read the following summary together with the more detailed information regarding the units being sold in this offering and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Because this is only a summary, you should read the rest of this prospectus before you invest in the units. Read the entire prospectus carefully, especially the risks described under "Risk Factors." THE COMPANY Background and Products RELM Wireless Corporation designs, manufactures and markets wireless communications products, principally two-way land mobile radios (LMR) and related components. We offer products with three distinct brand names, BK Radio, RELM, and Uniden. These products are sold to two market segments. . The government and public safety market segment includes fire, rescue, law enforcement, and emergency medical personnel, as well as the military and various agencies of federal, state, and local governments. . The business and industrial market segment consists of enterprises requiring fast, inexpensive communication among a discrete group of users. Examples of some of theses types of enterprises include hotels, construction companies, schools, airports, and taxies. Prior to 2000, we were engaged in many unrelated businesses. Starting in 1996, we developed and executed a strategy to focus on wireless communications. Since that time, we have sold or otherwise discontinued businesses and product lines that were outside that focus or were under-performing. In 1999 we completed our exit from these businesses and products, and today are focused exclusively on LMR wireless communications. In concert with our exit from those businesses and product lines, we have significantly reduced our operating costs while improving quality and efficiency. These actions combined with increased revenues have resulted in profits for the past two consecutive quarters. Markets A significant growth opportunity is developing in the LMR industry as users migrate to new, standardized digital equipment This migration is primarily the result of the following two issues: . In recent years, as all forms of wireless communication have expanded, available radio spectrum has been all but exhausted. This lack of available radio spectrum has hindered 1 LMR users. Potential new users have often been prevented from implementing systems and existing users have been unable to expand their systems. . In the public safety markets, interoperability of LMR equipment has become a critical problem. Specifically, agencies (e.g. fire, police, and emergency medical personnel) responding to an event, such as a fire, using equipment from different manufacturers are sometimes unable to reliably communicate. The Oklahoma City bombing was one example of this problem. During that crisis, emergency workers were sometimes forced to communicate using hand-carried written messages. These circumstances have been clearly documented by the U. S. Attorney General. More recently, the terrorist attacks on New York and Washington DC created new situations necessitating radio communication among users of different LMR equipment. Several years ago, to address the lack of available radio spectrum, the Federal Communications Commission (FCC) mandated that new LMR equipment utilize more spectrum-efficient technology. Accomplishing this will effectively mean that the analog LMR equipment currently in use will need to be replaced with LMR equipment that employs digital technology. To address the issue of interoperability, The Association of Public Communication Officials (APCO), in concert with several manufacturers, including RELM, recommended an industry standard for digital LMR products. The standard also meets the requirements of the FCC mandate. It is called Project 25. We believe that compliance with the standard is fast becoming the key consideration for police, fire and other public safety LMR users in selecting new equipment. We believe that the FCC mandate may fuel increased LMR market growth as users implement digital LMR communication systems and equipment. Also, the open architecture of the APCO project 25 standard effectively eliminates the ability for one large provider, such as Motorola, to lock out smaller competitors. Formerly, with proprietary analog technology, an LMR user was effectively precluded from purchasing additional equipment from a company other than the initial provider. The APCO Project 25 standard now provides an environment in which users will have the flexibility to choose from a wider selection of LMR suppliers, including RELM. Furthermore, the number of manufacturers currently offering Project 25-compliant digital equipment is very limited and the products being offered are expensive. Combined, this set of circumstances provides us with an opportunity to expand our business and market share by being an early participant in this newly-evolving market and by introducing products that are less expensive than those that are currently available. THE OFFERING This prospectus relates to the offering of up to 10,000,000 subscription rights to equity holders to purchase 2,500,000 units for a purchase price of $1.04, which was 90% of the closing bid price of $1.15 for our common stock on February 4, 2002, which units are comprised of: - up to 2,500,000 warrants to purchase a like number of shares of common stock, and 2 - up to 5,000,000 shares of common stock included in the units and upon exercise of the warrants. The number of units and underlying warrants and shares of common stock may be increased by 500,000 units to up to 3,000,000 units to directly reflect any re-pricing of units as a result of a decline in the purchase price from $1.04 which was 90% of our closing bid price on February 4, 2002, but in no event to less than $.84. Use of Proceeds We will use the proceeds received from this offering as unrestricted working capital, which will include the further implementation of our plan to develop our own proprietary digital radios compliant with APCO 25. Summary of the Offering Description of the rights offering Equity holders, at the close of business on February 4,2002 will receive one subscription right for every equity position owned. Each right will entitle the equity holder to subscribe for one unit, subject to pro rata reduction as a result of an oversubscription. The equity holders' rights are not transferable. Basic subscription rights Each right includes a basic subscription right entitling an equity holder to purchase one unit for each right held, at a price of $1.04 per unit which was 90% of our closing bid price on February 4, 2002. Each equity holder may exercise all or any portion of the rights it receives. 2,500,000 units are being offered and, to the extent there is an oversubscription, units will be sold pro rata and no fractional units will be sold. The number of units offered may be increased to up to 3,000,000 units in the event the units are re-priced. Re-pricing of units In the event the closing bid price for our common stock on the date your rights expire is less than $1.04, the purchase price shall be reduced to an amount equal to 90% of the closing bid price of our common stock on the date your rights to purchase units expire, but in no event, less than $0.84 per unit. In the event the units are re-priced, the number of units you receive will be increased proportionately. Duration of rights An equity holder may purchase units until 5:00 p.m. EST on ________, 2002. Terms of the units Each unit will consist of one share of common stock and one warrant to purchase one share of common stock. The units will trade on the NASDAQ SmallCap Market until ______, 2003, or such earlier date that is ten days after the date that we file a Form 8-K disclosing the press release of the announcement that our standby underwriter, Noble International Investments, Inc. declared the shares of stock and the common stock purchase warrants constituting a unit separated. Maximum offering We will accept subscriptions for 2,500,000 which may be increased up to a maximum of 3,000,000 units in the event 3 units are re-priced. If there are insufficient units to fill all basic subscriptions, the units that are available will be allocated to our subscribing equity holders on a pro rata basis in proportion to the total number of basic subscription rights exercised by each record holder. Subscription price of the units The subscription price for an equity holder wishing to exercise his rights will be $1.04 per unit, which was 90% of the closing bid price of our common stock on February 4, 2002. Terms of the warrants Each warrant will entitle the holder to purchase one share of common stock at an exercise price of 120% of the unit subscription price, subject to adjustment in the event of specified changes in our capitalization. The warrants first become exercisable on _______, 2003, and shall be exercisable until _______, 2006. We may redeem the warrants, in whole, or in part for $.10 per warrant at any time after the one year anniversary of the effective date of the registration of the warrants, if the closing price of our common stock is at or above 150% of the exercise price of the warrant for 20 consecutive trading days. Who will receive rights Only persons owning shares of our common stock, options or warrants to purchase our common stock, or debt convertible to our common stock as of February 4,2002 referred to as equity holders. Over subscription rights Equity holders fully exercising their rights may elect to subscribe to purchase any and all remaining unsubscribed units, which if available, will be allocated on a pro-rata basis. Evidence of rights We will mail rights certificates to equity holders, which will represent each equity holder's rights to purchase units. Method of exercising rights We intend to mail rights certificates, which will represent your rights, immediately after the SEC has declared effective the registration statement that includes this prospectus. The rights certificates will contain detailed instructions on exercising the rights evidenced thereby. Standby commitment underwriting We are offering all remaining units not purchased by our equity holders pursuant to a standby commitment of the underwriter to purchase all unsubscribed units. This means that there is no minimum number of units that we must sell to complete the offering since all unsubscribed units will be purchased by the underwriter. SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA ----------------------------------------------- The following summary of selected consolidated financial data as of and for each of the three years ended December 31, 2000, has been derived from our audited consolidated financial 4 statements. Our summary of selected consolidated financial data as of and for the nine months and three months ended September 30, 2001 and 2000, have been derived from unaudited consolidated financial statements included elsewhere in this prospectus and contain all adjustments, consisting only of normal recurring accruals, which we believe are necessary for a fair presentation of our financial position and results of operations for such periods. The financial information for the nine months and three months ended September 30, 2001, may not be indicative of the results that may be expected for the entire fiscal year ending December 31, 2001. The following summary of selected consolidated financial data should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and notes beginning on page F-1 of this prospectus. Statements of Operations Data
Nine Months Ended Three Months Ended Year ended December 31 September 30 September 30 2001 2000 2001 2000 2000 1999 1998 ---- ---- ---- ---- ---- ---- ---- (In thousands, except per share data) Sales $17,131 $15,712 $6,223 $5,958 $21,054 $22,404 $29,530 ==================================================================== Income (Loss) From Continuing Operations Before Discontinued $ 71 $ (481) $ 213 $ (330) $(1,162) $(2,294) $(4,907) Operations and Extraordinary Item Loss From Discontinued Operations - - - - (266) - (725) Extraordinary Item - - - - - - 227 -------------------------------------------------------------------- Net Income (Loss)(1) $ 71 $ (481) $ 213 $ (330) $(1,428) $(2,294) $(5,405) ==================================================================== Income (Loss) Per Share From Continuing Operations(1) $ 0.01 $ (0.09) $ 0.04 $(0.06) $ (0.22) $ (0.45) $ (0.97) Loss Per Share From Discontinued Operations - - - - (0.05) - (0.15) Gain Per Share From Extraordinary Item - - - - - - 0.05 -------------------------------------------------------------------- Net Income (Loss) Per Share (Basic and Diluted)(1) $ 0.01 $ (0.09) $ 0.04 $(0.06) $ (0.27) $ (0.45) $ (1.07) ====================================================================
(1) After giving effect to a net gain of $1,165,000 on the sale of our manufacturing facility in the first quarter of 2000 and a loss of $181,000 on the sale of certain equipment in the fourth quarter of 2000. Balance Sheet Data
September 30, 2001 December 31, 2000 (In Thousands) Working Capital $ 8,877 $ 7,679 Total Assets 17,962 18,422 Long-Term Debt (Less Current Portion) 6,751 6,353 Total Stockholders' Equity 6,431 6,360
5 RISK FACTORS ------------ Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in the units. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the risks described in this prospectus could result in the partial or complete loss of your investment. WE HAVE INCURRED SUBSTANTIAL LOSSES IN THE PAST We have a history of substantial and continuing losses. We have incurred substantial losses, including losses of $1,428,000, $2,294,000, and $5,405,000 for the fiscal years ended December 31, 2000, 1999, and 1998, respectively. For the three months and nine months ended September 30, 2001, we reported a profit of $213,000, and $71,000, respectively. As of September 30, 2001, we had an accumulated deficit of approximately $18,228,000. WE HAVE A LIMITED AND VARIED OPERATING HISTORY ON WHICH INVESTORS CAN EVALUATE OUR FUTURE PROSPECTS From 1997 to 2000, we shifted our focus to the LMR business by selling or discontinuing our non-LMR product lines as well as LMR products that were performing poorly. Because of our shift in emphasis to the LMR products, we have a limited relevant operating history that investors may use to evaluate our future prospects. Because of our limited relevant operating history, our historical financial information is of limited value in projecting our future results. In light of the nature of our LMR products and our limited operating history, our operating results are difficult to forecast, because they generally depend on the volume and timing of the orders we receive. As a result, we may be unable to adjust our expenses in a timely manner to compensate for an unexpected revenue shortfall. A shortfall in revenues will significantly harm our business and operating results. In addition, we are and will continue to be subject to numerous risks, uncertainties, expenses, delays, and difficulties in our attempt to concentrate our efforts on the LMR business due to a variety of factors, including: . Availability of products; . Our dependence upon orders placed by the United States Federal Government and its agencies; . The timing and amount of orders we receive from our customers, which may be tied to seasonal demand; . Cancellations or delays of customer product orders, or the loss of a significant customer; . Reductions in consumer demand for our customers' products generally or for our products in particular; 6 . A reduction in the average selling price for our products as a result of competitive factors; . The timing and amount of research and development expenditures; . General business conditions in our markets; . Any new product introductions, or delays in product introductions, by us or our competitors; . Increased costs charged by our suppliers or changes in the delivery of products to us; and . Increased competition or reductions in the prices that we are able to charge. As a result of these and other factors, we believe that period-to-period comparisons of our historical results of operations may not be a good predictor of our future performance. WE RELY ON OUR LINE OF CREDIT WITH SUMMIT BUSINESS CAPITAL TO FINANCE OPERATIONS Our loan agreement contains numerous financial and operating covenants. We have defaulted on some of these obligations, which defaults have, in the past, been waived. The loan agreement has been restructured, and while we are in compliance with all of the restructured covenants, there can be no assurance that we will not cause an event of default in the future or that such defaults will be waived. These covenants place significant restrictions on our ability to incur additional indebtedness, to pay dividends and other distributions, to repay other obligations, to create liens or other encumbrances, to make investments, to engage in transactions with affiliates, to sell or otherwise dispose of assets and to merge or consolidate with other entities, and will otherwise restrict our corporate activities. Defaults under our Summit Business Capital loan covenants could cause acceleration of our loan. Our failure to comply with any of the ratios and tests contained in the Summit Business Capital loan agreement in the future could result in acceleration of the maturity of the indebtedness under our Summit Business Capital loan as well as the maturity of other outstanding debt. To secure our obligations under the Summit Business Capital loan agreement, we have granted a first priority pledge of, and security interest in, substantially all of our assets to Summit Business Capital. If the maturity of our indebtedness were accelerated, we might not have sufficient assets to repay such indebtedness in full. When our Summit Business Capital loan agreement expires in February 2003, we will need to refinance our loan and/or raise additional funds from new sources. If we are unable to borrow sufficient amounts under the Summit Business Capital loan agreement or unable to refinance it, or find alternate lenders, we may be required to significantly curtail or even cease our operations. We will continue to need significant capital to fund our operations and finance our growth, and we may not be able to obtain it on terms acceptable to us or at all. In addition, our capital requirements in connection with the development, marketing and sale of our LMR products (as well as certain acquisition activities) are, and will continue to be, significant. 7 We believe, based upon our current plans and assumptions relating to our operations, that our existing line of credit, reserves and expected cash receipts will provide the funds necessary to satisfy our cash requirements for the foreseeable future. OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND LIMIT OUR ABILITY TO FINANCE FULL OPERATIONS AND PLANNED GROWTH BECAUSE OF DEBT SERVICE OBLIGATIONS On September 30, 2001, our total liabilities and debt were approximately $11,531,000 and shareholders' equity was approximately $6,431,000. Our leverage could have important consequences to you. For example, it could: . make it more difficult for us to satisfy our obligations with respect to our indebtedness; . increase our vulnerability to general adverse economic and industry conditions; . limit our ability to fund future working capital, capital expenditures, acquisitions and other general corporate requirements; . require us to dedicate a substantial portion of our cash flow from operations to repaying indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; . limit our flexibility in planning for, or reacting to, changes in our business and industry; and . limit our ability to borrow additional funds. Our ability to make principal and interest payments on our indebtedness will depend on our ability to generate cash in the future through sales of our LMR products. We cannot assure you that our available liquidity will be sufficient to service our indebtedness. Without sufficient funds to service our indebtedness, we would have serious liquidity constraints and would need to seek additional financing from other sources, but we may not be able to do so on commercially reasonable terms, or at all. OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY Our business will suffer if we are unable to keep pace with rapid technological changes and product development in our industry. The market for our LMR products is characterized by ongoing technological development, evolving industry standards and frequent product introductions. The LMR industry is experiencing a transition from analog LMR products to digital LMR products. In addition, a new standard for LMR equipment (the APCO 25 Standard) has been adopted and the market demand for APCO 25 compliant products is growing. WE DEPEND ON THE SUCCESS OF OUR LMR PRODUCT LINE We currently depend on our LMR products and do not yet have multiple sources of revenue. In 1997, we worked to shift our focus predominately to the development and sale of the LMR product line. A decline in the price of or demand for LMR products as a result of competition, 8 technological change, the introduction of new products by us or others, a failure to manage product transitions successfully, or for other reasons, would cause our business, financial condition and results of operations to suffer. In addition, our future success will largely depend on the successful introduction and sale of new analog and digital LMR products. We have not yet demonstrated that we will be able to successfully develop these products on a timely basis and in a cost-effective manner, or at all. Even if we successfully develop these products, we cannot guarantee that they will achieve market acceptance. WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY We face intense competition from other LMR manufacturers, and the failure to compete effectively could adversely affect our market share and results of operations. We face intense competition from several companies currently offering LMR product lines. The largest producer of LMR products in the world, Motorola, currently is estimated to have in excess of 70% of the market for LMR products. Motorola is also the world's largest producer of APCO 25 compliant products. This producer, as well as other of our competitors, are significantly larger and have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we have and they have established reputations for success in developing and producing LMR products. These advantages may allow them: . to respond more quickly to new or emerging technologies and changes in customer requirements which may render our products obsolete or less marketable; . to engage in more extensive research and development; . to undertake more far-reaching marketing campaigns; . to be able to take advantage of acquisitions and other opportunities; . to adopt more aggressive pricing policies; and . make more attractive offers to potential employees, strategic partners and advertisers. Many of our competitors have established extensive networks of retail locations and multiple distribution channels, and so enjoy a competitive advantage over us in these areas as well. We may not be able to compete successfully and competitive pressures may materially and adversely affect our business, results of operations and financial condition. See the discussion in "Business- Competition in the Industry" for a more complete discussion of competitive factors in our industry. An increase in the demand for APCO 25 compliant products, would benefit competitors who are better financed and have inventories that will meet such demand. APCO 25 compliant products have already been brought to the market by several of our competitors. We are presently selling an APCO 25 compliant product pursuant to our licensing agreement with RACAL. We are also currently developing our own digital products that comply with the APCO 25 standard. Bringing such products to market and achieving a significant share of the market for these products will continue to require substantial expenditure of funds to complete research and development and extensive marketing to achieve market penetration. There can be no assurance that we will be 9 successful in developing and/or acquiring and marketing, on a timely basis, fully functional product enhancements or new products that respond to these and other technological advances by others, or that our new products will be accepted by customers. An inability to successfully develop products could have a material adverse effect on our business, results of operations and financial condition. WE DEPEND ON A FEW MANUFACTURERS TO PRODUCE OUR PRODUCTS We contract with manufacturers to produce our products and our dependence on a limited number of contract manufacturers exposes us to certain risks, including shortages of manufacturing capacity, reduced control over delivery schedules, quality assurance, production yield and costs. Although we are seeking additional manufacturing sources, Uniden America Corporation is currently the sole manufacturer of the family of LMR products that we acquired from Uniden. Since our contract with Uniden expired in September, if Uniden decides to increase the price of its products or stop manufacturing for us, we will have to find an alternate manufacturer for our LMR products bearing the Uniden name. Despite our manufacturing agreements with Solectron, Inc. (f/k/a C-Mac, Inc., which was f/k/a Johnson Matthey Electronic Assembly Services, Inc.), and Shenzhen Hyt Science & Technology, Ltd., if any manufacturer terminates production or cannot meet our production requirements, we may have to rely on other contract manufacturing sources or identify and qualify new contract manufacturers. The lead time required to qualify a new manufacturer could range from approximately two to six months. Despite efforts to do so, we may not be able to identify or qualify new contract manufacturers in a timely manner and these new manufacturers may not allocate sufficient capacity to us in order to meet our requirements. Any significant delay in our ability to obtain adequate quantities of our products from our current or alternative contract manufacturers could cause our business, financial condition and results of operations to suffer. In addition, our dependence on limited and sole source suppliers of components involves several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality. Disruption or termination of the supply of these components could delay shipments of our products. The lead time required for orders of some of our components is as much as six months. In addition, the lead time required to qualify new suppliers for our components is as much as six months. If we are unable to accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our products. This may damage our relationships with current and prospective customers. WE DEPEND HEAVILY ON SALES TO THE UNITED STATES GOVERNMENT We are subject to risks associated with our reliance on sales to the U.S. Government. For the three months and nine months ended September 30, 2001, approximately 37% and 39%, respectively, of our LMR sales were to agencies and departments of the federal government. There can be no assurance that we will be able to maintain this government business. Our ability to maintain our government business will depend on many factors outside of our control, including competitive factors, changes in government personnel making contract decisions, and political factors. The loss or non-renewal of sales to the U.S. Government could have a material 10 adverse effect upon us. While we were awarded portions of the United States Forestry Services contract, including the contract for portable radios, repeaters and base stations, we were not awarded the contract for mobile radios. RETENTION OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL IS CRITICAL TO OUR BUSINESS Our success is largely dependent on the personal efforts of David P. Storey, our President and Chief Executive Officer, William Kelly, our Chief Financial Officer, and Harold Cook and Thomas L. Morrow, our Senior Vice Presidents. We do not have employment agreements with these individuals, and we cannot be sure that we will retain their services. The loss of any of their services could have a material adverse effect on our operations. In addition, we have not obtained key-person life insurance on any of our executive officers or key employees. Our success is also dependent upon our ability to hire and retain qualified operations, development and other personnel. Competition for qualified personnel in our industry is intense, and we are further hindered in our recruiting efforts by the lack of a readily available pool of candidates in West Melbourne, Florida, where we are headquartered. There can be no assurance that we will be able to hire or retain necessary personnel. The inability to attract and retain qualified personnel could cause our business, financial condition, and results of operations to suffer. WE MAY NOT BE ABLE TO MANAGE OUR GROWTH Acquisitions and other business transactions may disrupt or otherwise have a negative impact on our business and results of operations. During the first quarter of 2000, we purchased from Uniden America Corporation its LMR product line. There can be no assurance that we will complete any additional asset purchases or other business transactions or that any such transactions which are completed will prove favorable to our business. We do not intend to seek stockholder approval for any such transactions unless required by applicable law or regulation. We hope to grow rapidly, and the failure to manage our growth could adversely affect our business. Our business plan contemplates, among other things, continued development of our LMR product lines through internal development as well as acquisitions, and, as a result, significant growth in our customer base. This growth and continued development, if it materializes, could place a significant strain on our management, employees, operations and financial capabilities. In the event of this expansion, we have to continue to implement and improve our operating systems and to expand, train, and manage our employee base. If we are unable to manage and integrate our expanding operations effectively, our business, results of operations, and financial condition could be materially and adversely affected. WE ARE SUBJECT TO GOVERNMENT REGULATION Failure to comply with government regulations applicable to our business could result in penalties. Our LMR products are regulated by the Federal Communications Commission. We believe that we are in substantial compliance with all applicable federal regulations governing 11 our operations and we believe that we have obtained all licenses necessary for the operation of our business. Failure to comply with these requirements and regulations or to respond to changes in these requirements and regulations could result in penalties on us such as fines, restrictions on operations or a temporary or permanent closure of our facility. These penalties could harm our operating results and cause a decline of our stock price. In addition, there can be no assurance that we will not be materially adversely affected by existing or new regulatory requirements or interpretations. WE ENGAGE IN BUSINESS WITH MANUFACTURERS LOCATED IN CHINA We are beginning to place a substantial amount of emphasis on manufacturing our product in the People's Republic of China and, accordingly, we are subject to special considerations and significant risks not typically associated with companies operating in North or South America and Western Europe. These include the risks associated with the political, economic and legal environments, among others. Our results may be affected by, among other things, changes in the political and social conditions in China and changes in government policies with respect to laws and regulations, anti-inflation measures, currency conversion and rates and method of taxation. The Chinese government has implemented economic reform policies in recent years, and these reforms may be refined or changed by the government at any time. It is possible that a change in the Chinese leadership could lead to changes in economic policy. The laws and regulations applicable to our industry in China remain subject to change and could have a material adverse effect on our business. WE CARRY SUBSTANTIAL QUANTITIES OF INVENTORY We carry a significant amount of finished goods inventory. If we are unable sell this inventory over a commercially reasonable time, we may be required to take inventory markdowns in the future, which could reduce our net sales and gross margins. In addition, it is critical to our success that we accurately predict trends in consumer demand, including seasonal fluctuations, in the future and do not overstock unpopular products or fail to sufficiently stock popular products. Both scenarios could harm our operating results. WE RELY ON A COMBINATION OF CONTRACT, COPYRIGHT, TRADEMARK AND TRADE SECRET LAWS TO PROTECT OUR PROPRIETARY INFORMATION AND TECHNOLOGY We have federal trademark registrations for the names "Wilson," "Utilicom," "Citicom," "Mini-com," "Regency Electronics" and "Force Communications". In addition, we have world-wide nonexclusive licenses to use the federal trademarks "Uniden" and "ESAS". The 18 United States patents that we owned have expired. As part of our confidentiality procedures, we generally enter into nondisclosure agreements with our employees, distributors and customers, and limit access to and distribution of our proprietary information. Although we believe that trademark protection should prevent another party from manufacturing and selling competing products under one or more of our trademarks, there can be no assurance that the steps we have taken to protect our trademarks will be successful. The expiration of our patents issued to us may make us susceptible to misappropriation or to an unauthorized third party copying our technology, or 12 otherwise obtaining and using our products, designs or other information. In addition, patents may not be issued under future patent applications, and the patents issued under such patent applications could be invalidated, circumvented or challenged. It may also be particularly difficult to protect our products and intellectual property under the laws of certain countries in which our products are or may be manufactured or sold. OUR FLUCTUATING QUARTERLY OPERATING RESULTS COULD CAUSE VOLATILITY IN OUR STOCK PRICE Our quarterly operating results may fluctuate significantly from quarter to quarter and may be below the expectations of public market analysts and investors, resulting in volatility for the market price for our common stock. Other factors affecting the volatility of our stock price include: . future announcements concerning us or our competitors; . the announcement or introduction of technological innovations or new products by us or our competitors; . changes in product pricing policies by us or our competitors; . changes in earnings estimates of us or our competitors by securities analysts; . additions or departures of key personnel; and . sales of our common stock. RISK OF WAR AND TERRORISM Terrorist acts or acts of war (wherever located around the world) may cause damage or disruption to our business, employees, supplies, distributors and resellers, and customers that could have an adverse effect on our operations and financial results. The economic uncertainty stemming from the terrorist attacks of September 11, 2001, may continue through the pending war-time economy in the United States. While we cannot predict what impact a prolonged war on terrorism will have on the United States economy, we plan to control expenses, continue to invest in our business and make capital expenditures when they will increase productivity, profitably, or revenue. WE MAY BE SUBJECT TO COSTLY LITIGATION RESULTING IN AN ADVERSE AFFECT ON OUR FINANCIAL CONDITION We are currently involved in approximately four separate lawsuits, both as a defendant and a plaintiff. While there is no way to predict the success or failure of any litigation we are strenuously defending those actions in which we are defendants. Although we believe our products and technology do not infringe on any proprietary rights of others, as the number of competing products available in the market increases and the functions of those products further overlap, infringement claims may increase. Any such claims, with or without merit, could result in costly litigation or might require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on 13 terms acceptable to us or at all. Any successful infringement claim could have a material adverse effect upon our business, results of operations and financial condition. In addition, agreements regarding the purchase or sale of certain assets and businesses require us to indemnify the purchasers or buyers of such assets or businesses for any damages they may suffer if third party claims give rise to losses. Two indemnification claims are pending. We cannot guarantee that there will not be future claims. Any such claims may require us to pay substantial damages, which could cause our business, financial condition and results of operations to suffer. CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS AND NEVADA LAW MAY DISCOURAGE A POTENTIAL TAKEOVER Our articles of incorporation could discourage or prevent potential acquisitions of our company that stockholders may consider favorable. Our articles of incorporation authorize the issuance of 1,000,000 shares of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by our Board of Directors. Preferred stock could be issued, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company which could be beneficial to our shareholders. OUTSTANDING STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES MAY CAUSE DILUTION TO EXISTING SHAREHOLDERS AND LIMIT OUR ABILITY TO RAISE CAPITAL If outstanding warrants or options to purchase our common stock are exercised at a time when we otherwise could obtain a price for the sale of shares of our common stock which is higher than the option exercise price per share, then existing shareholders would suffer dilution in the value of their shares of common stock. The exercise of the options and warrants and/or the conversion of outstanding notes, or the possibility of such exercise or conversion, may impede our ability to seek financing in the future through the sale of additional securities. The exercise of the warrants and options and/or the conversion of the notes would cause substantial dilution to the existing stockholders. THERE IS NO GUARANTY THAT A PUBLIC MARKET FOR OUR UNITS OR WARRANTS WILL DEVELOP There is no public market for our units or warrants and we cannot be sure that an active trading market will develop. While we intend to apply for a public listing of the units and warrants, we do not know if a public market will develop for the units or warrants or, if they do develop, that they will be maintained. Accordingly, your investment in the units or warrants may be an illiquid investment. RISKS ASSOCIATED WITH LISTING ON THE NASDAQ SMALLCAP MARKET In December of 2000, the NASDAQ National Market notified us that our common stock failed to maintain a minimum market value of public float of $5,000,000 over the previous thirty (30) 14 consecutive trading days, and would be delisted upon failure to comply with its listing requirements. Our management, after careful analysis of its alternatives, decided to transfer its listing to the NASDAQ SmallCap Market, which was approved on July 19, 2001. Listing of our common stock on the NASDAQ SmallCap Market requires continued compliance with listing standards. Our common stock trades on the NASDAQ SmallCap Market, conditioned upon our meeting certain standards relating to assets, stock price, stockholder base and market value, as well as certain non- quantitative maintenance criteria established by the NASDAQ SmallCap Market. These eligibility requirements are subject to change from time to time. While we are currently in compliance with the applicable eligibility tests, if we continue to sustain substantial operating losses and are unable to raise sufficient new capital, our common stock could be delisted from trading on the NASDAQ SmallCap Market. The effects of delisting from the NASDAQ SmallCap Market would include, among other things, less coverage by investment bankers and institutions, the limited release of the market price of the common stock and limited news coverage of our company. These effects could materially adversely affect the trading market, liquidity and prices for our common stock, as well as our ability to issue additional securities or to secure additional financing. NON-REGISTRATION OF THIS OFFERING IN CERTAIN JURISDICTIONS The rights and underlying securities are not registered or otherwise qualified for sale in Arizona, Oregon, Canada and all other non-United States of America jurisdictions. Although our securities will not knowingly be sold to purchasers in jurisdictions in which they are not registered or otherwise qualified for sale, purchasers may buy our units, shares or warrants in the aftermarket or may move to jurisdictions in which our units, shares or warrants are not so registered or qualified. In such event, we may be unable to issue shares or warrants to those persons desiring to exchange their units or warrants unless and until the shares or warrants could be registered or qualified for sale in the jurisdiction in which such purchasers reside, or an exemption to such qualification exists in such jurisdiction. If we were unable to register or qualify the shares and warrants in a particular jurisdiction and no exemption to such registration or qualification was available in such jurisdiction, a holder may have difficulty selling, exchanging or exercising such securities in order to realize any economic benefit from the purchase of our securities without conducting such sale in a state in which our securities are registered or qualified. INFORMATION REGARDING FORWARD-LOOKING STATEMENTS ------------------------------------------------ This prospectus includes "Forward-Looking Statements" within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act. All statements other than statements of historical fact are "Forward-Looking Statements". In some cases, these forward-looking statements can be identified by the use of terms and phrases such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue" or the negative thereof or other comparable terminology. These statements are contained in sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business" and other sections of this prospectus. The forward looking statements in this prospectus, including statements concerning projections of our future results, operating profits and earnings, statements of the plans and objectives of our management for future operations, and statements concerning our proposed new products, are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. The risks and uncertainties are more specifically described in "Risk Factors". Our forward-looking statements and reasons why results may differ included in this prospectus are made as of the date hereof. We undertake no obligation to update forward-looking statements or the reasons why actual results may differ. USE OF PROCEEDS --------------- We will use the proceeds received from this offering as unrestricted working capital, which will include the further implementation of our plan to develop our own proprietary digital radios compliant with APCO 25. No NASD members or affiliates of a member will receive 10% or more of the net proceeds from this offering. 15 PRICE RANGE OF COMMON STOCK --------------------------- Effective as of July 5, 2001, our common stock began trading on the NASDAQ SmallCap Market under the symbol "RELM," and prior to trading on the NASDAQ SmallCap Market, our common stock traded on the NASDAQ National Market. The following table sets forth the high and low bid information for our common stock for the periods indicated, as reported by the NASDAQ National Market or the NASDAQ SmallCap Market as the case may be. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions. 1999 Quarter Ended High Low ------------------ ---- --- March 31, 1999 $2.38 $1.41 June 30, 1999 $4.00 $1.75 September 30, 1999 $4.50 $1.94 December 31, 1999 $5.69 $2.00 2000 Quarter Ended High Low ------------------ ---- --- March 31, 2000 $8.13 $2.88 June 30, 2000 $4.19 $2.00 September 30, 2000 $2.50 $1.56 December 31, 2000 $2.00 $0.31 2001 Quarter Ended High Low ------------------ ---- --- March 31, 2001 $1.56 $0.56 June 30, 2001 $1.25 $0.80 September 30, 2001 $1.59 $0.99 December 31, 2001 $1.50 $1.02 On February 6, 2002 our common stock on the NASDAQ SmallCap Market closed at $1.10 per share. As of January 31, 2002 there were 1,187 shareholders of record of our common stock. DIVIDEND POLICY --------------- We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, our loan agreement with Summit Business Capital prohibits us from paying dividends on our common stock. CAPITALIZATION -------------- The following table sets forth our capitalization as of September 30, 2001, on an actual basis and our proforma capitalization as of September 30, 2001, as adjusted for this offering at the maximum unit purchase price of $1.04 and as adjusted to the minimum price, in the event of a 16 re-pricing, of $.84 per unit. The table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus:
September 30, 2001 As Adjusted ------------------ As Adjusted if Re-Priced Actual Adjustment (maximum Actual Adjustment (minimum DEBT AND STOCKHOLDERS' EQUITY price)(2)(3) price)(3)(4) - --------------------------------------------------------------------------------------------------------------------------- (In Thousands) Current maturities of long-term liabilities $ 129 - $ 129 $ 129 - $ 129 Long-term debt, less current maturities (1) 6,751 - 6,751 6,751 - 6,751 -------------------------------------------------------------------- Total Debt: $ 6,880 - $ 6,880 $ 6,880 - $ 6,880 Stockholders' equity: Common stock; $.60 par value; 20,000,000 authorized shares at September 30, 2001: 5,346,174 issued and outstanding shares at September 30, 2001 3,207 1,500 4,707 3,207 1,800 5,007 Additional paid-in capital 21,452 600 22,052 21,452 220 21,672 Accumulated deficit (18,228) -- (18,228) (18,228) -- (18,228) -------------------------------------------------------------------- Total stockholders' equity 6,431 2,100 8,531 6,431 2,020 8,451 -------------------------------------------------------------------- Total Capitalization $ 13,311 $ 2,100 $ 15,411 $ 13,311 $ 2,020 $ 15,331 ====================================================================
(1) The Revolving Line of Credit provides for maximum borrowings of up to $7 million. The formula under the terms of the agreement supported a borrowing base of $5.3 million, of which $2.1 million was available at September 30, 2001. (2) Gives effect to the issuance of 2,500,000 Units to equity holders at a purchase price of $1.04 per unit, net of $500,000 in expenses. (3) The information in this prospectus does not assume the issuance of a total of: (i) 2,521,384 shares of common stock upon the exercise of all options, warrants and convertible securities outstanding as of September 30, 2001, without adjustment for the offering; (ii) 5,692,001 shares of common stock issuable upon the exercise of all options, warrants and convertible securities outstanding as of September 30, 2001, as adjusted for the maximum offering; and (iii) 6,414,140 shares of common stock issuable upon exercise of all options, warrants and convertible securities outstanding as of September 30, 2001, as adjusted for the minimum offering. (4) Gives effect to the issuance of 3,000,000 units at a purchase price of $.84 per unit, net of $500,000 in expenses. SELECTED CONSOLIDATED FINANCIAL DATA ------------------------------------ The following selected financial data as of and for each of the five years ended December 31, 2000, have been derived from our audited consolidated financial statements. Our selected financial data as of and for the nine months and three months ended September 30, 2001 and 2000, have been derived from unaudited consolidated financial statements included elsewhere in this prospectus and contain all adjustments, consisting only of normal recurring accruals, which RELM believes are necessary for a fair presentation of our financial position and results of operations for such periods. The financial information for the nine months and three months ended September 30, 2001, may not be indicative of the results that may be expected for the entire fiscal year ending December 31, 2001. The following selected financial data should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and notes beginning on page F-1 of this prospectus. 17 Statement of Operations Data
Nine Months Ended Three Months Ended September 30 September 30 Year ended December 31 ------------------------------------------------------------------------------- (In thousands, except per share data) ------------------------------------------------------------------------------- 2001 2000 2001 2000 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- Sales (2) $17,131 $15,712 $6,223 $5,958 $21,054 $22,404 $29,530 $ 45,376 $47,646 =============================================================================== Income (Loss) From Continuing Operations Before $ 71 $ (481) $ 213 $ (330) $(1,162) $(2,294) $(4,907) $(11,974) $(1,347) Discontinued Operations and Extraordinary Item Loss From Discontinued Operations - - - - (266) - (725) (2,836) (2,679) Extraordinary Item - - - - - - 227 - - ------------------------------------------------------------------------------- Net Income (Loss)(1) $ 71 $ (481) $ 213 $ (330) $(1,428) $(2,294) $(5,405) $(14,810) $(4,026) =============================================================================== Income (Loss) Per Share From Continuing Operations(1) $ 0.01 $ (0.09) $ 0.04 $(0.06) $ (0.22) $ (0.45) $ (0.97) $ (2.36) $ (0.26) Loss Per Share From Discontinued Operations - - - - (0.05) - (0.15) (0.56) (0.52) Gain Per Share From Extraordinary Item - - - - - - 0.05 - - ------------------------------------------------------------------------------- Net Income (Loss) Per Share (Basic and Diluted)(1) $ 0.01 $ (0.09) $ 0.04 $(0.06) $ (0.27) $ (0.45) $ (1.07) $ (2.92) $ (0.78) ===============================================================================
(1) After giving effect to a net gain of $1,165,000 on the sale of our manufacturing facility in the first quarter of 2000 and a loss of $181,000 on the sale of certain equipment in the fourth quarter of 2000. (2) 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 in 1998 reflect our strategy to exit non- LMR businesses and to discontinue LMR products and lines that were inadequately profitable. Specifically, we sold our digital data communications business and exited from the access controls, consumer electronics, and commercial real estate 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. Balance Sheet-Data
September 30 December 31 ----------------------------------------------------------------- (In Thousands) 2001 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- Working Capital $ 8,877 $ 7,679 $ 5,676 $ 6,573 $10,307 $27,008 Total Assets 17,962 18,422 22,853 26,827 31,665 54,028 Long-Term Debt (Less Current 6,751 6,353 9,072 8,755 7,440 15,554 Portion) Total Stockholders' Equity 6,431 6,360 6,377 8,671 14,034 29,214
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- 18 The following discussion of our financial condition and results of operations should be read together with our financial statements and the notes to those statements included elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to business risks and uncertainties, and our actual results of operations may differ materially from those contained in the forward-looking statements. For a more detailed discussion of these business risks and uncertainties, please see "Risk Factors". General During the period from 1996 through 1999, our operations were significantly restructured to focus on wireless communications and the LMR markets. During 1999, we completed our exit from businesses and products that were outside our focus in wireless communications when we sold all of our remaining commercial real estate holdings as well as our electronic components product line. Accordingly, with the exception of certain product liability expenses related to our former specialty manufacturing subsidiary, operating results for 2000 reflect business activities solely within the LMR industry. The restructuring actions have reduced our revenue base. In response, we have reduced our operating expenses and employment. As a result, we were able to maintain gross profit margins on lower revenues. Selling general and administrative expenses in 2000 were reduced by approximately $.6 million (7.7%) compared to 1999. In 2000, we realized a gain of approximately $1.2 million on the sale of our facility in West Melbourne, Florida and a loss of approximately $0.2 million on the sale of certain manufacturing equipment. The net effect of these transactions reduced operating losses to $1.2 million. Interest expense in 2000 decreased by approximately $146,000 (13.5%) compared to 1999 primarily as a result of the satisfaction of the mortgage on our former facility in connection with its sale and as a result of using both working capital and a portion of the proceeds from our private placement of convertible subordinated notes to reduce the amounts outstanding on our revolving credit facility. During 2000, we completed aggressive initiatives for revenue growth and to further reduce manufacturing overhead and operating expenses. For revenue growth, we completed the acquisition of the private radio communications product lines from Uniden America Corporation. Additionally, we introduced our new "G- Series" mobile radios. Our sales and marketing initiatives in the government and public safety sector as well as the commercial and industrial sector have been consolidated under the direction of Thom Morrow who has in excess of 20 years of sales and marketing experience in the LMR industry. We significantly reduced manufacturing overhead and operating expenses during 2000 primarily through facility, staff and spending reductions, much of which was the result of new outsourcing arrangements. We executed an agreement to out-source a portion of our manufacturing activities to a contract manufacturer. Under this agreement, the contract manufacturer employed 68 of our direct manufacturing workforce and agreed to purchase certain existing inventories from us on as an "as needed" basis, based upon our requirements for finished products and subassemblies. Also, we sold our 144,000 square foot facility in West Melbourne, Florida and leased reduced square footage nearby at a substantially lower cost. 19 Engineering and R&D spending in 2000 was reduced from the previous year by approximately $300,000 (20.2%) as our most significant new product initiative, the GMH series radios, was completed. We have developed a comprehensive plan to engineer and manufacture digital products that are compliant with the specifications of APCO Project 25. Results Of Operations As an aid to understanding our operating results, the following table shows items from our consolidated statement of operations expressed as a percent of sales:
Percent of Net Sales Percent of Net Sales for Nine Months Ended for Three Months Ended Percent of Net Sales September 30 September 30 for Year Ended December 31 ------------ ------------ -------------------------- 2001 2000 2001 2000 2000 1999 1998 ---- ---- ----- ----- ----- ----- ---- Sales 100% 100% 100% 100% 100.0% 100.0% 100.0% Cost of Sales 71.3 73.7 69.0 71.9 74.4 74.2 77.4 --------------------------------------------------------------------------------- Gross Margin 28.7 26.3 31.0 28.1 25.6 25.8 22.6 Selling, General, and Administrative Expenses (25.6) (33.8) (24.6) (32.0) (33.0) (33.5) (33.4) Impairment Loss - - - - - - (3.3) Interest Expense (2.6) (4.7) (2.4) (3.5) (4.4) (4.8) (2.7) Gain on Sale of Facility and Equipment - - - - 4.7 - - Other Income (Expense) (0.1) 9.1 (0.6) 1.9 1.6 2.3 0.2 --------------------------------------------------------------------------------- Income (Loss) from Continuing Operations 0.4 (3.1) 3.4 (5.5) (5.5) (10.2) (16.6) Income Tax - - - - - - - --------------------------------------------------------------------------------- Loss from Continuing Operations 0.4% (3.1)% 3.4% (5.5)% (5.5%) (10.2%) (16.6%) =================================================================================
Recent Developments - Unaudited On January 16, 2002, as reported in our Form 8-K filed January 30, 2002, file no. 000-07336, we announced our operating results for the fourth quarter and year ended December 31, 2001. Revenue for the fourth quarter of 2001 increased 6.3% to $5.7 million, from $5.3 million for the same period last year. Net income for the fourth quarter of 2001 totaled approximately $51,000, or $0.01 per diluted share, compared to a loss of ($947,000), or ($0.18) per diluted share, for the fourth quarter of the prior year. Fourth quarter revenues for our core LMR products, which are its strategic focus, increased approximately 10.6% to $5.7 million, from $5.1 million for the same period in 2000. This is primarily the result of increased Uniden-branded product sales to the business and industrial market segments, as well as BK Radio product sales primarily to the Communications Electronics Command of the U.S. Army. Gross profit margins for the fourth quarter of 2001 improved to 29.9% from 23.2% in the same period of 2000 reflecting the combined impact of manufacturing cost reductions and increased sales volumes. For the fourth quarter, SG&A expenses were $1.5 million, or 27.3% of sales, versus $1.6 million, or 30.3% of sales in the prior year period. Revenue for the year 2001 increased 8.3% to $22.8 million, from $21.1 million for the year 2000. Net income for the year 2001 totaled approximately $122,000, or $0.02 per diluted share, compared to a loss of ($1.4) million, or ($0.27) per diluted share for the prior year. For the year 2001, revenues from core LMR products increased 12.8% to $22.8 million from $20.2 million for last year. This increase was largely driven by sales of the Company's GMH mobile radios that were introduced in the fourth quarter of 2000, and the growth of the Uniden product line, which was acquired in March of 2000. For the year 2001, gross profit margins improved to 29.0% compared to 25.6% for the year 2000 due to manufacturing cost reductions and higher sales volumes throughout the year. Selling, general, and administrative costs (SG&A) decreased 14.5% to $5.9 million, or 26.0% of sales, compared to $6.9 million, or 32.9% of sales, for the same period last year, as the Company continued to streamline its support functions. Interest expense for 2001 decreased 37.9% to approximately $579,000 from $933,000 for the prior year as cash flow from operational improvements enabled the company to reduce its borrowings. Three and Nine Month Period Ended September 30, 2001 Compared With Three and Nine Month Period Ended September 30, 2000 Net Sales Net sales for the three months ended September 30, 2001 increased approximately $0.3 million (4.4%) compared to the same period for the prior year. This increase was the result of strong demand for BK Radio-branded products in the government and public safety sectors, including sales to the U.S. Forest Service and the Communications Electronics Command of the U.S. Army. Additionally, we continued to make progress in the business and industrial market segment through increased sales of our Uniden-branded products and ESAS systems. Sales of these products increased $0.7 million (339.5%) to $0.9 million, compared to the same period for the prior year. The complete Uniden product line was not yet available for sale during the third quarter of the prior year. Sales of our RELM-branded products decreased $0.7 million (77.2%) to $0.2 million compared to the same period for the prior year. This reflects the introduction of Uniden models to the business and industrial market. These models have more modern designs and feature sets. Net sales for the nine months ended September 30, 2001 increased approximately $1.4 million (9.0%) to $17.1 million, compared to the same period for the prior year. This increase was primarily due to BK Radio product sales, particularly our new GMH mobile radio. Strong demand from the U.S. Forest service was also a contributing factor. Additionally, sales of Uniden-branded products increased by $1.6 million (165.7%) to $2.5 million, compared to the same period for the prior year. The Uniden product line was not acquired by RELM until late in 20 March 2000 and the full compliment of product offerings was not available for sale until January 2001. Cost of Sales and Gross Margin Cost of sales as a percentage of net sales for the three months ended September 30, 2001 was 69.0% compared to 71.9% for the same period in the prior year. For the nine months ended September 30, 2001, cost of sales as a percentage of net sales was 71.3% compared to 73.7% for the previous year. The overall improvement in cost of sales and gross margins was the result of reductions in manufacturing staff and expenses that were implemented starting in the fourth quarter 2000, combined with increased manufacturing volumes, which allowed for more effective use of manufacturing overhead resources. We have also realized cost improvements by employing a strategy to outsource certain manufacturing operations and products. In March 2000 we entered into a contract manufacturing agreement with Solectron for the manufacture of certain LMR subassemblies for a period of five years. Also, in connection with our acquisition in March 2000 of certain Uniden product lines, we entered into a manufacturing contract with Uniden Corporation pursuant to which Uniden Corporation manufactures our LMR products branded under the "Uniden" name. Although the contract expired in September 2001, Uniden has continued to manufacture and provide products in accordance with its terms and conditions. In September 2001, we entered into a contract with Shenzhen Hyt Science & Technology, LTD (HYT) for the manufacture of a new family of portable two-way radios. Under the agreement, HYT will manufacture for RELM, four models of VHF and UHF portable two-way radio transceivers, and we will have exclusive distribution rights for these products in North, Central, and South America. The agreement is for a term of five years and may be expanded to include additional products. Certain models are expected to be available for sale in the fourth quarter 2001, while the remaining models are expected to be available in the first quarter 2002. We are continuing to evaluate new external manufacturing alternatives, with a particular focus in the Far East, in order to further reduce our product costs. We anticipate that the current relationships or comparable alternatives will be available to the company in the future. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) consist of marketing, sales, commissions, engineering, research and development, management information systems, accounting, and headquarters expenses. For the three months ended September 30, 2001, expenses totaled approximately $1.5 million compared to $1.9 million for the same period last year. For the nine months ended September 30, 2001 SG&A expenses totaled $4.4 million compared to $5.3 million for the same period during the prior year. These decreases are driven by reduced selling and marketing expenses, particularly for our Uniden products. Also, general and administrative staff and expenses in Finance, Human Resources, MIS, and headquarters have all been reduced from the prior year. Compared to the 21 same period last year, engineering expenses increased approximately $40,000 (12.9%) and $154,000 (18.1%) for the three and nine months ended September 30, 2001, respectively. This reflects the development of multi-site dispatch capability for our Uniden ESAS Systems. These systems were introduced in March of this year. Interest Expense For the three months ended September 30, 2001 interest expense totaled $149,000 compared to $213,000 for the same period during the prior year. For the nine months ended September 30, 2001 interest expense totaled $452,000 compared to $735,000 for the same period during the prior year. Revenue growth and expense reductions have generated working capital and, combined with a portion of the proceeds from our private placement of convertible subordinated notes, enabled us to reduce the amount outstanding on our revolving line of credit. Additionally, last year we satisfied the mortgage on our facility in connection with its sale and satisfied obligations under capital leases associated with certain manufacturing and computer equipment. Other Income On March 24, 2000, we completed the sale of our 144,000 square foot facility located in West Melbourne, Florida for $5.6 million. The transaction resulted in a gain of approximately $1.2 million and provided approximately $1.6 million in cash after related expenses and the satisfaction of the mortgage on the property. We have leased approximately 54,000 square feet of comparable space at a nearby location. Income Taxes No income tax provision was provided for the three or nine months ended September 30, 2001 or 2000 as we have net operating loss carryforward benefits totaling approximately $30 million at September 30, 2001. We have evaluated our tax position in accordance with the requirements of SFAS No. 109, Accounting for Income Taxes, and do not believe that we have met the more-likely-than-not criteria for recognizing a deferred tax asset and have provided valuation allowances against net deferred tax assets. Fiscal Year 2000 Compared With Fiscal Year 1999 Net Sales Net Sales for the year ended December 31, 2000 decreased $1.3 million or 6.0% from the prior year. Substantially all of the decrease is attributed to businesses and product lines that have been sold or discontinued, reflecting our strategy to focus on wireless businesses and to exit or discontinue products and businesses that do not fit this focus or that perform poorly. Sales in 2000 to the government and public safety segment of the LMR market increased $1.2 million (8.9%) compared to the previous year. This increase was due primarily to sales of our BK Radio products to the U. S. Forest Service as a result of significant forest fires. 22 Sales in 2000 to the commercial and industrial segment of the LMR industry decreased $0.6 million (8.6%) compared to the previous year. This decrease was due in large part to the transition of this business segment to the newly acquired Uniden products. As a result of manufacturing delays, however, the full line of these products was not available for sale until late in the fourth quarter. Cost of Sales Cost of Sales as a percent of net sales for the year ended December 31, 2000 increased to 74.4% from 74.2% in the prior year. We realized improved margins on our BK Radio product revenues as a result of higher volumes and the outsourcing of certain manufacturing processes. Margins on Uniden products, however, largely offset these improvements. Because new Uniden products were not available for sale until late in 2000, most of the Uniden revenues during the year were from the sale of older, lower margin inventory products. In sizing the business to anticipated shipment and manufacturing volumes, employment and manufacturing support expenses were significantly reduced during the year. We sold our Florida facility and leased reduced square footage at a nearby location. Also, we outsourced a portion of our manufacturing activities to a contract manufacturer. Related to this action, we sold our surface mount equipment and a related capital lease was terminated Selling, General and Administrative Expenses For the year ended December 31, 2000, SG&A expenses totaled $6.9 million or 33.0% of net sales compared with $7.5 million or 33.5% for the prior year. As a result of all of our restructuring actions, 6 employees and approximately $1.3 million in annualized expenses were eliminated from the SG&A cost structure. Engineering spending was reduced approximately $300,000 compared to the prior year as the GMH development was completed and as we seek funding to complete our digital product development plan. G&A spending was reduced by approximately $500,000 compared to the prior year as a result of staff and expense reductions in the finance, human resources, information systems, and headquarters functions. Interest Expense Interest expense decreased $146,000 for the year ended December 31, 2000 to approximately $933,000 compared to approximately $1,079,000 for the prior year primarily as a result of the satisfaction of the mortgage on our facility in connection with its sale and as a result of using both working capital and a portion of the proceeds from our private placement of convertible subordinated notes to reduce the amounts outstanding on our revolving credit facility. Income Taxes Income taxes represented effective tax rates of 0% for the years ended December 31, 2000 and 1999. These tax rates are made up of a 34% effective tax rate, the respective state tax rates where we do business, and changes in valuation allowances related to deferred tax assets. For tax purposes, at December 31, 2000, we have federal and state net operating loss carryforwards of 23 approximately $30.8 million. These net operating loss carryforwards begin to expire, for federal and state purposes, in 2004. 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. We have evaluated the realizability of the deferred tax assets on our balance sheet and do not believe that we have met the more likely than not criteria; therefore we have established a valuation allowance in the amount of $12.2 million and $11.8 million against our net deferred tax assets at December 31, 2000 and 1999, respectively. The net change in the total valuation allowance for the year ended December 31, 2000 was $476,000 and relates to our expectations regarding utilization of our net deferred tax assets, including available net operating loss and tax credit carryforwards. The federal and state net operating loss and tax credit carryforwards could be subject to limitation if, within any three year period prior to the expiration of the applicable carryforward period, there is a greater than 50% change in the ownership of RELM. 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 LMR products, while $4.8 million is attributed to businesses and product lines that have been sold or discontinued. The decreases reflect the continued implementation of our 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, we sold our electronic components business and the remainder of our commercial real estate holdings. Furthermore, we completed our exit from the consumer products and access controls businesses. Sales of our BK Radio products in 1999 increased $1.5 million (13.4%) 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 us because of its high product inventory levels at that time. Sales of our RELM branded products decreased $3.6 million (46.3%) compared to the previous year. This decrease was due in large part to the default of our Brazilian dealer on amounts due to us totaling $1.4 million. As a result of the default, we discontinued shipments to this dealer. Shipments to this dealer in the previous year totaled approximately $2.1 million. The decline in RELM branded sales is also indicative of our aging product designs in this segment. Our strategy is to modernize and broaden our product offerings through acquisitions and alliances. Cost of Sales 24 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 our continued focus on higher margin LMR products and discontinuing other less profitable products and product lines. Furthermore, a larger percentage of our total LMR net sales were in higher margin BK Radio products. Additionally, we have negotiated more favorable pricing and terms from major suppliers, particularly those in the Pacific Rim. Also, 1999 was our first full year of operations after the implementation of our 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. We have sold our Florida facility and leased reduced square footage at a nearby location. Also, we have outsourced a portion of our manufacturing activities to a contract manufacturer. Selling, General and Administrative Expenses 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 our 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. Engineering, Research and Development (R&D) spending was reduced $794,000 compared to the prior year as our major R&D project was largely completed. Legal expenses increased during the year as a result of defending litigation that was brought against RELM. Interest Expense Interest expense increased $282,000 for the year ended December 31, 1999 to approximately $1,079,000 from approximately $797,000 for the prior year. Due to reduced revenues, we increased our borrowings under our revolving credit facility. Income Taxes Income taxes represented effective tax rates of 0% for the years ended December 31, 1999 and 1998. These tax rates are made up of a 34% effective tax rate, the respective state tax rates where we did business, and changes in valuation allowances related to deferred tax assets. For tax purposes, at December 31, 1999, we had federal and state net operating loss carryforwards of approximately $29.1 million. These net operating loss carryforwards begin to expire, for federal and state purposes, in 2004. 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. We have evaluated the realizability of the deferred tax assets on our balance sheet and do not believe we have met the more likely than not criteria; therefore we established a valuation allowance in the 25 amount of $11.8 million and $12.2 million against our net deferred tax assets at December 31, 1999 and 1998, respectively. The net change in total valuation allowance for the year ended December 31, 1999 was $451,000 and relates to our expectations regarding utilization of our net deferred tax assets, including available net operating loss and tax credit carryforwards. The federal and state net operating loss and tax credit carryforwards could be subject to limitation if, within any three year period prior to the expiration of the applicable carryforward period, there is a greater than 50% change in the ownership of RELM. Selected Quarterly Results Of Operations The following table sets forth a summary of our unaudited financial quarterly results of operations for each quarter in the two year period ended December 31, 2000 and the nine month period ended September 30, 2001. This supplemental information is derived from our unaudited interim financial statements. This information is prepared on the same basis as financial statements contained elsewhere in this prospectus and in our opinion includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the quarterly information presented. Read this information in conjunction with our financial statements and the related notes included elsewhere in this prospectus. Historical results for any quarter are not necessarily indicative of the results that may be expected for any future period. SELECTED QUARTERLY RESULTS OF OPERATIONS QUARTER ENDED (IN THOUSANDS)
---------------------------------------------------------------------------------- 9/30/01 6/30/01 3/31/01 12/31/00 9/30/00 6/30/00 3/31/00 ---------------------------------------------------------------------------------- Sales (2) $ 6,223 $ 6,189 $ 4,720 $ 5,342 $ 5,958 $ 5,158 $ 4,596 Cost of Sales 4,293 4,448 3,471 4,102 4,283 3,680 3,609 ---------------------------------------------------------------------------------- Gross Profit 1,930 1,741 1,249 1,240 1,675 1,478 987 Selling, General & Administrative Expenses 1,528 1,463 1,388 1,611 1,907 1,886 1,526 ---------------------------------------------------------------------------------- Operating Income (Loss) 402 278 (139) (371) (232) (408) (539) Other Income (Expense) (189) (133) (148) (310) (98) (134) 930 ---------------------------------------------------------------------------------- Income (Loss) From Continuing Operations 213 145 (287) (681) (330) (542) 391 Loss From Discontinued Operations 0 0 0 (266) 0 0 0 Extraordinary Gain 0 0 0 0 0 0 0 ---------------------------------------------------------------------------------- Net Income (Loss) (1) $ 213 $ 145 ($287) ($947) ($330) ($542) $ 391 ================================================================================== ---------------------------------------------- 12/31/99 9/30/99 6/30/99 3/31/99 ---------------------------------------------- Sales (2) $ 3,694 $ 5,120 $ 7,125 $ 6,465 Cost of Sales 3,277 3,762 5,061 4,518 ---------------------------------------------- Gross Profit 417 1,358 2,064 1,947 Selling, General & Administrative Expenses 2,206 1,655 1,876 1,771 ---------------------------------------------- Operating Income (Loss) (1,789) (297) 188 176 Other Income (Expense) (339) (1) (111) (121) ---------------------------------------------- Income (Loss) From Continuing Operations (2,128) (298) 77 55 Loss From Discontinued Operations 0 0 0 0 Extraordinary Gain 0 0 0 0 ---------------------------------------------- Net Income (Loss) (1) ($2,128) ($298) $ 77 $ 55 ==============================================
QUARTER ENDED
------------------------------------------------------------------------------------ 9/30/01 6/30/01 3/31/01 12/31/00 9/30/00 6/30/00 3/31/00 ------------------------------------------------------------------------------------ Sales (2) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 69.0% 71.9% 73.5% 76.8% 71.9% 71.3% 78.5% ----------------------------------------------------------------------------------- Gross Profit 31.0% 28.1% 26.5% 23.2% 28.1% 28.7% 21.5% Selling, General & Administrative Expenses 24.6% 23.6% 29.4% 30.2% 32.0% 36.6% 33.2% ----------------------------------------------------------------------------------- Operating Income (Loss) 6.4% 4.5% (2.9%) (6.9%) (3.9%) (7.9%) (11.7%) Other Income (Expense) (3.0%) (2.1%) (3.1%) (5.8%) (1.6%) (2.6%) 20.2% ----------------------------------------------------------------------------------- Income (Loss) From Continuing Operations 3.4% 2.4% (6.0%) (12.8%) (5.5%) (10.5%) 8.5% Loss From Discontinued Operations 0.0% 0.0% 0.0% (5.0%) 0.0% 0.0% 0.0% Extraordinary Gain 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ----------------------------------------------------------------------------------- Net Income (Loss) (1) 3.4% 2.4% (6.0%) (17.8%) (5.5%) (10.5%) 8.5% =================================================================================== ----------------------------------------------- 12/31/99 9/30/99 6/30/99 3/31/99 ----------------------------------------------- Sales (2) 100.0% 100.0% 100.0% 100.0% Cost of Sales 88.7% 73.5% 71.0% 69.9% ----------------------------------------------- Gross Profit 11.3% 26.5% 29.0% 30.1% Selling, General & Administrative Expenses 59.7% 32.3% 26.3% 27.4% ----------------------------------------------- Operating Income (Loss) (48.4%) (5.8%) 2.7% 2.7% Other Income (Expense) (9.2%) 0.0% (1.6%) (1.9%) ----------------------------------------------- Income (Loss) From Continuing Operations (57.6%) (5.8%) 1.1% 0.8% Loss From Discontinued Operations 0.0% 0.0% 0.0% 0.0% Extraordinary Gain 0.0% 0.0% 0.0% 0.0% ----------------------------------------------- Net Income (Loss) (1) (57.6%) (5.8%) 1.1% 0.8% ===============================================
26 (1) After giving effect to a net gain of $1,165,000 on the sale of our manufacturing facility in the first quarter of 2000 and a loss of $181,000 on the sale of certain equipment in the fourth quarter of 2000. (2) 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 in 1998 reflect our strategy to exit non- LMR businesses and to discontinue LMR products and lines that were inadequately profitable. Specifically, we sold our digital data communications business and exited from the access controls, consumer electronics, and commercial real estate 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. Inflation and Changing Prices Inflation and changing prices for the nine months ended September 30, 2001 and 2000, have contributed to increases in wages, facilities, and raw material costs. Effects of these inflationary effects were partially offset by increased prices to customers. We believe that we will be able to pass on most of our future inflationary increases to our customers. Dividends No cash dividends have been paid with respect to our common stock during the past five years. We intend to retain our earnings to fund growth and, therefore, do not intend to pay dividends in the foreseeable future. In addition, our revolving credit lines restricts our ability to pay dividends. Significant Customers Sales to the United States government represented approximately 36.3% and 39.8% of our total sales for the three months and nine months ended September 30, 2001, respectively, compared to 42.9% for the year ended December 31, 2000. These sales were primarily to the United States Forest Service and the Communications Electronics Command of the U. S. Army. Sales to the Forestry Service represented approximately 24.4% and 28.5% of total sales for the three months and nine months ended September 30, 2001, respectively. Sales to the Army Communications Command represented approximately 11.9% and 11.3% of total sales for the three months and nine months ended September 30, 2001, respectively. In 1998, we were awarded portions of the Forestry Service contract. This contract expired in September 2001. Earlier this year, bids for a new contact were solicited and we were awarded the contract for portable radios and base stations. The contact is for a period of one year with options for three additional years, and does not specify a minimum purchase. We were not awarded the contract for mobile radios. 27 In 1996, we were awarded a contract to provide land mobile radios to the Army Communications Command. This contract is for a term of five years with no specified minimum purchase requirement, and will expire this year. The Army Communications Command has not yet solicited bids for a new contract. Liquidity and Capital Resources As of September 30, 2001, we had working capital of $8.9 million compared with $7.7 million as of December 31, 2000. This increase was primarily the result of reductions in accounts payable and debt, enabled by revenue growth and expense reductions. We have a $7 million revolving line of credit with Summit Business Capital which expires in February 2003. As of September 30, 2001, we had borrowed $3.2 million under the revolving line of credit. Our borrowing base currently supports approximately $5.3 million of borrowings, of which we had approximately $2.1 million available as of September 30, 2001. Capital expenditures for property and equipment for the nine months ended September 30, 2001 were $64,000 compared to $217,000 for the same period in 2000. Future capital expenditures are expected to increase when we commence execution of our digital development plan. The current revolving line of credit contains restrictions on our capital expenditures. We believe that these restrictions will not impact the execution of our capital investment plans. We anticipate that capital expenditures will be funded through operating cash flow, our credit facility and the proceeds of this offering. As of December 31, 2000, we were in default of certain financial covenants under the line of credit. In February 2001, our lender signed a waiver of those defaults effective as of December 31, 2000. In March 2001, our lender agreed to modification of those covenants effective as of January 1, 2001. We are in compliance with the modified agreement. On March 16, 2000, we sold $3.25 million of convertible subordinated notes. The proceeds from this offering were used to purchase the Uniden private radio communications product lines, to repay a portion of the revolving line of credit and for working capital requirements. Management currently believes that existing cash funds generated from operations and the credit facility will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for the next twelve months. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ----------------------------------------------------------- We were subject to the risk of fluctuating interest rates in the ordinary course of business for borrowings under a mortgage of our primary operating facility. We had entered into an interest rate swap to reduce our exposure to such fluctuations. Under this arrangement, we converted our 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, we sold our facility and satisfied our obligations under the terms of the mortgage and the related interest rate swap contract. 28 BUSINESS -------- General We design and manufacture wireless communication products sold to the LMR markets which consist of two distinct markets; . the government and public safety market which includes fire, rescue, law enforcement and emergency medical personnel as well as the military and various agencies of the federal, state, and local government; and . the business and industrial and commercial market which includes schools, churches, hotels, construction companies, taxicab companies and airlines. Prior to 1999, we had been engaged in various business activities in addition to the LMR manufacturing and distribution business, including the manufacture of electronic components, digital data communications equipment, and commercial real estate. Over the last several years, we have worked to sell or otherwise discontinue our activities in these areas. During 2000, we completed our exit from those areas other than those relating to our wireless communicating business. All of the remaining properties owned by our commercial real estate subsidiary were sold during the first and second quarters of 1999. Also, during the third quarter of 1999, we sold RXD, Inc., one of our subsidiaries, which was a distributor of electronics components. We now focus exclusively on the LMR business. You can find more information about us and our products through the Internet at RELM.com. The information provided on our website is not incorporated into this prospectus. History - Merger of Adage, Inc. into RELM Wireless Corporation RELM Wireless Corporation is the surviving corporation from the January 30, 1998 merger of Adage, Inc., a Pennsylvania corporation, into RELM, its wholly owned subsidiary. In light with the relocation of the business activities of Adage out of Pennsylvania to a new headquarters in Florida and the shift of Adage's resources and management to the manufacturing and sale of wireless communications equipment, the board of directors recommended approval of the merger to change the company's state of incorporation and recommended to change its corporate name to a name which is closely identified with wireless communications products. The merger was approved by the shareholders of Adage at its annual meeting held on December 8, 1997. Also as a result of the merger, each share of Adage common stock outstanding immediately prior to the merger was converted, effective as of January 30, 1998, into one share of our common stock and the trading symbol for the shares was changed from "ADGE" to "RELM." Industry Overview General 29 LMR communications consist of hand-held (portable) and mobile (vehicle mounted) two-way radios commonly used by the public safety sector (e.g. police, fire, and emergency medical personnel), businesses (e.g. hotels, airports, farms, taxis, and construction firms), and government agencies within the United States and abroad. LMR systems are constructed to meet an organization's specific communication needs. The cost of a system varies widely, starting at approximately $60,000 for a basic configuration. Radio sets typically cost between $250 and $800, depending upon features, and there are no recurring airtime usage charges. Accordingly, LMR usage patterns are considerably different from those for cellular and other wireless communications tools. LMR usage is characterized by frequent calls of short duration. The majority of users make 20 to 50 calls per day, with most calls lasting less than 30 seconds. The average useful life is 8 years for a portable radio and 11 years for a mobile. LMR systems are the oldest form of wireless dispatch communications used in the U.S., having been first deployed by the Detroit Police Department in 1921. LMR is also the most widely used form of dispatch communications in the U.S. with an estimated 16.3 million users in 1998. Initially, LMR was used almost exclusively by law enforcement. At that time, all radio communications were transmitted in an analog format. Analog transmissions typically consist of a voice or other signal modulated directly onto a continuous radio carrier wave. Over time, advances in technology decreased the cost of LMR products and increased its popularity and usage by businesses and other agencies. To respond to the growing usage, additional spectrum was allocated for LMR use. In recent years LMR has been characterized by slow growth of approximately 2% annually. This growth rate is a reflection of several factors: - - LMR is a mature industry, having been in existence for over 70 years. - - Some LMR users are in mature industry segments that are themselves experiencing slow growth rates. - - Most significantly, growth has been hampered by the lack of available radio spectrum, which has prevented existing users from expanding their systems and hindered efforts of many potential new users from obtaining licenses for new systems. As a result of the lack of available spectrum, the FCC has mandated that new LMR equipment utilize more spectrum-efficient technology. This will effectively require LMR users to migrate to digital systems. Responding to the mandate, the Association of Public Communications Officials (APCO), in concert with several LMR manufacturers (including RELM), recommended an industry standard for digital LMR devices that would meet the FCC requirements and provide solutions to several problems experienced primarily by public safety users. The standard is called Project 25. The primary objectives of APCO Project 25 are to: i) allow effective, efficient and reliable inter-operability among users, ii) obtain maximum radio spectrum efficiency, and, iii) to ensure competition among LMR providers through an open system architecture. Although the FCC does not require public safety agencies or APCO to purchase Project 25-compliant equipment or otherwise adopt the standard, we believe that compliance with the standard is fast becoming the key factor for public safety purchasers. Furthermore, we believe that the demand for Project 25-compliant equipment will fuel significant LMR market growth as users upgrade systems to comply with the FCC mandate. 30 By some estimates, the LMR industry is as large as $7 billion in annual sales. Motorola dominates the market, holding an estimated market share in excess of 70% ($5 billion). The remaining market share is spread among many small companies, including us. Competition in the Industry We face intense competition from several companies, both domestic and foreign, which are currently offering LMR product lines. The largest producer of LMR products in the world, Motorola, currently is estimated to have in excess of 70% of the market for LMR products. Motorola, as well as other of our competitors, are significantly larger and have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we have and they have established reputations for success in developing and producing LMR products. Product Evolution New product and technology developments are having and will continue to have a significant impact on our business. The LMR industry is currently experiencing a transition from analog products to digital products. In addition, the Project 25 standards for LMR compatibility have been adopted and the market demand for APCO 25 compliant products is growing. Digital and APCO 25 compliant products are already being brought to the market by several of our competitors. The products we are currently selling are analog products. We compete in these markets by capitalizing on our strengths, including quality, speed, and customer responsiveness. As we successfully implement low-cost offshore manufacturing relationships, we are increasingly able to compete in price. We believe that we are competitive with regard to these factors. Description of our Market Government and Public Safety The government and public safety market includes the fire, rescue, law enforcement, emergency medical personnel, as well as various agencies of federal, state, and local government. Most of our sales in this market are made directly to the end-users. Sales to this market represented approximately 70% of total sales during 2000 and 78% of total sales for the first nine months of 2001. We offer products to this market under the BK Radio brand name. This product line consists of higher-specification land mobile radios with more complex features and capabilities tailored for professional radio users. The 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. We also manufacture and sell base station components and subsystems which are 31 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. Currently, our products and systems for the government and public safety market use conventional analog technology. However, there is an increasing demand in this market for digital LMR equipment and systems that are compliant with the Project 25 standard established by APCO. We are currently developing products that are compliant with Project 25 specifications. Business, Industrial and Commercial The business, industrial and commercial market includes businesses of all sizes that require fast, push-to-talk communication among a defined group of users such as hotels, construction companies, schools, taxicab and limousine companies, and airports. Most of our sales in this market are to dealers and distributors who then resell the products to end-users. Our sales to this market represented approximately 30% of total sales during 2000 and 22% of total sales for the first nine months of 2001. We offer products to this market under the RELM and Uniden brand names. The products include mobile radios, portable radios, base stations, and repeaters. In March 2000, we expanded our product offering with the acquisition of the private radio communications product lines from Uniden America Corporation. This product line supplements our product offerings in this segment with 8 new portable radios and 6 new mobile radios. These products are recognized in the business, industrial and commercial segments of the LMR market and have broadened and modernized our offerings, including the addition of trunking capability and ESAS systems. These products are presently being sold under the Uniden brand name. Shipping of these products commenced in the fourth quarter of 2000. In September 2001, we entered into an original equipment manufacturing agreement with an electronic design and manufacturing concern in Shenzhen, China. Under this agreement, we will acquire four new models of VHF and UHF portable radios and will have exclusive distribution rights in North, Central, and South America for all RELM-branded radios manufactured under that agreement. These radios, sold under the RELM brand, will supplement our current product lines by providing lower-cost, yet feature rich and reliable two-way communications for lower-end business and industrial users. Discontinued Products and Product Lines Electronic Components. Until September 1999, we marketed electronic components, primarily crystals and clock oscillators to electronic component distributors and original equipment manufacturers through our subsidiary, RXD, Inc. These components were used in various electronic products including computers, scales, keyboards, and toys. We sold this product line in September 1999. Digital Data Communications Equipment. Until August 1998, we manufactured load management systems for sale to electric utility companies, dealers, and jobbers. A load 32 management system enables its user to limit usage of electricity during peak demand periods. We sold this product line to our former product line manager in August 1998. Radio Controls for the Garage Door and Gate Operator Industry. Until 1997, we manufactured small, low-powered receivers, transmitters, and control circuit boards designed by Allister Access Controls, one of our former subsidiaries ("Allister"). These products control the operation of automatic garage door and gate operators and were manufactured under the Allister and Pulsar brand names. We sold Allister in 1997. Redgo Properties, Inc. Redgo Properties, Inc., is one of our wholly owned subsidiaries. Redgo was engaged in developing and managing commercial real estate. In 1995, we decided to discontinue this business, and in the first and second quarters of 1999, Redgo sold its last two remaining properties. Sales Information The following table summarizes sales information by our major product lines and industries and illustrates our efforts to focus exclusively on our LMR business:
Nine Months Year Ended December 31 ----------------------------------- Ended September 30 ------------ 2001 2000 1999 1998 ------------------------------------------------------------------ (In Millions) LMR - Gov. & Public Safety * $13.3 $14.7 $13.5 $12.3 LMR - Bus/Indus/Communications 3.8 6.4 7.0 10.9 Electronic Components - - 1.0 1.7 ------------------------------------------------------------------ Total Wireless Communications Equipment 17.1 21.1 21.5 24.9 Discontinued Products and Product Lines (1) - - 0.9 4.6 Total $17.1 $21.1 $22.4 $29.5 ==================================================================
(1) Refer to "Discontinued Products and Product Lines" above for further discussion. The following table summarizes gross margin, operating income, and net income information:
Nine Months Year Ended December 31 Ended ---------------------- September 30 ------------ 2001 2000 1999 1998 --------------------------------------------------------------------- (Dollars In Millions) Gross Margin $ $ 4.9 $ 5.4 $ 5.8 $ 6.7 Gross Margin % 28.7% 25.6% 25.8% 22.6% Operating Income/(Loss) $ 0.5 $ (1.6) $ (1.7) $ (4.2) Net Income/(Loss) $ 0.1 $ (1.4) $ (2.3) $ (5.4)
Significant Customers 33 In 1996, we were awarded a contract to provide land mobile radios to the United States Army. This contract does not have any specified minimum purchase requirements. We commenced shipping products to the Army in 1997 which totaled $10.4 million, representing 22.9% of total sales for that year. The Army suspended shipments in 1998 because it had inventory that was sufficient to meet its requirements throughout the year. In 1999 and 2000, we shipped to the Army products which totaled $1.7 and $2.0 million, respectively. Sales to the U.S. Forestry totaled $7.4 million in 2000 representing approximately 35.1% of our total product revenues. Combined sales to all U.S. Government agencies, including the U.S. Forestry, exceeded $9.4 million in 2000 representing in excess of 44.0% of our total product revenues. Backlog Our order backlog were approximately $4.6 million and $6.2 million as of September 30, 2001 September 30, 2000, respectively. This included only the current portion of the U.S. Army contract. Information Relating to Domestic and Export Sales The following table summarizes our sales of LMR wireless communications equipment by location of its customers:
Nine Months Year Ended December 31 ----------------------------------- Ended September 30 ------------ 2001 2000 1999 1998 ------------------------------------------------------------------------ (In Millions) ------------------------------------------------------------------------ United States $16.2 $20.4 $20.7 $24.9 South America - - - 2.1 Europe - .7 .7 .6 Other International .9 - .1 2 ------------------------------------------------------------------------ Total $17.1 $21.1 $21.5 $27.8 ========================================================================
Sales and Marketing and Strategic Relations hips Sales and Marketing. Our sales and marketing efforts are organized under the - ------------------- direction of Thom Morrow, a seasoned and successful LMR sales executives with over 20 years of experience in the LMR industry. Strategic Relationships. An important element of our business strategy is to - ----------------------- develop strategic relationships with industry players that can assist in the development of new products, provide access to leading-edge manufacturing capabilities and market and distribute products globally. 34 This approach allows us to concentrate our resources on core competencies of product design and development, reduce capital requirements and generally provide a higher degree of operating leverage. The following table illustrates the nature of our strategic relationships:
Type of Strategic Relationship Cooperative Technology Strategic Partner Development Licensor Supplier Manufacturer Uniden America Corporation X X X X Solectron X X Shenzhen Hyt Science & Technology X X X X VDV Media X X Westel X X X
Since the introduction of this strategy in 1999, we have made significant strides in utilizing outside resources, particularly in manufacturing. Segments of all our product lines are manufactured by outside sources. This has resulted in improved margin performance. Gross margins for the recently completed third quarter 2001 were approximately 30%, compared to 14% as recently as 1997. We are continuing to evaluate more cost-effective and quality providers of manufacturing, engineering, and other resources. We also utilize outside resources for certain engineering and product development initiatives. In the first quarter 2000, through VDV Media, we completed the development of multi- site dispatch capability for Uniden ESAS Systems. Products Research and Development Our product design and development activities are principally conducted in West Melbourne, Florida, where core research and development activities, including product conceptualization, technical writing, printed circuit board layouts, software development and mechanical engineering are conducted. Our engineers and other research and development employees also develop design specifications based on customer requirements and supervise quality assurance activities. Our research and development team actively assists in the implementation of product designs, with primary responsibility for applied engineering, production engineering and the supervision of contract manufacturers. Other activities include ongoing engineering and quality assurance. As of September 30, 2001, we employed 10 people who devote all or a substantial portion of their time to research, development and engineering. For 1998, 1999, and 2000, RELM's research, development and engineering expenditures were approximately $2.3 million, $1.5 million and $1.2 million, respectively. For the nine months ended September 30, 2001, these expenditures totaled approximately $1.0 million. The use of strategic technology partners has enabled us to reduce R&D expenditures while concentrating on key initiatives, particularly APCO Project 25 compliant digital products. We recently launched our digital development initiative. Initially this project will yield a VHF portable radio. Later, UHF and 800Mhz/700Mhz models will also be included. The VHF model 35 is planned to be available for sale at the outset of 2003. This project will utilize primarily internal staff and resources and require estimated additional capital of $2 million. Manufacturing Our manufacturing strategy is to utilize the highest quality and most cost effective resources available for every aspect of our manufacturing. In the first quarter of 2000, we completed our initial agreement for utilizing outside manufacturing services while concurrently reducing our operating overhead. This was accomplished by selling our West Melbourne manufacturing facility and entering into a contract with Johnson Matthey Electronic Assembly Services, Inc., a division of Honeywell International, for the manufacture of certain LMR subassemblies. This agreement has a five-year term and is automatically renewed for one-year terms unless either party gives notice of termination. Johnson Matthey purchases the raw materials related to the manufacture of these subassemblies directly from suppliers. Also, in connection with the acquisition of the Uniden LMR product line, we entered into a manufacturing contract with Uniden America Corporation under which Uniden will continue to manufacture that product line. We were permitted to use the Uniden brand name for the duration of the contract. The initial term of the Uniden contract was for 18 months. Although the contract expired in September 2001, we continue to operate under the original terms of the agreement. In September, we entered into an original equipment manufacturing agreement with Shenzhen Hyt Science & Technology Company, LTD for the manufacture of a new family of portable two-way radios. Under the agreement, HYT will manufacture four models of VHF and UHF portable two-way radio transceivers for us, and we will have distribution rights for these products in North, Central, and South America for all radios manufacture under the RELM brand. The agreement is for a term of five years and its scope may be expanded to include additional products. Certain models are expected to be available beginning in the fourth quarter 2001, while the remaining models are expected to be available in the first quarter 2002. The new portable two-way radios will provide a low-cost yet feature-rich and reliable two-way communication alternative for customers in these markets. HYT is a private company located in China, which has specialized in engineering and manufacturing quality radio frequency (RF) products since 1993. HYT employs approximately 120 individuals, including 30 electronic and RF engineers. We plan to continue to outsource manufacturing where it furthers our business objectives. This strategy allows us to focus on our core technological competencies of research, product design and development, and to reduce the substantial capital investment required to manufacture our products. We also believe that our use of experienced, high-volume manufacturers will provide greater manufacturing specialization and expertise, higher levels of flexibility and responsiveness, and faster delivery of product. To ensure that products manufactured by others meet our standards, our West Melbourne production and engineering team works closely with its ISO9002-qualified contract manufacturers in all key aspects of the production process. We establish product specifications, select the components and the suppliers, and negotiate the prices for most of these components. We retain all document control. We also work with our contract 36 manufacturers to improve process control and product design, and to conduct periodic, on-site inspections. Sources of Supply We rely upon a limited number of both domestic and foreign suppliers for several key products as well as components used in their products. Several are located in China and Singapore. We place purchase orders from time to time with these suppliers and have no guaranteed supply arrangements. In addition, we obtain certain components from a single source. The amount of these components is not material relative to total component and raw material purchases. Distribution Our products sold to the business, industrial and commercial markets are sold primarily to dealers and distributors who resell to end-users. We generally enter into contracts with our dealers and distributors. Our products sold to the government and public safety sectors are usually sold directly to the end-users. Intellectual Property We rely on a combination of contract, copyright, trade secret, and trademark law to protect our intellectual property. We have federal trademark registrations for the names "Wilson," "Utilicom," "Citicom," "Mini-com," "Regency Electronics," and "Force Communications." In addition, we have world-wide nonexclusive licenses to use the federal trademarks "Uniden" and "ESAS." As part of our confidentiality procedures, we generally enter into nondisclosure agreements with our employees, distributors and customers, and limit access to and distribution of our proprietary information. There can be no assurance that the steps we have taken in this regard will be adequate to deter misappropriation of our proprietary rights or that third parties will not independently develop substantially similar products and technology. Employees We presently have 82 full-time employees, most of whom are located at our West Melbourne, Florida facility. 52 of these employees are engaged in direct manufacturing or manufacturing support, 10 in engineering, 8 in sales, marketing and order entry and 12 in general and administrative activities. Our employees are not represented by any collective bargaining agreements, nor has there ever been a labor-related work stoppage. Seasonality Demand for our Bendix King LMR products is typically strongest in the summer season because of the increased forest fire activity during that time. 37 Properties Our corporate and technical headquarters are located in West Melbourne, Florida. In March 2000, we sold our 144,000 square foot office and industrial facility in West Melbourne, Florida. This building was utilized for manufacturing our wireless communications equipment as well as for research and development, engineering and executive offices. Simultaneously with the sale, we entered into a lease with Johnson Matthey for a new facility which is approximately 54,000 square feet of comparable space at a nearby location for all company functions. We completed our move to the new facility at the end of May 2000. The lease has a five year term. Rental, maintenance and tax payments during fiscal year 2000 were approximately $274,000. We believe that our existing facilities are adequate to support our existing operations and that, if needed, we will be able to obtain suitable additional facilities on commercially reasonable terms. Litigation On February 14, 1996, the Insurance Commissioner of the Commonwealth of Pennsylvania, in her capacity as statutory liquidator for Corporate Life Insurance Company, filed a complaint against multiple defendants in the Commonwealth Court of Pennsylvania, including us and Donald F.U. Goebert (in his capacity as one of our officers and directors). The specific claims alleged against us and Mr. Goebert are for a preferential transfer, conspiracy and common law fraud arising from a 1987 transaction between us and Corporate Investment Company, the parent Company of Corporate Life, pursuant to which we and Corporate Life Insurance exchanged promissory notes in the amount of $1,700,000. In connection with this transaction, Corporate Life Insurance pledged to us, as security for its note payment obligation, its shares of stock of Corporate Life. Corporate Life Insurance subsequently defaulted on its promissory note. In 1991, at the demand of the Pennsylvania Insurance Commissioner, Corporate Life Insurance sold Corporate Life to American Homestead, Inc. and, in connection with such sale, we assigned our note receivable from Corporate Life Insurance along with the collateral to American. As consideration for this assignment, American agreed to assume our obligations under its promissory note to Corporate Life Insurance in the amount of $1,700,000. Accordingly, although the complaint alleges a claim for a preferential transfer, we received no payment of funds from Corporate Life Insurance. The conspiracy claims are non-specific but pertain to the sale of Corporate Life to American in 1991. Mr. Goebert was an officer and a director of Corporate Life Insurance. We expect this matter to become more active in the early part of 2002. A pre-trial schedule set in October 2001, set aggressive time frames for the completion of discovery, the filing of dispositive motions and the filing of pre-trial statements. We will continue to vigorously defend this matter. In one of two related actions, in 1994, the Trustee and statutory liquidator of Corporate Life Insurance, in connection with the current bankruptcy proceedings of Corporate Life Insurance, brought an adversarial proceeding in the United States District Court for the Eastern District of Pennsylvania against us, Mr. Goebert and other individuals and entities that were involved in the sale of Corporate Life to American. 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 Corporate Life Insurance filed a complaint against, among others, us and Mr. Goebert in the United States District Court for the Southern District of New York. The specific claims alleged against us and Mr. Goebert in the complaint 38 are for fraud, fraudulent conveyance, securities fraud and Racketeer Influenced and Corrupt Organization act violations in connection with the Note Transaction, the sale of Corporate Life and other investments made by Corporate Life Insurance in an effort to raise capital for Corporate Life. Each of the above- related matters is in civil suspense, pending resolution of the original matter brought by the Insurance Commissioner. We believe 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. We believe that there will be no material adverse effect on our financial position as a result of these actions. On February 12, 1999, we initiated criminal and civil proceedings in Sao Paulo, Brazil against our Brazilian dealer, Chatral, for failure to pay for product shipments totaling $1.4 million. Exhaustive negotiations were conducted by our 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. In April 2001, the Brazilian court ordered us to post security with the court totaling approximately $300,000 in the form of cash or a bond in order for the case to proceed. We have elected not to post security. Consequently, the case has been involuntarily dismissed. There has been no ruling on the merits of the case, and we have preserved our rights to pursue this matter in the future. On December 8, 1999, Chatral filed claim against us in the United States District Court for the Southern District in Miami, Florida alleging damages totaling $8 million as a result of our discontinuation of shipments to Chatral. We have retained counsel to represent us in these actions. Although we believe that we have defenses of merit, the outcome of this action is uncertain. An unfavorable outcome could have a material adverse effect on our financial condition. Heath & Company filed suit against RELM Wireless Corporation and RELM Communications, Inc. in the United States District Court for the District of Massachusetts in early 2001 year for breach of contract, misrepresentation and unfair trade practices. Pursuant to a Memorandum and Order dated April 24, 2001, by Judge Douglas P. Woodlock, most of Heath's claims have been dismissed. The judge ruled as a matter of law that a fact finder must determine whether RELM Communications withheld information it knew to be essential to Heath and whether it did so in a bad faith attempt to withdraw from a brokerage agreement. Our belief is that the Plaintiff will not be able to meet the burdens outlined by the court in its April 24, 2001 Memorandum and Order. On December 20, 2000, a products liability lawsuit was filed in Los Angeles Superior Court in Los Angeles, California. Although we were not named in the suit, one of the Defendants, C.P. Allstar Corporation had purchased all or substantially all of the assets of a RELM affiliate. As part of the asset sale, the asset purchase agreement contained indemnification provisions, which could result in liability for us. On October 23, 2001, C.P. Allstar Corporation served us with a claim for indemnification under a provision of the asset purchase agreement. We are vigorously defending the claim. 39 On November 19, 2001, a products liability lawsuit was filed in the 353rd Judicial District Court of Travis County, Texas, against RELM Wireless Corporation and RELM Communications, Inc. C.P. Allstar Corporation is also a named defendant in this lawsuit. C.P. Allstar Corporation had purchased all or substantially all of the assets of a RELM affiliate. As part of the asset sale, the asset purchase agreement contained indemnification provisions, which could result in liability for us. We are vigorously defending the claim. MANAGEMENT ---------- Executive Officers and Directors Our executive officers and directors and their ages are as follows: Name Age Position - ---- --- -------- Donald F. U. Goebert 65 Chairman of the Board David P. Storey 49 President and Chief Executive Officer and Director William P. Kelly 45 Executive Vice President Finance and Chief Financial Officer Buck Scott (1) 72 Director Robert L. MacDonald (1) 73 Director Ralph R. Whitney Jr. (1) 66 Director James C. Gale (1)(2) 51 Director George N. Benjamin, III (1)(2) 64 Director (1) Member of the audit committee. (2) Member of the compensation committee. Each director holds his office until the next annual meeting of the shareholders unless he resigns or is removed or disqualified. Officers are elected by the board of directors and any number of offices may be held by the same person. The business experience of our executive officers and directors is set forth below: DONALD F. U. GOEBERT has been our Chairman of the Board (and a director of our predecessor) since March 1968. He was the President of our predecessor from March 1968 to October 1988, and our President and Chief Executive Officer from April 1993 to December 1997. He has been President of Chester County Fund, Inc., a commercial real estate company, since 1968. Mr. Goebert is a director of Investors Insurance Group, Inc., a commercial insurance company. DAVID P. STOREY has been our President and Chief Executive Officer since July 2000, after serving as our Chief Operating Officer for two years. From November 1994 to June 1998, he was Senior Vice President of Manufacturing of Antec Corp. a communications electronics company. WILLIAM P. KELLY has been our Vice President - and Chief Financial Officer since July 1997. From October 1995 to June 1997, he was Vice President - and Chief Financial Officer of our subsidiary, RELM Communications, Inc. From January 1993 to October 1995, he was the Financial Director of Harris Corp. Semiconductor Sector. 40 BUCK SCOTT has been a director (and a director of our predecessor) since 1980. Mr. Scott has been a private investor since January 1995. Mr. Scott was the President of Electrical Energy Enterprises, Inc., a distributor of electrical power equipment, from 1991 through 1994. ROBERT L. MACDONALD has been a director since February 1991. He is retired. From 1953 to 1993, he was a director of Financial Aid Wharton Graduate Division and Lecturer in Management, Wharton School, University of Pennsylvania. RALPH R. WHITNEY JR. has been a director since January 1992. Since January 1971, Mr. Whitney has been the President and Chief Executive Officer of Hammond Kennedy Whitney & Co., Inc., an investment banking company. Mr. Whitney serves as a director in IFR Systems, Inc., a manufacturer of test equipment for the military, Baldwin Technology Co., Inc., a manufacturer of printing press equipment, First Technology, PLC, a manufacturer and supplier of electronic optical sensors, Reinhold Industries, Inc., a manufacturer of composite components in the aerospace, defense and commercial lighting industries, and Dura Automotive Systems, Inc., a manufacturer of automobile windows, seat and door assemblies. JAMES C. GALE has been a director since October 1993. Since September 1998, Mr. Gale has been the Managing Director of Sanders, Morris, Harris, an investment banking company. From 1991 to 1998, Mr. Gale was the Managing Director of Gruntal & Co., LLC, an investment banking and management company. Mr. Gale is a director of Latshaw Enterprises, Inc., a manufacturer of power and electrical cables, Premium Research Worldwide Ltd., a provider of clinical research support, and Amarin Corporation, Plc., a specialty pharmaceutical company. GEORGE N. BENJAMIN, III has been a director since January 1996. He has been the President and CEO of Keystone Networks, Inc. an optical network developer since November, 1999, and was the President and CEO of BICC Cables Corp., N.A., a manufacturer of electrical wires and cable, from August 1998 through June 1999. He has been the Consultant and Partner in Trig Systems, LLC, a management and consulting company, since July 1987, President and CEO of Tie Communications, Inc., a telecommunication products and software manufacturer and service provider, from April 1992 to November 1995, and Group Vice President of The Marmon Group, Inc., a management consulting company, prior to April 1992. Mr. Benjamin is also a director of Stonbridge Financial Corp., an internet banking firm. Key Employees Other key personnel and their ages are as follows: HAROLD B. COOK, age 56, has been our Vice President of Operations since July 2000. Mr. Cook joined RELM in April 1997 as Director of Manufacturing. Prior to joining us, Mr. Cook held the position of Director of Manufacturing Operations at Computer Products Incorporated, Fujitsu America Inc., and Ampro Corporation. Mr. Cook also held operations management positions at Storage Technology Corporation and Harris Corporation. Mr. Cook holds a Bachelor's degree in business administration and economics from Rollins College. THOMAS L. MORROW, age 50, has been our Senior Vice President and Director - Government and Public Safety Sales and Marketing since December 1999. From 1997 to December 1999, he was the owner of Tomorrow Sales and Marketing Alternatives. From 1996 to 1997, he was Vice President World Wide Systems at E.F. Johnson Company. From 1995 to 1996, he was Senior Vice President North America Operations at Stanilite Pacific, LTD. From 1993 to 1995, he was 41 Territory Manager at Motorola, Inc. Mr. Morrow holds a Bachelor's degree in marketing and international business from the University of Colorado. Board of Directors and Committees Pursuant to our articles of incorporation and by-laws, and in accordance with the Nevada General Corporation Law, our board of directors consists of seven directors or such greater or lesser number as may be fixed from time to time by the board of directors. Our board of directors has a compensation committee and an audit committee. We do not have an executive committee or nominating committee. Our board of directors has held five meetings in fiscal 2001 and each of the directors attended at least 75 percent of the aggregate number of meetings of the board of directors and committees (if any) on which he served. Messrs. Gale and Benjamin served as members of the compensation committee during 2000. The primary function of the compensation committee is to review and determine compensation for our principal executive officers. The compensation committee also administers our 1996 Stock Option Plan for Non-Employee Directors and our 1997 Stock Option Plan and grants option awards under those plans. The compensation committee has held three meetings during 2001. Messrs. MacDonald, Whitney, Benjamin and Gale have served as members of the audit committee during 2001. The primary function of the audit committee is to review the scope and results of the annual audit, to monitor internal accounting procedures and to address certain other questions of accounting policy. The audit committee has held eight meetings during 2001. Director Compensation During 2001, we paid to each of our non-employee directors meeting fees of $1,000 for attendance at each board meeting and $500 for attendance at each meeting of any committee of the Board of Directors which is not held in conjunction with a meeting of the board. Beginning with the 1997 fiscal year, as a result of approval by the shareholders of the 1996 Non-Employee Director Stock Option Plan, compensation for non-employee directors was modified to provide for the grant of stock options in lieu of a quarterly retainer for service as a director. Also, pursuant to the terms of the plan, beginning in 1997, a grant of a stock option for the purchase of 5,000 shares is made to each non-employee director on the date of each annual meeting of shareholders at which that person is elected or reelected as a director (or if the annual meeting has not been held by June 30 of that year the grant is made as of June 30th of that year to each of the persons qualifying and who has been a non-employee director for at least three months). Those options are granted at an exercise price equal to the fair market value of our common stock on the date of grant, become fully exercisable eleven months after the date of grant or, if earlier, upon a change of control as defined in the 1996 Director Plan and expire five years from the date of grant or earlier in the event service as a director ceases. On June 13, 2001, grants of stock options for the purchase of 5,000 shares was made to each of our non-employee directors, at an exercise price of $1.03 per share. Compensation Committee Interlocks and Insider Participation 42 During 2001, the compensation committee of our board of directors was composed of independent, outside directors, Messrs. Gale (Chairman) and Benjamin. As noted above, our compensation program for our executives is administered by the board of directors with the advice and counsel of the compensation committee. Neither of the compensation committee members is or has been an officer or employee of us or any of our subsidiaries. In addition, neither Gale nor Benjamin has, or has had, any relationship with us which is required to be disclosed under "Certain Relationships and Related Transactions." None of our executive officer currently serves on the compensation committee or any similar committee of another public company. Executive Compensation The following table sets forth the annual and long term compensation during each of the last three years paid by us to Messrs. Storey and Kelly, who served as our President and Chief Executive Officer and Executive Vice President - Finance and Chief Financial Officer, respectively, during 2000, and Mr. Laird who served as our President and Chief Executive Officer in 1998, 1999 and through July 12, 2000. No other executive officer was paid salary and bonus compensation by us which exceeded $100,000 during 1998, 1999 and 2000. Summary Compensation Table
Annual Compensation Long-Term Compensation Awards ------------------- ----------------------------- Other Securities All Other Name and Principal Year Salary Bonus Annual Underlying Compensation ------------------ ---- ($) ($) Compensation Options(#) ($) Position --- --- ($) ---------- --- -------- --- David P. Storey 2000 192,385 20,833 - 55,000 3,000 President and 1999 224,982 - - 145,000 1,957 Chief Executive 1998 98,775 - - 100,000 - Officer Richard K. Laird 2000 108,189 - - - 2,792 Former President and 1999 194,448 - - 150,000 5,000 Chief Executive 1998 230,240 - - 100,000 2,500 Officer - William P. Kelly 2000 122,844 20,833 - 50,000 3,000 Executive Vice 1999 113,197 - - 75,000 3,000 President - 1998 111,626 - - - 3,000 Finance, Chief Financial Officer and Secretary
____________________ The named officers did not receive any other annual compensation not categorized as salary or bonus except for perquisites and other personal benefits which in the aggregate did not exceed 43 the lesser of $50,000 or 10% of the total annual salary and bonus reported for such named officer. The amounts shown in the column titled "All Other Compensation" include employer contributions to our 401(k) plan. Mr. Laird was granted options under our 1997 Stock Option Plan for the purchase of 100,000 shares of common stock upon the commencement of his employment and was granted options for additional increments of 50,000 shares six months, twelve months, eighteen months and twenty-four months thereafter. Mr. Laird resigned from the position of President and Chief Executive Officer on July 12, 2000. As a result of his resignation, all of Mr. Laird's options have expired. Mr. Storey assumed the position of President and Chief Executive Officer on July 12, 2000. Stock Option Grants The following table contains information concerning the grant of stock options under our 1997 Stock Option Plan to the Named Officers during 2000. In addition, the table shows the hypothetical gains or "option spreads" that would exist for the respective options. These gains are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the options were granted over the full option term. Option Grants in 2000 Individual Grants
Potential Realizable -------------------- Value at Assumed ---------------- Number of Annual Rates of Stock --------- --------------------- Securities Percent of Price Appreciation for ---------- ---------- ---------------------- Underlying Total Options Exercise or Option Term ---------- ------------- ----------- ----------- Options Granted to Employees in Base Price Expiration --------------- --------------- ---------- ---------- Name (#) 2000 ($/Sh) Date 5%($) 10%($) - ---- --- ---- ------ ---- -------- -------- David P. Storey 55,000 10.0% $1.00 11/18/10 $34,589.20 $87,655.84 William P. Kelly 50,000 9.0% $1.00 11/18/10 $31,444.73 $79,687.12 Richard K. Laird - - - - - -
___________________ All options granted in 2000 are incentive stock options ("ISOs") under (S)422 of the Internal Revenue Code of 1986, as amended. The options are exercisable as of the date of grant. The options were granted at fair market value on the date of the grant. The term of the options is ten (10) years from the date of grant unless terminated earlier due to termination of employment, disability or death. The potential realizable value of the options granted in 2001 was calculated by multiplying those options by the excess of (a) the assumed market value of common stock, if the market value of common stock were to increase 5% or 10% in each year of the options' 10-year term over (b) the base price shown. This calculation does not take into account any taxes or other expenses which 44 might be owed. The 5% and 10% appreciation rates are set forth in the Securities and Exchange Commission rules and no representation is made that the common stock will appreciate at these assumed rates or at all. Mr. Storey became President and Chief Executive Officer on July 12, 2000. We do not currently have (and have not previously had) any plan pursuant to which any stock appreciation rights ("SARs") may be granted. We will not grant non-qualified options under our 1997 Option Plan at an exercise price of less than eighty-five percent (85%) of the fair market value of our common stock on the date of such grant, until such time as federal and state securities regulators may allow a smaller exercise price. Stock Option Exercises and Holdings The following table sets forth information relating to options exercised during 2000 by each of the named officers and the number and value of options held on December 31, 2000, by each of them. Aggregate Option Exercises in Fiscal Year Ended December 31, 2000 and Fiscal Year-End Option Values
Shares Value Number of Securities Underlying Value of Unexercised Name Acquired on Realized Unexercised Options at Dec. 31, In-the-Money Options at Exercise (#) ($) 2000 (#) Dec. 31, 2000 ($) - ---------------------------------------------------------------------------------------------------------------------- Exercisable Unexercisable Exercisable Unexercisable -------------- ---------------- -------------- ---------------- David P. Storey 0 0 141,250 158,750 0 0 William P. Kelly 0 0 68,750 56,250 0 0 Richard K. Laird - - - - - -
__________________ Total value of unexercised options is based upon the difference between the last sales price of our common stock on the Nasdaq National Market System on December 29, 2000, which was $0.406 per share, and the exercise price of the options, multiplied by the number of option shares. Employment Agreements We have extended our Post-Termination Benefits Agreements dated effective as of October 1, 2000, with David P. Storey and William P. Kelly, our key executives. The post-termination agreements provide an incentive for the executives to remain in our employ should a merger, sale, change in control or other transaction occur by providing severance compensation if the executives are terminated within six months following such a change of control or other transaction. If an executive is terminated within the six month period, the executive will be entitled to receive compensation equal to such executive's annual compensation, payable in one lump sum within five business days after the date of termination. In addition, all stock options granted under the 1997 Stock Option Plan shall vest as of the closing date of a change of control or other such transaction. The post-termination agreements also subject the executives to general confidentiality and non-disparagement provisions as well as non-competition and non-solicitation provisions for one year following termination. Unless we provide written notice to 45 the executives, the post-termination agreements will terminate on October 1, 2002, if no change of control or other transaction has occurred. PRINCIPAL STOCKHOLDERS ---------------------- Security Ownership of Certain Beneficial Owners and Management. The table below shows, as of January 31, 2002, the number of shares of common stock beneficially owned by: . each person whom we know beneficially owns more than 5% of the common stock, . each director and nominee for director, . each executive officer included in the Summary Compensation Table, and . all executive officers and directors as a group. 46
Shares of Common Stock Beneficially Owned(1) --------------------- Name of Beneficial Owner Number of Shares Percent of Class - ------------------------ ---------------- ---------------- Dimensional Fund Advisors Inc. 301,733(2) 5.64% 1299 Ocean Avenue, 11/th/ Floor Santa Monica, CA 90401 Special Situations Private Equity Fund, 523,077(3) 8.91% L.P., MG Advisers L.L.C., Austin W. Marxe, and David Greenhouse 153 East 53 Street, New York, NY 10022 Simmonds Capital Limited 361,538(4)(9) 6.33% 580 Granite Court Pickering, Ontario LIW 3Z4 Bruce Galloway 306,900(5) 5.74% 1325 Avenue of the Americas 26/th/ Floor New York, NY 10019 Donald F.U. Goebert 1,411,412(6)(7) 26.40% 400 Willowbrook Lane West Chester, PA 19382 Richard K. Laird 25,385(8) * Ralph R. Whitney, Jr. 50,469(9) * Buck Scott 65,000(9) 1.21% James C. Gale 40,000(9) * George N. Benjamin, III 23,100(9) * Robert L. MacDonald 20,000(9) * David P. Storey 350,000(9)(10) 6.14% William P. Kelly 177,500(9) 3.21% All executive officers and directors 2,162,866(6)(7)(8)(9)(10) 36.11% as a group (9 persons)
_____________________________ * Less than 1% (1) Based on 5,346,714 shares of common stock issued and outstanding as of December 18, 2001. Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock listed, which include shares of common stock that such persons have the right to acquire beneficial ownership of within 60 days from the date of this prospectus. (2) As disclosed in the Schedule 13G filed by Dimensional Fund Advisors Inc., dated February 2, 2001, Dimensional has sole voting power and sole investment power with respect to all of the reported shares. All of the reported shares are owned by advisory clients of Dimensional, and Dimensional disclaims beneficial ownership of the reported shares. 47 (3) Special Situations Private Equity Fund, L.P. and MG Advisers L.L.C., its general partner, are deemed to have sole power to vote or to direct the vote and to dispose or to direct the disposition of 523,077 shares. These shares are issuable upon conversion of $1,700,000 principal amount of 8% Convertible Subordinated Promissory Notes due December 31, 2004, at an exercise price of $3.25. Austin W. Marxe and David Greenhouse are deemed to have shared power to vote or dispose of the shares by virtue of being executive officers of MG Advisors. A Schedule 13G filed by Special Situations, MG Advisors, Austin Marxe and David Greenhouse with the Securities and Exchange Commission on April 11, 2000 is the source of this information. These shares are issuable upon conversion of $1,700,000 principal amount of convertible subordinated promissory notes. (4) Simmonds Capital Limited is deemed to have sole power to vote or to direct the vote and to dispose or direct the disposition of 361,538 shares. 61,538 of these shares are issuable upon conversion of the $200,000 principal amount of 8% Convertible Subordinated Promissory Notes due December 31, 2004, at an exercise price of $3.25. (5) As disclosed in the Schedule 13G filed by Bruce Galloway filed on January 18, 2001. Mr. Galloway has sole voting and investment power with respect to all of the reported shares. (6) Includes 90,942 shares owned by Chester County Fund, Inc., the majority stockholder of which is Mr. Goebert, and 60,000 shares owned by a partnership controlled by Mr. Goebert. (7) Includes 23,366 shares held in a custodial account for our Employee Stock Purchase Program, of which Mr. Goebert is a custodian, and 789 shares held in a Trust under our 401(k) plan, of which Mr. Goebert is a Trustee. (8) Includes 15,385 shares of our common stock issuable upon conversion of $50,000 principal amount of convertible subordinated promissory notes which are beneficially owned by Mr. Laird. Mr. Laird resigned as President and Chief Executive Officer on July 12, 2000. (9) Share ownership of the following persons includes shares of immediately exercisable options as follows: for Simmonds Capital Limited - 300,000 shares; for Mr. Whitney - 20,000 shares; for Mr. Scott - 20,000 shares; for Mr. Gale - 20,000 shares; for Mr. Benjamin - 20,000 shares; for Mr. MacDonald - 20,000 shares; for Mr. Storey - 350,000 shares; and for Mr. Kelly - 177,500 shares. (10) Mr. Storey became President and Chief Executive Officer on July 12, 2000. Certain Relationships and Related Transactions We will not enter into transactions with our officers, directors or beneficial owners of five percent (5%) or more of our common stock on terms more favorable to them than those terms that can be obtained by an unrelated third party in transacting business with us. DESCRIPTION OF THE UNITS ------------------------ Each subscription right, offered hereby, entitles the holder to subscribe for one unit, subject to pro rata adjustment as a result of an oversubscription. Each unit consists of one share of common stock and one warrant to purchase one share of common stock. The subscription purchase price of each unit is $1.04 which was 90% of the closing bid price of our common stock on February 4, 2002, and which may be reduced to not less than $0.84, depending on the closing bid price of our common stock on the expiration date of the rights offering. The subscription rights are exercisable for a period of 21 days from the effective date of this registration statement of which this prospectus is a part of on _____________, 2002. We are offering one subscription right to each equity holder, who is an owner of any of our shares, warrants, options or conversion rights. The units will trade on the NASDAQ SmallCap Market until _______, 2003, or such earlier date that is ten days after the date that we file a Form 8-K disclosing the press release of the announcement that Noble International Investments, Inc. declared the units separated. DESCRIPTION OF CAPITAL STOCK ---------------------------- General 48 Our authorized capital stock consists of 20,000,000 shares of common stock, $0.60 par value, and one million shares of preferred stock, $1.00 par value. The following description of our capital stock is not complete and is qualified in its entirety by our articles of incorporation and by-laws, both of which are included as exhibits to the registration statement of which this prospectus forms a part, and by applicable Nevada law. Common Stock As of January 31, 2002, there were 5,346,174 shares of common stock outstanding that were held of record by approximately 1,187 stockholders. The holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to any preferential rights of preferred stockholders, the holders of our common stock are entitled to receive dividends on a pro rata basis, if any, declared from time to time by the board of directors out of legally available funds. We have never paid dividends in the past and do not intend to do so in the future. In the event of our liquidation, dissolution or winding up, subject to any preferential rights of preferred stockholders, the holders of our common stock are entitled to share on a pro rata basis in all assets remaining after payment of liabilities. Holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock are, and the shares of our common stock to be issued upon conversion of the notes and exercise of the warrants will be, fully paid and nonassessable. Preferred Stock Our board of directors has the authority, without further action by the stockholders, to issue up to one million shares of our preferred stock in one or more series and to fix the rights and privileges of each series. These rights may include dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, and liquidation preferences. The privileges and rights of preferred stock may be greater that those of our common stock. The issuance of preferred stock may have the effect of delaying, deterring or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. We have no plans to issue any preferred stock. Warrants Each warrant included in the units entitles the holder to purchase one share of our common stock at an exercise price of $____ per share, subject to adjustment in the event of specified changes in our capitalization or certain issues of our securities. Upon separation of the units, American Stock Transfer and Trust Company, the warrant agent, will issue and deliver a warrant certificate to you. We have entered into a warrant agreement with American Stock Transfer and Trust Company, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part. You may exercise your warrant at any time on or after _____________, 2003 and until ______________, 2006, by surrendering the certificate representing the warrant to the warrant agent, with the subscription form on the reverse side of such warrant certificate properly completed and executed, together with payment of the exercise price. American Stock Transfer and Trust Company, as transfer agent and warrant agent, shall deliver stock certificates representing the shares of our common stock purchased pursuant to the warrant. A warrant will be deemed to have been exercised immediately prior to the close of business on the date that the warrant agent receives the subscription form and payment of the exercise price, and the person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the stockholder upon exercise thereof as of the close of business on such date. After separation of the units, you may transfer your warrant certificates in whole or in part. Warrant certificates to be transferred shall be surrendered to the warrant agent at its corporate office. The exercise price and number of shares of common stock purchasable upon the exercise of the warrants are subject to adjustment upon the occurrence of certain events, including, without limitation, a reclassification, capital reorganization, consolidation, merger and sale or conveyance to another company of our property and certain additional issuances of securities. We may redeem the warrants, in whole or in part, on not less than 30 days' prior written notice at a redemption price of $.10 per warrant, provided our closing sales price of the common stock as reported on the NASDAQ SmallCap Market, if traded thereon, or if not traded thereon, on a national securities exchange or the NASDAQ National Market, has been at least 150% of the then current warrant exercise price for 20 consecutive trading days. Any redemption in part shall be made pro rata to all warrant holders. We will mail the redemption notice to you at your address that appears in the warrant register. You may exercise the warrant until the close of business on the day immediately preceding the date fixed for redemption. As a warrant holder, you shall not be entitled to vote or to receive dividends or be deemed the holder of common stock that may at any time be issuable upon exercise of your warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon you, as such, any of the rights of a stockholder of our company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive any notice of meetings or to receive dividends or subscription rights, until you exercise your warrants and have been issued shares of our common stock. We have applied to have the warrants listed on the NASDAQ SmallCap Market. We have reserved the symbol RELMW for the warrants, but have not had that symbol assigned to us. We plan to announce the symbol once it is assigned. There can be no assurance that the warrants will be accepted for listing. In addition to the warrants being issued in this offering, we have previously issued warrants to purchase shares of our common stock. We have warrants outstanding for the purchase of 466,153 shares of our common stock with an exercise price of $3.25. The warrants became exercisable on September 16, 2000. The warrants have a five-year term and expire thereafter. The warrants were issued pursuant to two separate warrant agreements in May 2000. The warrants contain provisions that prevent the possible dilution of the warrant holders through automatic adjustments in the number of shares purchasable upon exercise of the warrants in the event of certain actions affecting our capital 49 stock. As a result of the offering, the exercise price for the warrants outstanding for the purchase of 466,153 shares of our common stock will be adjusted to $2.02 (assuming the purchase price is reduced to $.84) and we will have additional warrants outstanding for the purchase of up to 4.0 million shares of our common stock with an exercise price ranging from $1.01 to $2.02 (also assuming that the purchase price is reduced to $.84). Convertible Notes We have outstanding $3.25 million of our 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 were granted to the note holders, and effective June 16, 2000, the common shares underlying the notes were registered. The notes contain provisions that prevent the possible dilution of the note holders through an automatic adjustment in the conversion price in the event of certain actions affecting our capital stock. As a result of the offering, the conversion price on the convertible notes will be adjusted to $2.02 and the number of common shares underlying the notes will be increased by 0.6 million in the event the purchase price is reduced to $.84. Shares Eligible For Future Sale By Equity Holders Upon completion of this offering, we will have 8,346,174 shares outstanding assuming a unit subscription price of $1.04 and 8,846,174 if the price is reduced to $0.84. All of our common shares will be freely tradable without restriction under the Securities Act. In general, under Rule 144 as currently in effect, if a period of at least one year has elapsed since the later of the date the "restricted shares" (as that phrase is defined in Rule 144) were acquired from us and the date they were acquired from an affiliate, then the holder of the restricted shares (including an affiliate) is entitled to sell a number of shares within any three-month period that does not exceed the greater of 1% of the then out standing shares of our common stock or the average weekly reported volume of trading of our common stock on the NASDAQ SmallCap Market during the four calendar weeks preceding the sale. The holder may only sell shares through unsolicited brokers' transactions or directly to market makers. Sales under Rule 144 are also subject to certain requirements pertaining to the manner of sales, notices of sales and the availability of current public information concerning us. Under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted shares were acquired from us and the date they were acquired from an affiliate, as applicable, a holder of the restricted shares who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions above. As of the date of this prospectus, options, warrants and convertible securities to purchase or receive an aggregate of 2,843,884 shares of common stock are issued and outstanding. We have not filed a registration statement on Form S-8 or any other registration statement which would cover the common stock that may be issued pursuant to the exercise of stock options granted under our stock option plans. As such, the shares issuable upon the exercise of the options will be restricted securities and subject to Rule 144, as described above. On June 7, 2000, the SEC declared effective a registration statement on Form S-1 as to 1,466,153 shares of common stock which may be issued in connection with the exercise of the warrants and the conversion of the convertible securities. Additionally, based on a unit subscription price of $1.04, there are a total of 3,150,000 warrants to purchase common stock being issued pursuant to this offering. If the unit subscription price is reduced to $0.84, a total of 3,775,000 warrants to purchase common stock will be issued pursuant to this offering. We can make no predictions as to the effect, if any, that sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of our common stock in the public market, or the perception that such sales may occur, could adversely affect prevailing market prices. Anti-takeover Effects of Various Provisions of Nevada Law and our Articles of Incorporation and By-Laws We are incorporated under the laws of the State of Nevada and are therefore subject to various provisions of the Nevada corporation laws which may have the effect of delaying or deterring a change in the control or management of RELM. Nevada Law Nevada's "Combination with Interested Stockholders Statute," Nevada Revised Statutes 78.411-78.444, which applies to Nevada corporations like us having at least 200 stockholders, prohibits an "interested stockholder" from entering into a "combination" with the corporation, unless specific conditions are met. A "combination" includes: . any merger with an "interested stockholder," or any other corporation which is or after the merger would be, an affiliate or associate of the interested stockholder; . any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets, in one transaction or a series of transactions, to an "interested stockholder," having: 50 - an aggregate market value equal to 5% or more of the aggregate market value of the corporation's assets, - an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or - representing 10% or more of the earning power or net income of the corporation; . any issuance or transfer of shares of the corporation or its subsidiaries, to the "interested stockholder," having an aggregate market value equal to 5% or more of the aggregate market value of all the outstanding shares of the corporation; . the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by the "interested stockholder"; and . transactions which would have the effect of increasing the proportionate share of outstanding shares of the corporation owned by the "interested stockholder", or the receipt of benefits, except proportionately as a stockholder, of any loans, advances or other financial benefits by an "interested stockholder". An "interested stockholder" is a person who . directly or indirectly owns 10% or more of the voting power of the outstanding voting shares of the corporation; or . is an affiliate or associate of the corporation which at any time within three years before the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding shares of the corporation. A corporation to which the statute applies may not engage in a "combination" within three years after the interested stockholder acquired its shares, unless the combination or the interested stockholder's acquisition of shares was approved by the board of directors before the interested stockholder acquired the shares. If this approval was not obtained, then after the three-year period expires, the combination may be consummated if all the requirements in the articles of incorporation are met and either: . the board of directors of the corporation approves, prior to such person becoming an "interested stockholder," the combination or the purchase of shares by the "interested stockholder"; . the combination is approved by the affirmative vote of holders of a majority of voting power not beneficially owned by the "interested stockholder" at a meeting called no earlier than three years after the date the "interested stockholder" became such; or . the aggregate amount of cash and the market value of consideration Other than cash to be received by holders of common shares and holders of any other class or series of shares meets the minimum requirements set forth in Sections 78.411 through 78.443, inclusive, and prior to the consummation of the combination, except in limited circumstances, the "interested stockholder" will not have become the beneficial owner of additional voting shares of the corporation. 51 Nevada's "Control Share Acquisition Statute," Nevada Revised Statute Sections 78.378-78.379, prohibits an acquiror, under some circumstances, from voting shares of a target corporation's stock after crossing threshold ownership percentages, unless the acquiror obtains the approval of the target corporation's stockholders. The Control Share Acquisition Statute only applies to Nevada corporations with at least 200 stockholders, including at least 100 record stockholders who are Nevada residents, and which do business directly or indirectly in Nevada. While we do not currently exceed these thresholds, we may well do so in the near future. In addition, although we do not presently "do business" in Nevada within the meaning of the Control Share Acquisition Statute, we may do so in the future. Therefore, it is likely that the Control Share Acquisition Statute will apply to us in the future. The statute specifies three thresholds: at least one-fifth but less than one-third, at least one-third but less than a majority, and a majority or more, of all the outstanding voting power. Once an acquiror crosses one of the above thresholds, shares which it acquired in the transaction taking it over the threshold or within ninety days become "Control Shares" which are deprived of the right to vote until a majority of the disinterested stockholders restore that right. A special stockholders' meeting may be called at the request of the acquiror to consider the voting rights of the acquiror's shares no more than 50 days, unless the acquiror agrees to a later date, after the delivery by the acquiror to the corporation of an information statement which sets forth the range of voting power that the acquiror has acquired or proposes to acquire and other information concerning the acquiror and the proposed control share acquisition. If no such request for a stockholders' meeting is made, consideration of the voting rights of the acquiror's shares must be taken at the next special or annual stockholders' meeting. If the stockholders fail to restore voting rights to the acquiror or if the acquiror fails to timely deliver an information statement to the corporation, then the corporation may, if so provided in its articles of incorporation or by-laws, call some of the acquiror's shares for redemption. Our articles of incorporation and by-laws do not currently permit us to call an acquiror's shares for redemption under these circumstances. The Control Share Acquisition Statute also provides that the stockholders who do not vote in favor of restoring voting rights to the Control Shares may demand payment for the "fair value" of their shares. This amount is generally equal to the highest price paid in the transaction subjecting the stockholder to the statute. Articles of Incorporation Our articles of incorporation authorize the issuance of one million shares of "blank check" preferred stock with such designations, rights and preferences as may be determined from time by our Board of Directors. Accordingly, the board of directors is empowered, without stockholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the value, voting power or other rights of the holders of our common stock. In addition, issuance of the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company which could be beneficial to our stockholders. None of these shares of preferred stock are outstanding as of the date of this prospectus. Although our board of directors has no present intention to issue any shares of preferred stock, there can be no assurance that it will not do so in the future. 52 By-Laws Provisions of our by-laws which are summarized below may affect potential changes in control of RELM. The by-laws provide the number of directors of RELM shall be established by the board of directors, but shall be no less than one. Between stockholder meetings, the board of directors may appoint new directors to fill vacancies or newly created directorships. Our by-laws further provide that stockholder action may be taken at a meeting of stockholders. Under Nevada law, action may be effected by a consent in writing if such consent is signed by the holders of the majority of outstanding shares, unless Nevada law requires a greater percentage. These provisions of our by-laws could discourage potential acquisition proposals and could delay or prevent a change in the control or management of RELM. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by our Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control of RELM. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares or proxy fights and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management. We are not aware of any proposed takeover attempt or any proposed attempt to acquire a large block of our common stock. Transfer Agent and Registrar The Transfer Agent and Registrar for our common stock is American Stock Transfer & Trust Company. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ------------------------------------------------------- The following is a summary of the material United States federal income tax consequences of the rights offering to you, as a holder of our common stock, if you are a "United States person" for United States federal income tax purposes and you hold your shares of our common stock as a capital asset. For United States federal income tax purposes, a "United States person" is: . a United States citizen or resident alien as determined under the Internal Revenue Code of 1986, as amended, . a corporation or partnership (as defined by the Code) that is organized under the laws of the United States or any state, 53 . an estate, the income of which is subject to United States federal income taxation regardless of its source, and . a trust if a court within the United States is able to exercise primary supervision over its administration and at least one United States person is authorized to control all of its major decisions. This summary is not a substitute for professional tax advice that takes into account the particular issues relevant to various individual situations. Regardless of your particular situation, you should consult your own tax advisor on the possible United States federal, state, and local, as well as any possible foreign, tax consequences of the rights offering to you. In addition, the following discussion does not address even, in general terms, any state, local or foreign tax results of the rights offering. This summary is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions and existing and proposed Treasury regulations, each as in effect as of the date of this registration statement, any of which could change at any time, possibly with retroactive effect, and all of which are subject to differing interpretations. This brief summary also does not address the effect of the rights offering on you if you are a taxpayer subject to special rules, such as a financial institution, insurance company, tax-exempt investor or a dealer in securities. Distribution. You will not be taxed on the distribution or receipt of the subscription rights. Basis. Your basis in the subscription rights will be zero unless (a) the fair market value of a subscription right on the date of distribution is equal to or greater than 15% of the fair market value of one share of our common stock, or (b) you make a special irrevocable election under Section 307(b) of the Internal Revenue Code, in which case your basis in the subscription rights shall be determined by allocating your adjusted basis in the shares on which the subscription rights are issued between such shares and the subscription rights in proportion to their relative fair market values on the date the subscription rights are distributed. Such allocation, however, will only be effective in the event that you exercise your subscription rights. At this time we expect that the fair market value of a subscription right on the date of distribution will be less than 15% of the fair market value of one share of our common stock. Accordingly, your basis in the subscription rights is expected to be zero, and if you wish to allocate your basis in the shares on which the subscription rights are issued between such shares and the subscription rights, you will have to make the Section 307(b) election described above. Exercise or Lapse of Rights. No gain or loss will be recognized on exercise of the subscription rights. No gain or loss will be recognized if you do not exercise the subscription rights before they expire and your subscription rights therefore lapse. In the event of such a lapse, no adjustment to your basis in the shares on which the subscription rights were issued, as described in section (b) of the preceding paragraph, shall be made or given effect. Units. Upon exercise of the subscription rights, your basis in the shares and warrants will be determined by adding your basis in the subscription rights, if any, to the exercise price, and then 54 allocating the result between the shares and the warrants in proportion to their relative fair market values. The holding period for the shares and warrants begins on the date the subscription rights were exercised. Sale of the Shares of Common Stock and the Warrants. Gain or loss will be recognized on the sale of the shares or the warrants in the amount of the difference between the holder's basis in such shares or warrants and the amount realized in the sale. Gain or loss recognized in connection with the sale of shares or warrants will be either short term or long term capital gain or loss, depending on the length of the holding period for such shares or warrants. Exercise or Expiration of Warrants. No gain or loss will be recognized on exercise of the warrants. However, if the warrants are not exercised before they expire, a capital loss will be recognized in the amount of the warrant holder's basis in the warrants. Holding Period on Exercise of Warrants. The holding period for any stock purchased via exercise of the warrants will begin on the date the warrant is exercised. The holder's basis in such shares shall be the sum of such holder's basis in the warrants and the price at which the warrants are exercised. Our Redemption Right. In the event we exercise our redemption right with respect to outstanding unexercised warrants, each warrant holder will recognize a long or short term capital loss equal to the difference between such warrant holder's basis in the warrant and the aggregate call price paid to such warrant holder. PLAN OF DISTRIBUTION -------------------- We are distributing non-transferable subscription rights to our equity holders of record at the close of business on February 4, 2002. As soon as practicable after the date of this prospectus, each equity holder will receive, at no cost, one right for each equity position held or owned as of February 4, 2002. Each right will enable each equity holder to purchase one unit subject to a pro rata reduction as a result of an oversubscription. One unit consists of one share of our common stock and one warrant to purchase one share of our common stock. The purchase price of each unit is $1.04, which was 90% of the closing bid price of our common stock on February 4, 2002. In the event the closing bid price for our common stock on the date your rights expire is less than $1.04, the purchase price shall be reduced to an amount equal to 90% of the closing bid price of our common stock on the date your rights to purchase units expire, but in no event less than $.84 per unit. In the event the units are re-priced, the number of units you receive will be increased proportionately. We will accept subscriptions to purchase up to 2,500,000 units, subject to an increase up to a maximum 3,000,000 units to directly reflect any re-pricing of units. We are offering the remaining units after the expiration of the rights offering pursuant to a standby commitment, made by our standby underwriter, Noble International Investments, Inc., which means that there is no minimum number of units that we must sell to complete the offering. The standby underwriter will purchase all units which the equity holders do not purchase. 55 In the event that 90% of the closing bid price of our common stock on the expiration date of your rights is less than $.84, we will have the option to terminate this offering and return all subscriptions received from you, without interest and Noble will have the option to terminate its standby commitment to us. If we decide to continue with the offering, the unit subscription price will remain fixed at $.84. If Noble elects to terminate its obligations under the standby underwriting agreement, we will terminate the rights offering. Underwriting Agreement Summary On the date of this prospectus we have entered into a standby underwriting agreement with Noble International Investments, Inc., whereby Noble is obligated to purchase the difference between 2,500,000 units (subject to an increase up to a maximum of 3,000,000 units in the event of a re-pricing) and the number of units sold pursuant to the exercise of rights offered by us in the rights offering. Noble will pay for the units on or about the third business day after Noble receives notice from the subscription agent as to the number of unsubscribed units that it is committed to purchase at the subscription price of $1.04 per unit, as may be adjusted due to any re-pricing. If all of the rights are exercised, Noble will not, subject to the following, purchase any of the units pursuant to the standby underwriting agreement. Noble may terminate its obligations under the standby underwriting agreement if there is a material adverse change in our condition and we will return all subscriptions received from equity holders, without interest. Noble may also terminate its obligations under the standby underwriting agreement in the event 90% of the closing bid price of our common stock on the expiration date of your rights is less than $.84. The rights offering is distinct and separate from the standby offering under which Noble has a right of cancellation as described below. So long as the standby underwriting agreement is not terminated, we will pay Noble a standby fee of 10% of the gross proceeds of this offering in consideration of its agreement to enter into the standby commitment. We have also agreed to pay Noble a $40,000 non-accountable expense allowance for expenses incurred in connection with the offering. Noble will return any unused portion of the non-accountable expense in the event the offering is terminated. The standby fee will be paid by us whether or not all of the rights are exercised and Noble actually purchases any units under the standby underwriting agreement, unless the standby underwriting agreement is terminated pursuant to its terms. In addition, we have agreed to pay Noble a $24,000 cash fee to act as our financial consultant for a term of one year. As long as the standby underwriting agreement is not terminated, and regardless of whether Noble purchases any units pursuant to its standby commitment, for 45 days after the date of this prospectus, Noble will have the right but not the obligation to purchase up to a total of 375,000 units, or fifteen percent (15%) of the number of units actually offered up to a maximum of 450,000 units in the event of a re-pricing, at the unit subscription price less a 10% discount, to cover over-allotments. Noble will offer to sell the units it acquires from us pursuant to the standby 56 underwriting agreement to the public at the subscription price of $1.04, as may be adjusted due to any re-pricing. This rights offering is not being underwritten. Subject to the terms and conditions of the standby underwriting agreement, however, Noble has committed to purchase, at the subscription price, the difference between the number of units offered and the number of units sold pursuant to the exercise of the right to buy units offered by us in the rights offering. Noble's commitment to us in this regard is made on a "firm commitment" basis except if, in the reasonable judgment of Noble, it is impracticable to consummate the standby offering under normal "market out" conditions, such as (i) RELM having sustained a material loss of whatsoever nature which, in the sole and absolute opinion of Noble, substantially affects the value of our property or materially interferes with the operation of our business; (ii) any material adverse change in the business, property or financial condition of RELM; (iii) trading in securities on the New York Stock Exchange, the American Stock Exchange or Nasdaq Stock Market having been suspended or limited or minimum prices having been established on either such exchange or market; (iv) a banking moratorium having been declared by either federal or state authorities; (v) an outbreak of major hostilities or other national or international calamity having occured between the date of the standby underwriting agreement and the rights offering closing date; (vi) any action having been taken by any government in respect of its monetary affairs which, in the reasonable opinion of Noble, has a material adverse effect on the United States securities markets; (vii) any action, suit or proceeding at law or in equity against RELM, or by any Federal, state of other commission, board or agency wherein any unfavorable decision would materially adversely effect the business, property, financial condition or income of RELM; or (viii) due to conditions arising subsequent to the execution of the standby underwriting agreement, Noble reasonably believes that, as a result of material and adverse events affecting the market for RELM's common stock (other than the effect of the sale of the standby units in the rights offering on the price of our common stock) or the securities markets in general, it is impracticable or inadvisable to proceed with the standby offering. Reference is made to the standby underwriting agreement, which is an exhibit to the registration statement, of which this prospectus forms a part, for its complete terms and provisions. On or after the second business day following the expiration date of the rights offering, Noble proposes to offer the units acquired by it pursuant to its standby commitment directly to the public at the subscription price. Noble presently does not make a market in our securities, and in connection with any sales, does not intend to stabilize prices. In addition, Noble will not purchase or make a market in our securities until it has completed its distribution of the units acquired in the standby offering. As a portion of the consideration for its standby commitment, we have agreed to sell to Noble for its own account, at a nominal price, warrants to purchase 10% of the units offered pursuant to its standby commitment. Noble's warrants may not be exercised for a period of twelve (12) months from the date of this prospectus. Noble's warrants will be exercisable in whole or in part for a period of four (4) years thereafter at the subscription price. The exercise price and the number of units issuable under Noble's warrants are subject to adjustment to protect the holders against dilution in certain events. Noble's warrants will be restricted from sale, transfer, assignment or hypothecation for a period of one year from the date of this prospectus except to officers or partners of Noble and to selected dealers, if any, and their officers or partners. The holders of Noble's 57 warrants have no voting, dividend or other shareholder rights with respect to the securities underlying Noble's warrants unless such warrants have been exercised. We have agreed during the four (4) year period commencing one (1) year after the issuance of the units to Noble pursuant to the standby underwriting agreement, that on one occasion we will file a registration statement at the request of Noble or its permitted assigns of such units, at no expense to Noble or its permitted assigns, to register the sale of the securities underlying Noble's warrant. During this same time period, we have also agreed that if we file a registration statement on a general form of registration under the Securities Act (other than a form S-8 or S-4), upon the request of Noble or its permitted assigns on two occasions, that we will include the securities underlying Noble's warrant in our registration. We have also agreed to register the sale of all of these securities as part of the offering. We have agreed to pay Noble for a period of three years, commencing on _______, 2003, a warrant solicitation fee of 5% of the exercise price for each warrant (underlying a unit) exercised during the three-year period, subject to Noble's compliance with NASD rules. The standby underwriting agreement provides for reciprocal indemnification between us and Noble against certain liabilities in connection with the registration statement, including liabilities arising under the Federal securities act. Insofar as indemnification for liabilities arising under the Federal securities act may be provided to officers, directors or persons controlling us, we have been informed that in the opinion of the SEC, this indemnification is against public policy and is therefore unenforceable. For a period of one year from the date of this prospectus, we have agreed not to file a registration statement for the benefit of our officers, directors, employees, consultants and/or affiliates without the prior written consent of Noble. For a period of one year from the date of this prospectus, we will not place or sell any of our securities other than in connection with mergers, acquisitions or the exercise of currently outstanding options and warrants without the consent of Noble. We will maintain a current registration statement for Noble to offer and sell the securities purchased by it for a period of at least nine months from the date of this prospectus or such reasonable further period as Noble may request. Nevertheless, Noble agrees to notify us when its distribution has been completed. DISTRIBUTION OF RIGHTS AND SUBSCRIPTION PROCEDURES -------------------------------------------------- Why We Are Selling Units Through a Rights Offering We believe that a rights offering provides several advantages over a traditional public offering. We believe that this type of offering gives us the opportunity to offer the units to our current equity holders who already have some knowledge of our business and will be able to maintain their fully diluted pro-rata ownership in the company. In addition, the warrants included in the 58 units give investors in this offering an opportunity to buy our shares in the future at a set price, and we want to give our current equity holders who participate in this offering that benefit. Determination of Purchase Price The purchase price of each unit is $1.04 which was 90% of the closing bid price of our common stock on February 4, 2002. In the event the closing bid price for our common stock, on the date your rights expire, is less than $1.04, the purchase price shall be reduced to an amount equal to 90% of the closing bid price of our common stock on the date your rights to purchase units expire but in no event less than $.84 per unit. In the event the units are re-priced, the number of units you receive will be increased proportionately. We will accept subscriptions to purchase up to 2,500,000 units, subject to an increase of up to 3,000,000 units to directly reflect any re-pricing of units. What You Can Do With Your Rights You may purchase one unit for each right you receive, subject to pro rata reduction as a result of an oversubscription. We will accept subscriptions up to a maximum of 2,500,000 units, subject to an increase of up to 3,000,000 units if a repricing occurs. If this offering is oversubscribed, we will allocate the units as described below under "Subscription Rights." You can also choose to do nothing with your rights, since there is no penalty for not exercising your rights. When You Can Exercise Your Rights You can exercise your rights at any time after receipt and until 5:00 p.m. Miami, Florida time, on ____________, 2002. Subscription Rights Your rights entitle you to the basic subscription right and the over- subscription right. Basic Subscription Right. Each right includes a basic subscription right entitling you to purchase one unit for each right held, subject to pro rata reduction as a result of an oversubscription, at a subscription price of $1.04 (subject to adjustment) in cash. You are entitled to exercise all or any portion of the rights you receive, however, we will only accept subscriptions for up to 2,500,000 units unless increased up to a maximum of 3,000,000 units if a re-pricing occurs. Over-Subscription Right. If you elect to purchase all of the units that you are entitled to purchase under your basic subscription rights, you will also have an over-subscription right to subscribe for additional units that are not purchased by other holders of rights under their basic subscription rights as of the expiration date. Although you are not limited in the number of units you can elect to oversubscribe for, your ability to purchase the number of units that you wish to purchase in the exercise of your over-subscription right will depend on the availability of such units. We can not provide any assurance that sufficient units will be available to satisfy your request in whole or in part. If, however, the number of units remaining unsold after holders have 59 exercised their basic subscription rights is sufficient to satisfy in full, all over-subscriptions submitted for additional units, all over-subscriptions will be honored. Full Exercise of Basic Subscription Rights You may exercise your over-subscription right only if you exercise your basic subscription rights in full by electing to purchase all of the units that you are entitled to purchase under your basic subscription rights. To determine if you have fully exercised your basic subscription rights, we will consider only the basic subscription rights held by you in the same capacity. For example, suppose that you were granted rights upon our shares which you own individually and also rights issued upon shares which you own collectively with your spouse. If you wish to exercise your over-subscription right with respect to the rights you own individually, but not with respect to the rights you own collectively with your spouse, you only need to fully exercise your basic subscription rights with respect to your individually owned rights. You do not have to subscribe for any shares under the basic subscription rights owned collectively with your spouse to exercise your individual over-subscription right. When you complete the portion of your subscription certificate to exercise your over-subscription right, you will be representing and certifying that you have fully exercised your basic subscription right as to the rights that you hold in that capacity. You must exercise your over-subscription right at the same time you exercise your basic subscription right in full. Proration of Subscription Rights. If there are insufficient units to fill all basic subscriptions, the units that are available will be allocated to our subscribing equity holders on a pro rata basis in proportion to the total number of basic subscription rights exercised by each equity holder. If all basic subscriptions have been filled but there are insufficient units to fill all over-subscriptions, the units available to fill over-subscriptions will be allocated to our equity holders who have oversubscribed on a pro rata basis in proportion to the total number of additional units subscribed for by each equity holder. In the event there are insufficient units to fill all basic subscriptions and/or all over-subscriptions refunds will be made, without interest, to the extent subscriptions are not honored, as promptly as possible after the expiration of the rights offering. We will not issue fractional rights or fractional units. If you own shares of our common stock through your bank, broker or other nominee holder who will exercise your subscription right on your behalf, the bank, broker or other nominee holder will be required to certify the following information: . the number of shares of our common stock held on your behalf on the record date; . the number of rights exercised under your basic subscription right; . that your basic subscription right held in the same capacity have been exercised in full; and . the number of shares subscribed for under your over-subscription right. 60 Your bank, broker or other nominee holder may also disclose to us other information received from you. How You Can Exercise Your Rights You may exercise your rights by completing and signing the "Election to Purchase" form that appears on the back of each rights certificate. You must send the completed and signed certificate, along with payment in full of the subscription price for all units that you wish to purchase (including any over-subscription), to our subscription agent, American Stock Transfer and Trust Company. Subscriptions are irrevocable. We suggest, for your protection, that you deliver your rights to the subscription agent by an insured, overnight or express mail courier. If you mail your rights, we suggest that you use registered mail. If you wish to exercise your rights, you should mail or deliver your rights and payment for the exercise price to the subscription agent as follows: By Mail and Overnight Courier: American Stock Transfer and Trust Company 59 Maiden Lane Plaza Level New York, NY 11219 You must pay the exercise price in U.S. dollars by check, bank check, money order, other negotiable instrument payable to "American Stock Transfer and Trust Company, as subscription agent - RELM Wireless Corporation" or by wire transfer. Your remittance will be deposited by American Stock Transfer and Trust Company in a special bank account at American Stock Transfer and Trust Company. Upon clearing, your payment will be held by American Stock Transfer and Trust Company. Provided that your payment clears prior to _____________, 2002, your subscription will be accepted subject to proration in the event there are insufficient units. Funds paid by uncertified personal check may take at least five business days to clear. Accordingly, if you pay the subscription price by means of uncertified personal check, you should make payment sufficiently in advance of the expiration time to ensure that your check actually clears and the payment is received before that time. We are not responsible for any delay in payment by you and suggest that you consider payment by means of certified or cashier's check, money order or wire transfer of funds. You may request wire transfer instructions from the subscription agent at 59 Maiden Lane, Plaza Level, New York, NY 11219. If your subscription is accepted, our transfer agent will issue the unit purchased through exercise of the rights promptly after closing of the rights offering, and in any event within 30 days thereafter. Until that date, American Stock Transfer and Trust Company will hold all funds received in payment of the exercise price and will not deliver any funds to us until the units have been issued. If you are a broker, a trustee or a depositary for securities who held shares of our common stock for the account of others on February 4, 2002, the record date for this rights offering, you should notify the respective beneficial owners of such shares of the rights offering as soon as possible to find out their intentions with respect to exercising their rights. You should obtain instructions from the beneficial owner with respect to the rights, as set forth in the instructions we have provided to you for your distribution to beneficial owners. If the beneficial owner so instructs, you should complete the appropriate subscription certificates and submit them to the 61 subscription agent with the proper payment. If you hold shares of our common stock for the account(s) of more than one beneficial owner, you may exercise the number of rights to which all such beneficial owners in the aggregate otherwise would have been entitled had they been direct record holders of our common stock on the record date for this offering. If you do not indicate the number of rights being exercised, or if your subscription price payment is not sufficient to purchase the number of units subscribed for, you will be deemed to have exercised your basic subscription right with respect to the maximum number of basic subscription rights you are entitled to purchase. To the extent your subscription price payment exceeds your maximum payment under your basic subscription right, such excess payment will be applied towards your over-subscription right to the full extent of the funds available. We will decide all questions as to the validity, form, eligibility (including times of receipt, beneficial ownership and compliance with exercise requirements), and the acceptance of subscription forms and the exercise price will be determined by us. We will not accept any alternative, conditional or contingent subscriptions. We reserve the absolute right to reject any subscriptions not properly submitted. In addition, we may reject any subscription if the acceptance of the subscription would be unlawful. We also may waive any irregularities (or conditions) in a subscription for units, and our interpretations of the terms (and conditions) of the rights offering shall be final and binding. It is not anticipated that we will give notice to you of any defects in your subscription, if any, but we reserve the right to do so, and to condition the re-submission of your subscription upon such conditions as we deem necessary or appropriate under the circumstances. Under no circumstance, however, will we be obligated to give you notification of defects in your subscription. No exercise of rights will be accepted until all defects have been cured or waived. If your exercise is rejected, your payment of the exercise price will be promptly returned by the subscription agent. You may not revoke your subscription. Notice of Guaranteed Delivery If you wish to exercise your rights, but time will not permit you to cause the rights certificate to reach the subscription agent on or prior to the expiration date, you may nevertheless exercise your rights if you meet the following conditions: (a) you have caused payment in full of the subscription price for each unit being subscribed for pursuant to your basic subscription right and your over- subscription right to be received by the subscription agent on or prior to the expiration date; (b) the subscription agent receives, on or prior to the expiration date, a guaranteed notice, from an eligible institution, stating your name, the number of rights held, the number of units being subscribed for pursuant to the basic subscription right and the number of units being subscribed for pursuant to the over-subscription right, and guaranteeing the delivery to the subscription agent of the rights certificate at or prior to 5:00 p.m., Miami, Florida time, on the date three (3) business days following the date of the notice of guaranteed delivery; and (c) the properly completed rights certificate evidencing the rights being exercised, with any required signatures being guaranteed, are received by the subscription agent, or such rights are transferred into the DTC account of the subscription agent, at or prior to 5:00 p.m., Miami, 62 Florida time, on the date three (3) business days following the date of the notice of guaranteed delivery relating thereto. Information Agent Noble International Investments, Inc., the standby underwriter of this offering, will also act as our information agent to respond to any questions you may have regarding the mechanics of exercising your subscription rights for this offering. Any questions or requests for assistance concerning the method of subscribing for units or for additional copies of this prospectus or the Instructions as to Use of the Subscription Certificates can be directed to the information agent at 6501 Congress Avenue, Suite 100, Boca Raton, Florida 33487, Attention: Investment Banking Department, (561) 994-1191. Manner of Distribution Certain of our directors and executive officers will assist in the offering and they will receive no compensation for such services. What Happens To The Unsubscribed Rights To the extent that any units remain unsold, such units shall be purchased by the standby underwriter, and may be resold by the standby underwriter in accordance with applicable law and the underwriting agreement. We intend to supplement this prospectus after the rights exercise period is over to set forth the results of the rights offering and the number of subscribed and unsubscribed units. What Happens If The Rights Offering Is Cancelled At any time we will have the right to cancel the rights offering. If you exercise rights and the rights offering is cancelled, any payment received with respect to the subscription price will be promptly returned to you, without interest, and you will not receive any units. As described above, the funds will be held in an account controlled by American Stock Transfer and Trust Company. Other Matters We are not making this offering in any state or other jurisdiction in which it is unlawful to do so, nor are we selling or accepting any offers to purchase any units from holders of rights who are residents of those states or other jurisdictions. We may delay the commencement of the rights offering in those states or other jurisdictions, or change the terms of this offering, in order to comply with the securities law requirements of those states or other jurisdictions. We may decline to make modifications to the terms of this offering requested by those states or other jurisdictions, in which case, if you are a resident in those states or jurisdictions, you will not be eligible to participate in this offering. We will not be required to issue units in this offering to any equity holder who would be prohibited by any state or federal regulatory authority from owning our securities. We will make any such units available to satisfy the exercise of over-subscription rights. 63 In addition, no information is provided herein with respect to the tax consequences of the rights offering under applicable foreign, state or local laws. YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE RIGHTS OFFERING TO YOU, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS. 64 LEGAL MATTERS ------------- Zack Kosnitzky, P.A., Miami, Florida, will pass upon the validity of our units offered hereby. Broad and Cassel, Miami, Florida will pass on certain legal matters as counsel for Noble. EXPERTS ------- Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 31, 2000 and 1999, and for each of the three years ended in the period December 31, 2000, as set forth in their report. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION ------------------------------------------ We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, a registration statement on Form S-1 under the Securities Act with respect to the securities offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and the securities offered hereby, refer to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document referred to are not necessarily complete; refer in each instance to the copy of such contract or document filed as an exhibit to the registration statement. Each such statement is qualified in all respects by such reference to such exhibit. You may inspect a copy of the registration statement without charge at the Securities and Exchange Commission's principal office in Washington, D.C. and obtain copies of all or any part thereof upon payment of certain fees from the Public Reference Room of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange 65 Commission maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission's World Wide Web address is www.sec.gov. We intend to furnish holders of our common stock with copies of our annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish such other reports as we may determine or as may be required by law. 66 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ RELM Wireless Corporation Years ended December 31, 2000, 1999 and 1998 Report of Independent Certified Public Accountants................................... F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999......................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998......................................................................... F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998........................................... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................. F-7 Notes to Consolidated Financial Statements........................................... F-8 Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000........................................................... F-29 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000..................................................... F-31 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000..................................................... F-32 Notes to Condensed Consolidated Financial Statements................................. F-33
F-1 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, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States /s/ Ernst & Young LLP Jacksonville, Florida March 2, 2001 F-2 RELM Wireless Consolidated Balance Sheets (In Thousands, except share data)
December 31 -------------------------------- 2000 1999 -------------------------------- Assets Current assets: Cash and cash equivalents $ 208 $ 1 Trade accounts receivable (net of allowance for doubtful accounts of $1,555 in 2000 and $1,672 in 1999) 3,712 1,966 Inventories, net 8,940 10,211 Notes receivable - 400 Prepaid expenses and other current assets 528 501 Investment securities--trading - 1 -------------------------------- Total current assets 13,388 13,080 Property, plant and equipment, net 2,833 8,024 Notes receivable, less current portion 984 1,295 Debt issuance costs, net 682 - Other assets 535 454 -------------------------------- Total assets $18,422 $22,853 ================================
See accompanying notes. F-3 RELM Wireless Consolidated Balance Sheets (In Thousands, except share data)
December 31 2000 1999 ----------------------------------- Liabilities and stockholders' equity Current liabilities: Current maturities of long-term liabilities $ 848 $ 1,807 Accounts payable 3,604 4,447 Accrued compensation and related taxes 361 514 Accrued warranty expense 305 - Accrued expenses and other current liabilities 591 636 ----------------------------------- Total current liabilities 5,709 7,404 Long-term liabilities: Loan, notes and mortgages 3,193 8,281 Convertible subordinated notes 3,150 - Capital lease obligations 10 791 ----------------------------------- 6,353 9,072 Stockholders' equity: Common stock; $.60 par value; 10,000,000 authorized shares: 5,346,174 and 5,090,405 issued and outstanding shares at December 31, 2000 and December 31, 1999, respectively 3,207 3,053 Additional paid-in capital 21,452 20,195 Accumulated deficit (18,299) (16,871) ----------------------------------- Total stockholders' equity 6,360 6,377 ----------------------------------- Total liabilities and stockholders' equity $ 18,422 $ 22,853 ===================================
See accompanying notes. F-4 RELM Wireless Consolidated Statements of Operations (In Thousands, except share data)
Year ended December 31 2000 1999 1998 --------------------------------------------------- Sales $ 21,054 $ 22,404 $ 29,530 Expenses: Cost of products 15,674 16,618 22,864 Selling, general and administrative 6,930 7,508 9,871 Impairment loss - - 961 --------------------------------------------------- 22,604 24,126 33,696 --------------------------------------------------- Operating loss (1,550) (1,722) (4,166) Other income (expense): Interest expense (933) (1,079) (797) Gain on sale of facility and equipment 984 - - Net gains (losses) on investments - 49 (132) Other income 337 458 188 --------------------------------------------------- Total other income (expense) 388 (572) (741) --------------------------------------------------- Loss from continuing operations before discontinued operations and extraordinary item (1,162) (2,294) (4,907) Discontinued operations: Loss from discontinued operations net of taxes (266) - (725) Extraordinary item: Gain on debt forgiveness - - 227 --------------------------------------------------- Net loss $ (1,428) $ (2,294) $ (5,405) =================================================== Earnings (loss) per share-basic and diluted: Continuing operations $ (0.22) $ (0.45) $ (0.97) Discontinued operations (0.05) - (0.15) Extraordinary item - - 0.05 --------------------------------------------------- Net loss $ (0.27) $ (0.45) $ (1.07) ===================================================
See accompanying notes. F-5 RELM Wireless Consolidated Statements of Stockholders' Equity (In Thousands, Except Share Data)
Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total --------------------------------------------------------------------- Balance 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 --------------------------------------------------------------------- Balance 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) --------------------------------------------------------------------- Balance at December 31, 1999 5,090,405 3,053 20,195 (16,871) 6,377 Common stock issued for services rendered 200,000 120 531 - 651 Common stock warrants issued - - 635 - 635 Common stock issued for conversion of debt 30,769 19 81 - 100 Common stock issued for services rendered 25,000 15 10 - 25 Net loss - - - (1,428) (1,428) --------------------------------------------------------------------- Balance at December 31, 2000 5,346,174 $3,207 $21,452 $(18,299) $ 6,360 =====================================================================
See accompanying notes. F-6 RELM Wireless Consolidated Statements of Cash Flows (In Thousands)
Year ended December 31 2000 1999 1998 -------------------------------------------------- Cash flows from operating activities Net loss $(1,428) $(2,294) $(5,405) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,429 1,497 1,344 Net (gain) loss on investment securities - (49) 132 Valuation allowance on real estate - - 961 Gain on disposal of facility and equipment (984) (142) - Changes in current assets and liabilities: Accounts receivable (1,746) 1,346 1,881 Inventories 3,388 100 938 Accounts payable (818) (170) 2,682 Other current assets and liabilities (268) (2,665) (3,361) Real estate investments held for sale - 58 814 -------------------------------------------------- Cash used in operating activities (427) (2,319) (14) Cash flows from investing activities Purchases of property and equipment (251) (681) (1,368) Collections on notes receivable 710 400 600 Loans and advances - - (95) Net cash from sale of subsidiaries - 525 - Proceeds from disposals of facility and equipment 5,944 46 - Proceeds from sale of investment securities - 797 - Cash paid for Uniden product line (2,016) - - -------------------------------------------------- Cash provided by (used in) investing activities 4,387 1,087 (863) Cash flows from financing activities Repayment of debt and capital lease obligations (5,494) (1,973) (1,184) Proceeds from debt 3,250 1,880 - Net increase (decrease) in revolving credit lines (1,229) 862 2,270 Proceeds from issuance of common stock - - 42 Private placement costs (276) - - Janney investment service agreement (4) - - -------------------------------------------------- Cash provided by (used in) financing activities (3,753) 769 1,128 -------------------------------------------------- Increase (decrease) in cash 207 (463) 251 Cash and cash equivalents, beginning of year 1 464 213 -------------------------------------------------- Cash and cash equivalents, end of year $ 208 $ 1 $ 464 ================================================== Supplemental disclosure Interest paid $ 933 $ 1,079 $ 797 ================================================== Income taxes paid $ - $ - $ 29 ================================================== Common stock issued for services rendered $ 651 $ - $ - ================================================== Common stock issued for services rendered $ 25 $ - $ - ==================================================
See accompanying notes. F-7 RELM Wireless Notes to Consolidated Financial Statements December 31, 2000 (Dollars 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. The Company was also involved in commercial real estate until 1999. Principles of Consolidation The accounts of the Company and its subsidiary 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. Shipping and handling costs are classified as a component of cost of products in the consolidated statements of operations. Property, Plant and Equipment Property, plant 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. 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. F-8 RELM Wireless Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) Cash Equivalents Cash and cash equivalents includes time deposits. Revenue Recognition Sales revenue is recognized as goods are shipped, except for sales to the U.S. Government, which are recognized when the goods are delivered. Real estate revenues are recognized upon closing of a sale. Income Taxes The Company files a federal income tax return and 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 and accounts receivables. The Company places its cash and cash equivalents 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. F-9 RELM Wireless Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments The Company's management believes that carrying amounts of cash and cash equivalents, accounts and notes 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 approximates market, as the interest rates on these financial instruments approximates market rates. Advertising Costs The cost for advertising is expensed as incurred. The total advertising expense for 2000, 1999, and 1998 was $161, $133, and $241, respectively. Engineering, Research and Development Costs Included in selling, general and administrative expenses for 2000, 1999, and 1998 are research and development costs of $1,175, $1,483, and $2,277, 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 loss and its components in its financial statements. The Company does not have any significant components of other comprehensive loss to be reported under SFAS No. 130. Total comprehensive loss is equal to net loss reported in the financial statements. F-10 RELM Wireless Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) 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 2000, the Financial Accounting Standards Board issued Statement No. 138, Accounting for Certain Hedging Activities, which amended Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement 138 must be adopted concurrently with the adoption of Statement 133. The Company adopted these new Statements effective January 1, 2001. These Statements will require the Company to recognize all derivatives on the balance sheet at fair value. The Company does not anticipate that the adoption of these Statements will have a significant effect on its results of operations or financial position. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which is required to be implemented no later than the fourth quarter of fiscal years beginning after December 15, 1999, and provides guidance on the recognition, presentation and disclosures of revenue and provides guidance for disclosures related to revenue recognition policies. The Company adopted the Bulletin in the fourth quarter of 2000. The implementation of this Bulletin did not have a material impact on the Company's financial position or results of operations. In April 2000, the FASB issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25. Among other issues, that interpretation clarifies the definition of employees for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. The implementation of this Interpretation did not have a material impact on the Company's financial position or results of operations. F-11 RELM Wireless Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies (continued) Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. 2. Inventories Inventory which is presented net of allowance for obsolete and slow moving inventory consisted of the following: December 31 2000 1999 ------------------------- Finished goods $5,043 $ 5,065 Work in process 796 1,645 Raw materials 3,101 3,501 ------------------------- $8,940 $10,211 ========================= The allowance for obsolete and slow moving inventory is as follows: Year ended December 31 2000 1999 1998 ------------------------------------------- Balance, beginning of year $1,934 $1,985 $2,805 Charged to cost of sales 44 (12) 137 Disposal of inventory - (39) (957) ------------------------------------------- $1,978 $1,934 $1,985 =========================================== F-12 RELM Wireless Notes to Consolidated Financial Statements 3. Allowance for Doubtful Accounts The allowance for doubtful accounts is composed of the following: Year ended December 31 2000 1999 1998 --------------------------------- Balance, beginning of year $1,672 $1,565 $ 133 Provision for doubtful accounts 58 176 1,514 Uncollectible accounts written off (175) (69) (82) --------------------------------- $1,555 $1,672 $1,565 ================================= 4. Intangible Asset On March 16, 2000, the Company completed the private placement of $3,250 of convertible subordinated notes. The debt issuance costs included grants to Simmonds Capital Limited of 50,000 shares of the Company's stock valued at $163 and warrants to purchase 300,000 shares of the Company's common stock valued at $409. The warrants have a five-year term and an exercise price of $3.25 per share. The debt issuance costs, which totaled $817 are being amortized on a straight-line basis over the life of the notes (5 years). Accumulated amortization at December 31, 2000 was $135. On May 12, 2000, the Company engaged Janney Montgomery Scott (JMS) to provide certain investment banking services. In connection with the engagement, the Company granted warrants to JMS, valued at $226, to purchase 166,153 shares of the Company's common stock at an aggregate purchase price of one hundred dollars. The warrants have a five-year term and an exercise price of $3.25 per share. The value of the warrants is being amortized on a straight-line basis over the estimated life of the contract. Accumulated amortization at December 31, 2000 was $27. F-13 RELM Wireless Notes to Consolidated Financial Statements 5. Property, Plant and Equipment Property, plant, and equipment as of December 31, 2000 includes the following: 2000 1999 -------------------------- Land $ - $ 233 Buildings and improvements - 4,183 Machinery and equipment 10,476 10,358 Less allowances for depreciation (7,643) (6,750) -------------------------- Net property, plant and equipment $ 2,833 $ 8,024 ========================== Depreciation expense for 2000, 1999, and 1998 was $1,221, $1,497, and $1,344, respectively. On March 13, 2000 the Company acquired the private radio communications product lines from Uniden 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. On March 24, 2000, the Company completed the sale of its 144,000 square foot facility located in West Melbourne, Florida for $5,600. The transaction resulted in a net gain of $1,165 and provided approximately $1,600 in cash after related expenses and after payoff of the note and satisfaction of the mortgage on the property. Upon the sale of the building, the Company leased approximately 54,000 square feet of comparable space at a nearby location. On March 23, 2000, the Company entered into a contract manufacturing agreement for the manufacture of certain land mobile radio assemblies. As a result of this agreement, on October 20, 2000, the Company sold certain manufacturing equipment and satisfied its obligations under an associated capital lease. This transaction resulted in a loss of $330. The company also realized reductions in monthly depreciation expense and monthly lease payments of approximately $15 and $30, respectively. 6. Notes Receivable In December 2000 the Company modified its loan agreement with the owner of its former paper manufacturing subsidiary. This agreement modified the terms of the original secured promissory note dated May 12, 1997 and cured the default on a $400 principle payment under that note, F-14 RELM Wireless Notes to Consolidated Financial Statements 6. Notes Receivable (continued) which was announced on July 3, 2000. Under the terms of the modification agreement, on December 22, 2000 the former subsidiary made a principal payment to RELM of $700 plus accrued interest of approximately $166. The original note which, following this payment, had a remaining principal amount due of $900, has been replaced by two secured promissory notes of $600 and $300. The $600 note is payable in ten annual installments starting on April 2, 2002. The $300 note is payable in five annual installments starting on January 1, 2003. Interest on both notes is accrued at 2.75% over the prime rate (prime was 9.5% at December 31, 2000) and is payable in annual installments on the $600 note, and in semi- annual installments on the $300 note. The $600 note is subject to a standby creditor's agreement under which payments on the note are contingent upon the former subsidiary achieving a certain debt service coverage ratio and the absence of any uncured defaults on other loans or agreements. 7. Debt On March 16, 2000, the Company completed the private placement of $3,250 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 registration of the common stock shares underlying the convertible notes was effective on June 16, 2000. Portions of the proceeds from this private placement were used to acquire the Uniden land mobile radio products. The debt issuance costs included grants to Simmonds Capital Limited of 50,000 shares at $3.25 per share of the Company's common stock valued at $163 and warrants to purchase 300,000 shares of the Company's common stock valued at $409. The warrants have a five-year term and an exercise price of $3.25 per share. Additionally, the Company incurred approximately $817 in costs related to the private placement. These costs are currently being amortized on a straight- line basis over the life of the notes. F-15 RELM Wireless Notes to Consolidated Financial Statements 7. Debt (continued) The debt consists of the following:
December 31 2000 1999 ---------------------------------- Line of credit $3,293 $ 4,632 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. - 3,666 Note payable to finance company, secured by surety bond, with monthly payments of $61 including interest at 6.04% through July 2001. 419 1,048 Convertible subordinate note, matures 2004, interest at 8% 3,150 - ---------------------------------- Total debt 6,862 9,346 Amounts classified as current liabilities (519) (1,065) ---------------------------------- Long-term debt $6,343 $ 8,281 ==================================
Maturities of long-term debt for years succeeding December 31, 2000 are as follows: 2001 $ 519 2002 3,193 2003 - 2004 3,150 ---------------- $ 6,862 ================ 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 $325 at December 31, 2000. Interest on the unpaid principal balance accrues at the prime rate of 9.50% (at December 31, 2000) 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 F-16 RELM Wireless Notes to Consolidated Financial Statements 7. Debt (continued) Company's non-real estate assets and expires on February 26, 2002. At December 31, 2000 and 1999, the Company had approximately $1,100 and $300 of availability on the revolving credit facility, respectively. 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. 8. Leases The Company leases its facility in West Melbourne Florida under a long-term operating lease, which expires on June 30, 2005. At December 31, 2000, the future minimum lease payments for operating leases are as follows: $209 in 2001 through 2004, and $146 in 2005. Total rental expenses for all operating leases for 2000, 1999, and 1998 were $274, $280, and $220, respectively. As of December 31, 2000, property, plant, and equipment includes equipment purchased under a capital lease as follows: 2000 1999 --------------------------------- Cost $ 2,202 $ 3,672 Accumulated depreciation (2,036) (2,197) -------------------------------- $ 166 $ 1,475 ================================ During 2000, the Company sold certain manufacturing equipment that was purchased under a capital lease, and satisfied its lease obligations. Amortization of equipment under capital leases is included in depreciation expense. F-17 RELM Wireless Notes to Consolidated Financial Statements 8. Leases (continued) At December 31, 2000, the future minimum payments for the capital leases are as follows 2001 $ 366 2002 11 --------------- Total minimum lease payments 377 Less amount representing interest (38) --------------- Present value of net minimum lease payment 339 Less current maturities (329) --------------- Long-term obligations under capital-leases $ 10 =============== 9. Income Taxes There was no current or deferred provision for income taxes from continuing operations for 2000, 1999 or 1998.
2000 1999 1998 -------------------------------------------------- Statutory U.S. income tax rate (34.00)% (34.00)% (34.00)% States taxes, net of federal benefit (3.63)% (3.63)% (3.63)% Permanent differences 0.93% 0.00% (0.00)% Change in valuation allowance 35.78% 37.20% 37.63% Other 0.92% 0.43% 0.00% -------------------------------------------------- Effective income tax rate 0.00% 0.00% 0.00% ==================================================
F-18 RELM Wireless Notes to Consolidated Financial Statements 9. Income Taxes (continued) The components of the deferred income tax assets (liabilities) are as follows: December 31 2000 1999 -------------------------- Deferred tax assets: Operating loss carryforwards $ 11,413 $ 10,657 Tax credits 129 129 Asset reserves: Bad debts 623 629 Inventory reserve 764 737 Inventory capitalization - 128 Accrued expenses: Compensation 277 100 Restructuring accrual - 21 All other 1 87 -------------------------- Total deferred tax assets 13,207 12,488 Deferred tax liabilities: Depreciation (661) (727) Inventory capitalization (40) - Product liability (14) - Expense reserve (127) - Unrealized capital gain (128) - -------------------------- Total deferred tax liabilities (970) (727) -------------------------- Subtotal 12,237 11,761 Valuation allowance (12,237) (11,761) -------------------------- Net deferred tax assets (liabilities) $ - $ - ========================== For tax purposes, the Company, at December 31, 2000, has federal and state net operating loss carryforwards of approximately $30,800. These net operating loss carryforwards begin to expire, for federal and state purposes, in 2004. F-19 RELM Wireless Notes to Consolidated Financial Statements 9. Income Taxes (continued) 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 $12,237 against its net deferred tax assets at December 31, 2000. The net change in total valuation allowance for the period ended December 31, 2000 was $476 and relates to the Company's expectations regarding utilization of its net deferred tax assets, including available net operating loss and tax credit carryforwards. The federal and state net operating loss and tax credit carryforwards could be subject to limitation if, within any three year period prior to the expiration of the applicable carryforward period, there is a greater than 50% change in ownership of the Company. 10. Loss Per Share The following table sets the computation of basic and diluted loss per share from continuing operations:
Year ended December 31 2000 1999 1998 -------------------------------------- Numerator: Net loss (numerator for basic and diluted loss per share) $ (1,162) $ (2,294) $ (4,907) Denominator: Denominator for basic and diluted earnings per share-weighted average shares 5,346,174 5,090,405 5,045,459 Basic loss per share and diluted $ (0.22) $ (0.45) $ (0.97) ======================================
Shares related to options and convertible debt are not included in the computation of loss per share because to do so would have been anti-dilutive for the periods presented. F-20 RELM Wireless Notes to Consolidated Financial Statements 11. Stock Option and Other Stock Option Plans The Company has two plans whereby eligible officers, directors and employees can be granted options for the future purchase 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 table summarizes information about fixed stock options outstanding at December 31, 2000:
Weighted Shares Option Average Under Price per Exercise Option Share Price --------------------------------------------- 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 Options granted 581,000 1.00-2.85 1.78 Options expired or terminated (373,000) 1.50-6.25 3.89 -------------------------------------------- Balance at December 31, 2000 959,666 $1.00-$4.06 $2.40 ============================================ Exercisable at December 31, 2000 205,000 $1.00-$4.06 $2.05 ============================================
At December 31, 2000, 740,334 of unissued options were available under the two plans. The weighted average contractual life of stock options outstanding as of December 31, 2000 and 1999 was 8.5 years. F-21 RELM Wireless Notes to Consolidated Financial Statements 11. Stock Option and Other Stock Option Plans (continued) The Company applies APB No. 25 in accounting for its plans and, accordingly, no compensation cost was recognized to the extent that the exercise price of the stock options equaled the fair value. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss and loss per share would be the pro-forma amounts indicated below: Year ended December 31 2000 1999 1998 -------------------------------- Net loss as reported $(1,428) $(2,294) $(5,405) Pro-forma net loss (1,911) (2,545) (5,520) Pro-forma loss per share: Basic and diluted (0.36) (0.50) (1.09) The weighted average fair value of options granted during the years ended December 31, 2000, 1999 and 1998 was $1.78, $2.08 and $1.63 respectively, using the Black-Scholes option- pricing method. The following weighted-average assumptions were utilized: Year ended December 31 2000 1999 1998 ------------------------------------- Black Scholes Pricing Assumptions: Expected volatility 129.8% 90.0% 59.0% Risk free interest rate 6.1% 6.0% 6.0% Expected dividends None None None Expected life in years 4 4 4 The pro-forma net loss reflects only options granted since 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro-forma net loss amounts presented above because compensation cost is reflected over the option vesting periods of up to four years and compensation cost for options granted prior to December 31, 1996 is not considered. F-22 RELM Wireless Notes to Consolidated Financial Statements 12. Equity On March 13, 2000, the Company acquired the private radio communications product lines from Uniden America Corporation. Under the terms of the transaction, RELM acquired all of Uniden's land mobile radio inventory, certain non-exclusive intellectual property rights, and assumed responsibility for service and technical support. Included in the transaction costs is a finders and advisory fee of 200,000 shares of RELM common stock paid to Simmonds Capital Limited. On August 21, 2000, in accordance with the terms of the Company's 8% convertible subordinated notes, a holder of two notes elected to convert his notes into 30,769 shares of RELM common stock. During the fourth quarter 1999, the investment-banking firm Sanders Morris Harris provided financial advisory services to the Company for a fee of $25,000. During the fourth quarter 2000, the Company agreed to pay and SMH agreed to accept 25,000 shares of RELM common stock, valued at the then current market price, as payment for these fees. 13. Significant Customers Sales to the United States government and to foreign markets as a percentage of the Company's total sales were as follows for the year ended December 31: 2000 1999 1998 ----------------------------------- U.S. Government 45% 26% 24% Foreign markets 3% 1% 9% 14. Pension Plans The Company sponsors a participant contributory retirement (401K) plan, which is available to all employees. The Company's contribution to the plan is either a percentage of the participants salary (50% of the participants contribution up to a maximum of 6%) or a discretionary amount. Total contributions made by the Company were $80, $109, and $137 for 2000, 1999, and 1998, respectively. F-23 RELM Wireless Notes to Consolidated Financial Statements 14. Pension Plans (continued) Related to its former paper-manufacturing subsidiary, the Company participated in a multi-employer pension plan through the date of sale of the subsidiary on June 16, 1997. The plan provided defined benefits for those employees covered by two collective bargaining agreements. Contributions for employees were based on hours worked at rates set in the bargaining agreements. If the Company curtailed employment or withdrew from the plans, a liability may be incurred. The buyer of the former subsidiary assumed such liability, if any. The Company agreed to be secondarily liable if the buyer withdraws from the plans prior to June 16, 2002. 15. Related Party Transactions 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. 16. 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 in 1998 related to the remaining lease payments of the Indiana facility. During the 1999 the Company completed its transactions related to the restructuring and reduced the liability to zero. F-24 RELM Wireless Notes to Consolidated Financial Statements 17. Real Estate Assets Held for Sale The Company sold its remaining real estates 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 had a valuation allowance of $1,966 at December 31, 1998. The real estate valuation allowance was composed of the following:
Year ended December 31 2000 1999 1998 ------------------------------------------------- Balance, beginning of period $ - $ 1,966 $ 1,005 Provision for impairment losses - - 961 Reduction due to sales - (1,966) - ------------------------------------------------- Balance, end of period $ - $ - $ 1,966 =================================================
The summarized results of operations of the real estate business are as follows:
Year ended December 31 2000 1999 1998 ---------------------------------------------- Sales $ - $ 908 $1,805 Cost of sales - (58) (851) Impairment loss - - (961) Selling, general and administrative expenses - (60) (100) ---------------------------------------------- Operating income (loss) $ - $ 790 $ (107) ==============================================
18. Discontinued Operations Specialty Manufacturing The Company incurred costs associated with the settlement of certain product liability claims related to its former specialty manufacturing subsidiary, which was sold in June 1997. These costs totaled $266, $0 and $0 in 2000, 1999 and 1998, respectively. F-25 RELM Wireless Notes to Consolidated Financial Statements 18. Discontinued Operations (continued) 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 $225, respectively. The gain recorded from the sale is $84 and was included in other income in the statement of operations. The Company's sales for 1999 and 1998 included approximately $910 and $1,710 of sales generated by RXD. 19. 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. 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. F-26 RELM Wireless Notes to Consolidated Financial Statements 19. Contingent Liabilities (continued) 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 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 to pay for 1998 product shipments totaling $1,400 which has been fully reserved. 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. Although the Company and its counsel believe the Company has a meritorious defense, 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 proceeding 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 contended unfair and malicious conduct in product sales and warranty claim matters. As result, the plaintiff alleged loss of profit, goodwill, and market share. On November 13, 2000, the suit was settled with a payment to TAD of $50,000. F-27 RELM Wireless Notes to Consolidated Financial Statements 20. Quarterly Financial Data (Unaudited) Selected quarterly financial data is summarized below:
Quarters Ended ------------------------------------------------------------------------------ March 31 June 30 September 30 December 31 Total 2000 2000 2000 2000 Year ------------------------------------------------------------------------------ Fiscal 2000 Sales $4,596 $5,158 $5,958 $ 5,342 $21,054 Gross profit 987 1,478 1,675 1,240 5,380 Income (loss) from continuing operations 391 (542) (330) (681) (1,162) Income (loss) from discontinued operations - - - (266) (266) Net income (loss) 391 (542) (330) (947) (1,428) Earnings (loss) per share-basic from continuing operations 0.08 (0.10) (0.06) (0.13) (0.22) Earnings (loss) per share-diluted from continuing operations 0.07 (0.10) (0.06) (0.13) (0.22) Loss per share-basic and diluted from discontinued operations - - - (0.05) (0.05) Earnings (loss) per share-basic 0.08 (0.10) (0.06) (0.18) (0.27) Earnings (loss) per share-diluted 0.07 (0.10) (0.06) (0.18) (0.27) Quarters Ended ------------------------------------------------------------------------------ March 31 June 30 September 30 December 31 Total 1999 1999 1999 1999 Year ------------------------------------------------------------------------------ Fiscal 1999 Sales $6,465 $7,125 $5,120 $ 3,694 $22,404 Gross profit 1,947 2,064 1,358 417 5,786 Net income (loss) 55 77 (298) (2,128) (2,294) Earnings (loss) per share-basic and diluted 0.01 0.02 (0.06) (0.42) (0.45)
F-28 RELM Wireless Condensed Consolidated Balance Sheets (Unaudited) (In thousands except share data)
September 30 December 31 2001 2000 ----------------------------- (Unaudited) (See note 1) ASSETS Current assets: Cash and cash equivalents $ 216 $ 208 Trade accounts receivable (net of allowance for doubtful 3,622 3,712 accounts of $1,546 as of September 30, 2001 and $1,555 as of December 31, 2000) Inventories, net 9,342 8,940 Prepaid expenses and other current 477 528 ------------ ---------- Total current assets 13,657 13,388 Property, plant and equipment, net 2,326 2,833 Notes receivable, less current portion 977 984 Debt issuance costs, net 554 682 Other assets 448 535 ------------ ---------- Total assets $ 17,962 $ 18,422 ============ ==========
See notes to condensed consolidated financial statements. F-29 RELM Wireless Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
September 30 December 31 2001 2000 ------------------------------------ (Unaudited) (See note 1) LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Current maturities of long-term liabilities $ 129 $ 848 Accounts payable 3,133 3,604 Accrued compensation and related taxes 694 361 Accrued expenses and other current liabilities 824 896 ------------ ------------ Total current liabilities 4,780 5,709 Long-term liabilities: Line of credit 3,591 3,193 Convertible subordinated notes 3,150 3,150 Capital lease obligations 10 10 ------------ ------------ 6,751 6,353 Stockholders' equity: Common stock; $.60 par value; 20,000,000 and 10,000,000 authorized shares at September 30, 2001 and December 31, 2000: 5,346,174 issued and outstanding shares at September 30, 2001 and December 31, 2000 3,207 3,207 Additional paid-in capital 21,452 21,452 Accumulated deficit (18,228) (18,299) ------------ ------------ Total stockholders' equity 6,431 6,360 ------------ ------------ Total liabilities and stockholders' equity $ 17,962 $ 18,422 ============ ============
See notes to condensed consolidated financial statements. F-30 RELM Wireless Condensed Consolidated Statements of Operations (Unaudited) (In thousands except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------- ------------------------------------ September 30 September 30 September 30 September 30 2001 2000 2001 2000 ---------------- ----------------- ---------------- ---------------- Sales $ 6,223 $ 5,958 $ 17,131 $ 15,712 Expenses Cost of products 4,293 4,283 12,212 11,572 Selling, general & administrative 1,528 1,907 4,378 5,312 ---------------- ----------------- ---------------- ---------------- 5,821 6,190 16,590 16,884 ---------------- ----------------- ---------------- ---------------- Operating income (loss) 402 (232) 541 (1,172) Other income (expense): Interest expense (149) (213) (452) (735) Gain on sale of facility and equipment - - - 1,165 Other income (expense) (40) 115 (18) 261 ---------------- ----------------- ---------------- ---------------- Net Income (loss) $ 213 $ (330) $ 71 $ (481) ================ ================= ================ ================ Earnings (loss) per share-basic $ 0.04 $ (0.06) $ 0.01 $ (0.09) ================ ================= ================ ================ Earnings (loss) per share-diluted $ 0.04 $ (0.06) $ 0.01 $ (0.09) ================ ================= ================ ================
See notes to condensed consolidated financial statements. F-31 RELM Wireless Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
NINE MONTHS ENDED ------------------------------------- September 30 September 30 2001 2000 ------------- --------------- Cash provided (used) by operations $ 348 $ (169) Investing activities: Cash paid for Uniden product line - (2,016) Property and equipment purchases (64) (217) Proceeds from disposals of assets 2 5,246 Other 51 6 ------------- --------------- Cash provided (used) by investing activities (11) 3,019 Financing activities: Net change in line of credit 398 (1,141) Proceeds from long term debt - 3,250 Repayment of debt (719) (4,551) Payment of debt issuance costs - (280) Other (8) - ------------- --------------- Cash used by financing activities (329) (2,722) Increase in cash 8 128 Cash and cash equivalents at beginning of period 208 1 ------------- --------------- Cash and cash equivalents at end of period $ 216 $ 129 ============= =============== Supplemental disclosure: Interest paid $ 452 $ 735 ============= =============== Non-cash transactions: Common stock and common stock warrants payable for debt issuance and acquisition costs $ - $ 1,059 ============= =============== Warrants issued for consulting services $ - $ 226 ============= =============== Common stock issued for conversion of debt $ - $ 100 ============= ===============
See notes to condensed consolidated financial statements. F-32 RELM Wireless Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands except share data and per share data) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet as of September 30, 2001, the condensed consolidated statements of operations for the three and nine months ended September 30, 2001 and 2000 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2001 and 2000 have been prepared by RELM Wireless Corporation (the Company), without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation have been made. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2000 Annual Report to Stockholders. The results of operations for the three and nine month period ended September 30, 2001 are not necessarily indicative of the operating results for a full year. The Company maintains its records on a calendar year basis. The Company's first, second, and third quarters normally end on the Friday closest to the last day of the last month of such quarter, which was September 28, 2001 for the third quarter of fiscal 2001. The quarter began on June 30, 2001. 2. Significant Events and Transactions Manufacturing Contract For Portable Radio Transceivers In September 2001, we entered into a contract with Shenzhen Hyt Science & Technology, LTD (HYT) for the manufacture of a new family of portable two-way radios. Under the agreement, HYT will manufacture for RELM, four models of VHF and UHF portable two-way radio transceivers, and we will have exclusive distribution rights for these products in North, Central, and South America. The agreement is for a term of five years and may be expanded to include additional products. Certain models are expected to be available for sale in the fourth quarter 2001, while the remaining models are expected to be available in the first quarter 2002. F-33 RELM Wireless Notes to Condensed Consolidated Financial Statements 3. Inventories The components of inventory, net of reserves totaling $1,978 at September 30, 2001 and December 31, 2000, consist of the following: September 30 December 31 2001 2000 ------------ ------------ Finished goods $ 6,019 $ 5,043 Work in process 578 796 Raw materials 2,745 3,101 ------------ ------------ $ 9,342 $ 8,940 ============ ============ 4. Stockholders' Equity The consolidated changes in stockholders' equity for the nine months ended September 30, 2001 are as follows:
Additional Common Stock Paid-In Accumulated ----------------------------- Shares Amount Capital Deficit Total --------------------------------------------------------------------------- Balance at December 31, 2000 5,346,174 $3,207 $21,452 $ (18,299) $6,360 Net income - - - 71 71 -------------------------------------------------------------------------- Balance at September 30, 2001 5,346,174 $ 3,207 $21,452 $ (18,228) $6,431 ==========================================================================
On June 14, 2001, the stockholders of the Company approved an increase in the number of authorized shares of common stock from 10,000,000 to 20,000,000 shares and preferred stock from 20,000 to 1,000,000 shares. F-34 RELM Wireless Notes to Condensed Consolidated Financial Statements 5. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------ ---------------------------- 2001 2000 2001 2000 ----------- ------------ ------------- ------------- Numerator: Net income (loss) (numerator for basic earnings per share) $ 213 $ (330) $ 71 $ (481) Effect of dilutive securities: 8% convertible notes - - - - ----------- ------------ ------------- ------------- Net income (loss) (numerator for dilutive earnings per share) 213 (330) 71 (481) ----------- ------------ ------------- ------------- Denominator: Denominator for basic earnings per share-weighted average shares 5,346,174 5,303,114 5,346,174 5,193,213 Effect of dilutive securities: 8% convertible notes - - - - Options 50,000 - 30,000 - ----------- ------------ ------------- ------------- Denominator for diluted earnings per share - adjusted weighted average shares 5,396,174 5,303,114 5,376,174 5,193,213 =========== ============ ============= ============= Earnings (loss) per share-basic $ 0.04 $ (0.06) $ 0.01 $ (0.09) =========== ============ ============= ============= Earnings (loss) per share-diluted $ 0.04 $ (0.06) $ 0.01 $ (0.09) =========== ============ ============= =============
Shares related to options and convertible debt are not included in the computation of loss per share for the three and nine months ended September 30, 2000, because to do so would be anti-dilutive. 6. Comprehensive Income (Loss) The total comprehensive income (loss) for the three and nine months ended September 30, 2001 was $213 and $71, respectively, compared to ($330) and ($481) for the same periods in the previous year. F-35 RELM Wireless Notes to Condensed Consolidated Financial Statements 7. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The Statements require the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change of fair value of assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company adopted these Statements on January 1, 2001, and did not have a material impact on the Company's financial position or operating results. At September 30, 2001, the Company had no hedges or firm commitments outstanding. In June 2001, the FASB issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company will apply the new accounting rules beginning January 1, 2002. The adoption of SFAS No. 141 and No. 142 will not have a material impact on our Consolidated Financial Statements. 8. 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 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-36 RELM Wireless Notes to Condensed Consolidated Financial Statements 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 securities 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. A related 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 1996, 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 former Brazilian dealer, Chatral, for failure to pay for 1998 product shipments totaling $1.4 million which has been fully reserved. In April 2001, the Brazilian court ordered the Company to post security with the court totaling approximately $300 thousand in the form of cash or a bond in order for the case to proceed. The Company has elected not to post security. Consequently, the case has been involuntarily dismissed. There has been no ruling on the merits of the case, and the Company has preserved its rights to pursue this matter in the future. F-37 RELM Wireless Notes to Condensed Consolidated Financial Statements Counter Claims (continued) 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. Although the Company and its counsel believe the Company has a meritorious defense, the outcome of this action is uncertain. An unfavorable outcome could have a material adverse effect on the financial position of the Company. On December 20, 2000, a products liability lawsuit was filed in Los Angeles Superior Court. Although the Company was not named in the suit, one of the Defendants, c.p. Allstar had purchased all or substantially all of the assets of a RELM affiliate. As part of the asset sale, the asset purchase agreement contained indemnification provisions, which could result in liability for the Company. On October 23, 2001, c.p. Allstar served the Company with a claim for indemnification under a provision of the asset purchase agreement. The Company is vigorously defending the claim. The Company is not able to estimate a potential loss, if any, on this claim. On November 19, 2001, a products liability lawsuit was filed in the 353rd Judicial District Court of Travis County, Texas, against the Company and RELM Communications, Inc. C.P. Allstar Corporation is also a named defendant in this lawsuit. C.P. Allstar Corporation had purchased all or substantially all of the assets of a RELM affiliate. As part of the asset sale, the asset purchase agreement contained indemnification provisions, which could result in liability for the Company. The Company is vigorously defending the claim. The Company is not able to estimate a potential loss, if any, on this claim. F-38 INFORMATION NOT REQUIRED IN PROSPECTUS -------------------------------------- ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated fees and expenses payable by us in connection with the resale and distribution of the securities being registered hereby. Securities and Exchange Commission registration fee $ 3,346 NASDAQ SmallCap listing fee $ 5,000 Accounting fees and expenses $100,000 Legal fees and expenses $ 70,000 Blue Sky fees and expenses $ 55,000 Printing and other $ 10,000 - --------------- ------- TOTAL $243,346 ======= ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY Our officers and directors are indemnified as provided under the Nevada Revised Statutes and our articles of incorporation and by-laws. Unless specifically limited by a corporation's articles of incorporation, the Nevada Revised Statutes automatically provides directors with immunity from monetary liabilities. Our articles of incorporation do not limit the automatic immunity provided by the Nevada Revised Statutes. Excepted from this immunity are: (i) a willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director has a material conflict of interest; (ii) a violation of criminal law unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (iii) a transaction from which the director derived an improper personal profit; and (iv) willful misconduct. Our articles of incorporation provide that we will indemnify, to the fullest extent permitted by Nevada law, all persons whom we have the power to indemnify under Nevada law, and that such indemnification shall not be the exclusive indemnification available to such persons. Our by-laws provide that we will indemnify each of our directors and officers if he or she acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interest of RELM and, with respect to any criminal proceedings, had no reasonable cause to believe his or her conduct was unlawful. In addition, we will indemnify our directors and officers in any action by or in the right of the corporation if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interest of RELM; provided, that no indemnification shall be made in respect of a claim as to which the person has been adjudged to be liable to RELM unless and only to the extent that a court of competent jurisdiction determines that, despite the adjudication of liability but in view of the circumstances of the case, the person II-1 is fairly and reasonably entitled to indemnity for the expenses that such court deems proper. Our by-laws provide that no indemnification shall be provided by us to any person, unless it is determined that indemnification is proper because the person has met the applicable standard of conduct. Such determination shall be made: - a majority vote of a quorum of the Board of Directors consisting of directors who are not parties to the action or proceeding, or - if such quorum is not obtainable, or if obtainable and a majority vote of a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or - by the shareholders, or - in such other manner, if any, as shall be permitted under Nevada law. Our by-laws provide that expenses incurred in defending any action or proceeding to which indemnification may be available may be advanced by us upon receipt of any undertaking by or on behalf of the person claiming indemnification to repay these amounts if it should be determined ultimately that he is not entitled to be indemnified by us. In addition, our articles of incorporation eliminate the personal liability of our directors to the fullest extent permitted by Nevada law, as the same may be amended and supplemented. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy and is, therefore, unenforceable. We intend to enter into indemnity agreements with each of our directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification described above and to provide additional procedural protections. In addition, we have obtained directors' and officers' insurance providing indemnification for our directors, officers and certain employees for certain liabilities. We believe that these indemnification provisions and agreements are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our articles of incorporation and by-laws may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit our shareholders and us. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers under these indemnification provisions. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES On March 16, 2000, we completed the private placement of $3.25 million aggregate principal amount of our convertible subordinated notes. The notes were sold to certain selling securityholders listed under "Selling Securityholders-- Common Stock Issuable Upon Conversion of Notes" in an S-1 filed with the Securities and Exchange Commission on July 7, 2000. II-2 The proceeds from that offering were used to purchase the LMR assets of Uniden America Corporation and to satisfy our then delinquent mortgage obligation. Remaining proceeds were utilized for working capital requirements. A commission of $90,000 was paid to Janney Montgomery Scott LLC for the placement of $1.8 million of the notes. The sale of the above securities was deemed to be exempt from registration under the Securities Act in reliance upon Rule 506 of Regulation D promulgated under the Securities Act as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES A. EXHIBITS Exhibit Exhibits - ------- -------- 1 Standby Underwriting Agreement (6) 3(a) Articles of Incorporation (2) 3(b) By-Laws (2) 4(a) Form of 8% Convertible Subordinated Promissory Note (5) 4(b) Warrant Agreement between RELM Wireless Corporation and Janney Montgomery Scott LLC dated May 12, 2000 (8) 4(c) Warrant Certificate No. W-100 issued to Janney Montgomery Scott LLC dated May 12, 2000 (8) 4(d) Warrant Agreement between RELM Wireless Corporation and Simmonds Capital Limited day May 12, 2000 (8) 4(e) Warrant Certificate No. W-100 issued to Simmonds Capital Limited dated May 12, 2000 (8) 4(f) Warrant Agreement between RELM Wireless Corporation and American Stock Transfer and Trust Company, dated February ___, 2002 (6) 4(g) Subscription Rights Agreement between RELM Wireless Corporation and The American Stock Transfer and Trust Company, dated February __, 2002 (6) 4(h) Form of Unit Certificate (6) 4(i) Form of Rights Certificate (6) 4(j) Form of Warrant Certificate (6) 4(k) Underwriters Warrant (6) 5 Opinion of Zack Kosnitzky, P.A. (6) 10(a) 1996 Stock Option Plan for Non-Employee Directors (1) 10(b) 1997 Stock Option Plan (2) 10(c) Loan and Security Agreement with Summit Commercial/Gibraltar Corp. dated February 26, 1999 (3) 10(d) Workers Compensation Close Out Agreement dated December 21, 1998 (3) 10(e) Amendment to Security and Loan Agreement with Summit Commercial/Gibraltar Corp. dated December 1999 (4) 10(f) Second Amendment to Security and Loan Agreement with Summit Commercial/Gibraltar Corp. dated March 10, 2000 (4) II-3 10(g) Third Amendment to Security and Loan Agreement with Summit Commercial/Gibraltar Corp. dated March 24, 2000 (4) 10(h) Letter Agreement with Simmonds Capital Limited dated March 23, 2000 (4) 10(i) Exclusive Right of Sale Listing Agreement effective October 25, 1999 (5) 10(j) Sublease by and between Johnson Matthey Electronic Assembly Services, Inc. and RELM Wireless Corporation dated March 24, 2000 (4) 10(k) Asset Purchase Agreement with Uniden America Corporation dated March 13, 2000(5) 10(l) OEM Manufacturing Contract between RELM Wireless Corporation and Uniden Corporation dated March 13, 2000 (5) 10(m) Trademark License Agreement between Uniden America Corporation and RELM Wireless Corporation for the mark "ESAS" dated March 13, 2000 (5) 10(n) Manufacturing Agreement between Johnson Matthey Electronic Assembly Services, Inc. and RELM Wireless Corporation dated March 24, 2000 (4) 10(o) Transaction Agreement between Johnson Matthey Electronic Assembly Services, Inc. and RELM Wireless Corporation dated March 24, 2000 (4) 10(p) Letter Agreement between RELM Wireless Corporation and Janney Montgomery Scott LLC dated May 12, 2000 (8) 10(q) Financial Services Agreement between RELM Wireless Corporation and Noble International Investments, Inc., dated February __, 2002 (6) 21 Subsidiaries of Registrant (7) 23(a) Consent of Zack Kosnitzky, P.A. (included in Exhibit 5.1) (6) 23(b) Consent of Ernst & Young LLP (6) 25 Power of Attorney (included on the signature page) 99 Press Release dated January 16, 2002 (9) (1) Incorporated by reference from the Adage, Inc. (predecessor to RELM Wireless Corporation) Form 10-K for the fiscal year ended December 31, 1996. File No. 0-7336. (2) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 1997. File No. 0-7336. (3) Incorporated by reference from the Company's Form 10-Q for the quarter ended March 31, 1999. File No. 0-7336. (4) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 1999. File No. 0-7336. (5) Incorporated by reference from Amendment #1 to the Company's Form 10-K for the fiscal year ended December 31, 1999. File No. 0-7336. (6) Filed herewith. (7) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 1998. (8) Incorporated by reference from the Company's Form S-1, June 7, 2000. File No. 333-38718. (9) Incorporated by reference from the Company's Form 8-K, January 30, 2002. File No. 000-07336. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post- effective II-4 amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amended registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of West Melbourne, State of Florida, on this 7th day of February, 2002. RELM WIRELESS CORPORATION By: /s/ David P. Storey ------------------------------ David P. Storey, President and Chief Executive Officer II-6 Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- Donald F. U. Goebert Chairman February 7, 2002 By: /s/ William P. Kelly - -------------------------- Attorney-In-Fact /s/ David P. Storey President and Chief Executive February 7, 2002 - -------------------------- Officer and Director (Principal David P. Storey Executive Officer) /s/ William P. Kelly Secretary, Executive Vice February 7, 2002 - -------------------------- President - Finance, and Chief William P. Kelly Financial Officer (Principal Financial and Accounting Officer) Buck Scott Director February 7, 2002 By: /s/ William P. Kelly - -------------------------- Attorney-In-Fact James C. Gale Director February 7, 2002 By: /s/ William P. Kelly - -------------------------- Attorney-In-Fact Robert L. MacDonald Director February 7, 2002 By: /s/ William P. Kelly - -------------------------- Attorney-In-Fact Ralph R. Whitney Jr. Director February 7, 2002 By: /s/ William P. Kelly - -------------------------- Attorney-In-Fact George N. Benjamin, III Director February 7, 2002 By: /s/ William P. Kelly - -------------------------- Attorney-In-Fact
II-7 Description ----------- Exhibits - -------- 1 Standby Underwriting Agreement (6) 3(a) Articles of Incorporation (2) 3(b) By-Laws (2) 4(a) Form of 8% Convertible Subordinated Promissory Note (5) 4(b) Warrant Agreement between RELM Wireless Corporation and Janney Montgomery Scott LLC dated May 12, 2000 (8) 4(c) Warrant Certificate No. W-100 issued to Janney Montgomery Scott LLC dated May 12, 2000 (8) 4(d) Warrant Agreement between RELM Wireless Corporation and Simmonds Capital Limited day May 12, 2000 (8) 4(e) Warrant Certificate No. W-100 issued to Simmonds Capital Limited dated May 12, 2000 (8) 4(f) Warrant Agreement between RELM Wireless Corporation and American Stock Transfer and Trust Company, dated February ___, 2002 (6) 4(g) Subscription Rights Agreement between RELM Wireless Corporation and The American Stock Transfer and Trust Company, dated February ___, 2002 (6) 4(h) Form of Unit Certificate (6) 4(i) Form of Rights Certificate (6) 4(j) Form of Warrant Certificate (6) 4(k) Underwriters Warrant (6) 5 Opinion of Zack Kosnitzky, P.A. (6) 10(a) 1996 Stock Option Plan for Non-Employee Directors (1) 10(b) 1997 Stock Option Plan (2) 10(c) Loan and Security Agreement with Summit Commercial/Gibraltar Corp. dated February 26, 1999 (3) 10(d) Workers Compensation Close Out Agreement dated December 21, 1998 (3) 10(e) Amendment to Security and Loan Agreement with Summit Commercial/Gibraltar Corp. dated December 1999 (4) 10(f) Second Amendment to Security and Loan Agreement with Summit Commercial/Gibraltar Corp. dated March 10, 2000 (4) 10(g) Third Amendment to Security and Loan Agreement with Summit Commercial/Gibraltar Corp. dated March 24, 2000 (4) 10(h) Letter Agreement with Simmonds Capital Limited dated March 23, 2000 (4) 10(i) Exclusive Right of Sale Listing Agreement effective October 25, 1999 (5) 10(j) Sublease by and between Johnson Matthey Electronic Assembly Services, Inc. and RELM Wireless Corporation dated March 24, 2000 (4) 10(k) Asset Purchase Agreement with Uniden America Corporation dated March 13, 2000(5) 10(l) OEM Manufacturing Contract between RELM Wireless Corporation and Uniden Corporation dated March 13, 2000 (5) 10(m) Trademark License Agreement between Uniden America Corporation and RELM Wireless Corporation for the mark "ESAS" dated March 13, 2000 (5) 10(n) Manufacturing Agreement between Johnson Matthey Electronic Assembly Services, Inc. and RELM Wireless Corporation dated March 24, 2000 (4) 10(o) Transaction Agreement between Johnson Matthey Electronic Assembly Services, Inc. and RELM Wireless Corporation dated March 24, 2000 (4) 10(p) Letter Agreement between RELM Wireless Corporation and Janney Montgomery Scott LLC dated May 12, 2000 (8) 10(q) Financial Services Agreement between RELM Wireless Corporation and Noble International Investments, Inc., dated February __, 2002 (6) 21 Subsidiaries of Registrant (7) 23(a) Consent of Zack Kosnitzky, P.A. (included in Exhibit 5.1) (6) 23(b) Consent of Ernst & Young LLP (6) 25 Power of Attorney (included on the signature page) 99 Press Release dated January 16, 2002 (9) (1) Incorporated by reference from the Adage, Inc. (predecessor to RELM Wireless Corporation) Form 10-K for the fiscal year ended December 31, 1996. File No. 0-7336. (2) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 1997. File No. 0-7336. (3) Incorporated by reference from the Company's Form 10-Q for the quarter ended March 31, 1999. File No. 0-7336. (4) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 1999. File No. 0-7336. (5) Incorporated by reference from Amendment #1 to the Company's Form 10-K for the fiscal year ended December 31, 1999. File No. 0-7336. (6) Filed herewith. (7) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 1998. (8) Incorporated by reference from the Company's Form S-1, June 7, 2000. File No. 333-38718. (9) Incorporated by reference from the Company's Form 8-K, January 30, 2002. File No. 000-07336. EX-1 3 ex-1.txt STANDBY UNDERWRITING AGREEMENT EXHIBIT 1 RELM WIRELESS CORPORATION STANDBY UNDERWRITING AGREEMENT February __, 2002 Noble International Investments, Inc. 6501 Congress Avenue, Suite 100 Boca Raton, FL 33487 Ladies and Gentlemen: Relm Wireless Corporation, a Nevada corporation (the "Company"), with principal offices located at 7100 Technology Drive, West Melbourne, FL 32904, has offered to its Equity Holders the non-transferable right to purchase "Units," each Unit consisting of one share of Common Stock and one warrant to purchase one share of Common Stock (the "Warrants") on the basis of one right for each Equity Position owned by an Equity Holder, subject to pro rata reduction if an oversubscription occurs, at a price equal to the Exercise Price. An Equity Holder who fully exercises his or her Rights will have the privilege to oversubscribe for any remaining Units on a pro-rata basis, based on the amount of oversubscriptions. The Common stock and Warrant, which comprise each Unit, will not be separable unless and until approved by Noble. The Company has 5,346,714 shares of Common Stock and 8,190,058 Equity Positions (excluding Shares) issued and outstanding on the date hereof. The Company is hereby entering into this Standby Agreement with Noble, the terms of which are set forth hereinafter, for the purpose of effectuating the exercise of all of the Rights. The exercise of the Rights and the terms of this Standby Agreement are more fully described in the Registration Statement. 1. Certain Definitions. ------------------- The following shall constitute the definitions of certain additional terms used in this Standby Agreement. (a) "Act" shall refer to the Securities Act of 1933, as amended. (b) "Closing" means 10:00 a.m., Miami time on the third business day after the Expiration Date, or at such other time or such other date, not later than ________ ___, 2002, as shall be agreed to by the Company and Noble. (c) "Closing Date" shall be the third business day after the expiration of the Rights. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Commission" shall mean the Securities and Exchange Commission. (f) "Common Stock" shall refer to the Common Stock, $.60 par value, of the Company. (g) "Company" shall refer to Relm Wireless Corporation and its subsidiaries. (h) "Convertible Shares" shall mean such number of shares of Common Stock an Equity Holder would own if it exercised any outstanding option or warrant or converted any outstanding conversion right into Common Stock of the Company. (i) "Effective Date" shall be the date upon which the Registration Statement becomes effective pursuant to notice from the Commission and/or the passage of time in accordance with the Act. (j) "Equity Holders" shall mean collectively, the Company's equity holders, which are owners of any of the Company's shares, warrants, options or conversion rights. (k) "Equity Position" shall mean each share of Common Stock and each Convertible Share. (l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (m) "Exercise Price" of the Rights shall equal the closing bid price of the Company's Common Stock on the Nasdaq Small-Cap Market on the trading date immediately prior to the Effective Date, less ten percent (10%). In the event the closing bid price of the Company's Common Stock on the Expiration Date is less than the closing bid price on the Effective Date, the Units shall be re-priced and the Exercise Price shall be reduced, up to $0.20 per Unit, to an amount equal to the closing bid price of the Company's Common Stock on the Expiration Date, less ten percent (10%). (n) "Expiration Date" shall mean 5:00 p.m., Miami time, on ________, 2002, which shall be 21 days after the Effective Date. (o) "Financial Advisory Agreement" shall mean that agreement attached hereto as Exhibit A, pursuant to which Noble shall provide financial advisory services to the Company. (p) "Investment Company Act" means the Investment Company Act of 1940, as amended. (q) "Material Adverse Effect" means a material adverse effect on the condition, financial or otherwise, or on the earnings, business affairs, financial position, value, operations, properties, results of operation or business of the Company. (r) "Maximum Exercise Price" shall mean the closing bid price of the Company's Common Stock on the Nasdaq Small-Cap Market on the trading date immediately prior to the Effective Date, less ten percent (10%). (s) "Minimum Exercise Price" shall mean the amount that is $.20 less than the Maximum Exercise Price. (t) "NASD" means National Association of Securities Dealers, Inc. 2 (u) "Noble" shall refer to Noble International Investments, Inc. (v) "Noble's Warrant" shall mean the warrants referred to in Section 2(d) hereof. (w) "Noble Warrant Agreement" shall mean the agreement with respect to the grant of Noble's Warrant. (x) "Prospectus" shall refer to the Prospectus that is part of the Registration Statement filed by the Company, as amended. (y) "Registration Statement" shall refer to the Registration Statement filed by the Company, including exhibits and financial statements, under Commission File Number 333-75512, as amended. (z) "Regulations" shall refer to the rules and regulations of the Commission, as amended. (aa) "Rights" shall mean each Right offered pursuant to the Registration Statement whereby each Equity Holder of the Company may purchase one Unit at the Exercise Price for each Equity Position owned by the Equity Holder, subject to pro rata reduction if an oversubscription occurs. The Rights shall expire 21 days after the Effective Date. (bb) "Securities" shall mean the Rights, the Units, the Shares underlying the Units, the Warrants, and the Shares underlying the Warrants. (cc) "Share" shall mean one (1) share of Common Stock, $.60 par value, of the Company. (dd) "Standby Agreement" shall mean this Standby Underwriting Agreement between the Company and Noble. (ee) "Subscription Agency Agreement" shall refer to the agreement between the Company and Transfer Agent with respect to the grant and exercise of the Rights. (ff) "Standby Units" shall mean 2,500,000 Units, unless the Exercise Price is less than the Maximum Exercise Price, in which case it shall be adjusted upward proportionately, based upon the difference between the Maximum Exercise Price less the Exercise Price divided by $.20 and multiplied by 500,000. The number of Standby Units shall never be greater than 3,000,000. (gg) "Termination Date" shall refer to the date upon which this Standby Agreement shall terminate for whatever reason. (hh) "Transfer Agent" shall mean American Stock Transfer and Trust Company. (ii) "Unsubscribed Units" shall mean the difference between the number of Standby Units and the number of Units sold pursuant to the exercise of the Rights to buy Units by Equity Holders on or before 21 days after the Effective Date. 3 (jj) "Warrant" shall mean the right to purchase one share of Common Stock, at an exercise price of 120% of the Exercise Price (the "Warrant Exercise Price") per Share commencing one year after the Effective Date (or earlier with the consent of Noble, which consent may be given or withheld in Noble's sole discretion) and expiring four years after the Effective Date. The Warrants may be called for redemption by the Company at a redemption price equal to $.10 per Warrant provided that, commencing one year after the Effective Date, the closing bid price of the Company's Common Stock for the twenty consecutive trading days ending on the third day prior to the date on which the Company gives notice of redemption has been at least 150% of the Warrant Exercise Price (after giving effect to any stock dividends or stock splits) occurring after the Effective Date. (kk) "Warrant Agency Agreement" shall refer to the agreement between the Company and the Transfer Agent with respect to the Warrants. 2. Terms of the Standby Agreement. ------------------------------ (a) On the Closing Date, subject to all the terms and conditions set forth herein, the Company hereby agrees to sell to Noble and Noble agrees to purchase from the Company that number of Standby Units that are Unsubscribed Units at the Exercise Price. The determination of the number of Standby Units to be purchased by Noble shall be made by the Transfer Agent, acting as Subscription Agent, pursuant to the Subscription Agency Agreement. (b) The Company shall pay to Noble at Closing a fee (the "Standby Fee") in the sum of $________ (i.e. an amount equal to ten percent (10%) of the gross proceeds from the sale of the Standby Units), which fee is payable irrespective of any amount required to be paid by Noble to the Company for Unsubscribed Units pursuant to Section 4 hereunder. (c) The Company shall also pay to Noble all of Noble's reasonable out-of-pocket fees, expenses and costs (including, but not limited to, the fees and expenses set forth in Section 5(m) and 5(v) (subject to the limitation on legal fees as set forth in Section 5(m) below), accounting, travel accommodations, telephone, computer, courier and supplies) in connection with the performance of its services under this Standby Agreement. In this connection, the Company shall pay Noble a non-accountable expense allowance of $40,000 to cover Noble's expenses (other than legal fees and related expenses described in Sections 5(m) and 5(v), which shall be the Company's direct obligation). Noble acknowledges that it has already received this non-accountable expense allowance. (d) At the Closing, the Company shall sell and deliver to Noble warrants in the form attached hereto as Exhibit B ("Noble's Warrant") to purchase ______ Units (equal to ten (10%) percent of the number of Standby Units) at an exercise price equal to the Exercise Price. Noble's Warrant shall be exercisable during the four-year period commencing 12-months after the Effective Date. During the 12-months commencing on the Effective Date, Noble will not sell, transfer, assign or hypothecate any of Noble's Warrants or the securities underlying Noble's Warrants except to officers or partners of Noble (and to selected dealers, if any, as may be permitted in full compliance with applicable federal and state securities laws and rules and regulations of the Commission and the NASD. 4 (e) At the Closing, the Company and Noble shall enter into the Financial Advisory Agreement, in the form attached hereto as Exhibit A, and the Company shall pay to Noble the amount due thereunder on the Closing Date. (f) The Company agrees to use its best efforts to secure prompt and maximum exercise of the Rights by the Equity Holders prior to the Expiration Date. (g) Noble shall offer the Unsubscribed Units for sale at a price equal to the Exercise Price. (h) For a period of 45 days after the Expiration Date and upon ___ days written notice, the Company agrees to sell to Noble, from time to time, all or part of up to ______ Units (the "Option Units") (representing 15% of the Standby Units) at the Exercise Price for the sole purpose of covering over-allotments that may be made in connection with Noble's offering and distribution of the Unsubscribed Units. Delivery of the Option Units shall be made concurrently with payment therefor. Option Units may be purchased by Noble only for the purpose of covering over-allotments that may be made in connection with its offering and distribution of the Unsubscribed Units. (i) The Company shall be obligated to pay to Noble the compensation set forth in this Section 2 irrespective of how many Standby Units are actually required to be purchased by Noble pursuant to Section 4 of this Standby Agreement. 3. Representations and Warranties of the Company. --------------------------------------------- (a) The Registration Statement, including the Prospectus, has been carefully prepared by the Company in conformity with the requirements of the Act, and such Registration Statement has been filed with the Commission, and one or more amendments to said Registration Statement, has or have been filed; and the Company may file on or prior to the Effective Date an additional amendment to said Registration Statement, a copy of which amendment has been furnished to and approved by Noble prior to the execution of this Standby Agreement. (b) The Commission has not issued any order preventing or suspending the use of any Prospectus with respect to this transaction and each Prospectus has conformed in all material respects with the requirements of the Act and the Regulations and has not included any fact required to be stated therein or necessary to make the statements therein not misleading. On the Effective Date and on the Closing Date, the Registration Statement will conform in all material respects with the requirements of the Act and the applicable Regulations, and the Registration Statement and any further amendments or supplements thereto will contain all statements which are required to be stated therein or necessary to make the statements therein not misleading; provided, however, the Company does not make any representations or warranties as to information contained in or omitted from the Registration Statement or Prospectus in reliance upon written information furnished by Noble, specifically for use therein or in any amendments or supplements thereto. (c) The Company and each of its subsidiaries are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to transact 5 business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or leasing of any properties or the character or conduct of their respective operations requires such qualification, except where failures to be so qualified, individually or in the aggregate, would not result in a Material Adverse Effect. Other than the subsidiaries listed on Schedule A hereto, the Company does not own any stock of or other equity in, or otherwise control directly or indirectly, any corporation, firm, partnership, trust, joint venture or other business entity. (d) The consolidated financial statements and schedules of the Company included in the Registration Statement, the Prospectus and any amendment or supplement thereto fairly present the consolidated financial position and results of operations of the Company as of the dates and for the periods therein specified. Such financial statements and schedules have been prepared in accordance with generally accepted accounting principles as in effect in the United States and as consistently applied throughout the periods involved and in accordance with the Regulations. The selected consolidated financial data set forth under the caption "SELECTED CONSOLIDATED FINANCIAL DATA" in the Prospectus fairly present, on the basis stated therein, the information included therein. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company's internal accounting controls are designed to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended. Ernst & Young, LLP, whose reports are filed with the Commission as a part of the Registration Statement, are independent auditors as required by the Act and the Regulations. Since January 1, 1997, Ernst & Young, LLP has been the only public accountants engaged by the Company, and the Company has not had any disagreement with Ernst &Young, LLP, and has not experienced any reportable event since that date. (e) The Company is not in violation of any term or provision of its charter documents or bylaws, or of any material agreement, instrument, judgment, decree, order, statute, rule or governmental regulation. (f) The minutes books of the Company and each of its subsidiaries made available to Nobel's counsel, (i) contain minutes and consents from all meetings and actions of the Company's (and its subsidiaries') stockholders, boards of directors, and the committees of such board since the respective dates of organization of the Company and each of its subsidiaries and (ii) reflect all transactions referred to in such minutes accurately in all material respects. (g) The Company has all requisite power and authority (corporate and other) to enter into this Standby Agreement, the Noble Warrant Agreement, the Financial Advisory Agreement, Subscription Agency Agreement and the Warrant Agency Agreement and to consummate the transactions provided for herein and therein; and this Standby Agreement, the Noble Warrant Agreement, the Financial Advisory Agreement, Subscription Agency Agreement and Warrant Agency Agreement have been duly authorized by the Company. This Standby Agreement and other 6 agreements have been duly executed and delivered by the Company. Each of this Standby Agreement, the Noble Warrant Agreement, the Financial Advisory Agreement, Subscription Agency Agreement and the Warrant Agency Agreement constitutes, assuming due authorization, execution and delivery by the other parties to such agreement, the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effect of general principles of equity (including standards of materiality, good faith, fair dealing and reasonableness) whether applied by a court of law or equity, and except as rights to indemnity and contribution hereunder may be limited by applicable law, statutory duties or public policy. The Company's execution and delivery of this Standby Agreement, the Noble Warrant Agreement, the Financial Advisory Agreement, the Subscription Agency Agreement and the Warrant Agency Agreement its performance of its obligations hereunder and thereunder, the consummation of the transactions contemplated hereby and thereby by it, and its conduct of its business as described in the Registration Statement, the Prospectus and any amendment or supplement thereto, will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any material liens, charges, claims, encumbrances, pledges, security interests, defects or other like restrictions or material equities of any kind whatsoever upon, any material right, property or assets (tangible or intangible) of the Company or any of its subsidiaries pursuant to the terms of (i) the charter or bylaws, each as amended to date, of the Company or any of its subsidiaries, (ii) any lease, license, permit, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement (including any related to indebtedness) or any other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is or by which any of them may be bound or to which any of their respective properties or assets (tangible or intangible) is or may be subject, except to the extent that any such conflict, breach, violation or default, individually or in the aggregate, does not and would not result in a Material Adverse Effect and does not and would not interfere with the offering or (iii) any statute, judgment, decree, order, rule or regulation applicable to the Company or any of its subsidiaries or any of their respective activities or properties adopted or issued by an arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or of their respective activities or properties (other than such as may be required under state securities or "Blue Sky" laws and such as may be required by the bylaws and rules of the NASD in connection with the purchase and distribution of the Unsubscribed Units by Noble and Noble's provision of services pursuant to the Financial Advisory Agreement). (h) The Company and each of its subsidiaries have all requisite power and authority (corporate and other), and have obtained and currently maintains in full force and effect and are operating in compliance with any and all authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including those having jurisdiction over environmental or similar matters) necessary or required to own or lease their respective properties and conduct their respective business as described in the Registration Statement, the Prospectus and any amendment or supplement thereto, except where the failure to so maintain or operate would not result in a Material Adverse Effect. The 7 Company and each of its subsidiaries are and have been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all federal, state, local and foreign laws, rules and regulations (including without limitation those relating to employment matters and the payment of taxes) except as disclosed in the Prospectus and except where failures to be in compliance, individually or in the aggregate, would not result in a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any notice or notices of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise or permit that if the subject of unfavorable decisions, rulings or findings, would, individually or in the aggregate, result in a Material Adverse Effect. (i) The authorized, issued and outstanding capital stock of the Company is set forth, and conforms to the description thereof contained, in the Registration Statement, the Prospectus, and any amendment or supplement thereto. All of the issued shares of capital stock of the Company, have been duly authorized and validly issued, and are fully paid and nonassessable; the holders thereof have no rights of rescission against the Company with respect thereto and are not subject to personal liabilities solely by reason of being such holders (except to the extent that as a result of acquiring a substantial number of shares of Common Stock a holder may be subject to claims of personal liability as an affiliate or control person of the Company, as to which no representation is made hereby); and none of such shares have been issued in violation of the preemptive rights of any security holders of the Company arising as a matter of law or under or pursuant to the Company's Articles of Incorporation, as amended, the Company's Bylaws, as amended, or any agreement or instrument to which the Company is a party or by which it is bound. The Securities have been duly authorized and at the Closing Date, after payment therefor in accordance herewith or in accordance with the terms and conditions of each Security (as the case may be), will be validly issued, fully paid and nonassessable and not subject to any adverse claim, with no personal liability attaching to the holder solely as a result of the ownership thereof. Upon the issuance and delivery pursuant to this Standby Agreement of the Units to be sold by the Company, Noble will acquire good and marketable title to the Unsubscribed Units (and to each of the Securities therein), free and clear of any liens, charges, claims, preemptive rights, encumbrances, pledges, security interests, defects or other like restrictions or like material equity of any kind whatsoever. The terms of each of the Securities conform to the respective descriptions thereof contained in the Prospectus. There are no preemptive or other rights to subscribe for or to purchase nor any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's Articles of Incorporation or Bylaws, as each amended to date, or pursuant to any agreement among stockholders to which the Company is a party, by which it is bound or of which it has knowledge, and the Securities, are not otherwise subject to any preemptive or other similar rights of any security holder. The Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Standby Agreement and as described in the Prospectus. No holder of any securities of the Company has the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company during a period commencing on the date the Registration Statement is declared effective by the Commission and ending 180 days following the Expiration Date or to require the Company to file a registration statement under the Act during such period. All of the Securities (except the Rights) to be issued by the Company as contemplated herein have been approved for quotation upon notice of issuance on the Nasdaq Small Cap Market of the Nasdaq Stock Market. (j) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required in connection with the offer, issuance and sale of the Securities or upon exercise of the Rights or Warrants, the Company's performance of its obligations hereunder, or the 8 consummation by the Company of the other transactions contemplated hereby, except (i) such as may be required under the state securities or "Blue Sky" laws of any jurisdiction or as may be required by the bylaws and rules of the NASD in connection with the purchase and distribution of the Unsubscribed Units by Noble, (ii) any filing of the Prospectus pursuant to Rule 424(b) or 430A of the Regulations and, if the Registration Statement has not been declared effective, an order of the Commission declaring the Registration Statement effective under the Act, and (iii) such other approvals as have been obtained and remain in full force and effect. (k) Except as disclosed in the Registration Statement or the Prospectus, each employee benefit plan, within the meaning of Section 3(3) of ERISA that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and its affiliates has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption; and for each such plan which is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA no "accumulated funding deficiency" as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeded the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions. (l) Other than as disclosed in the Prospectus there is not pending or, to the Company's knowledge, threatened against the Company or any of its subsidiaries or involving the properties or business of the Company or any of its subsidiaries or involving the properties or business of the Company or any of its subsidiaries (or, to the Company's knowledge, any circumstance that may give rise to the same), any action, suit, proceeding, investigation, litigation or governmental proceeding (including those having jurisdiction over environmental or similar matters), domestic or foreign, that (i) is required to be disclosed in the Registration Statement and is not so disclosed, (ii) questions the validity of the capital stock of the Company or the validity or enforceability of this Standby Agreement for the Securities, (iii) questions the validity of any action taken or to be taken by the Company pursuant to or in connection with this Standby Agreement, or (iv) could materially adversely affect the present or prospective ability of the Company to perform its obligations under this Standby Agreement or result in a Material Adverse Effect. Any such proceedings summarized in the Prospectus are accurately summarized in all material respects; (m) There are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's, advisory or origination fee or otherwise, either with respect to the sale of the Standby Units upon exercise of the Rights, the sale of Standby Units hereunder or with respect to the proceeds received by the Company from such sales. Other than as reflected in this Standby Agreement, there are no other arrangements, agreements, understandings, payments or issuances with respect to the Company or, to the Company's knowledge, any of its officers, directors, or affiliates that may constitute "underwriter's compensation," as determined by the NASD. 9 (n) All agreements filed as exhibits to or referred to in the Registration Statement to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries may be bound or to which any of their respective assets, properties or businesses may be subject have been duly and validly authorized, executed and delivered by the Company or such subsidiary, as appropriate, and constitute the legal, valid and binding agreements of the Company or such subsidiary, as appropriate, enforceable in accordance with their respective terms, subject in each case to the effect of general principles of equity (including standards of materiality, good faith, fair dealing and reasonableness) whether applied by a court of law or equity and except as rights to indemnity and contribution under this Standby Agreement may be limited by applicable law, statutory duties or public policy. The descriptions in the Registration Statement, the Prospectus and any amendment or supplement thereto of agreements, whether written or oral, and of other documents are accurate and fairly present the information required to be shown with respect thereto under the Act. There are no agreements, whether written or oral, or other documents that are required by the Act or the Regulations to be described in the Registration Statement or filed as exhibits to the Registration Statement that are not described or filed as required. (o) The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns that are required to be filed by them or have duly requested extensions thereof, except in any case in which the failure so to file, individually or in the aggregate, would not have a Material Adverse Effect. The Company and each of its subsidiaries have paid all taxes required to be paid by them and all other assessments, fines or penalties, if any, levied against them, to the extent that any of the foregoing are due and payable, except for (i) any such assessment, fine or penalty that is currently being contested in good faith or (ii) any case in which the failure so to pay, individually or in the aggregate, would not have a Material Adverse Effect. (p) No transfer tax, stamp duty or other similar tax is payable by or on behalf of Noble in connection with the issuance by the Company, or the purchase by Noble, of the Unsubscribed Units to be sold by the Company or any resales of such Unsubscribed Units by Noble, or on the issuance or sale of any of the Securities. (q) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the business in which they are engaged, and the Company has no reason to believe that it or any of its subsidiaries will not be able to renew their respective existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their respective business at a cost that would not result in a Material Adverse Effect. (r) The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other like restrictions or like equities of any kind whatsoever, other than (i) liens for taxes not yet due and payable, (ii) liens as described or referred to in the Prospectus, and (iii) liens that are not material in amount in relation to the business of the Company and which do not interfere with the offering. 10 (s) The Company's Common Stock is currently listed for trading on the Nasdaq Small-Cap Market under the symbol RELM. (t) Neither the Company nor any of its officers, directors, or affiliates (within the meaning of the Regulations) has taken or will take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock, in violation of Regulation M under the Exchange Act. (u) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, neither the Company nor any of its subsidiaries has (i) issued any securities other than the Rights, the Standby Units and shares of Common Stock issuable upon the exercise of stock options disclosed in the Prospectus as outstanding as of the date hereof, (ii) incurred any liability or obligation, direct or contingent, for borrowed money, (iii) entered into any transaction other than in the ordinary course of business, (iv) declared or paid any dividend or made any other distribution on or in respect of its capital stock, or (v) entered into any transactions with any affiliate. (v) All of the Securities have been duly authorized, and, when issued and distributed as set forth in the Prospectus, will be legally issued and valid and binding obligations of the Company having the rights summarized in the Prospectus; and none of such Rights will have been issued in violation of the preemptive rights of any security holders of the Company arising as a matter of law or under or pursuant to the Company's Articles of Incorporation, as amended, the Company's bylaws, as amended, or any agreement or instrument to which the Company is a party or by which it is bound. (w) Since the respective dates as of which information is given in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), there has not been any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Company otherwise than as set forth or contemplated in the Prospectus. (x) The Company is not and, after giving effect to the offering, will not be an "investment company" or entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act. (y) The Company and each of its subsidiaries has satisfactory employer-employee relationships with their respective employees. No labor or other dispute with the employees of the Company exists, or, to the best knowledge of the Company, is imminent. (z) The Company has complied with all provisions of Section 517.075, Florida Statutes, relating to doing business with the government of Cuba or with any person or affiliate located in Cuba. 11 4. The Closing. ----------- The Closing will take place on the Closing Date at a place to be designated by Noble in _____________, Florida. At such Closing, Noble will make payment to the Company by a certified or a bank check for all Standby Units which are Unsubscribed Units and the Company will deliver the Unsubscribed Units to Noble in such names and denominations as may be requested by Noble, as set forth in a written notice delivered to the Company at least 48 hours prior to Closing. At Closing, the Company will pay to Noble the Standby Fee, and all amounts payable pursuant to Section 2 hereof. 5. Covenants of the Company. ------------------------ The Company covenants and agrees with Noble as follows: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Standby Agreement, and any amendments thereto, to become effective as promptly as possible. Unless required by law, the Company will not file with the Commission any amendment or supplement to such prospectus, any amendment to the Registration Statement, or any document under the Exchange Act before termination of the offering of Units by Noble of which Noble shall not previously have been advised and furnished with a copy, or to which Noble shall have reasonably objected by notice to the Company in writing after having been provided a copy thereof, or which is not in compliance with the Act, the Exchange Act or the Regulations. During the time when a prospectus relating to the Units is required to be delivered under the Act, the Company will comply with all requirements imposed upon it by the Act and the Regulations to the extent necessary to permit the continuance of sales of or dealings in the Units in accordance with the provisions hereof and of the Prospectus, as amended or supplemented. The Company will prepare and file with the Commission, promptly upon the reasonable request by Noble or Noble's counsel, any amendments to the Registration Statement or amendments or supplements to the Prospectus that may be necessary or advisable in connection with the distribution of Unsubscribed Units by Noble, and will use its best efforts to cause the same to be filed with the Commission as promptly as possible. (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise Noble, with a confirmation in writing, of (i) the time when the Registration Statement or any amendment thereto has been filed or declared effective or the Prospectus or any amendment or supplement thereto has been filed, (ii) the issuance by the Commission of any stop order, or of the initiation or threatening of any proceeding, suspending the effectiveness of the Registration Statement or any amendment thereto or any order preventing or suspending the use of any preliminary prospectus or the Prospectus or any amendment or supplement thereto, (iii) the issuance by any state securities commission of any notice of any proceedings for the suspension of the qualification of the Units for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, (iv) the receipt of any comments from the Commission, and (v) any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. The Company will use its best efforts to prevent the issuance of any such order or the imposition of any such suspension and, if any such order is issued or suspension is imposed, to obtain the withdrawal thereof as promptly as possible. 12 (c) If required, the Company will file the Prospectus and any amendment or supplement thereto with the Commission in the manner and within the time period required by Rule 424(b) and Rule 430A(a)(3) of the Regulations. (d) The Company will arrange with Noble's counsel for the qualification of the Standby Units for offering and sale under the securities or "Blue Sky" laws of such jurisdictions in which recipients of Rights are resident and such jurisdictions as Noble may reasonably designate and will continue such qualifications in effect for as long as may be necessary to complete the distribution of the Standby Units, provided, however, that in connection therewith the Company shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. (e) If, at any time when a prospectus relating to the Units is required to be delivered under the Act, any event occurs as a result of which, in the opinion of the Company or counsel for the Company, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is otherwise necessary at any time to amend or supplement the Prospectus to comply with the Act or the Regulations, the Company will promptly notify Noble thereof and, subject to Section 6(a)(i) hereof, prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance. If, at any time when a prospectus relating to the Units is required to be delivered under the Act, any event occurs as a result of which, in the opinion of Noble or Noble's Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, Noble will promptly notify the Company thereof and the Company will, subject to Section 6(a)(i) hereof, prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance. The Company will furnish to Noble and dealers (whose names and addresses shall be furnished to the Company by Noble) to which Units may have been sold on behalf of Noble and to any other dealers upon request, a reasonable number of copies of any amendment or supplement prepared pursuant to this Section 6(e). (f) The Company will furnish to each of Noble and to Noble's counsel, without charge, a signed copy of the Registration Statement originally filed with respect to the Standby Units and each amendment thereto. So long as Noble or any dealer is required by the Act or the Regulations to deliver a prospectus, the Company will also furnish as many copies of each preliminary prospectus or the Prospectus or any amendment or supplement thereto as Noble may reasonably request. (g) As soon as practicable after the Effective Date, the Company will make generally available to its security holders, in the manner specified in Rule 158(b) of the Regulations, and to Noble an earnings statement that will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations. 13 (h) For a period of five years following the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and will deliver to Noble unaudited quarterly reports of earnings (through delivery of the Company's quarterly reports filed with the Commission on Form 10-Q or Form 10-QSB) and the following: (i) concurrently with furnishing quarterly reports, if any, to the stockholders, statements of income of the Company for each quarter in the form furnished to the Company's stockholders; (ii) concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders equity, and cash flows of the Company for such fiscal year, accompanied by a copy of the certificate thereon of independent public accountants; (iii) as soon as they are available, copies of all reports (financial or other) mailed to its stockholders; (iv) as soon as they are available, copies of all reports (other than preliminary proxy materials) and financial statements furnished to or filed with the Commission, the NASD or Nasdaq which are available to the public; (v) as soon as they are available every press release and every material news item or article of interest to the financial community in respect of the Company or its affairs that is released or prepared by the Company and is known to the Company; and (vi) any additional information of a public nature concerning the Company that Noble may reasonably request from time to time. (i) During the period commencing on the date the Registration Statement is declared effective by the Commission and ending one year after the Expiration Date, the Company, will not, without the prior written consent of Noble, (i) directly or indirectly, transfer, sell, offer for sale, contract for sale, grant any option for the sale of, or otherwise dispose of (or announce any transfer, sale, offer for sale, contract for sale, grant of any option for sale of, or other disposition of) any shares of Common Stock, or other securities convertible into, or exercisable or exchangeable for, shares of Common Stock (except as contemplated by this Standby Agreement) or (ii) file any registration statement relating to any such Securities with the Commission or any other authority except as contemplated herein, provided, however, that (1) the Company may grant or issue Securities pursuant to any employee stock option plan or stock purchase plan or outstanding stock options described in the Prospectus and, commencing after the Closing Date, may file a registration statement on Form S-8 with respect to such plans and (2) the Company may issue shares of Common Stock, or other securities convertible into, or exercisable or exchangeable for shares of Common Stock, as consideration for any acquisition by the Company so long as the party being issued such securities signs an agreement, acceptable in form and substance to Noble (such consent not to be unreasonably withheld), that such party will not transfer, sell, offer for sale, 14 contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock owned by such party or with respect to which such party has the power of disposition during a period commencing on the date of issuance of such securities and ending one year following the Expiration Date. (j) The Company will apply the net proceeds from the sale of the Standby Units sold by it in the manner set forth under "USE OF PROCEEDS" in the Prospectus and will comply with all reporting requirements under the Act and the Exchange Act with respect to the use of proceeds. Except as described in the Prospectus, no portion of the net proceeds will be used directly or indirectly to acquire any securities issued by the Company. (k) The Company will furnish to Noble as early as practicable prior to each of the date hereof and the Closing Date but no later than two full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company (which in each case shall not be earlier than the last day of the preceding month, unless such month-end shall be less than three business days prior to the date such statements are to be delivered) that have been read by the Company's independent public accountants, as stated in their letters to be furnished pursuant to Section 6 hereof; (l) The Company will deliver to Noble true and correct copies of its Articles of Incorporation and all amendments thereto, such copies to be certified by the Secretary of the Company; true and correct copies of the Bylaws of the Company and of the minutes of all meetings of the directors and stockholders of the Company held during the twenty-four (24) month period immediately prior to the Closing Date; and true and correct copies of all material contracts to which the Company is a party. (m) The Company shall bear all costs and expenses incident to the issuance, sale and delivery of the Standby Units, including but not limited to all NASD and Nasdaq fees, and transfer agent fees, engraving of stock and warrant certificates, the fees and costs of qualification of the offering and the sale of Securities covered by the Registration Statement under various state securities laws and disbursements of its accountants, cost for mailing and tombstone advertising, (although, with respect to the tombstone expense, in an amount not to exceed $5,000), costs of "road shows", if any (with respect to such road shows, each party shall pay its own travel expenses and the Company will pay all other costs associated with holding such shows including expenses in connection with any meetings or presentations), the cost of printing and preparing the Registration Statement, related exhibits, amendments and supplements thereto, underwriting documents, selected dealer agreements and such number of preliminary and final Prospectuses as Noble shall deem reasonably necessary. The Registration Statement and the exhibits thereto shall be prepared by counsel for the Company, and the various state securities and Blue Sky laws applications and the survey to be distributed by Noble in connection therewith shall be prepared by Noble's counsel, whose costs and expenses shall be paid for by the Company within required budgets and Company approval prior to being incurred, at the time such services are rendered, except that one-half of the Blue Sky fee (including fees for additional states) shall be paid to Noble's counsel at the time the Registration Statement is filed with the Commission, with the balance payable at the time all Blue Sky filings have been made. Additionally, the Company shall have a right to approve counsel and Noble's approval shall be reasonable as the work done by Noble's counsel in connection with the Blue Sky fees is a liability of the Company. With the exception of the legal fees payable to Noble's counsel in connection with Blue Sky filings, the Company will not be obligated to pay Noble any additional legal fees. 15 (n) The Company will cause the Securities (except the Rights) to be listed on Nasdaq Small-Cap Market and it shall use its reasonable best efforts at its cost and expense to maintain such listings for at least ten years from the date of this Standby Agreement, or with respect to the Warrants, the Company agrees to maintain such listing for the life of the Warrants. (o) All officers and directors and their affiliates who own Securities of the Company (including but not limited to Shares, options and warrants to purchase Shares, and securities convertible into Shares), shall agree not to sell, transfer or convey any of such Securities by registration or otherwise for a period of twelve (12) months from the Effective Date and thereafter for an additional six months without the prior written consent of Noble or any greater period required by any state in which the offering of the Standby Units is to be registered. An appropriate legend shall be marked on the face of certificates representing all of such Securities. (p) Prior to the Effective Date, the Company shall apply for listing in Standard & Poor's Corporation Reports and shall use its best efforts to have the Company listed in such reports for a period of not less than ten (10) years thereafter. (q) The Company has appointed or shall promptly hereafter appoint American Stock Transfer and Trust Company as Transfer Agent for the Securities, which entity shall agree to the provisions of Noble's Warrant. The Company will not change or terminate any such appointment without the written consent of Noble, which consent shall not be unreasonably withheld. (r) The Company will deliver to Noble and Noble's counsel, without charge, two (2) bound volumes of copies of all documents and appropriate correspondence filed or received from the Commission and the NASD and all closing documents. (s) For a period of five (5) years commencing from the Closing Date, the Company shall continue to employ the services of a firm of independent certified public accountants reasonably acceptable to Noble. (t) The Company will maintain a current Registration Statement for Noble to offer and sell the Unsubscribed Units and the components thereof purchased by it for a period of at least nine months from the Effective Date and such additional further period as Noble may reasonably request. Nevertheless, Noble agrees to notify the Company when its distribution has been completed. (u) Neither the Company nor any officer or director thereof shall for a period of five years from the Effective Date offer to sell any Securities of the Company in a Regulation S offering without the prior written consent of Noble. (v) Until such time as the Securities of the Company are listed on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq National Market; the Company shall cause its legal counsel or an independent firm acceptable to Noble to provide Noble with a survey, to be updated at least semi-annually, of those states in which the Securities (except the Rights), of 16 the Company may be traded in non-issuer transactions under the Blue Sky laws of the states and the basis for such authority. The Company shall cause Noble's counsel to prepare and deliver the first such survey at Closing and, thereafter, the Company's counsel shall prepare and deliver such survey on a semi-annual basis of each year. (w) The Company shall engage Noble for a period of three years, commencing one year after the Effective Date, to act as its solicitation agent for the Warrants. The Company shall pay Noble a 5% exercise fee upon exercise of the Warrants, subject to Noble's compliance with NASD rules. 6. Conditions of Noble's Obligations. --------------------------------- Noble's obligations to perform pursuant to this Standby Agreement and to the purchase the Unsubscribed Units required hereunder on the Closing Date is subject to the accuracy of and compliance with the representations and warranties on the part of the Company herein as of the date hereof and as of the Closing Date, to the performance by the Company of its obligations and covenants hereunder, to the accuracy of certificates of the Company and officers of the Company to be delivered pursuant to this Standby Agreement, all as of the Closing Date, and to the following further conditions: (a) All corporate action taken and all legal opinions and proceedings relating to the transaction and Noble's Warrant, the Registration Statement and Prospectus and all other matters incident thereto and to the transaction to which this Standby Agreement relates shall be satisfactory in all respects to Broad and Cassel, counsel for Noble, and they shall have been furnished with such certificates, documents and information as they may request in this connection. (b) If the Registration Statement or any amendment thereto filed prior to the Closing Date has not been declared effective as of the time of execution hereof, the Registration Statement or such amendment shall have been declared effective not later than the first full business day next following the date hereof or such later date and time as shall have been consented to in writing by Noble. If required, the Prospectus shall have been timely filed with the Commission in accordance with Rule 424(b) of the Regulations. If required, any amendment or supplement to the Prospectus shall have been filed in accordance with Rule 424(c) under the Act. No stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company, or Noble, shall be contemplated by the Commission. The Company shall have complied, to the reasonable satisfaction of Noble and Noble's counsel, with any request of the Commission for additional information (to be included in the Registration Statement, the Prospectus or otherwise). (c) Noble shall not have advised the Company that, in the opinion of Noble or Noble's Counsel, (i) the Registration Statement, or any amendment thereto, includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) the Prospectus, or any amendment or supplement thereto, includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 17 (d) Noble shall have received from Noble's counsel an opinion dated the Closing Date, with respect to the issuance and sale of the Unsubscribed Units, the Registration Statement, the Prospectus and such other related matters as Noble reasonably may request. Noble's counsel shall have received from the Company such papers and information as they may reasonably request to enable them to review or pass upon such matters or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties, or covenants of the Company contained herein. (e) Noble shall have received from Zack Kosnitzky, P,A., counsel to the Company, an opinion, on or prior to the date Rights certificates and Prospectuses are first mailed to Company's Equity Holders and on the Closing Date, dated the respective dates thereof and in form and substance satisfactory to Noble's counsel, to the effect that: (i) The Company and each of its subsidiaries are duly incorporated, validly existing and in good standing under the laws of their respective jurisdictions of organization and are duly qualified to transact business as foreign corporations and are in good standing in each jurisdiction in which the Company has represented to such counsel that they conduct business; (ii) The Company and each its subsidiaries have all requisite corporate power and authority necessary or required to own or lease their respective properties and conduct its businesses as described in the Registration Statement and the Prospectus; (iii) The Company has all requisite power and authority (corporate and other) to enter into this Standby Agreement, Noble's Warrant Agreement, the Financial Advisory Agreement, and the Subscription Agency Agreement and to consummate the transactions provided for herein and therein; and this Standby Agreement, Noble's Warrant Agreement, the Financial Advisory Agreement and the Subscription Agency Agreement have each been duly authorized, executed and delivered by the Company. This Standby Agreement, Noble's Warrant Agreement, the Financial Advisory Agreement, the Subscription Agency Agreement and the Warrant Agency Agreement, assuming due authorization, execution and delivery by the parties thereto other than the Company, each constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws affecting creditors' rights generally or by general principles of equity (including standards of materiality, good faith, fair dealing and reasonableness) whether applied by a court of law or equity, and except as rights to indemnity and contribution hereunder may be limited by applicable law, statutory duties or public policy. The Company's execution and delivery of this 18 Standby Agreement, Noble's Warrant Agreement, the Financial Advisory Agreement, the Subscription Agency Agreement and the Warrant Agency Agreement, its performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any liens, charges, claims, encumbrances, pledges, security interests, defects or other like restrictions or equities of any kind whatsoever upon, any right, property or asset (tangible or intangible) of the Company or any of its subsidiaries pursuant to the terms of (A) the charter or bylaws, each as amended through the date of the opinion, of the Company and each of its subsidiaries, (B) any material lease, permit, license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which any of them is or may be bound or to which any of their respective properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (C) to the knowledge of Company counsel, any statute, rule, regulation, judgment, decree or order applicable to the Company or any of its subsidiaries or any of their respective activities or properties adopted or issued by an arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their respective activities or properties (other than such as may be required under state securities or "Blue Sky" laws and such as may be required by the bylaws and rules of the NASD in connection with the purchase and distribution of the Units by Noble or Noble's provision of services under the Financial Advisory Agreement); (iv) No consent, approval, authorization or order of, or filing with, any governmental agency or body or, to such counsel's knowledge, any court is required in connection with the issuance of the Securities to be sold by the Company, the Company's performance of its obligations hereunder, the offering, or the consummation by the Company of the other transactions contemplated hereby, except such as may be required under the state securities or "Blue Sky" laws of any jurisdiction or as may be required by the bylaws and rules of the NASD in connection with the purchase and distribution of the Unsubscribed Units by Noble and except such other approvals as have been obtained and remain in full force and effect. Upon the effectiveness of the Registration Statement, the Securities (other than the Rights) will be registered pursuant to Section 12(g) of the Exchange Act, and will, upon notice of issuance, be listed on the Nasdaq Small-Cap Market; (v) At the date or dates indicated in the Prospectus, the authorized, issued and outstanding capital stock of the Company was as set forth therein, and conformed to the description thereof contained therein under the captions "CAPITALIZATION" and "DESCRIPTION OF CAPITAL STOCK." All of the issued shares of Common Stock of the Company have been duly authorized and validly issued, and are fully paid and non-assessable; the holders thereof are not subject to personal liabilities solely by reason of holding such shares; and none of such shares have been issued in violation of the preemptive rights of any security holders of the Company known to Company counsel. The Units to be sold by the Company have been duly authorized and, when paid for in accordance herewith, will be validly issued, fully paid and non-assessable, and with no personal liability resulting solely from the ownership thereof. Upon the issuance and delivery pursuant to this Standby Agreement of the Unsubscribed Units to be sold by the Company to Noble, Noble will acquire good and marketable title to such Unsubscribed Units free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other like restrictions or like equities of any kind whatsoever. Except as described in the Prospectus, there are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's Articles of Incorporation or bylaws, each as amended to date, or pursuant to any agreement among stockholders to which the Company is a party or of which it has knowledge, and the Units to be sold by the Company are not subject to any preemptive or other similar rights of any security holder. To 19 such counsel's knowledge, the Company is not a party to or bound by any instrument, agreement or, to such counsel's knowledge, other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Standby Agreement. To such counsel's knowledge, no holder of any Common Stock of the Company or of any options, warrants or other convertible or exchangeable securities of the Company which are exercisable for or convertible or exchangeable for Common Stock of the Company has any right (which has not been waived) to include any such securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company within the period commencing on the date the Registration Statement is declared effective by the Commission and ending one year after the Expiration Date or to require the Company to file a registration statement under the Act during such period. Based on the form of specimen certificate provided to such counsel, the certificates representing each of the Securities are in due and proper form; (vi) The Registration Statement has become effective under the Act. Any required filing of the Prospectus pursuant to Rule 424(b) and 430A(a)(3) of the Regulations has been made in accordance with the time period required thereby. To such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or threatened, by the Commission; (vii) At the time the Registration Statement was declared effective by the Commission, the Registration Statement and the Prospectus and any amendment or supplement thereto (other than the financial statements, and notes thereto, the financial schedules, and the other financial and statistical data included in the Registration Statement or the Prospectus or omitted therefrom, as to which such counsel need express no opinion) complied as to form in all material respects with the requirements of the Act and the Regulations; (viii) Such counsel has reviewed all contracts and other documents referred to in the Registration Statement and the Prospectus, and the summaries of and other disclosures regarding such contracts and other documents included in the Registration Statement, and the Registration Statement and Prospectus fairly present the information required to be shown with respect thereto. To such counsel's knowledge, there are no contracts or other documents of a character required to be filed as exhibits to the Registration Statement or required to be described in the Registration Statement or the Prospectus that were not filed or disclosed as required; (ix) Except as disclosed in the Registration Statement, to such counsel's knowledge, there is not pending or threatened or contemplated against the Company, or involving the properties or business of the Company, any action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding (including those having jurisdiction over environmental or similar matters), domestic or foreign, that (A) is required to be disclosed in the Registration Statement and is not so disclosed, (B) questions the validity of the capital stock of the Company or the validity or enforceability of this Standby Agreement, (C) questions the validity of any action taken or to be taken by the Company pursuant to or in connection with this Standby Agreement, or (D) could materially adversely effect the present or prospective ability of the Company to perform its obligations under this Standby Agreement or result in a Material Adverse Effect; 20 (x) The Company is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act, nor, by receipt of the proceeds from its sale by it of the Standby Units pursuant to this Standby Agreement, will the Company become or be deemed to be an "investment company" under such Investment Company Act; (xi) No transfer taxes are required to be paid in connection with the sale and delivery of the Unsubscribed Units by the Company to Noble hereunder; (xii) All of the Securities have been duly authorized and validly issued, and, when issued and distributed as set forth in the Prospectus, will be legally issued and valid and binding obligations of the Company having the rights summarized in the Prospectus; and none of such Securities will have been issued in violation of the preemptive rights of any security holders of the Company arising as a matter of law or under or pursuant to the Company's Articles of Incorporation, as amended, the Company's bylaws, as amended, or any agreement or instrument to which the Company is a party or by which it is bound. In addition, such opinion shall contain statements substantially to the following effect: In the course of the preparation by the Company and its counsel of the Registration Statement and the Prospectus, such counsel attended conferences, in person and telephonically, with certain of the officers of, and the independent public accountants for, the Company, at which the Registration Statement and the Prospectus were discussed. Between the date of effectiveness of the Registration Statement and the Closing Date, such counsel attended (if applicable) additional conferences, in person and telephonically, with certain of the officers of, and the independent public accountants for, the Company, at which the contents of the Registration Statement and the Prospectus were discussed. Subject to the foregoing and on the basis of the information such counsel gained in the performance of the services referred to above, including information obtained from officers and other representatives of the Company, no facts have come to such counsel's attention that cause such counsel to believe (except that such counsel need not express any opinion or belief with respect to the financial statements, schedule and the notes thereto and other financial and statistical data included therein) that (A) the Registration Statement, at the time it was declared effective by the Commission, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (B) the Prospectus, as of its date or the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinions, such counsel may rely as to matters of fact, to the extent they deem proper, on the representations and warranties of the Company contained in this Standby Agreement and on certificates and written statements of the Company or responsible officers of the Company, provided that copies of any such statements or certificates shall be delivered to Noble's counsel if requested. 21 Noble is entitled to rely on the opinion of such firm, filed as an exhibit to the Registration Statement, as to the matters discussed in the Prospectus under the heading "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus. References to the Prospectus and Registration Statement in this Section 6(e) shall include any amendment or supplement thereto at the date of such opinion. (f) Noble shall have received a certificate, dated the Closing Date and in form and substance satisfactory to Noble, of the Company signed by each of the Chief Executive Officer and Chief Financial Officer of the Company to the effect that each of such officers has carefully examined the Registration Statement, the Prospectus and this Standby Agreement and, to his best knowledge, that: (i) The representations and warranties of the Company in this Standby Agreement are true and correct, as if made on and as of the Closing Date, and the Company has complied in all material respects with all agreements and covenants and satisfied all conditions contained in this Standby Agreement on its part to be performed or satisfied at or prior to the Closing Date; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of such officers' knowledge, are contemplated or threatened by the Commission; and (iii) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (A) there has been no material adverse change, or development involving a prospective material adverse change (including a change in management or control of the Company), in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries, on a consolidated basis, except in each case as described in or contemplated by the Prospectus; (B) neither the Company nor any of its subsidiaries has entered into any transactions not in the ordinary course of business; (C) neither the Company nor any of its subsidiaries has incurred any material liabilities or obligations, direct or contingent, other than as disclosed in the Registration Statement and the Prospectus; (D) neither the Company nor any of its subsidiaries has sustained a loss material to the Company and its subsidiaries, on a consolidated basis, by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act, whether or not such loss shall have been insured, or from any labor dispute or from any legal or governmental proceeding; (E) no action, suit or proceeding, at law or in equity, has been filed or, to the knowledge of such officer, is threatened against the Company or any of its subsidiaries or affecting any of their respective properties or businesses before or by any court or federal, state or foreign commission, board or other administrative agency that (1) alleges that the conduct of such business as currently conducted or as proposed to be conducted infringes on any trademarks, service marks, copyrights, service names, trade names, patents, 22 patent applications or trade secrets currently held by any third party and (2) has had as of the date of such certificate or, if pending and if decided unfavorably, is likely to have a Material Adverse Effect; and (F) there has not occurred any other event required to be set forth in the Prospectus that has not been so set forth. (iv) They do not know of any contracts which are required to be summarized in the Prospectus which are not so summarized; and they do not know of any material contracts required to be filed as exhibits to the Registration Statement which are not so filed; (v) They have each carefully examined the Registration Statement and the Prospectus and, to the best of their knowledge, neither the Registration Statement nor the Prospectus nor any amendment or supplement to either of the foregoing contains an untrue statement of any material fact or omits to state any material fact required to be so stated therein or necessary to make the statement therein not misleading; and since the Effective Date, to the best of their knowledge, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; (vi) The Company is not delinquent in the filing of any federal, state and municipal taxes return or the payment of any federal, state or municipal taxes; they known of no proposed redetermination or re-assessment of taxes, adverse to the Company, and the Company has paid or provided by adequate reserves for all known tax liabilities; and (vii) The financial statements and schedules filed with and as part of the Registration Statement present fairly the financial position of the Company as of the dates thereof all in conformity with generally accepted principles of accounting applied on a consistent basis throughout the periods involved. Since the respective dates of such financial statements, there has been no material adverse change in the condition or general affairs of the Company, financial or otherwise, other than as referred to in the Prospectus. Except as otherwise provided in clause (iii)(A) above, references to the Prospectus and Registration Statement in this Section 6 shall include any amendment or supplement thereto at the date of such opinion. (g) Noble shall have received from Ernst & Young LLP letters dated, respectively, the date hereof and the Closing Date, in form and substance satisfactory to Noble and Noble's counsel, with respect to matters set forth below: (i) confirming that they are and were independent public accountants with respect to the Company within the meaning of the Act and the Regulations; (ii) stating that it is their opinion that the audited financial statements and schedules examined by them and included in the Registration Statement and the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations; (iii) stating that, on the basis of certain procedures which included a reading of the latest available unaudited interim consolidated financial statements of the Company (with an indication of the date of the latest available unaudited interim financial statements), a reading of the latest available minutes of meetings and actions of the stockholders and board of directors and the various committees of the board of directors of the 23 Company, inquiries of officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing came to their attention that caused them to believe that (A) the unaudited consolidated financial statements, if any, and schedules of the Company included in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements of the Company included in the Registration Statement and the Prospectus, (B) at a specified date not more than five days prior to the date of such letter, there was any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity, or net current assets of the Company, in each case, as compared with amounts shown in the September 30, 2001 consolidated balance sheet included in the Registration Statement and the Prospectus, except for changes set forth in such letter, and (C) during the period from October 1, 2001 to such specified date, there was any decrease in consolidated revenues, income before income taxes, or net income, or any decrease in net income per common share of the Company, in each case as compared with the corresponding period beginning October 1, 2000 except for changes set forth in such letter; (iv) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; and (v) statements as to such other matters incident to the transaction contemplated hereby as Noble may reasonably request. In the event that either of the letters referred to above set forth any such changes, decreases or increases, it shall be a further condition of the obligations of Noble that (A) such letter shall be accompanied by a written explanation of the Company as to the significance thereof, unless Noble deems such explanation unnecessary, and (B) such changes, decreases or increases do not, in the sole judgment of Noble, make it impractical or inadvisable to proceed with the purchase and delivery of the Units as contemplated by the registration statement originally filed with respect to the Units, as amended as of the date hereof. References to the Registration Statement and the Prospectus in this Section with respect to either letter referred to above shall include any amendment or supplement thereto at the date of such letter. (h) The Securities (including the additional shares included in the Units) shall have been approved for quotation on the Nasdaq Small-Cap Market (upon notice of issuance in the case of the Units and Warrants). 24 (i) No order suspending the sale of the Units in any jurisdiction designated by Noble shall be in effect on the Closing Date and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company Noble, shall be contemplated. (j) The transaction herein shall be qualified under the State Blue Sky laws of such states as Noble may reasonably request and each such qualification shall be in effect and not subject to any stop order or other proceeding on the Effective Date, and Closing Date. (k) The Company shall have furnished to Noble such other and further certificates, documents, and opinions as Noble may reasonably request or its counsel may request (including certificates of officers) as to the accuracy, at and as of the Closing Date, of the representations and warranties of the Company herein, to the performance by the Company of its obligations hereunder as to other conditions concurrent and precedent to its obligations hereunder. (l) On or prior to the date that Rights certificates are first mailed to Equity Holders and on the Closing Date, dated the respective dates thereof and in form and substance satisfactory to Noble's counsel, the Company shall furnish to Noble such information, certificates and documents as Noble may reasonably request. If any condition of Noble's obligations hereunder to be fulfilled prior to or at the Closing Date is not so fulfilled, Noble may terminate this Standby Agreement or, if Noble so elects, it may waive any such conditions that have not been fulfilled or extend the time for their fulfillment. In the event Noble so elects to terminate this Standby Agreement, all Rights shall become immediately null and void and the Company shall cause the Subscription Agent under the Subscription Agreement to promptly return to the subscribers any payments received by the Subscription Agent in respect of the exercise price relating thereto. All opinions, certificates, letters and documents delivered pursuant to this Standby Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects Noble and Noble's counsel. The Company shall furnish to Noble such conformed copies of such opinions, certificates, letters and documents in such quantities as Noble and Noble's counsel shall reasonably request. The obligations of Noble to purchase and pay for any Units after having exercised an option set forth in Section 2(h) hereof shall be subject, in its discretion, to each of the foregoing conditions of this Section 6 to purchase the Unsubscribed Units, with all references to the Unsubscribed Units and the Closing Date being deemed to refer to such Units and the related Closing Date, respectively. 7. Termination. ----------- (a) This Standby Agreement may be terminated at any time prior to the Closing Date, by Noble by written notice to the Company if in the reasonable judgment of Noble it is impracticable to consummate this transaction, by reason of (i) the Company having sustained a material loss of whatsoever nature, which, in the sole and absolute opinion of Noble, substantially affects the value of the property of the Company or materially interferes with the operation of the business of the Company, (ii) any material adverse change in the business, 25 property or financial condition of the Company; (iii) trading in securities on the New York Stock Exchange, the American Stock Exchange or Nasdaq Stock Market having been suspended or limited or minimum prices having been established on any such Market, (iv) a banking moratorium having been declared by either federal or state authorities, (v) an outbreak of major hostilities or other national or international calamity having occurred between the date hereof and the Closing Date, (vi) any action having been taken by any government in respect of its monetary affairs which, in the reasonable opinion of Noble, has a material adverse effect on the United States securities markets; (vii) any action, suit or proceeding at law or in equity against the Company, or by any Federal, State or other commission, board or agency wherein any unfavorable decision would materially adversely affect the business, property, financial condition or income of the Company; or (viii) due to conditions arising subsequent to the execution hereof, Noble reasonably believes that, as a result of material and adverse events affecting the market for the Company's Common Stock (other than the effect of the sale of the Standby Units on the price of the Company's Common Stock) or the securities markets in general, it is impracticable or inadvisable to proceed with the offering. Notwithstanding the foregoing, if the closing bid price of the Company's Common Stock on the Expiration Date is less than the Minimum Exercise Price, Noble shall have the right to terminate this Agreement in its sole discretion. (b) If this Standby Agreement expires or is terminated pursuant to this Section 7 or otherwise, the Company's advance toward the non-accountable expense allowance shall become accountable and shall be returned to the Company to the extent Noble's actual out of pocket expenses are less than the amount advanced to Noble, so that Noble is only reimbursed for its actual accountable out of pocket expenses. The Company also agrees to indemnify Noble for expenses under Sections 5(m) and 5(v) hereof. (c) Sections 2(c), 5(m), 5(v) and 9 hereof shall survive the expiration or termination of this Standby Agreement whether this under Section 7 or otherwise. (d) In addition to the termination provision provided in this Section 7, Noble shall retain its right to all remedies provided by law. (e) Any notice under this Section 7 may be given by telephone, or facsimile, but shall be subsequently confirmed by letter within three (3) days of such notification. 8. Registration of Units to be Purchased by Noble. ---------------------------------------------- The Registration Statement will include registration of all Unsubscribed Units that may be purchased by Noble pursuant to this Standby Agreement and provide for the distribution of such Unsubscribed Units and the components therein by Noble from time to time. 9. Indemnification. --------------- (a) The Company will indemnify and hold harmless Noble and each person who controls Noble within the meaning of Section 15 of the Act from and against any and all losses, claims, damages, expenses or liabilities, joint or several to which they or any of them may become subject under the Act or under any other statute or at common law or otherwise and will reimburse Noble and each such person specified as above for any reasonable legal or other expenses (including 26 the cost of any investigation and preparation) reasonably incurred by them or any one them in connection with investigating or defending any litigation or claim whether or not resulting in any liability, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereto or in any Blue Sky application or arising out of or based upon an omission or alleged omission to state therein a material fact required to be stated therein necessary to make the statements therein not misleading, all as of the date when the Registration Statement or any amendment thereto, the filing of any such Blue Sky application, as the case may be, becomes effective or any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or Prospectus (as amended or as supplemented thereto), or arise out of or are based upon an omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such litigation if such settlement is effected without the consent of the Company, nor shall it extend to Noble or any person controlling Noble in respect of any such losses, claims, damages, expenses, liabilities, or actions arising out of, or based upon any such untrue statement or alleged untrue statement, or any such omission, if such statement or omission was made in reliance upon and in conformity with, written information furnished to the Company by Noble on its behalf specifically for use in the Registration Statement, the Prospectus, or any such amendment thereof or supplement thereto or Blue Sky application. In case any such action shall be brought against Noble or any controlling person, Noble or such controlling person shall promptly notify the Company of the commencement thereof and the Company shall be entitled to participate in (and, to the extent it shall wish, to direct) the defense thereof at its own expense but such defense shall be conducted by counsel of recognized standing (which shall include Zack Kosnitsky, P.A.) and reasonably satisfactory to Noble and to such controlling person or persons who are defendant or defendants in such litigation. Noble or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof subject to the Company's reasonable right to approve such counsel which will not be unreasonably withheld, but the fees and expenses of such counsel shall not be at the expense of the Company unless (i) the employment of such counsel has been specifically authorized by the Company, or (ii) the Company shall not have employed counsel to have charge of the defense of such action, or (iii) there is a conflict of interest which would prevent counsel for the Company from representing both the Company and Noble or such controlling person, in any of which cases the Company shall not have the right to direct the defense of such action on behalf of Noble or such controlling person. It is understood that, regardless of whether such counsel is representing all of the parties entitled to indemnification under this Section 9(a), the Company shall not be liable, under clause (iii) above, for the fees and expenses of more than one separate counsel who shall be approved by Noble. The Company agrees to notify Noble promptly of the commencement of any litigation or proceeding against it or against any of the officers or directors of the Company of which it may be advised, in connection with the issue and sale of any of its Securities, and to furnish Noble, at the Noble's request, with copies of all pleadings therein and to permit Noble to be an observer therein and to apprise it of all of the developments therein, all at the Company's expense. The provisions of this Section 9(a) shall also apply to the subsequent registration of Noble's Warrants and/or the securities underlying Noble's Warrants. 27 (b) Noble will indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who shall have signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Act or under any other statute or at common law or otherwise and, except as hereinafter provided, will reimburse the Company and such officers or controlling person indemnified for as above for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by them or any of them in connection with investigating or defending any litigation or claims whether or not resulting in any liability, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereto or in any Blue Sky application or arising out of or based upon an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, all as of the date when the Registration Statement or such amendment thereto, or the date the filing of any such Blue Sky application, as the case may be, becomes effective, or any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendments thereof or supplements thereto), or an omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but only if such statement or omission was made in reliance upon information furnished in writing to the Company by Noble specifically for use in the Registration Statement, the Prospectus, or any such amendment thereof or supplement thereto or Blue Sky application. Noble shall not be liable for amounts paid in settlement of any such litigation, if such settlement was effected without its consent. In case of the commencement of any action, respect of which indemnity may be sought from Noble on account of its indemnity agreement contained in this subsection (b), the Company and each person agreed to be indemnified by Noble shall have the same obligation to notify Noble and Noble shall have the same right to participate in (and, to the extent that it shall wish, to direct), as set forth in Section 9(a) above, the defense of such action at its own expense but such defense shall be conducted by counsel of recognized standing and reasonably satisfactory to the Company or such other person agreed to be indemnified by Noble. Noble agrees to notify the Company promptly of the commencement of any litigation or proceeding against it or against any such controlling person of which it may be advised in connection with the issue or sale of any of the Securities of the Company. The provisions of this subparagraph shall also apply to the subsequent registration of Noble's Warrants and/or securities underlying Noble's Warrants. (c) The respective indemnity agreements of the Company and Noble contained in Section 9(a) and 9(b) above, and the representations and warranties of the Company set forth in this Standby Agreement, shall remain operative and in full force and effect, regardless of any investigation made by Noble or on its behalf or by or on behalf of any person who controls Noble or the Company or any controlling person of the Company or any director or any officer of the Company, and shall survive the delivery of the Units, and any successor of Noble, or the Company or of any controlling person of Noble or the Company, as the case may be, shall be entitled to the benefit of these respective indemnity agreements. 28 10. Contribution. ------------ In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to Section 9, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 9 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or action in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified on the other hand, from the offering of the Units or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (A) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company is the contributing party and Noble is the indemnified party, the relative benefits received by the Company, on the one hand, and Noble, on the other, shall be deemed to be in the same proportion as the total proceeds from the offering of the Standby Units (net of underwriting discounts and other cash and non-cash compensation paid to Noble but before deducting the other expenses incurred by the Company in connection with the sale of the Standby Units) bear to the total underwriting discounts and other cash and non-cash compensation received by Noble pursuant to Section 2 of this Standby Agreement but excluding expenses and expense allowances. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or by Noble, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to above in this Section 10 shall be deemed to include any legal or other expense reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 10, Noble shall not be required to contribute any amount in excess of the underwriting discount and other commissions applicable to the Units purchased by Noble hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of Section 10, each person, if any, who controls the Company within the meaning of the Act, each officer of the Company who has signed the Registration Statement, and each director of the Company shall have the same rights to contribution as the Company, subject in each case to this Section 10. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this Section 10, notify such party or parties from whom contribution may be sought, but the omission so to notify such 29 party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this Section 10, but only to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 11. Finders. ------- (a) The Company knows of no claims for services in the nature of a finder's fee or origination fee with respect to this transaction resulting from the respective acts of its officers, directors or employees, for which Noble or the Company may be responsible, and the Company agrees to indemnify and hold Noble free and harmless from any claims for any services of such nature arising from any act of the Company or its employees, officers or directors and will reimburse Noble for any counsel fees, legal or other expense reasonably incurred by Noble in investigating or defending against any such claim. (b) Noble knows of no claims for services in the nature of a finder's fee or origination fee with respect to this transaction resulting from the respective acts of its officers, directors or employees, for which the Company may be responsible, and Noble agrees to indemnify and hold the Company free and harmless from any claims for any services of such nature arising from any act of Noble or its employees, officers or directors and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in investigating or defending against any such claim. 12. Noble's Covenant. ---------------- Noble covenants and agrees with the Company as follows: (a) Noble is registered as a broker-dealer with the Commission and is a member in good standing with NASD. (b) There is not now pending or threatened or to the best knowledge of Noble or its counsel, contemplated against Noble any action or proceeding, either in any court of competent jurisdiction or before the Commission or any state securities commission, or administrative body or tribunal, that is required to be disclosed in the Prospectus, except as fully disclosed in the Prospectus. (c) If any action or proceeding of the type referred to in Section 12(b) above shall be instituted or threatened against Noble at any time prior to the Effective Date, or if Noble shall cease to be a member in good standing of the NASD at any time prior to the Effective Date, or there shall be filed by or against Noble in any court pursuant to any federal, state, local or municipal statute, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of Noble's assets or if Noble makes an assignment for the benefit of creditors at any time prior to the Effective Date, Noble shall give written notice of the occurrence of such event or events to the Company, and the Company shall have the right, on three (3) days written notice to Noble, to terminate this Standby Agreement without any liability to Noble of any kind. 30 (d) Noble is properly licensed by applicable authorities in jurisdictions in which it conducts business and in which it will offer and sell Unsubscribed Units. 13. Survival of Representations, Warranties and Agreements. ------------------------------------------------------ The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers as set forth in or made pursuant to this Standby Agreement and the respective indemnities, agreements, representations, warranties, covenants and other statements of Noble or its officers as set forth in or made pursuant to this Standby Agreement shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Company or Noble or any controlling person, and will survive termination of this Standby Agreement and the delivery of any payment for the consummation of this transaction, on the Closing Date. 14. Benefits and Assignment. ----------------------- This Standby Agreement has been made solely for the benefit of the Company and its legal representatives and may not be assigned by the Company to any other entity and no other person shall qualify or have any right in or by virtue of this Standby Agreement. 15. Florida Law. ----------- This Standby Agreement shall be construed in accordance with the laws of the State of Florida, without giving effect to choice of law principles. 16. Notices. ------- All notices and communications hereunder may be mailed or transmitted by any standard form of telecommunication and, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given when delivered to a notice party hereto at the address specified herein or at the address subsequently communicated in writing by the notice parties. Notices to Noble shall be directed to Noble International Investments, Inc., 6501 Congress Avenue, Suite 100, Boca Raton, FL 33487, Attention: Nico P. Pronk, with a copy to Broad and Cassel, 201 S. Biscayne Blvd., Suite 3000, Miami, FL 33131, Attention: Dale S. Bergman, Esq. Notices to the Company shall be directed to the address of the Company as set forth on the facing page to the Registration Statement with a copy to Zack Kosnitzky, P.A., 100 SE 2nd Street, Suite 2800, Miami, FL 33131, Attention: John E. Tober, Esq. In each case a party may change its address for notice hereunder by a written communication to the other parties. 17. Counterparts. ------------ This Standby Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to be one and the same instrument. 18. Entire Agreement. ---------------- This Standby Agreement contains the entire agreement between the parties hereto in connection the subject matter hereof. 31 19. Waiver of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS STANDBY AGREEMENT OR THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. 20. Consent to Jurisdiction. Each of the Parties hereby irrevocably submits to the exclusive jurisdiction of the courts of Palm Beach County, Florida and the United States District Court for the Southern District of Florida, for the purpose of any action or proceeding arising out of or relating to this Standby Agreement and each of the Parties hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined exclusively in Palm Beach County, Florida or the United States District Court for the Southern District of Florida. Each of the Parties agrees that a final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment in any other matter provided by law. If the foregoing correctly states and sets forth in full the Standby Agreement between us, please indicate by signing this letter in the space provided below for that purpose. The within Standby Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed the original, but all of which together shall constitute one and the same instrument and shall be valid and binding between us. Very truly yours, NOBLE INTERNATIONAL INVESTMENTS, INC. By: -------------------------------------- Nico P. Pronk, President Dated: , 2002 ------------------------- Accepted and Agreed: RELM WIRELESS CORPORATION By: -------------------------------------------------- David P. Storey, President Dated: , 2002 ------------------------- 32 EX-4.(F) 4 ex4-f.txt WARRANT AGREEMENT - RELM AND ASTT EXHIBIT 4(f) WARRANT AGREEMENT ----------------- This Warrant Agreement (the "Agreement"), made and entered into as of _____________, 2002, by and between RELM WIRELESS CORPORATION, a Nevada corporation (the "Company"), and AMERICAN STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant Agent"). RECITALS -------- WHEREAS, in connection with the offering of ________ rights ("Rights"), each Right will entitle the holder thereof to purchase a Unit (the "Units"), consisting of one share of the Company's common stock, par value $.60 per share (the "Common Stock") and one Common Stock Purchase Warrant (the "Warrants"), at a purchase price of $____ per Unit (the "Subscription Price"); and WHEREAS, the Units will trade on the NASDAQ SmallCap Market under the symbol RelmU, until the Initial Exercise Date, or such earlier date that is ten days after the date that the Company files a Form 8-K disclosing the press release of the announcement that Noble International Investments, Inc. (the "Underwriter") declared all such Units separated (the "Separation Date"); and WHEREAS, on the Separation Date, without any action required of the record holders of the Units, Company or other parties, the Units shall automatically be cancelled and, the record holder of such Units shall receive one share of Common Stock, and one Warrant for each Unit held; and, as soon after the Separation Date as is practicable, the Transfer Agent with respect to the Common Stock and the Warrant Agent with respect to the Warrants shall mail or otherwise deliver to the holders of Units at the close of business on the Separation Date, a certificate or certificates (registered in the name of such holder) for the shares of Common Stock and Warrants to which such holder is entitled. WHEREAS, beginning on the Initial Exercise Date, each Warrant will entitle the holder thereof to purchase one share of Common Stock at an exercise price of $____ per share through ____________, 2006, subject to adjustment in the event of specified changes in the capitalization of the Company or certain additional issuances of the Company's securities; and WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange and redemption of the Warrants, the issuance of the certificates representing the Warrants (the "Warrant Certificates"), the exercise of the Warrants, and the rights of the holders thereof. NOW THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the Warrant Certificates and the respective rights and obligations thereunder of the Company, the Registered Holders and the Warrant Agent, the parties hereto agree as follows. SECTION 1. DEFINITIONS. ----------------------- As used herein, the following terms shall have the following meanings, unless the context shall otherwise require: 1.1. "Common Stock" shall mean stock of the Company of any class, whether now or hereafter authorized, which has the right to participate in the distribution of earnings and assets of the Company without limit as to amount or percentage, which as of September 30, 2001, consists of 20,000,000 authorized shares of Common Stock, $.60 par value. 1.2. "Corporate Office" shall mean the office of the Warrant Agent (or its successor) where, at any particular time its principal business shall be administered. Such office is located at the date hereof at 59 Maiden Lane, Plaza Level, New York, NY 10038. 1.3. "Exercise Date" shall mean the date on which the Warrant Agent shall have received both (a) the Warrant Certificate representing such Warrant, with the exercise form thereon duly executed by the Registered Holder thereof or his attorney duly authorized in writing, and (b) payment in cash, or by official bank or certified check made payable to the Company, of an amount in lawful money of the United States of America equal to the applicable Purchase Price. 1.4. "Initial Exercise Date" shall mean __________, 2003. 1.5. "Purchase Price" shall mean the purchase price to be paid upon exercise of each Warrant in accordance with the terms hereof, which price shall be $____ per share through the date which is the third anniversary of the Initial Exercise Date, subject to adjustment from time to time pursuant to the provisions of Section 8 hereof. 1.6. "Registered Holder" shall mean the person in whose name any certificate representing Warrants shall be registered on the books maintained by the Warrant Agent pursuant to Section 6. 1.7. "Standby Underwriting Agreement" means that Standby Underwriting Agreement, dated _______, 2002, between the Company and the Underwriter. 1.8. "Transfer Agent" shall mean American Stock Transfer and Trust Company, as the Company's transfer agent, or its authorized successor, as such. 1.9. "Underwriter's Warrant" shall mean the warrant to purchase Units issued by the Company to the Underwriter on _________, 2002. 1.10. "Warrant Expiration Date" shall mean 5:00 p.m., New York City time, on __________, 2006, provided that if such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then 5:00 p.m., New York City time, on the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. Upon notice to the Registered Holder, the Company shall have the right to extend the expiration date of the Warrants. SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES. --------------------------------------------------------- 2.1. A Warrant shall initially entitle the Registered Holder of the Warrant Certificate representing such Warrant to purchase one share of Common Stock upon the exercise thereof, in accordance with the terms hereof, subject to modification and adjustment as provided in Section 8. 2.2. On or before the Separation Date, the Company shall furnish the Warrant Agent with a sufficient quantity of blank Warrant Certificates and from time to time will renew such supply upon the reasonable request of the Warrant Agent. Such blank Warrant Certificates shall be properly signed by the officers of the Company authorized by law and in accordance with the Company's by-laws, to sign such Warrant Certificates and, if requested by the Warrant Agent, shall bear the corporate seal or a facsimile thereof. Upon written order of the Company signed by its President and by its Secretary, the Warrant Certificates shall be manually countersigned and shall not be valid for any purpose unless so countersigned, issued and delivered by the Warrant Agent pursuant to this Agreement. 2.3. From time to time, up to the Warrant Expiration Date, the Transfer Agent shall countersign and deliver stock certificates in required whole number denominations representing up to an aggregate of ________ shares of Common Stock (plus additional shares pursuant to Sections 2.5 and 2.6), subject to adjustment as described herein, upon the exercise of the Warrants in accordance with this Agreement. 2.4. From time to time, up to the Warrant Expiration Date, the Warrant Agent shall countersign and deliver Warrant Certificates in required whole number denominations to the persons entitled thereto in connection with any transfer or exchange permitted under this Agreement; provided that no Warrant Certificates shall be issued except to: (a) those initially issued hereunder, (b) those issued on or after the Separation Date, upon the exercise of fewer than all Warrants represented by the respective Warrant Certificate, to evidence any unexercised Warrants held by the exercising Registered Holder, (c) those issued upon any transfer or exchange pursuant to Section 6; (d) those issued in replacement of lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7; (e) at the option of the Company, in such form as may be approved by its Board of Directors, to reflect any adjustment or change in the Purchase Price, or the number of shares of Common Stock purchasable upon exercise of the Warrants; and (f) pursuant to Sections 2.5 and 2.6 below. 2.5. From time to time, upon exercise of the Underwriter's overallotment option pursuant to the Standby Underwriting Agreement and upon receipt of written instructions from the Company, the Warrant Agent shall counter-sign and deliver Warrant Certificates in required whole number denominations to the persons entitled thereto and the Transfer Agent shall deliver Common Stock certificates upon exercise of the Warrants. 2.6. From time to time, upon exercise of the Underwriter's Warrant and the underlying Warrants and upon receipt of written instructions from the Company, the Warrant Agent shall counter-sign and deliver Warrant Certificates in required whole number denominations to the persons entitled thereto and the Transfer Agent shall deliver Common Stock certificates upon exercise of the Underwriter's Warrant and the Warrants. SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES. ------------------------------------------------------ 3.1. The Warrant Certificates shall be substantially in the form attached hereto as Exhibit A (the provisions of which are incorporated herein by reference) and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Warrants may be listed, or to conform to usage. The Warrant Certificates shall be dated the date of issuance thereof (whether upon initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in registered form. Warrants shall be numbered serially with the letters RO. 3.2. Warrant Certificates shall be properly signed on behalf of the Company by officers of the Company authorized by law and in accordance with the Company's by-laws to sign such Warrant Certificates, and shall have imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer of the Company before the date of issuance of the Warrant Certificates or before countersignature by the Warrant Agent, such Warrant Certificate may be issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Company. After countersignature by the Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to the Registered Holder without further action by the Company, except as otherwise provided by Section 4 hereof. SECTION 4. EXERCISE. ------------------- 4.1. Each Warrant may be exercised by the Registered Holder thereof at any time on or after the Initial Exercise Date, but not after the Warrant Expiration Date, upon the terms and subject to the conditions set forth herein and in the Warrant Certificate. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date and the person entitled to receive the Common Stock deliverable upon such exercise shall be treated for all purposes as the holder upon exercise thereof as of the close of business on the Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant Agent shall deposit the proceeds received from the exercise of a Warrant and shall notify the Company in writing, by mail or by telecopy of the exercise of the Warrants. Promptly following, and in any event within three (3) days after the date of such notice from the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and delivered by the Transfer Agent, to the person or persons entitled to receive the same, a certificate or certificates for the securities deliverable upon such exercise, (plus a Warrant Certificate for any remaining unexercised Warrants of the Registered Holder) unless within 24 hours of the receipt of the notice, the Company shall instruct the Warrant Agent by telecopy to refrain from causing such issuance of Warrant Certificates pending clearance of checks received in payment of the Purchase Price pursuant to such Warrants. Subject to Section 4.2 below, upon the exercise of any Warrant and clearance of the funds received, the Warrant Agent shall promptly remit the payment received for the Warrant to the Company or as the Company may direct in writing. 4.2 At any time upon the exercise of Warrants after the Initial Exercise Date, the Warrant Agent shall, on a daily basis, within two business days after such exercise, notify Underwriter, its successors or assigns of the exercise of any such Warrants and shall, on a weekly basis (subject to collection of funds constituting the tendered Purchase Price, but in no event later than five business days after the last day of the calendar week in which such funds were tendered), remit to Underwriter an amount equal to five percent of the Purchase Price of such Warrants being then exercised, unless Underwriter shall have notified the Warrant Agent that the payment of such amount with respect to such Warrant is violative of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and regulations of the National Association of Securities Dealers, Inc. ("NASD") or applicable state securities or "blue sky" laws, or the Warrants are the warrants underlying the Underwriter's Warrants, in which event the Warrant Agent shall pay such amount to the Company; provided, however, that, the Warrant Agent shall not be obligated to pay any amounts pursuant to this Section 4.2 during any week that such amounts payable are less than $1,000 and the Warrant Agent's obligation to make such payments shall be suspended until the amount payable aggregates $1,000, and provided further, that, in any event, any such payment (regardless of amount) shall be made not less frequently than monthly. SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC. ----------------------------------------------------------------- 5.1. The Company's Certificate of Incorporation, as amended, authorizes the issuance of 20,000,000 shares of Common Stock. As of September 30, 2001, the Company had outstanding 5,346,174 shares of Common Stock. The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of Warrants, such number of shares of Common Stock as shall be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants shall, at the time of delivery, be duly and validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof (other than those which the Company shall promptly pay or discharge); and that upon issuance, such shares shall be listed on the NASDAQ SmallCap Market or each national securities exchange, if any, on which the other shares of outstanding Common Stock of the Company are then listed. 5.2. The Company covenants that if any securities to be reserved for the purpose of exercise of Warrants hereunder require registration with, or approval of, any governmental authority under any Federal securities law before such securities may be validly issued or delivered upon such exercise, then the Company will in good faith and as expeditiously as reasonably possible, endeavor to secure such registration or approval. The Company will use reasonable efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws. With respect to any such securities, however, Warrants may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. The Warrant Agent will not have any duty or responsibility for determining if the registration would be unlawful. 5.3. The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of Warrants, or the issuance, or delivery of any shares upon exercise of the Warrants; provided, however, that if the shares of Common Stock are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate representing any Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Warrant Agent the amount of transfer taxes or charges incident thereto, if any. 5.4. The Warrant Agent is hereby irrevocably authorized to requisition the Company's Transfer Agent from time to time for certificates representing shares of Common Stock required upon exercise of the Warrants, and the Company will authorize the Transfer Agent to comply with all such proper requisitions. The Company will file with the Warrant Agent a statement setting forth the name and address of the Transfer Agent of the Company for shares of Common Stock issuable upon exercise of the Warrants. SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER. ------------------------------------------------- 6.1. Warrant Certificates may be exchanged for other Warrant Certificates representing an equal aggregate number of Warrants of the same class or may be transferred in whole or in part. Warrant Certificates to be exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction of the terms and provisions hereof, the Company shall execute and the Warrant Agent shall countersign, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Registered Holder making the exchange shall be entitled to receive. 6.2. The Warrant Agent shall keep at its office, books in which, subject to such reasonable regulations as it may prescribe, it shall register Warrant Certificates and the transfer thereof in accordance with its regular practice. Upon due presentment for registration or transfer of any Warrant Certificate at such office, the Company shall execute and the Warrant Agent shall issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants of the same class. 6.3. With respect to all Warrant Certificates presented for registration or transfer, or for exchange or exercise, the Warrant Agent shall from time to time register the transfer, exchange or exercise of any outstanding Warrant Certificate upon records maintained by the Warrant Agent for such purpose upon surrender of such Warrant Certificate to the Warrant Agent, accompanied by appropriate instruments of transfer in a form satisfactory to the Company and the Warrant Agent and duly executed by the Registered Holder or a duly authorized attorney. 6.4. A service charge may be imposed by the Warrant Agent for registration, or transfer or for exchange of Warrant Certificates. In addition, the Company may require payment by such holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. 6.5. All Warrant Certificates surrendered for exercise or for exchange in case of mutilated Warrant Certificates shall be promptly canceled by the Warrant Agent and thereafter retained by the Warrant Agent until termination of this Agreement or resignation as Warrant Agent, or, disposed of or destroyed, at the direction of the Company, within the retention guidelines prescribed by any Federal, State or banking regulatory authority. 6.6. Prior to due presentment for registration or transfer thereof, the Company and the Warrant Agent may deem and treat the Registered Holder of any Warrant Certificate as the absolute owner thereof and of each Warrant represented thereby (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. SECTION 7. LOSS OR MUTILATION. ------------------------------ 7.1. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them of the ownership of and loss, theft, destruction or mutilation of any Warrant Certificate and (in case of loss, theft or destruction) of indemnity satisfactory to them, and (in the case of mutilation) upon surrender and cancellation thereof, the Company shall execute and the Warrant Agent shall (in the absence of notice to the Company and/or Warrant Agent that the Warrant Certificate has been acquired by a bona fide purchaser) countersign and deliver to the Registered Holder in lieu thereof a new Warrant Certificate of like tenor representing an equal aggregate number of Warrants of that same class. Applicants for a substitute Warrant Certificate shall comply with such other reasonable regulations and pay such other reasonable charges as the Warrant Agent may prescribe. SECTION 8. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR WARRANTS. ------------------------------------------------------------ 8.1. The Company may elect, upon any adjustment of the Purchase Price hereunder, to adjust the number of Warrants of each or any class outstanding, in lieu of the adjustment in the number of shares of Common Stock purchasable upon the exercise of each Warrant as hereinabove provided, so that each Warrant outstanding after such adjustment shall represent the right to purchase one share of Common Stock. Each Warrant held of record prior to such adjustment of the number of Warrants of each or any class shall become that number of Warrants (calculated to the nearest tenth) determined by multiplying the number one by a fraction, the numerator of which shall be the Purchase Price in effect immediately prior to such adjustment and the denominator of which shall be the Purchase Price in effect immediately after such adjustment. Upon each adjustment of the number of Warrants pursuant to this Section 8.1, the Company shall, as promptly as practicable, cause to be distributed to each Registered Holder of Warrant Certificates on the date of such adjustment Warrant Certificates evidencing, subject to Section 9 hereof, the number of additional Warrants of each class to which such Registered Holder shall be entitled as a result of such adjustment or, at the option of the Company, cause to be distributed to such Registered Holder in substitution and replacement for the Warrant Certificates held by him prior to the date of adjustment (and upon surrender thereof, if required by the Company) new Warrant Certificates evidencing the number of Warrants of each class to which such Registered Holder shall be entitled after such adjustment. 8.2. In case of any reclassification, capital reorganization, or other change of outstanding shares of Common Stock, or in case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as, or substantially as, an entirety (other than a sale/leaseback, mortgage or other financing transaction), the Company shall cause effective provision to be made so that: (a) each holder of a Warrant then outstanding shall have the right thereafter, by exercising such Warrant, to purchase the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been purchased upon exercise of such Warrant immediately prior to such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8.2; and (b) new management of the Company will be obligated to maintain a current prospectus with respect to the Warrants until the Warrant Expiration Date. The foregoing provisions shall similarly apply to successive reclassifications, capital reorganizations and other changes of outstanding shares of Common Stock and to successive consolidations, mergers, sales or conveyances. 8.3. Irrespective of any adjustments or changes in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued shall, unless the Company shall exercise its option to issue new Warrant Certificates pursuant to Section 2.4 hereof, continue to express the Purchase Price per share, and the number of shares purchasable thereunder in the Warrant Certificates when the same were originally issued. 8.4 If the Company, at any time while the Warrants are outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on preferred stock that contain a stated dividend rate) or otherwise make a distribution or distributions on shares of its Common Stock or on any other class of capital stock payable in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of shares, or (iii) combine outstanding shares of Common Stock into a smaller number of shares, the Purchase Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination, and shall apply to successive subdivisions and combinations. 8.5. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to holders of this Warrant) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in this Section 8), then in each such case the Purchase Price shall be determined by multiplying the Purchase Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the Purchase Price determined as of the record date mentioned above, and of which the numerator shall be such Purchase Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company. 8.6. Except in the case of the Company issuing rights to subscribe for shares of Common Stock distributed to all the holders of the Common Stock and the exercise of such rights or the exercise of any stock, warrants or options or stock appreciation rights that may hereafter be exercised under any employee benefit plan of the Company now existing, if the Company or any subsidiary thereof, as applicable with respect to Common Stock Equivalents (as defined below), at any time while unexpired Warrants issued hereunder are outstanding, shall issue (i) shares of Common Stock at a price per share (an "Issuance Price") that is less than the lower of eighty-five (85%) percent of the closing bid price of the Common Stock on the date of such issuance or the Purchase Price (the "Trigger Price") or (ii) rights, warrants, options or other securities or debt that are convertible into or exchangeable for shares of Common Stock ("Common Stock Equivalents"), entitling any person to acquire shares of Common Stock at an Issuance Price that is less than the Trigger Price (if the holder of the Common Stock Equivalent so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices, receives shares of Common Stock at a conversion or exercise price less than the Trigger Price, such issuance shall be deemed to have occurred for less than the Trigger Price), then the Purchase Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Common Stock or such Common Stock Equivalents plus the number of shares of Common Stock that the price paid for such shares of Common Stock or Common Stock Equivalents would purchase at the Purchase Price, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock so issued or issuable, provided, that for purposes hereof, all shares of Common Stock that are issuable upon conversion, exercise or exchange of Common Stock Equivalents shall be deemed outstanding immediately after the issuance of such Common Stock Equivalents. Such adjustment shall be made upon exercise of the Warrants. 8.6. After each adjustment of the Purchase Price pursuant to this Section 8, the Company will promptly prepare a certificate signed by the President and by the Secretary or an Assistant Secretary, of the Company setting forth: (a) the Purchase Price as so adjusted, (b) the number of shares of Common Stock purchasable upon exercise of each Warrant after such adjustment, and, if the Company shall have elected to adjust the number of Warrants, the number of Warrants to which the Registered Holder of each Warrant shall then be entitled, and (c) a brief statement of the facts accounting for such adjustment. The Company will promptly file such certificate with the Warrant Agent and cause a brief summary thereof to be sent by ordinary first class mail to each registered holder of Warrants at his last address as it shall appear on the registry books of the Warrant Agent. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the Registered Holder to whom the Company failed to mail such notice, or except as to the Registered Holder whose notice was defective. The affidavit of an officer of the Warrant Agent or the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 8.7. As used in this Section 8, the term "Common Stock" shall mean and include the Company's Common Stock authorized on the date of the original issue of the Warrants and shall also include any capital stock of any class of the Company thereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary liquidation, dissolution or winding up of the Company; provided, however, that the shares issuable upon exercise of the Warrants shall include only shares of such class designated in the Company's Certificate of Incorporation as Common Stock on the date of the original issue of the Warrants or (i), in the case of any reclassification, change, consolidation, merger, sale or conveyance of the character referred to in Section 8.2 hereof, the stock, securities or property provided for in such section or (ii), in the case of any reclassification or change in the outstanding shares of Common Stock issuable upon exercise of the Warrants as a result of a subdivision or combination or consisting of a change in par value, or from par value to no par value, or from no par value to par value, such shares of Common Stock as so reclassified or changed. 8.8. Any determination as to whether an adjustment in the Purchase Price in effect hereunder is required pursuant to Section 8, or as to the amount of any such adjustment, if required, shall be binding upon the holders of the Warrants and the Company if made in good faith by the Board of Directors of the Company. 8.9. The Warrant Agent assumes no responsibility for any determination under this Section and will act only in accordance with the written directions of the Company and its counsel. SECTION 9. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. ----------------------------------------------------- 9.1. If the number of shares of Common Stock purchasable upon the exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company shall nevertheless not be required to issue fractions of shares, upon exercise of the Warrants or otherwise, or to distribute certificates that evidence fractional shares. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (a) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ Stock Market or the OTC Bulletin Board, the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange; or (b) If the Common Stock is not listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ Stock Market or the OTC Bulletin Board, the current value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (c) If the Common Stock is not so listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ Stock Market or the OTC Bulletin Board and bid and asked prices are not so reported by the National Quotation Bureau, Inc., the current value shall be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. SECTION 10. REDEMPTION OF WARRANTS. ----------------------------------- 10.1. Beginning on the Initial Exercise Date, the Warrants are redeemable by the Company on not less than thirty (30) days' prior written notice at a redemption price of $.10 per Warrant, provided the closing sale price of the Common Stock as reported on any national securities exchange, the NASDAQ Stock Market, if traded thereon, or if not traded thereon, the last reported sale price on the OTC Bulletin Board (or other reporting system that provides last sale prices) or any other markets, has been at least 150% of the then current Purchase Price for 20 consecutive trading days, subject to the right of the Registered Holder to exercise such Warrants prior to redemption. Any redemption in part shall be made pro rata to all Registered Holders. The Company and its legal counsel will confirm such notice of redemption with the Warrant Agent prior to the date of redemption. 10.2. In the event the Company exercises its right to redeem the Warrants, it shall give or cause to be given notice to the Registered Holders of the redeemable Warrants, by mailing to such Registered Holders a notice of redemption, first class, postage prepaid, within ten (10) calendar days of the aforementioned twenty (20) consecutive trading days and not later than the thirtieth (30th) day before the date fixed for redemption, at their last address as shall appear on the records of the Warrant Agent. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Registered Holder receives such notice. At the time of the mailing to the Registered Holders of the Warrants of the notice of redemption, the Company shall deliver or cause to be delivered to Underwriter a similar notice telephonically and confirmed in writing together with a list of the Registered Holders (including their respective addresses and number of Warrants beneficially owned) to whom such notice of redemption has been or will be given. 10.3. The notice of redemption shall specify (i) the redemption price, (ii) the date fixed for redemption, (iii) the place where the Warrant Certificate shall be delivered and the redemption price shall be paid, (iv) that Underwriter is the Company's exclusive warrant solicitation agent and shall receive the commission contemplated by Section 4 hereof, and (v) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the business day immediately preceding the date fixed for redemption. The date fixed for the redemption of the Warrants shall be the Redemption Date. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or the Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 10.4. Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York time) on the business day immediately preceding the Redemption Date. The redemption price payable to the Registered Holders shall be mailed to such persons at their address of record. 10.5. The Company shall indemnify Underwriter and each person, if any, who controls Underwriter within the meaning of Section 15 of the Securities Act of 1933, as amended (the "Act") or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from the registration statement or prospectus referred to in Section 5.2 hereof to the same extent and with the same effect (including the provisions regarding contribution) as the provisions pursuant to which the Company has agreed to indemnify Underwriter contained in Section 9 of the Standby Underwriting Agreement. 10.5. Five business days prior to the Redemption Date, the Company shall furnish to Underwriter (i) an opinion of counsel to the Company, dated such date and addressed to Underwriter, and (ii) a "cold comfort" letter dated such date addressed to Underwriter, signed by the independent public accountants who have issued reports on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letters, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities, including, without limitation, those matters covered in Section 6(e) and (g) of the Standby Underwriting Agreement. 10.6. The Company shall as soon as practicable after the Redemption Date, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the Redemption Date. 10.7. The Company shall deliver within five business days prior to the Redemption Date copies of all correspondence between the Securities and Exchange Commission ("Commission") and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to such registration statement and permit Underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules or the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as Underwriter shall reasonably request. SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. ---------------------------------------------------- 11.1. No Registered Holder shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Common Stock that may at any time be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the Registered Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such Registered Holder shall have exercised such Warrants and been issued shares of Common Stock in accordance with the provisions hereof. SECTION 12. RIGHTS OF ACTION. ----------------------------- 12.1. All rights of action with respect to this Agreement are vested in the respective Registered Holders, and any Registered Holder, without consent of the Warrant Agent or of the holder of any other Warrant, may, on his own behalf and for his own benefit, enforce against the Company his right to exercise his Warrants for the purchase of shares of Common Stock in the manner provided in the Warrant Certificate and this Agreement. SECTION 13. AGREEMENT OF WARRANT HOLDERS. ----------------------------------------- 13.1. Every Registered Holder, by his acceptance thereof, consents and agrees with the Company, the Warrant Agent and every other holder of a Warrant that: a. The Warrants are transferable only on the registry books of the Warrant Agent by the Registered Holder thereof in person or by his attorney duly authorized in writing and only if the Warrant Certificates representing such Warrants are surrendered at the office of the Warrant Agent, duly endorsed or accompanied by a proper instrument of transfer satisfactory to the Warrant Agent and the Company in their sole discretion, together with payment of any applicable transfer taxes; and b. The Company and the Warrant Agent may deem and treat the person in whose name the Warrant Certificate is registered as the holder and as the absolute, true and lawful owner of the Warrants represented thereby for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice or knowledge to the contrary, except as otherwise expressly provided in Section 6 hereof. SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. ------------------------------------------------- 14.1. If the Company shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates evidencing the same shall thereupon be delivered to the Warrant Agent and canceled by it and retired. SECTION 15. CONCERNING THE WARRANT AGENT. ----------------------------------------- 15.1. The Warrant Agent shall act hereunder as agent and in a ministerial capacity for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder be deemed to make any representations as to the validity, value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and nonassessable. 15.2. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of Warrant Certificates to make or cause to be made any adjustment of the Purchase Price provided in this Agreement, or to determine whether any fact exists which may require any such adjustments, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of facts contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in any Warrant Certificate, or (iii) be liable for any act or omission in connection with this Agreement except for its own negligence or willful misconduct. 15.3. The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the President, its Secretary, or Assistant Secretary (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement, instruction, request, direction, order or demand believed by it to be genuine. 15.4. The Company agrees to pay the Warrant Agent compensation for its services hereunder and to reimburse it for its expenses hereunder in accordance with the fees listed on Schedule I attached hereto; it further agrees to indemnify the Warrant Agent and save it harmless against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the execution of its duties and powers hereunder except losses, expenses and liabilities arising as a result of the Warrant Agent's negligence or willful misconduct. 15.5. The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own negligence or willful misconduct), after giving 90 days' prior written notice to the Company. At least 45 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Registered Holder of each Warrant Certificate at the Warrant Agent's expense. Upon such resignation, or any inability of the Warrant Agent to act as such hereunder, the Company shall appoint a new warrant agent in writing. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation by the resigning Warrant Agent, then the Registered Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Any new Warrant Agent, whether appointed by the Company or by such a court, shall be a bank or trust company having a capital and surplus, as shown by its last published report to its stockholders, of not less than $10,000,000 or a stock transfer company. After acceptance in writing of such appointment by the new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent. Not later than the effective date of any such appointment, the Company shall file notice thereof with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Registered Holder of each Warrant Certificate. 15.6. Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged or any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party or any corporation succeeding to the trust business of the Warrant Agent shall be a successor warrant agent under this Agreement without any further act, provided that such corporation is eligible for appointment as successor to the Warrant Agent under the provisions of the preceding paragraph. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Underwriter, the Company and to the Registered Holder of each Warrant Certificate. 15.7. The Warrant Agent, its subsidiaries and affiliates, and any of its or their officers or directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effects as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 16. MODIFICATION OF AGREEMENT. -------------------------------------- 16.1. The Warrant Agent and the Company may, by supplemental agreement, make any changes or corrections in this Agreement (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; or (ii) that they may deem necessary or desirable and which do not adversely affect the interests of the Underwriter or the Registered Holders without receiving the prior written consent of the party adversely affected; provided, however, that this Agreement shall not otherwise be modified, supplemented or altered in any respect except with the consent in writing of the Registered Holders representing not less than 50% of the Warrants of each class then outstanding; and provided, however, that no change in the number or nature of the securities purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or the acceleration of the Warrant Expiration Date, shall be made without the consent in writing of the Registered Holder representing such Warrant, other than such changes as are specifically prescribed by this Agreement as originally executed. SECTION 17. NOTICES. -------------------- 17.1. Unless otherwise provided herein, all reports, notices and other communications required or permitted to be given hereunder shall be in writing and delivered by hand or telecopy or by first class mail, postage prepaid: if to the Registered Holder of a Warrant Certificate, at the address of such holder as shown on the registry books maintained by the Warrant Agent; if to the Company at 7100 Technology Drive, West Melbourne, Florida 32904, Attention: William Kelly, Vice President, or at such other address as may have been furnished to the Warrant Agent in writing by the Company; and if to the Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant to this Agreement shall also be delivered to Underwriter at 6501 Congress Avenue, Suite 100, Boca Raton, FL 33487, Attention: Investment Banking Department, or at such other address as may have been furnished to the Company and the Warrant Agent in writing. SECTION 18. GOVERNING LAW. -------------------------- 18.1. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without reference to principles of conflict of laws. SECTION 19. BINDING EFFECT. --------------------------- 19.1. This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Agent and their respective successors and assigns, and the Registered Holders of Warrant Certificates. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation, except for the benefits conferred upon the Underwriter. SECTION 20. TERMINATION. ------------------------ 20.1. This Agreement shall terminate at the close of business on the Expiration Date of the Warrant or such earlier date upon which all Warrants have been exercised, except that the Warrant Agent shall account to the Company for cash held by it and the provisions of Section 14 hereof shall survive such termination. SECTION 21. COUNTERPARTS. ------------------------- 21.1. This Agreement may be executed in several counterparts, which taken together shall constitute a single document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. RELM WIRELESS CORPORATION - ------------------------------ David Storey, President and Chief Executive Officer AMERICAN STOCK TRANSFER AND TRUST COMPANY - ------------------------------ EX-4.(G) 5 ex4-g.txt SUBSCRIPTION RFIGHTS AGREEMENT - RELM & ASTT EXHIBIT 4(g) SUBSCRIPTION RIGHTS AGREEMENT This Subscription Rights Agreement (the "Agreement"), made and entered into as of this day of __________________, 2002, by and between RELM Wireless Corporation, a Nevada corporation (the "Company"), and The American Stock Transfer and Trust Company (the "Subscription Agent"). WHEREAS, the Company has filed a Registration Statement on Form S-1 (Registration No. 333-75512) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") in connection with the proposed offering (the "Rights Offering") of up to 2,500,000 Units (as hereafter defined) (subject to an increase of an additional 500,000 Units for a total of up to 3,000,000 Units to directly reflect any re-pricing of Units) (the "Total Units Offered"), each consisting of one share of the Company's common stock, $.60 par value per share (the "Common Stock"), and one Common Stock Purchase Warrant (the "Warrant"), for sale to holders of non-transferable subscription rights (the "Rights"), which are to be issued to holders of outstanding shares of the Company's common stock, warrants, options or conversion rights (collectively, the "Equity Holders"); WHEREAS, the Subscription Agent presently serves as transfer agent and registrar of the Company's Common Stock and will also serve as registrar for the Rights and as transfer agent and registrar for the Units and the Warrants; WHEREAS, the Company intends to issue to the Equity Holders one Right (the "Basic Subscription Right") for each share of common stock, option, warrant or conversion right (each an "Equity Position"), held on February 4, 2002 (the "Record Date"), and intends (i) that the Rights will be exercisable to purchase one unit (the "Unit") at a subscription price of $___ per Unit (the "Subscription Price"), subject to pro rata reduction as a result of an oversubscription, provided, however, that in the event the closing bid price for the Common Stock on ________, 2002, the date the Rights expire (the "Expiration Date") is less than $___, the Subscription Price shall be reduced to an amount equal to 90% of the closing bid price of the Common Stock on the Expiration Date, but in no event, less than $___ per Unit (a "Subscription Price Re-Pricing"), (ii) that any Rights Holder who exercises all of their Basic Subscription Rights may subscribe for additional Units pursuant to a limited Over-Subscription Right (as defined herein), and (iii) that the Rights will be evidenced by non-transferable certificates (the "Rights Certificates") in a form satisfactory to the Subscription Agent and the Company; WHEREAS, the Company desires to employ the Subscription Agent to act as a subscription agent in connection with the Rights Offering, including, but not limited to, the issuance and delivery of the Rights Certificates, and the Subscription Agent is willing to act in such capacity: NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Rights and the Rights Certificates and the respective rights and obligations thereunder of the Company, the holders of Rights Certificates and the Rights Agent, the parties agree as follows: 1 Article I APPOINTMENT OF SUBSCRIPTION AGENT 1.1 Appointment of Subscription Agent. The Company hereby appoints the Subscription Agent to act as agent for the Company in accordance with the instructions set forth in this Agreement, and the Subscription Agent hereby accepts such appointment. Article II DELIVERY OF DOCUMENTS BY COMPANY 2.1 Delivery of Documents by Company. The Company will cause to be timely delivered to the Subscription Agent sufficient copies of the following documents for delivery to all intended recipients of the Rights (the "Rights Offerees"): (a) the final prospectus (the "Prospectus"); (b) blank Rights Certificates, including instructions for completion; (c) instruction letters to Rights Offerees who are in jurisdictions other than Excluded Jurisdictions (as defined below) and to Rights Offerees in Excluded Jurisdictions (collectively, the "Rights Letters"); and (d) a notice of guaranteed delivery (the "Notice of Guaranteed Delivery"). 2.2 Additional Documents to be Delivered by Company. The Company will also deliver to the Subscription Agent: (a) resolutions adopted by the Board of Directors of the Company in connection with the Rights Offering, certified by the Secretary or Assistant Secretary of the Company; and (b) on or promptly following the Expiration Date (as defined below), sufficient blank forms for the issuance of the Units, Warrants and Common Stock. Article III DETERMINATION OF RIGHTS OFFEREES AND RIGHTS 3.1 Determination of Rights Offerees. On or about the Record Date, the Subscription Agent shall create and maintain, from the stock ledger and registry it maintains in its capacities as transfer agent and registrar for the Common Stock, a list of the names, addresses and taxpayer identification numbers of the Rights Offerees and the number of Rights each such Rights Offeree is entitled to receive in the Rights Offering (the "Rights Ledger"). With respect to the Common Stock held of record by stock depositary trust companies, the Subscription Agent 2 and the Company shall timely solicit and obtain a list containing similar information with respect to the broker/dealers or banks for whom such companies hold such stock as nominee. With respect to all other Equity Holders, on or about the Record Date, the Company shall provide to the Subscription Agent a list of the names, addresses and taxpayer identification numbers of such Rights Offerees and the number of Rights all such Rights Offerees are entitled to receive in the Rights Offering. The Rights Offerees shall be established as of the close of business on the Record Date. 3.2 Determination of Rights. Each Rights Offeree shall receive one Right for each one share of Common Stock, stock option or purchase warrant exercisable to purchase the Company's Common Stock, or any of the Company's convertible debt owned or held of record as of the Record Date. The Company will not issue fractional Rights. Article IV MAILING OF SUBSCRIPTION DOCUMENTS BY SUBSCRIPTION AGENT 4.1 Mailing of Subscription Documents by Subscription Agent. Except as provided in Section 4.2 below, upon the written advice of the Company, signed by any of its duly authorized officers, after the date of effectiveness of the Registration Statement, the Subscription Agent shall mail or cause to be mailed to each Rights Offeree a Prospectus, a Rights Certificate, including instructions for completion, a Rights Letter and a Notice of Guaranteed Delivery (the "Subscription Documents"). Prior to mailing, the Subscription Agent, as registrar for the Rights, will cause to be issued Rights Certificates in the names of the Rights Offerees and for the number of Rights to which they are each entitled, as determined in accordance with Section 3 above. The Subscription Agent shall either manually sign or affix a duly authorized facsimile signature on all Rights Certificates. The signatures of the officers of the Company on the Rights Certificates shall be facsimile signatures. Immediately after the Rights Certificates are mailed, the Subscription Agent shall execute and deliver to the Company a certificate in the form of Exhibit A hereto. 4.2 Residents of Certain Jurisdictions. The Company is not registering or otherwise qualifying its Units, Warrants and Common Stock for sale in Canada, Arizona, Oregon and all other non-United States of America jurisdictions (the "Excluded Jurisdictions") and Rights will not be offered to Rights Offerees residing in the Excluded Jurisdictions. The Subscription Agent shall send a Prospectus and the applicable Rights Letter to Rights Offerees whose addresses are in the Excluded Jurisdictions, and these Rights Offerees who will not receive any Rights Certificates to participate in the Rights Offering unless they can demonstrate to the Subscription Agent that they reside in a jurisdiction in which the Company has registered or otherwise qualified its Units, Warrants and Common Stock for sale. 3 Article V SUBSCRIPTION PROCEDURE 5.1 Valid Exercise of Rights. For a valid exercise of Rights to occur, the Subscription Agent must receive, by mail, hand delivery, or otherwise, prior to 5:00 p.m., New York time, on the Expiration Date, the Rights Certificate pertaining to such Rights, which has been properly completed and endorsed for exercise, as provided in the instructions on the reverse side of the Rights Certificate, and payment in full in U.S. Dollars of the Subscription Price for the total number of Units subscribed pursuant to the Basic Subscription Right and the Over-Subscription Right (as defined below), by check, bank check, money order or other negotiable instrument payable to the order of "American Stock Transfer and Trust Company, as Subscription Agent - RELM Wireless Corporation" or by wire transfer pursuant to instructions provided by the Subscription Agent. 5.2 Subscription Price Re-Pricing. In the event that the Subscription Price is reduced as a result of a Subscription Price Re-Pricing, unless an oversubscription occurs, the subscribing Equity Holders will not receive a refund for any Subscription Price paid for the Basic Subscription Right and shall receive additional Units in the total amount equal to the total amount paid by each Equity Holder for Basic Subscription Rights divided by the Re-Priced Subscription Price, rounded down to the lowest whole number, with any excess being refunded to the Equity Holder. In the event of a Subscription Price Re-Pricing, the Total Units Offered shall be increased from 2,500,000 Units to an amount equal to 2,500,000 multiplied by the sum of one plus the dollar amount by which the Subscription Price is reduced (up to a maximum of $0.20) as a result of the Subscription Price Re-Pricing of the 2,500,000 Units, but to an amount no greater than 3,000,000 Units. 5.3 Depository Trust Company. In the case of Rights Offerees of Rights that are held of record through the Depository Trust Company ("DTC"), exercises of the Basic Subscription Right may be effected by instructing DTC to transfer Rights from the DTC account of such Rights Offeree to the DTC account of the Subscription Agent, together with payment of the Subscription Price for each Unit subscribed for pursuant to the Basic Subscription Right and the Over-Subscription Right, as applicable. Alternatively, a Rights Offeree may exercise the Rights evidenced by the Rights Certificate by effecting compliance with the procedures for guaranteed delivery set forth in Section 5.4 below. 5.4 Notice of Guaranteed Delivery. If a Rights Offeree wishes to exercise Rights, but time will not permit such Rights Offeree to cause the Rights Certificate evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be exercised if all of the following conditions are met (the "Guaranteed Delivery Procedures"): (a) such Rights Offeree has caused payment in full of the Subscription Price for each Unit being subscribed for pursuant to the Basic Subscription Right and the Over-Subscription Right to be received by the Subscription Agent on or prior to the Expiration Date; (b) the Subscription Agent receives, on or prior to the Expiration Date, a guarantee notice (a "Notice of Guaranteed Delivery"), 4 substantially in the form provided with the Subscription Documents, from an Eligible Institution, stating the name of the Rights Offeree, the number of Rights held by the Rights Certificate or Rights Certificates held by such Rights Offeree, the number of Units being subscribed for pursuant to the Basic Subscription Right and the number of Units, if any, being subscribed for pursuant to the Over-Subscription Right, and guaranteeing the delivery to the Subscription Agent of the Rights Certificate evidencing such Rights at or prior to 5:00 p.m., New York, New York, on the date three (3) business days following the date of the Notice of Guaranteed Delivery; and (c) the properly completed Rights Certificate(s) evidencing the Rights being exercised are received by the Subscription Agent, or such Rights are transferred into the DTC account of the Subscription Agent, at or prior to 5:00 p.m., New York, New York time, on the date three (3) business days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Rights Certificates at the addresses set forth above, or may be transmitted to the Subscription Agent by telegram or facsimile transmission (facsimile: ___________). 5.5 Deemed Exercises. If a Rights Offeree has not indicated the number of Rights being exercised, or if the Subscription Price payment forwarded by such Rights Offeree to the Subscription Agent is not sufficient to purchase the number of Units subscribed for, the Rights Offeree will be deemed to have exercised the Basic Subscription Right with respect to the maximum number of Rights which may be exercised for the Subscription Price delivered to the Subscription Agent and, to the extent that the Subscription Price payment delivered by such Rights Offeree exceeds the Subscription Price multiplied by the maximum number of Rights which may be exercised (the "Subscription Excess"), the Rights Offeree will have been deemed to have exercised its Over-Subscription Right to purchase, except as provided in Section 8.2, that number of Units equal to the quotient obtained by dividing the Subscription Excess by the Subscription Price, up to the maximum number of Units purchasable by such Rights Offeree. The Subscription Agent, as soon as practicable after the exercise of the Rights, shall mail to such Rights Offerees any portion of the Subscription Excess not applied to the purchase of Units pursuant to the Over-Subscription Right, without interest or deduction. Article VI DELIVERY OF UNIT CERTIFICATES AND STOCK AND WARRANT CERTIFICATES 6.1 Delivery of Unit Certificates. As soon as practicable after the Expiration Date, the Subscription Agent shall mail certificates representing the Units subscribed for by the holders of the Rights. The certificates shall be mailed to the subscribers' address as shown on the reverse side of the Rights Certificate or, if none, then as listed on the Subscription Agent's register (except that the Subscription Agent shall comply with any ancillary written delivery instructions provided by any subscriber as long as the jurisdiction named for delivery is not an Excluded Jurisdiction). The mailing shall include a notice setting forth any adjustment in the Subscription Price and the number of Units acquired as a result of any adjustment, and any refund for any Basic Subscription Rights and/or Over-Subscription Rights exercised that was not filled. The Subscription Agent shall maintain a mail loss surety bond protecting the Company and the Subscription Agent from loss or liability arising out of non-receipt or non-delivery of such certificates. 5 6.2 Delivery of Stock and Warrant Certificates. The Common Stock and Warrants constituting a Unit are not separately transferable until _______, 2003 (the "Initial Exercise Date"), or such earlier date as may be determined by Noble International Investments, Inc. (the "Underwriter") (the "Early Separation Date") with at least ten days prior notice of such Early Separation Date (the "Early Separation Date Notice"). Until the earlier of the Initial Exercise Date or the Early Separation Date, the Common Stock and Warrants constituting a Unit are transferable only by the transfer of the Unit Certificate. The Company shall give the Early Separation Date Notice, if any, by filing a Form 8-K with the SEC and issuing a press release announcing the Early Separation Date. On the earlier of the Initial Exercise Date or the Early Separation Date (the "Separation Date"), without any action required of the record holders of the Unit Certificates, Company or other parties, the Unit Certificate shall automatically be cancelled and, the record holder of such Units represented by such Unit Certificates shall receive one share of Common Stock and one Common Stock Purchase Warrant to purchase one share of the Company's Common Stock for each Unit held. As soon after the Separation Date as is practicable, the Subscription Agent shall mail or otherwise deliver to the record holders of the Unit Certificate at the close of business on the Separation Date, at the record holder's address as shown on the Unit register, a certificate or certificates (registered in the name of such record holder) for the shares of Common Stock and Warrants to which such record holder is entitled. Article VII FRACTIONAL UNITS AND SHARES 7.1 Fractional Units and Shares. No fractional Units will be issued by the Company. A Rights Certificate may not be divided in such a manner as would permit the holders to subscribe for a greater number of Units than the number for which they would be entitled to subscribe under the original Rights Certificate. Rights Offerees, such as banks, securities dealers and brokers, who receive Rights as nominees for one or more beneficial owners shall be entitled to exercise their Rights Certificates on behalf of the beneficial owners. Article VIII PRORATIONS FOR BASIC SUBSCRIPTION RIGHTS IF INSUFFICIENT UNITS AND EXERCISE OF OVER SUBSCRIPTION RIGHTS 8.1 Prorating of Basic Subscription Right if Insufficient Units. If there are insufficient Units to fill all Basic Subscription Rights, the Units that are available will be allocated to all Rights Offerees subscribing for Basic Subscription Rights on a pro rata basis in proportion to the total number of Basic Subscription Rights exercised by all such Rights Offerees subscribing for Basic Subscription Rights. 6 8.2 Over-Subscription Right. If a Rights Offeree exercises his or her Basic Subscription Right in full, the Rights Offeree may subscribe for additional Units (the "Over-Subscription Right") at the Subscription Price. The Subscription Agent shall determine the number of Units subscribed for pursuant to the exercise of the Over-Subscription Right. If sufficient Units in excess of all Units subscribed for pursuant to the exercise of Basic Subscription Rights are available to satisfy all exercised Over-Subscription Rights, the Subscription Agent shall fill all such exercised Over-Subscription Rights as and to the same extent as if pursuant to the regular exercise of Basic Subscription Rights. To the extent, however, that sufficient Units are not available to fill all such exercised Over-Subscription Rights, the Units which are available to fill exercised Over-Subscription Rights will be allocated among those exercising Over-Subscription Rights on a pro rata basis in proportion to the total number of Over-Subscription Rights exercised by all Rights Offerees exercising Over-Subscription Rights. Those electing to exercise the Over-Subscription Right must subscribe for such Units at the time of exercising the Basic Subscription Rights. To exercise the Over-Subscription Right, the appropriate block on the Rights Certificate form must be completed and payment in full for additional Units must accompany the form and be submitted to the Subscription Agent at the time the such Rights Offeree exercises the Basic Subscription Right. 8.3 Refund. In the event that any holder who exercises his or her Basic Subscription Rights and/or Over-Subscription Rights does not receive the full number of Units subscribed therefor, the Subscription Agent shall refund the portion of the Subscription Price paid for the Units not received, without interest, to such holder promptly after the Expiration Date. Article IX DEFECTIVE EXERCISE OF RIGHTS; LOST RIGHTS CERTIFICATES 9.1 Defective Exercise of Rights. The Company shall have the right to reject any defective exercise of Rights or to waive any defect in exercise. If the Company advises the Subscription Agent that the Company rejects any defective exercise of Rights (except a failure to pay the full Subscription Price with respect to such exercise), at the Company's request the Subscription Agent shall as soon as practicable either (i) telephone the holder of such Rights (at the telephone number on the reverse side of the Rights Certificate) to explain the nature of the defect if the defect and the necessary correction can be adequately explained by telephone and the holder can correct the defect without possession of the Rights Certificates, or (ii) mail the Rights Certificate to the holder, together with a letter explaining the nature of the defect in exercise and how to correct the defect. If an exercise is not defective except that there is a partial payment of the Subscription Price, the Subscription Agent shall issue only the number of Units for which sufficient payment has been made and seek additional payment for the remaining number of Units for which the exercise of the underlying Rights had been attempted. Any Rights Certificate with respect to which defects in exercise are not corrected prior to 5:00 p.m., New York, New York time, on the Expiration Date, shall be returned with any applicable tendered funds, to the holder of such Rights Certificate. 7 9.2 Lost Rights Certificates. If any Rights Certificate is alleged to have been lost, stolen or destroyed, the Subscription Agent should follow the same procedures followed for lost stock certificates representing shares of Common Stock of the Company that the Company and the Subscription Agent in its capacity as transfer agent for the Common Stock use, provided that such procedure must be completed prior to the Expiration Date in order to be effective. Article X PROOF OF AUTHORITY TO SIGN 10.1 Proof of Authority to Sign. The Subscription Agent need not procure supporting legal papers, and is authorized to dispense with proof of authority to sign (including any proof of appointment or authority to sign of any fiduciary, custodian for a minor, or other person acting in a representative capacity), and to dispense with the signatures of co-fiduciaries, in connection with exercise of the Rights in the following cases: (a) where the Rights Certificate is registered in the name of an executor, administrator, trustee, custodian for a minor or other fiduciary, and the subscription form thereof is executed by such executor, administrator, trustee, custodian for a minor or other fiduciary, and the shares of Common Stock and Warrants comprising the Units subscribed for are to be issued in the name of the registered holder of the Rights Certificate, as appropriate; (b) where the Rights Certificate is in the name of a corporation and the subscription form thereof is executed by an officer of such corporation and the shares of Common Stock and Warrants comprising the Units subscribed for are to be issued in the name of such corporation; (c) where the Rights Certificate is executed by a bank or broker as agent for the registered holder of the Rights Certificate; provided that, the shares of Common Stock and Warrants subscribed for are to be issued in the name of the registered holder of the Rights Certificate. Article XI DEPOSIT OF FUNDS 11.1 Deposit of Funds. Any funds received by the Subscription Agent as payments in connection with subscriptions for Units pursuant to the Rights Offering shall be held in a non-interest-bearing account by Subscription Agent. The Subscription Agent shall account to the Company for all funds held no later then upon issuance of Units. 8 Article XII REPORTS 12.1 Reports. If requested by the Company, the Subscription Agent shall notify Mr. William P. Kelly at the Company ((321) 953-7898) or his designee, by telephone on or before 5:00 p.m., New York time, on each business day during the period commencing with mailing of the Rights Certificates and ending at the Expiration Date (and in the case of guaranteed delivering, ending three (3) business days after the Expiration Date), which notice shall thereafter be confirmed in writing, of (i) the number of Units validly subscribed for, (ii) the number of Units subject to guaranteed delivery, (iii) the number of Units for which defective subscriptions have been received and the nature of such defects, (iv) the number of Units validly subscribed for pursuant to the Over-Subscription Right, and (v) the amounts of collected and uncollected funds in the subscription account established under this Agreement. At or before 5:00 p.m., New York time, on the first business day following the Expiration Date, or upon the request from the Company from time to time thereafter, the Subscription Agent shall certify in writing to the Company the cumulative totals through the Expiration Date of all the information set forth in clauses (i) through (v) above. At or before 5:00 p.m., New York time, on the first business day following receipt from the Company of written instructions to mail the Units subscribed for pursuant to the Rights, the Subscription Agent will execute and deliver to the Company a certificate in the form of Exhibit B hereto. The Subscription Agent shall also maintain and update a listing of holders who have fully or partially exercised their Rights and holders who have not exercised their Rights. The Subscription Agent shall provide the Company or their designees with such information compiled by the Subscription Agent pursuant to this Section 12 as any of them shall request from time to time by telephone or telecopy. The Subscription Agent hereby represents, warrants and agrees that the information contained in each notification referred to in this Section 12 shall be accurate in all material respects. Any written notices provided to the Company hereunder shall also be delivered to Noble International Investments, Inc., 6501 Congress Avenue, Suite 100, Boca Raton, Florida 33487, Facsimile No. (561) 994-4741, Attention: Investment Banking Department. Article XIII FUTURE INSTRUCTIONS 13.1 Future Instructions. With respect to notices or instructions to be provided by the Company hereunder, the Subscription Agent may rely and act on any written instruction signed by any one or more of the following authorized officers or employees of the Company: David P. Storey or William P. Kelly. Article XIV PAYMENT OF EXPENSES 14.1 Payment of Expenses. The Company will pay the Subscription Agent for its services under this Agreement in accordance with the fees listed on Schedule I attached hereto, and will reimburse the Subscription Agent for all reasonable and necessary expenses incurred by it in so acting. 9 Article XV COUNSEL 15.1 Counsel. The Subscription Agent may consult with counsel satisfactory to it, which may be counsel to the Company, and the written advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Subscription Agent hereunder in good faith and in accordance with such advice or opinion of such counsel. Article XVI INDEMNIFICATION 16.1 Indemnification. The Company covenants and agrees to indemnify and hold the Subscription Agent harmless against any costs, expenses (including reasonable fees for legal counsel), losses or damages, which may be paid, incurred or suffered by or to which the Subscription Agent may become subject, arising from or out of, directly or indirectly, any claim or liability resulting from its actions pursuant to this Agreement and for which the Subscription Agent is not otherwise reimbursed under the mail loss surety bond; provided that such covenant and agreement does not extend to such costs, expenses, losses and damages incurred or suffered by the Subscription Agent as a result of, or arising out of, any negligence, misconduct or bad faith of the Subscription Agent or of any employees, agents or independent contractors used by the Subscription Agent in connection with performance of its duties hereunder. Article XVII Miscellaneous 17.1 Notices. Unless otherwise provided herein, all reports, notices and other communications required or permitted to be given hereunder shall be in writing and delivered by hand or telecopy or by first class mail, postage prepaid, as follows: (a) If to the Company, to: RELM Wireless Communications 7100 Technology Drive West Melbourne, FL 32904 Facsimile: (321) 984-0168 Attn: William P. Kelly With a copy to: Zack Kosnitzky, P.A. 100 SE Second Street, Suite 2800 Miami, Florida 33131 Facsimile: (305) 539-1307 Attn: John E. Tober, Esq. 10 (b) If to the Subscription Agent, to: American Stock Transfer and Trust Company 59 Maiden Lane New York, New York 10038 Attn: Geraldine Zarbo 17.2 Amendments and Waivers. This Agreement may not be amended or modified except by a written instrument or document which has been executed by all of the parties hereto, and consented to by the Underwriter to the extent that any such amendment or modification has an material adverse effect on the rights of the Underwriter under any agreement between the Underwriter and the Company, which consent shall not be unreasonably withheld or conditioned. Any party hereto may waive any of its rights arising under this Agreement only by a written instrument or document executed by such party, and any such waiver shall not be construed as a waiver of any subsequent, or other, right of such party. 17.3 Invalidity. If one or more of the terms of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the remaining terms of this Agreement and this Agreement shall be construed as if such invalid, illegal or unenforceable term or terms had never been contained herein. 17.4 Binding Effect and Assignments. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns; provided, however, that, without the prior written consent of the Company, the Subscription Agent may not assign any of its interests, rights or obligations arising out of this Agreement. 17.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. [Remainder of page intentionally left blank, Signatures on next page] 11 IN WITNESS WHEREOF, the undersigned have hereto set their hands as of the date first written above. RELM WIRELESS CORPORATION - ------------------------------ David Storey, President and Chief Executive Officer THE AMERICAN STOCK TRANSFER AND TRUST COMPANY - ------------------------------ 12 SCHEDULE I FEES 13 EXHIBIT A AMERICAN STOCK TRANSFER AND TRUST COMPANY Subscription Document Certification ----------------------------------- American Stock Transfer and Trust Company has acted as subscription agent ("Subscription Agent") for RELM Wireless Corporation (the "Company") in connection with the offering of rights to purchase the Company's units, (the "Units") to holders of the Company's common stock, options, warrants and convertible debt pursuant to the Prospectus dated _______, 2002. The Subscription Agent hereby certifies that: The Subscription Agent has mailed ________ Rights Certificates to Rights Offerees of record on February 4, 2002, in accordance with that certain Subscription Rights Agreement between the Subscription Agent and the Company, dated________, 2002. IN WITNESS WHEREOF, the Subscription Agent has caused this Subscription Documentation Certificate to be signed manually or by facsimile, by one of its officers and a facsimile of its corporate seal to be imported herein. DATED: AMERICAN STOCK TRANSFER & TRUST COMPANY 59 Maiden Lane New York, NY 10038 - --------------------------- By: ----------------------- 14 EXHIBIT B AMERICAN STOCK TRANSFER AND TRUST COMPANY Subscription Rights Certification American Stock Transfer and Trust Company has acted as subscription agent ("Subscription Agent") for RELM Wireless Corporation (the "Company") in connection with the offering of rights to purchase the Company's units, (the "Units") to holders of the Company's common stock, options, warrants and convertible debt pursuant to the Prospectus dated ________, 2002. The Subscription Agent hereby certifies that: ___________ Units have been validly subscribed for and all subscription documents and payments related thereto have been received of which _____ represent Basic Subscription Rights and _______ represent Over-Subscription Rights; and ___________ Units are subject to guaranteed delivery; and ___________ defective subscriptions have been received and the nature of each defective subscription is attached hereto on Schedule I; and $__________ have been collected and are currently maintained in the subscription account; and $__________ remains uncollected, which amount consists of $______for Basic Subscription Rights and $______ for Over-Subscription Rights. IN WITNESS WHEREOF, the Subscription Agent has caused this Subscription Rights Certificate to be signed. DATED: AMERICAN STOCK TRANSFER & TRUST COMPANY 59 Maiden Lane New York, NY 10038 - --------------------------- By: ------------------------ 15 EX-4.(H) 6 ex4-h.txt FORM OF UNIT CERTIFICATE Exhibit 4(h) ______ Units No.___ THE UNITS REPRESENTED BY THIS CERTIFICATE WILL EXPIRE AUTOMATICALLY ON THE SEPARATION DATE DESCRIBED HEREIN AND BE OF NO FURTHER VALUE OR VALIDITY. RELM WIRELESS CORPORATION UNIT CERTIFICATE This certifies that ___________ or registered assigns is the registered holder (the "Holder") of the above number of Units (the "Units"), each Unit consisting of one share of Common Stock, $.60 par value (the "Common Stock"), and one Common Stock Purchase Warrant (the "Warrants") to purchase one share of the Common Stock of RELM Wireless Corporation, a Nevada corporation (the "Company") at $____ per share, subject to adjustment. The Warrants shall become exercisable on __________ (the "Initial Exercise Date") and expire on _____________. The Common Stock and Warrants constituting a Unit are not separately transferable until the Initial Exercise Date, or such earlier date (the "Early Separation Date") as may be set by Noble International Investments, Inc. ("Noble") with at least ten days prior notice of such Early Separation Date (the "Early Separation Date Notice"). Until the earlier of the Initial Exercise Date or the Early Separation Date (the "Separation Date"), the Common Stock and Warrants constituting a Unit are transferable only by the transfer of this Unit Certificate. The Company shall give the Early Separation Date Notice, if any, by filing a Form 8-K with the Securities and Exchange Commission and issuing a press release announcing the Early Separation Date. On the Separation Date, without any action required of the Holders, the Company or other parties, this Unit Certificate shall automatically be cancelled, and the Holder of the Units represented by this Unit Certificate shall receive one share of Common Stock, and one Warrant for each Unit represented hereby. THE SETTING OF AN EARLY SEPARATION DATE BY NOBLE INTERNATIONAL INVESTMENTS, INC., DOES NOT ACCELERATE THE DATE ON WHICH WARRANTS MAY BE EXERCISABLE, WHICH SHALL ALWAYS BE THE INITIAL EXERCISE DATE. The Units represented hereby and the Warrants underlying the Units are subject in all respects to the terms and conditions set forth in the Subscription Rights Agreement, dated as of ___________________, 2002, (the "Subscription Rights Agreement") between the Company and American Stock Transfer & Trust Company as subscription agent (the "Agent"), and the Warrant Agreement, dated as of ________, 2002 (the "Warrant Agreement"), between the Company and the Agent. Copies of the Subscription Rights Agreement and the Warrant Agreement are on file at the office of the Agent at 59 Maiden Lane, New York, NY 10038, and will be provided to the Holder without charge upon request. The Company can redeem the Warrants, in whole, or in part, for $0.10 per Warrant at any time after the Initial Exercise Date if the closing price of the Common Stock is at or above 150% of the exercise price of the Warrant for twenty consecutive trading days. The Warrants are not callable until the Initial Exercise Date, regardless of whether Noble declares an Early Separation Date. As soon after the Separation Date as is practicable, the Company shall cause the Agent to mail or otherwise deliver to the Holder at the close of business on the Separation Date, at the Holder's address as shown on the Unit register of the Company maintained in accordance with the Subscription Rights Agreement, a certificate or certificates (registered in the name of such Holder) for the shares of Common Stock and Warrants to which such Holder is entitled. By accepting a Unit Certificate bearing this endorsement and as part of the consideration for the issuance of this Unit Certificate, each Holder shall be bound by all terms and provisions of the Subscription Rights Agreement and the Warrant Agreement as fully and as effectively as if the Holder had signed the same. The Unit Certificate shall not be valid unless countersigned by the Agent. IN WITNESS WHEREOF, the Company has caused this Unit Certificate to be signed manually or by facsimile, by two of its officers and a facsimile of its corporate seal to be imprinted herein. DATED: RELM WIRELESS CORPORATION -------------------------------------- COMPANY SEAL -------------------------------------- - --------------------------- COUNTERSIGNED: AMERICAN STOCK TRANSFER & TRUST COMPANY 59 Maiden Lane New York, NY 10038 By:____________________ ASSIGNMENT To be executed by the Registered Holder In order to assign the Units FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: ________________________ ________________________ ________________________ ________________________ ________________________ (Please print or type name and address) Please insert social security or other identifying number of assignee: _________ ______ of the Units represented by this Unit Certificate, and hereby irrevocably constitutes and appoints any officer of the Company or its transfer agent and registrar as lawful attorney to transfer this Unit Certificate on the books of the Company, with full power of substitution in the premises. Dated: ______________ ______________________________ Signature of Registered Holder ______________________________ Print Name IMPORTANT: Every Registered Holder of this certificate must sign it to assign or otherwise transfer Units. The above signature or signatures must correspond with the name or names written on the face of this Unit Certificate in every particular, without alteration, enlargement or any change whatever. Each signature should be "medallion" guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions) with membership in an approved signature guarantee Medallion Program pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934. Signature Guarantee: _____________________ EX-4.(I) 7 ex4-i.txt FORM OF RIGHTS CERTIFICATE Exhibit 4(i) _____ Rights VOID AFTER ______________, 2002 RELM WIRELESS CORPORATION ------------------------- RIGHTS CERTIFICATE THIS CERTIFICATE AND THE RIGHTS REPRESENTED BY IT ARE HELD SUBJECT TO THE TERMS AND CONDITIONS HEREIN DESCRIBED. ANY SALE, ASSIGNMENT, PLEDGE OR TRANSFER OF THESE RIGHTS IS STRICTLY PROHIBITED. This Rights Certificate (the "Rights Certificate") certifies that FOR VALUE RECEIVED ________________________________ (the "Registered Holder") is the owner of the number of non-transferable subscription rights (the "Rights") set forth above, each one (1) Right entitling the owner thereof to purchase from RELM Wireless Corporation, a Nevada corporation (the "Company"), at any time prior to ____________, 2002 (the "Expiration Date"), at the office of The American Stock Transfer and Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 10038, or its successors, as Rights Agent (the "Rights Agent"), one (1) unit (a "Unit"), subject to reduction in the event of over-subscription. Each Unit consists of one (1) fully paid and non-assessable share of the Company's common stock, par value $.60 per share (the "Common Stock") and one (1) fully paid and non-assessable Common Stock Purchase Warrant (the "Warrant") of the Company, at a purchase price of $_____ (the "Purchase Price"), upon presentation of this Rights Certificate with the form of election on the reverse side hereof properly completed and duly executed, accompanied by payment in full of the Purchase Price in U.S. dollars for the number of Units subscribed by check, bank check, or money order. Notwithstanding the foregoing, in the event the closing bid price for the Common Stock on the Expiration Date is less than $____, the Purchase Price shall be reduced to an amount equal to 90% of the closing bid price of the Common Stock on the Expiration Date, but in no event, less than $___ per Unit and the number of Units to be received upon the exercise of each Right shall be increased in accordance with the terms of the Subscription Rights Agreement dated ______, 2002, between the Company and the Rights Agent (the "Subscription Rights Agreement"), the terms, conditions and provisions of which are hereby incorporated by reference and made a part hereof. Copies of the Subscription Rights Agreement are available without charge upon written request to the Company or Rights Agent. If a Purchase Price reduction occurs, each Registered Holder will receive additional Units upon the exercise of their Rights in an amount corresponding to the payment sent by the Registered Holder. Subscriptions for Units are non-cancelable and no refunds will be given for subscriptions by a Registered Holder if a Purchase Price reduction occurs. The Company and the Rights Agent will make available for subscription, 2,500,000 Units, subject to an increase to up to 3,000,000 Units to directly reflect any re-pricing of Units. Regardless of whether a Purchase Price reduction occurs, the Registered Holder must submit the maximum Purchase Price of $____ per Unit for each Unit for which the Registered Holder subscribes to purchase. 1 If the Registered Holder has exercised its basic subscription right in full, he or she may also subscribe for additional Units pursuant to an over-subscription right, by completing the over-subscription portion of the form on the reverse side hereof and presenting it to the Rights Agent along with payment of the Purchase Price for the over-subscribed Units as therein provided. If there are insufficient Units to fill all basic subscriptions, the Units that are available will be allocated on a pro rata basis in proportion to the total number of basic subscription Rights exercised by each Registered Holder, up to a maximum of 2,500,000 Units (subject to an increase of up to 3,000,000 Units to directly reflect any re-pricing of Units pursuant to the terms of the Subscription Rights Agreement). If all basic subscriptions have been filled but there are insufficient Units to fill all over-subscriptions, the Units available to fill over-subscriptions will be allocated to the Registered Holders who have oversubscribed on a pro rata basis in proportion to the amount of each Registered Holder's over-subscription. The payment for basic and over-subscription Rights will be held in a special bank account by the Rights Agent. If insufficient Units are available to fill a Registered Holder's basic or over-subscription request, the Rights Agent will promptly refund any funds for which Units are unavailable. The funds returned to Registered Holders as a result of insufficient Units to fill basic or over-subscription Rights will not bear interest. The Rights Agent will issue Unit Certificates to subscribers in accordance with the Subscription Rights Agreement promptly following the Expiration Date. The Company will issue no fractional Units. This Rights Certificate, and the Rights represented hereby are indivisible, non-transferable and non-assignable. Prior to the exercise of any Rights represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company by virtue of such holder's ownership of any Rights, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company or to receive any notice except as provided in the Subscription Rights Agreement. This Rights Certificate shall not be valid or obligatory until it shall have been countersigned by the Rights Agent. 2 IN WITNESS WHEREOF, the Company has caused this Rights Certificate to be signed by its duly authorized officers and its corporate seal to be imprinted hereon. Dated: __________, 2002 RELM WIRELESS CORPORATION By: --------------------------- David Storey, President and CEO By: --------------------------- William Kelly, Executive Vice-President and Chief Financial Officer Countersigned and Registered: - -------------------------- Rights Agent By: ---------------------- Authorized Officer 3 FORM OF ELECTION TO EXERCISE SUBSCRIPTION RIGHTS (to be executed if holder desires to exercise the Rights Certificate) Please Print All Information Clearly And Legibly. To RELM Wireless Corporation: Basic Subscription Right The undersigned hereby irrevocably elects to exercise Rights represented by this Rights Certificate and irrevocably subscribes to purchase ________ Units* pursuant to the basic subscription Right described in the Rights Certificate and the Subscription Rights Agreement. Each Unit shall consist of one share of Common Stock and one Common Stock Purchase Warrant of Relm Wireless Corporation. *not to exceed the total basic rights noted on the cover of this Rights Certificate. Over-Subscription Right (available only if you exercise the basic subscription right in full) The undersigned hereby irrevocably elects to subscribe to purchase __________ additional Units pursuant to the over-subscription Right described in the Rights Certificate and the Subscription Rights Agreement. Each Unit shall consist of one share of Common Stock and one Common Stock Purchase Warrant of Relm Wireless Corporation. 4 (a) Basic Subscription Right: _______________ Units (cannot exceed number of rights) (b) Over Subscription Right: _______________ Units Total Subscription: ________ Units (a + b) Unit Price: x $_______ Total Subscription Price $_______ (amount enclosed) The undersigned acknowledges that all Units will be issued in the name of the Registered Holder and shall be sent to the Registered Holder's address of record with the Rights Agent. - ---------------------- ---------------------------- Registered Holder Name Social Security Number - --------------------------- - --------------------------- - --------------------------- Registered Holder Mailing Address Dated: __________, 2002 - --------------------------- Signature(s) - --------------------------- Signature(s) - --------------------------- Signature(s) 5 The signature(s) must correspond in every particular, without alteration, with the name(s) as printed on the reverse of this Rights Certificate. The form of election must be accompanied by check, bank check, or money order in U.S. dollars payable to "American Stock Transfer and Trust Company as Rights Agent for Relm Wireless Corporation," for the number of Units subscribed multiplied by $_____ (purchase price per Unit). 6 EX-4.(J) 8 ex4-j.txt FORM OF WARRANT CERTIFICATE EXHIBIT 4(j) __________ Common Stock Purchase Warrants VOID AFTER ___________, 2006 Common Stock Purchase Warrant Certificate RELM WIRELESS CORPORATION This Warrant Certificate (the "Warrant Certificate") certifies that for value received, __________________________ or registered assigns (the "Registered Holder"), is the owner of ______ redeemable common stock purchase warrants (the "Warrant"). Each Warrant entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Warrant Certificate and Warrant Agreement (as hereinafter defined), one fully paid and non-assessable share of common stock, $.60 par value per share (the "Common Stock"), of RELM Wireless Corporation, a Nevada corporation (the "Company"), at any time beginning on ___________________ (the "Initial Exercise Date"), until the Expiration Date (as hereinafter defined), unless earlier redeemed by the Company as provided below, upon the presentation and surrender of this Warrant Certificate with the subscription form on the reverse hereof duly executed, at the corporate offices of American Stock Transfer and Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 10038, as warrant agent, or its successor (the "Warrant Agent"), accompanied by payment of $____ (U.S.) per share, (the "Exercise Price") in U.S. dollars by check, bank check, money order or wire made payable to RELM Wireless Corporation. Wire transfer instructions may be requested from the Warrant Agent at the address shown above. The Company may at its election reduce the Exercise Price. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated _____________, 2002, by and between the Company and the Warrant Agent. Copies of the Warrant Agreement are on file at the office of the Warrant Agent and will be provided to the holder hereof without charge. Subject to the provisions of the Warrant Agreement, beginning on the Initial Exercise Date, the Warrants may be redeemed at the option of the Company for a redemption price of $.10 per Warrant if for any twenty (20) consecutive trading days during such period the last reported sales price of the Company's common stock for each such trading day during such period is at least 150% of the exercise price of the Warrant. In the event the Company exercises its right to redeem the Warrants, the Warrants will be exercisable until the close of business on the day immediately preceding the date fixed for redemption in such notice. If any Warrant called for redemption is not exercised by such date, it will cease to be exercisable and the Registered Holder will be entitled only to the redemption price. In the event of certain contingencies provided for in the Warrant Agreement, the Exercise Price of the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. If Warrants represented by this Warrant Certificate are exercised with respect to fewer than all shares purchasable, Warrant Certificates to purchase the remaining number of shares will be issued. The Company shall not be required to issue fractions of shares upon the exercise of Warrants. The term "Expiration Date" shall mean 5:00 p.m., New York city time, on ________, 2006. If such date shall in the State of New York be a holiday or a day on which the banks are authorized to close, then the Expiration Date shall mean 5:00 p.m. the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall have the right at any time to extend the Expiration Date, or any extension thereof, of the Warrants without notice to the Registered Holder, as provided in the Warrant Agreement. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended, with respect to such securities is effective. The Company has filed and caused to become effective a registration statement and will use its best efforts to keep such registration statement current while any of the Warrants are outstanding. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. Warrants are transferable at the corporate office of the Warrant Agent by the Registered Holder thereof in person or by attorney duly authorized in writing, in the manner and subject to the limitations on transfer set forth in the Warrant Agreement, upon surrender of the Warrant Certificate and the payment of transfer taxes, if any. Upon any such transfer, a new warrant certificate or new warrant certificates of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of the Company's common stock, will be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations set forth in the Warrant Agreement. If this Warrant Certificate shall be surrendered for exercise within any period during which the transfer books for the Company's common stock or other securities purchasable upon the exercise of Warrants are closed for any reason, the Company shall not be required to make delivery of certificates for the securities purchasable upon such exercise until the date of the reopening of said transfer books. The Registered Holder shall not be entitled to any of the rights of a stockholder of the Company prior to exercise hereof, by virtue of ownership of the Warrants including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company or to receive any notice except as provided in the Warrant Agreement. Prior to due presentment for registration or transfer thereof, the Company and the Warrant Agent may treat the Registered Holder as the absolute owner hereof of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary, except as provided in the Warrant Agreement. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of Florida. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. [Remainder of page intentionally left blank.] IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed by two of its officers duly executed and its corporate seal to be imprinted hereon. RELM WIRELESS CORPORATION - ------------------------------ David Storey, President and Chief Executive Officer AMERICAN STOCK TRANSFER AND TRUST COMPANY - ------------------------------ RELM WIRELESS CORPORATION SUBSCRIPTION FORM The undersigned Registered Holder hereby irrevocably elects to exercise _______ Warrants represented by this Warrant Certificate, and to purchase the shares of common stock of the Company issuable upon the exercise of such Warrants, and requests that certificates for such shares shall be issued in the name of: ---------------------------------------- ---------------------------------------- ---------------------------------------- (Please print or type name and address) Please insert social security or other identifying number: _____________ And, if such number of Warrants shall not be all of the Warrants evidenced by the Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of and delivered to the Registered Holder at the address stated below. The undersigned represents that the exercise of the Warrant was solicited by a member of the National Association of Securities Dealers, Inc. If not solicited by a NASD member, please write "unsolicited" in the space below. ------------------------------------ (Name of NASD Member) ------------------------------------ ------------------------------------ ------------------------------------ (Address if NASD Member) IMPORTANT: The name of the person exercising this Warrant must correspond with the name of the Registered Holder written on the face of this Warrant Certificate in every particular, without alteration or any change whatever, unless it has been assigned by completing the assignment form below. Dated: ------------------ ------------------------------- Signature of Registered Holder -------------------------------- Name of Person Exercising Warrant Signature Guarantee: _______________________ ASSIGNMENT To be executed by the Registered Holder In order to assign the Warrants FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: ------------------------ ------------------------ ------------------------ ------------------------ (Please print or type name and address) Please insert social security or other identifying number of assignee: _________ ______ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints any officer of the Company or its transfer agent and registrar as lawful attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated: ------------------------------ -------------- Signature of Registered Holder ------------------------------ Print Name IMPORTANT: Every Registered Holder of this certificate must sign it to assign or otherwise transfer Warrants. The above signature or signatures must correspond with the name or names written on the face of this Warrant Certificate in every particular, without alteration, enlargement or any change whatever. Each signature should be "medallion" guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions) with membership in an approved signature guarantee Medallion Program pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934. Signature Guarantee: --------------------- EX-4.(K) 9 ex4-k.txt UNDERWRITER'S WARRANT EXHIBIT 4(k) UNDERWRITER'S WARRANT TO PURCHASE UNITS Date of Issuance: , 200 Warrant to Purchase Units --------- -- ------- FOR VALUE RECEIVED, RELM Wireless Corporation, a Nevada corporation (the "Corporation"), promises to issue in the name of, and sell and deliver to Noble International Investments, Inc., or its permitted assigns (the "Holder"), a certificate or certificates, for an aggregate of ________ units ("the "Units"), where each Unit consists of one share (the "Unit Shares") of the Corporation's common stock, par value $0.60 per share (the "Common Stock") and one warrant to purchase one share of Common Stock at an exercise price of $_____ per share (the "Unit Warrants"), upon payment by the Holder of $_____ per Unit (the "Exercise Price"), with the Exercise Price being subject to adjustment in the circumstances and subject to the provisions set forth herein. This Underwriter's Warrant (the "Underwriter's Warrant") is issued pursuant to that Standby Underwriting Agreement between the Corporation and the Holder of even date herewith. The Units, the Unit Shares, the Unit Warrants and the shares of Common Stock issuable upon the exercise of the Unit Warrants shall be collectively referred to as the "Registrable Securities." SECTION 1. Exercise of Units ----------------- 1.1 Exercise Period. The Holder may exercise this Underwriter's Warrant, in whole or in part (but not as to fractional shares), at any time from time to time beginning 12 months from the date hereof and ending at 5:00 p.m., Eastern Time, on the fifth anniversary of the date hereof (the "Exercise Period"). If the last day of the Exercise Period is a day on which federal or state chartered banking institutions located in the State of Florida are authorized by law to close, then the last day of the Exercise Period shall be deemed to be the next succeeding day which shall not be such a day. 1.2 Exercise Procedure. ------------------ a. This Underwriter's Warrant may be exercised in whole or in part at any time during the Exercise Period by presentation and surrender of this Underwriter's Warrant to the Corporation accompanied by the form of Exercise Agreement (attached hereto as Exhibit 1) signed by the Holder and accompanied by the Exercise Price for the Units being purchased. The Exercise Price may be paid by cashier's check, wire transfer of immediately available funds or pursuant to the Cashless Exercise provisions set forth in Section 7.4 hereof. The date on which the Corporation receives a signed Exercise Agreement and payment of the Exercise Price (by Cashless Exercise or otherwise) shall hereinafter be referred to as the "Exercise Date." b. Certificates for the Units purchased upon exercise of the Underwriter's Warrant will be delivered by the Corporation to the Holder within five (5) business days after the Exercise Date. Unless this Underwriter's Warrant has expired or all of the purchase rights represented hereby have been exercised, the Corporation will prepare a new Underwriter's Warrant representing the rights formerly represented by this Underwriter's Warrant that have not expired or been exercised. The Corporation will, within such five (5) day period, deliver such new Underwriter's Warrant to the Holder at the address set forth in this Underwriter's Warrant as such address may be changed in accordance with Section 7.1 hereof. c. The Units issuable upon the exercise of this Underwriter's Warrant will be deemed to have been transferred to the Holder on the Exercise Date, and the Holder will be deemed for all purposes to have become the record holder of such Units on the Exercise Date. d. The issuance of certificates representing the Units will be made without charge to the Holder of any issuance tax in respect thereof or any other cost incurred by the Corporation in connection with such exercise and related transfer; provided, however, that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate or instrument in a name other than that of the Holder of this Underwriter's Warrant, and that the Corporation shall not be required to issue or deliver any such certificate or instrument unless and until the person or persons requiring the issue thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. e. Unless the Corporation shall have registered the Registrable Securities pursuant to the provisions of Section 6 hereof, the Units have not been registered for resale under the Securities Act of 1933, as amended (the "Act") and, accordingly, will be "restricted securities" as that term is defined in the Act. The Corporation may insert the following or similar legend on the face of the certificates evidencing the Units if required in compliance with applicable securities laws: "These securities have not been registered under applicable securities laws and may not be sold or otherwise transferred or disposed of except pursuant to an effective registration statement under the Securities Act of 1933, as amended, and any applicable state securities laws, or an opinion of counsel satisfactory to counsel to the Corporation that an exemption from registration under the Securities Act of 1933, as amended, and any applicable state securities laws is available." 1.3 Fractional Shares. If a fractional Unit would, but for the provisions of Section 1.1, be issuable upon exercise of the rights represented by this Underwriter's Warrant, the Corporation will, within 30 days after the Exercise Date, deliver to the Holder a check payable to the Holder, in lieu of such fractional Unit, in an amount equal to the market price of such fractional share as determined by the last sale price of the Unit as reported on the market or exchange on which the Units are then traded (or if the Units are not traded on any market or exchange, based on the sum of the market price of the Unit Shares and Unit Warrants), as of the close of business on the Exercise Date. 1.4 Nonredeemable Unit Warrants. This Underwriter's Warrant shall not be redeemable by the Company. 2 SECTION 2. Effect of Stock Dividends, Reorganization, Reclassification, ------------------------------------------------------------ Consolidation, Merger or Sale ----------------------------- 2.1 Stock Dividends, Recapitalization or Reclassification of Units or Common Stock. In case the Corporation shall at any time prior to the exercise or termination of this Underwriter's Warrant (i) pay a dividend or make a distribution of its capital stock in Units or shares of Common Stock to all holders of Units or shares of Common Stock, or (ii) effect a recapitalization or reclassification of such character that its Units or Common Stock shall be changed into or become exchangeable for a larger or smaller number of Units or shares of Common Stock, then, upon the effective date thereof, the number of Units underlying this Underwriter's Agreement shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in such number of Units (or, if the change is in Common Stock, adjusted proportionately, based initially on each Unit Share and Unit Warrant being counted as one share of Common Stock) by reason of such stock dividend, recapitalization or reclassification, and the Exercise Price shall, in the case of an increase in the number of shares of Common Stock or Units, be proportionately decreased and, in the case of a decrease, be proportionately increased. 2.2 Consolidation, Merger or Sale. In case the Corporation shall at any time prior to the exercise of this Underwriter's Warrant, or the expiration of the Exercise Period, whichever first occurs, consolidate or merge with any other corporation (unless the Corporation shall be the surviving entity) or transfer all or substantially all of its assets to any other corporation, then the Corporation shall, as a condition precedent to such transaction, cause effective provision to be made so that the Holder of this Underwriter's Warrant, upon the exercise hereof after the effective date of such transaction, shall be entitled to receive the kind and amount of securities, evidences of indebtedness, and/or other property receivable on such transaction as if this Underwriter's Warrant were exercised immediately prior to such transaction (without giving effect to any restriction upon such exercise and based, initially, on each Unit Share and Unit Warrant being counted as one share of Common Stock); and, in any such case, appropriate provision shall be made with respect to the rights and interests of the Holder hereof to the effect that the provisions of this Underwriter's Warrant shall thereafter be applicable (as nearly as may be practicable) with respect to any securities, evidences of indebtedness, or other assets thereafter deliverable upon exercise of this Underwriter's Warrant. 2.3 Adjustment. If at any time after the date hereof the Corporation shall issue or sell any Units, shares of Common Stock or any warrants, options or rights to subscribe for or purchase Units or Common Stock (the "Purchase Rights") or securities convertible into Units or Common Stock (the "Convertible Securities"), and the consideration per share for, or the price per share at which such Purchase Rights or Convertible Securities are exercisable for or convertible into, Units (the "Subsequent Unit Price") or Common Stock (the "Subsequent Stock Price") is less than the Exercise Price (in the case of Units) or the exercise price of a Unit Warrant (in the case of Common Stock) in effect immediately prior to such issuance or sale, then, forthwith upon such issuance or sale, the Exercise Price shall be reduced to the Subsequent Unit Price with respect to an issuance or sale of Units, Unit Purchase Rights or Unit Convertible Securities, or reduced to the Subsequent Stock Price with respect to an issuance or sale of Common Stock, Common Stock Purchase Rights or Common Stock Convertible Securities. In the case of an adjustment pursuant to this Section 2.3 for a subsequent issuance of Purchase Rights or Convertible Securities, the Subsequent Stock Price or Subsequent Unit Price shall be deemed to be the lowest possible price in any range or prices at which such Purchase 3 Rights or Convertible Securities may be exercised or converted. No further adjustments of the Exercise Price shall be made upon the actual issuance of such Units or Common Stock upon conversion or exchange of such Purchase Rights or Convertible Securities and, if any issue or sale of such Purchase Rights or Convertible Securities is made upon exercise of any Unit or warrant or other right to subscribe for or to purchase any such Purchase Rights or Convertible Securities for which adjustments of the Exercise Price have been or are to be made pursuant to other provisions of this Section 2.3, no further adjustments of the Exercise Price have been or are to be made pursuant to other provisions of this sale. For the purposes of this Section 2.3, the date as of which the Exercise Price shall be computed shall be the earlier of (i) the date on which the Corporation shall enter into a firm contract for the issuance of such Purchase Rights or Convertible Securities and (ii) the date of actual issuance of such Purchase Rights or Convertible Securities. Such adjustments shall be made upon each issuance of Purchase Rights or Convertible Securities and shall become effective immediately after such issuance. 2.4 Notice of Adjustment. Whenever the number of Units shall be adjusted as provided herein, the Corporation shall file with its corporate records a certificate of its Chief Financial Officer setting forth the computation and the adjusted number of Units purchasable hereunder resulting from such adjustments, and a copy of such certificate shall be mailed to the Holder. Any such certificate or letter shall be conclusive evidence as to the correctness of the adjustment or adjustments referred to therein and shall be available for inspection by the Holder on any day during normal business hours. SECTION 3. Reservation of Common Stock --------------------------- The Corporation will at all time reserve and keep available such number of shares of its Common Stock as will be sufficient to permit the exercise in full of the Underwriter's Warrant, including the Unit Warrants. Upon exercise of this Underwriter's Warrant pursuant to its terms, the Holder will acquire fully paid and non-assessable Unit Shares and Unit Warrants, free and clear of any liens, claims or encumbrances. SECTION 4. No Shareholder Rights or Obligations ------------------------------------ This Underwriter's Warrant will not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Corporation prior to the Exercise Date. No provision of this Underwriter's Warrant, in the absence of affirmative action by the Holder to purchase Units, and no enumeration in this Underwriter's Warrant of the rights or privileges of the Holder, will give rise to any obligation of such Holder for the Exercise Price or as a shareholder of the Corporation. 4 SECTION 5. Transferability --------------- Subject to the terms hereof, this Underwriter's Warrant and all rights hereunder are restricted from sale, transfer, assignment, or hypothecation for a period of one year from the date hereof except to officers or partners of Noble International Investments, Inc. and to selected dealers, if any, and their officers or partners. After a period of 12 months from the date hereof, this Underwriter's Warrant may be sold, transferred, assigned, or hypothecated to any person, in whole or in part, upon surrender of this Underwriter's Warrant with a properly executed Assignment in the form of Exhibit 2 hereto at the principal offices of the Corporation. This Underwriter's Warrant may not be offered, sold or transferred except in compliance with the Act, and any applicable state securities laws, and then only against receipt of an agreement of the person to whom such offer or sale or transfer is made to comply with the provisions of this Underwriter's Warrant with respect to any resale or other disposition of such securities; provided that no such agreement shall be required from any person purchasing this Underwriter's Warrant pursuant to a registration statement effective under the Act. The Holder of this Underwriter's Warrant agrees that, prior to the disposition of any security purchased on the exercise hereof other than pursuant to a registration statement then effective under the Act, or any similar statute then in effect, the Holder shall give written notice to the Corporation, expressing its intention as to such disposition. Upon receiving such notice, the Corporation shall present a copy thereof to its securities counsel. If, in the sole opinion of such counsel, which such opinion shall not be unreasonably withheld, the proposed disposition does not require registration of such security under the Act, or any similar statute then in effect, the Corporation shall, as promptly as practicable, notify the Holder of such opinion, whereupon the Holder shall be entitled to dispose of such security in accordance with the terms of the notice delivered by the Holder to the Corporation. SECTION 6. Registration Rights ------------------- 6.1 Demand Registration Rights. At any time during the Exercise Period, if the Corporation shall receive from the Holder a written request that the Corporation effect a registration with respect to all or a part of the Registrable Securities, the Corporation will, one time only in the aggregate for all Holders, as soon as practicable, (i) effect such registration, and (ii) register or qualify the Registrable Securities for sale in up to ten (10) states identified by the Holder. The Corporation shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the written request or requests of the Holder; provided, however, that if in the good faith judgment of the Board of Directors of the Corporation, such registration would be significantly detrimental to the Corporation, and the Board of Directors concludes, as a result, that it is in the best interests of the Corporation to defer the filing of such registration statement at such time, and the Corporation shall furnish to such Holder a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors of the Corporation, it would be significantly detrimental to the Corporation for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Corporation to defer the filing of such registration statement, then the Corporation shall have the right to defer such filing for the period during 5 which such disclosure would be significantly detrimental, provided that the Corporation may not defer the filing for a period of more than 90 days after receipt of the request of the Holder, and, provided further, that the Corporation shall not defer its obligation in this manner more than once in any 12-month period. If the Corporation or other persons shall request inclusion in any registration pursuant to this Section 6.1 of securities being sold for its or their own accounts, the Holder shall agree to include such securities in the registration unless such inclusion will result in the Holder being unable to register all of its Registrable Securities, such as in the case of an underwritten offering, in which case the Corporation and the other holders may only include securities in the registration if all of the Registrable Securities can still be included therein. If such registration relates to an underwritten offering, the Corporation shall (together with all Holders and other persons proposing to distribute their securities through such registration) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Holder. 6.2 Piggyback Registration Rights. In the event that the Corporation proposes to file a registration statement on a general form of registration under the Act (other than a form S-8 or S-4) relating to securities issued or to be issued by it, then it shall give written notice of such proposal to the Holder of this Underwriter's Warrant. If, within 15 days after the giving of such notice, the Holder shall request in writing that the Registrable Securities be included in such proposed registration, the Corporation shall, at its own expense (except as set forth below), also register such number of Registrable Securities as shall have been so requested in writing; provided, however, that (i) the Holder shall cooperate with the Corporation in the preparation of such registration statement to the extent required to furnish information concerning such Holder therein; and (ii) if any underwriter or managing agent is purchasing or arranging for the sale of the securities then being offered by the Corporation under such registration statement, then the Holder (A) shall agree to have the Registrable Securities being registered sold to or by such underwriter or managing agent on terms substantially equivalent to the terms upon which the Corporation is selling the securities so registered, or (B) shall delay the sale of the Registrable Securities for the lesser of a 60-day period commencing with the effective date of the registration statement or the date on which the underwriter agrees to permit the sale of all or a portion of the Registrable Securities being registered; provided further, if the number of Registrable Securities as to which such Holder, and all other owners of securities of the Corporation holding registration rights, has requested registration is in the aggregate so large that such underwriter reasonably believes in good faith that the inclusion of such Registrable Securities in the registration statement may jeopardize the success of the offering, then such underwriter may require that each such owner of securities (including the Holder) reduce the number of such Registrable Securities to be registered, with such reduction to be in proportion to the number of shares as to which each respective owner (including the Holder) has requested registration which may be the entire number of securities thereof. The Holder may give the notice requiring the filing of a registration statement as set forth in this Section 6.2 on not more than two occasions (a "Registration Request") during the Exercise Period; provided, however, that if an underwriter, pursuant to this Section 6.2, reduces the number of Registrable Securities a Holder has requested be included in a registration, such registration shall not be counted as a Registration Request. 6 6.3 Registration Procedures. In connection with the filing of a registration statement pursuant to Section 6, the Corporation shall: (i) notify the Holder as to the filing thereof and of all amendments thereto filed prior to the effective date of said registration statement; (ii) notify the Holder, promptly after it shall have received notice thereof, of the time when the registration statement becomes effective or any supplement to any prospectus forming a part of the registration statement has been filed; (iii) prepare and file without expense to the Holder any necessary amendment or supplement to such registration statement or prospectus as may be necessary to comply with Section 10(a)(3) of the Act or advisable in connection with the proposed distribution of the Registrable Securities by the Holder; (iv) take all reasonable steps to qualify the Registrable Securities being so registered for sale under the securities or blue sky laws in such states (except as described in Section 6.1 herein) as the Holder of the Registrable Securities being so registered may reasonably request; (v) notify such registered owners of any stop order suspending the effectiveness of the registration statement and use its reasonable best efforts to remove such stop order; and (vi) undertake to keep said registration statement and prospectus effective until the earlier of (A) two years from the effective date thereof (provided, that if the Holders are required to delay the sale of the securities, then such period shall be extended by the amount of such delay), or (B) the date the Registrable Securities are sold or become available for public sale without restriction under the Act. 6.4 Fees and Expenses. The Holder agrees to pay all of the underwriting discounts and commissions with respect to the Holder's Registrable Securities being registered. The Corporation agrees to pay all other costs and expenses in connection with a registration statement to be filed pursuant hereto including, but not limited to, registration fees, the fees and expenses of counsel for the Corporation, the fees and expenses of the Corporation's accountants and all other costs and expenses incident to the preparation, printing and filing under the Act of any such registration statement, each prospectus and all amendments and supplements thereto, the costs incurred in connection with the qualification of such securities for sale in a reasonable number of states (except as described in Section 6.1, including fees and disbursements of counsel for the Corporation, and the costs of supplying a reasonable number of copies of the registration statement, each preliminary prospectus, final prospectus and any supplements or amendments thereto to the Holder. The Holder shall be responsible for its own attorneys fees in connection with a registration statement, including amendments, under this sECTION 6. SECTION 7. Miscellaneous ------------- 7.1 Notices. Any notices, requests or consents hereunder shall be deemed given, and any instruments delivered, three days after they have been mailed by first class mail, postage prepaid, or upon receipt if delivered personally or by facsimile transmission, as follows: If to the Corporation: RELM Wireless Corporation 7100 Technology Drive West Melbourne, FL 32904 Attention: William P. Kelly If to the Holder: 6501 Congress Avenue Suite 101 Boca Raton, Florida 33487 Attention: Nico P. Pronk 7 except that any of the foregoing may from time to time by written notice to the other designate another address which shall thereupon become its effective address for the purposes of this paragraph. 7.2 Entire Agreement. This Underwriter's Warrant, including the exhibits and documents referred to herein which are a part hereof, contain the entire understanding of the parties hereto with respect to the subject matter and may be amended only by a written instrument executed by the parties hereto or their successors or assigns. Any section headings contained in this Underwriter's Warrant are for reference purposes only and shall not affect in any way the meaning or interpretation of this Underwriter's Warrant. 7.3 Construction and Enforcement. This Underwriter's Warrant shall be governed by and construed under the laws of the State of Florida, without regard to principles of conflicts of laws and rules of such state. If it becomes necessary for any party to institute legal action to enforce the terms and conditions of this Underwriter's Warrant, and such legal action results in a final judgment in favor of such party (the "Prevailing Party"), then the party or parties against whom said final judgment is obtained shall reimburse the Prevailing Party for all direct, indirect or incidental expenses incurred, including, but not limited to, all attorneys' fees, court costs and other expenses incurred throughout all negotiations, trials or appeals undertaken in order to enforce the Prevailing Party's rights hereunder. Any suit, action or proceeding with respect to this Underwriter's Warrant shall be brought in the state or Federal courts located in Palm Beach County in the State of Florida. The parties hereto hereby accept the exclusive jurisdiction and venue of those courts for the purpose of any such suit, action or proceeding. The parties hereto hereby irrevocably waive, to the fullest extent permitted by law, any objection that any of them may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Underwriter's Warrant or any judgment entered by any court in respect thereof brought in Palm Beach County, Florida, and hereby further irrevocably waive any claim that any suit, action or proceeding brought in Palm Beach County, Florida, has been brought in an inconvenient forum. 7.4 Cashless Exercise Provision. Notwithstanding anything to the contrary contained in this Underwriter's Warrant, this Underwriter's Warrant may be exercised by presentation and surrender of this Underwriter's Warrant to the Corporation at its principal executive offices with a written notice of the Holder's intention to effect a cashless exercise, including a calculation of the number of Units to be issued upon such exercise in accordance with the terms hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, and in lieu of paying the Exercise Price in cash, check or other immediately available funds, the Holder shall surrender this Unit for that number of Units determined by multiplying the number of total Units represented by this Underwriter's Warrant by the closing price for the Units (or the sum of the closing price for the Unit Shares and Unit Warrants if there is no market for the Units) on the principal market for such Units on the date preceding the Exercise Date minus the exercise price in effect at such time, divided by such closing price of the Units. 8 IN WITNESS WHEREOF, this Underwriter's Warrant has been duly executed as of the day and year first above written. RELM Wireless Corporation By: ------------------------------- Name: ------------------------------ Title: ------------------------------ 9 EXHIBIT 1 EXERCISE AGREEMENT To: Dated: ----------------------------- ----------------- The undersigned Holder, pursuant to the provisions set forth in the within Underwriter's Warrant, hereby irrevocably elects to exercise such Underwriter's Warrant and purchase _______ Units of RELM Wireless Corporation and hereby (i) makes full cash payment of $___________ for such Units at the Exercise Price or (ii) exercises this Underwriter's Warrant pursuant to the Cashless Exercise provisions thereof. (Signature) ---------------------------------------- (Print or type name of Holder) ---------------------------------------- (Title, if applicable) (Address) If the record holder is electing a Cashless Exercise, the number of Units of RELM Wireless Corporation to be issued is ______________ (see following calculation). Calculation of Cashless Exercise for the Units X = Y(A-B) ------ A X = the number of Units to be issued to Holder Y = the number of Units being exercised by Holder_________________ A = the closing price of a Unit (or the sum of the closing prices of a Unit Share and Unit Warrant if there is no closing price for a Unit) on the date preceding exercise on the principal market for such Units (or other securities, as the case may be) B = the Exercise Price. NOTICE: The signature on this Exercise Agreement must correspond with the name as written upon the face of the within Underwriter's Warrant, or upon the Assignment thereof, if applicable, in every particular, without alteration, enlargement or any change whatsoever. EXHIBIT 2 ASSIGNMENT FOR VALUE RECEIVED, ___________________________, the undersigned Holder hereby sells, assigns, and transfers all of the rights of the undersigned under the within Underwriter's Warrant with respect to the Units set forth below, unto the Assignee identified below, and does hereby irrevocably constitute and appoint _____________________ to effect such transfer of rights on the books of the Corporation, with full power of substitution: Name of Assignee Address of Assignee Number of Units - ---------------- ------------------- --------------- Dated: ---------------- ------------------------------------- (Signature of Holder) ------------------------------------- (Print or type name) ------------------------------------- (Print or type title, if applicable) NOTICE: The signature on this Assignment must correspond with the name of the Holder as written upon the face of the within Underwriter's Warrant, or upon the Assignment thereof, if applicable, in every particular, without alteration, enlargement or any change whatsoever. CONSENT OF ASSIGNEE ------------------- I HEREBY CONSENT to abide by the terms and conditions of the within Underwriter's Warrant. Dated: ---------------- ------------------------------------- (Signature of Assignee) ------------------------------------- (Print or type name) ------------------------------------- (Print or type title, if applicable) EX-5 10 relm-ex5.txt OPINION OF ZACK KOSNITZKY, P.A.. EXHIBIT 5 December 19, 2001 RELM Wireless Corporation 7100 Technology Drive West Melbourne, FL 32904 Dear Ladies and Gentlemen: We are familiar with the Registration Statement on Form S-1, Registration Number 333-75512 filed on December 19, 2001, by RELM Wireless Corporation, a Nevada corporation (the "Company"), with the Securities and Exchange Commission under the Securities Act of 1933 (the "S-1 Registration Statement"). The S-1 Registration Statement relates to the granting of 10,000,000 rights to the Company's equity holders to purchase units where the equity holders will receive one right for each equity position, which is a share, warrant, option or conversion right owned at the close of business of December 14, 2001 by such equity holders to purchase one unit. The S-1 Registration Statement covers the registration of 3,000,000 of the Company's units, 3,000,000 warrants to purchase the Company's common stock, 6,500,000 of the Company's shares of common stock par value $.60 included in the units and underlying the warrants. The S-1 Registration Statement also covers the registration of the standby underwriters warrant to purchase 300,000 units which the Company's standby underwriters will receive as a standby fee, 300,000 warrants to purchase the Company's common stock and 650,000 of the Company's shares of common stock par value $.60, included in the units and underlying the warrants. The S-1 Registration Statement also covers the registration of 450,000 units which the Company's standby underwriters may purchase at 90% of the subscription price to cover over-allotments, but without the obligation to purchase, 450,000 warrants to purchase the Company's common stock and 1,000,000 of the Company's shares of common stock par value $.60, included in the units and underlying the warrants. RELM Wireless Corporation December 19, 2001 Page 2 The S-1 Registration Statement also covers the registration of 25,000 units which the standby underwriters will receive as a financial advisory fee, 25,000 warrants to purchase the Company's common stock and 70,000 of the Company's shares of common stock par value $.60, included in the units and underlying the warrants. In arriving at the opinions expressed below, we have examined and relied on the following documents: (a) a certified copy of the Articles of Incorporation of the Company, as amended; (b) the Amended and Restated By-Laws of the Company; and (c) the records of meetings and consents of the Board of Directors and stockholders of the Company provided to us by the Company. In addition, we have examined and relied on the originals or copies or otherwise identified to our satisfaction all such corporate records of the Company and such other representatives of the Company and such other persons, and we have made such investigations of law, as we have deemed appropriate as a basis for the opinions expressed below. We have further assumed that a sufficient number of duly authorized and un-issued shares of the Company's common stock will be available for issuance at the time the units are sold in accordance with the terms thereof, and that the consideration received by the Company in respect of each unit, and upon the exercise of each warrant included in each unit, will be no less than the combined par value of the share included in each unit and the share underlying each warrant included in each unit. This opinion has been prepared and is to be construed in accordance with the Report on Standards for Opinions of Florida Counsel, dated April 8, 1991, as amended and supplemented September 4, 1998, and issued by the Business Law Section of the Florida Bar (the "Report"). The Report is incorporated by reference into this opinion. For purposes of construing the Report, the "Client" as referenced in the Report is the Company. Based upon and subject to the foregoing, and the other qualifications, limitations and assumptions contained herein, and in the Report, we are of the opinion that: 1. The Company has taken all necessary corporate action required to authorize the granting of the rights and the issuance and sale of the units, warrants included in the units, shares of common stock included in the units, shares of common stock underlying the warrants and the standby underwriter's warrant for units; and 2. The shares of common stock included in the units and underlying the warrants will be, upon issuance, in accordance with their respective terms, validly issued and fully paid and non-assessable. In rendering this opinion, we advise you that members of this Firm are members of the Bar of the State of Florida, and we express no opinion herein concerning the applicability or effect of any laws of any other jurisdiction, except the securities laws of the United States of America referred to herein. RELM Wireless Corporation December 19, 2001 Page 3 We hereby consent to the filing of this opinion as an exhibit to the S-1 Registration Statement. Very truly yours, ZACK KOSNITZKY, P.A. By: /s/ John E. Tober -------------------------- John E. Tober, Esq. a Partner EX-10.(Q) 11 ex10-q.txt FINANCIAL SERVICES AGREEMENT EXHIBIT 10(q) , 2002 - --------------- PERSONAL AND CONFIDENTIAL - ------------------------- Relm Wireless Corporation 7100 Technology Drive West Melbourne, FL 32904 Gentlemen: This letter agreement ("Agreement") confirms the terms and conditions of the exclusive engagement of Noble International Investments, Inc. ("Noble") by Relm Wireless Corporation (the "Company") to render certain financial advisory and investment banking services to the Company. 1. Services. Noble agrees to perform the following services: -------- (a) We shall make arrangements for you to meet with our research department with the prospects of initiating coverage of your Company pursuant to the production of a research report; (b) We shall assist the Company on market awareness of its stock by setting up road shows with retail and institutional brokers and sponsoring the Company at industry conferences; (c) We shall advise the Company as to issues of capital formation including but not limited to stock buybacks, splits, dividends, floating new securities, representation at shareholder meetings and presentations to your Board of Directors; (d) We shall assist the Company, by acting as a solicitation agent to the Company, to encourage the Company security holders to exercise their rights to purchase units in the Company's rights offering (the "Rights Offering"), the registration statement for which was declared effective by the Securities and Exchange Commission on the date hereof. 2. Fees. The Company agrees to pay Noble for its services as follows: a ---- Financial Advisory Fee (the "Advisory Fee") of $2,000.00 for each month during the Term (as hereinafter defined) payable annually in advance by the Company to Noble upon the closing of the Rights Offering. The Advisory Fee shall be paid in cash. If after twelve (12) months, Noble meets or exceeds the standards of performance on the services provided, the Advisory Fee will be $3,000.00 for each month of the Additional Term (as hereinafter defined). The performance standards will be mutually agreed upon and attached as Exhibit A to this Agreement upon the closing of the Rights Offering. 12 Page 2 Relm Advisory Letter ________________, 2002 3. Term. The term of this Agreement shall commence on the date hereof and ---- end on the first anniversary of the date hereof (the "Term"). This Agreement may be renewed for an additional twelve (12) month term (the "Additional Term") upon mutual written agreement of the parties hereto. This agreement may not be terminated by either party without the prior written consent of the other party. 4. Matters Relating to Engagement. The Company acknowledges that Noble has ------------------------------ been retained solely to provide the services set forth in this Agreement. In rendering such services, Noble shall act as an independent contractor, and any duties of Noble arising out of its engagement hereunder shall be owed solely to the Company. The Company further acknowledges that Noble may perform certain of the services described herein through one or more of its affiliates. The Company acknowledges that Noble is a securities firm that is engaged in securities trading and brokerage activities, as well as providing investment banking and financial advisory services. The Company acknowledges and agrees that in connection with the performance of Noble's services hereunder (or any other services) that neither Noble nor any of its employees will be providing the Company with legal, tax or accounting advice or guidance (and no advice or guidance provided by Noble or its employees to the Company should be construed as such) and that neither Noble nor its employees hold itself or themselves out to be advisors as to legal, tax, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own legal, tax, accounting and other advisors concerning all matters and advice rendered by Noble to the Company and the Company shall be responsible for making its own independent investigation and appraisal of the risks, benefits and suitability of the advice and guidance given by Noble to the Company and the transactions contemplated by this Agreement. Neither Noble nor its employees shall have any responsibility or liability whatsoever to the Company or its affiliates with respect thereto. The Company recognizes and confirms that in performing its duties pursuant to this Agreement, Noble will be using and relying on data, material, and other information (the "Information") furnished by the Company, a strategic partner or their respective employees and representatives. The Company will cooperate with Noble and will furnish Noble with all Information concerning the Company and any transaction or financing which Noble deems appropriate and will provide Noble with access to the Company's officers, directors, employees, independent accountants and legal counsel for the purpose of performing Noble's obligations pursuant to this Agreement. The Company hereby agrees and represents that all Information furnished to Noble pursuant to this Agreement shall be accurate and complete in all material respects at the time provided, and that, if the Information becomes materially inaccurate, incomplete or misleading during the term of Noble's engagement hereunder, the Company shall promptly advise Noble in writing. Accordingly, Noble assumes no responsibility for the accuracy and completeness of the Information. In rendering its services, Noble will be using and relying upon the Information without independent verification evaluation thereof. 13 Page 2 Relm Advisory Letter ________________, 2002 5. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Florida without regard to the conflict of laws provisions thereof. 6. No Brokers or Investment Bankers. The Company represents and warrants -------------------------------- to Noble that there are no brokers, investment bankers, representatives or other persons which have an interest in compensation due to Noble from any transaction contemplated herein or which would otherwise be due any fee, commission or remuneration upon consummation of any transaction or financing. 7. Authorization. The Company and Noble represent and warrant that each ------------- has all requisite power and authority, and all necessary authorizations, to enter into and carry out the terms and provisions of this Agreement and the execution, delivery and performance of this Agreement does not breach or conflict with any agreement, document or instrument to which it is a party or bound. 8. Miscellaneous. This Agreement constitutes the entire understanding and ------------- agreement between the Company and Noble with respect to the subject matter hereof and supersedes all prior understanding or agreements between the parties with respect thereto, whether oral or written, express or implied. Any amendments or modifications must be executed in writing by both parties. This Agreement and all rights, liabilities and obligations hereunder shall be binding upon and inure to the benefit of each party's successors but may not be assigned without the prior written approval of the other party. If any provision of this Agreement shall be held or made invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. The descriptive headings of the sections of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in anyway the meaning or interpretation of this Agreement. Please confirm that the foregoing correctly sets forth our agreement by signing below in the space provided and returning this Agreement to Noble for execution, whereupon Noble will send the Company a fully executed original hereof which shall constitute a binding agreement as of the date first above written. [SIGNATURES ON NEXT PAGE] Thank you. We look forward to a successful and mutually rewarding relationship. NOBLE INTERNATIONAL INVESTMENTS, INC. By: ----------------------------------------- Nico P. Pronk, President AGREED AND ACCEPTED: RELM WIRELESS CORPORATION By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- EX-23.(B) 12 ex23-b.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23(b) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 2, 2001, in Amendment No.1 to the Registration Statement (Form S-1 No. 333-75512) and related Prospectus of RELM Wireless Corporation dated February 7, 2002. /s/ Ernst & Young LLP Jacksonville, Florida February 4, 2002 -----END PRIVACY-ENHANCED MESSAGE-----