INSIDER TRADING POLICY AND GUIDELINES WITH RESPECT TO TRANSACTIONS IN COMPANY SECURITIES
Amended and Restated Effective January 17, 2006
RELM Wireless Corporation’s (the “Company”) board of directors has adopted this Insider Trading Policy for our directors, officers, employees and consultants with respect to the trading of the Company’s securities, as well as the securities of publicly traded companies with whom we have a business relationship. Federal and state securities laws prohibit the purchase or sale of a company’s securities by persons who are aware of material information about that company that is not generally known or available to the public. These laws also prohibit persons who are aware of such material nonpublic information from disclosing this information to others who may trade. Companies and their controlling persons are also subject to liability if they fail to take reasonable steps to prevent insider trading by company personnel.
It is important that you understand the breadth of activities that constitute illegal insider trading and the consequences, which can be severe. Both the U.S. Securities and Exchange Commission (the “SEC”) and the American Stock Exchange investigate and are very effective at detecting insider trading. The SEC, together with the U.S. Justice Department, pursue insider trading violations vigorously. Cases have been successfully prosecuted against trading by employees through foreign accounts, trading by family members and friends, and trading involving only a small number of shares.
This Insider Trading Policy is designed to prevent insider trading or allegations of insider trading, and to protect the Company’s reputation for integrity and ethical conduct. It is your obligation to understand and comply with this policy. Should you have any questions regarding this policy, please contact Andrew E. Balog of Greenberg Traurig, P.A., our outside securities counsel, at (305) 579-0642.
2. Penalties for Noncompliance
Civil and Criminal Penalties. Potential penalties for insider trading violations include (1) imprisonment for up to 20 years, (2) criminal fines of up to $5 million, and (3) civil fines of up to three times the profit gained or loss avoided.
Controlling Person Liability. If the Company fails to take appropriate steps to prevent illegal insider trading, the Company may have “controlling person” liability for a trading violation, with civil penalties of up to the greater of $1 million and three times the profit gained or loss avoided, as well as a criminal penalty of up to $25 million. The civil penalties can extend personal liability to the Company’s directors, officers and other supervisory personnel if they fail to take appropriate steps to prevent insider trading.
Company Sanctions. Failure to comply with this policy may also subject you to Company imposed sanctions, including dismissal for cause, whether or not your failure to comply with this policy results in a violation of law.
3. Scope of Policy
Persons Covered. As a director, officer, employee or consultant of the Company or its subsidiaries, this policy applies to you. The same restrictions that apply to you apply to your family members who reside with you, anyone else who lives in your household and any family members who do not live in your household but whose transactions in Company securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in Company securities). You are responsible for making sure that the purchase or sale of any security covered by this policy by any such person complies with this policy.
Companies Covered. The prohibition on insider trading in this policy is not limited to trading in the Company’s securities. It includes trading in the securities of other firms, such as customers or suppliers of the Company and those with which the Company may be negotiating major transactions, such as an acquisition, investment or sale. Information that is not material to the Company may nevertheless be material to one of those other firms.
Transactions Covered. Trading includes purchases and sales of stock, derivative securities such as put and call options and convertible debentures or preferred stock, and debt securities (debentures, bonds and notes). Trading also includes certain transactions under Company stock option plans. This policy’s trading restrictions generally do not apply to the exercise of a stock
option. The trading restrictions do apply, however, to any sale of the underlying stock or to a cashless exercise of the option through a broker, as this entails selling a portion of the underlying stock to cover the costs of exercise.
4. Statement of Policy
No Trading on Inside Information. You may not trade in the securities of the Company, directly or through family members or other persons or entities, if you are aware of material nonpublic information relating to the Company. Similarly, you may not trade in the securities of any other company if you are aware of material nonpublic information about that company which you obtained in the course of your employment or relationship with the Company.
No Tipping. You may not pass material nonpublic information on to others or recommend to anyone the purchase or sale of any securities when you are aware of such information. This practice, known as “tipping,” also violates the securities laws and can result in the same civil and criminal penalties that apply to insider trading, even though you did not trade and did not
gain any benefit from another’s trading. No Exception for Hardship. The existence of a personal financial emergency does not excuse you from compliance with this policy.
Pre-Clearance Requirement. To help prevent inadvertent violations of the federal securities laws and to avoid even the appearance of trading on the basis of inside information, all officers, directors, employees and consultants of the Company must contact our Chief Financial Officer (or our Chief Executive Officer in the case of our Chief Financial Officer) to obtain “preclearance” at any time prior to trading in Company securities.
Blackout Periods. In addition to having to pre-clear all trading in Company securities, all officers, directors, employees and consultants of the Company may not trade in Company securities during quarterly blackout periods beginning 15 days before the end of each fiscal quarter and fiscal year and ending after the second full business day following the release of the Company’s applicable quarterly and annual earnings and during certain event-specific blackouts.
Exception for Approved 10b5-1 Plans. Trades by directors or executive officers in Company securities that are executed pursuant to an approved 10b5-1 plan are not subject to the prohibition on trading on the basis of material nonpublic information contained in this Insider Trading Policy or to the restrictions set forth above relating to pre-clearance procedures and
Rule l0b5-l provides an affirmative defense from insider trading liability under the federal securities laws for trading plans that meet certain requirements. In general, a 10b5-l plan must be entered into by a director or executive officer before such individual is aware of material nonpublic information. Once the plan is adopted, such individual must not exercise any
influence over the amount of securities to be traded, the price at which they are to be traded or the date of the trade. The plan must either specify (including by formula) the amount, pricing and timing of transactions in advance or delegate discretion on those matters to an independent third party.
The Company requires that all 10b5-1 plans be approved in writing in advance by the Company’s outside securities counsel. 10b5-l plans generally may not be adopted during a blackout period and may only be adopted before the individual adopting the plan is aware of material nonpublic information.
Director and Executive Officer Special Obligations and Notification Requirement. Directors and executive officers of the Company must also comply with the reporting obligations and limitations of “short-swing” transactions imposed by federal securities laws. These laws require such individuals to report their transactions in Company securities to the SEC within two (2) business days from the execution date and prohibit “matching” purchases and sales of Company securities within a six-month period. Additional information on these obligations is provided separately to individuals who are subject to them and any questions should be directed to our outside securities counsel. Directors and executive officers of the Company must notify, orally or in writing, our Chief Financial Officer (or our Chief Executive Officer in the case of the Chief Financial Officer), of each trade of Company securities no later than one day after effecting such trade.
5. Definition of Material Nonpublic Information
Note that inside information has two important elements – materiality and public availability. Material Information. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, hold or sell a security. Any information that could reasonably be expected to affect the price of the security is material. Common examples of material information pertaining to the Company are:
– Financial results and financial forecasts or changes therein.
– Sales and revenue levels.
– Earnings that are inconsistent with the consensus expectations of the investment community.
– A pending or proposed merger, acquisition or tender offer or an acquisition or disposition of
– Changes in senior management or the board of directors.
– Major events regarding the Company’s securities, including the declaration of a stock split or
dividend or the offering of additional securities.
– Significant strategic relationships.
– Severe financial liquidity problems.
– Significant new products.
– Actual or threatened major litigation, or the resolution of such litigation.
– New major contracts, orders, suppliers, customers or finance sources, or the loss thereof.
Both positive and negative information can be material. Because trading that receives scrutiny will be evaluated after the fact with the benefit of hindsight, questions concerning the materiality of particular information should be resolved in favor of materiality, and trading should be avoided.
Nonpublic Information. Nonpublic information is information that is not generally known or available to the public. One common misconception is that material information loses its “nonpublic” status as soon as a press release is issued disclosing the information. In fact, information is considered to be available to the public only when it has been released broadly to the marketplace (such as by a press release or a SEC filing) and the investing public has had time to absorb the information fully. As a general rule, information is considered nonpublic until completion of the second full trading day after the information is released. For example, if the Company announces financial earnings before trading begins on a Tuesday, the first time you can buy or sell Company securities is the opening of the market on Thursday (assuming you are not aware of other material nonpublic information at that time). However, if the Company announces earnings after trading begins on that Tuesday, the first time you can buy or sell Company securities is the opening of the market on Friday.
6. Additional Guidance
The Company considers it improper and inappropriate for those employed by or associated with the Company to engage in short term or speculative transactions in Company securities or in other transactions in Company securities that may lead to inadvertent violations of the insider trading laws. Accordingly, your trading in Company securities is subject to the following
Short Sales. You may not engage in short sales of the Company’s securities (sales of securities that are not then owned), including a “sale against the box” (a sale with delayed delivery), provided that the establishment of certain short positions as described below under “Hedging Transactions” may be permissible in certain instances.
Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, involve the establishment of a short position in Company securities and limit or eliminate your ability to profit from an increase in the value of Company securities. Such transactions are complex and involve many aspects of the federal securities laws, including filing and disclosure requirements. Therefore, the Company requires that if you wish to enter into such an arrangement, you must first pre-clear the proposed transaction with the Company’s outside securities counsel. Any request for pre-clearance must be submitted at least two weeks prior to the proposed execution of documents evidencing the proposed
Publicly Traded Options. You may not engage in transactions in publicly traded options, such as puts, calls and other derivative securities, on an exchange or in any other organized market. Standing Orders. Standing orders should be used only for a very brief period of time. A standing order placed with a broker to sell or purchase stock at a specified price leaves you with no control over the timing of the transaction. A standing order transaction executed by the broker when you are aware of material nonpublic information may result in unlawful insider trading.
Margin Accounts and Pledges. Securities held in a margin account or pledged as collateral for a loan may be sold without your consent by the broker if you fail to meet a margin call or by the lender in foreclosure if you default on the loan. A margin or foreclosure sale that occurs when you are aware of material nonpublic information may, under some circumstances, result in
unlawful insider trading. Because a margin or foreclosure sale may occur at a time when you are aware of material nonpublic information or otherwise are not permitted to trade in Company securities, you are prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan. An exception to this prohibition may be granted where you wish to pledge Company securities as collateral for a loan (not including margin debt) and clearly demonstrate the financial capacity to repay the loan without resort to the pledged securities. If you wish to pledge Company securities as collateral for a loan, you must submit a request for approval to the Company’s outside securities counsel at least two
weeks prior to the proposed execution of documents evidencing the proposed pledge.
7. Post-Termination Transactions
This policy continues to apply to your transactions in Company securities even after you have terminated employment or other services to the Company or a subsidiary as follows: if you are aware of material nonpublic information when your employment or relationship terminates, you may not trade in Company securities until that information has become public or is no longer material. Former directors and executive officers of the Company, however, must comply with this policy for three (3) months after their relationship with the Company terminates.
8. Unauthorized Disclosure
As discussed above, the disclosure of material nonpublic information to others can lead to significant legal problems and legal consequences. Therefore, you should not discuss material, nonpublic information about the Company with anyone, including other Company personnel, except as required in the performance of your regular duties.
In addition, the SEC has also enacted rules explicitly banning selective disclosure. Generally, when a public company (such as RELM) discloses material nonpublic information, it must provide, non-selective public access to the information. Violations of these rules can result in SEC enforcement actions, potentially resulting in injunctions and severe monetary penalties. Due to these and other considerations, only members of senior management are authorized to communicate with the media, securities market professionals (such as financial analysts), investors or the Company’s shareholders. All inquiries from such persons should be directed to the Company’s Chief Financial Officer, or if he is unavailable, to our Chief Executive Officer. Furthermore, maintaining the confidentiality of Company information is essential for competitive, security and other business reasons.
9. Personal Responsibility
You should remember that the ultimate responsibility for adhering to this Insider Trading Policy and avoiding improper trading rests with you. If you violate this Insider Trading Policy, the Company may take disciplinary action, including dismissal for cause.
10. Company Assistance
Your compliance with this Insider Trading Policy is of the utmost importance both for you and for the Company. If you have any questions about this Insider Trading Policy or its application to any proposed transaction, you may obtain additional guidance from the Company’s Chief
Financial Officer. Do not try to resolve uncertainties on your own, as the rules relating to insider trading are often complex, not always intuitive and carry severe consequences.
All directors, executive officers, employees and consultants of the Company must certify their understanding of, and intent to comply with, this Insider Trading Policy. A copy of the certification that you must sign is enclosed with this Insider Trading Policy. Please note that you are bound by this Insider Trading Policy whether or not you sign the certification. This Insider Trading Policy is amended and restated effective January 17, 2006 and supersedes any previous policy of the Company concerning insider trading.