<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1995
Commission File Number: 0-9788
RICHEY ELECTRONICS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0594451
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7441 LINCOLN WAY, GARDEN GROVE, CALIFORNIA 92641
--------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(714) 898-8288
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 9, 1995, 9,054,329 shares of the registrant's Common
Stock, $0.001 par value, were issued and outstanding.
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 29, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,776,000 $ 9,000
Trade receivables 14,239,000 11,167,000
Inventories 17,358,000 14,913,000
Deferred income taxes 1,427,000 1,427,000
Other current assets 345,000 435,000
----------- -----------
Total current assets $35,145,000 $27,951,000
----------- -----------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 1,931,000 $ 1,017,000
----------- -----------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 2,430,000 $ 2,430,000
Intangibles, less accumulated amortization
of $1,722,000 and $1,439,000, respectively 1,987,000 3,261,000
Goodwill 757,000 82,000
Deposits and other 260,000 94,000
----------- -----------
$ 5,256,000 $ 6,045,000
----------- -----------
$42,332,000 $35,013,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of subordinated notes payable $ 0 $ 1,600,000
Notes payable, revolving line of credit 3,131,000 8,843,000
Accounts payable 10,262,000 10,457,000
Accrued expenses 1,756,000 1,734,000
----------- -----------
Total current liabilities $15,149,000 $22,634,000
----------- -----------
SUBORDINATED NOTES PAYABLE $ 0 $ 3,594,000
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value,
authorized 10,000 shares, issued none $ 0 $ 0
Common Stock, $0.001 par value, authorized
30,000,000 shares, issued and outstanding
9,054,000 shares 9,000 6,000
Additional paid-in-capital 20,976,000 5,240,000
Retained earnings 6,198,000 3,539,000
----------- -----------
Total stockholders' equity $27,183,000 $ 8,785,000
----------- -----------
$42,332,000 $35,013,000
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------------- --------------------------------
September 29, September 30, September 29, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales: $28,803,000 $22,838,000 $83,704,000 $66,190,000
Cost of Goods Sold: 21,872,000 17,045,000 63,600,000 49,980,000
----------- ----------- ----------- -----------
Gross Profit: $ 6,931,000 $ 5,793,000 $20,104,000 $16,210,000
----------- ----------- ----------- -----------
Operating expenses:
Selling, warehouse, general,
and administrative $ 4,957,000 $ 4,409,000 $14,658,000 $12,293,000
Amortization of intangibles 107,000 143,000 317,000 442,000
----------- ----------- ----------- -----------
$ 5,064,000 $ 4,552,000 $14,975,000 $12,735,000
----------- ----------- ----------- -----------
Operating income $ 1,867,000 $ 1,241,000 $ 5,129,000 $ 3,475,000
Interest Expense 80,000 454,000 687,000 1,203,000
----------- ----------- ----------- -----------
Income before income taxes $ 1,787,000 $ 787,000 $ 4,442,000 $ 2,272,000
Federal and state income taxes 717,000 316,000 1,783,000 914,000
----------- ----------- ----------- -----------
Net income $ 1,070,000 $ 471,000 $ 2,659,000 $ 1,358,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per Share $0.12 $0.08 $0.35 $0.23
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average number of
shares outstanding 9,054,000 5,889,000 7,688,000 5,889,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,659,000 $ 1,358,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 636,000 571,000
Deferred income taxes 991,000 914,000
Changes in operating assets and liabilities:
(Increase) in trade receivables (2,563,000) (1,112,000)
(Increase) in inventories (2,032,000) (542,000)
Decrease in other assets 115,000 113,000
Increase (Decrease) in accounts payable
and accrued expenses (889,000) 877,000
----------- -----------
Net cash provided by (used in) operating
activities (1,083,000) 2,179,000
----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment (722,000) (275,000)
Business acquisitions (1,261,000) (2,664,000)
----------- -----------
Net cash (used in) investing activities (1,983,000) (2,939,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on revolving line
of credit (5,712,000) 3,719,000
Principal payments on subordinated debt (5,194,000) (2,957,000)
Proceeds from issuance of common stock, net
of offering expenses of $446,000 15,739,000 --
----------- -----------
Net cash provided by financing activities 4,833,000 762,000
----------- -----------
Increase in cash and cash equivalents 1,767,000 2,000
CASH AND CASH EQUIVALENTS
Beginning 9,000 7,000
----------- -----------
Ending 1,776,000 9,000
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Payments For:
Interest 983,000 1,262,000
----------- -----------
----------- -----------
Income taxes 573,000 46,000
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of In-Stock Products:
Working capital acquired $ 1,464,000
Fair market value of other assets acquired
including goodwill 377,000
-----------
Purchase price and related transaction costs $ 1,841,000
-----------
-----------
Acquisition of Inland Empire Interconnects:
Working capital acquired $ 156,000
Fair market value of equipment acquired 520,000
Fair market value of other assets acquired
including goodwill 541,000
-----------
Purchase price and related transaction costs $ 1,217,000
-----------
-----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 29, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Additional
Preferred Shares paid-in Retained
Stock Outstanding Par Value Capital Earnings Total
--------- ----------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- 5,889,000 $6,000 $5,240,000 $3,539,000 $ 8,785,000
Issuance of common stock, net
of offering expenses of $446,000 -- 3,165,000 3,000 15,736,000 -- 15,739,000
Net income -- -- -- -- 2,659,000 2,659,000
------- --------- ------ ----------- ---------- -----------
Balance, September 29, 1995 -- 9,054,000 $9,000 $20,976,000 $6,198,000 $27,183,000
------- --------- ------ ----------- ---------- -----------
------- --------- ------ ----------- ---------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Richey Electronics, Inc. (which conducts business under the
name RicheyCypress Electronics), is a multi-regional, specialty
distributor of electronic components and a provider of value-
added assembly services. The Company distributes connectors,
switches, cable and other interconnect, electromechanical and
passive components used in the assembly and manufacturing of
electronic equipment. Richey Electronics also provides a wide
variety of value-added assembly services. These value-added
assembly services consist of (i) component assembly, which is the
assembly of components to manufacturer specifications and
(ii) contract assembly, which is the assembly of cable
assemblies, battery packs and mechanical assemblies to customer
specifications. The Company's customers are primarily small- and
medium-sized original equipment manufacturers. Approximately 80%
of the Company's inventory is located at its centralized
distribution facility in Los Angeles, and the remaining inventory
is located in regional warehouses in Boston, San Diego and San
Jose.
SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for the complete financial statements. In management's opinion,
the accompanying financial statements reflect all material
adjustments, consisting of only normal and recurring adjustments,
necessary for a fair statement of the results for the interim
periods presented. The results for the interim periods ended
September 29, 1995 and September 30, 1994 are not necessarily
indicative of the results which will be reported for the entire
year.
Income tax expense in these interim financial statements is
recorded based upon the Company's expected annual effective
income tax rate. The benefit from the previously unrecognized
net operating loss carryforwards acquired in the merger of
RicheyImpact Electronics, Inc. and Brajdas Corporation (the
"Richey-Brajdas Merger") is used to reduce the carrying value of
intangibles. Amortization expense of the reduced intangibles is
adjusted prospectively on a monthly basis.
For further information, refer to the audited financial
statements of the Company and notes thereto for the year ended
December 31, 1994, included in the Company's Annual Report on
Form 10-K.
7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
CASH AND CASH EQUIVALENTS. The Company considers all
highly liquid debt instruments purchased with an original
maturity of 3 months or less to be cash equivalents.
NOTE 2. BUSINESS COMBINATIONS
IN-STOCK
On April 4, 1994, the Company completed the purchase of the
assets and business of the In-Stock Products Division of Anchor
Group, Inc. ("In-Stock"), a Boston, Massachusetts area
distributor of electronic components, for approximately
$1,841,000 in cash, including acquisition costs (the "In-Stock
Acquisition"). The In-Stock Acquisition was accounted for as a
purchase. The fair value of the tangible assets acquired was
$2,513,000 and the liabilities assumed totaled $946,000,
resulting in goodwill of $274,000 which is included in other
assets and is being amortized over 15 years. The results of
operations of In-Stock subsequent to the date of the In-Stock
Acquisition are included in the Company's financial statements.
INLAND EMPIRE INTERCONNECTS
On August 16, 1995, the Company completed the purchase of
the assets and business of Inland Empire Interconnects ("IEI"),
an Ontario, California cable assembly company specializing in
molded interconnect products with approximately $5,000,000 in
annual sales. The purchase price and related transaction costs
were approximately $1,217,000 and were paid in cash (the "IEI
Acquisition"). The IEI Acquisition was accounted for as a
purchase. The fair value of the tangible assets acquired was
$1,455,000 and the liabilities assumed totaled $769,000,
resulting in intangibles of $531,000 which are being amortized
between 3 and 15 years. The results of operations of IEI
subsequent to the date of the IEI Acquisition are included in the
Company's financial statements.
The pro forma results, assuming the In-Stock and IEI
Acquisitions occurred as of the beginning of 1994 and 1995,
respectively, would not have materially changed reported sales or
net income.
NOTE 3. PUBLIC OFFERING AND NET OPERATING LOSS CARRYFORWARDS
PUBLIC OFFERING
On April 27, 1995 and May 24, 1995, the Company sold
3,000,000 and 165,000 shares of common stock, respectively,
through an underwritten public offering. Proceeds to
8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
the Company were $15.7 million, net of underwriting discounts and
expenses associated with the offering. The proceeds were used to
repay approximately $3.6 million in senior and junior subordinated
debt, and the balance was used to reduce the Company's revolving
line of credit with its asset based lender by $12.1 million. The
Company has, as a result of the offering, entered into
negotiations with its asset based lender to revise the terms and
conditions of its loan agreement.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1994, the Company had net operating loss
carryforwards ("NOLs") with the following expiration dates:
<TABLE>
<CAPTION>
Expiration Date Federal California
- --------------- ----------- ----------
<S> <C> <C>
1997......................... $ -- $3,599,000
1998......................... 3,450,000 953,000
1999......................... 2,935,000 270,000
2000......................... 490,000 --
2005......................... 2,000,000 --
2006......................... 2,053,000 --
2007......................... 9,700,000 --
2008......................... 2,500,000 --
2009......................... 771,000 --
----------- ----------
$23,899,000 $4,822,000
----------- ----------
----------- ----------
</TABLE>
Section 382 of the Internal Revenue Code of 1986, as amended
("Section 382") and the related regulations impose certain
limitations on a corporation's ability to use NOLs if more than a
50% ownership change occurs. California law conforms to the
provisions of Section 382. The Richey-Brajdas Merger did not
result in a more than 50% ownership change. However, as a result
of the public offering in April 1995, the Company effectuated a
"change of ownership" as understood by Section 382. Management
estimates that this "change of ownership" will restrict the
Company's use of the NOLs to approximately $2.1 million per year.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SUMMARY OF SELECTED DATA
(UNAUDITED)
The following table sets forth certain items in the
statements of operations as a percent of net sales for periods
shown and additional items of a statistical nature.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------- ----------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales................................ 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold....................... 75.9 74.6 76.0 75.5
----- ----- ----- -----
Gross Profit......................... 24.1 25.4 24.0 24.5
----- ----- ----- -----
Selling, warehouse, general &
administrative......................... 17.2 19.3 17.5 18.6
Amortization of intangibles.............. 0.4 0.6 0.4 0.7
----- ----- ----- -----
Operating Income..................... 6.5 5.5 6.1 5.2
Interest Expense......................... 0.3 2.0 0.8 1.8
----- ----- ----- -----
Income before income taxes........... 6.2 3.5 5.3 3.4
Federal and state income taxes........... 2.5 1.4 2.1 1.4
----- ----- ----- -----
Net Income............................... 3.7% 2.1% 3.2% 2.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
Sept. 29, June 30, Mar. 31, Dec. 31, Sept. 30, July 1, April 1,
1995 1995 1995 1994 1994 1994 1994
--------- -------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets (000) ........... $42,332 $40,810 $38,083 $35,013 $34,434 $33,090 $30,834
Working capital (000)......... $19,996 $19,828 $ 6,471 $ 5,317 $ 5,908 $ 5,235 $ 4,573
Ratio of current assets to
current liabilities......... 2.3 2.3 1.3 1.2 1.3 1.3 1.2
Line of credit (000).......... $ 3,131 $ 3,212 $13,864 $ 8,843 $10,714 $10,731 $10,714
Subordinated notes
payable (000)............... $ 0 $ 0 $ 3,594 $ 5,194 $ 5,194 $ 5,194 $ 5,194
Inventory turnover............ 5.0 5.2 5.0 4.9 4.9 5.4 5.2
Days sales outstanding in
accounts receivable......... 45.0 42.1 45.4 42.3 44.0 41.5 41.2
Stockholders' equity.......... $27,183 $26,122 $ 9,465 $ 8,785 $ 8,250 $ 7,779 $ 7,247
Return on stockholders'
equity...................... 19.7% 18.2% 29.8% 24.1% 26.2% 25.7% 21.0%
</TABLE>
10
<PAGE>
GENERAL
Richey Electronics is a multi-regional, specialty distributor of
electronic components and a provider of value-added assembly services. The
Company distributes connectors, switches, cable and other interconnect,
electromechanical and passive components used in the assembly and manufacturing
of electronic equipment. Richey Electronics also provides a wide variety of
value-added assembly services, which typically generate higher gross margins
than traditional component distribution. These value-added assembly services
consist of (i) component assembly, which is the assembly of components to
manufacturer specifications and (ii) contract assembly, which is the assembly of
cable assemblies, battery packs and mechanical assemblies to customer
specifications. The Company's customers are primarily small- and medium-sized
original equipment manufacturers. Approximately 80% of the Company's inventory
is located at its centralized distribution facility in Los Angeles, and the
remaining inventory is located in regional warehouses in Boston, San Diego and
San Jose.
The Company completed the acquisition (the "In-Stock Acquisition") of the
In-Stock Division of Anchor Group, Inc. ("In-Stock") in April 1994 for
$1.9 million in cash funded by its revolving line of credit. The Company has
devoted significant efforts to improving the performance of those operations.
The Company's financial statements exclude the financial results of In-Stock
prior to the In-Stock Acquisition.
The Company completed the acquisition (the "IEI Acquisition") of Inland
Empire Interconnects ("IEI") in August 1995 for $1.2 million in cash funded by
its revolving line of credit. The Company closed IEI's Ontario, California
facility on November 6, 1995 and moved all of its operations to Richey's Sun
Valley, California facility. This integration is part of the Company's cost
cutting program to eliminate duplicate personnel, sales, warehouse and
corporate facilities, computer systems and communication networks. The
Company's financial statements exclude the financial results of IEI prior to the
IEI Acquisition.
According to the April 17, 1995 edition of ELECTRONIC BUYERS' NEWS, the
Company ranked as the 26th largest electronics distributor in the United States
in 1994.
11
<PAGE>
RESULTS OF OPERATIONS
Net sales for the quarter ended September 29, 1995 increased to $28,803,000
from $22,838,000 for the corresponding period of 1994, an increase of 26.1%.
Net sales of electronic components increased to $20,523,000 in the third quarter
of 1995 from $17,427,000 in the third quarter of 1994, an increase of 17.8%.
Net sales of value-added assembly services increased to $8,280,000 for the
quarter ended September 29, 1995 from $5,411,000 for the corresponding period of
1994, an increase of 53%. Net sales for the first nine months of 1995 were
$83,704,000 compared to net sales of $66,190,000 for the same period in 1994.
Net sales of electronic components increased to $60,079,000 for the nine months
ended September 29, 1995 from $51,237,000 for the corresponding nine months of
1994, an increase of 17.3%. Component sales increased (i) primarily as a result
of the general strength in the electronic marketplace, as exhibited by an
increased demand for all types of component products, and (ii) because of an
increase in product offerings due to new franchises and expanded geographic
coverage of existing franchises. Net sales of value-added assembly services
increased to $23,625,000 for the nine months ended September 29, 1995 from
$14,953,000 for the corresponding nine months of 1994, an increase of 58%.
Value-added sales increased to 28.2% of total net sales for the first nine
months of 1995 from 22.6% for the same period in 1994, in part, as a result of
the In-Stock Acquisition in April 1994 and the IEI Acquisition in August 1995.
Management estimates that approximately one-half of the increase in value-added
assembly service revenues is due to the In-Stock and IEI Acquisitions and the
balance of the increase is due to the trend toward outsourcing of cable and
other types of assemblies by original equipment manufacturers, both of which
continue to create new opportunities for the Company.
The Company believes that order backlog (confirmed orders from customers
for shipment within the next 12 months) generally averages two to three months'
sales in the electronic distribution industry. Order backlog at September 29,
1995 was $30,300,000, up 56% from $19,400,000 at September 30, 1994.
Gross profit margin for the third quarter of 1995 rose 0.6% from margins
achieved in the second quarter of 1995. However, gross profit margin for the
nine months ended September 29, 1995 was 24% compared to 24.5% for the nine
months ended September 30, 1994, a decline of 0.5%. Gross profit margin was
24.1% for the third quarter of 1995 compared to 25.4% for the third quarter of
1994, a decline of 1.3%. Management attributes the year-to-date decline in
gross profit margin to increased competitive pressure on incremental sales of
component products. Gross profit margin on value-added services decreased in
the third quarter of 1995 as compared to the third quarter of 1994, as a result
of rescheduling of assembly work and shipments to comply with several larger
customer requests. These customer delays resulted in the Company absorbing less
assembly expenses, primarily labor costs.
Operating expenses for the quarter ended September 29, 1995 increased to
$5,064,000 from $4,552,000 for the corresponding period in 1994, an increase of
11.2%, but, as a percentage of net sales, decreased 2.3% for the quarter ended
September 29, 1995 compared
12
<PAGE>
to the same period in 1994. For the nine months ended September 29, 1995,
operating expenses were $14,975,000 compared to operating expenses of
$12,735,000 for the corresponding period in 1994, an increase of 17.6%.
However, as a percentage of net sales for the nine month period, operating
expenses decreased to 17.9% from 19.3%. The Company's primary operating
expenses include salaries and benefits, warehouse and corporate facilities costs
and telecommunications which do not increase proportionally with increases in
sales; therefore the Company continues to achieve operating leverage as revenues
increase. As a result of the Company's revenue growth and improved operating
leverage, operating income increased 47.6% from $3,475,000 for the nine months
ended September 30, 1994 to $5,129,000 for the nine months ended September 29,
1995.
Interest expense for the third quarter of 1995 was $80,000 as compared with
$454,000 for the third quarter of 1994. The decrease in interest expense for
the third quarter of 1995 was due to the Company repaying, in late April 1995,
all of its senior and junior subordinated notes and most of its revolving line
of credit, using the proceeds from the public offering. The Company expects
interest expense to be minimal for the balance of 1995. See Note 3 of Notes to
Condensed Financial Statements.
Federal and state income tax expense increased to $717,000 (40% effective
rate) for the quarter ended September 29, 1995 from $316,000 (40% effective
rate) for the corresponding period of 1994. This increase was proportional to
the increase in pre-tax earnings for the quarter. See Note 3 of Notes to
Condensed Financial Statements for further discussion of income tax matters.
LIQUIDITY AND CAPITAL RESOURCES
During April and May of 1995, the Company sold 3,165,000 shares of common
stock, raising $15,739,000. The proceeds were used to completely pay down the
senior and junior subordinated notes and most of the Company's revolving line of
credit. As a result of the public offering, working capital increased to
$19,996,000 on September 29, 1995 from $5,317,000 on December 31, 1994, an
increase of $14,679,000. During the first nine months of 1995, the Company
generated $5,765,000 of earnings before interest, income taxes, depreciation and
amortization ("EBITDA") as compared to EBITDA of $4,046,000 for the first nine
months of 1994, an increase of 42.5%.
The Company generated $4,286,000 in cash in the first nine months of 1995
from net income, depreciation, amortization and deferred income taxes. During
the same period, the Company invested $2,563,000 in accounts receivable,
$2,032,000 in inventories and $889,000 in accounts payable and accrued expenses.
Thus, the Company used net cash of $1,083,000 to fund operating activities in
the first nine months of 1995 compared to generating $2,179,000 from operating
activities for the same period of 1994. The Company believes that this use of
cash was caused primarily by the faster pace of sales growth in 1995 over 1994,
necessitating high levels of investment in inventories and accounts receivable.
The Company used an additional $1,983,000 of cash for investing activities,
including
13
<PAGE>
$722,000 for capital expenditures and $1,217,000 for the IEI Acquisition. This
use of funds was financed by borrowing against the Company's revolving line of
credit.
For the quarter ended September 29, 1995, inventory turnover increased to
5.0x compared 4.9x for the quarter ended December 31, 1994. The improved
inventory turnover ratio is a result of the enhanced inventory control and
supplier product return programs instituted by the Company and the general
improvement in business activity experienced in the first nine months of 1995.
Days sales outstanding were 45 days at September 29, 1995 compared to 42 days at
December 31, 1994. Excluding the IEI Acquisition, days sales outstanding were
44 days. Management believes that the 2-day increase in days sales outstanding
is a result of a general industry trend toward greater flexibility in extensions
of credit to customers.
The Company currently maintains, with its asset based lender, a revolving
line of credit of $15,000,000 based upon eligible accounts receivable and
inventory, with an interest rate of 1.5% over prime. The revolving line of
credit restricts payment of cash dividends on the Company's common stock,
without prior approval of its lender. As a result of certain terms in its loan
agreement, the Company is required to borrow approximately $3,000,000 to meet
minimum interest requirements. The Company invests this money in short-term
investment instruments with maturities of approximately 30 days. The Company is
in negotiation with its lender to increase its available line of credit and
improve the terms and conditions of its loan agreement. The Company believes
that its current line of credit will be adequate to meet its anticipated funding
commitments for the remainder of 1995.
The Company does not anticipate that the adoption of any of the recently
issued FASB statements will have a material impact on the Company's financial
statements.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
10.1 Noncompetition Agreement dated August 16, 1995 between Richey
Electronics, Inc. and Steven A. Burk.
10.2 Noncompetition Agreement dated August 16, 1995 between Richey
Electronics, Inc. and Loc M. Ha.
10.3 Noncompetition Agreement dated August 16, 1995 between Richey
Electronics, Inc. and Gary L. Lancaster.
(b) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHEY ELECTRONICS, INC.
(Registrant)
By /s/ Richard N. Berger
---------------------
Richard N. Berger
Vice President,
Chief Financial Officer
and Secretary
November 10, 1995
16
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated
August 16, 1995, is between RICHEY ELECTRONICS, INC., a Delaware
corporation ("Richey"), and Steven A. Burk ("Shareholder").
RECITALS
A. Inland Empire Interconnects, a California
corporation ("IEI"), the shareholders of IEI (including
Shareholder) and Richey are parties to that certain Asset
Purchase Agreement, dated as of August __, 1995 (the "Purchase
Agreement"), pursuant to which Richey is purchasing substantially
all of the assets of and relating to IEI's business of custom
cable assembly and manufacture of interconnect products (the
"Business") and the goodwill of the Business. The Business has
been carried on in the 58 counties of the State of California and
in the states of Oregon, Washington, New York and Ohio, and in
the countries of Italy, France and Canada (hereinafter referred
to as the "Restricted Territory").
B. Shareholder owns approximately thirty-three and
one-third percent (33 1/3%) of the issued and outstanding shares
of IEI.
C. In order to induce Richey to consummate the
purchase contemplated by the Purchase Agreement and to assure the
transfer of the goodwill of the Business to Richey, Shareholder
has agreed to enter into this Agreement with Richey for the
consideration set forth herein. The other shareholders of IEI
have also entered into agreements not to compete with Richey.
NOW, THEREFORE, the parties agree as follows:
1. REPRESENTATIONS. Shareholder represents and
warrants to Richey that IEI has carried on the Business in the
Restricted Territory including, without limitation, in each of
the 58 counties of the State of California.
2. CONSIDERATION FOR COVENANT. As consideration for
this Agreement, Richey is paying Shareholder the sum of $135,833
in cash concurrently with the execution and delivery of this
Agreement.
3. COVENANT NOT-TO-COMPETE. During the
Noncompetition Period (as hereinafter defined), Shareholder shall
not, in the Restricted Territory, directly or indirectly, by
ownership of debt or equity interests in any businesses, or by
participation in the management or operations of any businesses,
or by the solicitation of customers or suppliers, or otherwise,
participate or engage in any line of business or activity which
is the same as or substantially similar to IEI's business of
-1-
<PAGE>
custom cable assembly and manufacture of interconnect products,
and Shareholder shall not affirmatively assist or induce any
third party to engage in any activity which is so prohibited.
The foregoing restrictions shall not apply to or prohibit the
ownership by Shareholder of less than 5% of the outstanding
shares of capital stock of any corporation with one or more
classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market. In
addition, the foregoing restrictions shall not apply to services
performed by Shareholder for Richey while employed by Richey.
4. NONCOMPETITION PERIOD. The Noncompetition Period
shall be a period of three years beginning on the date of this
Agreement and ending on the third anniversary of the date of this
Agreement unless Shareholder's employment by Richey is terminated
on or after the third anniversary of the date of this Agreement
in which case the Noncompetition Period shall be a period of 42
months from the date of this Agreement.
5. EMPLOYMENT BY RICHEY. This Agreement is entered
into by Shareholder in order to induce Richey to consummate the
acquisition of the Business and to assure the transfer of the
goodwill of the Business to Richey. As consideration for this
Agreement, Richey is paying Shareholder the sum provided for
herein. As a matter completely separate and apart from such
acquisition, Richey and Shareholder have entered into an
employment agreement of even date herewith (the "Employment
Agreement"). It is the parties' intention that their respective
obligations under this Agreement and under the Employment
Agreement shall be completely separate and independent and that
the performance of one agreement shall not be a condition of an
obligation to perform the other agreement. Without limiting the
generality of the foregoing, it is understood and agreed that any
breach by Richey of its obligations under the Employment
Agreement or any claims Shareholder may have against Richey
arising out of an employment relationship between Richey and
Shareholder shall not excuse or discharge Shareholder's
obligations under this Agreement.
6. SEVERABILITY. If any one or more provisions
contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision
had never been contained herein.
It is the desired intent of the parties that the
provisions of this Agreement shall be enforceable to the fullest
extent permissible in each jurisdiction in which such enforcement
is sought. Accordingly, if any portion of the covenant not to
compete contained in this Agreement is held by any court of
-2-
<PAGE>
competent jurisdiction to be unreasonable, arbitrary, against
public policy or otherwise invalid or unenforceable, then said
covenant not to compete shall be considered divisible both as to
time and as to geographical area, and each month of the
Noncompetition Period shall be deemed a separate period of time,
and each state, county, city, parish or other local jurisdiction
in the Restricted Territory shall be deemed a separate
geographical area, so that the court may reduce the scope thereof
or otherwise amend or reform the portion thus adjudicated to a
lesser period of time or a smaller geographical area that is
determined to be reasonable, not arbitrary, not against public
policy and, valid and enforceable by Richey, such amendment or
reformation to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such
adjudication is made.
7. REMEDIES. The parties recognize that the
performance of the obligations under this Agreement by
Shareholder is special, unique and extraordinary in character,
and that in the event of a breach by Shareholder of the terms and
conditions of this Agreement, Richey shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either in law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the
specific performance thereof by Shareholder and/or to enjoin
Shareholder from any violation thereof.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their legal representatives, successors, permitted assigns
and heirs. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by Shareholder. This Agreement and
the rights and obligations hereunder shall be assignable by
Richey without the consent of Shareholder to (a) an affiliate of
Richey, (b) a person that acquires all or substantially all of
the assets of Richey or all or substantially all of the assets
used or held for use in the Business or (c) a person to which the
Purchase Agreement is assigned by Richey.
9. WAIVER; REMEDIES. No failure or delay by any
party in exercising any right, power or privilege hereunder will
operate as a waiver thereof nor will any single or partial
exercise thereof preclude any other or further exercise thereof
or the exercise of any right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law or equity.
10. AMENDMENT. This Agreement or any term hereof may
be changed, waived, discharged or terminated only by an agreement
in writing signed by the party against whom such change, waiver,
discharge or termination is sought to be enforced. Any change,
waiver, discharge or termination referred to in the preceding
-3-
<PAGE>
sentence will apply only to the change, waiver, discharge or
termination specifically referred to in the writing and will not
be construed or applied to constitute a change, waiver, discharge
or termination of any future rights or powers of any party under
this Agreement.
11. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California without regard to its conflicts of laws principles or
rules.
12. HEADINGS. The headings of the sections contained
in this Agreement have been inserted for convenience of reference
only and shall not form a part of or affect the meaning,
construction or scope thereof.
13. CONSTRUCTION. Each party has reviewed and revised
this Agreement and, therefore, the rule of construction requiring
that any ambiguity be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
14. ATTORNEYS' FEES. Should any party institute any
action or proceeding to enforce any provisions of this Agreement,
or for damages by reason of an alleged breach of any provision of
this Agreement, or for a declaration of rights hereunder, the
prevailing party (as determined by the court, agency or other
authority before which such action or proceeding is commenced)
shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of
investigation as actually incurred (including, without
limitation, attorneys' fees, expenses and costs of investigation
incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding
under Chapter 7, 11 or 13 of the Bankruptcy Code).
15. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one
and the same instrument. Signatures may be exchanged by
telecopy, and each party agrees to be bound by its own telecopied
signature and to accept the telecopied signatures of the other
parties.
16. ENTIRE AGREEMENT. This Agreement, together with
the Purchase Agreement, constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof, and
supersedes all prior oral and written agreements and
understandings between the parties with respect to such matters.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first above
written.
RICHEY ELECTRONICS, INC. SHAREHOLDER
By /s/ Richard N. Berger /s/ Steven A. Burk
---------------------- ------------------
RICHARD N. BERGER STEVEN A. BURK
Chief Financial Officer
-5-
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated
August 16, 1995, is between RICHEY ELECTRONICS, INC., a Delaware
corporation ("Richey"), and Loc M. Ha ("Shareholder").
RECITALS
A. Inland Empire Interconnects, a California
corporation ("IEI"), the shareholders of IEI (including
Shareholder) and Richey are parties to that certain Asset
Purchase Agreement, dated as of August __, 1995 (the "Purchase
Agreement"), pursuant to which Richey is purchasing substantially
all of the assets of and relating to IEI's business of custom
cable assembly and manufacture of interconnect products (the
"Business") and the goodwill of the Business. The Business has
been carried on in the 58 counties of the State of California and
in the states of Oregon, Washington, New York and Ohio and in the
countries of Italy, France and Canada (hereinafter referred to as
the "Restricted Territory").
B. Shareholder owns approximately thirty-three and
one-third percent (33-1/3%) of the issued and outstanding shares
of IEI.
C. In order to induce Richey to consummate the
purchase contemplated by the Purchase Agreement and to assure the
transfer of the goodwill of the Business to Richey, Shareholder
has agreed to enter into this Agreement with Richey for the
consideration set forth herein. The other shareholders of IEI
have also entered into agreements not to compete with Richey.
NOW, THEREFORE, the parties agree as follows:
1. REPRESENTATIONS. Shareholder represents and
warrants to Richey that IEI has carried on the Business in the
Restricted Territory including, without limitation, in each of
the 58 counties of the State of California.
2. CONSIDERATION FOR COVENANT. As consideration for
this Agreement, Richey is paying Shareholder the sum of $135,833
in cash concurrently with the execution and delivery of this
Agreement.
3. COVENANT NOT-TO-COMPETE. During the
Noncompetition Period (as hereinafter defined), Shareholder shall
not, in the Restricted Territory, directly or indirectly, by
ownership of debt or equity interests in any businesses, or by
participation in the management or operations of any businesses,
or by the solicitation of customers or suppliers, or otherwise,
participate or engage in any line of business or activity which
is the same as or substantially similar to IEI's business of
custom cable assembly and manufacture of interconnect products,
-1-
<PAGE>
and Shareholder shall not affirmatively assist or induce any
third party to engage in any activity which is so prohibited.
The foregoing restrictions shall not apply to or prohibit the
ownership by Shareholder of less than 5% of the outstanding
shares of capital stock of any corporation with one or more
classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market. In
addition, the foregoing restrictions shall not apply to services
performed by Shareholder for Richey while employed by Richey.
4. NONCOMPETITION PERIOD. The Noncompetition Period
shall be a period of three years beginning on the date of this
Agreement and ending on the third anniversary of the date of this
Agreement unless Shareholder's employment by Richey is terminated
on or after the third anniversary of the date of this Agreement
in which case the Noncompetition Period shall be a period of 42
months from the date of this Agreement.
5. EMPLOYMENT BY RICHEY. This Agreement is entered
into by Shareholder in order to induce Richey to consummate the
acquisition of the Business and to assure the transfer of the
goodwill of the Business to Richey. As consideration for this
Agreement, Richey is paying Shareholder the sum provided for
herein. As a matter completely separate and apart from such
acquisition, Richey and Shareholder have entered into an
employment agreement of even date herewith (the "Employment
Agreement"). It is the parties' intention that their respective
obligations under this Agreement and under the Employment
Agreement shall be completely separate and independent and that
the performance of one agreement shall not be a condition of an
obligation to perform the other agreement. Without limiting the
generality of the foregoing, it is understood and agreed that any
breach by Richey of its obligations under the Employment
Agreement or any claims Shareholder may have against Richey
arising out of an employment relationship between Richey and
Shareholder shall not excuse or discharge Shareholder's
obligations under this Agreement.
6. SEVERABILITY. If any one or more provisions
contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision
had never been contained herein.
It is the desired intent of the parties that the
provisions of this Agreement shall be enforceable to the fullest
extent permissible in each jurisdiction in which such enforcement
is sought. Accordingly, if any portion of the covenant not to
compete contained in this Agreement is held by any court of
competent jurisdiction to be unreasonable, arbitrary, against
public policy or otherwise invalid or unenforceable, then said
covenant not to compete shall be considered divisible both as to
-2-
<PAGE>
time and as to geographical area, and each month of the
Noncompetition Period shall be deemed a separate period of time,
and each state, county, city, parish or other local jurisdiction
in the Restricted Territory shall be deemed a separate
geographical area, so that the court may reduce the scope thereof
or otherwise amend or reform the portion thus adjudicated to a
lesser period of time or a smaller geographical area that is
determined to be reasonable, not arbitrary, not against public
policy and, valid and enforceable by Richey, such amendment or
reformation to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such
adjudication is made.
7. REMEDIES. The parties recognize that the
performance of the obligations under this Agreement by
Shareholder is special, unique and extraordinary in character,
and that in the event of a breach by Shareholder of the terms and
conditions of this Agreement, Richey shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either in law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the
specific performance thereof by Shareholder and/or to enjoin
Shareholder from any violation thereof.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their legal representatives, successors, permitted assigns
and heirs. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by Shareholder. This Agreement and
the rights and obligations hereunder shall be assignable by
Richey without the consent of Shareholder to (a) an affiliate of
Richey, (b) a person that acquires all or substantially all of
the assets of Richey or all or substantially all of the assets
used or held for use in the Business or (c) a person to which the
Purchase Agreement is assigned by Richey.
9. WAIVER; REMEDIES. No failure or delay by any
party in exercising any right, power or privilege hereunder will
operate as a waiver thereof nor will any single or partial
exercise thereof preclude any other or further exercise thereof
or the exercise of any right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law or equity.
10. AMENDMENT. This Agreement or any term hereof may
be changed, waived, discharged or terminated only by an agreement
in writing signed by the party against whom such change, waiver,
discharge or termination is sought to be enforced. Any change,
waiver, discharge or termination referred to in the preceding
sentence will apply only to the change, waiver, discharge or
termination specifically referred to in the writing and will not
be construed or applied to constitute a change, waiver, discharge
or termination of any future rights or powers of any party under
this Agreement.
-3-
<PAGE>
11. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California without regard to its conflicts of laws principles or
rules.
12. HEADINGS. The headings of the sections contained
in this Agreement have been inserted for convenience of reference
only and shall not form a part of or affect the meaning,
construction or scope thereof.
13. CONSTRUCTION. Each party has reviewed and revised
this Agreement and, therefore, the rule of construction requiring
that any ambiguity be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
14. ATTORNEYS' FEES. Should any party institute any
action or proceeding to enforce any provisions of this Agreement,
or for damages by reason of an alleged breach of any provision of
this Agreement, or for a declaration of rights hereunder, the
prevailing party (as determined by the court, agency or other
authority before which such action or proceeding is commenced)
shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of
investigation as actually incurred (including, without
limitation, attorneys' fees, expenses and costs of investigation
incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding
under Chapter 7, 11 or 13 of the Bankruptcy Code).
15. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one
and the same instrument. Signatures may be exchanged by
telecopy, and each party agrees to be bound by its own telecopied
signature and to accept the telecopied signatures of the other
parties.
16. ENTIRE AGREEMENT. This Agreement, together with
the Purchase Agreement, constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof, and
supersedes all prior oral and written agreements and
understandings between the parties with respect to such matters.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first above
written.
RICHEY ELECTRONICS, INC. SHAREHOLDER
By /s/ Richard N. Berger /s/ Loc M. Ha
--------------------- -------------
RICHARD N. BERGER LOC M. HA
Chief Financial Officer
-5-
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated
August 16 1995, is between RICHEY ELECTRONICS, INC., a Delaware
corporation ("Richey"), and Gary L. Lancaster ("Shareholder").
RECITALS
A. Inland Empire Interconnects, a California
corporation ("IEI"), the shareholders of IEI (including
Shareholder) and Richey are parties to that certain Asset
Purchase Agreement, dated as of August __, 1995 (the "Purchase
Agreement"), pursuant to which Richey is purchasing substantially
all of the assets of and relating to IEI's business of custom
cable assembly and manufacture of interconnect products (the
"Business") and the goodwill of the Business. The Business has
been carried on in the 58 counties of the State of California and
in the states of Oregon, Washington, New York and Ohio, and in
the countries of Italy, France and Canada (hereinafter referred
to as the "Restricted Territory").
B. Shareholder owns approximately thirty-three and
one-third percent (33 1/3%) of the issued and outstanding shares
of IEI.
C. In order to induce Richey to consummate the
purchase contemplated by the Purchase Agreement and to assure the
transfer of the goodwill of the Business to Richey, Shareholder
has agreed to enter into this Agreement with Richey for the
consideration set forth herein. The other shareholders of IEI
have also entered into agreements not to compete with Richey.
NOW, THEREFORE, the parties agree as follows:
1. REPRESENTATIONS. Shareholder represents and
warrants to Richey that IEI has carried on the Business in the
Restricted Territory including, without limitation, in each of
the 58 counties of the State of California.
2. CONSIDERATION FOR COVENANT. As consideration for
this Agreement, Richey is paying Shareholder the sum of $178,334
in cash concurrently with the execution and delivery of this
Agreement.
3. COVENANT NOT-TO-COMPETE. During the
Noncompetition Period (as hereinafter defined), Shareholder shall
not, in the Restricted Territory, directly or indirectly, by
ownership of debt or equity interests in any businesses, or by
participation in the management or operations of any businesses,
or by the solicitation of customers or suppliers, or otherwise,
participate or engage in any line of business or activity which
is the same as or substantially similar to IEI's business of
-1-
<PAGE>
custom cable assembly and manufacture of interconnect products,
and Shareholder shall not affirmatively assist or induce any
third party to engage in any activity which is so prohibited.
The foregoing restrictions shall not apply to or prohibit the
ownership by Shareholder of less than 5% of the outstanding
shares of capital stock of any corporation with one or more
classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market. In
addition, the foregoing restrictions shall not apply to services
performed by Shareholder for Richey while employed by Richey.
4. NONCOMPETITION PERIOD. The Noncompetition Period
shall be a period of three years beginning on the date of this
Agreement and ending on the third anniversary of the date of this
Agreement.
5. EMPLOYMENT BY RICHEY. This Agreement is entered
into by Shareholder in order to induce Richey to consummate the
acquisition of the Business and to assure the transfer of the
goodwill of the Business to Richey. As consideration for this
Agreement, Richey is paying Shareholder the sum provided for
herein. As a matter completely separate and apart from such
acquisition, Richey and Shareholder have entered into an
employment agreement of even date herewith (the "Employment
Agreement"). It is the parties' intention that their respective
obligations under this Agreement and under the Employment
Agreement shall be completely separate and independent and that
the performance of one agreement shall not be a condition of an
obligation to perform the other agreement. Without limiting the
generality of the foregoing, it is understood and agreed that any
breach by Richey of its obligations under the Employment
Agreement or any claims Shareholder may have against Richey
arising out of an employment relationship between Richey and
Shareholder shall not excuse or discharge Shareholder's
obligations under this Agreement.
6. SEVERABILITY. If any one or more provisions
contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision
had never been contained herein.
It is the desired intent of the parties that the
provisions of this Agreement shall be enforceable to the fullest
extent permissible in each jurisdiction in which such enforcement
is sought. Accordingly, if any portion of the covenant not to
compete contained in this Agreement is held by any court of
competent jurisdiction to be unreasonable, arbitrary, against
public policy or otherwise invalid or unenforceable, then said
covenant not to compete shall be considered divisible both as to
-2-
<PAGE>
time and as to geographical area, and each month of the
Noncompetition Period shall be deemed a separate period of time,
and each state, county, city, parish or other local jurisdiction
in the Restricted Territory shall be deemed a separate
geographical area, so that the court may reduce the scope thereof
or otherwise amend or reform the portion thus adjudicated to a
lesser period of time or a smaller geographical area that is
determined to be reasonable, not arbitrary, not against public
policy and, valid and enforceable by Richey, such amendment or
reformation to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such
adjudication is made.
7. REMEDIES. The parties recognize that the
performance of the obligations under this Agreement by
Shareholder is special, unique and extraordinary in character,
and that in the event of a breach by Shareholder of the terms and
conditions of this Agreement, Richey shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either in law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the
specific performance thereof by Shareholder and/or to enjoin
Shareholder from any violation thereof.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their legal representatives, successors, permitted assigns
and heirs. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by Shareholder. This Agreement and
the rights and obligations hereunder shall be assignable by
Richey without the consent of Shareholder to (a) an affiliate of
Richey, (b) a person that acquires all or substantially all of
the assets of Richey or all or substantially all of the assets
used or held for use in the Business or (c) a person to which the
Purchase Agreement is assigned by Richey.
9. WAIVER; REMEDIES. No failure or delay by any
party in exercising any right, power or privilege hereunder will
operate as a waiver thereof nor will any single or partial
exercise thereof preclude any other or further exercise thereof
or the exercise of any right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law or equity.
10. AMENDMENT. This Agreement or any term hereof may
be changed, waived, discharged or terminated only by an agreement
in writing signed by the party against whom such change, waiver,
discharge or termination is sought to be enforced. Any change,
waiver, discharge or termination referred to in the preceding
sentence will apply only to the change, waiver, discharge or
termination specifically referred to in the writing and will not
be construed or applied to constitute a change, waiver, discharge
-3-
<PAGE>
or termination of any future rights or powers of any party under
this Agreement.
11. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California without regard to its conflicts of laws principles or
rules.
12. HEADINGS. The headings of the sections contained
in this Agreement have been inserted for convenience of reference
only and shall not form a part of or affect the meaning,
construction or scope thereof.
13. CONSTRUCTION. Each party has reviewed and revised
this Agreement and, therefore, the rule of construction requiring
that any ambiguity be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
14. ATTORNEYS' FEES. Should any party institute any
action or proceeding to enforce any provisions of this Agreement,
or for damages by reason of an alleged breach of any provision of
this Agreement, or for a declaration of rights hereunder, the
prevailing party (as determined by the court, agency or other
authority before which such action or proceeding is commenced)
shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of
investigation as actually incurred (including, without
limitation, attorneys' fees, expenses and costs of investigation
incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding
under Chapter 7, 11 or 13 of the Bankruptcy Code).
15. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one
and the same instrument. Signatures may be exchanged by
telecopy, and each party agrees to be bound by its own telecopied
signature and to accept the telecopied signatures of the other
parties.
16. ENTIRE AGREEMENT. This Agreement, together with
the Purchase Agreement, constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof, and
supersedes all prior oral and written agreements and
understandings between the parties with respect to such matters.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first above
written.
RICHEY ELECTRONICS, INC. SHAREHOLDER
By /s/ Richard N. Berger /s/ Gary L. Lancaster
--------------------- ---------------------
RICHARD N. BERGER GARY L. LANCASTER
Chief Financial Officer
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1995
<CASH> 1,776,000
<SECURITIES> 0
<RECEIVABLES> 14,239,000
<ALLOWANCES> 0
<INVENTORY> 17,358,000
<CURRENT-ASSETS> 35,145,000
<PP&E> 2,967,000
<DEPRECIATION> 1,036,000
<TOTAL-ASSETS> 42,332,000
<CURRENT-LIABILITIES> 15,149,000
<BONDS> 0
<COMMON> 9,000
0
0
<OTHER-SE> 27,174,000
<TOTAL-LIABILITY-AND-EQUITY> 42,322,000
<SALES> 83,704,000
<TOTAL-REVENUES> 83,704,000
<CGS> 63,600,000
<TOTAL-COSTS> 63,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687,000
<INCOME-PRETAX> 4,442,000
<INCOME-TAX> 1,783,000
<INCOME-CONTINUING> 2,659,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,659,000
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
