<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1995
REGISTRATION STATEMENT NO. 33-89690
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RICHEY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5065 33-0594451
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code
Number)
</TABLE>
7441 LINCOLN WAY
GARDEN GROVE, CALIFORNIA 92641
(714) 898-8288
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WILLIAM C. CACCIATORE, PRESIDENT
RICHEY ELECTRONICS, INC.
7441 LINCOLN WAY
GARDEN GROVE, CALIFORNIA 92641
(714) 898-8288
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Robert M. Smith, Esq. Brooks Stough, Esq.
Linda M. Giunta, Esq. Thomas B. Youth, Esq.
Dewey Ballantine Brobeck, Phleger & Harrison
333 South Hope Street, Suite Two Embarcadero Place, 2200 Geng Road
3000 Palo Alto, California 94303
Los Angeles, California 90071 (415) 424-0160
(213) 626-3399
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
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. / /
------------------------
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
BETWEEN REGISTRATION STATEMENT AND FORM OF PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN FORM S-2 LOCATION IN PROSPECTUS
------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front Cover Page; Outside Back Cover Page;
Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Investment Considerations
4. Use of Proceeds................................... Prospectus Summary; Underwriting; Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page; Underwriting
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Principal and Selling Stockholders
8. Plan of Distribution.............................. Outside Front Cover Page; Underwriting
9. Description of the Securities to be Registered.... Outside Front Cover Page; Description of Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information With Respect to the Registrant........ Outside and Inside Front Cover Page; Prospectus Summary;
Investment Considerations; Capitalization; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Price Range of Common Stock; Dividend
Policy; Management; Principal and Selling
Stockholders; Description of Capital Stock; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 24, 1995
PROSPECTUS
3,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
ALL OF THE 3,000,000 SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE (THE
"COMMON STOCK"), OFFERED HEREBY (THE "OFFERING") ARE BEING SOLD BY RICHEY
ELECTRONICS, INC., A DELAWARE CORPORATION ("RICHEY ELECTRONICS" OR THE
"COMPANY"). THE COMMON STOCK IS TRADED ON THE NASDAQ STOCK MARKET ("NASDAQ")
UNDER THE SYMBOL "RCHY." AS OF MARCH 23, 1995, THE LAST REPORTED SALE PRICE OF
THE COMMON STOCK AS REPORTED BY NASDAQ WAS $7.25 PER SHARE. SEE "PRICE RANGE OF
COMMON STOCK."
-------------------
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
<FN>
-------------------
(1) The Company has agreed to indemnify the several underwriters identified
elsewhere herein (the "Underwriters") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses and other fees payable by the Company estimated
at $ .
(3) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock (of which the first 285,000
shares will be sold by the Selling Stockholders on a pro rata basis and the
remaining 165,000 shares will be sold by the Company) on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
all such shares are purchased, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to the Selling Stockholders will
be $ , $ , $ and $ ,
respectively. See "Underwriting."
</TABLE>
-------------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF ISSUED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT THE DELIVERY OF THE SHARES OF COMMON STOCK WILL BE MADE AGAINST
PAYMENT THEREFOR ON OR ABOUT , 1995, IN NEW YORK, NEW YORK.
-------------------
Jefferies & Company, Inc. Cruttenden Roth
Incorporated
, 1995
<PAGE>
[INSIDE FRONT COVER PHOTOS]
[Product Photo A]
Photograph of interconnect components.
[Product Photo B]
Photograph of electromechanical components.
[Product Photo C]
Photograph of passive components.
[Product Photo D]
Photograph of three cable connectors, faded.
[INSIDE FRONT COVER CAPTIONS]
[Caption, Left Side]
Richey Electronics is a multi-regional distributor of quality interconnect,
electromechanical and passive electronic components!
[Caption, Right Side]
Batteries and Battery Assemblies
Cable, Wire and Cable Assemblies
Capacitors
Circuit Breakers
Connectors
Coils, Chokes and Inductors
Crystals/Oscillators
Fiber Optics
Filters
Hardware/Fuses
IC Sockets
Lamps, Displays and Indicators
Motors
Power Supplies and Transformers
Power Cords
Printers/Keyboards
Relays
Resistive Products
Switches
Terminals, Ties, Labels and Markets
Trimmers and Potentiometers
Tubing/Sleeving
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES AND
EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THE PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THE PROSPECTUS ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
THE COMPANY
Richey Electronics is a multi-regional, specialty distributor of electronic
components and a provider of value-added assembly services. Management and an
investor group built the Company through a series of transactions, beginning
with the acquisition of the operations of Richey/Impact Electronics Inc. in
December 1990. Since the initial acquisition, the Company's growth has been
directed by one of the most experienced management teams in the industry.
Through acquisitions and internal growth that improved the Company's operating
leverage, Richey Electronics' sales and earnings have increased from
approximately $33.0 million and $700,000, respectively, in 1991, to $90.3
million and $1.9 million, respectively, in 1994. The Company believes that
strategic acquisition opportunities will continue to arise as a result of the
consolidation occurring in the electronics distribution industry.
DISTRIBUTION AND 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 value-added
assembly services respond to an industry trend of outsourcing in which
purchasing, manufacturing and distribution functions are allocated to the most
efficient provider. The Company believes that outsourcing represents a
significant opportunity to expand sales, margins and operating profits.
CUSTOMERS. The Company's customers are primarily small- and medium-sized
original equipment manufacturers ("OEMs") that produce electronic equipment used
in a wide variety of industries, including telecommunications, computer, medical
and aerospace. In 1994, the Company distributed electronic components to
approximately 9,000 customers, none of which represented more than 2.5% of net
sales. According to the April 1994 edition of ELECTRONIC BUSINESS BUYER, the
Company ranked 11th in the connector market and 14th in the
electromechanical/passive market.
Richey Electronics is a customer-driven company built on strong local
relationships. The Company's inventory management and information systems assist
its customers in controlling material costs, reducing cycle times and keeping
pace with rapid technological developments. The Company's extensive product
offering, or line card, provides customers with the opportunity to purchase
interconnect, electromechanical and passive electronic components from a single
source, thus improving their material resource planning and just-in-time
inventory procurement. The Company provides additional customer support through
technically competent product managers, value-added distribution and assembly
services and electronic data interchange.
GROWTH STRATEGY. The Company's objective is to improve its position as a
leading specialty distributor and value-added assembler of interconnect,
electromechanical and passive electronic components in the United States. The
Company's strategy for achieving this objective is to increase operating
leverage by expanding sales and improving operating efficiencies. To implement
this strategy, the Company intends to: (i) pursue strategic acquisitions; (ii)
capitalize on the trend toward outsourcing by increasing sales of higher-margin,
value-added assembly services; (iii) expand geographic coverage to markets
adjacent to areas of core strength; (iv) extend existing market-specific
franchise agreements across all markets served; and (v) focus on small- and
medium-sized customers which frequently consider specialty distribution integral
to their success. Fundamental to the success of the Company's strategy is a
constant emphasis on lowering costs and improving customer service.
3
<PAGE>
MANAGEMENT. Members of senior management have an average of 25 years
experience in the industry and, prior to the Offering, own approximately 26%
(fully diluted) of the Company. Eleven of the Company's senior managers
previously held management positions at Avnet, Inc. ("Avnet"), the second
largest distributor of electronic components in the world. The Company's
Chairman, President and Chief Executive Officer, William C. Cacciatore, was
previously Senior Vice President responsible for the Electronic Marketing and
Electrical and Engineering groups of Avnet and a member of Avnet's Board of
Directors.
INDUSTRY/CONSOLIDATION. In 1994, the electronics distribution industry
recorded approximately $16 billion in sales. Of these sales, the Company
estimates that approximately $12 billion consisted of sales of semiconductors
and computer related peripherals, which are not sold by the Company. The
remaining $4 billion consisted of sales of interconnect (connectors, sockets),
electromechanical (relays, switches) and passive (resistors, capacitors)
components, which are marketed by the Company.
Of the 25 largest electronics distributors in 1985, only 15 remain
independent today. The Company believes that the industry will continue to
consolidate because a majority of the remaining small- and medium-sized
distributors are privately owned and, in many cases, are under pressure to
consolidate from both suppliers and customers. The Company believes that despite
the consolidation occurring over the last several years, there are still more
than 80 participants in the electronics distribution industry with annual
revenues in excess of $10 million. As a result, the Company believes that
acquisition opportunities will become available in the next several years. The
Company has successfully completed two acquisitions since December 1990 and will
use management's extensive network of industry contacts to locate additional
acquisition opportunities.
BACKGROUND. In December 1990, RicheyImpact Electronics, Inc.
("RicheyImpact") acquired the operations of Richey/Impact Electronics Inc. ("Old
Richey") from Lex Service Inc. ("Lex"). On April 6, 1993, RicheyImpact merged
with Brajdas Corporation (the "Richey-Brajdas Merger"). After the Richey-Brajdas
Merger, management of RicheyImpact assumed control of the combined company,
which changed its name to Richey Electronics, Inc. On April 4, 1994, the Company
completed the acquisition (the "In-Stock Acquisition") of the business of the
In-Stock division of Anchor Group, Inc. ("In-Stock"). Unless the context
otherwise requires, the terms "Company" and "Richey Electronics" mean
RicheyImpact from December 28, 1990 until April 6, 1993 and the combined company
resulting from the Richey-Brajdas Merger thereafter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General" and Notes 2 and 8 of Notes to Financial Statements for additional
information regarding the transactions referred to above, including the
consideration paid by the Company.
The Company's principal executive offices are located at 7441 Lincoln Way,
Garden Grove, California 92641, and its telephone number is (714) 898-8288.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby.................. 3,000,000 shares(1)
Common Stock to be Outstanding After the
Offering................................... 8,889,341 shares(1)(2)
Use of Proceeds.............................. To repay approximately $14 million of
indebtedness and for general corporate
purposes. See "Use of Proceeds."
Nasdaq Symbol................................ RCHY
<FN>
-------------------
(1) Assumes no exercise of the Underwriters' over-allotment option, pursuant to
which the Company and Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 450,000 shares of Common
Stock, including 165,000 shares from the Company.
(2) Does not include 226,737 shares issuable upon the exercise of outstanding
options at a weighted average exercise price of $6.00 per share.
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL DATA (1)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
(FISCAL (FISCAL
(FISCAL 1993) 1994)
1992) DECEMBER DECEMBER
JANUARY 1, 31, 31,
1993 1993 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND
OTHER DATA)
<S> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales........................................... $ 31,387 $ 64,995 $ 90,266
Cost of goods sold.................................. 23,105 48,741 68,176
----------- ----------- -----------
Gross profit........................................ 8,282 16,254 22,090
Operating expenses.................................. 7,144 13,889 17,318
Interest expense, net............................... 388 1,198 1,606
Income tax expense(2)............................... 308 460 1,273
----------- ----------- -----------
Net income.......................................... $ 442 $ 707 $ 1,893
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share(3)........................ $ 0.16 $ 0.14 $ 0.32
----------- ----------- -----------
----------- ----------- -----------
Supplemental pro forma earnings per common
share(4).......................................... $ 0.34
-----------
-----------
Weighted average number of common shares
outstanding(3).................................... 2,774 5,085 5,889
----------- ----------- -----------
----------- ----------- -----------
OTHER DATA:
EBITDA(5)........................................... $ 1,283 $ 3,362 $ 5,537
EBITDA margin(5).................................... 4.1% 5.2% 6.1%
Inventory turnover ratio............................ 3.7x 4.4x 4.9x
Number of days sales in accounts receivable......... 41 43 42
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
----------------------
AS
ACTUAL ADJUSTED(6)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 5,317 $ 18,723
Total assets........................................................ 35,013 37,976
Short-term debt..................................................... 10,443 --
Long-term debt...................................................... 3,594 --
Stockholders' equity................................................ 8,785 25,785
<FN>
-------------------
(1) Excludes results of operations of Brajdas Corporation ("Brajdas") prior to
the Richey-Brajdas Merger in April 1993 and of In-Stock prior to the
In-Stock Acquisition in April 1994. See Note 2 of Notes to Financial
Statements for a discussion of the Richey-Brajdas Merger and the In-Stock
Acquisition and pro forma information.
(2) The Company had approximately $24.0 million in federal and $5.0 million in
state net operating loss carryforwards ("NOLs"), primarily California, as
of December 31, 1994 which have resulted in minimal cash tax payments. For
the period ended December 31, 1994, cash tax payments were approximately
$1.1 million less than the expense recorded.
(3) The Richey-Brajdas Merger was accounted for as a reverse purchase
acquisition with RicheyImpact being the accounting acquirer. See "--
Background." Per share data from January 1, 1993 through April 6, 1993, the
date of the Richey-Brajdas Merger, are based solely upon the weighted
average number of shares of Brajdas indirectly acquired by the former
stockholders of RicheyImpact.
(4) Supplemental pro forma earnings per common share, assuming a $6.25 per
share offering price, is calculated by adding to net income, the interest
expense on debt to be repaid from the proceeds of the Offering, net of
income taxes, and increasing the average shares outstanding during the
period by the number of shares assumed to have been sold in the Offering to
reduce this debt.
(5) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. The Company has included EBITDA data (which are not a measure
of financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors. EBITDA
margin represents EBITDA as a percentage of net sales. Because of the
significant amortization of intangible assets and non-cash income tax
expense recorded as a result of the Company's NOLs, the Company believes
that EBITDA may be a meaningful measure of its financial performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Deferred Tax Assets."
(6) Adjusted to reflect receipt of estimated net proceeds from the sale of
3,000,000 shares of the Common Stock, assuming a $6.25 per share offering
price after underwriting discount, expenses and fees, of $17 million, and
the application thereof. See "Use of Proceeds."
</TABLE>
5
<PAGE>
INVESTMENT CONSIDERATIONS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW,
AS WELL AS THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THE PROSPECTUS,
BEFORE MAKING A DECISION TO INVEST IN THE COMMON STOCK OFFERED HEREBY.
DEPENDENCE ON KEY SUPPLIERS
Most of the electronic components distributed by the Company are purchased
from manufacturers through non-exclusive distribution agreements which may be
canceled upon relatively short notice, subject to certain conditions.
Manufacturers have from time to time terminated such agreements with the Company
and there can be no assurance that such terminations will not occur in the
future. In addition, as a result of component manufacturers' increasing
preference for using fewer distributors, there can be no assurance that the
Company will be able to maintain its authorized distributorships with its
current suppliers. For the year ended December 31, 1994, the Company's five
largest suppliers accounted for approximately 36% of net sales, and there can be
no assurance that the loss of any one of its larger suppliers would not have a
material adverse effect on the Company. While most products distributed by the
Company are available from multiple sources, there can be no assurance that the
Company would be able to replace lost suppliers. See "Business -- Component
Manufacturers."
POTENTIAL QUARTERLY FLUCTUATIONS
The Company's results of operations may fluctuate from period to period due
to the effect of possible future acquisitions, the number of shipping days in
the quarter, loss of key suppliers, uncollectibility of accounts receivable,
inventory write-offs and loss of key customers, as well as other factors.
Significant fluctuations in these results of operations may have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Selected Quarterly Financial
Data."
UNCERTAINTY OF FUTURE ACQUISITIONS
The Company's acquisition strategy depends on its ability to identify and
acquire compatible electronics distributors, and integrate the acquired
operations effectively. A significant portion of the Company's sales and
earnings growth from fiscal 1992 to fiscal 1994 resulted from the Richey-Brajdas
Merger and In-Stock Acquisition. See Note 2 of Notes to Financial Statements.
There can be no assurance that the Company will be able to locate appropriate
acquisition candidates, that any identified candidates will be acquired or that
acquired operations will be effectively integrated or prove profitable. The
completion of acquisitions requires the expenditure of sizable amounts of
capital and management effort. The intense competition among companies pursuing
similar acquisition strategies may increase capital requirements. Moreover,
unexpected problems encountered in connection with the Company's acquisitions
could have a material adverse effect on the Company. The Company could be forced
to alter its strategy in the future if such candidates become unavailable or too
costly. See "Business -- Business Strategy."
COMPETITION AND INDUSTRY CONSOLIDATION
The electronics distribution industry is highly competitive, primarily with
respect to price and product availability. The Company believes that breadth of
product line, level of technical expertise and quality of service are also
particularly important to small- and medium-sized customers. The Company
competes with large national distributors such as Arrow Electronics, Inc.
("Arrow") and Avnet, as well as regional and specialty distributors many of whom
distribute the same or competitive products. Many of the Company's competitors
have significantly greater assets and greater financial and personnel resources
than those of the Company. Moreover, the electronics distribution industry is
going through a period of rapid consolidation that is intensifying competition.
As a result of these competitive pressures, many distributors have reported a
decline in their gross margins. Although the Company believes that declines in
gross margin have generally occurred among distributors serving larger
customers, there is no assurance that these pressures will not affect
distributors, like the Company, who serve small- and medium-sized customers.
Existing and future competition could result in downward pressure on the
Company's gross margin or could otherwise have a material adverse effect on the
Company.
6
<PAGE>
INDUSTRY CYCLICALITY
Historically, the electronics industry has been affected by general economic
and industry-wide downturns which have adversely affected electronic component
manufacturers, certain end-users of such components and distributors. Although
the industry has experienced rapid growth over the past few years, there can be
no assurance that such growth can be sustained in the future. In addition, the
life-cycle of existing electronic products and the timing of new product
development and introduction can affect demand for electronic components.
Reduced demand for electronic components could have a material adverse effect on
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RELIANCE ON KEY PERSONNEL
The Company is currently dependent upon the efforts and leadership abilities
of its experienced management team, including: William C. Cacciatore, Chairman
of the Board, President and Chief Executive Officer; C. Don Alverson, Executive
Vice President -- Sales; Norbert W. St. John, Executive Vice President --
Marketing; and Charles W. Mann, Vice President -- Value-Added Services. Although
the Company believes that it would be able to locate suitable replacements for
its executives if their services were lost, there can be no assurance it would
be able to do so. Accordingly, the loss of services of one or more of the
Company's key executives could have a material adverse effect upon the business
of the Company.
ABSENCE OF ACTIVE TRADING; POTENTIAL VOLATILITY OF STOCK PRICE
The average daily trading volume of the Common Stock generally has been low.
As a result, historical market prices may not be indicative of market prices in
a more liquid market when more shares are publicly traded. There can be no
assurance that an active trading market will develop or be sustained after the
Offering. Moreover, broad market fluctuations, caused by general economic or
political conditions or other factors, may also adversely affect the market
price of the Common Stock, regardless of the Company's actual performance. See
"Price Range of Common Stock."
LIMITATIONS ON AVAILABILITY OF THE COMPANY'S NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1994, the Company had United States federal income tax
NOLs of approximately $24.0 million and state tax NOLs of approximately $5.0
million, primarily California, most of which expire between 1998 and 2009. The
NOLs resulted from Brajdas' losses prior to the Richey-Brajdas Merger. Section
382 of the Internal Revenue Code of 1986, as amended ("Section 382"), imposes
annual limitations on NOLs in the event certain changes in a company's stock
ownership over a three-year period exceed a specified threshold (a "Change in
Ownership"). In some cases these annual limitations can cause NOLs to expire
unused. As a result of the Offering, a Change in Ownership will occur which will
limit the use of such NOLs. Accordingly, it is expected that the use of such
NOLs will be limited to approximately $2.5 million per year until they are fully
utilized or expire, whichever occurs first. The Company's NOLs are subject to
review by the Internal Revenue Service ("IRS"). If the Company's NOLs were
disallowed or their use was further limited, there would be a material adverse
effect on the Company's cash flow. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Deferred Tax Assets" and Note 9
of Notes to Financial Statements.
POSSIBLE ISSUANCE OF PREFERRED SHARES; ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation authorizes the issuance
of 10,000 shares of preferred stock. The Company's Board of Directors has the
power to issue any or all of these additional shares without stockholder
approval, which shares can be issued with such rights, preferences and
limitations as are determined by the Board. The Company presently has no
commitments or contracts to issue any shares of preferred stock. The Company is
also subject to the Delaware statute regulating business combinations. These
provisions, as well as certain provisions of the Company's bylaws, could delay,
discourage, hinder or preclude an unsolicited acquisition of the Company, could
make it less likely that stockholders receive a premium for their shares as a
result of any such attempt and could adversely affect the market price of and
the voting and other rights of the holders of the Common Stock. See "Description
of Capital Stock."
7
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock by the Company's executive
officers, directors and certain principal stockholders after the Offering, or
the perception that such sales might occur, could adversely affect the
prevailing market price of the Common Stock. The Company's directors, executive
officers and certain principal stockholders, who upon completion of the Offering
will beneficially own an aggregate of approximately 62% of the outstanding
Common Stock (approximately 58% if the Underwriters' over-allotment option is
exercised in full), have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of the Common Stock for a period of 180 days
after the date of the Prospectus, without the prior written consent of Jefferies
& Company, Inc., on behalf of the Underwriters. After this period, substantially
all shares of Common Stock held by this group will be eligible for sale subject
only to the resale limitations of Rule 144 promulgated under the Securities Act.
Future sales of the Common Stock, or the availability of shares for future sale,
could adversely affect the prevailing market price of the Common Stock. See
"Shares Eligible for Future Sale."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 3,000,000
shares of the Common Stock offered by the Company hereby (at an assumed offering
price of $6.25 per share and after deducting estimated underwriting discount,
expenses and fees payable by the Company) are estimated to be approximately $17
million. Of such proceeds, approximately $8.8 million will be used to repay
indebtedness incurred under the Company's revolving credit facility.
Indebtedness under this facility bears interest at prime rate plus 1.5%. This
facility automatically renews for successive one year terms, commencing on
February 28, 1996, unless terminated by either party. In addition, $4.0 million
of the proceeds will be used to redeem the Company's outstanding 10% senior
subordinated note or any refinancing thereof, which matures on March 1, 2000,
and $1.2 million will be used to redeem the Company's outstanding 12% junior
subordinated notes, which mature on March 2, 2000. Of the debt being retired,
$1.2 million of junior subordinated debt was incurred in April 1993 in
connection with the Richey-Brajdas Merger. The balance of the proceeds will be
used for general corporate purposes, including possible future acquisitions. The
Company has no current understanding or commitment with respect to any such
acquisition. See "Investment Considerations -- Uncertainty of Future
Acquisitions." Pending such uses, the Company intends to invest the balance of
the proceeds in short-term, investment grade securities. See "Management --
Certain Relationships and Related Transactions."
Richey Electronics will not receive any of the proceeds from the sale of the
Common Stock by the Selling Stockholders pursuant to the over-allotment option.
However, the Company will sell 165,000 shares of the Common Stock pursuant to
the over-allotment option, if fully exercised.
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The stock prices listed below represent the stock prices of Brajdas prior to
the Richey-Brajdas Merger on April 6, 1993 and the stock prices of the Company
thereafter. Until January 25, 1994, the Company's Common Stock was traded in the
over-the-counter market on what is commonly referred to as the "bulletin board."
From January 25, 1994 until April 13, 1994, the Company's Common Stock traded on
the Nasdaq Small-Cap Market. On April 14, 1994, the Company's Common Stock began
trading on Nasdaq under the symbol "RCHY."
The following table sets forth, for the periods indicated, certain high and
low bid information of the Common Stock as reported by IDD/Tradeline until
January 24, 1994 and certain high and low sale prices of the Common Stock as
reported by Nasdaq beginning January 25, 1994. High and low bid quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily reflect actual transactions. The historical high and low
bid and sale information has been adjusted to give effect to the reverse stock
split, pursuant to which each outstanding pre-split share was converted into ten
thirty-fifths (10/35) of a post-split share, which became effective on December
30, 1993.
<TABLE>
<CAPTION>
STOCK PRICE
----------------
<S> <C> <C>
HIGH LOW
------- -------
CALENDAR YEAR 1993:
First quarter (1).......................................................... $10 1/2 $ 1 5/16
Second quarter (through closing price on April 6,
the date of the Richey-Brajdas Merger)................................... 7 5 1/4
Second quarter (commencing April 7)........................................ 7 7/8 5 1/4
Third quarter.............................................................. 8 3/4 5 1/4
Fourth quarter............................................................. 8 3/4 4 3/8
CALENDAR YEAR 1994:
First quarter.............................................................. $10 $ 5
Second quarter............................................................. 9 1/2 5 1/2
Third quarter.............................................................. 7 1/2 6
Fourth quarter............................................................. 7 1/2 6
CALENDAR YEAR 1995:
First quarter (through March 23, 1995)..................................... $ 7 1/2 $ 6
<FN>
-------------------
(1) The high and low stock prices prior to the announcement of the
Richey-Brajdas Merger on February 12, 1993, were $2 3/16 and $1 5/16,
respectively.
</TABLE>
As of March 23, 1995, the last reported sale price of the Company's Common
Stock, as reported by Nasdaq, was $7 1/4. As of March 23, 1995, the average
daily trading volume for the last 12 months was 445 shares, based on 262 total
trading days. See "Investment Considerations -- Absence of Active Trading;
Potential Volatility of Stock Price." On March 23, 1995, there were
approximately 1,467 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings for working capital to support growth, to
reduce outstanding indebtedness and for general corporate purposes. In addition,
the credit agreement governing certain of the Company's indebtedness contains
provisions that limit the Company's ability to pay dividends on its Common
Stock. Accordingly, the Company does not expect to pay any dividends on its
Common Stock in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of Notes
to Financial Statements.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1994, and as adjusted to give effect to the sale of 3,000,000
shares of the Common Stock offered by the Company hereby (at an assumed offering
price of $6.25 per share, after deducting underwriting discount, expenses and
fees) and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and the Financial Statements included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term debt:
Current maturity of senior subordinated note payable(1)............ $ 1,600 $ --
Revolving line of credit(1)........................................ 8,843 --
----------- -----------
Total short-term debt.......................................... 10,443 --
----------- -----------
Long-term debt:
10% Senior subordinated note payable, secured(1)................... 2,400 --
12% Junior subordinated notes payable, unsecured(1)................ 1,194 --
----------- -----------
Total long-term debt........................................... 3,594 --
----------- -----------
Stockholders' equity:
Preferred Stock:
$0.001 par value, authorized 10,000 shares; none issued and
outstanding.................................................. -- --
Common Stock:
$0.001 par value, authorized 30,000,000 shares;
5,889,344 shares issued and outstanding;
8,889,341 shares issued and outstanding, as adjusted(2)...... 6 9
Additional paid-in capital(2)...................................... 5,240 22,237
Retained earnings.................................................. 3,539 3,539
----------- -----------
Total stockholders' equity..................................... 8,785 25,785
----------- -----------
Total capitalization....................................... $ 22,822 $ 25,785
----------- -----------
----------- -----------
<FN>
-------------------
(1) See Notes 4 and 6 of Notes to Financial Statements.
(2) Adjusted to reflect receipt of estimated net proceeds from the sale of
3,000,000 shares of the Common Stock, assuming a $6.25 per share offering
price, after underwriting discount, expenses and fees, of $17 million and
the application thereof. See "Use of Proceeds." Does not include 226,737
shares of Common Stock issuable upon the exercise of outstanding options
granted to employees of the Company under the 1992 Stock Option Plan.
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the
Company and should be read in conjunction with and is qualified by "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Financial Statements, Notes to Financial Statements and other
financial information included herein. All of the financial information, except
that of the predecessor company, is derived from financial statements that have
been audited by McGladrey & Pullen, LLP, independent accountants.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
PREDECESSOR
COMPANY(1) THE COMPANY(2)
------------- ----------------------------------------------------------
(FISCAL 1990) (FISCAL 1991) (FISCAL 1992) (FISCAL 1993) (FISCAL 1994)
DECEMBER 28, JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31,
1990 1992 1993 1993 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
OPERATIONS STATEMENT DATA:
Net sales.......................... $ 34,363 $ 32,994 $ 31,387 $ 64,995 $ 90,266
Cost of goods sold................. 26,394 24,123 23,105 48,741 68,176
------------- ------------- ------------- ------------- -------------
Gross profit....................... 7,969 8,871 8,282 16,254 22,090
Operating expenses................. 15,289(3) 7,233 7,144 13,889 17,318
Interest expense, net.............. (267) 476 388 1,198 1,606
Income tax expense (4)............. 44 473 308 460 1,273
------------- ------------- ------------- ------------- -------------
Net income (loss).................. $ (7,097) $ 689 $ 442 $ 707 $ 1,893
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Earnings per common share(5)....... $ -- $ 0.25 $ 0.16 $ 0.14 $ 0.32
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Supplemental pro forma earnings per
common share(6).................. $ 0.34
-------------
-------------
Dividends per share................ $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number
of common shares
outstanding(5)................... -- 2,774 2,774 5,085 5,889
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
OTHER DATA:
EBITDA(7).......................... $ 1,788 $ 1,283 $ 3,362 $ 5,537
EBITDA margin(7)................... 5.4% 4.1% 5.2% 6.1%
Inventory turnover ratio........... 4.3x 3.7x 4.4x 4.9x
Number of days sales in accounts
receivable....................... 34 41 43 42
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
DECEMBER 28, JANUARY 3, JANUARY 1, DECEMBER 31, --------------------------
1990 1992 1993 1993 ACTUAL AS ADJUSTED (8)
------------ ---------- ---------- ------------ ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 1,924 $ 2,500 $ 3,014 $ 6,888 $ 5,317 $ 18,723
Total assets............................... 8,088 9,370 9,669 30,918 35,013 37,976
Short-term debt............................ 3,648 3,510 3,181 6,995 10,443 --
Long-term debt............................. 83 -- -- 8,151 3,594 --
Stockholders' equity....................... 2,202 2,891 3,333 6,898 8,785 25,785
(SEE NOTES TO SELECTED FINANCIAL DATA ON FOLLOWING PAGE)
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
NOTES TO SELECTED FINANCIAL DATA:
<FN>
(1) The operations statement data for fiscal year 1990 represent the financial
data of a predecessor company, Old Richey. RicheyImpact acquired certain
assets and assumed certain liabilities of Old Richey from Lex on December
28, 1990.
(2) Excludes results of operations of Brajdas prior to the Richey-Brajdas
Merger in April 1993 and of In-Stock prior to the In-Stock Acquisition in
April 1994. See Note 2 of Notes to Financial Statements for a discussion of
the Richey-Brajdas Merger and the In-Stock Acquisition and pro forma
information.
(3) Operating expenses include a loss on sale of assets from Old Richey to
RicheyImpact of approximately $6.1 million, a write-off of the remaining
goodwill of $973,000 and central office charges of $206,000.
(4) The Company had approximately $24.0 million in federal and $5.0 million in
state tax NOLs, primarily California, as of December 31, 1994 which have
resulted in minimal cash tax payments. For the period ended December 31,
1994, cash tax payments were approximately $1.1 million less than the
expense recorded.
(5) The Richey-Brajdas Merger was accounted for as a reverse purchase
acquisition with RicheyImpact being the accounting acquirer. Per share data
for all periods from December 28, 1990 through April 6, 1993, the date of
the Richey-Brajdas Merger, are based upon the weighted average number of
shares of Brajdas indirectly acquired by the former stockholders of
RicheyImpact.
(6) Supplemental pro forma earnings per common share, assuming a $6.25 per
share offering price, is calculated by adding to net income, the interest
expense on debt to be repaid from the proceeds of the Offering, net of
income taxes, and increasing the average shares outstanding during the
period by the number of shares assumed to have been sold in the Offering to
reduce this debt.
(7) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. The Company has included EBITDA data (which are not a measure
of financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors. EBITDA
margin represents EBITDA as a percentage of net sales. Because of the
significant amortization of intangible assets and non-cash income tax
expense incurred as a result of the Company's NOLs, the Company believes
that EBITDA may be a meaningful measure of its financial performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Deferred Tax Assets."
(8) Adjusted to reflect receipt of estimated net proceeds from the sale of
3,000,000 shares of the Common Stock, assuming a $6.25 per share offering
price after underwriting discount, expenses and fees, of $17 million, and
the application thereof. See "Use of Proceeds."
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
OEMs. 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.
Management and an investor group built the Company through a series of
transactions, beginning with the acquisition of the operations of Old Richey in
December 1990 for $5.5 million, consisting of $3.7 million in cash funded by the
revolving line of credit, senior preferred stock valued at $1.0 million and
$800,000 in cash contributed by the former RicheyImpact stockholders. The
Company completed the Richey-Brajdas Merger in April 1993 through the issuance
of 10,900,000 shares of Common Stock to the former Brajdas shareholders valued
at $4.1 million. The Company completed the In-Stock Acquisition in April 1994
for $1.9 million in cash funded by the 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 Brajdas
prior to the Richey-Brajdas Merger and of In-Stock prior to the In-Stock
Acquisition. The Company will seek to complete additional strategic acquisitions
in connection with the ongoing consolidation occurring in the electronics
distribution industry. See "Investment Considerations -- Uncertainty of Future
Acquisitions."
In addition, the Company intends to capitalize on the trend toward
outsourcing by increasing sales of value-added assembly services. These sales
increased to $21.2 million, or 23.5% of net sales, in fiscal 1994 from $10.9
million, or 16.8% of net sales, in fiscal 1993.
The Company separately reported net sales of certain inventory designated as
special inventory in its statements of operations. In connection with the
purchase of Old Richey from Lex, the Company entered into sales agency and
consignment agreements with Lex regarding certain inventories not originally
purchased by it. Under these arrangements, Lex retained title to the inventories
and guaranteed certain profit margins to the Company. Effective June 28, 1991,
Lex granted the Company title to all remaining sales agency and consigned
inventories at no cost. The non-recurring benefit associated with special
inventory sales resulted in higher gross profit margins in fiscal 1992 and
fiscal 1993. Excluding special inventory sales, gross profit margins would have
been 23.2%, 24.4% and 24.5% for fiscal 1992, 1993 and 1994, respectively.
Substantially all Lex sales agency and consigned inventories were sold as of
December 31, 1993. Consequently, special inventory sales were not material in
1994.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the statements of operations
as a percentage of net sales for periods shown.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
(FISCAL 1992) (FISCAL 1993) (FISCAL 1994)
JANUARY 1, DECEMBER 31, DECEMBER 31,
1993 1993 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales................................................ 100.0% 100.0% 100.0%
Cost of goods sold....................................... 73.6 75.0 75.5
----- ----- -----
Gross profit(1).......................................... 26.4 25.0 24.5
Operating expenses....................................... 22.8 21.4 19.2
----- ----- -----
Operating income......................................... 3.6 3.6 5.3
Interest expense......................................... 1.2 1.8 1.8
----- ----- -----
Income before income taxes............................... 2.4 1.8 3.5
Income tax expense....................................... 1.0 0.7 1.4
----- ----- -----
Net income............................................... 1.4% 1.1% 2.1%
----- ----- -----
----- ----- -----
<FN>
-------------------
(1) Includes effects of special inventory sales. See "-- General." Had the
effects of special inventory sales been excluded from the gross profit
reported above, the results would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1992 FISCAL 1993 FISCAL 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Adjusted gross profit..................................... 23.2% 24.4% 24.5%
</TABLE>
YEAR ENDED DECEMBER 31, 1994 (FISCAL 1994) AS COMPARED WITH YEAR ENDED DECEMBER
31, 1993 (FISCAL 1993)
Net sales were $90.3 million for fiscal 1994, an increase of $25.3 million,
or 38.9%, from $65.0 million for fiscal 1993. Net sales of electronic components
increased to $69.1 million in fiscal 1994 from $54.1 million in fiscal 1993, an
increase of 27.7%. Net sales of value-added assembly services increased to $21.2
million from $10.9 million in fiscal 1993, an increase of 94.5%. Although the
Company fully integrated In-Stock with its existing operations and has not
maintained separate sales records since the In-Stock Acquisition, the Company
estimates that at least $7.0 million of the increase in net sales are
attributable to the In-Stock Acquisition. This estimate is based solely on
In-Stock's historical sales rates and backlog at the time of the In-Stock
Acquisition and, among other things, does not take into account post-acquisition
results of In-Stock's operations or variations due to overlapping product lines
or customers. The balance of the increase in net sales is attributable to
internal growth and the benefit of twelve months of Brajdas' integrated
operations in 1994 as compared to only nine months in 1993. In 1994, the Company
experienced net sales growth in most of the ten metropolitan markets it serves.
On a pro forma basis, assuming the Richey-Brajdas Merger and the In-Stock
Acquisition occurred as of January 1, 1993, sales would have been $84.6 million
and $93.0 million for fiscal 1993 and fiscal 1994, respectively. See Note 2 of
Notes to Financial Statements.
Gross profit was $22.1 million for fiscal 1994, an increase of $5.8 million,
or 35.6%, from $16.3 million in fiscal 1993. Excluding special inventory sales
in fiscal 1993, gross profit as a percentage of sales increased slightly to
24.5% in fiscal 1994 from 24.4% in fiscal 1993. Component distribution gross
margins remained essentially flat in fiscal 1994 compared to fiscal 1993.
Value-added assembly margins declined in fiscal 1994 compared to fiscal 1993
because of lower gross margins from value-added assembly sales at In-Stock,
which the Company acquired in April 1994. The Company took a number of actions
to improve operating efficiencies at its In-Stock operations and believes that
by the end of fiscal 1994 gross margins from value-added assembly sales at those
operations were roughly comparable to gross margins from its other value-added
assembly sales. Overall gross margins increased slightly due to a changing sales
mix increasingly oriented toward value-added assembly services.
Operating expenses were $17.3 million in fiscal 1994, an increase of $3.4
million, or 24.5%, from $13.9 million in fiscal 1993. These expenses as a
percentage of sales declined to 19.2% from 21.4% in fiscal 1993. Increased sales
from internal growth as well as from the Richey-Brajdas Merger and the In-Stock
15
<PAGE>
Acquisition, coupled with cost-saving initiatives, have allowed the Company to
substantially improve its operating leverage. The reduction in operating
expenses as a percentage of net sales resulted in part from the elimination of
duplicate personnel, sales, warehouse and corporate facilities, computer systems
and communication networks.
Interest expense increased to $1.6 million in fiscal 1994 from $1.2 million
in fiscal 1993. Interest expense rose as a result of increases in prime lending
rates and average borrowings brought about by the financing of the In-Stock
Acquisition. See "Liquidity and Capital Resources."
The Company's provision for federal and state income tax expense increased
to $1.3 million from $460,000 in fiscal 1993. The effective tax rate for 1994
increased slightly to 40% from 39% for 1993. The Company had approximately $24.0
million in federal and $5.0 million in state tax NOLs, primarily California, as
of December 31, 1994 which have resulted in minimal cash tax payments. For the
period ended December 31, 1994, cash tax payments were approximately $1.1
million less than the expense recorded. See "-- Deferred Tax Assets."
YEAR ENDED DECEMBER 31, 1993 (FISCAL 1993) AS COMPARED WITH YEAR ENDED JANUARY
1, 1993 (FISCAL 1992)
Net sales were $65.0 million for fiscal 1993, an increase of $33.6 million,
or 107.0%, from $31.4 million for fiscal 1992. Although the Company fully
integrated Brajdas with its existing operations and has not maintained separate
sales records since the Richey-Brajdas Merger, the Company estimates that at
least $29.0 million of the increase in net sales are attributable to the
Richey-Brajdas Merger. This estimate is based solely on Brajdas' historical
sales rates and backlog at the time of the Richey-Brajdas Merger and, among
other things, does not take into account post-merger results of Brajdas'
operations or variations due to overlapping product lines or customers. The
balance of the increase in net sales is attributable to internal growth,
including an increase of $4.4 million of value-added assembly services. As noted
above, historical information excludes the operations of Brajdas for periods
prior to April 6, 1993. See Note 2 of Notes to Financial Statements.
Gross profit was $16.3 million in fiscal 1993, an increase of $8.0 million,
or 96.4%, from $8.3 million in fiscal 1992. Gross profit increased primarily as
a result of the Richey-Brajdas Merger. Excluding special inventory sales, gross
profit as a percentage of sales increased to 24.4% from 23.2% in fiscal 1992.
The increase in gross margins is attributable primarily to an increase in
value-added assembly services and increased management controls over gross
profit margins.
Operating expenses were $13.9 million in fiscal 1993, an increase of $6.8
million, or 95.8%, from $7.1 million in fiscal 1992. These expenses as a
percentage of sales declined to 21.4% from 22.8% in fiscal 1992. While overall
expenses were up as a result of the Richey-Brajdas Merger, the combined
operations benefitted from economies of scale that reduced operating expenses as
a percentage of net sales. The Company implemented a number of cost cutting
programs to eliminate duplicate personnel, sales, warehouse and corporate
facilities, computer systems and communication networks following the
Richey-Brajdas Merger.
Interest expense increased to $1.2 million for fiscal 1993 from $388,000 for
fiscal 1992. The increase in interest expense was due primarily to the increased
revolving line of credit borrowings and subordinated debt incurred as a result
of the Richey-Brajdas Merger.
The Company's provision for federal and state income tax expense increased
to $460,000 for the year ended December 31, 1993 from $308,000 for the
corresponding period of 1992. The effective tax rate for 1993 declined slightly
to 39% from 41% for 1992.
BACKLOG
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 electronics distribution industry. Order backlog grew throughout
fiscal 1994 and at fiscal year end was $19.9 million, up 33% from $15.0 million
at December 31, 1993. Order backlog at March 20, 1995 was approximately $26.0
million, substantially all of which will be shipped within the next 12 months.
The Company believes that the increase in order backlog is
16
<PAGE>
attributable to the general world-wide economic advance in the
telecommunications and computer industries, as well as to various sales,
marketing and operational programs implemented by Richey Electronics following
the Richey-Brajdas Merger and In-Stock Acquisition. Order backlog is not
necessarily indicative of future sales for any particular period. Orders
constituting the Company's backlog are subject to delivery rescheduling, price
renegotiations and cancellation at the option of the buyer without significant
penalty.
LIQUIDITY AND CAPITAL RESOURCES
Richey Electronics currently maintains a revolving line of credit of up to
$15 million based upon eligible accounts receivable and inventory, with interest
on borrowed funds at prime rate plus 1.5%. The credit agreement restricts
payment of cash dividends on the Company's stock without prior approval of the
Company's lender. In addition, the Company must comply with various financial
and operational covenants established by its lender, all of which the Company
currently satisfies. The Company negotiates certain of these operational
covenants on an annual basis with its lender. As of December 31, 1994, Richey
Electronics had outstanding borrowings thereunder of $8.8 million, with an
additional borrowing capacity of $5.5 million available. The Company believes
that its line of credit will be adequate to meet its anticipated funding
commitments for the remainder of 1995. The Company is currently in negotiations
with its asset based lender to increase the size and modify the terms of its
revolving line of credit.
Working capital decreased to $5.3 million as of December 31, 1994 from $6.9
million as of December 31, 1993, a decrease of $1.6 million. This decrease was
primarily the result of a $3.0 million paydown of long-term senior subordinated
debt in the first quarter of 1994 with funds borrowed under the Company's
revolving line of credit. This paydown had the effect of converting $3.0 million
of debt from long-term to short-term debt. In addition, the Company expects to
pay down $1.6 million of its senior subordinated debt in the first quarter of
1995 with the proceeds of the Offering or by borrowing on its revolving line of
credit. See "Use of Proceeds."
During fiscal 1994, the Company's net cash from operating activities was
$4.0 million, as compared to $468,000 in fiscal 1993 and $407,000 in fiscal
1992. Net cash generated from operations increased in fiscal 1994 compared to
fiscal 1993, primarily as a result of an increase in net income, an increase in
utilization of the Company's NOLs and a $2.8 million increase in accounts
payable, offset to some extent by a $1.1 million increase in trade receivables.
Net cash generated from operations in fiscal 1993 increased slightly compared to
fiscal 1992, primarily as a result of an increase in net income to approximately
$700,000 in fiscal 1993 from approximately $400,000 in fiscal 1992, a
corresponding increase in utilization of the Company's NOLs and a significant
increase in non-cash expenses, offset by increases in inventory of $1.3 million
at December 31, 1993.
Net cash used in investment activities was $2.9 million in fiscal 1994, $3.2
million in fiscal 1993 and negligible in fiscal 1992. During fiscal 1994, the
Company had capital expenditures of $401,000, as compared to $89,000 in fiscal
1993. Most of these capital expenditures were made to enhance the Company's
value-added assembly capabilities. During fiscal 1994, the Company spent
approximately $2.5 million on acquisition related activities, which included
$1.8 million for the In-Stock Acquisition, $490,000 in Richey-Brajdas Merger
costs and $220,000 incurred pursuant to a revaluation of RicheyImpact assets as
a result of an IRS settlement of 1991 taxes. During fiscal 1993, the Company
spent $3.2 million on costs associated with the Richey-Brajdas Merger. The
Company financed its capital expenditure and acquisition activities with net
cash from operating activities and borrowings under its revolving line of
credit. The Company anticipates incurring capital expenditures of approximately
$600,000 in fiscal 1995, all of which will be financed with net cash from
operating activities and borrowings under its revolving line of credit. The
Company's actual capital expenditures may vary significantly from its current
expectations, based on a number of factors, including but not limited to
additional acquisitions, if any.
For the quarter ended December 31, 1994, inventory turnover was 4.9x,
compared to 4.4x for 1993 and 3.7x for 1992. The improvement in inventory
turnover was a result of the enhanced inventory control and supplier product
return programs instituted by the Company, the general improvement in business
activity experienced in 1994, and the acquisition of In-Stock inventories having
a relatively high turnover.
17
<PAGE>
The number of days sales outstanding in accounts receivable decreased by one
day to 42 days in the fourth quarter of fiscal 1994 from 43 days in the final
quarter of fiscal 1993. In April 1994, the Company acquired the operations and
business of In-Stock which had an approximately 50 day turnover on about $1.5
million in receivables. At the time of the acquisition, this added approximately
two days to days sales in accounts receivable, which the Company was able to
improve to historical averages by fiscal year end. The Company did not
experience any significant trade collection difficulties in 1994.
DEFERRED TAX ASSETS
As of December 31, 1994, the Company had approximately $24.0 million in
federal and $5.0 million in state tax NOLs, primarily California, most of which
expire between 1998 and 2009. The NOLs resulted from Brajdas' losses prior to
the Richey-Brajdas Merger.
Section 382 and related regulations impose certain limitations on a
corporation's ability to use NOLs. Upon a Change in Ownership, the use of NOLs
is restricted. California law conforms to the provisions of Section 382. The
Richey-Brajdas Merger did not result in a Change in Ownership; therefore, the
Company's current ability to utilize the NOLs is not restricted. As a result of
the Offering, a Change in Ownership will occur. Accordingly, the Company
estimates that its use of the NOLs will be limited to approximately $2.5 million
per year until the NOLs are fully utilized or expire, whichever occurs first.
As discussed in Note 9 of Notes to Financial Statements, at December 31,
1994, the Company recorded a deferred tax asset of $3.9 million, net of a $3.7
million valuation allowance. The estimated future tax benefits of the NOLs
comprise the principal portion of the deferred tax asset. SFAS No. 109,
"Accounting for Income Taxes," requires that a valuation allowance be recorded
"when it is more likely than not" that any portion of the deferred tax asset
will not be realized. Due to the inherent uncertainty in forecasts of future
events and operating results, the Company has established a $3.7 million
valuation allowance which reduces the December 31, 1994 net deferred tax asset
to the tax benefit expected to be realized during approximately the next four
years after giving effect to the annual limitation resulting from the Change in
Ownership.
The Company has been consistently profitable since December 28, 1990 and
generated taxable income before NOLs of $3.0 million in 1994. Further, the
Company incurred interest expense of $1.6 million during 1994 on borrowings
which will be repaid through the proceeds of the Offering. See "Use of
Proceeds." Consequently, on an as adjusted basis, the Company's 1994 taxable
income, after excluding such interest expense, was substantially greater than
the $2.5 million annual limitation on the use of the NOLs. Based on its historic
and current level of profitability, the Company believes that it is "more likely
than not" that the Company will be able to generate the $11.0 million of future
taxable income needed to realize the recorded amount of the net deferred tax
asset prior to expiration of the NOLs. See "Investment Considerations --
Limitations on Availability of the Company's Net Operating Loss Carryforwards."
At the date of the Richey-Brajdas Merger, management established a valuation
allowance to reduce net deferred tax assets to zero. As part of the
Richey-Brajdas Merger, the Company allocated the purchase price in excess of
tangible net assets acquired of approximately $10.2 million to distribution
agreements and customer lists. In December 1993, as the favorable results of the
Richey-Brajdas Merger developed and the Company's prospects for ongoing
profitability improved, the valuation allowance was decreased by $4.3 million,
resulting in an increase in the net deferred tax asset, and a corresponding
reduction in the carrying value of the distribution agreements and customer
lists. During 1994, amounts allocated to distribution agreements and customer
lists were further reduced by $1.3 million reflecting the realization of the
deferred tax assets during the year.
18
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain statements of operations data for the
periods indicated. This information has been derived from unaudited financial
statements which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. These operating results are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
FISCAL 1994
Net sales................... $20,247,000 $23,105,000 $22,838,000 $24,076,000
Gross profit................ 4,855,000 5,562,000 5,793,000 5,880,000
Net income.................. 355,000 532,000 471,000 535,000
Earnings per common share... .06 .09 .08 .09
Shipping days............... 65 64 63 62
FISCAL 1993
Net sales................... $ 8,088,000 $19,721,000 $18,927,000 $18,259,000
Gross profit................ 2,154,000 4,782,000 4,686,000 4,632,000
Net income.................. 85,000 93,000 288,000 241,000
Earnings per common share... .03 .02 .05 .04
Shipping days............... 64 64 63 61
FISCAL 1992
Net sales................... $ 7,862,000 $ 8,009,000 $ 8,300,000 $ 7,216,000
Gross profit................ 2,080,000 2,198,000 2,082,000 1,922,000
Net income.................. 165,000 160,000 83,000 34,000
Earnings per common share... .06 .06 .03 .01
Shipping days............... 64 63 64 60
</TABLE>
The unaudited quarterly results of operations indicate that net sales rose
from $299,000 per shipping day in the fourth quarter of 1993 to $311,000,
$361,000, $362,000 and $388,000 per shipping day in the four consecutive
quarters of 1994, respectively. The fiscal calendar for 1995 contains 64, 64, 62
and 62 shipping days for the first through fourth quarters, respectively.
Quarterly operating results may fluctuate significantly from quarter to quarter
in the future. See "Investment Considerations -- Potential Quarterly
Fluctuations."
INFLATION
Inflation has not had a significant impact on the Company's operations
during the period under review.
19
<PAGE>
BUSINESS
GENERAL
Richey Electronics is a multi-regional, specialty distributor of electronic
components and a provider of value-added assembly services. Management and an
investor group built the Company through a series of transactions, beginning
with the acquisition of the operations of Old Richey in December 1990. Since the
initial acquisition, the Company's growth has been directed by one of the most
experienced management teams in the industry. Through acquisitions and internal
growth that improved the Company's operating leverage, Richey Electronics' sales
and earnings have increased from approximately $33.0 million and $700,000,
respectively, in 1991, to $90.3 million and $1.9 million, respectively, in 1994.
The Company believes that strategic acquisition opportunities will continue to
arise as a result of the consolidation occurring in the electronics distribution
industry.
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. The Company's customers are primarily
small- and medium-sized OEMs that produce electronic equipment used in a wide
variety of industries, including telecommunications, computer, medical and
aerospace. In 1994, the Company distributed electronic components to
approximately 9,000 customers, none of which represented more than 2.5% of net
sales.
Members of senior management have an average of 25 years experience in the
industry and, prior to the Offering, own approximately 26% (fully diluted) of
the Company. Eleven of the Company's senior managers previously held management
positions at Avnet, the second largest distributor of electronic components in
the world. The Company's Chairman, President and Chief Executive Officer,
William C. Cacciatore, was previously Senior Vice President responsible for the
Electronic Marketing and Electrical and Engineering groups of Avnet and a member
of Avnet's Board of Directors.
INDUSTRY OVERVIEW
Over the last 30 years, the electronics industry has grown significantly as
a result of increased demand for products incorporating sophisticated electronic
components, such as telecommunications and computer equipment. This industry
growth has been matched by an increase in the number of products, component
manufacturers and OEMs.
The electronics distribution industry has become an increasingly important
sales channel for the electronics industry because distributors can market
component manufacturers' products to a broader range of OEMs than suppliers
could economically serve with their direct sales forces. Historically,
manufacturers of electronic components have sold directly to larger OEMs and
relied upon distributors to serve smaller customers. Today, distributors have
become more of an extension of component manufacturers' product delivery channel
by providing value-added assembly services and technical support to customers,
stocking sufficient local inventory to ensure timely delivery of components and
managing customer credit. Distributors also work with OEMs to ensure that
component manufacturers' products are designed into new products. This is
particularly important because product innovations in the electronics industry
often come from smaller, entrepreneurial companies.
As component manufacturers have increasingly focused their sales efforts on
the largest OEMs, and less on smaller customers, the distribution segment has
increased its share of the electronic component market from an estimated 12% in
1970 to an estimated 30% today, according to an October 1994 financial analyst's
report on Kent Electronics Corporation. The report estimates that approximately
one-half of all electronic components are purchased by the top 100 customers and
virtually all of these products are purchased directly from component
manufacturers. The remaining electronic components are purchased by
approximately 100,000 OEMs. These OEMs purchase products from both distributors
and manufacturers, with smaller customers purchasing a greater proportion of
their products from distributors.
MARKET SIZE. According to the December 5, 1994 edition of ELECTRONIC NEWS,
in 1994, the electronics distribution industry recorded approximately $16
billion in sales. Of these sales, the Company estimates that approximately $12
billion consisted of sales of semiconductors and computer related peripherals,
which are
20
<PAGE>
not sold by the Company. The remaining $4 billion consisted of sales of
interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which are marketed by the Company.
TRENDS. A number of trends are affecting the electronic component
distribution industry today. One of the most significant trends is that of
consolidation. A series of mergers and acquisitions over the last ten years has
created a number of very large distribution companies that have increasingly
focused on their larger customers and on expanding international operations. As
a result of this large customer focus, regional and specialty distributors have
gained market share among small- and medium-sized OEMs. These smaller customers
often require value-added assembly services, detailed technical information
about available products, assistance in coordinating product design and
engineering with materials resource planning, fast response to inventory
availability inquiries, dependable on-time deliveries and other services.
In addition to the consolidation of distributors, manufacturers are limiting
the number of distributors through which they market their products in an effort
to improve operating efficiency. Regional distributors must therefore
demonstrate strong local market positions and client relationships when
competing to obtain or retain top manufacturer franchises. Many of these
distributors have made substantial efforts to expand local market share by
emphasizing customer services, such as value-added assembly, just-in-time
inventory management, automatic-replenishment and in-plant stores.
Another key trend is the outsourcing of component assembly, which allows
OEMs to enhance profitability by concentrating resources on product design,
marketing and other core aspects of their business. By serving a variety of
customers, distributors can often produce subassemblies more efficiently than
many small- and medium-sized OEMs. The September 12, 1994 edition of OUTSOURCE
MAGAZINE estimates that OEM outsourcing is now an $11 billion industry growing
at an estimated 14.5% per annum.
BUSINESS STRATEGY
The Company's objective is to improve its position as a leading specialty
distributor and value-added assembler of interconnect, electromechanical and
passive electronic components in the United States. In pursuing this objective,
the Company does not intend to directly compete in the semiconductor or computer
peripheral markets of the electronics distribution industry. The Company's
strategy for achieving this objective is to increase operating leverage by
expanding sales and improving operating efficiencies. To implement this
strategy, the Company intends to:
- PURSUE STRATEGIC ACQUISITIONS. The factors driving consolidation among
large distributors are also prevalent in the specialty component
distributor segment. These factors include the desire of manufacturers to
sell through fewer distributors, the need for distributors to increase
operating leverage and the desire of OEMs to satisfy component
requirements with fewer vendors. The Company has been an active
participant in this consolidation trend, with the Richey-Brajdas Merger in
1993 and the In-Stock Acquisition in 1994. Both transactions increased the
Company's presence in the geographic markets it served and resulted in
improved operating leverage from closing redundant facilities, combining
sales forces and product marketing efforts, and reducing corporate
overhead expenses. The Company will actively seek complementary
acquisitions which through consolidation can add sales, profits,
experienced personnel and a stronger Company presence in targeted markets.
Management believes that acquisition opportunities will be available given
that there are still more than 80 participants in the electronics
distribution industry with annual revenues in excess of $10 million.
- CAPITALIZE ON THE TREND TOWARD OUTSOURCING BY INCREASING SALES OF
HIGHER-MARGIN, VALUE-ADDED ASSEMBLY SERVICES. As the trend toward
outsourcing by OEMs of all sizes continues, the Company has the
opportunity to provide additional value-added assembly services to its
customer base. By offering small- and medium-sized OEMs the opportunity to
purchase custom cable assemblies, battery packs and mechanical assemblies
on a just-in-time basis, the Company permits its customers to reduce end-
product costs, limit their investment in working capital and improve
product quality. The Company can frequently provide these services at
lower cost than customers would incur on their own, due to the Company's
purchasing volume, large component inventories and efficient assembly
operations, while earning higher gross margins than could be achieved by
selling non-assembled components.
21
<PAGE>
Additionally, value-added assembly services enhance the Company's
relationships with its customers, who come to rely upon the Company's
expertise and efficiency in assembling key parts of their end products.
Value-added assembly services increased from 16.8% of net sales in 1993 to
23.5% of net sales in 1994.
- EXPAND GEOGRAPHIC COVERAGE TO ADJACENT MARKETS. The Company seeks to
increase its geographic coverage by opening branches in metropolitan
markets adjacent to the markets in which it currently operates. By first
developing a sales and customer base in an adjacent market using personnel
and facilities from an existing market, the Company can serve the new
market as a "satellite" of the existing branch. To the extent a satellite
location continues to grow, the Company can invest in personnel and
facilities, as required, to establish a self-sufficient new branch while
maintaining operating expense ratios similar to those experienced by
existing branches. This approach, followed by the Company in Connecticut
in 1994 and planned for Portland in 1995, lowers both the cost and risk
associated with geographic expansion in a distribution business. By
expanding in adjacent markets, the Company can gain additional operating
leverage at its existing branches which would be unavailable to it in
distant, unserved markets.
- EXTEND EXISTING MARKET-SPECIFIC FRANCHISE AGREEMENTS ACROSS ALL MARKETS
SERVED. The Company believes that it can increase sales volumes by
obtaining authorized distribution franchises from key component
manufacturers in each of its existing markets. Expanding the number of
authorized locations in which the Company is franchised by key
manufacturers allows the Company's sales force to fully market a more
complete product offering to customers, obtaining larger average order
sizes per customer contact. The Company can then decrease its transaction
costs per item and per customer, leverage its inventories and optimize
sales training, thereby lowering operating costs per dollar of sales.
- FOCUS ON SMALL- AND MEDIUM-SIZED CUSTOMERS. While large, national
distributors have been pushed by their cost structures and component
manufacturers to pursue larger orders of commodity products from larger
customers, the Company has maintained its focus on smaller OEMs. These
smaller OEMs generally do not have the purchasing power to buy direct from
manufacturers and frequently cannot be served on a cost-effective basis by
large national distributors because they often require detailed technical
and product assistance, while ordering a relatively small amount of
electronic components. Consequently, they often rely on specialty,
regional distributors, such as the Company. Historically, the Company has
not experienced the level of gross margin pressure reported by larger
distributors, as smaller customers have been willing to pay higher prices
for products to receive additional services. Moreover, the Company
believes that much of the growth experienced by the electronics industry
is driven by the formation of, and innovation by, smaller, entrepreneurial
OEMs, which continually provide a potential customer base for the Company.
Fundamental to the success of the Company's strategy is a constant focus on
lowering costs and improving customer service. The Company pursues opportunities
to reduce operating expenses throughout the Company's business and tracks
operating expenses as a percentage of sales on a daily basis. The Company
emphasizes working capital management and ties product manager compensation to
improved inventory efficiency. Management regularly reviews the performance of
the Company's management information systems and employs cost-saving
technological advances wherever possible. A Company-wide emphasis on quality,
evidenced by its certification to the ISO 9002 standard, strengthens the loyalty
of customers. The Company has met the certification requirements of the
International Standards Organization for ISO 9002 certification by operating its
Garden Grove and Los Angeles facilities in accordance with established, written
procedures.
DISTRIBUTION AND SERVICES
The Company distributes interconnect, electromechanical and passive
electronic components used in the assembly and manufacturing of electronic
equipment. Richey Electronics also provides its customers with 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
22
<PAGE>
Company's value-added assembly services respond to an industry trend toward
outsourcing in which purchasing, manufacturing and distribution functions are
allocated to the most efficient provider. The Company believes that outsourcing
represents a significant opportunity to expand sales, margins and operating
profits.
COMPONENT DISTRIBUTION. The distribution of interconnect, electromechanical
and passive electronic components accounted for approximately 76.5% of the
Company's net sales in 1994. These products include electronic connectors, wire,
cable, relays, switches, motors, batteries, power supplies, resistors and
potentiometers. The Company sources its products from such leading suppliers as
AMP, Burndy, C&K, Delta, Deutsch, Dialight, Eaton, Grayhill, MicroSwitch, 3M,
Molex, Panasonic, Panduit, Power General, Precicontact, Samtec, Sullins, TDK, TI
Klixon and Wieland.
VALUE-ADDED ASSEMBLY SERVICES. The electronics industry's trend toward the
use of outside vendors to provide value-added assembly services represents a
growth opportunity for the Company. Outsourcing offers OEMs the opportunity to
invest financial resources in areas with higher returns, such as engineering and
marketing. Additionally, the capital investment required to stay current in
manufacturing technologies is beyond the financial capability of many smaller
OEMs. By servicing a variety of such customers, the Company spreads such costs
over a larger business base. Moreover, by integrating assembly services with
extensive inventories, the Company is able to eliminate a large amount of
shipping, handling and receiving costs from the process. For many OEMs, the
Company is able to offer assembly services at a lower cost to the customer while
producing higher margins for itself. The Company currently builds a variety of
component assemblies, including cable, battery pack, switch and mechanical
assemblies, wire harnesses, fan and motor assemblies, and provides engraving and
molding services. The Company has increased its emphasis on higher-margin,
value-added assembly services, which grew from $6.5 million or 20.7% of net
sales in 1992 to $10.9 million or 16.8% of net sales in 1993 and to $21.2
million or 23.5% of net sales in 1994.
The Company currently provides value-added assembly services from its Los
Angeles, San Diego and San Jose, California facilities and from its Boston,
Massachusetts facility. The Company is preparing its Dallas, Texas facility to
begin providing these services.
SALES AND MARKETING
The Company provides its customers with a wide range of products from a
large number of component manufacturers. The Company believes that it has
developed valuable long-term customer relationships and an in-depth
understanding of its customers' needs and purchasing patterns. Richey
Electronics serves a broad range of industrial, commercial and aerospace
customers, none of which represented more than 2.5% of net sales in 1994.
The Company's sales representatives are trained to identify their customers'
electronic component requirements and to actively market the Company's entire
product line to satisfy these needs. During the design process, sales
representatives meet with the customers' engineers and designers to discuss
their component needs and any design or procurement problems. The sales
representatives suggest components that meet performance criteria, are cost
effective and focus on specific problems. Through this approach, components
carried by the Company are often incorporated into final product specifications.
The Company had approximately 105 sales representatives as of December 31,
1994. The Company has sales offices in ten metropolitan markets throughout the
United States. Sales representatives are compensated primarily by commission
based on the gross profits obtained on their sales.
The Company's local sales efforts are supported by a central marketing
group, located at its headquarters in Garden Grove, California, which is
responsible for identifying new suppliers and developing supplier relations,
coordinating national advertising, negotiating supplier agreements and promoting
new and existing product lines within the Company.
OPERATIONS
DISTRIBUTION. The principal focus of the Company's distribution business is
to provide its OEM customers with rapid and reliable deliveries of electronic
components and a wide variety of related value-added assembly services. The
Company utilizes a computerized system of inventory control to assist in
23
<PAGE>
marketing its products and to coordinate purchases from manufacturers. The
Company's computer system provides detailed on-line information regarding the
price and availability of the Company's entire stock of inventory, as well as
on-line access to the inventories of several of the Company's major suppliers.
After product price and availability are established, the system
automatically places an order for shipment, or allocates inventory to the
assembly operations, if so required. The system then instructs warehouse
personnel to pull products for shipment and, via its locator system, informs
them as to the location of the inventory. In order to optimize use of available
warehouse space, the Company uses a random-access, multi-bin system whereby
inventory is stored in the first available space.
If the order is scheduled for delivery over an extended period of time or
requires inventory purchases to fulfill all or part of the customer's
requirements, the system will inform the product management team, via a buy
action report, that action must be taken. The product manager makes the
appropriate buying decision which is forwarded, in most cases, by electronic
purchase order to component manufacturers.
Approximately 80% of the inventory is stored in the Company's centralized
distribution facility in Los Angeles; the remaining 20% of the inventory is
stored locally in the Company's regional facilities in Boston, San Diego and San
Jose. The Company constantly reviews inventories in an effort to maximize
inventory turnover and customer service. The Company believes its turnover
ratios (4.9x for 1994) compare favorably with the industry average for
interconnect, electromechanical and passive component inventories.
VALUE-ADDED ASSEMBLY SERVICES. The Company offers a wide variety of
value-added assembly services, including component assemblies, cable and harness
assemblies, battery packs and other related electromechanical subassemblies.
After a customer's assembly order is taken, the inventory requirements are
automatically routed, via the computer system, to the warehouse facilities. The
system tracks the order through the entire assembly process, including final
inspection and shipment to the customer. The Company conducts stringent quality
control tests in-line during assembly, and also conducts physical, mechanical
and electrical tests at the conclusion of the assembly process.
COMPONENT MANUFACTURERS
The Company's base of manufacturers has increased significantly over the
past four years. Presently, the Company has non-exclusive franchise
(distribution) agreements with approximately 75 component manufacturers,
including AMP, Burndy, C&K, Delta, Deutsch, Dialight, Eaton, Grayhill,
Microswitch, 3M, Molex, Panasonic, Panduit, Power General, Precicontact, Samtec,
Sullins, TDK, TI Klixon and Wieland. Management believes that it has one of the
strongest product offerings, or line cards, in the markets it serves. The
Company believes that it is the only distributor in the United States which
represents six of the world's seven largest connector manufacturers, who
together control 85% of the global connector market.
For the year ended December 31, 1994, the Company's top five suppliers
accounted for approximately 36% of net sales, although no single manufacturer
accounted for more than 11% of net sales. There can be no assurance that the
loss of any one of the Company's larger suppliers would not have a material
adverse impact on its business. See "Investment Considerations -- Dependence on
Key Suppliers."
The Company generally purchases products from manufacturers pursuant to
franchise agreements. Being a local authorized distributor is a valuable
marketing tool for the Company because customers receive warranty benefits and
support from the component manufacturer when they purchase products from Richey
Electronics. As an authorized distributor, the Company provides customers a
benefit from the marketing and engineering support available from the Company's
manufacturers, which assists the Company in closing sales and attracting new
customers.
Most of the Company's franchise agreements are cancelable by either party,
typically upon 30 to 90 days' notice. These agreements typically provide for
price protection, stock rotation privileges and the right to return certain
inventory if the agreement is canceled. Price protection is typically in the
form of a credit to the distributor for any inventory in the distributor's
possession for which the manufacturer reduces its prices. Stock rotation
privileges typically allow the Company to exchange inventory in an amount up to
5% of a prior period's purchases. Upon termination of a franchise agreement, the
right of return typically requires the manufacturer to repurchase the Company's
inventory at the Company's adjusted purchase
24
<PAGE>
price. If the Company terminates the franchise agreement, there is typically a
10% to 15% restocking charge. The Company believes that the provisions of these
franchise agreements should generally reduce the Company's exposure to
significant inventory losses, although there can be no assurance that the
Company will not experience significant inventory losses.
COMPETITION
The electronics distribution industry is highly competitive, primarily with
respect to price and product availability. The Company believes that breadth of
product line, level of technical expertise and quality of service are also
particularly important to small- and medium-sized customers. The Company
competes with large national distributors such as Arrow and Avnet, as well as
regional and specialty distributors, many of whom distribute the same or
competitive products. Many of the Company's competitors have significantly
greater assets and greater financial and personnel resources than those of the
Company.
In 1994, total North American sales in the electronic components
distribution industry (including semiconductors and computer related
peripherals) were approximately $16 billion, of which the top 25 distributors
had sales of approximately $13 billion. The Company was ranked as the 24th
largest electronic components distributor in the United States by ELECTRONIC
NEWS in its December 5, 1994 edition. Within the interconnect, electromechanical
and passive electronic components markets in which the Company competes, it is
ranked considerably higher. Richey Electronics ranked 11th in the connector
market and 14th in the electromechanical/passive market by ELECTRONIC BUSINESS
BUYER in its April 1994 edition.
The Company encounters some competition from products manufactured abroad
and distributed domestically. Such foreign manufactured products are often sold
at prices below the Company's prices for comparable products. The Company
competes by providing its customers with reliable, rapid delivery of products
that meet strict quality control standards. See "Investment Considerations --
Competition and Industry Consolidation."
EMPLOYEES
The Company had approximately 475 employees as of December 31, 1994.
Approximately 75 of the Company's employees are corporate personnel involved in
production management, finance, quality control or senior management. Another 50
employees work in the Company's Los Angeles, Boston and branch warehouses; 175
individuals are employed in branch sales and marketing efforts and 175 persons
are employed on a full-time or on-call basis in value-added assembly services.
There are no collective bargaining contracts covering any of the Company's
employees. The Company believes its relationship with its employees is
satisfactory.
PROPERTIES
The Company leases all facilities used in its business. The Company's
headquarters are located in Garden Grove, California in an office comprising
approximately 15,500 square feet. This facility is in the process of being
expanded to approximately 21,000 square feet in the first quarter of 1995. Most
of the Company's inventory is consolidated and shipped from a warehouse in Los
Angeles, California, comprising approximately 34,500 square feet. The Company
plans to expand this facility to approximately 55,000 square feet during 1995.
Approximately 12,000 square feet of the Los Angeles warehouse facility is
currently dedicated to value-added assembly services. During 1995, the Company
plans to expand to 20,000 square feet the area dedicated to value-added assembly
services. The Company's Boston, Massachusetts facility, comprising approximately
23,000 square feet, holds most of the Company's remaining inventory.
Approximately 6,000 square feet is dedicated to value-added assembly services in
the Boston facility. The Company also leases space for its other facilities
which range in size from approximately 1,000 square feet to 15,000 square feet.
The Company believes its facilities are suitable for their uses and are, in
general, adequate for the Company's current needs. The Company believes that
lease extensions or replacement space may be obtained for all of its leased
facilities upon the expiration of the current lease terms, in most cases at
rates which are not materially higher than those currently in effect.
LEGAL PROCEEDINGS
There are no material legal proceedings pending, or, to the knowledge of
management, threatened against the Company.
25
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
William C. Cacciatore...... 60 Chairman, President and Chief Executive Officer
C. Don Alverson............ 59 Executive Vice President -- Sales, Director
Norbert W. St. John........ 63 Executive Vice President -- Marketing, Director
Richard N. Berger.......... 44 Vice President, Chief Financial Officer and Secretary
Charles W. Mann............ 54 Vice President -- Value-Added Services
William Class.............. 48 Vice President and General Manager, Northern California region
Greg A. Rosenbaum(1)....... 42 Assistant Secretary, Director
Donald I. Zimmerman(1)(2).. 55 Director
Thomas W. 36 Director
Blumenthal(1)(2)..........
Edward L. Gelbach(2)....... 63 Director
<FN>
-------------------
(1) Member, Audit Committee of the Board of Directors.
(2) Member, Compensation Committee of the Board of Directors.
</TABLE>
WILLIAM C. CACCIATORE has served as the Company's Chairman of the Board,
President and Chief Executive Officer since April 1993. Mr. Cacciatore also
served as Chairman, President and Chief Executive Officer of RicheyImpact from
December 1990 until April 1993. From March 1985 through December 1990, Mr.
Cacciatore was employed as a business consultant to the electronics industry.
Mr. Cacciatore was employed by Avnet and its predecessor companies from May 1967
to April 1985, ultimately as Senior Vice President of the Electronic Marketing
and Electrical and Engineering groups of Avnet. Mr. Cacciatore was also a member
of the Board of Directors of Avnet from 1981 to 1983.
C. DON ALVERSON has been a director of the Company and has served as
Executive Vice President -- Sales since October 1993. From April 1993 to October
1993, Mr. Alverson was the Executive Vice President -- Sales and Marketing. Mr.
Alverson also served as Executive Vice President -- Sales and Marketing for
RicheyImpact from December 1990 until April 1993. Mr. Alverson was the General
Manager for the southern California operations of Bell Industries, an
electronics distributor, from July 1990 until December 1990. From October 1988
through July 1990, Mr. Alverson was employed as a business consultant. Mr.
Alverson was employed by Avnet and its predecessor companies from October 1965
to October 1986, ultimately as Senior Vice President, Area Director.
NORBERT W. ST. JOHN has been a director of the Company and has served as the
Company's Executive Vice President -- Marketing since October 1993. Mr. St. John
served as the Executive Vice President -- Operations of the Company from April
1993 to October 1993. Mr. St. John also served as Executive Vice President --
Operations for RicheyImpact from December 1990 until April 1993. From June 1990
until December 1990, Mr. St. John was a general manager of Arrow. Mr. St. John
was Vice President responsible for southern California market operations for
Hall-Mark Electronics Corporation, an electronics distributor, from October 1983
through November 1989. Mr. St. John was employed by Avnet and its predecessor
companies from January 1963 to October 1983, ultimately as Senior Vice
President, General Manager, Hamilton Electro Sales.
RICHARD N. BERGER has served as the Company's Vice President, Chief
Financial Officer and Secretary since April 1993. Mr. Berger was the Director of
Finance and Administration for RicheyImpact from March 1992 until April 1993.
From August 1989 until March 1992, Mr. Berger was a private investor. Mr. Berger
was employed by Avnet and its predecessor companies in various financial
positions from August 1973 until August 1989, the last three years as Vice
President of Finance and Controller of the Electronic Marketing group of Avnet.
CHARLES W. MANN has served as the Company's Vice President -- Value-Added
Services since October 1993. Mr. Mann has been responsible for value-added
services since April 1993. Mr. Mann was also
26
<PAGE>
responsible for value-added services for RicheyImpact from April 1991 to April
1993. From April 1988 to April 1991, Mr. Mann served as Vice President for the
western region of Panduit Corporation, an electronics manufacturer.
WILLIAM CLASS has been a Vice President and the General Manager of the
Northern California region since March 1994. From April 1993 until March 1994,
Mr. Class was the General Manager of the Northern California region. Mr. Class
was also the General Manager of the Northern California region for RicheyImpact
from December 1991 until April 1993. Mr. Class was the Vice President of Harper
SID, a division of Avnet, from April 1990 until December 1991.
GREG A. ROSENBAUM has been a director of the Company since April 1993 and
has served as the Company's Treasurer from April 1993 through February 1995 and
as Assistant Secretary since April 1993. Mr. Rosenbaum served as the Treasurer
and as Assistant Secretary of RicheyImpact from December 1990 until April 1993.
Mr. Rosenbaum has been President of Palisades Associates, Inc. ("Palisades"), a
merchant banking and consulting company, since 1989. Mr. Rosenbaum is a director
of Varlen Corporation, a diversified manufacturer of precision components for
the transportation and laboratory equipment markets.
DONALD I. ZIMMERMAN has been a director of the Company since April 1993.
Since 1973, Mr. Zimmerman has been President of Barclay and Company, Inc.
("Barclay"), an import/export company doing business with the Far East as well
as holding real estate investments and operating companies in the United States.
Mr. Zimmerman served as President, Chief Executive Officer and Chairman of the
Board of Brajdas from 1985 until April 1993 and as Chief Financial Officer of
Brajdas from September 1992 until April 1993.
THOMAS W. BLUMENTHAL has been a director of the Company since May 1994. Mr.
Blumenthal has been an Investment Analyst for The Baupost Group, Inc. since June
1993. Mr. Blumenthal was employed in the corporate finance department of Dean
Witter Reynolds Inc. from October 1986 through May 1993, serving as a managing
director from December 1989 through May 1993. Mr. Blumenthal is a director of
Data Documents Holdings, Inc. and The Oberto Sausage Company.
EDWARD L. GELBACH has been a director of the Company since October 1993. Mr.
Gelbach served as a director of RicheyImpact from December 1990 through April
1993. From 1989 until the present, Mr. Gelbach has been a private investor. Mr.
Gelbach was employed as a Senior Vice President of Intel Corporation from 1971
through 1989. Mr. Gelbach was also a member of Intel's Board of Directors from
1974 until 1989. Mr. Gelbach is a director of Bell Microproducts, a distributor
of high technology semiconductor and computer products.
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Board of Directors has appointed two committees: the Audit Committee and
the Compensation Committee. The members of the Audit Committee are Messrs.
Blumenthal, Rosenbaum and Zimmerman. Responsibilities of the Audit Committee
include reviewing financial statements and consulting with the independent
auditors concerning the Company's financial statements, accounting and financial
policies and internal controls and reviewing the scope of the independent
auditors' activities and fees. The members of the Compensation Committee are
Messrs. Blumenthal, Gelbach and Zimmerman. The Compensation Committee is
responsible for reviewing and approving, within its authority, compensation,
benefits, training and other human resource policies. The Company has no
standard arrangements pursuant to which directors of the Company are compensated
for any services provided as a director, except that the Company provides a
$15,000 annual retainer for each outside director of the Company. Directors are
eligible to participate in the Company's stock option plan. See "-- Stock Option
Plan."
27
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the top four executive officers of the
Company (the "Named Executive Officers") whose aggregate cash and cash
equivalent compensation exceeded $100,000 with respect to the year ended
December 31, 1994. Compensation through April 6, 1993 reflects compensation
earned as an employee of RicheyImpact.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
-------------------------------------------------------------------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
William C. Cacciatore 1994 $ 230,000 $ 91,241 14,723
Chairman, President and Chief 1993 203,602 89,375 --
Executive Officer 1992 199,231 70,000 --
C. Don Alverson 1994 $ 125,000 $ 49,588 14,723
Executive Vice President -- Sales 1993 112,165 48,625 --
1992 109,616 37,500 --
Norbert W. St. John 1994 $ 125,000 $ 49,588 14,723
Executive Vice President -- Marketing 1993 112,165 48,625 --
1992 109,616 37,500 --
Richard N. Berger 1994 $ 100,000 $ 39,670 44,170
Vice President, Chief Financial Officer 1993 85,261 34,640 --
and Secretary 1992 45,692 -- --
Charles W. Mann 1994 $ 95,000 $ 38,141 44,170
Vice President -- Value-Added Services 1993 81,538 20,493 --
1992 70,000 10,000 --
</TABLE>
The following table sets forth certain information with respect to stock
options granted during 1994 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS POTENTIAL
UNDERLYING GRANTED TO EXERCISE REALIZABLE VALUE(4)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED(1) 1994(2) SHARE DATE(3) 5% 10%
---------------------------------------- ----------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William C. Cacciatore................... 14,723 6.49% $ 6.00 6/16/04 $ 55,550 $ 140,781
C. Don Alverson......................... 14,723 6.49 6.00 6/16/04 55,550 140,781
Norbert W. St. John..................... 14,723 6.49 6.00 6/16/04 55,550 140,781
Richard N. Berger....................... 44,170 19.48 6.00 6/16/04 166,653 422,354
Charles W. Mann......................... 44,170 19.48 6.00 6/16/04 166,653 422,354
<FN>
-------------------
(1) These options were granted pursuant to the Company's 1992 Stock Option
Plan. One-quarter of the total number of options granted are exercisable on
the first anniversary of the option grant date and thereafter, an
additional one-quarter of the total number of options granted are
exercisable on each of the second, third and fourth anniversaries of the
option grant. See "-- Stock Option Plan."
(2) In 1994, the Company granted a total of 226,737 options under the Company's
1992 Stock Option Plan. This number was used in calculating the percentages
above.
(3) The options granted under the Company's 1992 Stock Option Plan generally
expire on the earliest of (a) the tenth anniversary of the date of grant,
(b) three months after the optionee's termination of
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
employment from the Company or an affiliate, (c) twelve months after the
optionee's termination of employment from the Company or an affiliate in
the case of retirement or permanent and total disability or (d) eighteen
months after the death of the optionee if death occurs while the optionee
is employed by the Company or an affiliate or within three months after the
optionee's termination of employment with the Company or an affiliate. See
"-- Stock Option Plan."
(4) Potential realizable value at assumed annual rates of stock price
appreciation for option term. The assumed 5% and 10% annual rates of
appreciation over the term of the options are set forth in accordance with
rules and regulations adopted by the Securities and Exchange Commission
(the "Commission") and do not represent the Company's estimate of stock
price appreciation.
</TABLE>
The following table sets forth certain information with respect to
unexercised options to purchase the Common Stock held by the Company's Named
Executive Officers on December 31, 1994. There were no stock options exercisable
during 1994.
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1994 AT DECEMBER 31, 1994 ($)(1)
------------------------------ ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------------------------------- --------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
William C. Cacciatore..................................... -- 14,723 -- --
C. Don Alverson........................................... -- 14,723 -- --
Norbert W. St. John....................................... -- 14,723 -- --
Richard N. Berger......................................... -- 44,170 -- --
Charles W. Mann........................................... -- 44,170 -- --
<FN>
-------------------
(1) Options are "in-the-money" at fiscal year-end if the fair market value of
the underlying securities on such date exceeds the exercise or base price
of the option. The amounts set forth represent the difference between the
closing price of the Company's Common Stock on December 30, 1994 and the
exercise price of the options, multiplied by the applicable number of
options.
</TABLE>
EMPLOYMENT AGREEMENTS. The Company has entered into an employment agreement
with each of Messrs. Cacciatore, Alverson, Berger and St. John, providing for a
minimum employment period of four years beginning April 6, 1993. Messrs.
Cacciatore, Alverson, Berger and St. John are each referred to herein as the
"Employee." Pursuant to his employment agreement, Mr. Cacciatore is currently
entitled to an annual base salary of $245,000, subject to upward adjustment as
approved by the Compensation Committee of the Board of Directors. Messrs.
Alverson and St. John are each currently entitled to an annual base salary of
$150,000, subject to upward adjustment as approved by the Compensation Committee
of the Board of Directors. Mr. Berger is entitled to an annual base salary of
$115,000, subject to upward adjustment as approved by the Compensation Committee
of the Board of Directors. Each Employee is also eligible to participate in the
Company's bonus plan and all other benefits available to senior management
employees of the Company as approved by the Compensation Committee of the Board
of Directors. The Company may terminate each Employee's employment at any time
with or without cause and each Employee may terminate his employment for "good
reason" (which generally includes any diminution of compensation, benefits or
responsibility, as well as a material breach of the agreement by the Company).
If any Employee's employment is terminated without cause by the Company (or for
"good reason" by such Employee), such Employee will be entitled to receive, in
addition to the pro rata portion of the base salary theretofore earned but
unpaid, a bonus for the year of termination and an amount equal to the greater
of (i) twelve months' base salary plus bonus or (ii) the base salary plus bonus
that would have been paid had his employment continued for the balance of the
employment period less one year. Each Employee's employment agreement contains a
two-year "evergreen" provision pursuant to which the employment period will
automatically be extended for consecutive periods of two years unless the
Company gives such Employee written notice, no later than 180 days prior to the
expiration of the then applicable employment period, that employment will
terminate upon the expiration of that period. If the employment period is so
extended by two years, then, if such Employee's employment is terminated without
cause by the Company (or for "good reason" by such Employee), such
29
<PAGE>
Employee will be entitled to receive, in addition to such pro rata portion of
base salary and such bonus an amount equal to the greater of (i) twelve months'
base salary plus bonus or (ii) the base salary plus bonus for the remaining
employment period, plus any such additional two-year period for which the notice
date has passed.
BONUS PLAN. The Company has adopted a bonus plan which provides certain key
employees with annual performance bonuses. These bonuses are calculated as a
percentage of the employee's base salary, using various measures of individual
and overall Company performance, including earnings before adjustments for
interest, taxes and certain other items, as well as management of accounts
payable, accounts receivable and inventories. Bonuses are accrued monthly and
paid at the direction of the Compensation Committee of the Board of Directors.
401(K) PLANS. The Company has adopted a defined contribution plan (the
"401(k) Plan") covering employees at least 21 years of age, who have completed
at least three months of service in which such employee has been paid for 250
hours of service. Pursuant to the 401(k) Plan, eligible employees may make
salary deferred (before tax) contributions of up to 15% of their total
compensation (including salary, commission and bonuses) per plan year up to a
specified maximum contribution, as determined by the IRS. At this time there is
no employer matching option. Employees may invest their contributions in any one
of three investment funds.
The Company also maintains a qualified profit sharing and savings plan with
discretionary employer matching and profit sharing contribution provisions.
Under this plan, an employee's interest in the value of any employer
contributions vests based on the number of years of service, fully vesting after
seven years of service. Employees may invest funds under the rules established
by the plan's administrator.
STOCK APPRECIATION RIGHTS PLAN. The Company has a Stock Appreciation Rights
Plan, which it has no current intention of utilizing.
STOCK OPTION PLAN. In 1992, Brajdas adopted the 1992 Stock Option Plan (the
"1992 Stock Option Plan") providing for the granting of options to employees,
directors and consultants of the Company and its affiliates. The 1992 Stock
Option Plan provides for the granting of Incentive Stock Options ("ISOs") as
that term is used in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as for the granting of Supplemental Stock Options
("SSOs") which do not qualify as incentive stock options under the Code. The
1992 Stock Option Plan is administered by the Board or by a committee composed
of not fewer than two disinterested directors of the Company (the "Committee").
The Board or the Committee determines from time to time which of the persons
eligible under the 1992 Stock Option Plan shall be granted options, when and how
the options shall be granted, whether such options shall be ISOs or SSOs and the
provisions of each of the options (which need not be identical), subject to the
restrictions set forth in the 1992 Stock Option Plan. ISOs may be granted only
to employees (including officers) of the Company and its affiliates while SSOs
may be granted to employees (including officers) and directors of, or
consultants to, the Company and its affiliates.
The exercise price of each ISO shall not be less than one hundred percent
(100%) of the fair market value of the stock subject to the option on the date
the option was granted and the exercise price of any SSO shall not be less than
eighty-five percent (85%) of the fair market value of the stock subject to the
option on the date the option was granted. Generally, an option shall terminate
three months after termination of the optionee's employment or relationship as a
consultant to, or director of, the Company or its affiliates, and an option
shall not be transferable except by will or the laws of descent and distribution
(although an SSO may also be transferred pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder).
As of March 1, 1995, a total of 226,737 options have been granted, none of
which has been exercised and none of which is presently exercisable. These
options are held by ten persons, are exercisable at $6.00 per share and remain
exercisable for ten years from the date of grant, subject to certain conditions.
The outstanding options vest and become exercisable in annual installments of
25% over four years beginning on the first anniversary of the date of grant
which was June 16, 1994.
30
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a compensation committee, of which Edward L. Gelbach, Thomas
W. Blumenthal and Donald I. Zimmerman are members. Included in the discussion
below is certain information regarding certain relationships and related
transactions involving Messrs. Gelbach and Zimmerman, as well as other members
of the Company's Board of Directors, principal stockholders and their respective
affiliates.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's long-term debt includes a 10% senior subordinated note issued
to Barclay Financial Group ("BFG"), a limited partnership in which Barclay is
the sole general partner, in April 1993 pursuant to the Richey-Brajdas Merger.
Donald I. Zimmerman, a director of the Company, is President and a significant
shareholder of Barclay. The principal amount of the note due to BFG was
originally $8.0 million and the note bears interest at an annual rate of 10%,
payable quarterly commencing on July 1, 1993. Mandatory principal payments must
be at least $500,000 per year after March 1, 1995, with a final maturity on
March 1, 2000. In April 1993 and March 1994, the Company paid approximately $1.0
million and $3.0 million of principal, respectively, under the note, and on or
about March 31, 1995, the Company will pay $1.6 million of principal. The
Company plans to use proceeds of the Offering to redeem the note.
In connection with the series of transactions leading up to the
Richey-Brajdas Merger, "piggyback" and demand registration rights were granted
to BRJS Investment Holding Corp., a California corporation ("BRJS"), pursuant to
a Registration Rights Agreement dated April 2, 1993. When BRJS merged into the
Company on November 18, 1993, the rights were automatically assigned to Barclay.
The rights become effective in May 1996 with respect to 1,142,857 shares.
The Company and Palisades are parties to a Service and Management Agreement
(the "Management Agreement") pursuant to which Palisades provides services to
the Company, related to financial and administrative management, employee
benefits and acquisitions. Greg A. Rosenbaum, a director of the Company, is
President of Palisades. Effective March 1, 1995, Palisades' management fee was
increased to $175,000 per year. The Management Agreement terminates December 31,
1997. The Management Agreement contains a two-year "evergreen" provision
pursuant to which the term will be automatically extended for consecutive
two-year periods unless the Company gives Palisades written notice, no later
than ninety days prior to the expiration of the then applicable term, that the
Management Agreement will terminate upon expiration of the then applicable term.
Saunders Capital Group, Inc. ("Saunders Capital") was also a party to the
Management Agreement until January 2, 1995. During 1994, each of Palisades and
Saunders Capital received approximately $125,000 for services provided to the
Company pursuant to the Management Agreement. Pursuant to a Modification
Agreement dated as of January 2, 1995, Saunders Capital's obligations to provide
management services to the Company were terminated and Saunders Capital was paid
a termination fee of $65,000. Robert S. Saunders, a principal of Saunders
Capital, was a director of the Company until May 1994.
The Company's debt includes $1.2 million of 12% junior subordinated notes
issued to former RicheyImpact stockholders, with interest payable semiannually
in January and July. The notes terminate on March 2, 2000. The notes were issued
in connection with the Richey-Brajdas Merger. The Company plans to use proceeds
of the Offering to redeem the notes. The holders of the notes include but are
not limited to the following: (i) C. Don Alverson, Executive Vice President --
Sales and a director of the Company; (ii) William C. Cacciatore, Chairman,
President and Chief Executive Officer of the Company; (iii) Edward L. Gelbach, a
director of the Company; (iv) Palisades Associates, Inc., of which Greg A.
Rosenbaum, who is Assistant Secretary and a director of the Company, is
President; (v) Saunders Capital, in which Robert S. Saunders, a former director
of the Company, has a significant interest; (vi) Greg A. Rosenbaum, as Custodian
for Eli S. Rosenbaum, Elliott J. Rosenbaum and Eve H. Rosenbaum, his children;
31
<PAGE>
(vii) Norbert W. St. John, Executive Vice President -- Marketing and a director
of the Company; and (viii) Robert S. Saunders, a former director of the Company,
and his spouse, Heidi R. Saunders. The principal amount of each note is as
follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
---------------------------------------------------------------------------- ----------------
<S> <C>
C. Don Alverson............................................................. $ 174,186.25
William C. Cacciatore....................................................... 248,837.50
Edward L. Gelbach........................................................... 124,418.75
Palisades Associates, Inc. and Eli S., Elliott J. and Eve H. Rosenbaum...... 174,186.25
Norbert W. St. John......................................................... 149,302.50
Saunders Capital, Robert S. and Heidi R. Saunders........................... 99,535.75
</TABLE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of March 1, 1995, (i) each person known
to the Company to own more than 5% of the outstanding shares of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Company's Named
Executive Officers, (iv) all directors and executive officers of the Company as
a group and (v) each Selling Stockholder. The number of shares beneficially
owned by each director and executive officer is determined under rules of the
Commission, and such information is not necessarily indicative of beneficial
ownership for any other purpose. Unless otherwise indicated, each person has
sole voting and investment power (or shares such powers with his or her spouse)
with respect to the shares set forth in the following table.
<TABLE>
<CAPTION>
SHARES SUBJECT OWNERSHIP AFTER
SHARES BENEFICIALLY TO OFFERING AND
OWNED PRIOR TO OVER-ALLOTMENT OVER-ALLOTMENT
OFFERING OPTION(1) OPTION(1)
5% STOCKHOLDERS, ----------------------- ---------------- -----------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT NUMBER NUMBER PERCENT
--------------------------------------------------- ---------- ----------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William C. Cacciatore.............................. 578,020 9.81% -- 578,020 6.50%
C. Don Alverson.................................... 404,614 6.87% -- 404,614 4.55%
Norbert W. St. John(2)............................. 346,812 5.89% -- 346,812 3.90%
Greg A. Rosenbaum(3)............................... 394,612 6.70% 30,000 364,612 4.10%
Donald I. Zimmerman(4)............................. 1,778,178 30.19% 150,000 1,628,178 18.32%
Thomas W. Blumenthal............................... 104,044 1.77% -- 104,044 1.17%
Edward L. Gelbach(5)............................... 289,010 4.91% 30,000 259,010 2.91%
Richard N. Berger.................................. -- -- -- -- --
Charles W. Mann.................................... -- -- -- -- --
Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(6)................... 1,578,179 26.80% 150,000 1,428,179 16.07%
Deborah Levy
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(7)................... 1,578,179 26.80% 150,000 1,428,179 16.07%
Saul Levy
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(8)................... 623,863 10.59% -- 623,863 7.02%
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SHARES SUBJECT OWNERSHIP AFTER
SHARES BENEFICIALLY TO OFFERING AND
OWNED PRIOR TO OVER-ALLOTMENT OVER-ALLOTMENT
OFFERING OPTION(1) OPTION(1)
5% STOCKHOLDERS, ----------------------- ---------------- -----------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT NUMBER NUMBER PERCENT
--------------------------------------------------- ---------- ----------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
First Investment Group
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(9)................... 572,435 9.72% -- 572,435 6.44%
Palisades Associates, Inc.
9140 Vendome Drive
Bethesda, Maryland 20817(3)...................... 325,252 5.52% -- 325,252 3.66%
Benjamin Fishoff
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904...................... 298,192 5.06% -- 298,192 3.35%
All directors and executive officers as group (10
persons)......................................... 3,895,290 66.14% 210,000 3,685,290 41.46%
OTHER SELLING STOCKHOLDERS
---------------------------------------------------
Eli S. Rosenbaum(10)............................... 23,120 * 10,000 13,120 *
Elliott J. Rosenbaum(10)........................... 23,120 * 10,000 13,120 *
Eve H. Rosenbaum(10)............................... 23,120 * 10,000 13,120 *
Barry & Barbara J. Rosenbaum....................... 105,604 1.79% 30,000 75,604 *
Saunders Capital, Inc.(11)......................... 16,186 * 5,000 11,186 *
Robert S. Saunders(11)............................. 123,697 2.10% 10,000 113,697 1.28%
Richard L. Wellek(12).............................. 288,996 4.91% 30,000 258,996 2.91%
</TABLE>
-------------------
* Less than one percent.
(1) Assumes Underwriters' over-allotment option is exercised in full. See
"Underwriting."
(2) Such shares are owned indirectly as Trustee for The Norbert W. St. John
Trust.
(3) Includes 325,252 shares which are owned by Palisades. Mr. Rosenbaum, a
director of the Company, owns 60% of Palisades with his wife, who owns 40%
of Palisades. Mr. Rosenbaum may be deemed to beneficially own the shares
owned by Palisades. Also includes the following: (a) 23,120 shares which are
held as Custodian for Eli S. Rosenbaum; (b) 23,120 shares which are held as
Custodian for Elliott J. Rosenbaum; and (c) 23,120 shares which are held as
Custodian for Eve H. Rosenbaum. Mr. Rosenbaum has sole voting and
dispositive power as to these shares held as custodian for his children. See
footnote (10) below.
(4) Mr. Zimmerman owns 199,999 shares directly. Includes 1,578,179 shares owned
by Barclay. Mr. Zimmerman, a director of the Company, is President of
Barclay and owns 23% of Barclay, and may therefore be deemed to beneficially
own the shares owned by Barclay. The shares subject to over-allotment option
are owned by Barclay.
(5) Such shares are owned indirectly as Trustee for The Edward L. Gelbach 1987
Trust.
(6) See footnote (4).
(7) Includes 1,578,179 shares owned by Barclay. Ms. Levy owns approximately
61.37% of Barclay, and may therefore be deemed to beneficially own the
shares owned by Barclay. The shares subject to over-allotment option are
owned by Barclay.
(8) Includes 572,435 shares which are held indirectly by virtue of Mr. Levy's
sole ownership of First Investment Group.
(9) See footnote (8).
33
<PAGE>
(10) Such shares are held by Greg A. Rosenbaum, as Custodian. Mr. Rosenbaum has
sole voting and dispositive power as to these shares held as custodian for
each of his children. See footnote (3).
(11) Includes 16,186 shares which are owned by Saunders Capital. Mr. Saunders, a
former director of the Company, owns 50% of Saunders Capital. Mr. Saunders
may be deemed to beneficially own the shares owned by Saunders Capital.
(12) Such shares are owned indirectly as Trustee under Agreement dated February
11, 1987 f/b/o Richard Lee Wellek Revocable Trust.
34
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company has 30,000,000 authorized shares of the Common Stock, $0.001 par
value, of which 5,889,341 shares were issued and outstanding as of March 23,
1995. Holders of the Common Stock are entitled to one vote per share on all
matters requiring stockholder action. The Company's Restated Certificate of
Incorporation does not permit cumulative voting for the election of directors.
The holders of the Common Stock have no preemptive or other subscription rights
and there are no redemption, sinking fund or conversion privileges applicable
thereto. The holders of the Common Stock are entitled to receive dividends as
and when declared by the Board of Directors out of funds legally available
therefor. Upon liquidation, dissolution or winding up of the Company, holders of
the Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities. All outstanding shares of the Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
The Company has 10,000 authorized shares of preferred stock, $0.001 par
value, none of which was issued and outstanding as of March 23, 1995. The
Company's Restated Certificate of Incorporation permits the terms, rights and
preferences of any preferred stock issued in the future, including dividend
rates, voting rights, redemption prices, maturity dates, liquidation preference
and similar matters, to be determined by the Company's Board of Directors at the
time such issuance is approved. Management does not presently know whether any
shares of preferred stock will actually be issued or, if issued, what the terms,
rights and preferences thereof will be. Under the Delaware General Corporation
Law ("Delaware Law"), however, the holders of such preferred stock will not have
any preemptive rights with respect to any future issuance of shares of the
Common Stock or preferred stock, unless the Company's Restated Certificate of
Incorporation is amended to provide for such rights.
CERTAIN CERTIFICATE OF INCORPORATION AND STATUTORY PROVISIONS
LIMITATIONS OF LIABILITY OF DIRECTORS. The Company's Restated Certificate
of Incorporation includes a provision eliminating director liability to the
fullest extent permissible under Delaware Law, as such law currently exists or
as it may be amended in the future. Delaware corporations are permitted to adopt
provisions in their certificates of incorporation eliminating the monetary
liability of directors for certain breaches of duty. Such provisions are subject
to exceptions, as described below.
Under Delaware Law, a Delaware corporation may include a provision in its
certificate of incorporation which eliminates or limits the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. However, such a provision may not
eliminate or limit a director's liability for (i) breaches of the duty of
loyalty to the corporation or its stockholders, (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law,
(iii) the payment of unlawful dividends or unlawful stock purchases or
redemptions, or (iv) transactions in which a director receives an improper
personal benefit.
DELAWARE ANTI-TAKEOVER LAW. Section 203 of Delaware Law prohibits a
publicly held Delaware corporation from engaging in certain "business
combinations" with an "interested stockholder" for three years following the
date that a person becomes an interested stockholder. A business combination
includes mergers, stock or asset sales and other transactions resulting in a
financial benefit to the interested stockholders. With certain exceptions, an
interested stockholder is a person who (i) owns 15% or more of the corporation's
outstanding voting stock, and the affiliates and associates of such person, or
(ii) is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
previous three years, and the affiliates and associates of such person.
The three-year moratorium imposed on business combinations by Section 203
does not apply if (i) prior to the person becoming an interested stockholder,
the board approves the business combination or the transaction which resulted in
the person becoming an interested stockholder, or (ii) the interested
stockholder owns 85% of the corporation's voting stock upon consummation of the
transaction which made him or her an interested stockholder (excluding from the
85% calculation shares owned by directors who are also officers and shares held
by employee stock plans which do not permit employees to decide confidentially
35
<PAGE>
whether to accept a tender or exchange offer), or (iii) on or after the date a
person becomes an interested stockholder, the board approves the business
combination and it is also approved at a meeting by two-thirds of the voting
stock not owned by the interested stockholder. Section 203 provides that where
it specifies a particular stockholder vote required to approve a matter, no
provision in the certificate of incorporation or bylaws may require a greater
vote.
Section 203 generally does not apply to a Delaware corporation unless it has
a class of voting stock that is listed on a national securities exchange, quoted
on Nasdaq or held of record by more than 2,000 stockholders. A corporation which
meets any of these requirements may elect in its certificate of incorporation
not to be governed by Section 203. The Company is subject to Section 203 because
its shares are quoted on Nasdaq and it has not elected not to be governed by
Section 203.
Certain of the provisions described above may have the effect of delaying
stockholder actions with respect to certain business combinations and the
election of new members to the Board of Directors. As such, the provisions could
have the effect of discouraging open market purchases of shares of the Company's
Common Stock because they may be considered disadvantageous by a stockholder who
desires to participate in a business combination or elect a new director.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is OTR, Inc.,
Portland, Oregon.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 8,889,341 shares of the
Common Stock outstanding, assuming issuance of 3,000,000 shares offered hereby
and no exercise of the Underwriters' over-allotment option. Of these shares,
5,505,078 shares, and shares acquired by affiliates in the Offering (as such
term is defined under the Securities Act), will constitute restricted securities
subject to Rule 144 under the Securities Act. As a result, 3,384,263 shares,
including the 3,000,000 shares offered hereby, will be freely transferable
without restriction.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least two years,
including persons who may be deemed to be affiliates of the Company, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume in the Common Stock on Nasdaq during the four
calendar weeks preceding such sale. Sales pursuant to Rule 144 also are subject
to certain other requirements relating to manner of sale, notice and
availability of current public information about the Company. Affiliates may
sell shares not constituting restricted securities only in accordance with the
foregoing volume limitations and other restrictions but without regard to the
two-year holding period. Under Rule 144(k), a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding a sale by such person, and who
has beneficially owned restricted shares for at least three years, would be
entitled to sell such shares under Rule 144 without regard to the limitations
described above.
The Company, its directors, executive officers and certain stockholders,
owning an aggregate of 5,499,802 shares prior to the Offering, have agreed not
to offer, sell, contract to sell or otherwise dispose of any shares of the
Common Stock, for a period of 180 days after the date of the Prospectus, without
the prior written consent of Jefferies & Company, Inc., on behalf of the
Underwriters. After this period, 5,493,518 shares of Common Stock held by this
group will be eligible for sale subject to resale limitations of Rule 144
promulgated under the Securities Act.
No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale will have on the prevailing
market price of the Common Stock. Sales of substantial amounts of the Common
Stock of the Company in the public market or perception that such sales might
occur, could adversely affect the prevailing market price of the Common Stock.
The Company will file a post-effective amendment to its current shelf
registration statement on Form S-1 (the "Shelf Registration Statement"), to
become effective upon the effectiveness of the Offering, to withdraw from
registration all of the unsold shares of common stock currently registered for
selling stockholders under the Shelf Registration Statement.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to the Underwriters named below, for whom
Jefferies & Company, Inc. and Cruttenden Roth Incorporated are acting as the
representatives (the "Representatives"), and the Underwriters have severally
agreed to purchase, the number of shares of Common Stock set forth opposite
their respective names in the table below at the public offering price less the
underwriting discount set forth on the cover page of the Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------- ---------
<S> <C>
Jefferies & Company, Inc............................................
Cruttenden Roth Incorporated........................................
---------
Total............................................................... 3,000,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
to purchase the shares of the Common Stock is subject to certain conditions. The
Underwriters are committed to purchase all of the shares of the Common Stock
(other than those covered by the over-allotment option described below), if any
are purchased.
The Underwriters propose to offer the Common Stock to the public at the
public offering price set forth on the cover page of the Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow to certain
dealers a discount, not in excess of $ per share. After the public
offering of the Common Stock, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of the Prospectus, to purchase up
to 450,000 additional shares of the Common Stock (of which the first 285,000
shares will be sold by the Selling Stockholders on a pro rata basis and the
remaining 165,000 shares will be sold by the Company), at the public offering
price less the underwriting discount. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase additional shares of Common Stock proportionate to such Underwriters'
initial commitment as indicated in the preceding table. The Underwriters may
exercise such right of purchase only for the purpose of covering
over-allotments, if any, made in connection with the sale of the shares of
Common Stock. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 3,000,000 shares are being offered.
The Company, the Selling Stockholders and certain other stockholders of the
Company, owning an aggregate of 5,499,802 shares prior to the Offering, have
agreed with the Underwriters not to sell any of their shares of Common Stock or
securities exercisable for or convertible into shares of Common Stock for a
period of 180 days from the date of the Prospectus, without the prior written
consent of the Underwriters.
37
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with the Offering, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the Offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with the
Offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, certain Underwriters and other members of
the selling group intend to engage in passive market making in the Company's
Common Stock during the cooling off period.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other matters will be passed upon for the Company and the Selling
Stockholders by Dewey Ballantine, Los Angeles, California. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Brobeck, Phleger & Harrison, Palo Alto, California.
EXPERTS
The financial statements as of December 31, 1993 and December 31, 1994 and
for each of the three years in the periods ended December 31, 1994, appearing in
the Prospectus and the Registration Statement have been audited by McGladrey &
Pullen, LLP, whose reports are included elsewhere herein in reliance upon such
reports and upon the authority of such firm as an expert in accounting and
auditing matters.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information are available for inspection and copying at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a Registration Statement on Form
S-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Common Stock offered
hereby. The Prospectus does not contain all the information set forth or
incorporated by reference in the Registration Statement. For further information
with respect to the Company and the Offering, reference is hereby made to the
Registration Statement. Statements contained in the Prospectus concerning the
provisions of certain documents referred to herein are not necessarily complete
and, in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of all or any part of the Registration
Statement, including exhibits thereto, may be obtained upon payment of the
prescribed fees, or inspected without charge at the offices of the Commission as
set forth above.
38
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1993, Quarterly Reports on Form 10-Q for the quarters ended April 1, 1994, July
1, 1994 and September 30, 1994, and Current Report on Form 8-K filed April 20,
1994, all heretofore filed by the Company with the Commission pursuant to the
Exchange Act, are incorporated by reference in the Prospectus.
The Company will provide, without charge, to each person to whom the
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents described above, other than exhibits to such
documents. Requests for such copies should be directed to Richard N. Berger,
Vice President and Secretary, Richey Electronics, Inc., 7441 Lincoln Way, Garden
Grove, California 92641, telephone number (714) 898-8288.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
------------
<S> <C>
Independent Auditors' Report........................................................................ F-2
Balance Sheets at December 31, 1993 and 1994........................................................ F-3
Statements of Income for the Years Ended January 1, 1993 and
December 31, 1993 and 1994........................................................................ F-4
Statements of Stockholders' Equity for the Years Ended January 1, 1993 and
December 31, 1993 and 1994........................................................................ F-5
Statements of Cash Flows for the Years Ended January 1, 1993 and
December 31, 1993 and 1994........................................................................ F-6
Notes to Financial Statements....................................................................... F-7 - F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Richey Electronics, Inc.
Garden Grove, California
We have audited the accompanying balance sheets of Richey Electronics, Inc.
as of December 31, 1993 and 1994, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Richey Electronics, Inc. as
of December 31, 1993 and 1994 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Pasadena, California
February 3, 1995
F-2
<PAGE>
RICHEY ELECTRONICS, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
ASSETS (NOTE 4)
CURRENT ASSETS
Cash.......................................... $ 7,000 $ 9,000
Trade receivables............................. 8,590,000 11,167,000
Inventories................................... 12,460,000 14,913,000
Deferred income taxes (Note 9)................ 1,405,000 1,427,000
Other current assets.......................... 295,000 435,000
----------- -----------
Total current assets...................... 22,757,000 27,951,000
----------- -----------
IMPROVEMENTS AND EQUIPMENT (Note 3) 355,000 1,017,000
----------- -----------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes (Note 9)................ 2,599,000 2,430,000
Distribution agreements....................... 3,316,000 2,304,000
Customer lists................................ 1,770,000 957,000
Deposits and other (Note 2)................... 121,000 354,000
----------- -----------
7,806,000 6,045,000
----------- -----------
$30,918,000 $35,013,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of subordinated notes
payable (Note 4)............................ $ -- $ 1,600,000
Note payable, revolving line of credit (Note
4).......................................... 6,995,000 8,843,000
Accounts payable.............................. 6,968,000 10,457,000
Accrued expenses (Note 5)..................... 1,906,000 1,734,000
----------- -----------
Total current liabilities................. 15,869,000 22,634,000
----------- -----------
SUBORDINATED NOTES PAYABLE (Note 4)............... 8,151,000 3,594,000
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock $.001 par value, authorized
10,000 shares, issued none.................. -- --
Common stock $.001 par value, authorized
30,000,000 shares, issued and outstanding
5,889,000 shares............................ 6,000 6,000
Additional paid-in capital.................... 5,246,000 5,240,000
Retained earnings............................. 1,646,000 3,539,000
----------- -----------
6,898,000 8,785,000
----------- -----------
$30,918,000 $35,013,000
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 31,
1993 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Components and value-added.................... $30,100,000 $64,455,000 $90,266,000
Special inventory............................. 1,287,000 540,000 --
------------ ------------ ------------
31,387,000 64,995,000 90,266,000
------------ ------------ ------------
Cost of goods sold:
Components and value-added.................... 23,105,000 48,741,000 68,176,000
Special inventory............................. -- -- --
------------ ------------ ------------
23,105,000 48,741,000 68,176,000
------------ ------------ ------------
Gross profit:
Components and value-added.................... 6,995,000 15,714,000 22,090,000
Special inventory............................. 1,287,000 540,000 --
------------ ------------ ------------
8,282,000 16,254,000 22,090,000
------------ ------------ ------------
Operating expenses:
Selling, warehouse, general and administrative
(Note 7).................................... 7,144,000 13,002,000 16,750,000
Amortization of intangibles................... -- 887,000 568,000
------------ ------------ ------------
7,144,000 13,889,000 17,318,000
------------ ------------ ------------
Operating income.............................. 1,138,000 2,365,000 4,772,000
Interest expense (Note 4)..................... 388,000 1,198,000 1,606,000
------------ ------------ ------------
Income before income taxes.................... 750,000 1,167,000 3,166,000
Federal and state income tax (Note 9)......... 308,000 460,000 1,273,000
------------ ------------ ------------
Net income.................................... $ 442,000 $ 707,000 $ 1,893,000
------------ ------------ ------------
------------ ------------ ------------
Earnings per common share......................... $ .16 $ .14 $ .32
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares
outstanding..................................... 2,774,000 5,085,000 5,889,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
SENIOR ADDITIONAL
PREFERRED SHARES PAR PAID-IN RETAINED
STOCK OUTSTANDING VALUE CAPITAL EARNINGS TOTAL
---------- ------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 3, 1992...... $1,061,000 6,000 $ -- $ 1,200,000 $ 630,000 $ 2,891,000
Senior preferred stock
dividend of 667 shares...... 133,000 -- -- -- (133,000) --
Net income -- -- -- -- 442,000 442,000
---------- ------------ ---------- ----------- ---------- -----------
BALANCE, JANUARY 1, 1993...... 1,194,000 6,000 -- 1,200,000 939,000 3,333,000
Cancellation of senior
preferred stock (Note 2).... (1,194,000) -- -- 1,194,000 -- --
Merger: (Note 2)
Recapitalization............ -- 9,705,000 971,000 (971,000) -- --
Issuance of common stock.... -- 10,905,000 1,091,000 2,961,000 -- 4,052,000
Issuance of junior
subordinated notes........ -- -- -- (1,194,000) -- (1,194,000)
Effect of three and one-half-
to-one reverse stock
split....................... -- (14,727,000) (1,473,000) 1,473,000 -- --
Effect of change in par value
from $.10 per common share
to $.001 per common share... -- -- (583,000) 583,000 -- --
Net income.................... -- -- -- -- 707,000 707,000
---------- ------------ ---------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1993.... -- 5,889,000 6,000 5,246,000 1,646,000 6,898,000
Reverse stock split
adjustments................. -- -- -- (6,000) -- (6,000)
Net income.................... -- -- -- -- 1,893,000 1,893,000
---------- ------------ ---------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1994.... $ -- 5,889,000 $ 6,000 $ 5,240,000 $3,539,000 $ 8,785,000
---------- ------------ ---------- ----------- ---------- -----------
---------- ------------ ---------- ----------- ---------- -----------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 31,
1993 1993 1994
---------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 442,000 $ 707,000 $ 1,893,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 145,000 997,000 765,000
Deferred income taxes..................... (30,000) 465,000 1,157,000
Change in operating assets and liabilities,
net of effect of business combinations:
(Increase) decrease in:
Trade receivables..................... (168,000) (255,000) (1,107,000)
Inventories........................... (124,000) (1,345,000) (1,518,000)
Other current assets.................. (45,000) (161,000) 14,000
Increase in accounts payable, trade and
accrued expenses........................ 187,000 60,000 2,820,000
---------- ------------ ------------
Net cash provided by operating
activities.............................. 407,000 468,000 4,024,000
---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment............... -- 42,000 --
Purchase of leasehold improvements and
equipment................................... (79,000) (89,000) (401,000)
Payment of acquisition and restructuring
costs....................................... -- (3,188,000) (2,512,000)
---------- ------------ ------------
Net cash (used in) investing activities... (79,000) (3,235,000) (2,913,000)
---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on revolving line of
credit...................................... (288,000) 3,859,000 1,848,000
Payments on long-term debt.................... (42,000) (1,088,000) (2,957,000)
---------- ------------ ------------
Net cash provided by (used in) financing
activities.............................. (330,000) 2,771,000 (1,109,000)
---------- ------------ ------------
Increase (decrease) in cash............... (2,000) 4,000 2,000
CASH
Beginning..................................... 5,000 3,000 7,000
---------- ------------ ------------
Ending........................................ $ 3,000 $ 7,000 $ 9,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a multi-regional, specialty distributor of electronic
components and a provider of value-added assembly services. The Company has
distribution rights for various electronic components, primarily interconnect,
electromechanical and passive components, from major world-wide suppliers. The
Company conducts its business under the name RicheyCypress Electronics.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:
YEAR END
The Company reports its annual operating results based upon a calendar year
end (December 31) and its quarterly results using the Friday nearest the end of
each quarter. For years prior to 1993, the Company reported its annual results
closing on the Friday nearest to December 31. The fiscal year ended January 1,
1993 included 52 weeks.
CONCENTRATION OF CREDIT RISK
The Company distributes electronic components to small- and medium-sized
manufacturers of telecommunications, computer and medical equipment and the
aerospace industry. Credit is extended based on an evaluation of the customer's
financial condition and collateral is typically not required. Credit losses are
provided for in the financial statements through a charge to operations.
Additionally, a valuation allowance for known and anticipated credit losses is
maintained. Credit losses have been consistently within management's
expectations and were not material in any year presented.
INVENTORIES
Inventories consist of electronic components held for sale and are valued at
the lower of cost (first-in, first-out method) or market. The Company
periodically reviews the age and turnover of its inventory to determine whether
any inventory has become obsolete or has declined in value and incurs a charge
to operations for known and anticipated inventory obsolescence. The Company has
not incurred any material charges to operations for inventory obsolescence
during any year presented.
On December 28, 1990, RicheyImpact Electronics, Inc. ("RicheyImpact")
purchased certain assets and assumed certain obligations and liabilities of
Richey/Impact Electronics Inc. ("Old Richey") from Lex Service Inc. ("Lex"). In
connection with that purchase agreement, RicheyImpact entered into sales agency
and consignment agreements with Lex regarding certain inventories not originally
purchased by it. Under these arrangements, Lex retained title to the inventory
and guaranteed certain profit margins to RicheyImpact. Effective June 28, 1991,
Lex granted RicheyImpact title to all remaining sales agency and consigned
inventory at no cost. Sales of this inventory during 1992 and 1993 are reported
separately in the statement of income as special inventory sales, cost of goods
sold and gross profit. Substantially all Lex sales agency and consigned
inventory was sold as of December 31, 1993. Accordingly, special inventory sales
in 1994 were not material.
IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment are stated at cost, less accumulated
depreciation and amortization. Equipment is depreciated using the straight-line
method over estimated service lives. Leasehold improvements are amortized over
the life of the lease or the economic life of the asset, whichever is shorter.
DISTRIBUTION AGREEMENTS AND CUSTOMER LISTS
Distribution agreements and customer lists are being amortized using the
straight-line method over the respective estimated economic lives of fifteen and
five years. As the benefit of the Company's net operating loss carryforwards is
realized, through the results of operations or a reduction in the deferred tax
asset valuation allowance, the carrying value of the distribution agreements and
customer lists is reduced proportionately.
F-7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At December 31, 1993, the cumulative reductions in distribution agreements
and customer lists were $3,071,000 and $2,063,000, respectively. At December 31,
1994, the cumulative reductions were $4,083,000 and $2,876,000, respectively.
See Note 9.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
liabilities are recognized for taxable temporary differences and deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when it cannot be demonstrated that
the deferred tax assets are more likely than not to be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
EARNINGS PER COMMON SHARE
Earnings per common share are computed using the weighted average number of
shares of common stock outstanding. On December 30, 1993, the Company effected a
reverse stock split by issuing one share for every three and one-half shares of
common stock previously outstanding. All previously reported earnings per share
have been restated to give retroactive effect to this reverse stock split.
NOTE 2. BUSINESS COMBINATIONS
BRAJDAS
On April 6, 1993, RicheyImpact merged with Brajdas Corporation, a California
corporation ("Brajdas" or the "Registrant"), with Brajdas as the surviving legal
entity (the "Richey-Brajdas Merger"). Brajdas subsequently changed its name to
Richey Electronics, Inc. (the "Company") and reincorporated in Delaware. Both
companies operated as wholesale distributors of electronic components. The
Richey-Brajdas Merger was recorded as a reverse purchase acquisition with
RicheyImpact as the accounting acquirer. Because the accounting acquirer is
treated as the surviving entity in a reverse purchase acquisition, the
Registrant's legal existence did not change. The results of operations of
Brajdas subsequent to the date of the Richey-Brajdas Merger are included in the
Company's financial statements.
Prior to the Richey-Brajdas Merger, the RicheyImpact stockholders
surrendered the senior preferred stock for cancellation and contributed it to
common stockholders' equity. As part of the merger transaction, the Company
recapitalized through the issuance of 9,705,000 common shares to former
RicheyImpact stockholders and 10,905,000 common shares to former shareholders of
Brajdas that were valued at $4,052,000. Additionally, as part of the merger,
RicheyImpact stockholders received junior subordinated notes of $1,194,000.
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 acquisition
was accounted for as a purchase. The fair value of assets acquired was
$2,787,000 and the liabilities assumed totaled $946,000. Goodwill of $274,000 is
included in other assets and is being amortized over 15 years. The results of
operations of In-Stock subsequent to the date of acquisition are included in the
Company's financial statements.
PRO FORMA RESULTS
The following pro forma results assume the acquisition of the assets and
business of In-Stock occurred as of the beginning of the respective years. In
addition, the 1993 results reflect the Richey-Brajdas Merger as if it occurred
as of the beginning of the year. The unaudited pro forma results have been
prepared utilizing
F-8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
the historical financial statements of the Company and the acquired businesses.
The unaudited pro forma results give effect to certain adjustments, including
amortization of acquired intangibles and goodwill, elimination of duplicate
facilities and redundant salaries, reduction in interest expense and related tax
effects.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net Sales......................................... $84,579,000 $92,964,000
Net Income........................................ 862,000 2,008,000
Earnings per share................................ .17 .34
</TABLE>
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transactions actually
taken place at the beginning of the periods presented.
NOTE 3. IMPROVEMENTS AND EQUIPMENT
Improvements and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Leasehold improvements.................................. $ 167,000 $ 293,000
Furniture, fixtures and equipment....................... 686,000 1,431,000
--------- ----------
853,000 1,724,000
Less accumulated depreciation and amortization.......... (498,000) (707,000)
--------- ----------
$ 355,000 $1,017,000
--------- ----------
--------- ----------
</TABLE>
NOTE 4. REVOLVING LINE OF CREDIT AND SUBORDINATED DEBT
REVOLVING LINE OF CREDIT
The Company's revolving line of credit allows advances up to $15,000,000,
limited to 85% of eligible accounts receivable and 45% of eligible inventory not
to exceed $7,500,000. The Company is required to maintain a depository account
where all receivable collections are deposited for the benefit of the lender.
Subject to availability under the line of credit and borrowing base, the lender
advances funds to the Company's account to cover disbursements when presented
for payment by the Company.
The credit agreement extends through February 28, 1996. Borrowings bear
interest at 1 1/2% above the national prime rate and are collateralized by
substantially all assets of the Company, including accounts receivable,
inventory, equipment and intangibles. As of March 1, 1995, the Company is
required to pay the lender an unused line fee equal to 1/2% per annum of the
difference between the maximum commitment of $15,000,000 and the daily average
outstanding borrowings for the prior month.
The credit agreement contains various covenants which require the Company to
meet certain financial conditions, including maintenance of a minimum tangible
net worth. The agreement also restricts the Company from declaring or paying
dividends without prior approval of the Company's lender.
The following is a summary of borrowings under the revolving line of credit:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- ------------
<S> <C> <C> <C>
Interest rate in effect at year end... 8.5% 10.0%
Available borrowings at year end...... $ 533,000 $ 5,452,000
Maximum outstanding borrowings during
the year............................ $ 3,896,000 6,995,000 12,610,000
Weighted average interest rate for the
borrowings outstanding during the
year................................ 8.8% 8.5% 8.9%
-- -- --
-- -- --
</TABLE>
F-9
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. REVOLVING LINE OF CREDIT AND SUBORDINATED DEBT (CONTINUED)
SUBORDINATED DEBT
Subordinated debt at December 31 was:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
10% senior subordinated note payable, secured,
interest payable quarterly......................... $6,957,000 $ 4,000,000
12% junior subordinated notes payable, unsecured,
interest payable semiannually...................... 1,194,000 1,194,000
---------- -----------
8,151,000 5,194,000
Less current maturities of senior subordinated note
payable............................................ -- (1,600,000)
---------- -----------
$8,151,000 $ 3,594,000
---------- -----------
---------- -----------
</TABLE>
SENIOR SUBORDINATED NOTE. In April 1993 and March 1994, the Company paid
$1,043,000 and $2,957,000, respectively, of principal on this debt based upon
existing provisions of the note. Commencing in 1995 and each year thereafter
until the note is paid, principal payments equal to the greater of $500,000 or
cash flows as defined ($1,600,000 as of December 31, 1994) are required. Any
remaining balance is due March 1, 2000. The debt is secured by a security
interest in accounts receivable, inventory, and property and equipment,
subordinated to the security interest of the revolving line-of-credit lender.
Interest expense on this note payable to Barclay Financial Group, a related
party, was $541,000 and $479,000 for 1993 and 1994, respectively.
JUNIOR SUBORDINATED NOTES. The junior subordinated notes are due March 2,
2000; provided, however, that mandatory prepayments of principal are required if
the senior subordinated note payable and any balance outstanding under the
revolving line-of-credit agreement are paid off. Principal repayments would then
be determined based on net after-tax cash flow as defined by the junior
subordinated notes. Interest expense on these notes payable to stockholders was
$107,000 and $145,000 for 1993 and 1994, respectively.
NOTE 5. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Compensation......................................... $ 907,000 $ 1,163,000
Rent and facilities costs............................ 354,000 85,000
Interest............................................. 342,000 273,000
Other................................................ 303,000 213,000
----------- -----------
$ 1,906,000 $ 1,734,000
----------- -----------
----------- -----------
</TABLE>
The accrual for rent and facilities costs is net of sublease income of
$411,000 and $255,000 at December 31, 1993 and 1994, respectively.
F-10
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. LEASE COMMITMENTS
OPERATING LEASES
The Company leases office and warehouse space under operating lease
agreements with various terms and conditions, expiring in years ending 1995
through 2000, with rent escalations typically based on the Consumer Price Index.
Future minimum lease payments under these leases, exclusive of lease
payments on duplicate facilities which have been accrued, are as follows:
<TABLE>
<S> <C>
1995.............................................................. $ 658,000
1996.............................................................. 687,000
1997.............................................................. 688,000
1998.............................................................. 696,000
1999.............................................................. 562,000
2000.............................................................. 98,000
----------
$3,389,000
----------
----------
</TABLE>
Total rent expense under operating leases, including rent for facilities
leased on a month-to-month basis, was $473,000, $846,000 and $678,000, for 1992,
1993 and 1994, respectively.
NOTE 7. SERVICE AND MANAGEMENT AGREEMENT
The Company is a party to a five-year Service and Management Agreement dated
December 18, 1990. Terms of the five-year agreement provide for the payment of
management fees for financial and administrative services performed for the
Company. Management fees were approximately $244,000 in each year presented and
were paid to two corporations controlled by stockholders of the Company. In
January 1995, the Company reached an agreement with one of the corporations to
terminate its service under the agreement, upon payment of $65,000.
F-11
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 31,
1993 1993 1994
----------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest.......................... $ 324,000 $ 994,000 $ 1,675,000
----------- -------------- --------------
----------- -------------- --------------
Income Taxes...................... $ 321,000 $ -- $ 46,000
----------- -------------- --------------
----------- -------------- --------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES (Note 2)
Cancellation of senior preferred
stock............................... $ 1,194,000
--------------
--------------
Assets acquired, liabilities assumed and
securities issued in business
combinations:
Current assets........................ $ 10,416,000 $ 2,410,000
Current liabilities................... (5,093,000) (946,000)
Leasehold improvements and
equipment........................... 188,000 103,000
Distribution agreements and customer
lists............................... 10,220,000 --
Other assets.......................... 69,000 274,000
Restructuring and transaction costs... (3,748,000) --
Subordinated notes payable............ (8,000,000) --
Common stock issued................... (4,052,000) --
-------------- --------------
Net cash paid..................... $ -- $ 1,841,000
-------------- --------------
-------------- --------------
Issuance of subordinated notes payable in
connection with merger.................. $ (1,194,000)
--------------
--------------
</TABLE>
NOTE 9. INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 31,
1993 1993 1994
------------ -------------- --------------
<S> <C> <C> <C>
Currently paid or payable:
Federal.................................. $ 258,000 $ (8,000) $ 60,000
State.................................... 80,000 3,000 56,000
Deferred..................................... (30,000) 465,000 1,157,000
------------ -------------- --------------
$ 308,000 $ 460,000 $ 1,273,000
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
F-12
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income due to the following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 31,
1993 1993 1994
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected" statutory rate.... 34 % 35 % 35 %
Increase (decrease) in rate resulting
from:
Benefit of income taxed at lower
rates........................... -- (1) (1)
State income taxes, net of federal
tax benefit..................... 7 7 5
Other............................. -- (2) 1
-- -- --
41 % 39 % 40 %
-- -- --
-- -- --
</TABLE>
Net deferred taxes at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Intangibles recorded at the purchase price for
financial reporting purposes, not recognized
in tax-free merger.......................... $ 2,034,000 $ 1,348,000
Other......................................... 284,000 337,000
----------- -----------
2,318,000 1,685,000
----------- -----------
Deferred tax assets:
Net operating loss carryforwards ("NOLs")..... 9,593,000 8,421,000
Other, primarily costs capitalized to
inventory for tax purposes and accrued
expenses not tax deductible until paid...... 1,128,000 774,000
----------- -----------
10,721,000 9,195,000
Less valuation allowance...................... (4,399,000) (3,653,000)
----------- -----------
6,322,000 5,542,000
----------- -----------
Net....................................... $ 4,004,000 $ 3,857,000
----------- -----------
----------- -----------
</TABLE>
Net deferred tax assets described above have been included in the
accompanying balance sheets as follows:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Current assets.................................... $1,405,000 $1,427,000
Noncurrent assets................................. 2,599,000 2,430,000
---------- ----------
$4,004,000 $3,857,000
---------- ----------
---------- ----------
</TABLE>
F-13
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
As of December 31, 1994, the Company had net operating loss carryforwards
which have 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 and the related regulations
impose certain limitations on a corporation's ability to use net operating loss
carryforwards 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; therefore, the Company's current
ability to utilize the net operating loss carryforwards is not restricted.
However, if the Company issues additional common stock, its ability to utilize
these NOLs could be restricted on an annual basis.
The Company has been consistently profitable since the December 1990
acquisition of the operations of Old Richey and generated taxable income before
NOL carryforwards of $3.0 million in 1994. Based on its current level of
profitability, management believes that the Company will be able to fully
utilize the NOLs prior to their expiration. However, as stated in Note 1,
generally accepted accounting principles require that deferred tax assets be
reduced by a valuation allowance when it cannot be demonstrated that they are
more likely than not to be realized. Due to the uncertainty inherent in
forecasts of future events and operating results, management has established a
valuation allowance to reduce the net deferred tax asset to the tax benefit
expected to be realized during approximately the next four years. Management
believes that it is "more likely than not" that the Company will be able to
generate the $11.0 million of future taxable income necessary to realize the
recorded amount of the net deferred tax asset prior to the expiration of the
NOLs.
NOTE 10. EMPLOYEE BENEFIT PLANS
STOCK APPRECIATION RIGHTS PLAN
On July 7, 1993, the Company adopted a Stock Appreciation Rights Plan. Each
stock appreciation right ("SAR") provides the recipient with the right to
receive a cash payment equal to the excess, if any, of the fair market value of
a share of the Company's common stock on the date the SAR is exercised over the
fair market value on the date the SAR was granted, or such other value as
determined by the Compensation Committee. The maximum number of rights that may
be awarded under the plan may not exceed approximately 589,000. To date, no
rights have been granted under this plan.
STOCK OPTION PLAN
On June 16, 1994, the Company approved the issuance of 226,737 options under
the terms of the 1992 stock option plan. At the time of this issuance, there
were no previous options outstanding under this plan. The Company may grant up
to 362,197 additional options. These options vest at a rate of 25% per year over
a four-year period and expire ten years from the date of grant. The options were
granted at fair market value at the date of grant.
F-14
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. EMPLOYEE BENEFIT PLANS (CONTINUED)
As of December 31, 1994, 226,737 options granted in 1994 remain outstanding
with an exercise price of $6.00 per share.
401(K) SAVINGS PLAN
The Company has two defined contribution 401(k) savings plans covering
substantially all its employees. The plans do not provide for the Company to
match any contributions by participants, and no contributions were made by the
Company to either of these plans during 1992, 1993 or 1994.
NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
Net sales................. $20,247,000 $23,105,000 $22,838,000 $24,076,000
Gross profit.............. 4,855,000 5,562,000 5,793,000 5,880,000
Net income................ 355,000 532,000 471,000 535,000
Earnings per common
share................... .06 .09 .08 .09
1993
Net sales................. $ 8,088,000 $19,721,000 $18,927,000 $18,259,000
Gross profit.............. 2,154,000 4,782,000 4,686,000 4,632,000
Net income................ 85,000 93,000 288,000 241,000
Earnings per common
share................... .03 .02 .05 .04
1992
Net sales................. $ 7,862,000 $ 8,009,000 $ 8,300,000 $ 7,216,000
Gross profit.............. 2,080,000 2,198,000 2,082,000 1,922,000
Net income................ 165,000 160,000 83,000 34,000
Earnings per common
share................... .06 .06 .03 .01
</TABLE>
F-15
<PAGE>
[INSIDE BACK COVER PHOTOS]
[Product Photo E]
Photograph of the assembly floor, at the Los Angeles facility.
[Product Photo F]
Photograph of mechanical assemblies.
[Caption]
Mechanical Assemblies
[Product Photo G]
Photograph of cable assemblies.
[Caption]
Cable Assemblies
[Product Photo H]
Photograph of battery packs.
[Caption]
Battery Packs
[INSIDE BACK COVER CAPTIONS]
[Caption, Upper Right Side]
Value-Added Assembly Services
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THESE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE
DELIVERY OF THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Investment Considerations...................... 6
Use of Proceeds................................ 9
Price Range of Common Stock.................... 10
Dividend Policy................................ 10
Capitalization................................. 11
Selected Financial Data........................ 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 14
Business....................................... 20
Management..................................... 26
Principal and Selling Stockholders............. 32
Description of Capital Stock................... 35
Shares Eligible for Future Sale................ 36
Underwriting................................... 37
Legal Matters.................................. 38
Experts........................................ 38
Available Information.......................... 38
Incorporation of Certain Information by
Reference.................................... 39
Index to Financial Statements.................. F-1
</TABLE>
3,000,000 SHARES
[LOGO]
COMMON STOCK
PROSPECTUS
Jefferies & Company, Inc.
Cruttenden Roth
Incorporated
, 1995
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses of the Offering (excluding
underwriting discount and commissions):
<TABLE>
<S> <C>
SEC Registration Fee.................... $ 8,328
NASD Listing Fee........................ 17,500
NASD Filing Fee......................... 2,915
Blue Sky Fees and Expenses.............. 7,500
Accounting Fees and Expenses............ 70,000
Legal Fees and Expenses................. 225,000
Printing and Engraving Expenses......... 65,000
Transfer Agent and Registrar Fees....... 3,000
Miscellaneous........................... 50,757
--------
Total............................... $450,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware Law generally permits indemnification of officers, directors,
employees and agents of a Delaware corporation against expenses (including
attorneys' fees) incurred in the defense or settlement of a derivative action or
third-party action, provided there is a determination by a disinterested quorum
of the directors or independent legal counsel or a majority vote of a quorum of
the stockholders that the person seeking indemnification acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. Such indemnification is
expressly prohibited, however, in respect of a derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation unless and only to the extent approved by the
court. Delaware Law requires indemnification when the person being indemnified
has successfully defended the action on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware Law, if such director or officer undertakes to
repay such amounts if it is ultimately determined that he or she is not entitled
to indemnification. In addition, Delaware Law authorizes a corporation's
purchase of indemnity insurance for the benefit of its officers, directors,
employees and agents whether or not the corporation would have the power to
indemnify against the liability covered by the policy.
Delaware Law permits a Delaware corporation to provide indemnification in
excess of that provided in the statutes. Delaware Law does not require
authorizing provisions in the certificate of incorporation and does not contain
express prohibitions on indemnification in certain circumstances; limitations on
indemnification may be imposed by a court, however, based on principles of
public policy.
The Bylaws of the Company contain provisions requiring indemnification of
directors and officers to the maximum extent permitted by Delaware Law.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.#
2.1 Merger Agreement among RicheyImpact Electronics, Inc., BRJS Investment
Holding Corp. and Brajdas Corporation dated as of February 22, 1993.
*2* (A)
2.2 Amendment to Merger Agreement among RicheyImpact Electronics, Inc.,
BRJS Investment Holding Corp. and Brajdas Corporation dated as of
April 5, 1993. *2* (A)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
2.3 Agreement of Merger dated April 5, 1993 among Brajdas Corporation,
RicheyImpact Electronics, Inc. and BRJS Investment Holding Corp., as
filed with the Secretary of State of the State of California on
April 6, 1993. *2* (B)
2.4 Certificate of Merger of RicheyImpact Electronics, Inc. into Brajdas
Corporation dated April 5, 1993 as filed with the Secretary of State
of the State of Delaware on April 6, 1993. *2* (C)
2.5 Agreement of Merger of BRJS Investment Holding Corp. and Brajdas
Corporation dated as of July 12, 1993. *4* (2)
2.6 Restated Agreement of Merger of BRJS Investment Holding Corp. and
Richey Electronics, Inc., f/k/a Brajdas Corporation dated as of
November 9, 1993. *6* (2.6)
2.7 Agreement of Merger (To Effect Reincorporation in Delaware) between
Richey Electronics, Inc., a Delaware corporation and Richey
Electronics, Inc., a California corporation dated as of December 14,
1993. *6* (2.7)
2.8 Asset Purchase Agreement between Anchor Group, Inc. and Richey
Electronics, Inc. dated as of April 4, 1994. *7* (2.8)
5.1 Opinion of Dewey Ballantine as to the legality of the securities being
registered.#
10.1 Stockholders Agreement among Brajdas Corporation and the individuals
and entities listed on Schedule I thereto dated as of March 1993.
*2* (F)
10.2 Indemnification Agreement among Barclay and Company, Inc., Brajdas
Corporation, Donald I. Zimmerman and certain former shareholders of
RicheyImpact Electronics, Inc. identified therein dated as of April
5, 1993. *2* (E)
10.3 Letter re Amendment to Indemnification Agreement by Barclay and
Company, Inc. and Donald I. Zimmerman, and agreed to by BRJS
Investment Holding Corp., Brajdas Corporation and the other persons
and entities identified therein dated April 23, 1993. *1* (10.3)
10.4 Registration Rights Agreement between Brajdas Corporation and BRJS
Investment Holding Corp. dated April 2, 1993. *2* (D)
10.5 Stock Transfer Agreement dated March 31, 1993 among Charles LaVarnway,
Alex Mendoza, Arthur Mendoza, Lee Teano and Donald I. Zimmerman. *2*
(G)
10.6 BRJS/BFG Assignment and Acceptance Agreement dated April 2, 1993
between Barclay Financial Group and BRJS Investment Holding Corp.
*1* (10.5)
10.7 $8 million Note from BRJS Investment Holding Corp. to Barclay
Financial Group dated April 2, 1993. *2* (H)
10.8 $8 million Subordinated Note from Brajdas Corporation to BRJS
Investment Holding Corp. dated April 6, 1993. *2* (I)
10.9 Note Pledge Agreement dated April 2, 1993 by BRJS Investment Holding
Corp. to Barclay Financial Group. *1* (10.8)
10.10 Barclay Confirmation of Guaranty Re Brajdas/BFG Debt Purchase dated
April 2, 1993 by Barclay and Company in favor of BRJS Investment
Holding Corp. *1* (10.9)
10.11 Amended and Restated Guaranty dated as of April 6, 1993 by Barclay and
Company, Inc. in favor of BRJS Investment Holding Corp. *2* (J)
10.12 Agreement Re Brajdas/BRJS Indebtedness and Amendment of Security
Agreement dated April 6, 1993 between Brajdas and BRJS Investment
Holding Corp. *1* (10.11)
10.13 Amended and Restated Loan and Security Agreement dated as of April 7,
1993 between Sanwa Business Credit Corporation and Brajdas
Corporation. *1* (10.15)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.14 Subordination Agreement dated April 7, 1993 by BRJS Investment Holding
Corp., Barclay Financial Group, Barclay and Company, Inc. and the
RicheyImpact stockholders named therein to Sanwa Business Credit
Corporation. *1* (10.16)
10.15 Employment Agreement between William C. Cacciatore and Brajdas
Corporation dated as of April 1, 1993. *1* (10.18)
10.16 Employment Agreement between C. Don Alverson and Brajdas Corporation
dated as of April 1, 1993. *1* (10.17)
10.17 Employment Agreement between Richard N. Berger and Brajdas Corporation
dated as of April 1, 1993. *1* (10.20)
10.18 Employment Agreement between Norbert W. St. John and Brajdas
Corporation dated as of April 1, 1993. *1* (10.19)
10.19 Brajdas Corporation Bonus Plan. *1* (10.21)
10.20 Employment Severance Agreement dated March 8, 1993 between Chuck
LaVarnway and Brajdas Corporation. *1* (10.22)
10.21 Employment Severance Agreement dated March 8, 1993 between Thomas
Arrieta and Brajdas Corporation. *1* (10.23)
10.22 Employment Severance Agreement dated March 8, 1993 between Lee Teano
and Brajdas Corporation. *1* (10.24)
10.23 Employment Severance Agreement dated March 8, 1993 between Robert
Valone and Brajdas Corporation. *1* (10.25)
10.24 Service and Management Agreement dated December 18, 1990 by and among
RicheyImpact Electronics, Inc., Palisades Associates, Inc. and
Saunders Capital Group, Inc. *3* (10.2)
10.25 Agreement to Assume and Amend the Service and Management Agreement
among Brajdas Corporation, Palisades Associates, Inc. and Saunders
Capital Group, Inc. dated as of April 6, 1993. *3* (10.3)
10.26 Modification Agreement among the Company, Palisades Associates, Inc.
and Saunders Capital Group, Inc. dated as of January 2, 1995. *8*
(10.26)
10.27 Form of 12% Junior Subordinated Promissory Note issued to former
shareholders of RicheyImpact Electronics, Inc. by BRJS Investment
Holding Corp. *3* (10.1)
10.28 1993 Stock Appreciation Rights Plan. *5* (A)
10.29 Assumption and Amendment Agreement to Loan and Security Agreement
dated as of December 31, 1993 by and between Sanwa Business Credit
Corporation and Richey Electronics, Inc. *7* (10.31)
10.30 Second Amendment to Amended and Restated Loan and Security Agreement
dated as of March 29, 1994 by and between Sanwa Business Credit
Corporation and Richey Electronics, Inc. *7* (10.32)
10.31 First Amendment to Stockholders Agreement dated December 14, 1994
among the Company and the individuals and entities listed on
Schedule I to the Stockholders Agreement. *8* (10.31)
10.32 Lease between Principal Mutual Life Insurance Company and Richey
Electronics, Inc. for lease of premises at 7441 Lincoln Way, Garden
Grove, California. *8* (10.32)
10.33 Lease between M&M Enterprises, a California General Partnership and
Richey Electronics, Inc. for lease of premises at 10871 La Tuna
Canyon Road, Sun Valley, California. *8* (10.33)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.34 Lease between Anchor Group, Inc. and Richey Electronics, Inc. for
lease of premises at 11 Walkup Drive, Westborough, Massachusetts.
*8* (10.34)
10.35 1992 Stock Option Plan. *8* (10.35)
10.36 Form of Incentive Stock Option Agreement. *8* (10.36)
10.37 Addendum to Employment Agreement (William C. Cacciatore) dated as of
February 21, 1995. *8* (10.37)
10.38 Addendum to Employment Agreement (C. Don Alverson) dated as of
February 21, 1995. *8* (10.38)
10.39 Addendum to Employment Agreement (Richard N. Berger) dated as of
February 21, 1995. *8* (10.39)
10.40 Addendum to Employment Agreement (Norbert W. St. John) dated as of
February 21, 1995. *8* (10.40)
10.41 Modification Agreement by and between Richey Electronics, Inc. and
Palisades Associates, Inc. dated as of February 21, 1995. *8*
(10.41)
12.1 Schedule regarding computation of ratios.#
23.1 Consent of Dewey Ballantine (to be included in Exhibit 5.1 hereto).#
23.2 Consent of McGladrey & Pullen, LLP#
24.1 Power of Attorney. *8* (24.1)
</TABLE>
-------------------
# Filed herewith.
*1* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K for Brajdas Corporation for the fiscal year ended February 28,
1993, filed May 28, 1993.
*2* Incorporated by reference to the designated exhibit of the Statement on
Schedule 13D filed on behalf of BRJS Investment Holding Corp., C. Don
Alverson, William C. Cacciatore, Greg A. Rosenbaum and Norbert W. St. John
with the Securities and Exchange Commission on April 20, 1993.
*3* Incorporated by reference to the designated exhibit of the Transition Report
on Form 10-Q for Brajdas Corporation for the period from January 1, 1993
through July 2, 1993, filed August 4, 1993.
*4* Incorporated by reference to the designated exhibit of the Quarterly Report
on Form 10-Q for Richey Electronics, Inc., f/k/a Brajdas Corporation for the
period ended October 1, 1993, filed November 10, 1993.
*5* Incorporated by reference to the designated exhibit of the definitive proxy
statement for the 1993 Annual Meeting of Stockholders.
*6* Incorporated by reference to the designated exhibit of the Shelf
Registration Statement on Form S-1 filed January 7, 1994.
*7* Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 1 to the Shelf Registration Statement filed on April 18, 1994.
*8* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 filed February 23, 1995.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Garden Grove, State of
California, on March 23, 1995.
RICHEY ELECTRONICS, INC.
By /s/ RICHARD N. BERGER
------------------------------------
Richard N. Berger
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
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 dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------ -------------------------------------------------------- -----------------
<C> <S> <C>
*
---------------------------- Chairman of the Board, President, Chief Executive March 23, 1995
William C. Cacciatore Officer (Principal Executive Officer)
*
---------------------------- Director, Executive Vice President -- Sales March 23, 1995
C. Don Alverson
/S/ RICHARD N. BERGER
---------------------------- Vice President, Chief Financial Officer and Secretary March 23, 1995
Richard N. Berger (Principal Financial and Accounting Officer)
*
---------------------------- Director March 23, 1995
Edward L. Gelbach
*
---------------------------- Director, Assistant Secretary March 23, 1995
Greg A. Rosenbaum
*
---------------------------- Director March 23, 1995
Thomas W. Blumenthal
*
---------------------------- Director, Executive Vice President -- Marketing March 23, 1995
Norbert W. St. John
*
---------------------------- Director March 23, 1995
Donald I. Zimmerman
*/S/ RICHARD N. BERGER
----------------------------
Richard N. Berger
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBITS NO.
-------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.................................
2.1 Merger Agreement among RicheyImpact Electronics, Inc., BRJS
Investment Holding Corp. and Brajdas Corporation dated as of
February 22, 1993. *2* (A)
2.2 Amendment to Merger Agreement among RicheyImpact Electronics,
Inc., BRJS Investment Holding Corp. and Brajdas Corporation
dated as of April 5, 1993. *2* (A)
2.3 Agreement of Merger dated April 5, 1993 among Brajdas
Corporation, RicheyImpact Electronics, Inc. and BRJS
Investment Holding Corp., as filed with the Secretary of
State of the State of California on April 6, 1993. *2* (B)
2.4 Certificate of Merger of RicheyImpact Electronics, Inc. into
Brajdas Corporation dated April 5, 1993 as filed with the
Secretary of State of the State of Delaware on April 6, 1993.
*2* (C)
2.5 Agreement of Merger of BRJS Investment Holding Corp. and
Brajdas Corporation dated as of July 12, 1993. *4* (2)
2.6 Restated Agreement of Merger of BRJS Investment Holding Corp.
and Richey Electronics, Inc., f/k/a Brajdas Corporation dated
as of November 9, 1993. *6* (2.6)
2.7 Agreement of Merger (To Effect Reincorporation in Delaware)
between Richey Electronics, Inc., a Delaware corporation and
Richey Electronics, Inc., a California corporation dated as
of December 14, 1993. *6* (2.7)
2.8 Asset Purchase Agreement between Anchor Group, Inc. and Richey
Electronics, Inc. dated as of April 4, 1994. *7*
5.1 Opinion of Dewey Ballantine as to the legality of the
securities being registered..................................
10.1 Stockholders Agreement among Brajdas Corporation and the
individuals and entities listed on Schedule I thereto dated
as of March 1993. *2* (F)
10.2 Indemnification Agreement among Barclay and Company, Inc.,
Brajdas Corporation, Donald I. Zimmerman and certain former
shareholders of RicheyImpact Electronics, Inc. identified
therein dated as of April 5, 1993. *2* (E)
10.3 Letter re Amendment to Indemnification Agreement by Barclay and
Company, Inc. and Donald I. Zimmerman, and agreed to by BRJS
Investment Holding Corp., Brajdas Corporation and the other
persons and entities identified therein dated April 23, 1993.
*1* (10.3)
10.4 Registration Rights Agreement between Brajdas Corporation and
BRJS Investment Holding Corp. dated April 2, 1993. *2* (D)
10.5 Stock Transfer Agreement dated March 31, 1993 among Charles
LaVarnway, Alex Mendoza, Arthur Mendoza, Lee Teano and Donald
I. Zimmerman. *2* (G)
10.6 BRJS/BFG Assignment and Acceptance Agreement dated April 2,
1993 between Barclay Financial Group and BRJS Investment
Holding Corp. *1* (10.5)
10.7 $8 million Note from BRJS Investment Holding Corp. to Barclay
Financial Group dated April 2, 1993. *2* (H)
10.8 $8 million Subordinated Note from Brajdas Corporation to BRJS
Investment Holding Corp. dated April 6, 1993. *2* (I)
10.9 Note Pledge Agreement dated April 2, 1993 by BRJS Investment
Holding Corp. to Barclay Financial Group. *1* (10.8)
10.10 Barclay Confirmation of Guaranty Re Brajdas/BFG Debt Purchase
dated April 2, 1993 by Barclay and Company in favor of BRJS
Investment Holding Corp. *1* (10.9)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBITS NO.
-------- ----
<C> <S> <C>
10.11 Amended and Restated Guaranty dated as of April 6, 1993 by
Barclay and Company, Inc. in favor of BRJS Investment Holding
Corp. *2* (J)
10.12 Agreement Re Brajdas/BRJS Indebtedness and Amendment of
Security Agreement dated April 6, 1993 between Brajdas and
BRJS Investment Holding Corp. *1* (10.11)
10.13 Amended and Restated Loan and Security Agreement dated as of
April 7, 1993 between Sanwa Business Credit Corporation and
Brajdas Corporation. *1* (10.15)
10.14 Subordination Agreement dated April 7, 1993 by BRJS Investment
Holding Corp., Barclay Financial Group, Barclay and Company,
Inc. and the RicheyImpact stockholders named therein to Sanwa
Business Credit Corporation. *1* (10.16)
10.15 Employment Agreement between William C. Cacciatore and Brajdas
Corporation dated as of April 1, 1993. *1* (10.18)
10.16 Employment Agreement between C. Don Alverson and Brajdas
Corporation dated as of April 1, 1993. *1* (10.17)
10.17 Employment Agreement between Richard N. Berger and Brajdas
Corporation dated as of April 1, 1993. *1* (10.20)
10.18 Employment Agreement between Norbert W. St. John and Brajdas
Corporation dated as of April 1, 1993. *1* (10.19)
10.19 Brajdas Corporation Bonus Plan. *1* (10.21)
10.20 Employment Severance Agreement dated March 8, 1993 between
Chuck LaVarnway and Brajdas Corporation. *1* (10.22)
10.21 Employment Severance Agreement dated March 8, 1993 between
Thomas Arrieta and Brajdas Corporation. *1* (10.23)
10.22 Employment Severance Agreement dated March 8, 1993 between Lee
Teano and Brajdas Corporation. *1* (10.24)
10.23 Employment Severance Agreement dated March 8, 1993 between
Robert Valone and Brajdas Corporation. *1* (10.25)
10.24 Service and Management Agreement dated December 18, 1990 by and
among RicheyImpact Electronics, Inc., Palisades Associates,
Inc. and Saunders Capital Group, Inc. *3* (10.2)
10.25 Agreement to Assume and Amend the Service and Management
Agreement among Brajdas Corporation, Palisades Associates,
Inc. and Saunders Capital Group, Inc. dated as of April 6,
1993. *3* (10.3)
10.26 Modification Agreement among the Company, Palisades Associates,
Inc. and Saunders Capital Group, Inc. dated as of January 2,
1995. *8* (10.26)
10.27 Form of 12% Junior Subordinated Promissory Note issued to
former shareholders of RicheyImpact Electronics, Inc. by BRJS
Investment Holding Corp. *3* (10.1)
10.28 1993 Stock Appreciation Rights Plan. *5* (A)
10.29 Assumption and Amendment Agreement to Loan and Security
Agreement dated as of December 31, 1993 by and between Sanwa
Business Credit Corporation and Richey Electronics, Inc. *7*
(10.31)
10.30 Second Amendment to Amended and Restated Loan and Security
Agreement dated as of March 29, 1994 by and between Sanwa
Business Credit Corporation and Richey Electronics, Inc. *7*
(10.32)
10.31 First Amendment to Stockholders Agreement dated December 14,
1994 among the Company and the individuals and entities
listed on Schedule I to the Stockholders Agreement. *8*
(10.31)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBITS NO.
-------- ----
<C> <S> <C>
10.32 Lease between Principal Mutual Life Insurance Company and
Richey Electronics, Inc. for lease of premises at 7441
Lincoln Way, Garden Grove, California. *8* (10.32)
10.33 Lease between M&M Enterprises, a California General Partnership
and Richey Electronics, Inc. for lease of premises at 10871
La Tuna Canyon Road, Sun Valley, California. *8* (10.33)
10.34 Lease between Anchor Group, Inc. and Richey Electronics, Inc.
for lease of premises at 11 Walkup Drive, Westborough,
Massachusetts. *8* (10.34)
10.35 1992 Stock Option Plan. *8* (10.35)
10.36 Form of Incentive Stock Option Agreement. *8* (10.36)
10.37 Addendum to Employment Agreement (William C. Cacciatore) dated
as of February 21, 1995. *8* (10.37)
10.38 Addendum to Employment Agreement (C. Don Alverson) dated as of
February 21, 1995. *8* (10.38)
10.39 Addendum to Employment Agreement (Richard N. Berger) dated as
of February 21, 1995. *8* (10.39)
10.40 Addendum to Employment Agreement (Norbert W. St. John) dated as
of February 21, 1995. *8* (10.40)
10.41 Modification Agreement by and between Richey Electronics, Inc.
and Palisades Associates, Inc. dated as of February 21, 1995.
*8* (10.41)
12.1 Schedule regarding computation of ratios.......................
23.1 Consent of Dewey Ballantine (to be included in Exhibit 5.1
hereto)......................................................
23.2 Consent of McGladrey & Pullen, LLP.............................
24.1 Power of Attorney. *8* (24.1)
<FN>
-------------------
*1*Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K for Brajdas Corporation for the fiscal year ended February 28,
1993, filed May 28, 1993.
*2*Incorporated by reference to the designated exhibit of the Statement on
Schedule 13D filed on behalf of BRJS Investment Holding Corp., C. Don
Alverson, William C. Cacciatore, Greg A. Rosenbaum and Norbert W. St. John
with the Securities and Exchange Commission on April 20, 1993.
*3*Incorporated by reference to the designated exhibit of the Transition Report
on Form 10-Q for Brajdas Corporation for the period from January 1, 1993
through July 2, 1993, filed August 4, 1993.
*4*Incorporated by reference to the designated exhibit of the Quarterly Report
on Form 10-Q for Richey Electronics, Inc., f/k/a Brajdas Corporation for the
period ended October 1, 1993, filed November 10, 1993.
*5*Incorporated by reference to the designated exhibit of the definitive proxy
statement for the 1993 Annual Meeting of Stockholders.
*6*Incorporated by reference to the designated exhibit of the Shelf Registration
Statement on Form S-1 filed January 7, 1994.
*7*Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 1 to the Shelf Registration Statement filed on April 18, 1994.
*8*Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 filed February 23, 1995.
</TABLE>
<PAGE>
Exhibit 1.1
Richey Electronics, Inc.
3,000,000 Shares
Common Stock ($0.001 Par Value)
UNDERWRITING AGREEMENT
__________, 1995
JEFFERIES & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
c/o Jefferies & Company, Inc.
580 California Street
San Francisco, California 94104
As Representatives of the Several Underwriters
Ladies and Gentlemen:
Richey Electronics, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with both of you and each of the other
Underwriters named in SCHEDULE I hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 2(b) hereof), for whom both of you are acting as
representatives (in such capacity, the "Representatives") with respect to the
sale by the Company and the purchase by the Underwriters, acting severally and
not jointly, of 3,000,000 shares of Common Stock of the Company, $0.001 par
value per share (the "Common Stock") (said 3,000,000 shares of Common Stock
being herein called the "Underwritten Stock"). The stockholders of the Company
named in SCHEDULE II hereto (herein collectively called the "Selling
Stockholders") propose to sell to the Underwriters, acting severally and not
jointly, up to _________ additional shares of Common Stock and the Company
proposes to sell to the Underwriters, acting severally and not jointly, up to
__________ additional shares of Common Stock (said 450,000 shares of Common
Stock being herein called the "Option Stock" and with the Underwritten Stock
herein collectively called the "Stock"). The Common Stock is more fully
described in the Registration Statement and the Prospectus hereinafter
mentioned.
The Company and the Selling Stockholders severally hereby confirm
the agreements made with respect to the purchase of the Stock by the several
Underwriters. You
<PAGE>
represent and warrant that you have been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
The terms which follow, when used in this Agreement, shall have the
meanings indicated. "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in Section 1(a)(i) below and any preliminary prospectus
included in the Registration Statement on the date that the Registration
Statement becomes effective (the "Effective Date") that omits Rule 430A
Information (as defined below). "Registration Statement" shall mean the
registration statement referred to in Section 1(a)(i) below, including exhibits,
as amended at the Representation Date (as defined below) (or, if not effective
at the Representation Date, in the form in which it shall become effective) and,
in the event any post-effective amendment thereto becomes effective prior to the
Closing Date (as defined in Section 2 hereof), shall also mean such registration
statement as so amended. Such term shall include Rule 430A Information deemed
to be included therein at the Effective Date as provided by Rule 430A (as
defined below). The prospectus constituting a part of the Registration
Statement (including the Rule 430A Information), as from time to time amended or
supplemented, is hereinafter referred to as the "Prospectus," except that if any
revised prospectus shall be provided to the Underwriters by the Company which
differs from the prospectus on file at the Securities and Exchange Commission
(the "Commission") at the Effective Date (whether or not such revised prospectus
is required to be filed by the Company pursuant to Rule 424 of the Act
Regulations (as defined below)), the term "Prospectus" shall refer to each such
revised prospectus from and after the time it is first provided to the
Underwriters for such use. "Rule 158," "Rule 424" and "Rule 430A" refer to such
rules under the Securities Act of 1933, as amended (the "Act"; the rules and
regulations under the Act, the "Act Regulations"). "Rule 430A Information"
means information with respect to the Stock and the offering thereof permitted
to be omitted from the Registration Statement when it becomes effective pursuant
to Rule 430A.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to each of the Underwriters as
of the date hereof (such date being referred to as the "Representation Date"),
as follows:
(i) The Company has filed with the Commission a registration
statement (Registration No. 33-89690) on Form S-2, including a related
preliminary prospectus, for the registration under the Act of the offering
and sale of the Stock. The Company may have filed one or more amendments
thereto, including any related preliminary prospectus, each of which has
previously been furnished to the Representatives. The Company will file
with the Commission either (A) prior to effectiveness of such registration
statement, a further amendment to such registration statement (including
the form of final prospectus) or (B) after effectiveness of such
registration statement, a final prospectus in accordance with Rules 430A
and 424(b) of the Act Regulations. The Company has included in such
registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information in
2
<PAGE>
the case of clause (B)) required by the Act and the Act Regulations to be
included in the Prospectus with respect to the Stock and the offering
thereof. As filed, such amendment and form of final prospectus, or such
final prospectus, shall contain all Rule 430A Information, together with
all other such required information, with respect to the Stock and the
offering thereof and, except to the extent the Representatives shall agree
in writing to a modification, shall be in all substantive respects in the
form furnished to the Representatives prior to the date hereof.
(ii) On the Effective Date, the Representation Date and the
Closing Date and Option Closing Date (as defined in Section 2 below), the
Registration Statement did and will, and when the Prospectus is first
filed (if required) in accordance with Rule 424(b), when first provided to
the Underwriters for use, on the Representation Date, on the Closing Date
and on any Delivery Date, the Prospectus did and will comply in all
material respects with the applicable requirements of the Act and the Act
Regulations; on the Effective Date, the Representation Date, the Closing
Date and any Delivery Date, the Registration Statement did not and will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, when the Prospectus is first
filed (if required) in accordance with Rule 424(b), when first provided to
the Underwriters for use, on the Representation Date, on the Closing Date
and on any Delivery Date, the Prospectus did not and will not include any
untrue statement of a material fact or omit 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; provided, that
the Company makes no representations, or warranties or agreements as to
the information provided in writing to the Company by or on behalf of the
Underwriters expressly for use in the Registration Statement or the
Prospectus, and the Company agrees that the only information provided in
writing by or on behalf of the Underwriters to the Company expressly for
use in the Registration Statement or the Prospectus is that information
contained in the section of the Prospectus entitled "Underwriting" and the
first sentence of the last full paragraph of text on the cover page of the
Prospectus.
(iii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Stock nor instituted or, to the knowledge of the Company,
after due inquiry, threatened instituting proceedings for that purpose.
(iv) Each of the Company and____________, a wholly owned
subsidiary of the Company (the "Subsidiary"), is a corporation duly
incorporated and validly
3
<PAGE>
existing in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus. Each of the Company and the
Subsidiary is duly qualified to transact business and is in good standing
in each jurisdiction or place where it owns or leases property or conducts
business so as to require qualification, except when the failure to be so
qualified would not have a material adverse effect on the condition
(financial or other), business, properties, prospects, net worth or
results of operations of the Company and the Subsidiary taken as a whole,
whether or not occurring in the ordinary course of business (a "Material
Adverse Effect").
(v) The Subsidiary does not or own or lease any real or
personal property.
(vi) Each of the Company and the Subsidiary has all necessary
material authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all regulatory or governmental
officials, bodies and tribunals ("Permits") to own or lease its properties
and to conduct its businesses as described in the Registration Statement
and Prospectus, except as otherwise described in the Registration
Statement and Prospectus, and neither the Company nor the Subsidiary has
received any notice or threat of proceedings relating to the revocation or
modification of any such Permits; each of the Company and the Subsidiary
has fulfilled and performed in all material respects all of their
respective current obligations with respect to such Permits, and no event
has occurred which allows, or after notice or lapse of time, or both,
would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such Permit,
subject in each case to such qualification as may be set forth in the
Registration Statement and Prospectus; and, except as described therein,
such Permits contain no restrictions that are materially burdensome to the
Company or the Subsidiary; and each of the Company and the Subsidiary is
in compliance with all applicable laws, rules, regulations, orders and
consents, except where the failure to comply would not (individually or in
the aggregate) have a Material Adverse Effect. The property and business
of the Company and the Subsidiary conform in all material respects
to the descriptions thereof contained in the Registration Statement and
the Prospectus.
(vii) Each of the Company's and the Subsidiary's issued and
outstanding capital stock has been duly authorized, validly issued and is
fully paid and non-assessable, and the Common Stock conforms, in all
material respects, to the
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description thereof and statements made with respect thereto in the
Prospectus as of the date set forth therein, and the consolidated
capitalization of the Company conforms in all material respects to the
descriptions and the statements made with respect thereto under
"Capitalization" section in the Registration Statement and the
Prospectus as of the date set forth therein; as of the Closing Date, and
before giving effect to the issuance of the Stock and the application of
the net proceeds thereof, the authorized capitalization of the Company
will consist of (i) 3,000,000 shares of Common Stock, of which 5,889,341
shares will be issued and outstanding; (ii) 10,000 shares of preferred
stock, par value $0.001 per share (the "Preferred Stock"), none of which
will be issued and outstanding. All of the outstanding capital stock of
the Subsidiary is owned, beneficially and of record, by the Company free
and clear of all liens, encumbrances and security interests.
(viii) Each of the Company and the Subsidiary has good,
valid, marketable and indefeasible title to, and is possessed of, each
property, right, interest or estate constituting the properties and assets
described in the Registration Statement and the Prospectus as owned by it,
respectively, free of all liens, charges, encumbrances or restrictions,
except such as are described in the Registration Statement or the
Prospectus or such as are not burdensome and do not interfere materially
with the use of the property or the conduct of the business of the Company
or the Subsidiary, respectively. All leases of real property by the
Company and the Subsidiary are valid, subsisting, enforceable in full
force and effect and, to the best of the Company's knowledge, all other
parties to such leases have performed in all material respects all
obligations required to be performed by them and are not in material
default under nor in receipt of any claim of material default under any
such lease, and no event has occurred which, with the passage of time or
the giving of notice or both, would cause a material breach of, or default
under any such lease, and each of the Company and the Subsidiary has no
knowledge of any material breach or anticipated breach by the other
parties to any such lease.
(ix) The Company has all requisite corporate power and
authority to enter into this Agreement and to carry out the provisions and
conditions hereof, and to issue and deliver the Stock to the Underwriters
as provided herein. This Agreement has been duly authorized, executed and
delivered by the Company.
(x) Each of the Company and the Subsidiary owns or possesses
adequate rights to use all trademarks, service marks and other rights
necessary for the conduct of their business as described in the
Registration Statement and the Prospectus, and neither the Company nor the
Subsidiary has received any notice of
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conflict with the asserted rights of others in any such respect, and
neither of the Company nor the Subsidiary knows of any basis therefor.
(xi) The Stock to be sold by the Company has been duly and
validly authorized, and will be, when issued and sold to the Underwriters
against payment therefor, pursuant to this Agreement, duly and validly
issued, fully paid and nonassessable and conforms to the description
thereof in the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for
the issuance and sale of the Stock as contemplated herein or the transfer
and sale of the Option Stock to be sold by the Selling Stockholders.
(xii) McGladrey & Pullen, LLP (the "Accountants"), are
independent accountants with respect to the Company, under the meaning of
and as required by the Act and Act Regulations.
(xiii) The financial statements and related schedules and
notes included in the Registration Statement and the Prospectus present
fairly in all material respects the financial position of the Company
(and, as applicable, any predecessors thereto) on the basis stated in the
Registration Statement and the Prospectus, as of the respective dates
thereof, and the results of operations and cash flows of the Company for
the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout
the entire periods involved, except as otherwise disclosed in the
Registration Statement and the Prospectus. No other financial statements
or schedules of the Company are required by the Act or the Act Regulations
to be included in the Registration Statement or Prospectus.
(xiv) Each of the Company and the Subsidiary maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations, (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability, (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D)
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 statistical and market-related data
included in the Prospectus are reliable and accurate.
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(xv) Each of the Company and the Subsidiary maintains
insurance covering its properties, operations, personnel and businesses.
Such insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company and its
businesses. The Company has not received notice from any insurer or agent
of such insurer that substantial capital improvements or other
expenditures will have to be made in order to continue such insurance.
All such insurance is outstanding and duly in force on the date hereof and
will be outstanding and duly in force on the Closing Date.
(xvi) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and is not
subject to registration under such act or subject to regulation under any
other federal or state statute, rule or regulation restricting its ability
to incur indebtedness for borrowed money.
(xvii) Neither the Company nor the Subsidiary is (A) in
violation of its respective charter or by-laws, or of any law, ordinance,
administrative or governmental rule or regulation applicable to the
Company or the Subsidiary or of any judgment or any decree of any court or
governmental agency or body having jurisdiction over the Company or the
Subsidiary where the consequences of such violation might have a Material
Adverse Effect on the Company, or (B) in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note,
lease, bond, debenture, bank loan, credit agreement or other agreement,
instrument or evidence of indebtedness to which the Company or the
Subsidiary is a party or by which it is or any of them may be bound, or to
which any of the property or assets of the Company or the Subsidiary is
subject, which violation or default might have a Material Adverse Effect.
(xviii) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened, against the
Company or the Subsidiary or to which any of their respective property is
subject, (A) that are required to be described in the Registration
Statement or the Prospectus but are not described as required or (B)
that, if adversely determined, might have a Material Adverse Effect.
There are no agreements, contracts, indentures, leases or other documents
or instruments that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required. The
Company has not entered into a material transaction not referred to in the
Registration Statement and the Prospectus.
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(xix) Since the respective dates as of which information is
provided in the Registration Statement and the Prospectus, except as
otherwise specifically stated therein, there has been no material adverse
change or development with respect to the condition (financial or
otherwise), results of operations, properties, prospects or business of
the Company or the Subsidiary, whether or not arising in the ordinary
course of business (a "Material Adverse Change").
(xx) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
neither the Company nor the Subsidiary has issued any securities, or
incurred any material liability or obligations, direct or contingent, for
borrowed money, or entered into any transaction not in the ordinary course
of business, or entered into any transaction with an affiliate (as the
term "affiliate" is defined in Rule 405 promulgated by the Commission
pursuant to the Act) of the Company or the Subsidiary which would
otherwise be required to be disclosed in the Registration Statement or the
Prospectus, declared or paid any dividend on its stock, or made any other
distribution to any of its stockholders except as disclosed in the
Registration Statement or the Prospectus, and there has not been any
material change in the capital stock or other equity, or material increase
in the short-term debt or long-term debt, of the Company or the Subsidiary
or any development involving or which may reasonably be expected to
involve a Material Adverse Change. There are no outstanding securities
convertible into or exchangeable for, and no outstanding options, warrants
or other rights to purchase, any shares of the capital stock of the
Company or the Subsidiary, nor any agreements or commitments to issue any
of the same, except as described or listed in the Registration Statement
or the Prospectus, and there are no preemptive or other rights to
subscribe for or to purchase, and, except as disclosed in the Registration
Statement or the Prospectus, there are no restrictions upon the voting or
transfer of, any capital stock pursuant to the Company's or the
Subsidiary's respective certificates of incorporation or by-laws or any
agreement or other instrument to which the Company or the Subsidiary is a
party.
(xxi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation by
the Company of the transactions contemplated hereby, except such as have
been obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and distribution
of the Stock by the several Underwriters and such other approvals as have
been obtained.
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(xxii) Neither the Company nor the Subsidiary has distributed
and, prior to the later to occur of (A) the Closing Date or (B)
completion of the distribution of the Stock, will not distribute without
your prior written consent any offering material in connection with the
offering and sale of the Stock other than the Registration Statement, the
Prospectus or other materials, if any, permitted by the Act and the Act
Regulations.
(xxiii) To the Company's knowledge, neither the Company or
the Subsidiary nor any employee or agent of the Company or the Subsidiary
has made any payment of funds of the Company or the Subsidiary in
violation of any law or rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the
Registration Statement or the Prospectus.
(xxiv) Neither the Company nor the Subsidiary is involved in
any material labor dispute nor, to the best knowledge of the Company, is
any such dispute threatened.
(xxv) Each of the Company and the Subsidiary have filed all
Federal, state and local tax returns that are or were required to be
filed or have obtained extensions thereof and have paid all taxes shown
on such returns, except such taxes as are being contested in good faith
and all assessments received by them, respectively, to the extent that
the same have become due.
(xxvi) Except for the shares of capital stock of the
Subsidiary owned by the Company, and stock in other companies with an
aggregate cost basis less than $50,000, neither the Company nor the
Subsidiary owns any shares of stock or any other securities of any
corporation or has any equity interest in any firm, partnership,
association or other entity material in amount in relation to the net
assets of the Company.
(xxvii) The issue and sale of the Stock, the execution and
delivery of this Agreement and the consummation of any other of the
transactions herein contemplated, and the fulfillment of the terms hereof,
will not conflict with, or violate, or constitute a default under, (A) any
of the terms, conditions or provisions of the certificate of incorporation
or by-laws of the Company or the Subsidiary, as amended and currently in
effect, (B) any of the terms of any indenture, mortgage, deed of trust,
loan agreement, lease, or other agreement or instrument to which the
Company or the Subsidiary is a party or by which it is bound, (C) any
law, statute or regulation applicable to the Company or the Subsidiary or
their properties or (D) any judgment,
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writ, injunction, decree, order or ruling of any court, arbitrator, or
governmental authority or other regulatory body binding on the Company or
the Subsidiary or their respective properties, except in the case of
clauses (B), (C) and (D) for conflicts, violations or defaults which
do not have a Material Adverse Effect.
(xxviii) Neither the Company nor the Subsidiary is in
Violation of any Federal, state, local or foreign laws or regulations
relating to POLLUTION OR PROTECTION of human health or the environment
(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products ("Materials of
Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which Violation could be reasonably expected to
have a Material Adverse Effect. As used herein, "Violation" includes, but
is not limited to, noncompliance with any permit or other governmental
authorization required under applicable Environmental Laws and
noncompliance with the terms and conditions of any such permit or
authorization.
(xxix) To the knowledge of the Company, there is no claim,
action, cause of action, investigation or written notice by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from (A) the
presence, or release into the environment, of any Material of
Environmental Concern at any location owned or operated by the Company or
the Subsidiary or (B) circumstances forming the basis of any Violation, or
alleged violation, of any Environmental Law (collectively, "Environmental
Claims") pending or threatened against the Company or the Subsidiary or
against any person or entity whose liability for any Environmental Claim
the Company or the Subsidiary has retained or assumed either contractually
or by operation of law which liability or violation could be reasonably
expected to have a Material Adverse Effect on the Company.
(xxx) To the knowledge of the Company, there are no past or
present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of
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Environmental Concern, that could prevent compliance in all material
respects with applicable Environmental Laws.
(xxxi) The Company has complied with and will be in
compliance with the provisions of that certain Florida act relating to
doing business with Cuba, codified as Section 517.075 of the Florida
statutes, and the rules and regulations promulgated thereunder or is
exempt therefrom.
(xxxii) The Company has not taken, directly or indirectly,
any action designed to, or that might be reasonably expected to, cause or
result in stabilization or manipulation of the price of the Stock.
(xxxiii) There are no holders of securities of the Company or
the Subsidiary with registration rights to have any securities registered
as a part of the Registration Statement or included in the offering
contemplated by this Agreement, except with respect to whom waivers of any
such registration rights have been obtained and those set forth in the
Registration Statement.
(xxxiv) Prior to the Closing Date, the Stock to be issued and
sold by the Company will be authorized for listing on The Nasdaq Stock
Market (herein called "Nasdaq") upon official notice of issuance.
(b) Each of the Selling Stockholders hereby represents and
warrants as follows:
(i) Such Selling Stockholder has good and marketable title to
all the shares of Option Stock to be sold by such Selling Stockholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver
the same hereunder, subject, in the case of each Selling Stockholder, to
the rights of the Company, as Custodian (herein called the "Custodian"),
and that upon the delivery of and payment for such shares of the Option
Stock hereunder, the several Underwriters will receive good and marketable
title thereto, free and clear of all liens, encumbrances, equities,
security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the
Option Stock to be sold by such Selling Stockholder have been placed in
custody under a Custody Agreement for delivery under this Agreement with
the Custodian; such Selling Stockholder specifically agrees that the
shares of the Option Stock represented by the
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certificates so held in custody for such Selling Stockholder are subject
to the interests of the several Underwriters and the Company, that the
arrangements made by such Selling Stockholder for such custody, including
the Power of Attorney which is part of such Custody Agreement, are to that
extent irrevocable, and that the obligations of such Selling Stockholder
shall not be terminated by any act of such Selling Stockholder or by
operation of law, whether by the death or incapacity of such Selling
Stockholder (or, in the case of a Selling Stockholder that is not an
individual, the bankruptcy, dissolution or liquidation of such Selling
Stockholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Option Stock hereunder,
certificates for such shares of the Option Stock shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as
if such death, incapacity, bankruptcy, dissolution, liquidation or other
event had not occurred, regardless of whether the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or
other event.
(iii) Such Selling Stockholder (but only if such selling more
than ___________ shares of Stock pursuant to this Agreement has
reviewed the Registration Statement and Prospectus and, although such
Selling Stockholder has not independently verified the accuracy or
completeness of all the information contained therein, nothing has come to
the attention of such Selling Stockholder that would lead such Selling
Stockholder to believe that (A) on the Effective Date, the Registration
Statement contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and (B) on the
Effective Date the Prospectus contained and, on the Closing Date, contains
any untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) Any certificate signed by any officer of the Company and delivered
to the Representatives or to counsel for the Representatives pursuant to the
terms of this Agreement shall be deemed a representation and warranty by the
Company, as the case may be, to the Underwriters as to the matters covered
thereby.
SECTION 2. SALE AND DELIVERY TO THE UNDERWRITERS; CLOSING.
(a) Subject to the terms and conditions set forth herein, the Company
agrees to sell to each Underwriter, severally and not jointly, and, on the basis
of the representations and warranties herein contained and subject to the terms
and conditions herein set forth, each
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Underwriter, severally and not jointly, agrees to purchase from the Company at
$____________ per share the number of shares of Underwritten Stock set forth
opposite its name in SCHEDULE I plus any additional number of shares of
Underwritten Stock that such Underwriter may be obligated to purchase pursuant
to Section 9 below. The public offering price per share for the Underwritten
Stock shall be $______________.
(b) In addition, subject to the terms and conditions set forth herein,
the Selling Stockholders hereby grant an option to the Underwriters, severally
and not jointly, to purchase from them up to_______________ shares of
Option Stock and the Company hereby grants an option to the Underwriters,
severally and not jointly, to purchase from it up to_______________ shares of
Option Stock, in each case at the purchase price per share paid by the
Underwriters set forth in Section 2(a) hereof, less an amount per share equal to
any dividends declared by the Company and payable on the Underwritten Stock but
not payable on the Option Stock. The options granted by the Selling
Stockholders and the Company pursuant to this Section 2(b) (collectively, the
"Over-Allotment Option") will expire automatically at the close of business on
the 30th calendar day after (i) the Effective Date, if the Company has elected
not to rely upon Rule 430A under the Act Regulations, or (ii) the Representation
Date, if the Company has elected to rely upon Rule 430A under the Act
Regulations, and may be exercised in whole or in part at the Closing Date and at
one date subsequent to the Closing Date but prior to the expiration of such
option only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Underwritten Stock upon
notice by the Representatives to the Company setting forth the number of shares
of Option Stock as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for such Option Stock. Any
such date (the "Option Closing Date") (a "Delivery Date") shall be determined by
the Representatives and may be the same date as (but not earlier than) the
Closing Date, but in no event shall such Date of Delivery be earlier than two
full business days nor later than seven full business days after the giving of
notice of the exercise of such option to the Company, unless otherwise agreed
upon by the Representatives and the Company. If the Over-Allotment Option is
exercised as to all or any portion of the Option Stock, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of shares of Option Stock as to which the Over-Allotment Option
is being exercised which the number of shares of Underwritten Stock set forth
opposite its name in SCHEDULE I bears to the total number of shares of
Underwritten Stock, except as otherwise agreed upon between the Representatives,
the Company and the Selling Stockholders, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares. If the Over-Allotment Option is
exercised as to less than all of the shares of Option Stock, the first_________
shares shall be purchased from the Selling Stockholders and the remaining
__________ shares shall be purchased
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from the Company. If the Over-Allotment Option is exercised as to less than
___________ shares of Option Stock, the number of shares of Option Stock
purchased from each Selling Stockholder shall bear the same ratio
to the total number of shares of Option Stock purchased from all Selling
Stockholders as the number of shares of Option Stock set forth opposite such
Selling Stockholder's name in SCHEDULE II bears to ___________, subject in each
case to adjustments as the Representative in their discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of, the
Underwritten Stock to be purchased by the several Underwriters shall be made at
such place as shall be agreed upon by the Representatives, the Company and the
Selling Stockholders, at 7:00 A.M. Los Angeles time, on the fifth business day
following the date the Registration Statement becomes effective (or, if the
Company has elected to rely upon Rule 430A, the fifth business day after the
date of execution of this Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives,
the Company and the Selling Stockholders (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, if the
Underwriters purchase any or all of the Option Stock, payment of the purchase
price and delivery of certificates for such Option Stock shall be made at such
place as shall be agreed upon by the Representatives, the Company and the
Selling Stockholders on the Option Closing Date as specified in the relevant
notice from the Representatives to the Company.
Payment shall be made to the Company by check or checks payable in,
or wire transfer of, next day funds to the order of the Company against delivery
to the Representative for the respective accounts of the Underwriters of
certificates for the Stock to be purchased by them. Certificates for the Stock
shall be in such denominations and registered in such names as the
Representative may request in writing at least two business days before the
Closing Date or the Option Closing Date, as the case may be. The certificates
for the Stock will be made available for examination and packaging by the
Representatives not later than 1:00 P.M. Portland, Oregon time on the last
business day prior to the Closing Date or the Option Closing Date, as the case
may be, at the offices of the transfer agent for the Common Stock in Portland,
Oregon.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with
each Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Representation Date, and any amendment
thereof, to become effective as promptly as possible after the filing thereof.
The Company will not file any amendment to
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<PAGE>
the Registration Statement or amendment or supplement to the Prospectus to which
the Representatives shall reasonably object in writing after a reasonable
opportunity to review such amendment or supplement. Subject to the foregoing
sentences in this clause (a), if the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectus or
supplement to the Prospectus is otherwise required under Rule 424(b), the
Company will cause the Prospectus to be completed, or such supplement thereto to
be filed with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence reasonably
satisfactory to the Representatives of such timely filing. The Company promptly
will advise the Representatives (i) when the Registration Statement, if not
effective at the Representation Date, and any amendment thereto, shall have
become effective, (ii) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b), (iii)
when any amendment to the Registration Statement shall have been filed or become
effective, (iv) of any request by the Commission for any amendment of or
supplement to the Registration Statement or any Prospectus or for any additional
information, (v) of the receipt by the Company of any notification of, or if the
Company otherwise has knowledge of, the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (vi) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company will use its best
efforts to prevent the issuance of any such stop order and, if issued, to obtain
as soon as possible the withdrawal thereof.
(b) The Company consents to the use of the Prospectus in accordance with
the provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which Stock is offered by the Underwriters and by all dealers
to whom Stock may be sold, both in connection with the offering and sale of the
Stock and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with the sales by any Underwriters or
dealer. The Company will comply with all requirements imposed upon it by the
Act, as now and hereafter amended, so far as necessary to permit the continuance
of sales of or dealing in the Stock in accordance with the provisions hereof and
of the Prospectus.
(c) Not later than the 45th day following the end of the fourth quarter
first occurring after the "effective date" (as defined in Rule 158 under the
Act) of the Registration Statement (the "Effective Date"), the Company will mail
and make generally available to its security holders a consolidated earning
statement covering a period of at least twelve months beginning with the first
full calendar quarter following the Effective Date which shall satisfy
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the provisions of Section 11(a) of the Act and Rule 158 thereunder and shall
advise you in writing when such statement has been made so available.
(d) If at any time during the period in which a prospectus relating to
the Stock is required by law to be delivered by an Underwriter or dealer, any
event relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission, subject to the second sentence of Section 3(a), a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the
initial public offering of the Stock by the Underwriters and during such period,
the Underwriters shall propose to vary the terms of offering thereof by reason
of changes in general market conditions or otherwise, you will advise the
Company in writing of the proposed variation, and, if in the opinion either of
counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission, subject to the second
sentence of Section 3(a), a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Act and the Act Regulations for such period.
(e) The Company will furnish to the Representatives, without charge, one
signed copy of the Registration Statement (including exhibits thereto and, upon
request, all documents incorporated by reference therein) and, so long as
delivery of a prospectus by the Underwriters or a dealer may be required by the
Act, as many copies of each Preliminary Prospectus and the Prospectus and all
amendments and supplements thereto as the Representatives may reasonably
request.
(f) The Company will apply the net proceeds from the sale of the Stock
to be sold hereunder in accordance with the description set forth in the "Use of
Proceeds" section of the Prospectus.
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(g) The Company will cooperate with the Representatives and their
counsel in connection with endeavoring to obtain and maintain the qualification
or registration, or exemption from qualification, of the Stock for offer and
sale under the applicable securities or Blue Sky laws of such states and other
jurisdictions of the United States as the Representatives may designate;
provided, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to taxation or general service of process in any
jurisdiction where it is not now so subject.
(h) During a period of five years commencing with the date hereof, the
Company will furnish to the Representatives, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports filed
with Commission pursuant to the Act or the Securities Exchange Act of 1934, as
amended (herein called the "Exchange Act").
(i) The Company agrees that, without your prior written consent, the
Company will not, directly or indirectly, sell, offer, contract to sell, make
any short sale, pledge or otherwise dispose of (collectively, "Transfer") any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire Common Stock (collectively,
"Securities") for a period of 180 days following the commencement of the public
offering of the Stock by the Underwriters, other than (i) the Stock to be sold
to the Underwriters pursuant to this Agreement, and (ii) shares of Common Stock
issued under the stock option plan of the Company (the "Stock Plan"), including
Common Stock issued upon the exercise of options granted under the Stock Plans,
all as described under the caption "Executive Compensation" in the Preliminary
Prospectus, provided that any such Common Stock is not transferable until after
the expiration of such 180-day period. For purposes of this paragraph (i) a
sale, offer, or other disposition shall be deemed to include any sale to an
institution which can, following such sale, sell Common Stock to the public in
reliance on Rule 144A.
(j) Each of the Selling Stockholders agrees that, without your prior
written consent, the Selling Stockholders will not, directly or indirectly,
Transfer any shares of any Securities for a period of 180 days following the
commencement of the public offering of the Stock by the Underwriters.
(k) The Company will use its best efforts to cause all directors,
officers, and certain other beneficial owners of shares of Common Stock to agree
with the Representatives that without the prior written consent of the
Representatives, each of such holders will not, directly or indirectly,
Transfer any shares of Securities that such person, directly or
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indirectly, beneficially owns or may in the future beneficially own for a period
of 180 days following the commencement of the public offering of the Stock by
the Underwriters. For purposes of paragraphs (j) and (k) of this Section 3 and
subparagraph (a)(x) of Section 5, a person shall be deemed to beneficially own
shares of Common Stock that are issuable upon the exercise of options, warrants
or other rights to acquire Common Stock on or before 180 days following the
Closing Date.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
SECTION 4. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated, the Company
will pay (directly or by reimbursement), and will be responsible for, all
expenses incident to the performance of its obligations under this Agreement,
including expenses related to the following, if incurred, (a) the printing and
filing of the Registration Statement as originally filed and of each amendment
thereto, (b) the printing and/or copying of this Agreement, (c) the
preparation, issuance and delivery of the Stock to the Underwriters, including
capital duties, stamp duties and transfer taxes, if any, payable upon issuance
of any of the Stock, the sale of the Stock to the Underwriters, (d) the fees
and disbursements of the Company's counsel and accountants, (e) the
qualification of the Stock under state securities laws, including filing fees
and the reasonable fees and disbursements of counsel for the Representatives in
connection therewith and in connection with the preparation of any Blue Sky
survey and any supplemental Blue Sky survey, (f) the printing and delivery to
the Underwriters of copies of the Registration Statement as originally filed and
of each amendment thereto, of the Preliminary Prospectus and of the Prospectus
and any amendments or supplements thereto, (g) the printing and/or copying and
delivery to the Underwriters of copies of the Blue Sky survey and any
supplemental Blue Sky survey, (h) the fees and expenses incurred in
connection with the listing of the stock on any national securities exchange or
Nasdaq, and (i) the fees payable to the National Association of Securities
Dealers, Inc. ("NASD") and the reasonable fees and disbursements of counsel
for the Representatives in connection therewith.
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SECTION 5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS.
(a) The obligations of the Underwriters to purchase the Stock hereunder
are subject to the continued accuracy of the representations and warranties of
the Company and the Selling Stockholders herein contained as of the date hereof
and as of the Closing Date (and, if applicable, as of any Delivery Date), to the
accuracy of the statements of the Company made in any certificate pursuant to
the provisions hereof as of the date hereof and as of the Closing Date (and, if
applicable, as of any Delivery Date), to the performance by the Company of its
obligations hereunder, and to the following further conditions:
(i) The Registration Statement shall have become effective not
later than the date hereof, or at such other date as may be approved by the
Representatives, the Company and the Selling Stockholders and shall remain
effective at the Closing Date and at any Delivery Date. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or proceedings therefor initiated or, to the knowledge of
the Company or the Representatives, threatened by the Commission. If the
Company has elected to rely upon Rule 430A, the price of the Stock and any
price-related or other information previously omitted from the effective
Registration Statement pursuant to Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) within the prescribed time period,
and prior to the Closing Date, the Company shall have provided evidence
satisfactory to the Representatives of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and declared
effective in accordance with the requirement of Rule 430A.
(ii) The Company shall have furnished to the Representatives the
opinion of Dewey Ballantine, counsel to the Company and the Selling
Stockholders, substantially in the form attached hereto as EXHIBIT A, with
such changes as may be reasonably requested by the Representatives, dated as of
the Closing Date, and if the Option Stock is purchased at any date after the
Closing Date, an additional opinion from Dewey Ballantine, counsel for the
Company and the Selling Stockholders, addressed to the Underwriters and dated
the applicable Delivery Date, confirming, to the extent true, that the
statements expressed as of the Closing Date in such opinion remain valid as of
such later date.
(iii) Brobeck, Phleger & Harrison, counsel for the Underwriters,
shall furnish to the Underwriters an opinion with respect to such matters as may
be reasonably requested by the Representatives, dated as of the Closing Date,
and if the Option Stock is purchased at any date after the Closing Date, an
additional opinion addressed to the Underwriters and dated the applicable
Delivery Date confirming, to the extent true, that the
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statements expressed as of the Closing Date in such opinion remain valid as of
such later date.
(iv) The following conditions contained in clauses (A) through
(G) of this Section 5(a)(iv) shall have been satisfied on and as of the
Closing Date (or, if applicable, as of any Delivery Date) and the Company shall
have furnished to the Underwriters a certificate, signed by the President and
the principal financial officer of the Company, dated the Closing Date (or, if
applicable, as of any Delivery Date), to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Prospectus,
any supplement or amendment to the Prospectus and this Agreement and that, to
their knowledge:
(A) the representations and warranties of the Company and the
Selling Stockholders in this Agreement are true and correct in all
material respects on and as of the Closing Date (or, if applicable, as of
any Delivery Date) with the same effect as if made on the Closing Date
(or, if applicable, as of any Delivery Date) and the Company has complied
with all the agreements and satisfied all the conditions under this
Agreement on its part to be performed or satisfied at or prior to the
Closing Date (or, if applicable, as of any Delivery Date);
(B) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or, to the knowledge of the Company, threatened;
(C) since the date of the most recent financial statements
included in the Prospectus, there has been no Material Adverse Change:
(D) the Company does not have any material contingent
obligations which are not disclosed in the Registration Statement and the
Prospectus;
(E) there are not any pending or known threatened legal
proceedings to which the Company is a party or of which property of the
Company or the Subsidiary is the subject which are material and which are
not disclosed in the Registration Statement and the Prospectus;
(F) there are not any franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required;
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(G) there has not been any material change in the market
for securities in general or in political, financial or economic
conditions from those reasonably foreseeable as to render it
impracticable, in your reasonable judgment, to make a public offering of
the Stock, or a material adverse change in market levels for securities in
general (or those of companies in particular) or financial or economic
conditions which render it inadvisable to proceed.
(v) You shall have received from McGladrey & Pullen, LLP, a letter
or letters, addressed to the Underwriters and dated the Closing Date (and, if
applicable, any Delivery Date), confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
Act Regulations and based upon the procedures described in their letter
delivered to you at the Representation Date (herein called the Original Letter),
but carried out to a date not more than five (5) business days prior to the
Closing Date (or, if applicable, the Delivery Date) (A) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date (or, if applicable, the Delivery
Date), and (B) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect any
changes in the facts described in the Original Letter since the date of the
Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the purchase of
the Option Stock as contemplated by the Prospectus.
(vi) You shall have received from McGladrey & Pullen, LLP, a
letter stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at December 31, 1994, did
not disclose any weakness in internal controls that they considered to be
material weaknesses.
(vii) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
subparagraph (a)(iv) of Section 1 hereof.
(viii) Prior to the Closing Date, the Stock to be issued and
sold by the Company shall have been duly authorized for listing by Nasdaq
upon official notice of issuance.
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(ix) On or prior to the Closing Date, you shall have received from
all directors and officers and from all other beneficial holders of Common Stock
(other than beneficial owners of an aggregate of up to _____ shares of Common
Stock) agreements stating that without your prior written consent, each of such
holders will not, directly or indirectly, Transfer any Securities for a period
of 180 days following the commencement of the public offering of the Stock by
the Underwriters.
(x) If any condition specified in this Section 5 shall not have
been fulfilled in all material respects when and as required to be fulfilled,
this Agreement may be terminated by the Representatives by written notice to the
Company at or prior to the Closing Date.
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if Brobeck, Phleger & Harrison, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
SECTION 6. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of the Section 6(f) hereof with respect to
the Selling Stockholders, the Company and the Selling Stockholder jointly and
severally agree to indemnify, defend and hold harmless each Underwriter and its
affiliates and its respective officers, shareholders, counsel, agents,
employees, directors and any person who controls each Underwriter or any of its
affiliates within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, and the respective officers, shareholders, counsel, agents,
employees and directors of such persons (each Underwriter and each such other
person or entity being referred to herein as an "Indemnified Person"), to the
fullest extent lawful from and against any loss, expense, liability or claim
(including the reasonable cost of investigating such claim) which, jointly or
severally, the Indemnified Persons may incur under the Act, the Exchange Act or
otherwise, as such expenses are incurred, insofar as such loss, expense,
liability or claim arises out of or is based upon any untrue statement of a
material fact contained in the Registration Statement (or in the Registration
Statement as amended by any post-effective amendment thereof) or in a Prospectus
(including any Preliminary Prospectus), or arises out of or is based upon any
omission or alleged omission to state a material fact required to be stated in
either such Registration Statement or the Prospectus or necessary to make the
statements made therein not misleading in light of the circumstances under which
they were made, except insofar as any such loss, expense, liability or claim
arises out of or is based upon any untrue statement or omission or alleged
untrue statement or omission which has been made therein or omitted therefrom in
reliance
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upon and in conformity with the information provided in writing to the
Company by or on behalf of the Underwriters, expressly for use in the
Registration Statement or the Prospectus, and the Company agrees that the only
such information provided in writing by or on behalf of the Underwriters,
expressly for use in the Registration Statement or the Prospectus, is that
information contained in the section of the Prospectus entitled "Underwriting"
and the statements with respect to stabilization appearing as the last paragraph
of text on the inside front cover page of the Prospectus; provided, that (i) the
indemnity agreement contained in this Section 6(a) with respect to any
Preliminary Prospectus or amended Preliminary Prospectus shall not inure to the
benefit of the Indemnified Person from whom the person asserting any such loss,
expense, liability or claim purchased the Stock which is the subject thereof, if
the Prospectus corrected any such alleged untrue statement or omission and if
such Underwriter failed to send or give a copy of the Prospectus, excluding any
documents incorporated by reference, to such person at or prior to the written
confirmation of the sale of Stock to such person, provided that the Company has
delivered the Prospectus to the Underwriters in quantity not less than one full
business day prior to the sale to the person asserting such claim and (ii) each
Selling Stockholder shall only be liable under this Section 6(a) with respect to
(A) information pertaining to such Selling Stockholder furnished by or behalf of
such Selling Stockholder expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or (B) facts that
would constitute a breach of any representation or warranty of such Selling
Stockholder set forth in Section 1 (b) hereof. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
If any action is brought against any Underwriter or its respective
officers, shareholders, employees, directors or any person who controls any of
the Underwriters (as described above) in respect of which indemnity may be
sought against the Company and the Selling Stockholders pursuant to the
foregoing paragraph, such Underwriter shall promptly notify the Company in
writing of the institution of such action (provided, that the failure to give
such notice shall not relieve the Company or the Selling Stockholders of any
liability which it may have pursuant to this Agreement, unless it shall have
been determined by a court of competent jurisdiction by final judgment that such
failure has resulted in the forfeiture of substantive rights or defenses by the
indemnifying party) and the Company shall assume the defense of such action,
including the employment of counsel and payment of reasonable expenses. Such
Underwriter or such officer, shareholder, employee, director or person who
controls the Underwriter (as described) shall have the right to employ its or
their own counsel in any such case and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Underwriter or of such persons unless: (i) the Company shall have failed to
assume the defense of such action or the Company shall have failed to employ
counsel reasonably satisfactory to the Underwriter in
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any such action; or (ii) such indemnified party or parties shall have been
advised by counsel that there may be one or more defenses available to it or
them that are different from or additional to those available to the Company (in
which case, if such indemnified party or parties notifies the Company in writing
that it elects to employ separate counsel at the expense of the Company, the
Company shall not have the right to assume the defense of such action on behalf
of the indemnified party or parties), in any of which events such fees and
expenses shall be borne by the Company and paid as incurred; provided, that the
Company shall be responsible for the fees and expenses of only one counsel for
all indemnified parties hereunder. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its prior written consent, which consent shall
not be unreasonably withheld.
(b) Each Underwriter severally agrees to indemnify, defend and hold
harmless the Company, its directors, officers, shareholders, counsel, agents and
employees and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act and the Selling Stockholders
from and against any loss, expense, liability or claim (including the reasonable
cost of investigation) which, jointly or severally, the Company or any such
person may incur under the Act, the Exchange Act or otherwise, as such expenses
are incurred insofar as such loss, expense, liability or claim arises out of or
is based upon any untrue statement or omission or alleged untrue statement or
omission which has been made in or omitted from the Registration Statement (or
in the Registration Statement as amended by any post-effective amendment
thereof) or in the Prospectus (including any Preliminary Prospectus) in reliance
upon and in conformity with the information relating to the Underwriters
furnished in writing by or on behalf of the Underwriters to the Company. The
Company agrees that the only information provided in writing by or on behalf of
the Underwriters to the Company, expressly for use in the Registration Statement
or the Prospectus, is that information contained in the section of the
Prospectus entitled "Underwriting" and the statements with respect to
stabilization appearing as the last paragraph of text on the inside front cover
page of the Prospectus.
If any action is brought against the Company or any such person in
respect of which indemnity may be sought against any Underwriter pursuant to the
foregoing paragraph, the Company or such person shall promptly notify such
Underwriter in writing of the institution of such action (provided, that the
failure to give such notice shall not relieve such Underwriter of any liability
which it may have pursuant to this Agreement, unless it shall have been
determined by a court of competent jurisdiction by final judgment that such
failure has resulted in the forfeiture of substantive rights or defenses by the
indemnifying party) and the Underwriters shall assume the defense of such
action, including the employment of counsel and payment of reasonable expenses.
The Company or such person
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shall have the right to employ its or their own counsel in any such case and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Company or such person unless: (i) such
Underwriters shall have failed to assume the defense of the action or shall have
failed to employ counsel reasonably satisfactory to the Company in any such
action; or (ii) such indemnified party or parties shall have been advised by
counsel that there may be one or more defenses available to it or them that are
different from or additional to those available to such Underwriters (in which
case, if such indemnified party or parties notifies the Underwriters in writing
that it elects to employ separate counsel at the expense of the Underwriters,
such Underwriters shall not have the right to assume the defense of such action
on behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by the Underwriters and paid as incurred; provided,
that the Underwriters shall be responsible for the fees and expenses of only one
counsel for all indemnified parties. Anything in this paragraph to the contrary
notwithstanding, the Underwriters shall not be liable for any settlement of any
such claim or action effected without the written consent of such Underwriter,
which consent shall not be unreasonably withheld.
(c) If the indemnification provided for in this Section 6 is unavailable
to an indemnified party under subsection (a) or (b) of this Section 6 in respect
of any losses, damages, expenses, liabilities or claims referred to therein,
then the indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, expenses, liabilities or
claims (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders, on the one hand, and each
Underwriter, on the other hand, from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders, on the one hand, and each Underwriter, on the other
hand, in connection with the statements or omissions which resulted in such
losses, expenses, liabilities or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders, on the one hand, and each Underwriter, on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by each Underwriter. The
relative fault of the Company and the Selling Stockholders, on the one hand, and
of each Underwriter, on the other hand, shall be determined by reference to,
among other things, whether the untrue statement or alleged untrue statement of
a material fact or omission or alleged omission relates to information supplied
by the Company and the Selling Stockholders or by such Underwriter and the
parties' relative intent, knowledge,
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access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
expenses, liabilities and claims referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action.
(d) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
6 were determined by PRO RATA allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in Section 6(c) above. Notwithstanding the provisions of this Section 6,
each Underwriter shall not be required to contribute any amount in excess of the
underwriting discount received by it. 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.
(e) The indemnity and contribution agreements contained in this Section
6 shall remain in full force and effect irrespective of any investigation made
by or on behalf of the Underwriters, or any of their officers, employees,
directors, shareholders, counsel, agents or any person who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, by or on behalf of the Company, its directors, officers, counsel,
agents, employees or any person who controls the Company, within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act or by or on behalf of
the Selling Stockholders, and shall survive any termination of this Agreement or
the issuance and delivery of the Securities. The Company, the Selling
Stockholders and each Underwriter agree promptly to notify the others of the
commencement of any litigation or proceeding against it and, in the case of the
Company, against any of its respective officers and directors in connection with
the issuance and sale of the Securities, or in connection with the Registration
Statement or Prospectus.
(f) The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties in Section 1(b) hereof, under the
expense reimbursement provisions of Section 4 hereto and under the indemnity,
contribution and reimbursement agreements contained in Section 6 hereof shall be
limited to an amount equal to the net proceeds received by such Selling
Stockholders from the public offering price of the Option Stock sold by such
Selling Stockholder hereunder. In addition, no Selling Stockholder shall be
liable under the reimbursement, indemnity and contribution agreements of
Sections 1(b), 4 and 6 hereof unless and until the Underwriters have made
written demand on the Company for payment under such Sections which shall not
have been paid by the Company within 45 days after receipt of such demand. The
Company and the Selling Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement,
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as to the respective amounts of such liability for which they each shall be
responsible, including, without limitation, allocating between the Company and
the Selling Stockholders the liability resulting in a breach of the
representations and warranties of the Company and the Selling Stockholders
hereunder.
(g) Subject to the provisions of Section 6(f) hereof with respect to the
Selling Stockholders, the Company and the Selling Stockholders hereby jointly
and severally agree to reimburse on a quarterly basis the Underwriters for all
reasonable legal and other expenses incurred in connection with investigating or
defending any claim, action, investigation, inquiry or other proceeding arising
out of or based upon any statement or omission, or any alleged statement or
omission described in Section 6(a) hereof, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 6 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 7. SURVIVAL. All representations, warranties and
agreements contained in this Agreement, or contained in certificates of officers
of the Company submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of the
several Underwriters or any of its respective officers, employees, directors,
shareholders or person who controls any Underwriter, or by or on behalf of the
Company and shall survive delivery of the Stock to and payment for the Stock by
the several Underwriters.
SECTION 8. TERMINATION OF AGREEMENT.
(a) The Representatives may terminate this Agreement, by written notice
to the Company prior to the Closing Date (or, if applicable, the Delivery Date)
(i) if there shall occur any material default or breach by the Company hereunder
or the failure to satisfy in any material respect any of the conditions
contained in Section 5 hereof, (ii) if there has been, since the date of this
Agreement or since the respective dates as of which information is provided in
the Registration Statement and prior to the Closing Date (or, if applicable, the
Delivery Date), any Material Adverse Change, or (iii) if, since the date of this
Agreement and prior to the Closing Date (or, if applicable, the Delivery Date),
(A) there has occurred any material adverse change in the financial markets of
the United States or any outbreak or escalation of hostilities or other calamity
or crisis, the effect of which on the financial securities markets of the United
States is such as to make it, in the reasonable good faith
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judgment of the Representatives, impracticable to market the Stock or to enforce
contracts for the sale of the Stock or (B) trading generally on Nasdaq has
been suspended (other than by limitation on hours or number of days of trading),
or minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by the Nasdaq or by order of the
Commission or any other governmental authority or (C) a banking moratorium has
been declared by any of the federal or New York authorities.
(b) If this Agreement is terminated pursuant to this Section or any
other provision of this Agreement, such termination shall be without liability
of any party to any other party except as provided in Sections 4 and 6.
SECTION 9. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or
more of the Underwriters shall fail at the Closing Date to purchase the shares
of Underwritten Stock which it or they are obligated to purchase under this
Agreement (the "Defaulted Stock"), the Representatives shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Stock in such amounts as may be agreed upon and
upon the terms herein set forth. If, however, the Representatives shall not
have completed such arrangements within such 24-hour period, then:
(a) If the number of shares of Defaulted Stock does not exceed 10% of
the total number of shares of Underwritten Stock, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) If the number of shares of Defaulted Stock exceeds 10% of the
Underwritten Stock, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company.
No action taken pursuant to this Section 9 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives and the Company shall have
the right to postpone the Closing Date for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements.
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SECTION 10. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Representatives shall be directed to Jefferies & Company, Inc., 580 California
Street, Suite 2080, San Francisco, California 94104, attention of John G.
Chiles, with a copy to Brobeck, Phleger & Harrison, Two Embarcadero Place, 2200
Geng Road, Palo Alto, California 94303-0913, attention of Brooks Stough, Esq.,
notices to the Company shall be directed to Richey Electronics, Inc., 7441
Lincoln Way, Garden Grove, California 92641, attention of William C. Cacciatore;
with a copy to Dewey Ballantine, 333 South Hope Street, 30th Floor, Los Angeles,
California 90071, attention of Robert M. Smith, Esq.
SECTION 11. PARTIES. This Agreement shall inure to the benefit
of and be binding upon the Underwriters, the Company, the Selling Stockholders
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to provide any
person, firm or corporation, other than the Underwriters, the Company, the
Selling Stockholders and their respective successors and legal representatives
and the controlling persons and officers, employees, directors and shareholders
referred to in Sections 6 and 7 and their respective heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein or therein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters, the Company, the Selling
Stockholders and their respective successors and legal representatives, and said
controlling persons, shareholders, officers and directors and their respective
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Stock from the Underwriters shall be deemed to be
a successor by reason merely of such purchase.
SECTION 12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to agreements made and to be performed in said State.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
RICHEY ELECTRONICS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
SELLING STOCKHOLDERS
By:
-------------------------------
Name:
-----------------------------
Title: ATTORNEY-in-FACT
----------------------------
CONFIRMED AND ACCEPTED,
as of the date first above written:
JEFFERIES & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
By:
------------------------------
Name:
------------------------------
For themselves and as Representatives of the
other Underwriters named in this Agreement
30
<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Jefferies & Company, Inc...........................
Cruttenden Roth, Incorporated......................
Total....................................... 3,000,000
---------
---------
31
<PAGE>
SCHEDULE II
Schedule of Selling Stockholders
Number of Shares
of Option
Selling Stockholder Stock To Be Sold
------------------- ----------------
Total 285,000
-------
-------
32
<PAGE>
EXHIBIT A
OPINION OF DEWEY BALLANTINE
(i) each of the Company and the Subsidiary is a corporation duly
incorporated and validly existing and in good standing under the laws of
their state of incorporation, and has all requisite corporate power and
corporate authority to own its properties and carry on its business as
described in the Prospectus, and is duly qualified to do business as a
foreign corporation in each jurisdiction where the character of its
activities requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect;
(ii) the Company is the sole record and beneficial owner of all of
the capital stock of the Subsidiary and, to the knowledge of such counsel,
owns such stock free and clear of all security interests, liens, claims,
options, warrants and encumbrances. The Company has no direct or indirect
subsidiaries other than the Subsidiary;
(iii) the Stock conforms in all material respects to the respective
descriptions thereof contained in the Registration Statement and the
Prospectus;
(iv) the authorized capital stock of the Company consists of 10,000
shares of Preferred Stock, $0.001 par value, none of which are issued and
outstanding, and 30,000,000 shares of Common Stock, $0.001 par value, of
which there are issued and outstanding _________ shares (including the
Underwritten Stock plus the number of shares of Option Stock issued, if
any); proper corporate proceedings have been taken validly to authorize
such authorized capital stock; all of the outstanding shares of such
capital stock (including the Underwritten Stock and the shares of Option
Stock issued, if any) have been duly and validly issued and are fully paid
and nonassessable; any Option Stock purchased after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in
the Underwriting Agreement, will have been duly and validly issued and be
fully paid and nonassessable; no preemptive rights or rights of refusal
exist with respect to the Stock, or the issue and sale of the Option Stock
by the Company or the sale of the Option Stock by the Selling
Stockholders, pursuant to the charter documents or by-laws of the Company;
and, to the knowledge of such counsel, no contractual preemptive rights,
rights of first refusal or rights of co-sale exist with respect to the
issue and sale of the Option Stock by the Company or the sale of the Stock
by the Selling Stockholders, that have not been waived. Except as
disclosed in the Registration Statement, to the knowledge of such counsel,
the Company does not have outstanding any options to purchase, or any
other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any
A-1
<PAGE>
contracts or commitments to issue or sell shares of its capital stock or
any such options, rights, convertible securities or obligations;
(v) to the knowledge of such counsel, there is no pending or
overtly threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company, of a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Prospectus;
(vi) to the knowledge of such counsel, there is no franchise,
contract, lease, or other document required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not fairly and correctly summarized or
filed as required;
(vii) all securities, contracts or other documents referred to in
the Registration Statement are fairly and correctly summarized or
disclosed therein;
(viii) the information in the Prospectus under the captions
"EXECUTIVE COMPENSATION -- BONUS PLAN," "EXECUTIVE COMPENSATION --
401(K) PLANS," "EXECUTIVE COMPENSATION -- STOCK APPRECIATION RIGHTS
PLAN," "EXECUTIVE COMPENSATION -- STOCK OPTION PLAN," "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION," "EXECUTIVE COMPENSATION
-- EMPLOYMENT AGREEMENTS," "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR
FUTURE SALE" to the extent such information constitutes descriptions of
legal matters or legal conclusions, fairly and correctly present the
material aspects of such legal matters or legal conclusions;
(ix) the Registration Statement has become effective under the Act;
and any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
overtly threatened; and the Registration Statement and the Prospectus
(other than the financial statements and other financial and statistical
information and the related notes contained therein as to which such
counsel need express no opinion) as of their respective effective or issue
dates complied, and as of the date hereof, comply as to form in all
material respects with the applicable requirements of the Act, the
Exchange Act and with the respective rules and regulations of the
Commission thereunder;
A-2
<PAGE>
(x) no consent, approval, authorization or order of any Delaware
corporate, California or federal governmental agency or body is required
for the consummation by the Company of the transactions contemplated
herein except such as have been obtained under the Act and such as may
be required under the Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Stock by the Underwriters
(as to which counsel need not express any opinion) and such other
approvals (specified in such opinion) as have been obtained;
(xi) neither the execution and delivery of this Agreement by the
Company, the issue and sale of the Stock, nor the consummation of any
other of the transactions herein contemplated nor the compliance by the
Company with the provisions herein applicable to it (including the
redemption by the Company of its outstanding subordinated notes or paydown
of its revolving credit line, with a portion of the net proceeds from the
sale of the Stock) and the fulfillment of the terms hereof, will conflict
with, or violate, or constitute a default under (i) any of the terms,
conditions or provisions of the certificate of incorporation or by-laws of
the Company, (ii) any of the terms of any indenture, mortgage, deed of
trust, loan agreement, lease, or other material agreement or instrument to
which the Company is a party or by which it is bound and which have been
filed as exhibits to the Registration Statement (collectively, the
"Applicable Agreements"), (iii) any California, Delaware corporate or
federal law, rule or regulation other than federal and state securities or
Blue Sky laws, as to which such counsel will express no opinion
(collectively, "Applicable Law"), or (iv) to the knowledge of such
counsel, any judgment, writ, injunction, decree, order or ruling of any
court, arbitrator, governmental authority or other regulatory body binding
on the Company; except as to clauses (ii), (iii) and (iv) where such
conflict, violation or default would not have a Material Adverse Effect;
(xii) to the knowledge of such counsel, no holders of securities of
the Company have rights to the registration of such securities under the
Registration Statement that have not been waived;
(xiii) the Company is not an "investment company" within the
meaning of the Investment Company Act of 1940;
(xiv) the Company is not in violation of or in default under its
respective certificate of incorporation or by-laws.
(xv) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel)
and 11(c) of Form S-2 is, to the best of such counsel's knowledge,
accurately and adequately set forth therein in all material respects or no
response is required with respect to such Items;
A-3
<PAGE>
(xvi) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(xvii) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholders; and the Custody
Agreement between the Selling Stockholders and the Company, as Custodian,
have been duly executed and delivered by each of the several Selling
Stockholders;
(xviii) good and marketable title to the shares of Option Stock
sold by the Selling Stockholders under the Underwriting Agreement, free
and clear of all liens, encumbrances, equities, security interests and
claims, has been transferred to the Underwriters who have severally
purchased such shares of Option Stock under the Underwriting Agreement,
assuming for the purpose of this opinion that the Underwriters purchased
the same in good faith without notice of any adverse claims;
(xix) based insofar as factual matters with respect to the Stock to
be sold by the Selling Stockholders are concerned, solely upon
certificates of the Selling Stockholders, the accuracy of which such
counsel have no reason to question, no consent, approval, authorization or
order of any court or governmental agency or body is required for the
consummation of the transactions contemplated in the Underwriting
Agreement, except such as have been obtained under the Securities Act and
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Stock by the
Underwriters; and
In addition to the matters set forth above, such counsel shall state
that no facts have come to such counsel's attention which lead such counsel to
believe that the Registration Statement, on the effective date thereof,
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 contained
therein not misleading or that the Prospectus, on the date thereof or on 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 to make the statements contained therein, in light of the
circumstances under which they were made, not misleading (in each case, other
than financial statements and other financial and statistical information and
the related notes contained therein, as to which such counsel expresses no
opinion).
In rendering the foregoing opinions, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
States of California and New York, the General Corporation Law of the State of
Delaware or the federal laws of the United States, upon the opinion of other
counsel who are satisfactory to counsel for the Representatives, and (B) as to
matters of fact on certificates of responsible officers of the
A-4
<PAGE>
Company and public officials; provided that such counsel shall state that the
opinion of any other counsel is in form satisfactory to such counsel and, in
such counsel's opinion, such counsel and the Underwriters are justified in
relying on such opinions of other counsel. Copies of all such opinions and
certificates shall be furnished to counsel to the Underwriters on the Closing
Date. References to the Prospectus shall include any supplements thereto at
the Closing Date.
A-5
<PAGE>
Exhibit 5.1
DEWEY BALLANTINE
333 SOUTH HOPE STREET
LOS ANGELES, CALIFORNIA 90071-1406
TELEPHONE 213 626-3399 FACSIMILE 213 625-0562
March 23, 1995
Richey Electronics, Inc.
7441 Lincoln Way
Garden Grove, California 92641
Attention: William C. Cacciatore
Gentlemen:
We have acted as counsel to Richey Electronics, Inc., a Delaware
corporation (the "Company"), in connection with the proposed public offering
(the "Offering") of up to 3,000,000 shares (the "Firm Shares") of the Company's
common stock, $.001 par value per share (the "Common Stock"), and up to an
additional 450,000 shares (the "Option Shares") of the Common Stock, which may
be sold pursuant to an over-allotment option granted to the several underwriters
of the Offering. Of the Option Shares, 165,000 shares will be sold by the
Company and 285,000 shares will be sold by certain stockholders (the "Selling
Stockholders") to the extent the underwriters exercise their over-allotment
option. The Company has filed a Registration Statement on Form S-2 (the
"Registration Statement"), which the Company initially filed with the Securities
and Exchange Commission on February 23, 1995 (File No. 33-89690), pursuant to
the Securities Act of 1933, as amended, with respect to the Offering. As such
counsel, we have been requested to render this opinion.
We have examined and reviewed only such questions of law as we have
deemed necessary or appropriate for the purpose of rendering the opinion set
forth herein. For the purpose of rendering the opinion set forth herein, we
have been furnished with and examined the following documents:
1. The Restated Certificate of Incorporation of the Company, as
amended and presently in effect;
2. The Bylaws of the Company, as amended and presently in effect;
3. The Registration Statement, as amended through the date hereof;
and
4. Records of proceedings of the Board of Directors of the Company
pertaining to the Offering.
<PAGE>
Richey Electronics, Inc.
March 23, 1995
Page 2
With respect to all of the foregoing documents, we have assumed,
without investigation, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity to originals of
all documents submitted to us as certified or reproduced copies. We also have
obtained from the officers of the Company such advice as to such factual matters
as we consider necessary for the purpose of this opinion, and insofar as this
opinion is based on such matters of fact, we have relied on such advice.
Based on the foregoing and solely in reliance thereon, we are of the
opinion that:
A. The Firm Shares and the Option Shares to be sold by the Company
have been duly authorized and, when issued and paid for as contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable.
B. The Option Shares to be sold by the Selling Stockholders have
been duly authorized and validly issued and are fully paid and nonassessable.
We hereby disclaim any obligation to notify any person or entity after
the date hereof if any change in fact or law should change our opinion with
respect to any matter set forth in this letter. This opinion letter may not be
relied upon by any other person or entity and may not be circulated, quoted, or
cited in whole or in part, without our express prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus which is part of the Registration Statement.
Very truly yours,
/s/ Dewey Ballantine
<PAGE>
EXHIBIT 12.1
RICHEY ELECTRONICS, INC.
COMPUTATION OF OTHER DATA
SELECTED FINANCIAL DATA
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
(FISCAL 1991) (FISCAL 1992) (FISCAL 1993) (FISCAL 1994)
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
EBITDA
Gross profit........................ $ 8,871 $ 8,282 $ 16,254 $ 22,090
Add (deduct):
Operating expenses.............. (7,233) (7,144) (13,889) (17,318)
Depreciation and amortization... 150 145 997 765
------- ------- --------------- ---------------
(1) $ 1,788 $ 1,283 $ 3,362 $ 5,537
------- ------- --------------- ---------------
------- ------- --------------- ---------------
EBITDA MARGIN
EBITDA.............................. (1) $ 1,788 $ 1,283 $ 3,362 $ 5,537
Net sales........................... 32,994 31,387 64,995 90,266
------- ------- --------------- ---------------
5.4% 4.1% 5.2% 6.1%
------- ------- --------------- ---------------
------- ------- --------------- ---------------
INVENTORY TURNOVER RATIO
Cost of goods sold for fourth
quarter........................... (1) $ 6,031 $ 5,224 $ 13,627 $ 18,196
Inventory at end of year............ (2) 5,610 5,743 12,460 14,913
Inventory turnover.................. (1)x4
(2) 4.3x 3.7x 4.4x 4.9x
------- ------- --------------- ---------------
------- ------- --------------- ---------------
NUMBER OF DAYS SALES IN
ACCOUNTS RECEIVABLE
Trade receivables................... (1) $ 2,952 $ 3,248 $ 8,590 $ 11,167
Fourth quarter sales................ (2) 7,674 7,216 18,259 24,076
Number of days sales in accounts (1)
receivable........................ (2)/90 34 41 43 42
------- ------- --------------- ---------------
------- ------- --------------- ---------------
</TABLE>
<PAGE>
Exhibit 23.2
[McGladrey & Pullen, LLP Letterhead] [RSM International Logo]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in Amendment No. 1 to the Registration Statement
No. 33-89690 to Form S-2 of our report, dated February 3, 1995, relating to the
financial statements of Richey Electronics, Inc. and to the reference to our
Firm under the caption "Experts" in the prospectus.
/s/ McGladrey & Pullen, LLP
Pasadena, California
March 23, 1995
Suite 300 Worldwide
140 South Lake Avenue Services
Pasadena, California 91101-2651 Through
(818) 795-7950 FAX (818) 795-9820 RSM International
