<PAGE>
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 APRIL 19, 1995, THE LAST REPORTED SALE PRICE OF
THE COMMON STOCK AS REPORTED BY NASDAQ WAS $6.25 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.......................................... $5.50 $0.385 $5.115
Total(3)........................................... $16,500,000 $1,155,000 $15,345,000
<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 $450,000.
(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 $18,975,000, $1,328,250, $16,188,975 and $1,457,775, 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 APRIL 27, 1995, IN NEW YORK, NEW YORK.
-------------------
Jefferies & Company, Inc. Cruttenden Roth
Incorporated
APRIL 20, 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") for $5.5 million, consisting of $3.7
million in bank financing, senior preferred stock valued at $1.0 million and
$800,000 in cash contributed by the former RicheyImpact stockholders. On April
6, 1993, RicheyImpact completed a merger with Brajdas Corporation (the
"Richey-Brajdas Merger") through the issuance of 10,900,000 shares of Common
Stock to former Brajdas shareholders valued at $4.1 million. 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") for $1.9
million in cash funded by the revolving line of credit. 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.
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).......................................... $ 0.33
-----------
-----------
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 $ 16,618
Total assets........................................................ 35,013 35,871
Short-term debt..................................................... 10,443 --
Long-term debt...................................................... 3,594 --
Stockholders' equity................................................ 8,785 23,680
<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 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, after estimated underwriting
discount, expenses and fees, of approximately $14.9 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 (after deducting
estimated underwriting discount, expenses and fees payable by the Company) are
estimated to be approximately $14.9 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.............................................................. $ 7 3/4 $ 6
Second quarter (through April 19, 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 April 19, 1995, the last reported sale price of the Company's Common
Stock, as reported by Nasdaq, was $6 1/4. As of April 19, 1995, the average
daily trading volume for the last 12 months was 580 shares, based on 261 total
trading days. See "Investment Considerations -- Absence of Active Trading;
Potential Volatility of Stock Price." On April 19, 1995, there were
approximately 1,468 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 (after deducting
estimated 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 20,132
Retained earnings.................................................. 3,539 3,539
----------- -----------
Total stockholders' equity..................................... 8,785 23,680
----------- -----------
Total capitalization....................................... $ 22,822 $ 23,680
----------- -----------
----------- -----------
<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, after estimated underwriting
discount, expenses and fees, of approximately $14.9 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).................. $ 0.33
-------------
-------------
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 $ 16,618
Total assets............................... 8,088 9,370 9,669 30,918 35,013 35,871
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 23,680
(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 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, after estimated underwriting
discount, expenses and fees, of approximately $14.9 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 April 19, 1995 was approximately $26.7
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
has satisfied for the periods presented. 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 paid down
$1.6 million of its senior subordinated debt in the first quarter of 1995 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 21,000 square feet. 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 are 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 are
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 April 19, 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, March 1994 and March 1995, the Company paid
approximately $1.0 million, $3.0 million and $1.6 million of principal,
respectively, under the note. 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 April 19, 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(2)........................... 578,020 9.81% -- 603,020 6.66%
C. Don Alverson(3)................................. 404,614 6.87% -- 409,614 4.52%
Norbert W. St. John(4)............................. 346,812 5.89% -- 349,312 3.86%
Greg A. Rosenbaum(5)............................... 394,612 6.70% 30,000 364,612 4.03%
Donald I. Zimmerman(6)............................. 1,778,178 30.19% 150,000 1,628,178 17.98%
Thomas W. Blumenthal............................... 104,044 1.77% -- 104,044 1.15%
Edward L. Gelbach(7)............................... 289,010 4.91% 30,000 259,010 2.86%
Richard N. Berger(8)............................... -- -- -- 4,000 *
Charles W. Mann(9)................................. -- -- -- 700 *
Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(10).................. 1,578,179 26.80% 150,000 1,428,179 15.77%
Deborah Levy
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(11).................. 1,578,179 26.80% 150,000 1,428,179 15.77%
Saul Levy
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904(12).................. 623,863 10.59% -- 623,863 6.89%
</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(13).................. 572,435 9.72% -- 572,435 6.32%
Palisades Associates, Inc.
9140 Vendome Drive
Bethesda, Maryland 20817(5)...................... 325,252 5.52% -- 325,252 3.59%
Benjamin Fishoff
c/o Barclay and Company, Inc.
300 Drakes Landing Road
Suite 100
Greenbrae, California 94904...................... 298,192 5.06% -- 298,192 3.29%
All directors and executive officers as group (10
persons)......................................... 3,895,290 66.14% 210,000 3,722,490 41.11%
OTHER SELLING STOCKHOLDERS
- ---------------------------------------------------
Eli S. Rosenbaum(14)............................... 23,120 * 10,000 13,120 *
Elliott J. Rosenbaum(14)........................... 23,120 * 10,000 13,120 *
Eve H. Rosenbaum(14)............................... 23,120 * 10,000 13,120 *
Barry & Barbara J. Rosenbaum....................... 105,604 1.79% 30,000 75,604 *
Saunders Capital, Inc.(15)......................... 16,186 * 5,000 11,186 *
Robert S. Saunders(15)............................. 123,697 2.10% 10,000 113,697 1.26%
Richard L. Wellek(16).............................. 288,996 4.91% 30,000 258,996 2.86%
</TABLE>
- -------------------
* Less than one percent.
(1) Assumes Underwriters' over-allotment option is exercised in full. See
"Underwriting."
(2) Includes 25,000 shares that Mr. Cacciatore will purchase in the Offering.
(3) Includes 5,000 shares that Mr. Alverson will purchase in the Offering.
(4) Such shares are owned indirectly as Trustee for The Norbert W. St. John
Trust. Includes 2,500 shares that Mr. St. John will purchase in the
Offering.
(5) 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 (14) below.
(6) 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.
(7) Such shares are owned indirectly as Trustee for The Edward L. Gelbach 1987
Trust.
(8) Includes 4,000 shares that Mr. Berger will purchase in the Offering.
(9) Includes 700 shares that Mr. Mann will purchase in the Offering.
(10) See footnote (6).
33
<PAGE>
(11) 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.
(12) Includes 572,435 shares which are held indirectly by virtue of Mr. Levy's
sole ownership of First Investment Group.
(13) See footnote (12).
(14) 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 (5).
(15) 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.
(16) 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 April 19,
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 April 19, 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,
less any shares acquired by affiliates in the Offering, 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, 5,530,718 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 has filed 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............................................ 915,000
Cruttenden Roth Incorporated........................................ 915,000
A.G. Edwards & Sons, Inc. .......................................... 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.................. 60,000
Prudential Securities Incorporated.................................. 60,000
Salomon Brothers Inc................................................ 60,000
Societe Generale Securities Corporation............................. 60,000
Allen & Company Incorporated........................................ 60,000
Arnhold and S. Bleichroeder, Inc. .................................. 30,000
J.C. Bradford & Co. ................................................ 30,000
Brean Murray, Foster Securities, Inc. .............................. 30,000
Cleary Gull Reiland & McDevitt Inc. ................................ 30,000
Crowell, Weedon & Co. .............................................. 30,000
Dominick & Dominick, Incorporated................................... 30,000
First Albany Corporation............................................ 30,000
First of Michigan Corporation....................................... 30,000
Gerard Klauer Mattison & Co., Inc. ................................. 30,000
Hanifen, Imhoff Inc. ............................................... 30,000
Josephthal Lyon & Ross Incorporated................................. 30,000
Ladenburg, Thalmann & Co. Inc....................................... 30,000
Legg Mason Wood Walker, Incorporated................................ 30,000
McDonald & Company Securities, Inc. ................................ 30,000
Mesirow Financial, Inc. ............................................ 30,000
The Ohio Company.................................................... 30,000
Pennsylvania Merchant Group Ltd. ................................... 30,000
Piper Jaffray Inc. ................................................. 30,000
Rauscher Pierce Refsnes, Inc. ...................................... 30,000
Rodman & Renshaw, Inc. ............................................. 30,000
The Seidler Companies Incorporated.................................. 30,000
Soundview Financial Group........................................... 30,000
Starr Securities, Inc. ............................................. 30,000
Stifel, Nicolaus & Company, Incorporated............................ 30,000
Sutro & Co. Incorporated............................................ 30,000
Van Kasper & Company................................................ 30,000
The Williams Capital Group, L.P. ................................... 30,000
---------
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
37
<PAGE>
$0.25 per share. The Underwriters may allow, and such dealers may reallow to
certain dealers a discount, not in excess of $0.10 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.
Certain affiliates of the Company are purchasing up to 37,200 shares in the
Offering, for investment purposes only, and with no present intention to resell
the shares.
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,
38
<PAGE>
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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1994, heretofore filed by the Company with the Commission pursuant to the
Exchange Act, is 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
APRIL 20, 1995
