<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1996
Commission File Number: 0-9788
RICHEY ELECTRONICS, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0594451
- --------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
7441 Lincoln Way, Garden Grove, California 92641
-------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(714) 898-8288
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(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
As of August 6, 1996, 9,073,685 shares of the registrant's Common Stock,
$0.001 par value, were issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RICHEY ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 28, December 31,
1996 1995
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 25,000 $ 572,000
Trade receivables 29,653,000 25,622,000
Inventories 35,521,000 31,450,000
Deferred income taxes 3,948,000 3,948,000
Other current assets 1,457,000 1,481,000
------------- -------------
Total current assets $ 70,604,000 $ 63,073,000
------------- -------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 3,648,000 $ 3,469,000
------------- -------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 4,209,000 $ 4,979,000
Deferred debt costs 2,966,000 500,000
Other 593,000 661,000
Goodwill 47,808,000 46,259,000
------------- -------------
$ 55,576,000 $ 52,399,000
------------- -------------
$ 129,828,000 $118,941,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 219,000 $ 835,000
Accounts payable 20,088,000 18,250,000
Accrued expenses 6,918,000 6,088,000
Accrued restructuring costs 2,158,000 3,824,000
------------- -------------
Total current liabilities $ 29,383,000 $ 28,997,000
------------- -------------
ACCRUED RESTRUCTURING COSTS $ 900,000 $ 900,000
------------- -------------
LONG-TERM DEBT
Subordinated notes payable $ 2,956,000 $ 2,982,000
Convertible subordinated notes payable 55,755,000 --
Other long-term debt 10,546,000 58,670,000
------------- -------------
$ 69,257,000 $ 61,652,000
------------- -------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock 9,000 9,000
Additional paid-in-capital 20,995,000 20,976,000
Retained earnings 9,284,000 6,407,000
------------- -------------
Total stockholders' equity $ 30,288,000 $ 27,392,000
------------- -------------
$ 129,828,000 $ 118,941,000
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------------- -------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------- --------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales: $58,212,000 $28,305,000 $116,596,000 $54,901,000
Cost of Goods Sold: 43,406,000 21,645,000 87,477,000 41,728,000
----------- ----------- ------------ -----------
Gross Profit: $14,806,000 $ 6,660,000 $ 29,119,000 $13,173,000
----------- ----------- ------------ -----------
Operating expenses:
Selling, warehouse, general, and
administrative $10,206,000 $ 4,859,000 $ 20,986,000 $ 9,701,000
Amortization of intangibles 366,000 97,000 703,000 210,000
----------- ----------- ------------ -----------
$10,572,000 $ 4,956,000 $ 21,689,000 $ 9,911,000
----------- ----------- ------------ -----------
Operating income $ 4,234,000 $ 1,704,000 $ 7,430,000 $ 3,262,000
Interest Expense 1,339,000 185,000 2,631,000 607,000
----------- ----------- ------------ -----------
Income before income taxes $ 2,895,000 $ 1,519,000 $ 4,799,000 $ 2,655,000
Federal and state income taxes 1,160,000 610,000 1,922,000 1,066,000
----------- ----------- ------------ -----------
Net income $ 1,735,000 $ 909,000 $ 2,877,000 $ 1,589,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Earnings per Share
Primary $0.19 $0.11 $0.32 $0.23
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Fully Diluted $0.18 $0.11 $0.31 $0.23
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted Average number of shares
outstanding
Primary 9,058,000 8,101,000 9,058,000 7,001,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Fully Diluted 13,006,000 8,101,000 11,720,000 7,001,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 28, June 30,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,877,000 $1,589,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,420,000 392,000
Deferred income taxes 770,000 757,000
Changes in operating assets and liabilities:
(Increase) in trade receivables (2,636,000) (1,936,000)
(Increase) in inventories (3,293,000) (1,721,000)
Decrease in other assets 17,000 131,000
Increase (decrease) in accounts payable
and accrued expenses 1,380,000 (667,000)
------------ ------------
Net cash provided by (used in) operating activities $535,000 ($1,455,000)
------------ ------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment ($692,000) ($413,000)
Payment of acquisition and restructuring costs (4,779,000) (42,000)
------------ ------------
Net cash (used in) investing activities ($5,471,000) ($455,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on short-term revolving line of credit -- ($5,631,000)
Payments on long-term revolving line of credit ($7,911,000) --
Payments on long-term debt (40,855,000) (5,194,000)
Proceeds from issuance of convertible debt 55,755,000 --
Transaction costs associated with refinancing activities (2,619,000) (437,000)
Proceeds from issuance of common stock 19,000 16,185,000
------------ ------------
Net cash provided by financing activities $4,389,000 $4,923,000
------------ ------------
Increase (decrease) in cash ($547,000) $3,013,000
CASH
Beginning $572,000 $9,000
------------ ------------
Ending $25,000 $3,022,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
Six Months Ended
--------------------------
June 28, June 30,
1996 1995
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash Payments For:
Interest $1,306,000 $834,000
---------- --------
---------- --------
Income taxes $ 116,000 $203,000
---------- --------
---------- --------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of MS Electronics:
Working capital acquired $ 888,000
Fair market value of other assets acquired
including goodwill 2,231,000
----------
Purchase price and related transaction costs $3,119,000
----------
----------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Additional
Preferred Shares paid-in Retained
Stock Outstanding Par Value Capital Earnings Total
--------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 -- 9,054,000 $9,000 $20,976,000 $6,407,000 $27,392,000
Stock issued for options & -- 8,000 -- 19,000 -- 19,000
other
Net income -- -- -- -- 2,877,000 2,877,000
--------- ----------- --------- ---------- ---------- -----------
Balance, June 28, 1996 -- 9,062,000 $9,000 $20,995,000 $9,284,000 $30,288,000
--------- ----------- --------- ---------- ---------- -----------
--------- ----------- --------- ---------- ---------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Richey Electronics, Inc. is a multi-regional, specialty distributor of
electronic components and a provider of value-added assembly services. The
Company distributes a broad line of connectors, switches, wire, cable and
heat shrinkable tubing and other interconnect, electromechanical and passive
components used in the assembly and manufacturing of electronic equipment.
Richey Electronics also provides a wide variety of value-added assembly
services. These value-added assembly services consist of (i) component
assembly, which is the assembly of components to manufacturer specifications
and (ii) contract assembly, which is the assembly of cable assemblies,
battery packs and mechanical assemblies to customer specifications. The
Company's customers are primarily small- and medium-sized original equipment
manufacturers.
SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In management's opinion, the accompanying
financial statements reflect all material adjustments, consisting of only
normal and recurring adjustments, necessary for a fair statement of the
results for the interim periods presented. The results for the interim
periods ended June 28, 1996 and June 30, 1995 are not necessarily indicative
of the results which will be reported for the entire year.
EARNINGS PER SHARE
The weighted average number of shares used for computing fully diluted
earnings per share assumes that the 7% Convertible Subordinated Notes due
2006 (the "Notes") which were sold by the Company in the first quarter of
1996 through a private offering (the "Note Offering") are converted at
$14.125 per share on the date they were issued. The Notes are not common
stock equivalents and, therefore, are not considered in determining the
primary weighted average number of shares. Net income used in computing
fully diluted earnings per share is increased for the interest expense, net
of tax, associated with the Notes.
7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
INCOME TAXES
Income tax expense in these interim financial statements is recorded
based upon the Company's expected annual effective income tax rate.
For further information, refer to the audited financial statements of
the Company and notes thereto for the year ended December 31, 1995, included
in the Company's Annual Report on Form 10-K.
NOTE 2. BUSINESS COMBINATIONS
INLAND EMPIRE INTERCONNECTS
On August 16, 1995, the Company completed the purchase (the "IEI
Acquisition") of the assets and business of Inland Empire Interconnects
("IEI"), an Ontario, California cable assembly company specializing in molded
interconnect products. The IEI Acquisition was accounted for as a purchase.
The results of operations of IEI subsequent to the date of the IEI
Acquisition are included in the Company's financial statements.
EDAC AND SUBSIDIARY (DEANCO ACQUISITION)
On December 20, 1995, the Company completed the purchase (the "Deanco
Acquisition") of all the issued and outstanding capital stock of Electrical
Distribution Acquisition Company ("EDAC") and its wholly owned subsidiary,
Deanco, Inc. ("Deanco"). The Deanco Acquisition was accounted for as a
purchase. The results of operations of Deanco subsequent to the date of the
Deanco Acquisition are included in the Company's financial statements.
In connection with the Deanco Acquisition, the Company has consolidated
facilities and is eliminating redundant administrative costs. As part of the
consolidation, the Company has closed certain of its own facilities and
incurred other integration costs. During the fourth quarter of 1995, the
Company recognized a restructuring charge of $1,450,000. During the
six-month period ended June 28, 1996, $973,000 of these restructuring costs
were paid. No adjustments were made to the original estimates of this
restructuring charge.
Also in connection with the Deanco Acquisition, the Company accrued
restructuring costs of $3,100,000 relating to the consolidation of Deanco's
operations into the Company. Those costs were recorded as a purchase
accounting adjustment, resulting in an increase in
8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
goodwill in the preliminary purchase price allocation. The preliminary
allocation of the Deanco purchase price is expected to be finalized within
the next six months once all final costs are established. No adjustments
were made to the original estimates of these restructuring costs. At June
28, 1996, $733,000 of these costs have been paid. The Company expects the
remaining costs to be paid out over the next 6 months as the integration is
completed, except for those related to longer term facility leases of
$600,000.
The Company merged EDAC into the Company in January 1996 and has made
applications with the applicable state authorities to merge Deanco into the
Company as soon as practical.
MS ELECTRONICS
On March 19, 1996, the Company completed the acquisition (the "MS
Acquisition") of the assets and business of MS Electronics, Inc. ("MS
Electronics"). MS Electronics specializes in the distribution of
interconnect, electromechanical and passive electronic components and
provides value-added assembly services in the Baltimore\Washington
marketplace. The MS Acquisition was accounted for as a purchase. The
purchase price and related transaction costs, including the assumption of MS
Electronics' debt of $525,000, were approximately $3,119,000 and were paid in
cash. The preliminary allocation of the purchase price is as follows:
$2,231,000 to estimated fair value of tangible assets acquired, $1,288,000 to
liabilities assumed and $2,176,000 to cost in excess of net assets of
business acquired (goodwill to be amortized over 15 years). The results of
operations of MS Electronics subsequent to the date of the MS Acquisition are
included in the Company's financial statements.
9
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
PRO FORMA FINANCIAL INFORMATION
The following pro forma results of continuing operations assume that the
Deanco Acquisition (which occurred on December 20, 1995) had occurred on
January 1, 1995, after giving effect to certain adjustments including
amortization of acquired intangibles and goodwill, elimination of duplicate
facilities and redundant salaries, interest expense and related tax effects.
Quarter Ended Six Months Ended
June 30, 1995 June 30, 1995
------------ -------------
Net sales $ 54,224,000 $ 107,514,000
Net income $ 1,345,000 $ 2,339,000
Earnings per share $ .17 $ .33
Weighted average number
of shares outstanding 8,101,000 7,001,000
The IEI and MS Electronics Acquisitions would not have materially
changed pro forma net sales or net income. This pro forma financial
information does not purport to be indicative of the results of operations
that would have occurred had the Deanco Acquisition actually taken place at
the beginning of 1995.
10
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3. PUBLIC COMMON STOCK OFFERING, PRIVATE CONVERTIBLE DEBT OFFERING, STOCK
OPTIONS AND NET OPERATING LOSS CARRYFORWARDS
PUBLIC COMMON STOCK OFFERING
In the second quarter of 1995, the Company issued 3,165,000 shares of
its common stock in a secondary offering. The net proceeds to the Company
from that offering were approximately $15,700,000. The Company used the net
proceeds to reduce the Company's existing indebtedness.
PRIVATE CONVERTIBLE DEBT OFFERING
In the first quarter of 1996, the Company sold through the Note Offering
$55,755,000 aggregate principal amount of its 7% Convertible Subordinated
Notes due 2006. The Notes are convertible into 3,948,000 shares of the
Company's common stock at a conversion price of $14.125 per share (subject to
adjustment). The Company has filed a shelf registration statement with the
Securities and Exchange Commission to register resales of the Notes and the
common stock issuable upon conversion. This registration statement became
effective on June 7, 1996. The net proceeds from the Note Offering were
approximately $53,600,000 and were used to repay the Company's $30,000,000
term loan and to pay down its revolving line of credit.
STOCK OPTIONS
The Company has a stock option plan adopted in 1992. The options
granted vest at a rate of 25% per year over a four-year period and, in
general, expire ten years from the date of grant. The options granted were
granted at fair market value at the date of grant. Total options authorized
for grant are 905,432, of which 533,071 have been granted as of June 28,
1996. During the six months ended June 28, 1996, 40,000 options were granted
at average prices of $9.75 to $11.00 and 8,360 options were exercised. As of
June 28, 1996, 372,361 options were available for grant.
11
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had net operating loss carryforwards
("NOLs") with the following expiration dates:
Expiration Date Federal California
- --------------- ----------- ----------
1997 . . . . . . . . . . . . . . $ -- $ 76,000
1998 . . . . . . . . . . . . . . -- 953,000
1999 . . . . . . . . . . . . . . 2,242,000 290,000
2000 . . . . . . . . . . . . . . 490,000 --
2005 . . . . . . . . . . . . . . 2,000,000 --
2006 . . . . . . . . . . . . . . 2,053,000 --
2007 . . . . . . . . . . . . . . 9,700,000 --
2008 . . . . . . . . . . . . . . 2,500,000 --
2009 . . . . . . . . . . . . . . 580,000 --
----------- ----------
$19,565,000 $1,319,000
----------- ----------
----------- ----------
Section 382 of the Internal Revenue Code of 1986, as amended and the
related regulations and California law impose certain limitations on a
corporation's ability to use NOLs if more than a 50% ownership change occurs.
The Company's issuance of additional common stock in 1995, together with the
1993 merger of RicheyImpact Electronics, Inc. and Brajdas Corporation
constitutes a more than 50% ownership change. As a result, the usage of the
NOLs is restricted to approximately $5,000,000 on an annual basis.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SUMMARY OF SELECTED DATA
(UNAUDITED)
The following table sets forth certain items in the statements of
operations as a percent of net sales for periods shown and additional items
of a statistical nature.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------ ------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold. . . . . . . . . . . . . . . 74.6 76.5 75.0 76.0
----- ----- ----- -----
Gross Profit . . . . . . . . . . . . . . . 25.4 23.5 25.0 24.0
----- ----- ----- -----
Selling, warehouse, general & administrative. . 17.5 17.2 18.0 17.7
Amortization of intangibles . . . . . . . . . . 0.6 0.3 0.6 0.4
----- ----- ----- -----
Operating Income . . . . . . . . . . . . . 7.3 6.0 6.4 5.9
Interest Expense. . . . . . . . . . . . . . . . 2.3 0.6 2.3 1.1
----- ----- ----- -----
Income before income taxes . . . . . . . . 5.0 5.4 4.1 4.8
Federal and state income taxes. . . . . . . . . 2.0 2.2 1.6 1.9
----- ----- ----- -----
Net Income. . . . . . . . . . . . . . . . . . . 3.0% 3.2% 2.5% 2.9%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
June 28, March 29, Dec. 31, Sept. 29, June 30,
1996 1996 1995 1995 1995
-------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets (000). . . . . . . . . . . . . . . . . $129,828 $128,099 $118,941 $42,332 $40,810
Working capital (000) . . . . . . . . . . . . . . . $ 41,221 $ 39,717 $ 34,076 $19,996 $19,828
Ratio of current assets to current liabilities. . . 2.4 2.4 2.2 2.3 2.3
Short-term debt (000) . . . . . . . . . . . . . . . $ 219 $ 136 $ 835 $ 3,131 $ 3,212
Subordinated notes payable (000). . . . . . . . . . $ 2,956 $ 2,982 $ 2,982 $ 0 $ 0
Convertible subordinated notes payable (000) . . . $ 55,755 $ 55,755 $ 0 $ 0 $ 0
Other long-term debt (000). . . . . . . . . . . . . $ 10,546 $ 11,377 $ 58,670 $ 0 $ 0
Inventory turnover. . . . . . . . . . . . . . . . . 4.9 5.2 5.0 5.0 5.2
Days sales outstanding in accounts receivable . . . 46.4 45.7 41.8 45.0 42.1
Stockholders' equity (000). . . . . . . . . . . . . $ 30,288 $ 28,555 $ 27,392 $27,183 $26,122
</TABLE>
13
<PAGE>
RESULTS OF OPERATIONS
Net income for the second quarter of 1996 was $1,735,000 compared with
net income of $909,000 for the second quarter of 1995, an increase of
$826,000 or 91%. For the second quarter of 1996, earnings per share
increased to $0.18 based on fully diluted weighted average number of shares
outstanding of 13,006,000, up from $0.11 per share, for the second quarter of
1995, based on weighted average number of shares outstanding of 8,101,000.
Net income for the six-month period ended June 28, 1996 was $2,877,000 ($0.31
per share, fully diluted) compared with $1,589,000 ($0.23 per share, fully
diluted) for the corresponding period in 1995.
Net sales for the quarter ended June 28, 1996 rose to $58,212,000 from
$28,305,000 for the quarter ended June 30, 1995, an increase of 106%. Net
sales for the first six months of 1996 were $116,596,000 compared to net
sales of $54,901,000 for the same period in 1995. Net sales of electronic
components increased to $42,405,000 in the second quarter of 1996 from
$20,363,000 in the second quarter of 1995, an increase of 108%. Net sales of
value-added assembly services increased to $15,807,000 for the second quarter
of 1996 from $7,942,000 for the corresponding period of 1995, an increase of
99%. Component and value-added sales increased as a result of acquisitions
and an increase in product offerings due to new franchises and expanded
geographic coverage of existing franchises. Pro forma for the Deanco
Acquisition, net sales would have been $54,224,000 for the second quarter of
1995 and $107,514,000 for the first six months of 1995 compared with net
sales of $58,212,000 for the second quarter of 1996 and $116,596,000 for the
first six months of 1996.
The Company is currently engaged in discussions with AMP, whose
distribution products represent approximately 3.5% of the Company's net
sales, pertaining to AMP's new policies that, as of January 1, 1997, AMP
will no longer supply an AMP distributor with interconnect products unless
the distributor agrees not to distribute the products of certain competitors
of AMP. The Company currently is evaluating its alternatives with respect to
supply arrangements for these products. In the event that AMP does not
change its new policies, the Company could be required to terminate its
relationships with AMP or with one or more of AMP's competitors. Any such
termination(s) would adversely affect the Company's revenues.
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 at
June 28, 1996 was $52,612,000, up from $26,500,000 at June 30, 1995 and down
from $53,000,000 at December 31, 1995. A reduction of $1,000,000 in order
backlog in the first six months of 1996 is attributable to conforming
Deanco's December 31, 1995 order backlog to Company policies.
Gross profit margin for the first six months of 1996 was 25.0% compared
to gross profit margin of 24.0% for the first six months of 1995. The gross
profit margin for the second quarter of 1996 rose by 1.9% from margins
achieved in the second quarter of 1995. Gross
14
<PAGE>
profit margin improved from 24.5% in the first quarter of 1996 to 25.4% in
the second quarter of 1996 as a result of changes in distribution order mix
and an increased percentage of orders to be shipped in under 30 days which
typically have higher margins than orders with longer shipment schedules.
The Company also experienced an increase in value-added gross profit margins
for the second quarter of 1996 as a result of short-term scheduling
adjustments by customers. In addition, the Company has installed its gross
margin disciplines in the acquired Deanco operations.
Operating expenses for the quarter ended June 28, 1996 increased to
$10,572,000 from $4,956,000 for the corresponding period in 1995 due
primarily to acquisitions. As a percentage of net sales, operating expenses
increased 0.6% for the quarter ended June 28, 1996 compared to the same
period in 1995, half of which is attributable to the amortization of
intangibles associated with the Deanco Acquisition. In the second quarter of
1996, the Company began to see a substantial portion of the expected savings
from the operating leverage generated by the Deanco Acquisition. Operating
expenses for the first six months of 1996 increased to $21,689,000 from
$9,911,000 for the first six months of 1995. Operating expenses, as a
percentage of net sales, were 18.6% for the first six months of 1996 and
18.1% for the corresponding period in 1995. This increase in expenses as a
percentage of sales was primarily due to the fact that Deanco's expenses as a
percentage of sales were historically significantly higher than those of the
Company and during the first six months of 1996 the Company realized only a
portion of the expected costs savings from the ongoing integration of Deanco
into the Company.
Interest expense for the second quarter of 1996 was $1,339,000 as
compared with $185,000 for the second quarter of 1995. The increase in
interest expense was primarily due to the Company's financing activities
relating to acquisitions.
Federal and state income tax expense increased to $1,160,000 (40%
effective rate) for the quarter ended June 28, 1996 from $610,000 (40%
effective rate) for the corresponding period of 1995. This increase was
proportional to the increase in pre-tax earnings for the quarter. See Note 3
of Notes to Condensed Financial Statements for further discussion of income
tax matters.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1996, the Company sold through a private
offering $55,755,000 aggregate principal amount of its 7% Convertible
Subordinated Notes due 2006. The net proceeds from the Note Offering were
approximately $53,600,000 and were used to repay the Company's $30,000,000
term loan and to pay down its revolving line of credit. See Note 3 of Notes
to Condensed Financial Statements.
The Company currently maintains with Wells Fargo Bank, N.A., as
successor to First Interstate Bank of California, a $45 million revolving
line of credit. As of June 28, 1996, the Company had outstanding borrowings
under this revolving line of credit of $10,450,000 and additional borrowing
capacity of $30,000,000.
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Working capital increased to $41,221,000 on June 28, 1996 from
$34,076,000 on December 31, 1995, an increase of $7,145,000. During the
first six months of 1996, the Company generated $8,850,000 of earnings before
interest, income taxes, depreciation and amortization ("EBITDA") as compared
to EBITDA of $3,654,000 for the first six months of 1995, an increase of 142%.
During the first six months of 1996, operating activities generated
$6,464,000 in cash from net income, depreciation, amortization, deferred
income taxes, decreases in other assets and increases in accounts payable and
accrued expenses. During the same period, the Company invested $2,636,000 in
receivables and $3,293,000 in inventories. Thus, operating activities for
the first six months of 1996 provided net cash of $535,000, as compared to
net cash of $1,455,000 used in operating activities for the first six months
of 1995. During the first six months of 1996, the Company used an additional
$5,471,000 of cash for investing activities, including $692,000 for capital
expenditures and $4,779,000 for acquisition and restructuring costs relating
primarily to the MS Acquisition and payment of restructuring costs accrued in
connection with the Deanco Acquisition. See Note 2 of Notes to Condensed
Financial Statements. This use of cash was financed by borrowings.
For the quarter ended June 28, 1996, inventory turnover was 4.9x
compared to 5.2x for the quarter ended March 29, 1996 and 5.0x for the
quarter ended December 31, 1995. The inventory turnover of 4.9x for the
second quarter of 1996 is consistent with the Company's current target for
inventory turnover.
Days sales outstanding were 46.4 days at June 28, 1996 compared to 41.8
days at December 31, 1995 and 45.7 days at March 29, 1996. This increase in
the number of days outstanding is due primarily to the fact that Deanco's
days outstanding were historically higher than those of the Company.
Management expects to be able, over the long term, to improve the number of
days outstanding to those historically experienced by the Company.
The Company does not anticipate that the adoption of any of the recently
issued FASB statements will have a material impact on the Company's financial
statements.
16
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of stockholders on May 7, 1996. C.
Don Alverson, Thomas W. Blumenthal, William C. Cacciatore, Edward L.
Gelbach, Greg A. Rosenbaum, Norbert W. St. John and Donald I.
Zimmerman were each reelected to serve as directors until the next
annual meeting of stockholders, and received votes as follows:
Number of Votes Number of Votes
Cast for Withheld from
Name His Election His Election
---- --------------- ---------------
C. Don Alverson 6,673,057 935
Thomas W. Blumenthal 6,673,057 935
William C. Cacciatore 6,673,057 935
Edward L. Gelbach 6,673,050 942
Greg A. Rosenbaum 6,672,957 1,035
Norbert W. St. John 6,673,050 942
Donald I. Zimmerman 6,673,050 942
At this annual meeting, stockholders also voted to ratify the
appointment of McGladrey & Pullen, LLP as the Company's independent
auditors for 1996. 6,670,227 votes were cast for, 2,620 votes were
cast against and 1,145 votes abstained from ratifying such
appointment.
At this annual meeting, stockholders also voted to approve an
amendment to the Company's 1992 Stock Option Plan (the "Plan") to
increase the maximum number of shares which may be sold pursuant to
options granted under the Plan to 905,432, subject to adjustment as
provided in the Plan upon certain
17
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changes in the Company's stock. 6,546,216 votes were cast for,
76,100 votes were cast against and 4,215 votes abstained from
approving such amendment.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
2.1 Stock Purchase Agreement, dated November 15, 1995, among
Richey Electronics, Inc., Deanco, Inc., Electrical
Distribution Acquisition Company and all of the stockholders
of Electrical Distribution Acquisition Company (Incorporated
by reference from the Current Report on Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3,
1996 as exhibit 2.1 thereof).
2.2 First Amendment to Stock Purchase Agreement and Instrument of
Joinder dated December 20, 1995 among Richey Electronics, Inc.,
Deanco, Inc., Electrical Distribution Acquisition Company and all
of the stockholders of Electrical Distribution Acquisition
Company (Incorporated by reference from the Current Report on
Form 8-K for Richey Electronics, Inc. dated December 20, 1995,
filed January 3, 1996 as exhibit 2.2 thereof).
2.3 Sales Tax Indemnification Agreement dated December 20, 1995 among
Richey Electronics, Inc. and the stockholders of Electrical
Distribution Acquisition Company identified therein (Incorporated
by reference from the Current Report on Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3, 1996
as exhibit 2.3 thereof).
3.1 Restated Certificate of Incorporation of Richey Electronics,
Inc. (Incorporated by reference from the Registration Statement
on Form S-1, filed January 7, 1994, Registration No. 33-73916
as exhibit 3.1 thereof).
3.2 Bylaws of Richey Electronics, Inc. (Incorporated by reference
from the Registration Statement on Form S-1, filed January 7,
1994, Registration No. 33-73916 as exhibit 3.2 thereof).
4.1 Indenture between Richey Electronics, Inc. and First Trust of
California, National Association, dated as of February 15, 1996
(Incorporated by reference from the Annual Report on Form 10-K
for Richey Electronics, Inc. filed March 26, 1996 as exhibit 4.1
thereof).
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10.1 Employment Agreement between William Class and Richey
Electronics, Inc. dated as of January 1, 1996.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated March 22, 1996 and filed on
April 2, 1996 (reporting on completion of the Note Offering).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHEY ELECTRONICS, INC.
(Registrant)
By /s/ RICHARD N. BERGER
----------------------------------
Richard N. Berger
Vice President,
Chief Financial Officer
and Secretary
August 9, 1996
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2.1 Stock Purchase Agreement, dated November 15, 1995, among Richey
Electronics, Inc., Deanco, Inc., Electrical Distribution
Acquisition Company and all of the stockholders of Electrical
Distribution Acquisition Company (Incorporated by reference from
the Current Report on Form 8-K for Richey Electronics, Inc. dated
December 20, 1995, filed January 3, 1996 as exhibit 2.1 thereof).
2.2 First Amendment to Stock Purchase Agreement and Instrument of
Joinder dated December 20, 1995 among Richey Electronics, Inc.,
Deanco, Inc., Electrical Distribution Acquisition Company and all
of the stockholders of Electrical Distribution Acquisition
Company (Incorporated by reference from the Current Report on
Form 8-K for Richey Electronics, Inc. dated December 20, 1995,
filed January 3, 1996 as exhibit 2.2 thereof).
2.3 Sales Tax Indemnification Agreement dated December 20, 1995 among
Richey Electronics, Inc. and the stockholders of Electrical
Distribution Acquisition Company identified therein (Incorporated
by reference from the Current Report on Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3, 1996
as exhibit 2.3 thereof).
3.1 Restated Certificate of Incorporation of Richey Electronics, Inc.
(Incorporated by reference from the Registration Statement on
Form S-1, filed January 7, 1994, Registration No. 33-73916 as
exhibit 3.1 thereof).
3.2 Bylaws of Richey Electronics, Inc. (Incorporated by reference
from the Registration Statement on Form S-1, filed January 7,
1994, Registration No. 33-73916 as exhibit 3.2 thereof).
4.1 Indenture between Richey Electronics, Inc. and First Trust of
California, National Association, dated as of February 15, 1996
(Incorporated by reference from the Annual Report on Form 10-K
for Richey Electronics, Inc. filed March 26, 1996 as exhibit 4.1
thereof).
10.1 Employment Agreement between William Class and Richey
Electronics, Inc. dated as of January 1, 1996.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made by and between
Richey Electronics, Inc., a Delaware corporation (the "Company"), and William
Class (the "Executive") and is effective as of January 1, 1996 (the "Effective
Date").
RECITALS
The Company desires to employ the Executive, and the Executive
desires to accept employment by the Company, on the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to, and hereby does,
employ the Executive, and the Executive hereby agrees to be employed by and to
serve the Company, on the terms and conditions set forth in this Agreement.
2. TERM OF EMPLOYMENT.
(a) EMPLOYMENT PERIOD. Subject to the provisions for
earlier termination as herein provided, the term of the Executive's employment
hereunder shall be for the period commencing on the Effective Date and ending on
the second anniversary of the Effective Date (the "Employment Period").
(b) FUTURE NEGOTIATIONS. The Company shall notify
Executive no later than ninety (90) days prior to the expiration of the
Employment Period if the Company, in its sole discretion, desires to enter into
good faith negotiations concerning an extension of the employment relationship
beyond the expiration of the Employment Period on terms and conditions not less
favorable to the Executive than those in effect during the second year of the
Employment Period.
3. POSITION/DUTIES/RESPONSIBILITIES. The Executive shall be
employed, initially, as Vice President - Area Director of the Company. The
Executive shall exercise such authority and perform such duties and services,
consistent with his position, as may be assigned to him from time to time by the
Chief Executive Officer of the Company or his designee. In furtherance of the
foregoing, the Executive hereby agrees to perform well and faithfully such
duties and responsibilities and the other reasonable duties and responsibilities
assigned to him from time to time by the Chief Executive Officer or his
designee. Nothing herein shall restrict the power of the Company's Board of
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Directors (the "Board") to modify the Executive's authority as the Board in its
discretion deems appropriate.
4. DEVOTION OF TIME AND BEST EFFORTS. Except for reasonable
vacations and absences due to temporary illness, the Executive agrees to devote
his full time, best efforts and undivided attention and energies during the
Employment Period to the performance of his duties and to advance the Company's
interests, as determined by the Board. During the Employment Period, the
Executive shall not, without prior written approval of the Board or its
designee, be engaged in any other business activity which, in the reasonable
judgment of the Board, conflicts with the duties of the Executive hereunder,
whether or not such business activity is pursued for gain, profit, or other
pecuniary advantage; but this restriction shall not be construed as preventing
the Executive from investing his assets in such form or manner as will not
require the performance of services of the Executive in the operations or the
affairs of the enterprises or companies in which said investments are made.
Notwithstanding the foregoing, services which are neither substantial nor
significant, individually or in the aggregate, shall be permitted with respect
to investments of the Executive provided that they shall not have an adverse
effect on the Executive's duties hereunder. The Executive's current
investments are described in a schedule which has been provided to the Company
concurrently herewith. All future investments of the Executive which may
involve services which are neither substantial nor significant shall be promptly
disclosed to the Board. Approval of the Board of an existing business activity
of the Executive shall not be implied by the execution of this Agreement. Any
dispute between the Executive and the Board under this Section 4 shall be
resolved by arbitration pursuant to Section 15 hereof.
5. COMPENSATION.
(a) BASE SALARY. During the Employment Period, the
Company shall pay to the Executive a "Base Salary" at the rate of One Hundred
Five Thousand Dollars ($105,000) per annum, commencing on the first day of the
Employment Period, payable in accordance with the Company's regular payroll
practices and policies which are in effect from time to time. The Base Salary
set forth above may be adjusted upward from time to time as may be agreed upon
between the Executive and the Company, as approved by the Board, and any such
upward adjustment of salary as provided herein shall become the Base Salary for
the remainder of the Employment Period and shall not require a written amendment
to this Agreement, nor shall such upward salary adjustment affect any other
provisions of this Agreement, which shall remain in effect unless changed by a
written amendment hereto.
(b) PERFORMANCE BONUSES. During the Employment Period,
the Executive shall be entitled to receive bonuses to the
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extent certain performance targets are achieved as follows (the "Performance
Bonuses"):
(i) A bonus of up to $____________ with respect to the
Company's fiscal year ended December 31, 1996, based on achievement of the
targets set forth in Exhibit A attached hereto, payable within seventy-five days
after the end of such fiscal year.
(ii) For the portion of the Employment Period,
beginning after December 31, 1996, a bonus up to such maximum amount and based
on achievement of such targets and payable at such times, as the Compensation
Committee of the Company's Board may determine in its sole discretion (it being
understood that the Company is making no commitments whatsoever as to payment of
Performance Bonuses for such portion of the Employment Period).
(c) WITHHOLDING. The Company shall deduct and withhold
all necessary social security and withholding taxes and any other similar sums
required by law or authorized by the Executive.
6. EXPENSE REIMBURSEMENTS. The Company agrees that during the
Employment Period, the Executive is authorized to incur ordinary and necessary
expenses in connection with the promotion, operation and furtherance of the
business affairs of the Company, including reasonable expenses incurred for
purposes of entertainment, travel and educational/professional meetings, as
shall be in accordance with normal Company policy approved by the Board. The
Executive shall be entitled to reimbursement by the Company for such reasonable
business expenditures upon presentation by the Executive to the Company on a
monthly basis (or other regular basis as reasonably agreed by the Executive and
the Company) of an itemized account of such expenditures, together with
appropriate receipts and vouchers or other evidence as shall be required for tax
or accounting purposes.
7. BENEFITS. During the Employment Period, the Executive shall
be entitled to receive perquisites and all such fringe benefits of employment
generally available to the other senior management employees of the Company and
approved by the Board, and shall have the same rights and privileges to
participate in any employee benefit plans and arrangements, in accordance with
the Company's policies in effect from time to time as any other senior
management employee of the Company, as approved by the Board. The Executive
shall be entitled to an allowance for the use of an automobile of $575 per
month. The Executive shall be solely responsible for tax filings and
recordkeeping with respect to the automobile allowance. It is understood and
agreed that the Executive shall not be entitled to an allowance for personal tax
preparation and planning services
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and shall not be reimbursed for expenses incurred in connection therewith.
8. TERMINATION OF EMPLOYMENT.
(a) INVOLUNTARY TERMINATION. If the Executive dies, the
Executive's employment shall be deemed to terminate on the date of the
Executive's death. If the Executive is incapacitated or disabled by accident,
sickness or otherwise so as to render him mentally or physically incapable of
fully performing the services required to be performed by him under this
Agreement for a period of at least one-hundred eighty (180) days during any
consecutive twelve-month period or at least one-hundred twenty (120) consecutive
days, the Company may give notice to the Executive that he has been determined
to have a "Disability." The Employment Period and the Executive's employment
shall terminate immediately upon giving of such notice. Termination due to
death or Disability shall constitute "Involuntary Termination."
(b) TERMINATION FOR CAUSE. The Board may terminate the
Employment Period and the Executive's employment for "Cause" (such termination
being hereinafter called a "Termination For Cause") by giving the Executive
notice in writing of such termination which sets forth in general the grounds
for such termination. Such termination shall be effective immediately upon such
notice. For purposes of this Agreement, "Cause" shall mean (i) embezzlement,
theft or other misappropriation of any property of the Company or any entity
controlled by the Company, (ii) gross or willful misconduct resulting in
substantial loss to the Company or any entity controlled by the Company or
substantial damage to the reputation of the Company or any entity controlled by
the Company including, but not limited to, loss of property, reduction in assets
or injury to reputation, (iii) gross or willful neglect of his assigned duties
to the Company or any entity controlled by the Company resulting in substantial
loss to the Company or any entity controlled by the Company or substantial
damage to the reputation of the Company or any entity controlled by the Company
including, but not limited to, loss of property, reduction in assets or injury
to reputation, (iv) gross breach of his fiduciary obligations to the Company or
any entity controlled by the Company resulting in substantial loss to the
Company or any entity controlled by the Company or substantial damage to the
reputation of the Company or any entity controlled by the Company including, but
not limited to, loss of property, reduction in assets or injury to reputation,
(v) acts of moral turpitude, or (vi) any chemical dependence impairing the
performance of his duties and responsibilities to the Company or any entity
controlled by the Company resulting in substantial loss to the Company or any
entity controlled by the Company or substantial damage to the reputation of the
Company or any entity controlled
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<PAGE>
by the Company including, but not limited to, loss of property, reduction in
assets or injury to reputation.
(c) TERMINATION WITHOUT CAUSE. The Board may terminate
the Employment Period and the employment of the Executive hereunder at any time
during the Employment Period without "Cause" (such termination being hereinafter
called a "Termination Without Cause") by giving the Executive written notice of
such termination which shall be effective immediately upon such notice.
(d) TERMINATION FOR GOOD REASON. The Executive shall have
the right to terminate the Employment Period and the Executive's employment with
the Company for "Good Reason" (such termination being hereinafter called a
"Termination For Good Reason") by giving the Board advance written notice of
termination not less than 30 and not more than 45 days in advance, which sets
forth the grounds for such termination. For purposes of this Agreement, "Good
Reason" shall mean (i) a reduction in the current level of the Executive's
compensation, entitlement to expense reimbursements or entitlement to benefits
as described in Sections 5, 6, and 7 hereof, (ii) a material diminishment in the
Executive's position, powers, authority, duties or responsibilities, or a
material diminishment in the business operations to which those powers,
authority, duties or responsibilities apply, or a change in his current
reporting chain of supervision (but not including a change to which the
Executive does not object in the persons who report to the Executive) or (iii) a
material breach of the terms of this Agreement by the Company. Notice shall be
given, except in the case of a continuing breach, within three (3) calendar
months after the most recent event giving rise to Good Reason. Failure to elect
to terminate with respect to one event does not preclude the Executive from
making the election upon a subsequent event. If the Company shall remedy the
alleged Good Reason or take reasonable steps to that end within 20 days from its
receipt of the notice, there shall be no Termination for Good Reason.
(e) VOLUNTARY TERMINATION. Any termination of the
employment of the Executive hereunder by resignation, retirement or other
voluntary action of the Executive (otherwise than as a result of an Involuntary
Termination, a Termination For Cause, a Termination for Good Reason or a
Termination Without Cause) or by expiration of the Employment Period shall be
deemed to be a "Voluntary Termination." Executive shall be required to give the
Company at least 180 days' written notice of his intent to voluntarily terminate
his employment.
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<PAGE>
9. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) INVOLUNTARY, VOLUNTARY OR FOR CAUSE. Upon the
termination of the Executive's employment hereunder pursuant to an Involuntary
Termination, a Voluntary Termination or a Termination For Cause, neither the
Executive nor his beneficiary or estate shall have any further rights or claims
against the Company under this Agreement, except to receive: (i) the unpaid
portion of the Base Salary provided for in Section 5, computed on a PRO RATA
basis to the date of termination and payments for vested rights to fringe
benefits provided for in Section 7 and (ii) reimbursement for any expenses for
which the Executive is entitled to be reimbursed but has not theretofore been
reimbursed.
(b) WITHOUT CAUSE OR FOR GOOD REASON. Upon the
termination of the Executive's employment hereunder pursuant to a Termination
Without Cause or a Termination For Good Reason, neither the Executive nor his
beneficiary or estate shall have any further rights or claims against the
Company under this Agreement, except to receive: (i) a termination payment
equal to that provided in Section 9(a) hereof and (ii) a severance payment
(which shall be in lieu of amounts which would have been due had his employment
not been terminated) equal to the sum of his Base Salary plus his Performance
Bonuses for the period from the date of termination to the second anniversary of
the Effective Date.
For purposes of such severance payment, (i) the
Executive's Base Salary shall be computed at the rate in effect on the date of
termination and (ii) the amount of the Executive's Performance Bonuses shall be
computed at a rate equal to the average of his Performance Bonuses for the
period prior to such termination. The Base Salary component of such severance
payment shall be payable in accordance with the Company's normal payroll
practices. The Performance Bonuses component of such severance payment shall be
payable in accordance with the Company's policies which are in effect from time
to time for the payment of performance bonuses for management employees of the
Company. Notwithstanding the foregoing, the severance payments provided for in
this paragraph shall not be payable if such termination is due to the sale of
all or part of the Company and Employee is offered employment with the successor
company, provided that the successor company shall be bound by the terms of this
Agreement.
(c) OFFSETS. The Executive agrees that the Company may
offset from payments due under this Section 9 any amount contractually due from
the Executive to the Company provided that if any such offset is contested by
the Executive, the Company's right to retain the funds offset will be determined
by arbitration pursuant to Section 15 hereof. If the arbitrator
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determines that the Company wrongfully offset funds, then the arbitrator may, as
part of the award, include interest on the amount wrongfully offset at the prime
rate quoted in the WALL STREET JOURNAL from the date the Executive
contests the offset to the date of the arbitration award.
(d) RESIGNATION FROM OTHER POSITIONS. Upon the effective
date of any termination of employment, the Executive shall resign any positions
he holds with the Company on the Board or in any other capacity, and shall have
no official powers.
10. DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION. The Executive recognizes and
acknowledges that all plans, customer lists and information, data, systems,
methods, designs, procedures, books and records, relating to the operations,
personnel, business activities, practices and procedures of the Company
(collectively, "Confidential Information"), whether instituted or commenced
prior to or subsequent to the date hereof and whether or not initially
instituted or commenced by the Company, constitute and will constitute valuable,
special and unique assets of the Company's business. The Executive therefore
covenants and agrees that, except to the extent required in the furtherance of
the Company's business in connection with matters as to which the Executive is
involved as an employee of the Company, he will not ever at any time during or
after the Employment Period disclose any part of such Confidential Information,
or use or permit to be used any part of such Confidential Information by any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever.
(b) NON-PUBLIC INFORMATION. The Executive agrees that he will
not, at any time during or after the Employment Period, without the express
written approval of the Board of Directors of the Company or its designees,
disclose to any person, firm, corporation or other entity, except as required by
law, any non-public information concerning the business, clients or affairs of
the Company for any reason or purpose whatsoever nor shall the Executive make
use of any such non-public information for his own purpose or for the benefit of
any person, firm, corporation or other business entity except the Company.
11. RESTRICTIVE COVENANT.
(a) RESTRICTIONS. The Executive hereby acknowledges and
recognizes that during the Employment Period he will be privy to training,
contacts, trade secrets and confidential proprietary information critical to the
Company's business and that the Company would find it extremely difficult or
impossible to replace the Executive. Accordingly, the
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Executive agrees that during the period the Executive is employed by the Company
and during the Applicable Period (as hereinafter defined), the Executive shall
not, without the express written approval of the Board of Directors of the
Company or its designee, directly or indirectly, be involved in or have an
interest in, any person, firm, corporation or business, whether as an employee,
partner, officer, director, agent, shareholder or otherwise (except as a
minority shareholder of less than two (2%) percent of a publicly held
corporation) that is substantially competitive with or engaged in any business
then actively conducted by the Company or any successor or assign of the
Company. During the Applicable Period, the Executive shall communicate the
contents of this Section 11 to any person, firm, association or corporation
which the Executive intends to be employed by, associated with or represent.
The covenant set forth in this Section 11 shall be restricted geographically to
only those states (and specifically including all 58 counties of California) and
foreign locations in which the Company (or any successor of the Company) is
actually actively conducting its business.
(b) APPLICATION. Notwithstanding anything else contained
in Section 11(a), the restrictions contained in Section 11(a) shall apply only
(i) in the case of a Termination For Cause and (ii) in the case of a Termination
for Good Reason or a Termination Without Cause during periods in which the
Executive has not elected to waive his right to severance benefits under Section
9(b) hereof. As used herein, the term "Applicable Period" means (i) in the case
of a Termination for Cause, the two-year period following the termination of
employment and (ii) in the case of a Termination for Good Reason or a
Termination Without Cause, the period from the date of termination to the second
anniversary of the Effective Date.
(c) EFFECT OF RESTRICTIONS. The Executive understands
that the restrictions in this Section 11 may limit his ability to earn a
livelihood in a business similar to the business of the Company, but he
nevertheless believes that he has received and will receive sufficient
consideration and other benefits as an employee of the Company and as otherwise
provided hereunder to clearly justify such restrictions which, in any event
(given his education, skills and ability), the Executive does not believe would
prevent him from earning a living.
12. NON-SOLICITATION. Without limiting the generality of the
provisions of Section 11 hereof, the Executive hereby agrees that, during the
period of employment and the immediately following two (2)-year period, he will
not himself or through a close associate personally solicit business from any
person, firm, corporation or other entity which was a customer of the Company
during the period he was an employee of the Company, or from any successor in
interest to any such person, firm,
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corporation or other entity for the purpose of securing business or contracts
related to the business of the Company; provided, however, that nothing
contained herein shall be construed to prohibit or restrict the Executive from
soliciting business from any such parties on behalf of the Company in
performance of his duties as an employee of the Company required under and as
specifically contemplated by Section 3 hereof.
13. INTERFERENCE WITH RELATIONSHIPS. During the period of
employment and the immediately following two (2)-year period, the Executive
shall not, directly or indirectly, as an employee, agent, consultant,
stockholder, director, co-partner or in any other individual or representative
capacity: (i) employ or engage, recruit or solicit for employment or
engagement, any person who is or becomes employed or engaged by the Company
during the period of employment and the immediately following two (2)-year
period, or otherwise seek to influence or alter any such person's relationship
with the Company, or (ii) solicit or encourage any present or future customer of
the Company to terminate or otherwise alter his, her or its relationship with
the Company.
14. ENFORCEMENT. The Executive acknowledges and agrees that
the covenants and restrictions contained in Sections 10, 11, 12 and 13 are
reasonable and necessary, in view of the nature of the Company's business, in
order to protect the legitimate interests of the Company, and that any violation
of any of the provisions of such Sections would result in irreparable injury to
the Company. Therefore, the Executive agrees that in the event of a breach or
threatened breach by the Executive of any of the provisions of any of such
Sections, the Company shall be entitled, if it so elects, to obtain from any
court of competent jurisdiction the rights and remedies of specific performance
and preliminary and permanent injunctive relief (without posting bond or other
security and without the necessity of proving actual damages), in addition to
any other rights or remedies that may be available, either at law or in equity,
in respect of any breach or threatened breach by the Executive of any of such
provisions.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other legal or equitable remedies available to the Company for such breach or
threatened breach of any of the provisions of Sections 10, 11, 12 and/or 13,
including but not limited to recovery of damages from the Executive or those
acting in concert with him and an equitable accounting of all earnings, profits
and other benefits arising from such violation.
15. DISPUTE RESOLUTION. Disputes between the Company and its
officers or other employees, on the one hand, and Executive, on the other hand,
arising out of or concerning the performance of this Agreement or Executive's
employment with the
- 9 -
<PAGE>
Company shall be resolved in accordance with the procedures set forth in Exhibit
B attached hereto.
16. LOAN COVENANTS. Notwithstanding any other provision of
this Agreement, (i) amounts, other than severance described in Section 9(b)
hereof, otherwise due hereunder shall not be paid if such payment would
constitute a breach of any of the Company's agreements and related covenants
with its lenders, and (ii) severance payments described in Section 9(b) hereof
that would constitute a breach of any of the Company's agreements and related
covenants with its lenders shall be deferred until any such payment would not
constitute a breach of such agreements and covenants.
17. SEVERABILITY.
(a) If any one or more provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal, or unenforceable provision had never been contained
herein.
(b) It is the desired intent of the parties that the
provisions of this Agreement shall be enforceable to the fullest extent
permissible in each jurisdiction in which such enforcement is sought.
Accordingly, if any covenant contained in this Agreement, including without
limitation any covenant contained in Section 10, 11, 12 or 13, is held by any
court of competent jurisdiction to be unreasonable, arbitrary, against public
policy or otherwise invalid or unenforceable, then such covenant shall be
considered divisible (including, in the case of the covenant not to compete
contained in Section 11 hereof, both as to time and as to geographical area) so
that the court may reduce the scope thereof or otherwise amend or reform the
portion so held in order to make such covenant be reasonable, not arbitrary, not
against public policy and valid and enforceable by the Company, such amendment
or reformation to apply only with respect to the operation of this Agreement in
the particular jurisdiction in which such adjudication is made.
18. NOTICES. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be mailed,
telecopied, dispatched by reputable commercial courier or delivered by hand as
follows:
If to Executive:
William Class
-----------------------
-----------------------
- 10 -
<PAGE>
If to the Company:
Richey Electronics, Inc.
7441 Lincoln Way
Garden Grove, California 92641
Attention: Chairman of Compensation Committee
of Board of Directors
with a copy to:
Kathy T. Wales, Esq.
Dewey Ballantine
333 South Hope Street
Los Angeles, California 90071
If any notice, request, demand, direction or other communication required or
permitted to be given hereunder is given by mail, it will be effective on the
third calendar day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier during regular business hours of
the recipient, when sent; if given by telecopier outside regular business hours
of the recipient, at the opening of business on the next business day; if
dispatched by reputable commercial courier, on the scheduled delivery date; or
if given by personal delivery, when delivered.
19. DEFINITION OF EXECUTIVE. The word "Executive" shall,
wherever appropriate, include his dependents, beneficiaries and legal
representatives.
20. BINDING AGREEMENT. The provisions of this Agreement will
be binding upon, and will inure to the benefit of, the respective heirs, legal
representatives and successors of the parties hereto.
21. GOVERNING LAW. This Agreement and all amendments thereof
shall be governed by, and construed and enforced in all respects, whether as to
validity, construction, capacity, performance, enforcement or otherwise, in
accordance with, the laws of the State of California in which it has been
executed and in which it has a situs without giving effect to the principles of
conflict of laws thereof.
22. WAIVER OF BREACH. The waiver by either party of a breach
of any provision of this Agreement by the other party must be in writing and
shall not operate or be construed as a waiver of any subsequent breach by such
other party.
23. ENTIRE AGREEMENT. This Agreement, together with Exhibits A
and B attached hereto, contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements,
- 11 -
<PAGE>
representations and understanding among the parties with respect thereto.
24. AMENDMENTS. This agreement may be amended only by an
agreement in writing signed by the Executive and the Chief Executive Officer of
the Company or his designee.
25. HEADINGS. The Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Section references refer to this Agreement
unless otherwise specified.
26. ASSIGNMENT. This Agreement is personal in its nature and
the parties hereto shall not, without the consent of the other, assign or
transfer this agreement or any rights or obligations hereunder; PROVIDED,
HOWEVER, that the provisions hereof shall inure to the benefit of, and be
binding upon each successor in a change of control of the Company, whether by
merger, consolidation, transfer of all or substantially all assets, sale or
otherwise (and such successor shall thereafter be deemed the "Company" for
purposes of this Agreement).
27. COUNTERPARTS. This Agreement may be executed
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, effective as of the date first above written.
Executive:
/s/ William Class
--------------------------------------
William Class
Richey Electronics, Inc.
By: /s/ Donald I. Zimmerman
-----------------------------------
Title: Chairman of the Compensation
Committee
- 12 -
<PAGE>
EXHIBIT A
(AD)
RICHEY ELECTRONICS
AREA DIRECTOR INCOME PLAN
FISCAL YEAR 1996
NAME: BILL CLASS AREA: VICE PRESIDENT - WEST
--------------------- --------------------------
TARGET INCOME: 161,900 (Note 1)
- ------------- ---------
TARGET INCOME FORMULA
- ---------------------
Base Salary 105,000 (Note 2)
----------
OP Incentive 50,000 (Note 3)
----------
Car Allowance 6,900 (Note 4)
----------
Target Income 161,900
----------
Benefit Package Value 24,300 (Note 5)
----------
Total Value of your compensation package for plan achievement
in 1996 is $186,200.00.
----------
NOTES:
- -----
1. TARGET INCOME: The minimum amount of income you will earn for
achievement of your location's operating profit dollar and percent
plan for 1996.
2. BASE SALARY: That portion of your target income which is guaranteed
salary paid bi-weekly per regular payroll period.
3. OPERATING PROFIT DOLLAR INCENTIVE: That portion of your target income
that will be paid for achievement of of your area's combined official
profit dollar plan of 50,000. You will be paid by a multiplier
of monthly on all operating profit dollars generated in your
area per official monthly P&L.
4. CAR ALLOWANCE: You will be paid a car allowance of $575.00 per month.
This portion of your program is considered income by IRS and
withholdings will be made.
5. The total value of your compensation plan cannot be measured only by
your income plan. The figures in this space represent the company's
contribution toward the cost of your medical, dental, life insurance
coverage and FICA contribution.
<PAGE>
- 2AD -
INCOME PLAN PHILOSOPHY: It is management's intention to provide you
with a fair and equitable income program for achievement of business
plan and goals that are reasonable and expected for the investments
we have made in the business. The investments must return or all is for
naught. Management doesn't intend to change the plan during 1996, but
it does reserve the right to do so - up or down - if conditions so
dictate. Any changes will be discussed prior to change.
You understand and agree that your incentives are calculated and paid to you
monthly based upon unaudited fiancial statements. It is possible that, as a
result of the fiscal year-end audit by Richey Electronics, Inc.'s outside
auditors, adjustments, either positive or negative, maybe required to your
gross profit dollars for the proceeding year. In the event of net positive
adjustments, the company shall pay you within 15 days any incentive due you.
In the event of net negative adjustments, you agree to reimburse the company
through payroll deductions taken against your then current salary and
incentives.
Your income plan is not considered to be a contract. It is a statement of how
your income will be earned in 1996. If you leave employment of Richey
Electronics, for any reason before year-end, your total compensation will be
that amount actually earned up to that date, based on your performance to
that date.
WE WISH YOU THE BEST IN 1996!
ACCEPTED APPROVED
/s/ William Class /s/ Don Alverson Date: 4/15/96
- ------------------- ------------------------ -------------
NAME: Bill Class Don Alverson
Date: 4/8/96 Executive VP, Sales
/s/ William C. Cacciatore Date:
------------------------- --------------
William C. Cacciatore
Chairman, CEO & President
(GM)
<PAGE>
EXHIBIT B
MULTI-STEP ADR AGREEMENT
INTENT OF PARTIES: Mindful of the high cost of litigation not
only in dollars but time and energy, the parties intend to and do hereby
establish a quick, final and binding out-of-court dispute resolution procedure
to be followed in the unlikely event any disagreement or controversy whatsoever
should arise out of or concerning the performance of this Agreement or
Executive's employment with the Company, including but not limited to claims of
termination, discrimination, harassment, violations of public policy or
retaliation; provided, however, that the only workers' compensation issues
agreed to be submitted to arbitration pursuant to this Agreement are any issue
arising under Division 1 of the Labor Code (commencing with Section 50) or
Division 4 of the Labor Code (commencing with Section 3200 (SEE
Lab. C. Section 5275(d))). By entering into this Multi-Step ADR Agreement both
parties are giving up their constitutional rights to have any such dispute
decided in a court of law before a jury, and instead are accepting the use of
mediation and arbitration.
STEP 1--MEDIATION:
In the event that any claim, controversy or dispute cannot be
resolved by informal negotiation between Executive and the Chief Executive
Officer of the Company (or his designee), then the dispute shall be referred to
either the Orange County or Los Angeles County office of JAMS-Endispute
(hereinafter "JAMS") for mediation. Mediation shall consist of a private and
confidential, informal, nonbinding conference or conferences between the parties
and the mediator, jointly or separately at the mediator's discretion, wherein
the mediator will seek to guide the parties to a resolution of the case.
a. SELECTION OF MEDIATOR: The parties may select any mutually
acceptable member from the panel at JAMS. If the parties cannot agree or have no
particular choice of mediator and simply request that JAMS assign one to the
case, then a list and resumes of available mediators numbering one more than
there are parties will be sent to the parties, each of whom shall strike one
name leaving the remaining name as the mediator. If more than one name remains,
JAMS Arbitration Administrator will choose the mediator from the remaining
names.
b. DISCOVERY: In the event any party has substantial need for
information in the possession of another party to prepare for the mediation
conference(s), the parties shall attempt in good faith to agree upon procedures
for the expeditious exchange of information, with the help of the mediator, if
required.
c. POSITION PAPERS: No later than seven (7) days before the
first scheduled mediation session, each party shall deliver a concise written
summary of its position together with any appropriate documents and a proposed
solution to the matters in controversy to the mediator and also serve a copy on
the other party.
- 1 -
<PAGE>
d. CONFIDENTIALITY OF PROCEEDINGS: The mediation process is to
be considered settlement negotiation for the purpose of all state and federal
rules protecting disclosures made during such conferences from later discovery
or use in evidence.
The parties hereto agree that the provisions of Evid. C. sec. 1152.5
shall apply to any mediation conducted hereunder.
The entire procedure is confidential, and no stenographic or other
record shall be made except to memorialize a settlement record. All conduct,
statements, promises, offers, views and opinions, oral or written, made during
the mediation by any party or a party's agent, employee, or attorney are
confidential and, where appropriate, are to be considered work product and
privileged. Such conduct, statements, promises, offers, views and opinions shall
not be subject to discovery or admissible for any purpose, including
impeachment, in any litigation or other proceeding involving the parties.
Provided, however, that evidence otherwise subject to discovery or admissible is
not excluded from discovery or admission in evidence simply as a result of it
having been used in connection with this settlement process.
e. TERMINATION OF MEDIATION PROCESS: The mediation process
shall continue until the matter is resolved, or the mediator makes a good faith
finding that all settlement possibilities have been exhausted and there is no
possibility of resolution through mediation.
ENFORCEMENT OF MEDIATION STEP: Step 1 above dealing with
mandatory mediation is deemed to be an arbitration clause for the purpose of
enforcing compliance with their provisions. Any party to this Agreement may
seek compliance with these provisions by petition to any Court of general
jurisdiction. The prevailing party in any such proceeding shall be entitled to
the Court's order for payment of attorney fees and costs in connection
therewith.
STEP 2--ARBITRATION:
Should any disputes remain or exist between the parties after
completion of mediation step set forth above, then the parties shall promptly
submit any dispute, claim or controversy arising out of or relating to this
Agreement or any alleged breach of this Agreement or concerning the performance
of this Agreement or Executive's employment with the Company (including,
without limitation, any action in tort, contract, or otherwise, at equity or at
law, any matter with respect to the meaning, effect, validity, termination,
interpretation, performance or enforcement of this Agreement or any claims of
termination, discrimination, harassment, violations of public policy or
retaliation) to final and binding arbitration administered and conducted by JAMS
in either Orange County or Los Angeles County in accordance with the JAMS Rules
of Practice and Procedure then in effect. Judgment upon the award rendered by
the arbitrator may be entered in any court of general jurisdiction having
jurisdiction thereof.
- 2 -
<PAGE>
EXHIBIT 11.1
RICHEY ELECTRONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
($ AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
-------------------- --------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income used to compute primary
earnings per share $1,735 $909 $2,877 $1,589
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of shares used to
compute primary earnings per share 9,058 8,101 9,058 7,001
------ ------ ------ ------
------ ------ ------ ------
Primary earnings per share $0.18 $0.11 $0.32 $0.23
------ ------ ------ ------
------ ------ ------ ------
FULLY DILUTED EARNINGS PER SHARE:
Net income $1,735 $909 $2,877 $1,589
Add: Interest on convertible subordinated
notes payable, net of taxes 584 -- 779 --
------ ------ ------ ------
Net income used to compute fully diluted
earnings per share $2,319 $909 $3,656 $1,589
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of shares
outstanding 9,058 8,101 9,058 7,001
Add: Weighted average shares of
convertible subordinated notes payable
assuming conversion 3,948 -- 2,662 --
------ ------ ------ ------
Weighted average number of shares used to
compute fully diluted earnings per share 13,006 8,101 11,720 7,001
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings per share $0.18 $0.11 $0.31 $0.23
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-28-1996
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 29,653
<ALLOWANCES> 0
<INVENTORY> 35,521
<CURRENT-ASSETS> 70,604
<PP&E> 3,648
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,828
<CURRENT-LIABILITIES> 29,383
<BONDS> 69,257
0
0
<COMMON> 9,000
<OTHER-SE> 30,279
<TOTAL-LIABILITY-AND-EQUITY> 129,828
<SALES> 116,596
<TOTAL-REVENUES> 0
<CGS> 87,477
<TOTAL-COSTS> 108,463
<OTHER-EXPENSES> 703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,631
<INCOME-PRETAX> 4,799
<INCOME-TAX> 1,922
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,877
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
</TABLE>
