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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RICHEY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0594451
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
</TABLE>
7441 LINCOLN WAY, GARDEN GROVE, CALIFORNIA 92641
(714) 898-8288
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WILLIAM C. CACCIATORE, PRESIDENT
RICHEY ELECTRONICS, INC.
7441 LINCOLN WAY
GARDEN GROVE, CALIFORNIA 92641
(714) 898-8288
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
Robert M. Smith
Dewey Ballantine
333 South Hope Street, Suite 3000
Los Angeles, California 90071
(213) 626-3399
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE PROPOSED MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED UNIT (1) PRICE (1) FEE (2)
<S> <C> <C> <C> <C>
7% Convertible Subordinated Notes
Due 2006......................... $55,755,000 100% $55,755,000 $19,225.86
Common Stock, par value $0.001 per
share............................ 3,947,256(3) NA NA NA
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(i), no registration fee is payable with respect to the
Common Stock (as defined herein) underlying the Notes because such Common
Stock will be issued for no additional consideration, but will be issued
only upon the conversion of the Notes at the initial rate of $14.125 in
principal amount of Notes per share, subject to adjustment in certain cases.
(3) Plus such additional indeterminate number of shares as may become issuable
upon conversion of the Notes being registered hereunder by reason of
adjustment of the conversion price.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
CROSS-REFERENCE SHEET
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
BETWEEN REGISTRATION STATEMENT AND FORM OF PROSPECTUS
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<CAPTION>
ITEM IN FORM S-2 LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Front Cover Page; Cross Reference Sheet; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... The Company; Risk Factors; Ratio of Earnings to Fixed
Charges
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Selling Securityholders
8. Plan of Distribution................................. Plan of Distribution
9. Description of the Securities to be Registered....... Description of Notes; Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Available Information; Incorporation of Certain
Information by Reference; Risk Factors; Selling
Securityholders.
12. Incorporation of Certain Information by Reference.... Incorporation of Certain Information by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 26, 1996
[LOGO]
$55,755,000 PRINCIPAL AMOUNT OF 7% CONVERTIBLE
SUBORDINATED NOTES DUE 2006
(INTEREST PAYABLE MARCH 1 AND SEPTEMBER 1)
3,947,256 SHARES OF COMMON STOCK
---------------------
This prospectus relates to $55,755,000 aggregate principal amount of 7%
Convertible Subordinated Notes due 2006 (the "Notes") of Richey Electronics,
Inc., a Delaware corporation ("Richey Electronics" or the "Company") and
3,947,256 shares of the common stock, par value $0.001 per share (the "Common
Stock"), of the Company which are initially issuable upon conversion of the
Notes plus such additional indeterminate number of shares of Common Stock as may
become issuable upon conversion of the Notes as a result of adjustments to the
conversion price (the "Conversion Shares"). The Notes and the Conversion Shares
that are being registered hereby are to be offered (the "Offering") for the
account of the holders thereof (the "Selling Securityholders"). The Notes were
acquired from the Company by Jefferies & Company, Inc. and Cruttenden Roth
Incorporated (the "Initial Purchasers") in February and March 1996 in connection
with a private offering. See "Description of Notes."
The Notes are convertible into Common Stock of the Company, at the holder's
option, at any time after 60 days following March 22, 1996 (the latest date of
original issuance thereof) and prior to maturity, unless previously redeemed, at
a conversion price of $14.125 per share, subject to adjustment in certain
events. On April 18, 1996, the last bid price of the Common Stock on the Nasdaq
Stock Market ("Nasdaq") was $10.875 per share. The Common Stock is traded under
the symbol RCHY.
The Notes will bear interest at the rate of 7% per annum, payable
semi-annually on each March 1 and September 1 of each year, commencing September
1, 1996. The Notes are redeemable at the option of the Company, in whole or in
part, at the redemption prices set forth in this prospectus, together with
accrued interest, except that no redemption may be made prior to March 4, 1999.
Upon a Designated Event (as defined herein), each holder of Notes shall have the
right, at the holder's option, to require the Company to repurchase such
holder's Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the Repurchase Date, if any. See
"Description of Notes -- Repurchase at Option of Holder Upon Change in Control
or Termination of Trading."
The Notes are unsecured obligations of the Company and are subordinated to
all present and future Senior Indebtedness of the Company. The Indenture does
not restrict the incurrence of any other indebtedness or liabilities by the
Company. See "Description of Notes -- Subordination of Notes."
The Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market.
The Initial Purchasers have advised the Company that they are making and
currently intend to continue making a market in the Notes. The Initial
Purchasers, however, are not obligated to do so and any such market making may
be discontinued at any time without notice, in the sole discretion of the
Initial Purchasers. No assurance can be given that any market for the Notes will
develop or be maintained.
The Notes and the Conversion Shares are being registered to permit public
secondary trading of the Notes and, upon conversion, the Conversion Shares, by
the holders thereof from time to time after the date of this prospectus. The
Company has agreed, among other things, to bear substantially all expenses
(other than underwriter's discount or commission) in connection with the
registration and sale of the Notes and the Conversion Shares.
The Company will not receive any of the proceeds from the sales of the Notes
or the Conversion Shares by the Selling Securityholders. The Notes and the
Conversion Shares may be offered in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices. In
addition, the Conversion Shares may be offered from time to time through
ordinary brokerage transactions on Nasdaq. See "Plan of Distribution." The
Selling Securityholders may be deemed to be "Underwriters" as defined in the
Securities Act of 1933, as amended (the "Securities Act"). If any broker-dealers
are used by the Selling Securityholders, any commissions paid to broker-dealers
and, if broker-dealers purchase any Notes or Conversion Shares as principals,
any profits received by such broker-dealers on the resale of the Notes or
Conversion Shares, may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Securityholders may be deemed to be underwriting commissions.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS APRIL , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (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 Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor,
New York, New York 10048; and, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may also be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
quoted on Nasdaq and material filed by the Company can be inspected at the
offices of The Nasdaq Stock Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
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 Notes and the
Conversion Shares offered hereby. This prospectus does not contain all of the
information set forth or incorporated by reference in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of
documents filed as exhibits to the Registration Statement are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement and the exhibits may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. The Company's Current Report on Form 8-K/A dated January 31, 1996;
3. The Company's Current Reports on Form 8-K dated February 27, 1996 and
April 1, 1996;
4. The description of the Common Stock of the Company contained in its
Registration Statement on Form 8-A/A dated January 11, 1996.
This prospectus is accompanied by the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, a copy of which is attached as
Exhibit A.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this prospectus and prior to
the termination of this Offering shall be deemed to be incorporated by reference
into this prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
The Company will provide, without charge, to each person to whom this
prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents described above, other than the exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the documents so incorporated. Requests for such copies should be directed to
Richard N. Berger, Secretary, Richey Electronics, Inc., 7441 Lincoln Way, Garden
Grove, California 92641, telephone number (714) 898-8288.
2
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THE COMPANY
Richey Electronics is a leading multi-regional, specialty distributor of
interconnect, electromechanical and passive electronic components and a provider
of value-added assembly services. The Company has been built through a series of
transactions beginning in December 1990 with RicheyImpact Electronics, Inc.'s
("RicheyImpact") acquisition of the operations of Richey/Impact Electronics,
Inc. ("Old Richey") and recently through the acquisitions of Deanco, Inc.
("Deanco") and its parent holding company, Electrical Distribution Acquisition
Company ("EDAC") in December 1995 (the "Deanco Acquisition") and the acquisition
of the business and assets of MS Electronics, Inc. in March 1996 (the "MS
Electronics Acquisition"). Since the initial acquisition, the Company's growth
has been directed by one of the most experienced management teams in its
industry.
The Company distributes a broad line of connectors, switches, wire, cable
and heat shrinkable tubing and other interconnect, electromechanical and passive
electronic components used in the assembly and manufacturing of electronic
equipment. In 1995, Richey Electronics and Deanco distributed electronic
components for more than 120 component manufacturers. 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 original equipment
manufacturers ("OEMs") that produce electronic equipment used in a wide variety
of industries, including the telecommunications, computer, medical,
transportation and aerospace industries.
The Company completed the Deanco Acquisition on December 20, 1995. Deanco is
a multi-regional, specialty distributor of electronic components and a provider
of value-added assembly services with operations primarily serving markets in
the northeast and on the west coast. Deanco's product offering is similar to
that of Richey Electronics, providing a variety of interconnect,
electromechanical and passive products primarily to small- and medium-sized
OEMs. The Deanco Acquisition provides the Company with certain product lines
that it did not previously carry, including heat shrinkable tubing supplied by
Raychem, and significantly enhances the Company's position in the passive
components market.
On March 19, 1996, the Company completed the acquisition of the assets and
business of MS Electronics, Inc. ("MS Electronics"). MS Electronics, which is
privately held, had sales of approximately $11.0 million in 1995. MS Electronics
specializes in the value-added distribution of interconnect, electromechanical
and passive electronic components in the Baltimore/Washington marketplace. The
addition of MS Electronics adds new customers, complementary product lines and a
strong sales organization, which management expects to integrate into the
Company.
The Company's principal executive offices are located at 7441 Lincoln Way,
Garden Grove, California 92641, and its telephone number is (714) 898-8288.
3
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW,
AS WELL AS THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS,
BEFORE MAKING A DECISION TO PURCHASE THE NOTES OR THE CONVERSION SHARES OFFERED
HEREBY.
RISKS OF DEANCO INTEGRATION
Due primarily to the relative size of Deanco, the integration of Deanco's
operations, product lines and personnel will place significant demands on the
Company's management and financial resources. The acquisition of Deanco will
almost double the sales of the Company and position the Company to operate in
markets and states which it has not previously served. As part of the Deanco
Acquisition, the Company will need to assimilate a large number of employees,
product lines and customers into the Company's operations, consolidate
facilities and reduce or reassign a significant portion of Deanco's general and
administrative staff in order to achieve operational efficiencies. The
integration of Deanco into the Company will require the dedication of
substantial management resources which may detract attention from the day-to-day
business of the Company and may result in increased administrative expenses.
Prior to the Deanco Acquisition, Deanco's management had operated Deanco's
eastern U.S. operations and western U.S. operations as separate divisions, each
having a different product and customer focus, which may complicate the
Company's efforts to integrate the product lines, sales forces and customer
bases of Deanco. There can be no assurance that the operations, products,
customers and personnel of Deanco and the Company can be integrated or
assimilated successfully, that there will be any operating efficiencies between
the businesses or that the combined businesses can be operated profitably.
There can also be no assurance that the Company will not encounter
unanticipated problems or liabilities with Deanco's operations, personnel,
customers or product lines which were not discovered in connection with the
Company's investigation prior to the acquisition. Unexpected delays in
integration may arise and any such delays could limit the Company's ability to
realize anticipated cost savings and require the commitment of additional
management resources. As a result, such delays could negatively impact
subsequent quarterly earnings. The failure to integrate and operate Deanco
successfully could have a material adverse effect on the Company's business and
results of operations.
The Company and Deanco currently distribute a number of competing product
lines and there can be no assurance that the Company will be able to retain
relationships with suppliers of these competing lines. Moreover, Deanco's or the
Company's current suppliers and customers may reevaluate and possibly
discontinue relationships with the Company as a result of the Deanco Acquisition
and if so, such action could have a material adverse effect on the Company's
business and results of operations.
Management has estimated that cost savings and improvements in earnings
before interest, income taxes, depreciation and amortization can be achieved as
a result of the integration of Deanco. Management's estimates, necessarily
involve numerous assumptions as to future sales levels and other operating
results as well as general industry and business conditions and other matters,
many of which are beyond the control of the Company, and reflect cost savings
from actions that have not yet been implemented. The actual operating
improvements realized by the Company may vary considerably from management
estimates and may be offset by unforeseen costs and expenses.
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 many 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. Furthermore, as a result of the Deanco Acquisition, some
4
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of the Company's and Deanco's suppliers have reevaluated and terminated, or
indicated that they may terminate, their relationship with the Company. There
can be no assurance that additional suppliers will not similarly reevaluate and
terminate their relationship with the Company. For the year ended December 31,
1995, the Company's five largest suppliers (excluding Deanco suppliers)
accounted for approximately 39% of net sales, and there can be no assurance that
the loss of any one of its larger suppliers, or any substantial amount of their
business, would not have a material adverse effect on the Company. Pro forma for
the Deanco Acquisition, for the year ended December 31, 1995, the Company's five
largest suppliers accounted for approximately 42% of net sales. 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. As
a result of the Deanco Acquisition, the Company's largest supplier is now
Raychem, which accounted for approximately 35% of Deanco's net sales in 1995.
Pro forma for the Deanco Acquisition, Raychem would have accounted for
approximately 17% of the Company's net sales in 1995. The loss of Raychem or any
one of the Company's other large suppliers could have a material adverse effect
on the Company.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate from period to period due
to the effect of the Deanco Acquisition and 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. There can be no assurances that
the recent Deanco Acquisition, the MS Electronics Acquisitions and the
acquisition of Inland Empire Interconnects in August 1995 (the "IEI
Acquisition") or any future acquisitions will produce expected increases in the
Company's sales and earnings and that such acquisitions will not have an adverse
impact on the Company's business and results of operations.
UNCERTAINTY OF FUTURE ACQUISITIONS
The Company may make acquisitions in the future and regularly evaluates
potential acquisition opportunities. Acquisitions entail numerous risks,
including difficulties and expenses associated with the negotiating process,
increased leverage of the Company resulting from the acquisition, difficulties
in the assimilation of acquired operations, personnel and product lines,
diversion of management's attention and potential loss of key employees of
acquired companies. The Company's acquisition strategy depends on its ability to
identify and acquire compatible electronics distributors, and integrate the
acquired operations effectively and efficiently. There can be no assurance that
the Company will be able to locate appropriate acquisition candidates or that
identified candidates will be acquired or integrated in a timely and efficient
manner. No assurance can be given as to the Company's ability to integrate
successfully any operations, personnel or products that might be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's business and results of operations. Moreover, unexpected
problems or delays encountered in connection with any acquisition or integration
could have a material adverse effect on the Company. The Company may incur
additional indebtedness in connection with future acquisitions which may result
in increased leverage.
INCREASED LEVERAGE
As of April 18, 1996, the Company had outstanding indebtedness of
approximately $70.0 million. The Company maintains a secured revolving line of
credit facility with aggregate credit limits (subject to the Company's
satisfying certain conditions to borrowing thereunder) of approximately $45
million. As of April 18, 1996, approximately $11 million was outstanding under
this facility and $28 million was available for borrowing. Substantially all of
the Company's assets have been pledged to secure the Company's credit
facilities. This substantial leverage will have several important consequences
for the Company's future operations, including the following: (i) a substantial
portion of the Company's cash flow from operations will be dedicated to the
payment of interest on, and principal of, its indebtedness; (ii) the covenants
contained in the credit facilities impose certain restrictions on the Company
that, among other things, will limit its ability to borrow additional funds or
to dispose of
5
<PAGE>
assets; (iii) the Company's ability to obtain additional financing in the future
for capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; and (iv) the Company's ability to withstand
competitive pressures, adverse economic conditions and adverse changes in
governmental regulations and to make acquisitions or otherwise take advantage of
significant business opportunities that may arise may be negatively impacted.
The Company's ability to meet its debt service obligations and to reduce its
total indebtedness will be dependent upon the Company's future performance,
which will be subject to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control. If the Company
is unable to generate sufficient cash flow from operations in the future to
service its debt, it may be required to refinance all or a portion of such debt,
including the Notes, or to obtain additional financing. However, there can be no
assurance that any refinancing would be possible or that any additional
financing could be obtained.
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 OEMs. The Company competes
with large national distributors, 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, greater financial
and personnel resources and larger investments in technology and infrastructure
than the Company. If such competitors were to focus their attention and
resources on the Company's markets, several important consequences to the
Company's future operations could result, including a reduction in the pool of
potential acquisition candidates, outbidding of the Company in a contested
acquisition transaction and loss of customers and suppliers. Moreover, the
electronics distribution industry is increasing its efficiency and operating
leverage in response to the industry's rapid consolidation and technological
advances. These trends are intensifying competition and as a result, many
distributors have reported a decline in their gross margins. If demand
decreases, pressure on gross margins is likely to increase. Although the Company
believes that most of the 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 OEMs. Existing and future competition could result in downward
pressure on the Company's gross margins or could otherwise have a material
adverse effect on the Company.
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.
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.
LIMITATIONS ON AVAILABILITY OF THE COMPANY'S NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had United States federal income tax
net operating loss carryforwards ("NOLs") of approximately $19.6 million and
state tax NOLs of approximately
6
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$1.3 million, primarily California, most of which expire between 1998 and 2009.
The NOLs resulted from Brajdas Corporation's ("Brajdas") losses prior to the
Richey-Brajdas Merger (as defined herein). 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"). As a result of
the Company's secondary public offering of Common Stock in April 1995, pursuant
to which the Company and certain shareholders of the Company sold 3,615,000
shares of the Company's Common Stock, the use of such NOLs will be limited to
approximately $3.0 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 could be a material adverse effect on the Company's cash
flow. See Note 8 of Notes to Financial Statements which are included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, a copy of which accompanies this prospectus.
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."
VOLATILITY OF PRICE OF STOCK AND NOTES
The trading price of the Company's Common Stock and the Notes could be
subject to fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management,
future announcements concerning the Company, general trends in the industry and
other events or factors. In addition, the volatility of the prices of the
Company's Common Stock, changes in prevailing interest rates and changes in
perceptions of the Company's creditworthiness may adversely affect the price of
the Notes offered hereby.
SUBORDINATION OF NOTES
The Notes are subordinate in right of payment to all existing and future
Senior Indebtedness of the Company. Senior Indebtedness includes all secured
indebtedness of the Company, whether existing on or created or incurred after
the date of the issuance of the Notes, that is not made subordinate to or pari
passu with the Notes by the instrument creating the indebtedness. As of April
18, 1996, the Company had approximately $11 million of Senior Indebtedness
outstanding, substantially all of which represents borrowings under its $45
million revolving credit facility. The Indenture (as defined herein) does not
limit the amount of additional indebtedness, including Senior Indebtedness,
which the Company can create, incur, assume or guarantee. By reason of such
subordination of the Notes, in the event of the insolvency, receivership,
liquidation, reorganization, dissolution or winding up of the business of the
Company or upon a default in payment with respect to any Senior Indebtedness of
the Company or an event of default with respect to such indebtedness resulting
in the acceleration thereof, the assets of the Company will be available to pay
the amounts due on the Notes only after all of the Senior Indebtedness of the
Company has been paid in full.
The Notes are obligations exclusively of the Company and not of any
subsidiary. The operations of Deanco were acquired through the acquisition of
the stock of its parent holding company and Deanco continues to operate as a
wholly-owned subsidiary of the Company. The Company has not historically
conducted operations through subsidiaries, and currently is in the process of
merging Deanco into the Company. However, no assurances can be given as to the
timing of any such merger or as to whether
7
<PAGE>
the Company will in the future conduct significant operations through
subsidiaries. Unless and until Deanco is merged into the Company, the Notes will
be effectively subordinated to all indebtedness and other liabilities (including
trade payables and lease payables) of Deanco, and if the Company begins to
conduct business through subsidiaries, the Notes will be effectively
subordinated to all such indebtedness and other liabilities and commitments of
such subsidiaries. See "Description of Notes -- Subordination of Notes."
LIMITATIONS ON REPURCHASE UPON A DESIGNATED EVENT
In the event of a Designated Event, which includes a Change in Control and a
Termination of Trading (each as defined herein), each holder of Notes will have
the right, at the holder's option, to require the Company to repurchase all or a
portion of such holder's Notes at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the Repurchase Date
(as defined herein). The Company's ability to repurchase the Notes upon a
Designated Event may be limited by the terms of the Company's Senior
Indebtedness and the subordination provisions of the Indenture. In addition, the
revolving credit facility allows the lender to terminate the commitments on 30
days' notice if there is a change in control of the Company (as defined in the
revolving credit facility). Further, the ability of the Company to repurchase
the Notes upon a Designated Event will be dependent on the availability of
sufficient funds and compliance with applicable securities laws. Accordingly,
there can be no assurance that the Company will be able to repurchase the Notes
upon a Designated Event. The term "Designated Event" is limited to certain
specified transactions and may not include other events that might adversely
affect the financial condition of the Company or result in a downgrade of the
credit rating of the Notes, nor would the requirement that the Company offer to
repurchase the Notes upon a Designated Event necessarily afford holders of the
Notes protection in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving the Company. See "Description of Notes."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
Although the Notes have been approved for trading in the PORTAL market,
there can be no assurance that any market for the Notes will develop, or if one
does develop, that it will be maintained. If an active market for the Notes
fails to develop or be sustained, the trading price of such Notes could be
adversely affected.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that its existing capital resources and credit
facilities will be adequate to satisfy its capital requirements for at least the
next twelve months. The Company's future capital requirements will depend,
however, on many factors, including, but not limited to, the size and timing of
future acquisitions, if any, and the availability of additional financing. To
the extent that existing resources and future earnings are insufficient to fund
the Company's activities, the Company may need to raise additional funds through
debt or equity financings. No assurance can be given that such additional
financing will be available or that, if available, it can be obtained on terms
favorable to the Company and its stockholders. In addition, any equity financing
could result in dilution to the Company's stockholders. The unavailability of
adequate funds could adversely affect the Company's future operations.
SHARES ELIGIBLE FOR FUTURE SALES
Sale of a substantial number of shares of the Company's Common Stock in the
public market could adversely affect the market price of the Common Stock.
Certain persons have, or will have, the right to sell a substantial number of
shares publicly, subject to agreements with the Initial Purchasers not to sell
shares for a period of 90 days commencing February 21, 1996. After this period,
substantially all shares of Common Stock will be eligible for sale subject, in
certain instances, to the resale limitations of Rule 144 promulgated under the
Securities Act.
8
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Notes or the
Conversion Shares by the Selling Securityholders. See "Selling Securityholders"
for a list of those persons and entities receiving the proceeds from the sales
of the Notes or the Conversion Shares.
RATIO OF EARNINGS TO FIXED CHARGES
For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes, plus fixed charges and (ii)
fixed charges consist of interest expense incurred, amortization of deferred
debt costs, plus the portion of rental expense under operating leases deemed by
the Company to be representative of the interest factor.
The Company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
YEARS ENDED (1)
- ------------------------------------------------------------------------------------
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994 1995
- -------------- -------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
2.5x 2.1x 1.7x 2.5x 4.3x
</TABLE>
- ------------------------
(1) On December 20, 1995, the Company completed the Deanco Acquisition. On
August 16, 1995, the Company completed the IEI Acquisition. 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"). On
April 6, 1993, RicheyImpact Electronics, Inc. ("RicheyImpact") completed a
merger with Brajdas through the issuance of 3,114,286 shares of Common Stock
(the "Richey-Brajdas Merger"). After the Richey-Brajdas Merger, management
of RicheyImpact assumed control of the combined company, which changed its
name to Richey Electronics, Inc. In December 1990, RicheyImpact acquired the
operations of Richey/Impact Electronics Inc. ("Old Richey") from Lex Service
Inc. ("Lex"). The financial data used to calculate the ratio of earnings to
fixed charges exclude the results of operations of Brajdas prior to the
Richey-Brajdas Merger in April 1993, of In-Stock prior to the In-Stock
Acquisition in April 1994, of IEI prior to the IEI Acquisition in August
1995 and of Deanco prior to the Deanco Acquisition in December 1995.
DESCRIPTION OF NOTES
The Notes were issued under an Indenture, dated as of February 15, 1996 (the
"Indenture"), between the Company and First Trust of California, National
Association, as Trustee (the "Trustee"). The Notes and the Conversion Shares are
being registered pursuant to the Registration Rights Agreement dated February
26, 1996 among the Company and the Initial Purchasers (the "Registration Rights
Agreement"). The following summaries of certain provisions of the Indenture and
the Registration Rights Agreement do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Indenture and the Registration Rights Agreement including the definitions
therein of certain terms which are not otherwise defined in this prospectus.
GENERAL
The Notes are in aggregate principal amount of $55,755,000. The Notes mature
on March 1, 2006 unless earlier redeemed at the option of the Company or
repurchased by the Company at the option of the holder upon a Designated Event.
The Notes are unsecured obligations of the Company subordinate in right of
payment to certain other obligations of the Company as described under
"Subordination of Notes" and convertible into Common Stock as described under
"Conversion of Notes."
The Notes bear interest from the most recent date to which interest has been
paid, or if no interest has been paid, from February 26, 1996, at the rate of 7%
per annum computed on the basis of a 360-day year of twelve 30-day months.
Interest will be payable semi-annually on March 1 and
9
<PAGE>
September 1 of each year (each an "Interest Payment Date"), commencing on
September 1, 1996, to the person in whose name the Notes are registered at the
close of business on the preceding February 15 or August 15, respectively (in
each case, a "Record Date," and the holder of such Note on a Record Date, the
"Record Holder"). With respect to a Note or portion thereof that is called for
redemption, or that is repurchased in connection with a Designated Event, in
either case during the period from a Record Date to (but excluding) the next
succeeding Interest Payment Date, interest shall be paid to the Record Holder in
an amount equal to the accrued interest as of the date immediately preceding the
date fixed for redemption or repurchase. Principal of and premium, if any, and
interest on the Notes will be payable, and the Notes may be surrendered for
conversion and registration of transfer, at the office or agency of the Company
in New York City (which initially will be the agency of the Trustee at 100 Wall
Street, 20th floor, New York, New York 10005, Attention: Bond Holder Window). In
addition, payment of interest may, at the option of the Company, be made by
check mailed to the address of the Person entitled thereto as it appears in the
Security Register.
The Indenture does not contain any financial covenants, and does not limit
or contain any restriction on (i) the payment of dividends, (ii) the Company's
ability to incur Senior Indebtedness or other indebtedness or (iii) the
repurchase of securities of the Company. The Indenture contains no covenants or
other provisions to afford protection to holders of Notes in the event of a
highly leveraged transaction or a Change in Control of the Company except to the
extent described under "--Repurchase at Option of Holder Upon Change in Control
or Termination of Trading."
The Indenture and the Notes are governed by and construed under the laws of
the State of New York.
CONVERSION OF NOTES
The holder of any Note will have the right, at the holder's option, to
convert such Note, or any portion thereof which is an integral multiple of
$1,000, into shares of Common Stock of the Company at any time after the date 60
days following March 22, 1996 (the latest date of original issuance of the
Notes) and prior to the close of business on the maturity date (unless earlier
redeemed or repurchased), initially at the conversion price of $14.125 per share
(which is equivalent to a conversion rate of 70.7965 shares per $1,000 principal
amount of Notes), subject to adjustment as described below. The right to convert
Notes called for redemption will terminate at the close of business on the
second trading day prior to the redemption date (unless the Company defaults in
payment of the redemption price). A Note for which a holder has delivered a
notice to require the Company to repurchase such Note upon a Change in Control
may be converted only if such notice is properly withdrawn by such holder prior
to the close of business on the Repurchase Date (as defined herein) in
accordance with the terms of the Indenture.
The conversion price will be subject to adjustment in certain events,
including:
(i) dividends (and other distributions) payable in Common Stock on
shares of any class of capital stock of the Company;
(ii) subdivisions, combinations and reclassifications of Common Stock;
(iii) the issuance to all holders of Common Stock of rights, options or
warrants entitling the holder thereof to subscribe for or purchase Common
Stock at less than the then current market price (as defined in the
Indenture);
(iv) distributions to all holders of Common Stock of evidences of
indebtedness of the Company, cash or other assets, including shares of its
capital stock (other than Common Stock) and other securities, but excluding
(A) those rights, options, warrants, dividends and distributions referred to
in clauses (i) and (iii) above and subdivisions of shares referred to in
clause (ii) above and (B) dividends and distributions paid exclusively in
cash in an aggregate amount that (combined together with (x) all other such
all-cash dividends and distributions made within the preceding 12 months in
respect of which no adjustment has been made and (y) the excess of
10
<PAGE>
(1) any consideration paid in respect of repurchases by the Company or any
of its subsidiaries of Common Stock referred to in clause (v) concluded
within the preceding 12 months in respect of which no adjustment has been
made over (2) the then current market price of the Common Stock does not
exceed 10% of the Company's market capitalization (being the product of the
then current market price of the Common Stock times the number of shares of
Common Stock then outstanding) on the record date for such distribution; and
(v) certain repurchases by the Company and its subsidiaries of Common
Stock (including repurchases in connection with a tender offer) in which the
repurchase price exceeds both the then current conversion price of the Notes
and the then current market price of the Common Stock, but excluding
repurchases in which the excess of the consideration paid over the current
market price of the Common Stock (together with the amount of any such
excess with respect to any other such repurchases, and the amount of any
all-cash dividends, in each case concluded or paid within the preceding 12
months and in respect of which no adjustment has been made) do not exceed
10% of the Company's market capitalization.
In addition to the foregoing adjustments, the Company will be permitted to
make such reductions in the conversion price as it considers to be advisable in
order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the recipients. No adjustment in
the conversion price will be required unless such adjustment would require a
change of at least 1% of the price then in effect; provided, however, that any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment.
The right of conversion may be exercised by the holder by delivering the
Notes to the office or agency of the Company maintained for such purpose in the
City of New York, accompanied by a duly signed and completed notice of
conversion. The conversion date will be the date on which the Note and the duly
signed and completed notice of conversion are so delivered. As promptly as
practicable on or after the conversion date, the Company will issue and deliver
a certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share.
Notes surrendered for conversion after any Record Date and prior to the next
succeeding Interest Payment Date (except Notes called for redemption on a
redemption date that is prior to the date two trading days after such Interest
Payment Date) must be accompanied by payment of an amount equal to the interest
thereon which the Record Holder thereof on such Record Date is to receive on
such Interest Payment Date. A Note surrendered for conversion on an Interest
Payment Date need not be accompanied by any such payment. In the case of any
Note which has been converted after any Record Date and on or before the next
Interest Payment Date, interest shall be paid on such Interest Payment Date to
the Record Holder of such Note on such Record Date. As a result, holders that
surrender Notes for conversion on a date that is not an Interest Payment Date
will not receive a net payment of interest for the period from the Interest
Payment Date next preceding the date of conversion to the date of conversion or
for any later period, even if the Notes are surrendered after a notice of
redemption (except for the payment of interest on Notes called for redemption on
a redemption date that is after a Record Date and is prior to the date two
trading days after the next Interest Payment Date). Subject to the aforesaid
right of the Record Holder on any Record Date to receive an installment of
interest, no payment or adjustment will be made on conversion for interest
accrued on the converted Note or for dividends on the Common Stock issued on
conversion. No fractional shares of Common Stock will be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon the
market price of the Common Stock on the trading day prior to the date of
conversion, as provided in the Indenture.
In case of any consolidation or merger of the Company with or into any other
corporation, or in the case of any consolidation or merger of another
corporation into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of shares of Common
Stock), or any sale or transfer of all or substantially all of the assets of the
Company, each Note
11
<PAGE>
shall become convertible only into the kind and amount of securities, cash or
other property which the holder of such Note would have been entitled to receive
upon such consolidation, merger, sale or transfer if such holder had held the
Common Stock issuable upon the conversion of such Note immediately prior to such
consolidation, merger, sale or transfer (assuming that such holder failed to
exercise any rights of election and that such Note was then convertible).
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (E.G., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends on Common Stock or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which Notes are
convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to holders of Notes.
SUBORDINATION OF NOTES
The payment of the principal of and premium, if any, and interest on the
Notes (including the payment of the redemption price or repurchase price with
respect to the Notes) will be subordinated in right of payment to the extent set
forth in the Indenture to the prior payment in full of the principal of, and
premium, if any, and interest on all existing and future Senior Indebtedness of
the Company. The Indenture does not limit the amount of Senior Indebtedness that
may be incurred by the Company or any other indebtedness or obligations that may
be incurred by the Company. The Company expects from time to time to incur
additional Senior Indebtedness and other indebtedness and obligations.
The Indenture provides that in the event, and during the continuance, of a
default in any payment of any Senior Indebtedness (including a default under any
repurchase or redemption obligation), no payment may be made by the Company on
or in respect of the Notes after written notice to the Company and the Trustee
by any holder of Senior Indebtedness. Upon the occurrence and during the
continuance of a default on any Senior Indebtedness (other than a payment event
of default) that permits the holders of such Senior Indebtedness to accelerate
its maturity, and following receipt by the Company and the Trustee of the notice
provided for by the Indenture, no payment may be made on the Notes for a period
of up to 179 days (a "Payment Blockage Period") during any consecutive 365-day
period, unless such default is cured or waived. No more than one Payment
Blockage Period may be imposed in any one 365-day period. In the event of any
payment or distribution of assets of the Company resulting from any liquidation,
dissolution, winding-up, reorganization or any insolvency or receivership
proceedings of the Company or upon an assignment for the benefit of creditors or
any other marshalling of the assets and liabilities of the Company, the holders
of all Senior Indebtedness will first be entitled to receive payment in full
before the holders of the Notes will be entitled to receive any payment. As a
result of these subordination provisions, in the event of insolvency, holders of
the Notes may recover less ratably than general creditors of the Company, and
such subordination may result in a reduction or elimination of payments to
holders of Notes.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent, fees,
expenses, indemnities and other amounts payable on or in connection with secured
Indebtedness of the Company, excluding the claims of trade creditors of the
Company, whether outstanding on the date of this Indenture or thereafter
created, incurred, assumed or guaranteed by the Company, unless in the case of
any particular Indebtedness the instrument creating or evidencing the same or
the assumption or guarantee thereof provides that such Indebtedness shall not be
senior in right of payment to the Notes or provides that such Indebtedness is
"pari passu" or subordinated to the Notes. Notwithstanding the foregoing, Senior
Indebtedness shall not include (i) any Indebtedness of the Company to any
subsidiary of the Company or (ii) any Indebtedness to the extent that it is not
secured. The term "Indebtedness" means, with respect to any Person, (a) all
obligations and other liabilities of such Person (i) for borrowed money, (ii)
evidenced by bonds, debentures, notes or similar instruments (other than amounts
owed for goods or materials purchased in the ordinary course of
12
<PAGE>
business or for services) or (iii) with respect to letters of credit, bank
guarantees or bankers' acceptances, (b) all obligations for the payment of money
in respect of leases of such Person as lessee required, in conformity with
generally accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such Person, (c) all direct or
indirect guaranties or similar agreements by such Person in respect of, and
obligations or liabilities of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in clauses
(a) and (b), (d) any indebtedness or other obligations described in clauses (a)
and (b) secured by any mortgage, pledge, lien or other encumbrance existing on
property which is owned or held by such Person, regardless of whether the
indebtedness or other obligation secured thereby shall have been assumed by such
Person and (e) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (d). As of April 18,
1996, the Company had approximately $11 million of Senior Indebtedness
outstanding, substantially all of which represents borrowings under its
Revolving Line of Credit.
The Notes are obligations exclusively of the Company and not of any
subsidiary. The operations of Deanco were acquired through the acquisition of
the stock of its parent holding company and Deanco continues to operate as a
wholly-owned subsidiary of the Company. The Company has not historically
conducted operations through subsidiaries, and currently is in the process of
merging Deanco into the Company. However, no assurances can be given as to the
timing of any such merger or as to whether the Company will in the future
conduct significant operations through subsidiaries. Unless and until Deanco is
merged into the Company, the Notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables and lease payables)
of Deanco, and if the Company begins to conduct business through subsidiaries,
the Notes will be effectively subordinated to all such indebtedness and other
liabilities and commitments of such subsidiaries. To the extent that any
significant operations of the Company are conducted through subsidiaries, the
cash flow and the consequent ability to service debt, including the Notes, of
the Company will be partially dependent upon the earnings of any such
subsidiaries and the distribution of those earnings, or upon loans or other
payments of funds by those subsidiaries, to the Company. Neither Deanco nor any
future subsidiary will have any obligation to pay any amounts due pursuant to
the Notes or to make any funds available to the Company therefor. In addition,
the payment of dividends and the making of loans and advances to the Company by
Deanco and any other such subsidiaries are and would be (i) subject to certain
statutory or contractual restrictions, (ii) dependent upon the earnings of such
subsidiaries and (iii) subject to various business considerations. The Indenture
does not limit the amount of indebtedness which any subsidiary can create,
incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of holders of Senior Indebtedness of the Company, and will be
immediately paid over or delivered to the holders of Senior Indebtedness of the
Company or their representative or representatives to the extent necessary to
make payment in full of all Senior Indebtedness of the Company remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Senior Indebtedness of the Company.
13
<PAGE>
REDEMPTION AT OPTION OF COMPANY
The Notes may not be redeemed by the Company prior to March 4, 1999.
Thereafter, the Notes may be redeemed at the option of the Company, in whole or
in part, upon not less than 20 nor more than 60 days' notice by mail. The
redemption prices (expressed as a percentage of principal amount) are as follows
for the 12-month period beginning March 1 of the following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------- -------------
<S> <C>
1999................................................. 103.5%
2000................................................. 103.0%
2001................................................. 102.5%
2002................................................. 102.0%
2003................................................. 101.5%
2004................................................. 101.0%
2005................................................. 100.5%
</TABLE>
and 100% on March 1, 2006, in each case together with accrued interest to the
date of redemption; provided that if the date fixed for redemption shall be a
date after a Record Date and on or before the related Interest Payment Date,
then the semi-annual payment of interest becoming due on the Interest Payment
Date shall be payable to the Record Holders on such Record Date.
If less than all of the Notes are to be redeemed, the Trustee will select
the particular Notes (or the portions thereof) to be redeemed either by lot or,
in its discretion, on a pro rata basis. If any Note is to be redeemed in part
only, a new Note or Notes in principal amount equal to the unredeemed principal
portion thereof will be issued. If a portion of a holder's Notes are selected
for partial redemption and such holder converts a portion of such Notes, such
converted portion shall be deemed to be taken from the portion selected for
redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDER UPON CHANGE IN CONTROL OR TERMINATION OF TRADING
Upon any Designated Event (as defined below), each holder of Notes shall
have the right (the "Repurchase Right"), at the holder's option, subject to the
terms and conditions of the Indenture, to require the Company to repurchase all
of such holder's Notes, or a portion thereof which is $1,000 or any integral
multiple thereof, on the date (the "Repurchase Date") that is 45 days after the
date of the Company Notice (as defined below) at a price equal to 101% of the
principal amount of the Notes, plus accrued and unpaid interest to the
Repurchase Date.
Within 30 days after the occurrence of a Designated Event, the Company is
obligated to mail to the Trustee and to each holder of the Notes a notice (the
"Company Notice") of the occurrence of such Designated Event, and the Repurchase
Right arising as a result thereof setting forth, among other things, the terms
and conditions of, and the procedures required for the exercise of, such
Repurchase Right. To exercise the Repurchase Right, a holder of Notes must
deliver on or before the close of business on the date five days prior to the
Repurchase Date written notice to the Company (or an agent designated by the
Company for such purpose) and the Trustee of the holder's exercise of such
Repurchase Right specifying the Notes with respect to which the right is being
exercised. Such notice of exercise may be withdrawn by the holder by a written
notice of withdrawal delivered to the Company or such agent at any time on or
before the close of business on the Repurchase Date.
"DESIGNATED EVENT" means a Change in Control or a Termination of Trading
(each as defined below).
"CHANGE IN CONTROL" means an event or series of events as a result of which
(i) any "person" or "group" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of
the combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates
14
<PAGE>
with or merges into any other corporation, or conveys, transfers or leases all
or substantially all of its assets to any person, or any other corporation
merges into the Company, and, in the case of any such transaction, the
outstanding common stock of the Company is changed or exchanged as a result,
unless the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least 51% of
the combined voting power of the outstanding voting securities of the
corporation resulting from such transaction in substantially the same proportion
as their ownership of the Voting Stock immediately before such transaction, or
(iii) at any time Continuing Directors (as defined below) do not constitute a
majority of the Board of Directors of the Company (or, if applicable, a
successor corporation to the Company); provided that a Change in Control shall
not be deemed to have occurred if either (x) the last sale price of the Common
Stock for any five trading days during the ten trading days immediately
preceding the Change in Control is at least equal to 105% of the conversion
price in effect on such five trading days or (y) both (i) at least 90% of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change in Control consists of common stock or
securities convertible into common stock that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United States
and (ii) the last sale price of such common stock for any five trading days
during the ten trading days immediately preceding the Change in Control is at
least equal to 105% of the conversion price in effect on such five trading days.
"CONTINUING DIRECTOR" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on February 21, 1996 or (ii) who
was nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Company's Board of Directors was recommended or endorsed by at
least a majority of the directors who were Continuing Directors at the time of
such nomination or election. (Under this definition, if the current Board of
Directors of the Company were to approve a new director or directors and then
resign, no Change in Control would occur even though the current Board of
Directors would thereafter cease to be in office).
No quantitative or other established meaning has been given to the phrase
"all or substantially all" (which appears in the definition of Change in
Control) by courts which have interpreted this phrase in various contexts. In
interpreting this phrase, courts make a subjective determination as to the
portion of assets conveyed, considering such factors as the value of assets
conveyed and the proportion of an entity's income derived from the assets
conveyed. To the extent the meaning of such phrase is uncertain, uncertainty
will exist as to whether or not a Change in Control may have occurred (and,
accordingly, whether or not the holders of Notes will have the right to require
the Company to repurchase their Notes).
"TERMINATION OF TRADING" shall have occurred if the Common Stock (or other
common stock into which the Notes are then convertible) is neither listed for
trading on a United States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in the United
States.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the Repurchase Right becomes available to holders of the
Notes. The Company will comply with this rule to the extent applicable at that
time and with Rule 14e-1 and all other applicable federal and state securities
laws in connection with any such repurchase option.
The Company may not repurchase any Notes upon a Designated Event if at such
time the subordination provisions of the Indenture would prohibit the Company
from making payments of principal in respect of the Notes. Agreements relating
to the Company's Senior Indebtedness contain, and agreements relating to Senior
Indebtedness incurred by the Company in the future are likely to contain,
restrictions relating to the repurchase by the Company of the Notes pursuant to
the Repurchase Right. Such provisions, together with the subordination of the
Notes to all existing and future
15
<PAGE>
Senior Indebtedness of the Company, and the funds then available to the Company,
may limit the ability of the Company to repurchase the Notes in the event of a
Designated Event. Failure by the Company to repurchase the Notes when required
upon a Designated Event will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions. See
- -- "Subordination of Notes" and "Risk Factors -- Limitations on Repurchase Upon
a Designated Event."
The Indenture does not permit the Company's Board of Directors to waive the
Company's obligation to repurchase the Notes at the option of the holder
pursuant to the Repurchase Right in the event of a Designated Event. The
Repurchase Right, however, would not necessarily afford holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect holders of the Notes. Notwithstanding the
foregoing, the right to require the Company to repurchase the Notes pursuant to
the Repurchase Right could delay or deter a potential acquisition of the Company
regardless of whether such acquisition is supported or approved by the Board of
Directors of the Company.
If a Designated Event were to occur, there can be no assurance that the
Company would be able to obtain sufficient funds with which to repurchase all
the Notes tendered by the holders thereof.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person, or
transfer or lease its properties and assets substantially as an entirety to any
Person, unless (i) either the Company is the surviving corporation or the Person
formed by such consolidation or into which the Company is merged or the Person
to which the properties and assets of the Company are so transferred or leased
shall be a corporation organized and existing under the laws of the United
States, any State thereof or the District of Columbia and shall expressly assume
the payment of the principal of and premium, if any, and interest on the Notes
and the performance of the other covenants of the Company under the Indenture
and shall have provided for conversion rights in accordance with the Indenture,
and (ii) immediately after giving effect to such transaction, no Event of
Default, or event which, with the giving of notice or the passing of time, or
both, would become an Event of Default, shall have occurred and be continuing.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company than those
that would have been obtained on an arm's-length basis in a comparable
transaction by the Company or with an unrelated Person and (ii) prior to the
consummation of any such Affiliate Transaction the Company delivers to the
Trustee (x) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments in excess of $500,000, a
resolution of the disinterested members of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction was approved by a
majority of the disinterested members of the Board of Directors and (y) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$15 million, in addition to the requirements specified in clause (x), a written
opinion as to the fairness of such Affiliate Transaction to the Company from a
financial point of view issued by an investment banking firm of national
standing, or in the case of a transaction involving the sale, lease, transfer or
purchase of assets subject to valuation, such as real estate, a written
appraisal by a nationally recognized appraisal firm; PROVIDED, HOWEVER, that any
employment agreement or management agreement entered into by the Company in the
ordinary course of business and consistent with the past practice of the Company
that is approved by the Board of Directors of the Company (including a majority
of the disinterested members in the case of an agreement with a person who is a
member of the Board of Directors) shall not be deemed to be an Affiliate
Transaction.
16
<PAGE>
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made, and certain
defaults by the Company may be waived, with the consent of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
Outstanding. However, no such modification or amendment may, without the consent
of the holder of each Outstanding Note affected thereby, (i) change the stated
maturity date of the principal of, or any installment of interest on, any Note,
(ii) reduce the principal amount of, or the rate of interest on, or any premium
payable on, any Note, whether upon acceleration, redemption or otherwise, (iii)
change the place or currency for payment of principal of, or premium or interest
on, any Note, (iv) impair the right to institute suit for the enforcement of any
such payment when due, (v) adversely affect the right provided in the Indenture
to convert any Note, (vi) modify the provisions of the Indenture with respect to
the subordination of the Notes in a manner adverse to the holders, (vii) modify
the provisions relating to the Repurchase Right of the holders in a manner
adverse to the holders, (viii) reduce the percentage of principal amount of
Outstanding Notes necessary to modify or amend the Indenture or to consent to
any waiver provided for in the Indenture, or (ix) modify the obligation of the
Company to deliver information required under Rule 144A to permit resales of
Notes and Common Stock issuable upon conversion thereof in the event the Company
ceases to be subject to certain reporting requirements under the United States
securities laws. Without the consent of or notice to any holder of the Notes,
the Company and the Trustee may amend or supplement the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of the Company under the Indenture if
in compliance with the Indenture, to make any change that does not adversely
affect the rights of any holder of the Notes or to comply with any requirement
of the Commission in connection with the qualification of the Indenture under
the Trust Indenture Act.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (i) default in the
payment of any interest on any Note when due, continuing for 30 days, whether or
not such payment is prohibited by the subordination provisions of the Indenture,
(ii) default in the payment of principal or premium, if any, or in the payment
of any redemption obligation, when due, whether or not such payment is
prohibited by the subordination provisions of the Indenture, (iii) failure to
perform any other covenant of the Company under the Indenture, continuing for 60
days after written notice as provided in the Indenture, (iv) default (after
giving effect to any applicable grace periods or waivers or any extension of any
maturity date) under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness by the
Company (or the payment of which is guaranteed by the Company) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture if (a) either (1) such default results from the failure to pay
principal of, or interest on, such Indebtedness or (2) as a result of such
default the maturity of such Indebtedness has been accelerated, and (b) the
principal amount of such Indebtedness, together with the principal amount of any
other such Indebtedness with respect to which such a payment default (after the
expiration of any applicable grace period or any extension of the maturity date)
has occurred, or the maturity of which has been so accelerated, exceeds $2.5
million in the aggregate at any one time; (v) failure by the Company to pay
final judgments in excess of $1.0 million which judgments are not stayed within
60 days after their entry, and (vi) certain events of bankruptcy, insolvency or
reorganization.
If an Event of Default shall occur and be continuing, the Trustee or the
holders of not less than 25% in principal amount of the Outstanding Notes may
accelerate the maturity of all Notes. Under certain circumstances, however, such
declarations may be annulled and past defaults (other than certain payment
defaults) may be waived by the holders of a majority in principal amount of the
Outstanding Notes. If an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization were to occur, all unpaid principal of
and accrued interest on the Outstanding Notes will become due and payable
immediately without any declaration or other act on the part of the Trustee or
any holders of Notes.
17
<PAGE>
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of Notes notice of all
uncured defaults known to it, but the Trustee shall be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the best interest of such registered holders, except in the case of a
default in the payment of the principal of, or premium, if any, or interest on,
any of the Notes when due or in the payment of any redemption obligation.
The holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the holders of all Notes waive any past
defaults, except a default in payment of the principal of, or premium, if any,
or interest on, any Note when due or in respect of certain provisions of the
Indenture which cannot be modified or amended without the consent of the holder
of each Outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually a statement of
certain officers of the Company stating whether or not to the best of their
knowledge the Company is in default in the performance and observance of certain
terms of the Indenture and, if they have knowledge that the Company is in
default, specifying such default.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement between the Company and the
Initial Purchasers, the Company has filed with the Commission a registration
statement on Form S-2 (the "Shelf Registration Statement"), of which this
prospectus is a part, to cover resales by holders of the Notes and the sale of
the Conversion Shares (together, the "Securities"). The Company will use its
best efforts to cause such registration statement to become effective as
promptly as is practicable and to keep the registration statement effective for
three years after March 22, 1996 (the latest date of original issuance of any of
the Notes). The Company will be permitted, upon notice (a "Suspension Notice")
to each record holder of Securities (and to certain other owners of Securities
of which the Company has actual knowledge as provided in the Registration Rights
Agreement), to suspend the use of this prospectus (which is a part of the Shelf
Registration Statement) in connection with sales of Securities by holders during
certain periods of time (each a "Suspension Period") under certain circumstances
relating to pending corporate developments and public filings with the
Commission and similar events. The Registration Rights Agreement provides that
if (i) the Shelf Registration Statement is not filed with the Commission on or
prior to 60 days after February 26, 1996, (ii) the Shelf Registration Statement
has not been declared effective by the Commission within 120 days after February
26, 1996, (iii) the Shelf Registration Statement is filed and declared effective
but shall thereafter cease to be effective (without being succeeded immediately
by an additional Shelf Registration Statement filed and declared effective) for
more than 30 days, (iv) the Company shall have delivered a Suspension Notice to
holders of Securities suspending the use of the prospectus, and the related
Suspension Period shall have continued for over 30 days after any such holder
has delivered a notice to the Company representing that it has a good faith
present intention to sell Securities under the Shelf Registration Statement, or
(v) there shall be more than an aggregate of 60 days in any twelve consecutive
months in which one or more Suspension Periods shall be continuing following
such notice from any holder or holders of their intention to sell Securities
(each such event referred to in clauses (i) through (v), a "Registration
Default"), the Company will pay liquidated damages to each holder of Securities,
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes and, if applicable, $0.01 per week per share (subject to
adjustment in the event of stock splits, stock recombinations, stock dividends
and the like) of Common Stock issued upon conversion of the Notes held by such
holder. The amount of the liquidated damages will increase by an additional
$0.05 per week per $1,000 principal amount of Notes or $0.01 per week per share
(subject to adjustment as set forth above) of Common Stock upon conversion of
the Notes for each subsequent 90-day period until the applicable Registration
Statement is filed and the applicable Registration Statement is declared
effective, or the Shelf Registration Statement again becomes effective, as the
case may be, up to a maximum amount of liquidated damages of $0.25 per week per
$1,000 principal amount of Notes or
18
<PAGE>
$0.05 per week per share (subject to adjustment as set forth above) of Common
Stock. Following the cure of a Registration Default, liquidated damages will
cease to accrue with respect to such Registration Default. The Company will
provide to each registered holder copies of this prospectus, notify each
registered holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of the
Securities. A holder who sells the Securities pursuant to the Shelf Registration
Statement generally will be required to be named as a Selling Securityholder in
the related prospectus and to deliver a prospectus to purchasers and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification provisions).
The specific provisions relating to the registrations described above are
contained in the Registration Rights Agreement.
FORM AND REGISTRATION
GLOBAL NOTE; BOOK ENTRY FORM
Notes held by "qualified institutional buyers," as defined in Rule 144A
under the Securities Act ("Qualified Institutional Buyers" or "QIBs") or by a
person who is not a U.S. person who acquired such Note in an "offshore
transaction" in reliance on Regulation S under the Securities Act (a "Non-U.S.
Person"), but not by other purchasers, are evidenced by a global note (the
"Global Note") which has been deposited with, or on behalf of, The Depository
Trust Company, New York, New York ("DTC") and registered in the name of Cede &
Co. ("Cede") as DTC's nominee. Except as set forth below, the record ownership
of the Global Note may be transferred, in whole or in part, only to another
nominee of DTC or to a successor of DTC or its nominee.
A Qualified Institutional Buyer or Non-U.S. Person may hold its interest in
the Global Note directly through DTC if such Qualified Institutional Buyer is a
participant in DTC, or indirectly through organizations which are participants
in DTC (the "Participants"). Transfers between Participants will be effected in
the ordinary way in accordance with DTC rules and will be settled in clearing
house funds. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
beneficial interests in the Global Note to such persons may be limited.
Qualified Institutional Buyers and Non-U.S. Persons who are not Participants
may beneficially own interests in the Global Note held by DTC only through
Participants or certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). So long as
Cede, as the nominee of DTC, is the registered owner of the Global Note, Cede
for all purposes will be considered the sole holder of the Global Note. Owners
of beneficial interests in the Global Note will be entitled to have certificates
registered in their names and to receive physical delivery of certificates in
definitive form.
Payment of interest on and the redemption price of the Global Note will be
made to Cede, the nominee for DTC as the registered owner of the Global Note by
wire transfer of immediately available funds on each Interest Payment Date.
Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of a beneficial ownership interest in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment of
interest on and the redemption price of the Global Note, DTC's practice is to
credit Participants' accounts on the payment date therefor with payments in
amounts proportionate to their respective beneficial interests in the principal
amount represented by the Global Note as shown on the records of DTC, unless DTC
has reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in the principal
amount represented by the Global Note held through such Participants will be the
responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name."
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<PAGE>
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the Global
Note to pledge such interest to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below) only at the direction of
one or more Participants to whose account DTC interests in the Global Note are
credited and only in respect of the principal amount of the Notes represented by
the Global Note as to which such Participant or Participants has or have given
such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Initial Purchasers. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depository and a successor depository is not appointed by
the Company within 90 days, the Company will cause the Notes to be issued in
definitive form in exchange for the Global Note.
CERTIFICATED NOTES
Notes sold to investors that are not Qualified Institutional Buyers or
Non-U.S. Persons will be issued in definitive registered form and may not be
represented by the Global Note. In addition, Qualified Institutional Buyers may
request that certificated Notes be issued in exchange for Notes represented by
the Global Note. Furthermore, certificated Notes may be issued in exchange for
Notes represented by the Global Note if no successor depository is appointed by
the Company as set forth above.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
be required to exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other
20
<PAGE>
transactions, provided, however, that if it acquires any conflicting interest
(as defined in the Indenture) it must eliminate such conflict within 90 days,
apply to the Commission for permission to continue, or resign.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company has 30,000,000 authorized shares of the Common Stock, $0.001 par
value, of which 9,057,827 shares were issued and outstanding as of April 18,
1996. 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 18, 1996. 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. The Company is subject to Section 203 of
Delaware Law. Section 203 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
unless the transaction is approved in the prescribed manner. 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.
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<PAGE>
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.
SELLING SECURITYHOLDERS
The Notes were initially issued and sold pursuant to a purchase agreement
dated February 21, 1996 (the "Purchase Agreement") among the Company and the
Initial Purchasers. The Notes were acquired (a) from the Initial Purchasers by
the Selling Securityholders in compliance with Rule 144A, Regulation D or
Regulation S under the Securities Act or (b) in other permitted resale
transactions exempt from registration under the Securities Act from the Initial
Purchasers or holders who acquired the Notes from the Initial Purchasers or
other prior holders thereof. The Company has agreed to indemnify and hold the
Initial Purchasers harmless against certain liabilities under the Securities Act
that could arise in connection with the sale of the Notes by the Initial
Purchasers.
Jefferies & Company, Inc. ("Jefferies") was one of the Initial Purchasers of
the Notes. Jefferies has from time to time rendered financial advisory services
on behalf of the Company.
Except as set forth above, none of the Selling Securityholders has had a
material relationship with the Company or any of its predecessors or affiliates
within the past three years.
The following table sets forth certain information as of April 18, 1996 as
to the security ownership of the Selling Securityholders. The chart includes
information furnished to the Company by DTC.
Information concerning the Selling Securityholders may change from time to
time and any such changed information will be set forth in supplements to this
prospectus if and when necessary.
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF SHARES
PRINCIPAL AMOUNT OF COMMON STOCK
OF NOTES THAT MAY THAT MAY BE
NAME BE SOLD SOLD (1)
- ------------------------------------ ------------------ -----------------
<S> <C> <C>
American Express Financial 3,000,000 212,389
Bank of New York 11,940,000 845,309
Bankers Trust Company 9,635,000 682,123
Barclay Bank 350,000 24,778
Bear, Stearns & Co., Inc. 1,000,000 70,796
Boston Safe 965,000 68,318
Alex. Brown & Sons, Inc. 250,000 17,699
Chase Manhattan Bank, N.A. 100,000 7,079
Chemical Bank 1,000,000 70,796
Custodial Trust 3,880,000 274,690
Firstar Trust Company 500,000 35,398
First National Bank of Omaha 500,000 35,398
First Alabama Bank 300,000 21,238
Gales and Company 125,000 8,849
Hare & Co. 245,000 17,345
Harris Trust & Savings Bank 1,400,000 99,115
Jefferies & Company, Inc. 1,115,000 78,938
Lazard Freres 100,000 7,079
Lazard Freres & Co. LLC 230,000 16,283
Lehman Brothers 250,000 17,699
Morgan Guaranty Trust Co. 1,500,000 106,194
MBD Bank 750,000 53,097
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF SHARES
PRINCIPAL AMOUNT OF COMMON STOCK
OF NOTES THAT MAY THAT MAY BE
NAME BE SOLD SOLD (1)
- ------------------------------------ ------------------ -----------------
Northern Trust Co. 2,130,000 150,796
<S> <C> <C>
PNC Bank, NA 200,000 14,159
Provident Life 1,000,000 70,796
Republic Bank of New York 600,000 42,477
Society Bank 2,385,000 168,849
Spear Leads 1,500,000 106,194
SSB Custodial 5,130,000 363,185
Suntrust Banks 25,000 1,769
Wachovia Bank 610,000 43,185
Wagner, Stott & Co. 400,000 28,318
First Trust NA 140,000 9,911
The Fifth-Third Bank 2,500,000 176,991
</TABLE>
- ------------------------
(1) Assumes a conversion price of $14.125 per share and a cash payment in lieu
of any fractional interest.
PLAN OF DISTRIBUTION
The Notes and the Conversion Shares are being registered to permit public
secondary trading of such securities by the holders thereof from time to time
after the date of this prospectus. The Company has agreed, among other things,
to bear substantially all expenses (other than broker's commission or
underwriter's discount or commission) in connection with the registration and
sale of the Notes and the Conversion Shares covered by this prospectus.
The Company will not receive any of the proceeds from the offering of Notes
and the Conversion Shares by the Selling Securityholders. The Selling
Securityholders may sell all or a portion of the Notes and the Conversion Shares
beneficially owned by them and offered hereby from time to time on any exchange
on which the securities are listed on terms to be determined at the times of
such sales. The Selling Securityholders may also make private sales directly or
through a broker or brokers. Alternatively, any of the Selling Securityholders
may from time to time offer the Notes or shares of Common Stock beneficially
owned by them through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions or concessions
from the Selling Securityholders and the purchasers of the Notes or Conversion
Shares for whom they may act as agent. The aggregate proceeds to the Selling
Securityholders from the sale of the Notes or Conversion Shares offered by them
hereby will be the purchase price of such Notes or Conversion Shares less
discounts and commissions, if any.
The Notes and the Conversion Shares may be sold from time to time in one or
more transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
The Company's outstanding Common Stock is listed for trading on Nasdaq and
the Company intends to seek listing of the Conversion Shares on Nasdaq. The
Initial Purchasers have advised the Company that they are making and currently
intend to continue making a market in the Notes; however, they are not obligated
to do so and any such market-making may be discontinued at any time without
notice, in the sole discretion of the Initial Purchasers. The Company does not
intend to apply for listing of the Notes on any securities exchange.
Accordingly, no assurance can be given as to the development of any trading
market that may develop for the Notes. See "Risk Factors -- Absence of a Public
Market for the Notes."
23
<PAGE>
In order to comply with the securities laws of certain states, if
applicable, the Notes and the Conversion Shares will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Notes and the Conversion Shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or the Conversion Shares may be deemed to be "underwriters" within the
meaning of the Securities Act, in which event any commissions received by such
broker-dealers, agents or underwriters and any profits realized by the Selling
Securityholders on the resale of the Notes or the Conversion Shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the Notes or
Common Stock described herein, and any Selling Securityholder may transfer,
devise or gift such securities by other means not described herein.
The Notes were originally sold to the Initial Purchasers in February and
March 1996 in a private placement. The Company agreed to indemnify and hold the
Initial Purchasers harmless against certain liabilities which they may incur
under the Securities Act, the Exchange Act or otherwise that could arise in
connection with the sale of the Notes by the Initial Purchasers.
The Company will use its best efforts to cause the registration statement to
which this prospectus relates to become effective as soon as practicable and to
keep the registration statement effective for a period of three years from March
22, 1996 (the latest date of original issuance of the Notes), or until the Shelf
Registration Statement is no longer required for transfer of the Notes or the
Conversion Shares. The Company is permitted to suspend the use of this
prospectus in connection with the sales of Notes and the Conversion Shares by
holders upon the happening of certain events or if there exists any fact that
makes any statement of material fact made in this prospectus untrue or that
requires the making of additions to or changes in the prospectus in order to
make the statements herein not misleading until such time as the Company advises
the Selling Securityholders that use of the prospectus may be resumed. Expenses
of preparing and filing the registration statement and all post-effective
amendments will be borne by the Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to beneficial owners ("Owners") of the Notes
or the Conversion Shares. This discussion is based on the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed Treasury Regulations and
Internal Revenue Service ("IRS") rulings, changes to any of which subsequent to
the date hereof may affect the tax considerations discussed herein.
This discussion is for general information only and does not address all
aspects of United States federal income taxation that may be relevant to Owners
of the Notes or the Conversion Shares. This discussion does not describe the tax
consequences arising under the laws of any foreign, state or local jurisdiction,
nor does it describe all of the tax consequences that may be relevant to
particular purchasers in light of their personal circumstances, or to certain
types of purchasers (such as certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities or persons who hold the
Notes or the Conversion Shares in connection with a straddle) who may be subject
to special rules. This discussion assumes that each Owner holds the Notes or the
Conversion Shares as capital assets within the meaning of section 1221 of the
Code.
24
<PAGE>
For the purpose of this discussion, the term "U.S. Person" means a citizen
or resident of the United States, a corporation or partnership created or
organized in the United States or any state thereof, or an estate or trust, the
income of which is includible in income for United States federal income tax
purposes regardless of its source.
PROSPECTIVE PURCHASERS OF THE NOTES OR THE CONVERSION SHARES SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THEIR PARTICIPATION IN THIS OFFERING, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT THEIR
PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
U.S. PERSONS
OWNERSHIP OF NOTES
INTEREST. Interest paid on a Note will be taxable to an Owner who is a U.S.
Person as ordinary interest income in accordance with the Owner's method of tax
accounting at the time that such interest is accrued or actually or
constructively received.
MARKET DISCOUNT. An Owner that purchases a Note at a "market discount"
(i.e., at a price less than its stated principal amount) will be required
(unless such difference is less than a specified DE MINIMIS amount) to treat any
principal payments on, or any gain realized upon the disposition or retirement
of, such Note as interest income to the extent of the market discount that
accrued while such Owner held such Note, unless the Owner elects to include such
market discount in income on a current basis. If such Note is disposed of in a
nontaxable transaction (other than conversion of the Note for common stock or a
nonrecognition transaction described in section 1276(d) of the Code), accrued
market discount will be includible as ordinary income to the Owner as if such
Owner had sold the Note at its then fair market value. An Owner of a Note that
acquired it at a market discount and that does not elect to include market
discount in income on a current basis also may be required to defer the
deduction for a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry the Note until the deferred income is realized.
PREMIUM. Except as noted below, an Owner that purchases a Note for an
amount in excess of its stated principal amount will be treated as having
premium with respect to such Note in the amount of such excess. If such an Owner
makes an election under section 171(c)(2) of the Code to treat such premium as
"amortizable bond premium," the amount of interest that must be included in such
Owner's income for each accrual period will be reduced by the portion of the
premium allocable to such period based on the Note's yield to maturity. If the
Note is in fact redeemed, any unamortized premium may be deducted in the year of
the redemption. If an Owner makes the election under section 171(c)(2), the
election also shall apply to all bonds the interest on which is not excludible
from gross income ("fully taxable bonds") held by the Owner at the beginning of
the first taxable year to which the election applies and to all such fully
taxable bonds thereafter acquired by it, and is irrevocable without the consent
of the IRS. If such an election is not made, such an Owner must include the full
amount of each interest payment in income in accordance with its regular method
of accounting and will receive a tax benefit from the premium only in computing
its gain or loss upon the sale or other disposition or retirement of the Note.
ACCRUAL METHOD ELECTION. Under applicable Treasury regulations, an Owner of
a Note is permitted to elect to include in gross income its entire return on a
Note (i.e., the excess of all remaining payments to be received on the Note over
the amount paid for the Note by such Owner) based on the compounding of interest
at a constant rate. Such an election for a Note with amortizable bond premium
(or market discount) will result in a deemed election for all of the Owner's
debt instruments with amortizable bond premium (or market discount) and may be
revoked only with the permission of the IRS.
25
<PAGE>
CONVERSION OF NOTES. An Owner of a Note will not recognize gain or loss on
the conversion of the Note into the Conversion Shares except to the extent that
the Common Stock issued upon the conversion is attributable to accrued interest
on the Note. The Owner's aggregate tax basis in the Conversion Shares will equal
the Owner's aggregate basis in the Note exchanged therefor (less any portion of
that basis allocable to cash received in lieu of a fractional share). The
holding period of the Conversion Shares received by the Owner upon conversion of
the Note will include the period during which the Owner held the Note prior to
the conversion.
Cash received in lieu of a fractional share of Common Stock will be treated
as a payment in exchange for such fractional share. Gain or loss recognized on
the receipt of cash paid in lieu of such fractional shares generally will equal
the difference between the amount of cash received and the basis allocable to
the fractional shares.
If an Owner acquires the Note at a market discount and receives Common Stock
upon conversion of the Note, the amount of accrued market discount with respect
to the converted Note through the date of the conversion should be treated as
ordinary income on the disposition of the Common Stock.
OWNERSHIP OF SHARES OF COMMON STOCK. Distributions on shares of Common
Stock will constitute dividends for United States federal income tax purposes to
the extent of current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Dividends paid to
Owners that are United States corporations may qualify for the
dividends-received deduction. Individuals, partnerships, trusts, and certain
corporations, including certain corporations that are not U.S. Persons, are not
entitled to the dividends-received deduction.
To the extent, if any, that an Owner receives a distribution on shares of
Common Stock that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a
non-taxable return of capital reducing the Owner's basis in the shares of Common
Stock. Any such distribution in excess of the Owner's basis in the shares of
Common Stock will be treated as a capital gain.
SALE OR EXCHANGE OF NOTES OR SHARES OF COMMON STOCK.
In general, an Owner of a Note will recognize gain or loss upon the sale,
redemption, retirement or other disposition of the Note measured by the
difference between the amount of cash and the fair market value of any property
received (except to the extent attributable to the payment of accrued interest)
and the Owner's adjusted tax basis in the Note. An Owner's tax basis in a Note
generally will equal the cost of the Note to the Owner increased by the amount
of market discount previously taken into income by the Owner or decreased by any
bond premium applied to reduce interest payments as described above. In general,
each Owner of Common Stock into which the Notes are converted will recognize
gain or loss upon the sale, exchange, redemption or other disposition of the
Common Stock under rules similar to those applicable to the Notes. The basis and
holding period of shares of Common Stock is discussed above under "CONVERSION OF
NOTES." Special rules may apply to redemptions of Common Stock which may result
in the amount paid being treated as a dividend. Subject to the market discount
rules discussed above, the gain or loss on the disposition of the Notes or
shares of Common Stock will be capital gain or loss and will be long-term gain
or loss if the Notes or shares of Common Stock have been held for more than one
year at the time of such disposition.
NON-U.S. PERSONS
PAYMENTS OF INTEREST. Each payment of interest on a Note to an Owner who is
not a U.S. Person (a "Non-U.S. Person") will be subject to a 30 percent U.S.
income and withholding tax, unless one of the following three exemptions
applies:
EXEMPTION FOR NON-U.S. PERSONS WHO PROVIDE IRS FORM W-8. Payment of
interest on a Note to any Non-U.S. Person will be exempt from U.S. federal
income and withholding taxes, provided the following conditions are satisfied.
(1) the last U.S. payor in the chain of payment prior to payment to a
Non-U.S. Person (the "Withholding Agent") has received in the year in which
such payment occurs, or in either of the
26
<PAGE>
two preceding years, a statement that (a) is signed by the Owner of the Note
under penalties of perjury, (b) certifies that such Owner is not a U.S.
Person and (c) provides the name, address and taxpayer identification
number, if any, of the Owner;
(2) neither the Withholding Agent nor any intermediary between the Owner
and the Withholding Agent has actual knowledge that such non-U.S. beneficial
ownership statement is false; and
(3) the Owner is not an "excluded person" (i.e., (a) a bank that
receives payments on the Notes that are described in section 881(c)(3)(A) of
the Code, (b) a 10 percent shareholder of the Corporation within the meaning
of section 871(h)(3)(B) of the Code, or (c) a "controlled foreign
corporation" related to the Company within the meaning of section
881(c)(3)(C) of the Code).
The non-U.S. beneficial ownership statement referred to above may be made on
an IRS Form W-8 or a substantially similar substitute form. The Owner must
inform the Withholding Agent (or the last intermediary in the chain between the
Withholding Agent and the Owner) of any change in the information on the
statement within 30 days of such change. If a Note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent on behalf
of the Owner. In such case, however, the signed statement must be accompanied by
a copy of a Form W-8 or substitute form provided by the Owner to the
organization or institution. In all cases, the Form W-8 or substitute form must
be filed by the Withholding Agent with the IRS. The U.S. Treasury Department is
empowered to publish a determination that a beneficial ownership statement from
any person or class of persons will not be sufficient to preclude the imposition
of federal withholding tax with respect to payments of interest made at least
one month after the publication of such determination.
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS ENTITLED TO THE BENEFITS OF A
TREATY (IRS FORM 1001). An Owner that is a Non-U.S. Person entitled to the
benefit of an income tax treaty to which the United States is a party can obtain
an exemption from or reduction of income and withholding tax (depending on the
terms of the treaty) by providing to the Withholding Agent a properly completed
IRS Form 1001 prior to the payment of interest, unless the Withholding Agent has
actual knowledge that the form is false.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (IRS FORM
4224). An Owner that is a Non-U.S. Person that conducts a trade or business in
the United States with which income on a Note is effectively connected can
obtain an exemption from withholding tax by providing to the Withholding Agent a
properly completed IRS Form 4224 prior to the payment of interest, unless the
Withholding Agent has actual knowledge that the form is false. Payments of
interest on a Note that are effectively connected with the conduct of a trade or
business in the United States by an Owner who is a Non-U.S. Person, although
exempt from the withholding tax, may be subject to graduated U.S. federal income
tax as if such amounts were earned by a U.S. Person.
In certain circumstances, amounts not exempted from tax and withheld may be
allowed as a refund or as a credit against the Owner's U.S. federal income tax.
CONVERSION OF NOTES. An Owner that is a Non-U.S. Person generally will not
be subject to United States federal income tax on the conversion of a Note into
shares of Common Stock. To the extent a Non-U.S. Person receives cash in lieu of
a fractional share on conversion, such cash may give rise to gain that would be
subject to the rules described below with respect to the sale or exchange of a
Note or shares of Common Stock.
DISTRIBUTIONS ON SHARES OF COMMON STOCK. Generally, any distribution on
shares of Common Stock to an Owner that is a Non-U.S. Person will be subject to
United States federal income tax withholding at a rate of 30 percent unless one
of the following two exemptions applies:
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS ENTITLED TO THE BENEFITS OF A
TREATY (IRS FORM 1001). An Owner that is a Non-U.S. Person entitled to the
benefit of an income tax treaty to
27
<PAGE>
which the United States is a party can obtain an exemption from reduction of
income and withholding tax (depending on the terms of the treaty) by providing
to the Withholding Agent a properly completed IRS Form 1001 prior to the payment
of a dividend, unless the Withholding Agent has actual knowledge that the form
is false.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (IRS FORM
4224). An Owner that is a Non-U.S. Person that conducts a trade or business in
the United States with which dividends on Common Stocks are effectively
connected can obtain an exemption from withholding tax by providing to the
Withholding Agent a properly completed IRS Form 4224 prior to the payment of
dividends, unless the Withholding Agent has actual knowledge that the form is
false. Payments of dividends that are effectively connected with the conduct of
a trade or business in the United States by an Owner who is a Non-U.S. Person,
although exempt from the withholding tax, may be subject to graduated U.S.
federal income tax as if such amounts were earned by a U.S. Person.
In certain circumstances, amounts not exempted from tax and withheld may be
allowed as a refund or as a credit against the Owner's U.S. federal income tax.
SALE OR EXCHANGE OF NOTES OR SHARES OF COMMON STOCK. An Owner that is a
Non-U.S. Person generally will not be subject to United States federal income
tax on gain recognized upon the sale or other disposition (including a
redemption) of a Note or the Conversion Shares (including the receipt of cash in
lieu of a fractional share upon such conversion) unless (i) the gain is
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Person, or (ii) in the case of an Owner who is a
nonresident alien individual and holds the Common Stock as a capital asset, such
Owner is present in the United States for 183 or more days in the taxable year
and certain other circumstances are present. Any amount withheld pursuant to
these rules will be creditable against such Owner's United States federal income
tax liability and may entitle such Owner to a refund upon furnishing the
required information to the IRS. Owners should consult applicable income tax
treaties, which may provide different rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS OR OWNERS. Information reporting and backup withholding may
apply to payments of interest or dividends on or the proceeds of the sale or
other disposition of the Notes or shares of Common Stock made by the Company
with respect to certain noncorporate U.S. holders or Owners. Such U.S. holders
or Owners generally will be subject to backup withholding at a rate of 31
percent unless the recipient of such payment supplies a taxpayer identification
number, certified under penalties of perjury, as well as certain other
information, or otherwise establishes, in the manner prescribed by law, an
exemption from backup withholding. Any amount withheld under backup withholding
is allowable as a credit against the Owner's federal income tax, upon furnishing
the required information.
NON-U.S. HOLDERS OR OWNERS. Generally, information reporting and backup
withholding of United States federal income tax at a rate of 31 percent may
apply to payments of principal, interest and premium (if any) to non-U.S.
holders if the payee fails to certify that he or she is not a U.S. person or if
the Company or any of its paying agents has actual knowledge that the payee is a
U.S. Person.
The 31 percent backup withholding tax generally will not apply to dividends
paid to Non-U.S. holders or Owners outside the United States that are subject to
30 percent withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates such withholding. In that regard,
under temporary regulations, dividends payable at an address located outside of
the United States to a Non-U.S. holder or Owners are not subject to the backup
withholding rules.
In addition, if a Note or share of Common Stock is sold before the stated
maturity to (or through) a "broker," the broker may be required to withhold 31
percent of the entire sale price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a Non-U.S. Person, certifies that such seller is not a U.S. Person (and
certain other conditions are met). Such a
28
<PAGE>
sale also must be reported by the broker to the IRS, unless either (i) the
broker determines that the seller is an exempt recipient or (ii) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the Owner's non-U.S. status normally would be made on IRS Form
W-8 under penalties of perjury, although in certain cases it may be possible to
submit certain other signed forms. The term "broker," as defined by Treasury
regulations, includes all persons who, in the ordinary course of business, stand
ready to effect sales made by others. This information reporting requirement
generally will apply to a U.S. office of a broker and to a foreign office of a
U.S. broker, as well as to a foreign office of a foreign broker (i) that is a
"controlled foreign corporation" within the meaning of section 957(a) of the
Code or (ii) 50 percent or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the foreign broker has been in
existence) was effectively connected with the conduct of a trade or business
within the United States, unless such foreign office has documentary evidence
that the seller is not a U.S. Person and has no actual knowledge that such
evidence is false.
Any amounts withheld under the backup withholding rules from a payment to a
person would be allowed as a refund or a credit against such person's U.S.
federal income tax, provided that the required information is furnished to the
IRS. Furthermore, certain penalties may be imposed by the IRS on a holder or
Owner who is required to supply information but who does not do so in the proper
manner.
LEGAL MATTERS
The validity of the issuance of the Notes and the Conversion Shares will be
passed upon for the Company by Dewey Ballantine, Los Angeles, California 90071.
EXPERTS
The financial statements of Richey Electronics as of December 31, 1994 and
December 31, 1995 and for each of the three years in the period ended December
31, 1995, incorporated by reference in this prospectus and the Registration
Statement from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, have been audited by McGladrey & Pullen, LLP, whose report is
incorporated by reference herein in reliance upon such report and upon the
authority of such firm as an expert in accounting and auditing matters. The
consolidated financial statements of EDAC as of December 19, 1995 and for the
period from January 1, 1995 through December 19, 1995, incorporated by reference
in this prospectus and in the Registration Statement from the Company's Current
Report on Form 8-K/A dated January 31, 1996 (the "Form 8-K/A"), have been
audited by McGladrey & Pullen, LLP, whose report is incorporated by reference
herein in reliance upon such report and upon the authority of such firm as an
expert in accounting and auditing matters.
The financial statements of Deanco as of June 30, 1993 and June 30, 1994 and
for each of three years in the period ended June 30, 1994 and for the period
from July 1, 1994 through September 30, 1994 and as of December 31, 1994 and for
the period from October 1, 1994 through December 31, 1994, incorporated by
reference in this prospectus and in the Registration Statement from the Form
8/K-A, have been audited by Ernst & Young LLP, independent auditors, whose
reports are incorporated by reference herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing. The consolidated financial statements of EDAC as of December 31, 1994
and for the period from October 1, 1994 through December 31, 1994, incorporated
by reference in this prospectus and in the Registration Statement from the Form
8-K/A, have been audited by Ernst & Young LLP, independent auditors, whose
reports are incorporated by reference herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
29
<PAGE>
EXHIBIT A TO THE PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
<TABLE>
<S> <C>
For the fiscal year ended December 31, 1995 Commission
file number: 0-9788
</TABLE>
RICHEY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 33-0594451
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
7441 Lincoln Way, Suite 100, Garden Grove, California 92641
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (714) 898-8288
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------
(Title of class)
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 22, 1996, was $53,179,177 based on
the last sale price on the Nasdaq Stock Market ("Nasdaq") on that date.
As of March 22, 1996, 9,057,827 shares of the registrant's Common Stock were
outstanding.
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Richey Electronics, Inc.'s (the "Company" or "Richey
Electronics") proxy statement for the annual meeting of stockholders to be held
on May 7, 1996, to be filed with the Securities and Exchange Commission (the
"Commission") no later than 120 days after the end of the Company's fiscal year
ended December 31, 1995, are incorporated by reference into Part III of this
Form 10-K (Items 10 through 13).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Richey Electronics is a leading multi-regional, specialty distributor of
interconnect, electromechanical and passive electronic components and a provider
of value-added assembly services. The Company has been built through a series of
transactions beginning in December 1990 with RicheyImpact Electronics, Inc.'s
("RicheyImpact") acquisition of the operations of Richey/Impact Electronics,
Inc. ("Old Richey") and recently through the acquisitions of Inland Empire
Interconnects in August, 1995 (the "IEI Acquisition") and of Deanco, Inc.
("Deanco") and its parent holding company, Electrical Distribution Acquisition
Company ("EDAC"), in December 1995 (the "Deanco Acquisition"). Since the initial
acquisition, the Company's growth has been directed by one of the most
experienced management teams in its 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 $117.1 million and $2.9 million, respectively, in 1995.
Giving pro forma effect to the Deanco Acquisition, the Company's sales and
earnings were $217.0 million and $4.4 million, respectively, in 1995 and the
Company would have ranked as the fifth largest distributor in its market niche
of interconnect, electromechanical and passive components in the United States,
based on information presented in the April 1995 edition of ELECTRONIC BUSINESS
BUYER.
The Company distributes a broad line of connectors, switches, wire, cable
and heat shrinkable tubing and other interconnect, electromechanical and passive
electronic components used in the assembly and manufacturing of electronic
equipment. In 1995, Richey Electronics and Deanco distributed electronic
components for more than 120 component manufacturers. 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 original equipment
manufacturers ("OEMs") that produce electronic equipment used in a wide variety
of industries, including the telecommunications, computer, medical,
transportation and aerospace industries.
The Company completed the Deanco Acquisition on December 20, 1995. Deanco is
a multi-regional, specialty distributor of electronic components and a provider
of value-added assembly services with operations primarily serving markets in
the northeast and on the west coast. Deanco's sales and EBITDA through December
19, 1995 were $99.9 million and $4.3 million, respectively. Deanco's product
offering is similar to that of Richey Electronics, providing a variety of
interconnect, electromechanical and passive products primarily to small- and
medium-sized OEMs. The Deanco Acquisition provides the Company with certain
product lines that it did not previously carry, including heat shrinkable tubing
supplied by Raychem, and significantly enhances the Company's position in the
passive components market. Management believes that the Deanco Acquisition is
consistent with the Company's growth strategy, primarily due to the
opportunities that the Deanco Acquisition provides to increase operating
leverage by expanding sales in its existing and adjacent markets. Approximately
$58.0 million, or 58%, of Deanco's 1995 net sales were generated in or adjacent
to markets served by Richey Electronics in 1995. Management believes it can
effectively integrate these sales into the Company's operations and, by
spreading these sales over the Company's fixed cost base, improve the Company's
operating leverage.
In April 1995 the Company issued 3,165,000 shares of the Company's common
stock, $0.001 par value, in a secondary offering. The Company and certain
stockholders of the Company, pursuant to an agreement with the underwriters,
sold an additional 450,000 shares of the Company's common stock in that
offering. The net proceeds to the Company from the secondary offering were
approximately $15.7 million. The Company used the net proceeds to reduce the
Company's existing indebtedness.
A-2
<PAGE>
In February 1996, the Company sold through a private offering (the "Note
Offering") $50.0 million aggregate principal amount of 7% Convertible
Subordinated Notes due 2006 (the "Notes"). The Notes are convertible into the
Company's common stock at a conversion price of $14.125 per share (subject to
adjustment). In March 1996, the Company completed the Note Offering by issuing
an additional $5,755,000 aggregate principal amount of Notes to cover
over-allotments. The Company has agreed to file a shelf registration statement
with the Commission registering the Notes and the common stock issuable upon
conversion. The net proceeds from the Note Offering were approximately $53.8
million and were used to repay the Company's $30.0 million term loan and to pay
down its revolving line of credit.
On March 19, 1996, the Company completed the acquisition of the assets and
business of MS Electronics, Inc. ("MS Electronics"). MS Electronics, which is
privately held, had sales of approximately $11.0 million in 1995. MS Electronics
specializes in the value-added distribution of interconnect, electromechanical
and passive electronic components in the Baltimore\Washington marketplace. The
addition of MS Electronics adds new customers, complementary product lines and a
strong sales organization, which management expects to integrate into the
Company.
The Company's principal executive offices are located at 7441 Lincoln Way,
Garden Grove, California 92641, and its telephone number is (714) 898-8288.
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 direct sales
efforts on the largest OEMs, and less on smaller customers, the distribution
segment has increased its share of the total United States connector market from
an estimated 22% in 1980 to an estimated 31% in 1995, according to the August
28, 1995 edition of ELECTRONIC NEWS. The Company estimates that approximately
one-half of all electronic components are purchased by the top 100 customers who
purchase many of their components directly from component manufacturers.
Approximately 100,000 other 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 4, 1995 edition of ELECTRONIC NEWS,
the electronics distribution industry recorded approximately $20 billion in
sales in 1995. Of these sales, the Company estimates that approximately $15
billion consisted of sales of semiconductors and computer related peripherals,
which management believes are generally characterized by lower margins and are
not sold by the Company. The remaining $5 billion consisted of sales of
interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which are marketed by the Company.
Giving pro forma effect to the Deanco Acquisition, the Company would have ranked
as the 16th largest electronic components distributor in the United States in
1995 and as the
A-3
<PAGE>
fifth largest distributor within its market niche of interconnect,
electromechanical and passive components, based on information provided in
industry publications. The Company does not intend to directly compete in the
semiconductor or computer peripheral markets of the electronics distribution
industry.
TRENDS. Consolidation is one of the most significant trends affecting the
electronic component distribution industry. Of the 25 largest electronics
distributors in 1985, only 13 remain independent today. The factors driving
consolidation among electronic component distributors 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. A series of mergers and acquisitions over the
last ten years have 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 such as the Company 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 number 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.
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 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 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 71% of the
Company's net sales in 1995, and pro forma for the Deanco Acquisition,
approximately 76% of net sales. These products include connectors, wire, cable,
relays, switches, motors, batteries, power supplies, resistors, capacitors,
transformers, heat shrinkable tubing 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. The Deanco
Acquisition expands the Company's line card with the addition of a number of new
product lines, including Bentley-Harris, Berg, Dale, Emerson-Cummings, Raychem
and Sprague. Moreover, Richey Electronics and Deanco represented 18 common
suppliers in 1995, expanding the number of authorized locations in which the
Company is franchised.
A-4
<PAGE>
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 large number 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 to customer or manufacturer specifications, including
cable, battery pack, switch and mechanical assemblies, wire harnesses, fan and
motor assemblies, and provides engraving and molding services. With the Deanco
Acquisition, Richey obtained the capability to encase its cable and harness
assemblies in heat shrinkable tubing, which was a significant portion of
Deanco's value-added assembly business. The Company has increased its emphasis
on higher-margin, value-added assembly services, which grew from $10.9 million,
or 17% of net sales, in 1993 to $21.2 million, or 23.5% of net sales, in 1994
and to $33.0 million, or 29% of net sales, in 1995.
The Company currently provides value-added assembly services primarily from
its Los Angeles, California, Boston, Massachusetts and Portland, Oregon
facilities, having an aggregate of approximately 81,000 square feet dedicated to
value-added assembly services. In addition, the Company also provides
value-added assembly services from its San Diego and San Francisco Bay Area,
California facilities and from its Dallas, Texas facility.
SALES AND MARKETING
The Company provides its customers with a wide range of products from a
large number of electronic 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 customers in a wide variety of industries,
including the telecommunications, computer, medical, transportation and
aerospace industries. In 1995, Richey Electronics and Deanco together
distributed electronic components to more than 15,000 customers, none of which
represented more than 1.5% of net sales of the Company on a pro forma basis.
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.
Including Deanco, the Company had approximately 215 sales representatives as
of December 31, 1995. Sales representatives are compensated primarily by
commission based on the gross profits obtained on their sales. The Company now
has sales offices in 20 of the 31 major metropolitan distribution markets in the
United States, which accounted for 80% of the total distribution market in 1995
according to the December 4, 1995 edition of ELECTRONIC NEWS. The Company's
market positions are particularly strong in the northeastern and western United
States. Due to the low level of overlap among Richey Electronics and Deanco
customers, the Company expects to retain most of Deanco's sales organization in
order to accommodate the expanded customer base. In addition, the Company
believes that the Deanco Acquisition has created an opportunity for the Company
to sell to the Company's new customers many product lines which Deanco did not
carry and to sell Deanco product lines to the Company's original customers.
A-5
<PAGE>
The Company's local sales efforts are supported by central marketing groups,
located in Garden Grove and the San Francisco Bay Area, California and in
Boston, Massachusetts which are 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 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
marketing its products and to coordinate purchases from manufacturers. Each
sales office and warehouse (other than the Deanco operations which are currently
being integrated), as well as management, are linked through the Company's
computer system, providing 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. The
Company also offers its customers a number of operational services, including
just-in-time delivery and electrical data interchange programs.
After product price and availability are established, the Company's 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.
Prior to the Deanco Acquisition, approximately 80% of the Company's
inventory was located at its centralized distribution facility in Los Angeles,
and 15% was stored in Boston. Pursuant to the Company's consolidation plan, the
Company expects to locate approximately 60% of its inventory in Los Angeles and
30% in Boston. Management is considering, however, retaining a warehouse in the
San Francisco Bay Area for an intermediate period of time. In the event such a
facility is retained, approximately 47% of the Company's inventory would be
located in Los Angeles, 30% in Boston and 20% in the San Francisco Bay Area. The
Company constantly reviews inventories in an effort to maximize inventory
turnover and customer service. The Company believes its turnover ratio (5.0x for
1995) compares favorably with those achieved by competitors for similar
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, heat shrinkable tubing 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 and assembly 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. A Company-wide emphasis on quality is
evidenced by the certification of its Garden Grove and Los Angeles facilities to
the ISO 9002 standard. 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.
A-6
<PAGE>
DEANCO INTEGRATION PLAN
The Company has developed and begun to implement an operating plan designed
to integrate the operations of Richey Electronics and Deanco. The Company
expects to generate the majority of its cost savings from the termination of
redundant employees and the closing of duplicate facilities. The most critical
part of the integration is the conversion of Deanco's computer data to the
Company's system. This conversion is expected to be completed during the second
quarter of 1996. In 1995, Deanco's operating expenses were 21.6% of net sales as
compared to 17.9% of net sales for Richey Electronics, excluding the
restructuring reserve. The Company believes that by integrating the operations,
computer systems and facilities of Deanco into Richey Electronics, it can reduce
Deanco's operating expenses as a percentage of net sales.
As a result of the integration, management expects that the Deanco
Acquisition will give the Company the opportunity to expand the coverage of the
Company's existing supplier franchises. Management believes that the Company's
expanded geographic scope gives it the potential to increase the number of
markets in which it is franchised by existing suppliers.
The Company believes that less than 25% of Deanco's customers in 1995 were
also served by Richey Electronics prior to the Deanco Acquisition. Of these,
management believes that less than 10% were significant customers of both Richey
Electronics and Deanco. As a result, in the markets where Richey Electronics and
Deanco overlapped, including Boston, Denver, Los Angeles, Phoenix, Portland, San
Diego, the San Francisco Bay Area and Seattle, management believes that the
Company's sales force will be able to cross-sell several of the new products
available on its expanded line card. The Company believes that cross-selling may
lead to a significant increase in sales volume. The Company has begun
emphasizing cross-selling opportunities in training programs for the integrated
sales force; however, until the computer conversion is completed, management
does not expect to realize significant sales from cross-selling.
COMPONENT MANUFACTURERS
The Company's base of suppliers has increased significantly over the past
five years. With the addition of Deanco, the Company has non-exclusive franchise
(distribution) agreements with more than 100 component manufacturers, including
AMP, Bentley-Harris, Berg, C&K, Dale, Delta, Deutsch, Dialight, Eaton,
Emerson-Cummings, Kemet, Microswitch, 3M, Molex, Papst, Raychem, Samtec,
Sprague, Sullins and Wieland. Management believes that it has one of the
strongest product offerings, or line cards, in the markets it serves. As a
result of the Deanco Acquisition, the Company believes that it is the only
distributor to represent the world's seven largest connector manufacturers. The
Company is now the largest electronic components distributor for many major
national manufacturers, including Deutsch, 3M, Raychem and Samtec. Based on
information presented in the April 1995 edition of ELECTRONIC BUSINESS BUYER,
the Company would have ranked as the fifth largest distributor in the
interconnect, electromechanical and passive component markets in the United
States if the acquisition of Deanco had been consummated at that time.
For the year ended December 31, 1995, the Company's top five suppliers
accounted for approximately 39% of net sales, although no single manufacturer
accounted for more than 12% of net sales. Pro forma for the Deanco Acquisition,
the Company's top five suppliers accounted for approximately 42% of net sales.
As a result of the Deanco Acquisition, the Company's largest supplier is now
Raychem, which accounted for approximately 35% of Deanco's net sales in 1995. On
a pro forma basis, Raychem would have accounted for approximately 17% of the
Company's net sales in 1995.
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
A-7
<PAGE>
manufacturers, who assist the Company in closing sales and attracting new
customers. The Company expects that the Deanco Acquisition will enable it to
better address the desire of its suppliers to reduce the number of distributors
with which they deal.
Most of the Company's franchise agreements are cancelable by either party,
typically upon 30 to 90 days' notice. These agreements generally provide for
price protection, stock rotation privileges and the right to return certain
inventory if the agreement is canceled. Price protection is usually 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 generally requires the manufacturer to repurchase the Company's
inventory at the Company's adjusted purchase price. If the Company terminates
the franchise agreement, there is usually 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 as a result of such potential terminations or
otherwise.
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 OEMs. The Company competes
with large national distributors, 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, greater financial
and personnel resources and larger investments in technology and infrastructure
than the Company.
In 1995, total North American sales in the electronic components
distribution industry (including semiconductors and computer related
peripherals) were approximately $20 billion, of which the top 25 distributors
had sales of approximately $17 billion. Richey Electronics and Deanco were
ranked as the 22nd and 23rd, respectively, largest electronic components
distributors in the United States by ELECTRONIC NEWS in its December 4, 1995
edition. Pro forma for the Deanco Acquisition, the Company would have ranked as
the 16th largest electronic components distributor. Within the interconnect,
electromechanical and passive electronic components markets in which the Company
competes, it is ranked considerably higher.
EMPLOYEES
Including employees acquired from Deanco, the Company had approximately
1,080 employees as of December 31, 1995. Approximately 110 of the Company's
employees are corporate personnel involved in product management, finance,
quality control or senior management. Another 90 employees work in the Company's
Los Angeles, Boston and branch warehouses; 330 individuals are employed in
branch sales and marketing efforts and 550 persons are employed on a full-time
or on-call basis in value-added assembly services. As the Company consolidates
its operations with those of Deanco, the Company expects to be able to reduce
the total number of employees required to continue business at current levels.
There are no collective bargaining contracts covering any of the Company's
employees. The Company believes its relationship with its employees is
satisfactory.
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
1995 and at year end was $53.0 million, up 166.0% from $19.9 million at December
31, 1994. Deanco contributed $21.5 million to backlog at December 31, 1995.
Excluding Deanco's contribution, the Company's backlog grew 58% to $31.5 million
in 1995. The Company believes that the increase in order backlog is 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 management. Order backlog is not necessarily
A-8
<PAGE>
indicative of future sales for any particular period. Orders constituting the
Company's backlog are subject to delivery rescheduling, price negotiations and
cancellation at the option of the buyer without significant penalty.
WORKING CAPITAL
The Company must have sufficient inventories on hand to satisfy the needs of
its customers. For the quarter ended December 31, 1995, the Company's inventory
turnover (excluding the balance sheet effect of the Deanco Acquisition) was
5.0x, compared to 4.9x for 1994 and 4.4x for 1993. The Company believes it has
sufficient working capital and borrowing capacity available to maintain adequate
levels of inventory for the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ENVIRONMENTAL PROTECTION
The nature of the Company's operations do not present any significant risks
to the environment. Therefore, no material capital expenditures were or are
expected to be required for environmental protection.
ITEM 2. PROPERTIES
The Company leases all facilities used in its business. The following table
summarizes the principal properties occupied by the Company:
<TABLE>
<CAPTION>
EXPIRATION DATE
LOCATION SQUARE FOOTAGE OF LEASE
- ------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
ADMINISTRATIVE AND SALES OFFICE:
Garden Grove, California................................... 27,500 2001
WAREHOUSING, ASSEMBLY AND SALES:
Boston, Massachusetts...................................... 60,000 2004
Dallas, Texas.............................................. 15,300 2001
Los Angeles, California.................................... 55,000 2000
Portland, Oregon........................................... 30,000 2001
San Jose, California....................................... 13,400 1999
Santa Clara, California.................................... 42,200 2002
</TABLE>
The Company also leases sales offices in Arizona, California, Colorado,
Connecticut, Florida, Georgia, Illinois, Kansas, Maryland, Minnesota, Missouri,
New Jersey, New York and Washington which range in size from 600 to 6,000 square
feet.
In consolidating Richey Electronics' and Deanco's businesses, management is
implementing its plan to close redundant facilities, including Deanco's Ithaca,
New York offices and Richey Electronics' Boston, Massachusetts facility (which
facilities are not reflected in the above table). The Company is evaluating its
options with respect to the Company's San Jose and Deanco's Santa Clara,
California facilities. The Company may close its San Jose facility and retain
Deanco's Santa Clara facility or close both facilities and consolidate such
operations into a new facility. Upon completion of the Company's consolidation
plan, Richey Electronics will have 21 facilities in 20 markets in 17 states,
located predominantly in the major western and northeastern markets.
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.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
A-9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On April 14, 1994, the Company's Common Stock began trading on the Nasdaq
Stock Market under the symbol "RCHY." From January 25, 1994 until April 13,
1994, the Company's Common Stock traded on the Nasdaq Small-Cap Market. Prior to
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."
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.
<TABLE>
<CAPTION>
STOCK PRICE
----------------
HIGH LOW
------- ------
<S> <C> <C>
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.................................................................................. 7 1/2 5 1/2
Third quarter................................................................................... 9 6
Fourth quarter.................................................................................. 13 3/4 7 1/2
CALENDAR YEAR 1996:
First quarter (through March 22, 1996).......................................................... $13 1/4 $9 1/2
</TABLE>
On March 22, 1996, there were approximately 1468 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 Company's Senior Credit Facility (as hereinafter defined) contains
provisions that prohibit the Company from paying cash 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.
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<PAGE>
ITEM 6. 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 or incorporated by reference herein. All of the
financial information is derived from financial statements that have been
audited by McGladrey & Pullen, LLP, independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED (1)
---------------------------------------------------------------------
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994 1995
----------- ----------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales................................... $ 32,994 $ 31,387 $ 64,995 $ 90,266 $ 117,057
Cost of goods sold.......................... 24,123 23,105 48,741 68,176 89,080
----------- ----------- ------------- ------------- -------------
Gross profit................................ 8,871 8,282 16,254 22,090 27,977
Selling, warehouse general and
administrative and amortization............ 7,233 7,144 13,889 17,318 20,874
Acquisition-related restructuring costs
(2)........................................ -- -- -- -- 1,450
----------- ----------- ------------- ------------- -------------
Operating income............................ 1,638 1,138 2,365 4,772 5,653
Interest expense, net....................... 476 388 1,198 1,606 867
Income tax expense (3)...................... 473 308 460 1,273 1,918
----------- ----------- ------------- ------------- -------------
Net income.................................. $ 689 $ 442 $ 707 $ 1,893 $ 2,868
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
Earnings per common share (4)............... $ 0.25 $ 0.16 $ 0.14 $ 0.32 $ 0.36
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
Weighted average number of common shares
outstanding (4)............................ 2,774 2,774 5,085 5,889 8,036
OTHER FINANCIAL DATA:
EBITDA (5).................................. $ 1,788 $ 1,283 $ 3,362 $ 5,537 $ 6,565(6)
EBITDA margin (5)........................... 5.4% 4.1% 5.2% 6.1% 5.6%(6)
Depreciation and amortization............... 132 145 997 765 912
Inventory turnover ratio (7)................ 4.3x 3.7x 4.4x 4.9x 5.0x
Days sales outstanding in accounts
receivable (7)............................. 34 41 43 42 42
<CAPTION>
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994 1995 (8)
----------- ----------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 2,500 $ 3,014 $ 6,888 $ 5,317 $ 34,076
Total assets................................ 9,370 9,669 30,918 35,013 118,941
Short-term debt............................. 3,510 3,181 6,995 10,443 835
Long-term debt.............................. -- -- 8,151 3,594 61,652
Stockholders' equity........................ 2,891 3,333 6,898 8,785 27,392
</TABLE>
- ------------------------------
(1) Unless otherwise noted, excludes results of operations of Brajdas prior to
the Richey-Brajdas Merger in April 1993, of In-Stock prior to the In-Stock
Acquisition in April 1994, of IEI prior to the IEI Acquisition in August
1995 and of Deanco prior to the Deanco Acquisition in December 1995. See
Note 2 of Notes to Financial Statements for a discussion of the
Richey-Brajdas Merger, the In-Stock Acquisition, the IEI Acquisition, the
Deanco Acquisition and pro forma information.
(2) Consists of restructuring costs associated with the consolidation of the
operations of Deanco into the Company, including the Company's closure of
certain of its facilities and other costs associated with the
consolidation.
(3) The Company had approximately $19.6 million in federal and $1.3 million in
state tax net operating loss carry forwards ("NOLs"), primarily California,
as of December 31, 1995, which have resulted in reduced cash tax payments.
For the period ended December 31, 1995, cash tax payments were reduced
approximately $1.7 million for the utilization of federal and state NOLs.
(4) 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 January 1, 1991 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.
A-11
<PAGE>
(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 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."
(6) Excluding the restructuring reserve of approximately $1.4 million, which is
an operating expense, EBITDA would have been approximately $8.0 million and
EBITDA margin would have been 6.8% for the year ended December 31, 1995.
(7) Inventory turnover ratio and days sales outstanding in accounts receivable
calculations are based upon Richey Electronics' annualized sales and cost
of sales for the latest quarter, excluding the balance sheet effect of the
Deanco Acquisition.
(8) Includes Deanco as the Deanco Acquisition was completed on December 20,
1995.
A-12
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
The following unaudited Pro Forma Statement of Operations is derived from
the audited statement of income of Richey Electronics for the year ended
December 31, 1995, which are included herewith, and the audited consolidated
statement of income of EDAC for the period ended December 19, 1995, which were
included in Richey Electronics Form 8-K/A dated as of January 31, 1996, and
assumes that the Deanco Acquisition and the sale of the Notes were consummated
as of January 1, 1995. These pro forma results do not give effect to the IEI
Acquisition because it would not have materially changed historical results. The
unaudited Pro Forma Statement of Operations should be read in conjunction with
the Financial Statements of the Company and the Financial Statements of EDAC.
The Company will provide, upon written or oral request, a copy of the Form 8-K/A
containing the Financial Statements of EDAC. Requests 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.
The Pro Forma Statement of Operations does not purport to represent what the
Company's results or financial condition would actually have been if the Deanco
Acquisition and the issuance and sale of the Notes had occurred on the date
indicated or to project the Company's results or financial condition for or at
any future period or date. The pro forma adjustments, as described in the
accompanying data, are based on available information and certain assumptions
that management believes are reasonable.
The unaudited pro forma information with respect to the Deanco Acquisition
is based on the historical financial statements of the business acquired. The
Deanco Acquisition has been accounted for under the purchase method of
accounting.
A-13
<PAGE>
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
RICHEY EDAC AND ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITION
ELECTRONICS DEANCO FOR FOR FOR NOTE AND
HISTORICAL HISTORICAL ACQUISITION ACQUISITION OFFERING NOTE OFFERING
----------- ----------- ------------ ----------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales..................... $ 117,057 $ 99,926 -- $ 216,983 -- $ 216,983
Cost of goods sold............ 89,080 74,804 -- 163,884 -- 163,884
----------- ----------- ----------- --------------
Gross profit.................... 27,977 25,122 -- 53,099 -- 53,099
Selling, warehouse, general
and administrative and
amortization................. 20,874 21,558 762(1) 38,694 -- 38,694
(4,500)(2)
Acquisition-related
restructuring costs.......... 1,450 -- (1,450)(3) -- -- --
----------- ----------- ----------- --------------
Operating income.............. 5,653 3,564 5,188 14,405 -- 14,405
Interest expense, net......... 867 2,829 2,400(4) 6,096 (416)(7) 5,680
Other expense................. -- 598 (476)(5) 125 175(8) 300
3(1)
Income tax expense............ 1,918 264 1,625(6) 3,807 96(6) 3,903
----------- ----------- ----------- --------------
Net income (loss)............. $ 2,868 $ (127) 1,636 $ 4,377 145 $ 4,522
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Earnings per common share:
primary..................... $ 0.36 -- -- $ 0.54 -- $ 0.56
----------- ----------- --------------
----------- ----------- --------------
fully diluted............... $ 0.56
--------------
--------------
Weighted average number of
common shares outstanding:
primary..................... 8,036 -- -- 8,036 -- 8,036
fully diluted............... 11,576
OTHER FINANCIAL DATA:
EBITDA........................ $ 6,565 $ 4,305 5,950 $ 16,820 -- $ 16,820
EBITDA margin................. 5.6% 4.3% -- 7.8% -- 7.8%
Depreciation and
amortization................. 912 1,339 289 2,540 175 2,715
</TABLE>
The accompanying notes are an integral part of the pro forma statement of
operations (unaudited).
A-14
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(1) Amortization of goodwill and deferred debt costs have been adjusted to reflect the following:
Elimination of goodwill amortization in Deanco's income statement.................................. $ (359)
Goodwill amortization for a full year in the Company's income statement as the result of the
Deanco Acquisition............................................................................... 1,121
---------
$ 762
---------
---------
Elimination of amortization of deferred debt costs for Deanco.................................... $ (122)
Amortization of deferred debt costs associated with Senior Credit Facility....................... 125
---------
$ 3
---------
---------
(2)* The Company anticipates the following annual cost savings directly attributable to the Deanco
Acquisition:
Closure of seven redundant operating facilities and related lease costs.......................... $ 625
Salary and related benefit costs associated with the termination of approximately 60 people,
principally corporate and management personnel, as the result of the closure of redundant
facilities, consolidation of warehouse facilities and elimination of Deanco corporate staff...... 2,555
Fringe benefit savings, as Richey Electronics benefit plans were adopted for the combined
operations....................................................................................... 350
Expected salary cost and benefit savings associated with consolidation of redundant branches..... 550
Expected savings resulting from the elimination of duplicate corporate expenses.................. 200
Elimination of management fee contract for services to Deanco that terminated at the date of the
Deanco Acquisition............................................................................... 220
---------
$ 4,500
---------
---------
In addition to the cost savings initiatives described above directly attributable to the Deanco Acquisition, all of which
are reflected in pro forma adjustments, the Company estimates it can eliminate an additional $1,000 of annual duplicate
costs through further reductions in branch operating expenses, freight and advertising costs. The $1,000 of additional
cost savings are not reflected in the Pro Forma Statement of Operations.
(3) Material non-recurring charges for restructuring costs of $1,450 charged to the Company's fourth
quarter 1995 income statement have been eliminated.
(4) Interest expense has been increased to reflect the following assumptions:
Additional debt to fund payment of stock payment notes of $34,106 was outstanding for the full
year at the incremental borrowing rate of 8.2% on the Revolving Line of Credit................... $ 2,800
Notes payable to former EDAC management and stockholders had been financed at the Company's
incremental borrowing rate of 8.2% for the year as compared to the contractual rate of 9.0%...... (50)
Average bank debt outstanding for Deanco has been assumed to incur interest at the Company's
incremental borrowing rate of 8.2% for the period from January 1, 1995 to December 19, 1995,
instead of the approximate average rate of 10.75%................................................ (350)
---------
$ 2,400
---------
---------
The annual effect on income of the interest rate varying by 1/8% from the amount used in this
calculation would be approximately $75 before taxes.
(5) Material non-recurring charge for write-off of Deanco deferred debt costs of $476 as a result of
the refinancing of the combined operations have been eliminated.
(6) The pro forma adjustments to income taxes are based on a 40% tax rate applied to taxable income.
Taxable income is income before provision for income taxes plus non-deductible goodwill.
(7) Interest expense has been adjusted to reflect the Note Offering and the application of net proceeds
therefrom, prior to the exercise of the overallotment option.
(8) Deferred debt cost amortization has been increased to reflect amortization of costs over the ten
year life of the Notes offered hereby.
</TABLE>
- ------------------------------
* The pro forma information presented in note 2, when prepared, assumed the
closure of Deanco's Santa Clara facility. The Company is evaluating its
options with respect to the Company's San Jose and Deanco's Santa Clara,
California facilities. The Company may close its San Jose facility and
retain Deanco's Santa Clara facility or close both facilities and
consolidate such operations into a new facility. See "Properties." In the
event that the Company determines not to close Deanco's Santa Clara
facility, the adjustment to annual cost savings reflected in the pro forma
financials would not be material.
A-15
<PAGE>
ITEM 7. 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 a broad line of connectors, switches, wire, cable and heat
shrinkable tubing and other interconnect, electromechanical and passive
electronic 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. The Company
intends to capitalize on a trend toward outsourcing by increasing sales of
value-added assembly services. These sales increased from $10.9 million, or 17%
of net sales, in 1993 to $21.2 million, or 23.5% of net sales, in 1994 and to
$33.0 million, or 29% of net sales, in 1995. Pro forma for the acquisition of
Deanco, 1995 sales of value-added assembly services were $51.5 million.
The Company has been built through a series of transactions beginning with
the acquisition of the operations of Old Richey in December 1990 for $5.9
million, including expenses, consisting of $3.7 million in cash funded by its
revolving line of credit, senior preferred stock valued at $1.0 million and $1.2
million in cash contributed by the former RicheyImpact stockholders. The Company
completed the Richey-Brajdas Merger in April 1993 through the issuance of
3,114,286 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 its revolving line of credit. The Company
completed the IEI Acquisition in August 1995 for $1.2 million in cash funded by
its revolving line of credit. The Company has devoted significant efforts to
improving the performance of those operations. The Company completed the Deanco
Acquisition in December 1995 for consideration comprised of an aggregate stock
purchase price of approximately $34.1 million in cash, the redemption of EDAC
stockholder notes of approximately $6.6 million and the assumption of Deanco
debt of approximately $19.3 million. The Deanco Acquisition was accounted for as
a purchase. The Company funded the purchase consideration by drawing upon its
$75 million Senior Credit Facility. The Company completed the acquisition of
certain assets and the business of MS Electronics, in March, 1996 for the
purchase price of approximately $2.5 million in cash and the assumption of MS
Electronics' debt of approximately $500,000. The Company's financial statements
exclude the financial results of Brajdas prior to the Richey-Brajdas Merger, of
In-Stock prior to the In-Stock Acquisition, of IEI prior to the IEI Acquisition
and of Deanco prior to the Deanco Acquisition. The Company will seek to complete
additional strategic acquisitions in connection with the ongoing consolidation
occurring in the electronics distribution industry.
A-16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the statements of operations
as a percentage of net sales for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales...................................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................................. 75.0 75.5 76.1
----- ----- -----
Gross profit................................................................... 25.0 24.5 23.9
Selling, warehouse, general and administrative and amortization................ 21.4 19.2 17.9
Acquisition-related restructuring costs........................................ -- -- 1.2
----- ----- -----
Operating income............................................................... 3.6 5.3 4.9
Interest expense, net.......................................................... 1.8 1.8 0.7
----- ----- -----
Income before income taxes....................................................... 1.8 3.5 4.1
Income tax expense............................................................. 0.7 1.4 1.6
----- ----- -----
Net income..................................................................... 1.1% 2.1% 2.5%
----- ----- -----
----- ----- -----
</TABLE>
YEAR ENDED DECEMBER 31, 1995 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales were $117.1 million in 1995, an increase of $26.8 million, or
29.7%, from $90.3 million in 1994. Excluding sales of approximately $3.5 million
from acquired Deanco operations after December 19, 1995, net sales increased
25.8% in 1995. Excluding Deanco, net sales of electronic components increased
16.6% to $80.6 million in 1995 from $69.1 million in 1994, while net sales of
value-added assembly services increased 55.7% to $33.0 million in 1995 from
$21.2 million in 1994. Component sales increased in 1995 due to (i) the general
strength of the market for electronic products, such as computers,
telecommunications and aerospace equipment, and (ii) the addition of new
franchised lines to the Company's product offering together with geographic
expansion of existing franchises. Rapid growth in net sales of value-added
assembly services resulted from the continuing trend of OEMs to outsource the
assembly of their products as well as management's decision to accept larger
contract assembly orders from larger customers than it had in the past. On a pro
forma basis, assuming the In-Stock Acquisition and Deanco Acquisition had
occurred as of January 1, 1994, net sales would have been $193.5 million and
$217.0 million for 1994 and 1995, respectively. See Note 2 of Notes to Financial
Statements.
Gross profit was $28.0 million in 1995, an increase of $5.9 million, or
26.7%, from $22.1 million in 1994. Excluding gross profit of approximately
$800,000 from acquired Deanco operations after December 19, 1995, gross profit
increased 23.5% in 1995. Overall, the Company's gross margin declined to 23.9%
in 1995 from 24.5% in 1994. The Company's component distribution gross margins
remained approximately the same in 1995 as compared to 1994. Value-added
assembly gross margins declined in 1995 compared to 1994 due to (i) an increase
in the number of larger orders from larger customers which typically provide
lower gross margins than the Company previously experienced, (ii) the
acquisition of IEI which had historically lower gross margins than the Company
and (iii) inefficiencies related to the closing of IEI's facility and the move
and integration of IEI into one of the Company's existing facilities. Management
believes that these inefficiencies have now been corrected and it has begun to
implement procedures designed to limit the acceptance of large, low margin
orders and increase the gross profit margins on the larger orders it will accept
in the future.
Operating expenses were $22.3 million in 1995, an increase of $5.0 million,
or 28.9%, from $17.3 million in 1994. These expenses as a percentage of sales
declined to 19.1% in 1995 from 19.2% in 1994. In the fourth quarter of 1995, the
Company recognized a charge to operating expenses related to the Deanco
Acquisition of $1.5 million, or 1.2% of net sales, to cover the costs of closing
certain of the Company's facilities and consolidating the operations of Deanco
into the Company. This restructuring
A-17
<PAGE>
charge accounted for approximately 30% of the increase in operating expenses in
1995. After giving effect to the restructuring charge, operating profit rose
$900,000, or 18.8%, to $5.7 million in 1995 from $4.8 million in 1994. Excluding
the restructuring charge, operating expenses rose $3.6 million, or 20.5%, to
$20.9 million in 1995. Operating expenses, excluding the restructuring charge,
declined to 17.9% of sales in 1995 compared to 19.2% in 1994 as a direct result
of the Company's strategy to increase its operating leverage by spreading its
fixed costs over a larger sales base, while operating profit rose 48.8% to $7.1
million, or 6.1% of sales, as the decline in gross margin was more than offset
by increased operating leverage. The Company expects to pay out the
restructuring costs accrued in 1995 over the next year, except for amounts
related to longer term leases. See Note 2 of Notes to Financial Statements.
Net interest expense declined 44% to $900,000 in 1995 from $1.6 million in
1994. The decrease in interest expense was a result of the Company using the
$15.7 million proceeds from the sale of 3,165,000 shares of Common Stock, in
April and May of 1995, to retire its subordinated debt and pay down
substantially all of its revolving line of credit. See "Liquidity and Capital
Resources."
The Company's provision for federal and state income tax expense increased
to $1.9 million in 1995 from $1.3 million in 1994, proportional to the increase
in pre-tax earnings as the effective tax rate remained the same. The Company had
approximately $19.6 million in federal and $1.3 million in state tax NOLs,
primarily California, as of December 31, 1995, which substantially reduced cash
tax payments. For the period ended December 31, 1995, cash tax payments were
reduced approximately $1.7 million for the utilization of federal and state
NOLs. See "Deferred Tax Assets" and Note 8 of Notes to Financial Statements.
YEAR ENDED DECEMBER 31, 1994 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net sales were $90.3 million in 1994, an increase of $25.3 million, or
38.9%, from $65.0 million in 1993. Net sales of electronic components increased
to $69.1 million in 1994 from $54.1 million in 1993, an increase of 27.7%. Net
sales of value-added assembly services increased to $21.2 million from $10.9
million in 1993, an increase of 94.5%. Although the Company fully integrated
In-Stock with its existing operations in 1994 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 distribution markets it served. 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 1993 and 1994,
respectively.
Gross profit was $22.1 million in 1994, an increase of $5.8 million, or
35.6%, from $16.3 million in 1993. Net sales in 1993 include $540,000 of special
inventory acquired at no cost subsequent to the Company's acquisition of Old
Richey. Net sales of special inventory in 1994 were not significant. Component
distribution gross margins remained essentially flat in 1994 compared to 1993.
Value-added assembly margins declined in 1994 compared to 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 1994 gross margins from value-added assembly sales at those operations were
roughly comparable to gross margins from its other value-added assembly sales.
Excluding sales of special inventory, overall gross margins increased slightly
from 24.4% in 1993 to 24.5% in 1994, due to a changing sales mix increasingly
oriented toward value-added assembly services.
Operating expenses were $17.3 million in 1994, an increase of $3.4 million,
or 24.5%, from $13.9 million in 1993. These expenses as a percentage of sales
declined to 19.2% from 21.4% in 1993.
A-18
<PAGE>
Increased sales from internal growth as well as from the Richey-Brajdas Merger
and the In-Stock 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 1994 from $1.2 million in
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.
The Company's provision for federal and state income tax expense increased
to $1.3 million from $460,000 in 1993. The effective tax rate for 1994 increased
slightly to 40% from 39% for 1993. For the period ended December 31, 1994 cash
tax payments were reduced approximately $1.2 million for the utilization of
federal and state NOLs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were significantly affected in
1995 and the first quarter of 1996 by (i) the use of the $15.7 million net
proceeds from the sale of 3,165,000 shares of Common Stock, in April and May of
1995, to retire its subordinated debt and pay down substantially all of its then
outstanding revolving line of credit, (ii) the December 20, 1995 Deanco
Acquisition for consideration of $60.0 million, including the assumption of
Deanco's outstanding indebtedness and (iii) the use of the $53.8 million net
proceeds from the Note Offering to pay down indebtedness under its $75 million
revolving credit and term loan facility (the "Senior Credit Facility") with
First Interstate Bank of California ("FICAL"), as agent, and certain other
lenders. The Company funded the Deanco Acquisition by drawing upon its Senior
Credit Facility, which was obtained for that purpose.
On December 20, 1995, the Company replaced its existing credit facility with
Sanwa Business Credit Corporation and Deanco's existing credit facility with
Mellon Bank, N.A. with the Senior Credit Facility consisting of a $45 million
revolving line of credit (the "Revolving Line of Credit") and a $30 million term
loan (the "Term Loan"), with FICAL, as agent, and certain other lenders. The
Revolving Line of Credit terminates December 31, 1999. In the first quarter of
1996, the Company used the net proceeds of the Note Offering to repay the Term
Loan and to pay down the Revolving Line of Credit. The Senior Credit Facility is
secured by substantially all of the Company's and Deanco's assets and by a
pledge of the Deanco stock held by the Company. Loans under the Senior Credit
Facility bear interest, at the Company's option, at one of the following two
rates: (i) the sum of (a) the Applicable Margin (as defined in the FICAL loan
agreement, currently 1%) plus (b) the higher of FICAL's prime rate or the
federal funds rate plus 1/2 of 1% or (ii) in the case of Eurodollar Rate loans,
the sum of (a) the Eurodollar Rate (as defined in the FICAL loan agreement) plus
(b) the Applicable Margin (as defined in the FICAL loan agreement, currently
2.25%). See Note 4 of Notes to Financial Statements.
The loan agreement evidencing the Senior Credit Facility limits the
Company's ability to create or incur liens on assets, to make distributions or
investments, to enter into any mergers or make additional acquisitions or
dispositions of assets and to enter into transactions with affiliates. In
addition, the Company must comply with various financial and other covenants
established by its lender. The loan agreement also provides the banks with the
right to terminate the commitments on 30 days' notice if there is a change in
control of the Company (generally, the acquisition of more than 50% of the
Company's capital stock).
As of December 31, 1995, the Company had outstanding borrowings under the
Senior Credit Facility of $18.4 million, with additional borrowing capacity of
$48.2 million available, including the
A-19
<PAGE>
$30 million unadvanced portion of the Term Loan. On January 2, 1996, the Company
paid approximately $40.8 million in notes and accrued interest payable to the
EDAC stockholders by borrowing under the Senior Credit Facility. As of January
26, 1996, the Company had $1 million in cash and $6 million of additional
borrowing capacity available.
On February 26, 1996, net proceeds from the Note Offering were used to repay
the Term Loan and pay down the Revolving Line of Credit. On March 22, 1996, net
proceeds from the over-allotments under the Note Offering were used to further
pay down the Revolving Line of Credit. As of March 22, 1996, after giving effect
to the Note Offering and the application of the $53.8 million net proceeds
therefrom, approximately $30 million was available for borrowing under the
Revolving Line of Credit. The $30.0 million Term Loan, having been repaid, is no
longer available to the Company. The Company believes that the combination of
cash, available borrowing capacity under the Senior Credit Facility and cash
generated by operations will be adequate to meet its anticipated funding
commitments for the remainder of 1996, including the pay down of accrued
restructuring costs associated with the Deanco Acquisition.
Working capital increased to $34.1 million as of December 31, 1995 from $5.3
million as of December 31, 1994. During 1995, the Company's working capital was
affected by the sale of Common Stock and the Deanco Acquisition, as well as
operations. Working capital began the year at $5.3 million, as the outstanding
balance on the Company's then existing revolving line of credit was classified
as a current liability. Proceeds from the sale of Common Stock in April and May
of 1995 were used to pay down substantially all of the balance on that revolving
line of credit, increasing working capital to approximately $20 million by
mid-May, where it remained until the Deanco Acquisition. With the classification
of the balance outstanding at December 31, 1995 under the Revolving Line of
Credit used to finance the Deanco Acquisition as long term debt, working capital
increased to $34.1 million. The Company intends to maintain borrowings of at
least the amount outstanding at December 31, 1995 plus the portion of the
Revolving Line of Credit drawn on January 2, 1996 for an uninterrupted period
extending beyond one year; therefore, the December 31, 1995 balance of $18.4
million under the revolving line of credit is classified as long-term debt. See
Note 4 of Notes to Financial Statements.
Excluding the effects of the Deanco Acquisition, the Company's net cash from
operating activities was $200,000 in 1995, compared to $4.0 million in 1994 and
$500,000 in 1993. In 1995, net income provided $2.9 million, while non-cash
transactions provided $2.0 million ($900,000 from depreciation and amortization
and $1.1 million from deferred taxes) and $1.4 million from the restructuring
reserve. The $4.9 million in cash generated and the $1.4 million restructuring
reserve financed a $2.5 million increase in trade receivables, a $2.7 million
increase in inventories, and a $300,000 increase in other current assets, all
associated with the Company's rapid sales growth in 1995. Furthermore, accounts
payable and accrued expenses declined $600,000, bringing net cash provided by
1995 operations to $200,000. In 1994, net income provided $1.9 million and
non-cash transactions provided $1.9 million, which was used to fund $1.1 million
in increased receivables and $1.5 million in increased inventories. An increase
of $2.8 million in accounts payable and accrued liabilities brought net cash
provided by 1994 operations to $4.0 million. Net cash generated from operations
in 1994 increased compared to 1993, primarily due to increased net income,
increased use of the Company's NOLs and the increase in accounts payable and
accrued liabilities, offset somewhat by the increase in trade receivables.
Net cash used in investing activities increased to $3.3 million in 1995 from
$2.9 million in 1994 and $3.2 million in 1993. In 1995, the Company invested
$1.3 million in improvements and equipment, primarily leasehold improvements at
its principal assembly facility in Los Angeles and its corporate headquarters in
Garden Grove. An additional $1.2 million was used for the IEI Acquisition.
During 1994, the Company spent $400,000 on improvements and equipment to enhance
its value-added assembly capabilities, $1.8 million for the In-Stock
Acquisition, and $500,000 in Richey-Brajdas Merger costs. During 1993, the
Company spent $3.2 million on costs associated with the Richey-Brajdas Merger.
In 1995, the Company financed its capital expenditure and acquisition activities
with net cash from operating activities and borrowings under its revolving line
of credit arrangements. In
A-20
<PAGE>
1994 and 1993, the Company financed its investing activities with net cash from
operating activities and borrowings under its revolving line of credit. The
Company anticipates incurring capital expenditures of approximately $1.0 million
in 1996, 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, 1995, inventory turnover was 5.0x
compared to 4.9x in 1994 and 4.4x in 1993. In 1995, management maintained
enhanced inventory control programs initiated in earlier years. Prior to the
Deanco Acquisition, approximately 80% of the Company's inventory was located at
its centralized distribution facility in Los Angeles and 15% was located in
Boston. Pursuant to the Company's plan to integrate Deanco, the Company expects
to locate approximately 60% of its inventory in Los Angeles and approximately
30% in Boston.
The number of days sales outstanding decreased by 0.5 days to 41.8 days in
the fourth quarter of 1995 from 42.3 days in the final quarter of 1994.
Management believes that the Company's performance in managing its receivables
is among the best in its industry. The Company did not experience any
significant trade collection difficulties in 1995.
DEFERRED TAX ASSETS
As of December 31, 1995, the Company had approximately $19.6 million in
federal and $1.3 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 of the Internal Revenue Code of 1986, as amended ("Section 382")
and related regulations impose certain limitations on a corporation's ability to
use NOLs. In the event certain changes in a company's stock ownership over a
three-year period exceed a specified threshold (a "Change of Ownership"), the
use of NOLs is restricted. California law conforms to the provisions of Section
382. The public offering of 3,165,000 shares of the Company's Common Stock in
April and May of 1995 resulted in a Change in Ownership. The Company estimates
that its use of the NOLs is limited to approximately $3.0 million per year until
the NOLs are fully utilized or expire, whichever occurs first.
As discussed in Note 8 of Notes to Financial Statements, at December 31,
1995, the Company recorded a deferred tax asset of $8.9 million, net of a $2.1
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, consistent with prior practice, has
continued to maintain a $2.1 million valuation allowance which reduces the
December 31, 1995 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 $6.4 million in 1995. 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 $26.0
million of future taxable income needed to realize the recorded amount of the
net deferred tax asset prior to expiration of the NOLs. The amount of deferred
tax asset, however, could be reduced in the near term if estimates of future
taxable income are reduced.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required by this Item 8 are listed in Item 14(a)
and are submitted at the end of this Form 10-K.
A-21
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain statements of operations data for the
periods indicated. The quarterly financial information provided excludes the
financial results of Brajdas, In-Stock, IEI and Deanco prior to the date of the
respective acquisition. 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>
1995
Net sales..................................... $ 26,596,000 $ 28,305,000 $ 28,803,000 $ 33,353,000
Gross profit.................................. 6,513,000 6,660,000 6,931,000 7,873,000
Net income.................................... 680,000 909,000 1,070,000 209,000
Earnings per common share..................... .12 .11 .12 .02
Shipping days................................. 64 64 62 62
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
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
</TABLE>
- ------------------------
The unaudited quarterly results of operations (excluding Deanco) indicate
that net sales rose from $388,000 per shipping day in the fourth quarter of 1994
to $416,000, $442,000, $465,000 and $480,000 per shipping day in the four
consecutive quarters of 1995, respectively. The calendar for 1996 contains 64,
64, 62 and 64 shipping days for the first through fourth quarters, respectively.
Quarterly operating results may fluctuate significantly from quarter to quarter
in the future.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
A-22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors and executive
officers of the Company is set forth in the Company's definitive Proxy Statement
(the "1996 Proxy Statement") to be filed with the Commission relating to its
Annual Meeting of Stockholders to be held on May 7, 1996, under the headings
"Nominees for Election as Directors," "Other Executive Officers of the Company"
and "Compliance with Section 16(a) of the Exchange Act," and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding compensation of the
Company's directors and executive officers, set forth in the 1996 Proxy
Statement under the heading "Executive Compensation" is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item regarding beneficial ownership of the
Common Stock by certain beneficial owners and by management of the Company set
forth in the 1996 Proxy Statement under the heading "Security Ownership of
Certain Beneficial Owners and Management" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships and
related transactions with management of the Company set forth in the 1996 Proxy
Statement under the heading "Compensation Committee Interlocks and Insider
Participation" is incorporated herein by reference.
A-23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
Independent Auditor's Report
Balance Sheets at December 31, 1994 and 1995
Statements of Income for the Years ended December 31, 1993, 1994
and 1995
Statements of Stockholders' Equity for the Years ended December
31, 1993, 1994 and 1995
Statements of Cash Flows for the Years ended December 31, 1993,
1994 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Not Applicable.
3. Exhibits
<TABLE>
<S> <C>
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. *4* (2.1)
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. *4* (2.2)
2.3 Sales Tax Indemnification Agreement dated December 20, 1995 among Richey
Electronics, Inc. and the stockholders of Electrical Distribution
Acquisition Company identified therein. *4* (2.3)
3.1 Restated Certificate of Incorporation of Richey Electronics, Inc. *5* (3.1)
3.2 Bylaws of Richey Electronics, Inc. *5* (3.2)
4.1 Indenture between Richey Electronics, Inc. and First Trust of California,
National Association, dated as of February 15, 1996.
10.1 Indemnification Agreement among Barclay and Company, Inc., Brajdas
Corporation, Donald I. Zimmerman and certain former shareholders of
RicheyImpact Electronics, Inc. identified therein dated as of April 5, 1993.
*2* (E)
10.2 Letter re Amendment to Indemnification Agreement by Barclay and Company,
Inc. and Donald I. Zimmerman, and agreed to by BRJS Investment Holding
Corp., Brajdas Corporation and the other persons and entities identified
therein dated April 23, 1993. *1* (10.3)
10.3 Registration Rights Agreement between Brajdas Corporation and BRJS
Investment Holding Corp. dated April 2, 1993. *2* (10.4)
</TABLE>
A-24
<PAGE>
<TABLE>
<S> <C>
10.4 Amended and Restated Loan and Security Agreement dated as of April 7, 1993
between Sanwa Business Credit Corporation and Brajdas Corporation. *1*
(10.15)
10.5 Employment Agreement between William C. Cacciatore and Brajdas Corporation
dated as of April 1, 1993. *1* (10.18)
10.6 Addendum to Employment Agreement (William C. Cacciatore) dated as of
February 21, 1995. *9* (10.37)
10.7 Employment Agreement between C. Don Alverson and Brajdas Corporation dated
as of April 1, 1993. *1* (10.17)
10.8 Addendum to Employment Agreement (C. Don Alverson) dated as of February 21,
1995. *9* (10.38)
10.9 Employment Agreement between Richard N. Berger and Brajdas Corporation dated
as of April 1, 1993. *1* (10.20)
10.10 Addendum to Employment Agreement (Richard N. Berger) dated as of February
21, 1995. *9* (10.39)
10.11 Employment Agreement between Norbert W. St. John and Brajdas Corporation
dated as of April 1, 1993. *1* (10.19)
10.12 Addendum to Employment Agreement (Norbert W. St. John) dated as of February
21, 1995. *9* (10.40)
10.13 Brajdas Corporation Bonus Plan. *1* (10.21)
10.14 Service and Management Agreement dated December 18, 1990 by and among
RicheyImpact Electronics, Inc., Palisades Associates, Inc. and Saunders
Capital Group, Inc. *3* (10.2)
10.15 Agreement to Assume and Amend the Service and Management Agreement among
Brajdas Corporation, Palisades Associates, Inc. and Saunders Capital Group,
Inc. dated as of April 6, 1993. *3* (10.3)
10.16 1993 Stock Appreciation Rights Plan. *6* (A)
10.17 Modification Agreement among the Company, Palisades Associates, Inc. and
Saunders Capital Group, Inc. dated as of January 2, 1995. *9* (10.26)
10.18 Assumption and Amendment Agreement to Loan and Security Agreement dated as
of December 31, 1993 by and between Sanwa Business Credit Corporation and
Richey Electronics, Inc. *8* (10.31)
10.19 Second Amendment to Amended and Restated Loan and Security Agreement dated
as of March 29, 1994 by and between Sanwa Business Credit Corporation and
Richey Electronics, Inc. *8* (10.32)
10.20 First Amendment to Stockholders Agreement dated December 14, 1994 among the
Company and the individuals and entities listed on Schedule I to the
Stockholders Agreement. *9* (10.31)
10.21 Lease between Principal Mutual Life Insurance Company and Richey
Electronics, Inc. for lease of premises at 7441 Lincoln Way, Garden Grove,
California. *9* (10.32)
10.22 Lease between M&M Enterprises, a California General Partnership and Richey
Electronics, Inc. for lease of premises at 10871 La Tuna Canyon Road, Sun
Valley, California. *9* (10.33)
</TABLE>
A-25
<PAGE>
<TABLE>
<S> <C>
10.23 Lease between Anchor Group, Inc. and Richey Electronics, Inc. for lease of
premises at 11 Walkup Drive, Westborough, Massachusetts. *9* (10.34)
10.24 Lease between Hownat Trust and Deanco, Inc. for lease of premises at 87
Concord Street, North Reading, Massachusetts, Boston Massachusetts.
10.25 Lease between Murray Center Venture and Deanco ACA Manufacturing, Inc. for
lease of premises at Building 1, Murray Business Center, 3601 SW Murray
Blvd., Beaverton, Oregon 97201, Beaverton, Oregon
10.26 1992 Stock Option Plan. *9* (10.35)
10.27 Form of Incentive Stock Option Agreement. *9* (10.36)
10.28 Modification Agreement by and between Richey Electronics, Inc. and Palisades
Associates, Inc. dated as of February 21, 1995. *9* (10.41)
10.29 Loan Agreement dated as of December 20, 1995 among Richey Electronics, Inc.,
the banks named therein and First Interstate Bank of California, as Agent.
*4* (10.1)
10.30 First Amendment to the Loan Agreement dated as of February 26, 1996 among
Richey Electronics, Inc, the banks named therein and First Interstate Bank
of California, as Agent.
10.31 Second Addendum to Employment Agreement (William C. Cacciatore) dated as of
May 17, 1995.
10.32 Second Addendum to Employment Agreement (C. Don Alverson) dated as of May
17, 1995.
10.33 Second Addendum to Employment Agreement (Norbert W. St. John) dated as of
May 17, 1995.
10.34 Agreement to Terminate Stockholders' Agreement *10* (10.1)
21.1 Subsidiaries of Richey Electronics, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of McGladrey & Pullen, LLP
</TABLE>
- ------------------------
*1* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K for Brajdas Corporation for the fiscal year ended February 28,
1993, filed May 28, 1993.
*2* Incorporated by reference to the designated exhibit of the Statement on
Schedule 13D filed on behalf of BRJS Investment Holding Corp., C. Don
Alverson, William C. Cacciatore, Greg A. Rosenbaum and Norbert W. St. John
with the Securities and Exchange Commission on April 20, 1993.
*3* Incorporated by reference to the designated exhibit of the Transition
Report on Form 10-Q for Brajdas Corporation for the period from January 1,
1993 through July 2, 1993, filed August 4, 1993.
*4* Incorporated by reference to the designated exhibit of Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3, 1996.
*5* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-1, filed January 7, 1994, Registration No. 33-73916
(the "Shelf Registration Statement").
*6* Incorporated by reference to the designated exhibit of the definitive proxy
statement for the 1993 Annual Meeting of Stockholders.
A-26
<PAGE>
*7* Incorporated by reference to the designated exhibit of the Form 8-K for
Brajdas Corporation dated July 7, 1993, filed July 13, 1993.
*8* Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 1 to the Shelf Registration Statement on April 18, 1994.
*9* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2, filed February 23, 1995, Registration Statement No.
33-89690.
*10* Incorporated by reference to the designated exhibit of the Quarterly report
on Form 10-Q for Richey Electronics, Inc. for the period ending March 31,
1995, filed May 15, 1995.
*11* Incorporated by reference to the designated exhibit of the Quarterly report
on Form 10-Q for Richey Electronics, Inc. for the period ending September
29, 1995, filed November 13, 1995.
Exhibits 10.5-10.17, Exhibits 10.26 - 10.28 and Exhibits 10.31 - 10.33 are
management contracts or compensatory plans or arrangements required to be filed
as exhibits pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
Form 8-K dated November 20, 1995 reporting events under item 5 and an
exhibit under item 7.
Form 8-K dated December 20, 1995 reporting the acquisition of assets
under Item 2 and exhibits under item 7.
Form 8-KA dated January 31, 1996 reporting events under item 5 and
Financial Statements under item 7.
Form 8-K dated February 27, 1996 reporting events under item 5 and on
exhibit under item 7.
Deanco, Inc.
Independent Auditor's Report
Balance Sheets at June 30, 1993, June 30, 1994, and December 31, 1994
Statements of Operations for the years ended June 30, 1992, June 30,
1993 and June 30, 1994, for each of the three month periods
ended September 30, 1994 and December 31, 1994
Statements of Stockholders' Equity for the years ended June 30, 1992,
June 30, 1993 and June 30, 1994, and for the three months ended
December 31, 1994
Statements of Cash Flows for the years ended June 30, 1992, June 30,
1993 and June 30, 1994, and for each of the three month periods
ended September 30, 1994 and December 31, 1994
Notes to Financial Statements
Electrical Distribution Acquisition Company and Subsidiary
Independent Auditor's Report
Balance Sheet at December 31, 1994
Statement of Operations for the three months ended December 31, 1994
Statement of Stockholders' Equity for the three months ended
December 31, 1994
Statement of Cash Flows for the three months ended December 31, 1994
Notes to Financial Statements
A-27
<PAGE>
Electrical Distribution Acquisition Company and Subsidiary
Independent Auditor's Report
Consolidated Balance Sheet at December 19, 1995
Consolidated Statement of Income for the period ended December 19,
1995
Consolidated Statement of Stockholders' Equity for the period ended
December 19, 1995
Consolidated Statement of Cash Flows for the period ended December
19, 1995
Notes to Financial Statements
Pro Forma Financial Information
Unaudited Pro Forma Condensed Income Statement
Unaudited Pro Forma Condensed Balance Sheet
Notes to Pro Forma Financial Statements
A-28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Garden
Grove, State of California, on March 26, 1996.
RICHEY ELECTRONICS, INC.
By: /s/ RICHARD N. BERGER
-----------------------------------
Richard N. Berger
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------------------------- ------------------
/s/ WILLIAM C. CACCIATORE Chairman of the Board, President, Chief
- -------------------------------------- Executive Officer (Principal Executive March 26, 1996
William C. Cacciatore Officer)
/s/ C. DON ALVERSON
- -------------------------------------- Director March 26, 1996
C. Don Alverson
/s/ RICHARD N. BERGER Vice President, Chief Financial Officer and
- -------------------------------------- Secretary (Principal Financial and March 26, 1996
Richard N. Berger Accounting Officer)
/s/ GREG A. ROSENBAUM
- -------------------------------------- Director March 26, 1996
Greg A. Rosenbaum
/s/ NORBERT W. ST. JOHN
- -------------------------------------- Director March 26, 1996
Norbert W. St. John
</TABLE>
A-29
<PAGE>
INDEPENDENT AUDITOR'S 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, 1994 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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, 1994 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
Pasadena, California
January 19, 1996
A-30
<PAGE>
RICHEY ELECTRONICS, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------------- ----------------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash.......................................................................... $ 9,000 $ 572,000
Trade receivables............................................................. 11,167,000 25,622,000
Inventories................................................................... 14,913,000 31,450,000
Deferred income taxes (Note 8)................................................ 1,427,000 3,948,000
Other current assets.......................................................... 435,000 1,481,000
-------------- ----------------
Total current assets........................................................ 27,951,000 63,073,000
-------------- ----------------
IMPROVEMENTS AND EQUIPMENT, NET (Note 3)........................................ 1,017,000 3,469,000
-------------- ----------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes (Note 8)................................................ 2,430,000 4,979,000
Distribution agreements....................................................... 2,304,000 --
Customer lists................................................................ 957,000 --
Other......................................................................... 80,000 1,161,000
Costs in excess of net assets of acquired businesses (Note 2)................. 274,000 46,259,000
-------------- ----------------
6,045,000 52,399,000
-------------- ----------------
$ 35,013,000 $ 118,941,000
-------------- ----------------
-------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 4)................................. $ 1,600,000 $ 835,000
Notes payable, revolving line of credit (Note 4).............................. 8,843,000 --
Accounts payable.............................................................. 10,457,000 18,250,000
Accrued expenses (Note 5)..................................................... 1,734,000 6,088,000
Accrued restructuring costs (Note 2).......................................... -- 3,824,000
-------------- ----------------
Total current liabilities................................................... 22,634,000 28,997,000
-------------- ----------------
ACCRUED RESTRUCTURING COSTS (Note 2)............................................ -- 900,000
-------------- ----------------
LONG-TERM DEBT (Note 4)
Subordinated Notes Payable.................................................... 3,594,000 2,982,000
Other Long-term Debt.......................................................... -- 58,670,000
-------------- ----------------
3,594,000 61,652,000
-------------- ----------------
STOCKHOLDERS' EQUITY (Note 9)
Preferred stock, $.001 par value, authorized 10,000 shares, issued none....... -- --
Common stock, $.001 par value, authorized 30,000,000 shares................... 6,000 9,000
Additional paid-in capital.................................................... 5,240,000 20,976,000
Retained earnings............................................................. 3,539,000 6,407,000
-------------- ----------------
8,785,000 27,392,000
-------------- ----------------
$ 35,013,000 $ 118,941,000
-------------- ----------------
-------------- ----------------
</TABLE>
See Notes to Financial Statements.
A-31
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- ----------------
<S> <C> <C> <C>
Net sales...................................................... $ 64,995,000 $ 90,266,000 $ 117,057,000
Cost of goods sold............................................. 48,741,000 68,176,000 89,080,000
-------------- -------------- ----------------
Gross profit............................................... 16,254,000 22,090,000 27,977,000
-------------- -------------- ----------------
Operating expenses:
Selling, warehouse, general and administrative (Note 7)...... 13,002,000 16,750,000 20,415,000
Amortization of intangibles.................................. 887,000 568,000 459,000
Restructuring costs (Note 2)................................. -- -- 1,450,000
-------------- -------------- ----------------
13,889,000 17,318,000 22,324,000
-------------- -------------- ----------------
Operating income........................................... 2,365,000 4,772,000 5,653,000
Interest expense (Note 4).................................... 1,198,000 1,606,000 867,000
-------------- -------------- ----------------
Income before income taxes................................. 1,167,000 3,166,000 4,786,000
Federal and state income taxes (Note 8)........................ 460,000 1,273,000 1,918,000
-------------- -------------- ----------------
Net income................................................. $ 707,000 $ 1,893,000 $ 2,868,000
-------------- -------------- ----------------
-------------- -------------- ----------------
Earnings per common share...................................... $ 0.14 $ 0.32 $ 0.36
-------------- -------------- ----------------
-------------- -------------- ----------------
Weighted average number of common shares outstanding........... 5,085,000 5,889,000 8,036,000
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
See Notes to Financial Statements.
A-32
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
SENIOR ADDITIONAL
PREFERRED SHARES PAID-IN RETAINED
STOCK OUTSTANDING PAR VALUE CAPITAL EARNINGS TOTAL
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock, in
public offering, net of
offering expenses............. -- 3,165,000 3,000 15,736,000 -- 15,739,000
Net income..................... -- -- -- -- 2,868,000 2,868,000
----------- ----------- ----------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1995....... $ -- 9,054,000 $ 9,000 $20,976,000 $6,407,000 $27,392,000
----------- ----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ----------- ---------- -----------
</TABLE>
See Notes to Financial Statements.
A-33
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 707,000 $ 1,893,000 $ 2,868,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 997,000 765,000 912,000
Deferred taxes............................................... 465,000 1,157,000 1,065,000
Change in operating assets and liabilities, net of effect of
business combinations:
(Increase) decrease in:
Trade receivables........................................ (255,000) (1,107,000) (2,448,000)
Inventories.............................................. (1,345,000) (1,518,000) (2,727,000)
Other current assets..................................... (161,000) 14,000 (260,000)
Increase (decrease) in:
Accounts payable and accrued expenses.................... 60,000 2,820,000 (624,000)
Accrued restructuring costs.............................. -- -- 1,450,000
-------------- -------------- --------------
Net cash provided by operating activities.................. 468,000 4,024,000 236,000
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment................................ 42,000 -- --
Purchase of improvements and equipment......................... (89,000) (401,000) (1,316,000)
Payment of acquisition and restructuring costs................. (3,188,000) (2,512,000) (2,025,000)
-------------- -------------- --------------
Net cash (used in) investing activities...................... (3,235,000) (2,913,000) (3,341,000)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on revolving line of credit........ 3,859,000 1,848,000 (8,843,000)
Borrowings under long-term revolving line of credit
arrangement................................................. -- -- 1,974,000
Payments on long-term debt................................... (1,088,000) (2,957,000) (5,202,000)
Proceeds of common stock offering, net of expenses........... -- -- 15,739,000
-------------- -------------- --------------
Net cash provided by (used in) financing activities.......... 2,771,000 (1,109,000) 3,668,000
-------------- -------------- --------------
INCREASE IN CASH................................................. $ 4,000 $ 2,000 $ 563,000
CASH
Beginning...................................................... 3,000 7,000 9,000
-------------- -------------- --------------
Ending......................................................... $ 7,000 $ 9,000 $ 572,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Financial Statements.
A-34
<PAGE>
RICHEY ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ---------- ------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest.................................................................... $ 994,000 $1,675,000 $ 1,230,000
----------- ---------- ------------
----------- ---------- ------------
Income taxes................................................................ $ -- $ 46,000 $ 1,249,000
----------- ---------- ------------
----------- ---------- ------------
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 $ 28,093,000
Current liabilities........................................................... (5,093,000) (946,000) (12,731,000)
Leasehold improvements and equipment.......................................... 188,000 103,000 1,646,000
Customer lists and distribution agreements.................................... 10,220,000 -- --
Other assets.................................................................. 69,000 -- 861,000
Costs in excess of net assets of acquired businesses.......................... -- 274,000 47,287,000
Restructuring and transaction costs........................................... (3,748,000) -- (3,427,000)
Subordinated notes payable.................................................... (8,000,000) -- (2,982,000)
Common stock issued........................................................... (4,052,000) -- --
Other liabilities assumed..................................................... -- -- (23,434,000)
Stock payment notes........................................................... -- -- (34,106,000)
----------- ---------- ------------
Net cash paid............................................................. $ -- $1,841,000 $ 1,207,000
----------- ---------- ------------
----------- ---------- ------------
Issuance of subordinated notes payable in connection with merger................ $(1,194,000)
-----------
-----------
</TABLE>
See Notes to Financial Statements.
A-35
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a multiregional, specialty distributor of electronic
components and 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
electronic components used in assembly and manufacture of electronic equipment.
Richey Electronics has distribution rights from major worldwide suppliers, none
of which individually accounted for sales greater than 12% in 1995. Richey
Electronics' corporate headquarters are based in California and it has markets
in 17 states located predominantly in major western and eastern markets.
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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses during the reporting period. Actual results could differ from those
estimates and could materially impact the reported amount of assets and
liabilities and future operating results.
CONCENTRATION OF CREDIT RISK
The Company distributes electronic components to small and medium-sized
manufacturers in a wide variety of industries including telecommunications,
computer, medical, transportation and aerospace. 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. Credit losses have been consistently within management's
expectations and were not material in any year presented. A valuation allowance
for known and anticipated credit losses is maintained.
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.
1993 sales and gross profit include $540,000 of special inventory acquired
at no cost subsequent to the Company's original 1990 business combination. The
1994 and 1995 sales of this special inventory were not material.
IMPROVEMENTS AND EQUIPMENT
Improvements and equipment are stated at cost, less accumulated depreciation
and amortization. Equipment is depreciated using the straight-line method over
estimated service lives ranging from three to seven years. 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 acquired in the Richey-Brajdas
Merger have been amortized using the straight-line method over their respective
estimated economic lives of five and
A-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fifteen years. As the benefits of the Company's purchased net operating loss
carryforwards were realized, through the results of operations or reductions in
the deferred tax asset valuation allowance, the carrying value of the
distribution agreements and customer lists was reduced proportionately.
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES (GOODWILL)
The Company is generally amortizing goodwill on a straight-line method over
a 40-year period. Goodwill shown in the financial statements relates to the
Company's 1994 acquisition of In-Stock (current balance $242,000), and the
Company's 1995 acquisitions of IEI (current balance $162,000) and Deanco
(current balance $45,855,000).
The Company periodically reviews the value of its goodwill to determine if
an impairment has occurred. The Company does not believe that an impairment of
its goodwill has occurred based on an evaluation of operating income, cash flows
and business prospects.
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.
Common stock equivalents were not material in any year presented.
NEW PRONOUNCEMENTS
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF
In March 1995 the FASB issued Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of.
Statement No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Statement No. 121 will first be
required for the Company's year ending December 31, 1996. The Company does not
anticipate that the adoption of Statement No. 121 will have a material impact on
the financial statements as of the date of adoption.
FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1995 the Company adopted Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial Instruments. The carrying
amounts of accounts receivable and accounts payable approximate fair value. The
carrying amounts of the revolving line of credit and amounts to be refinanced
under the revolving line of credit and term loan approximate their fair value
given their interest rate pricing. The carrying amounts of subordinated debt and
other debt approximate fair value.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1995 the FASB issued Statement No. 123, Accounting for Stock-based
Compensation. Statement No. 123, establishes financial accounting and reporting
standards for stock-based employee
A-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
compensation plans such as a purchase plan. The statement generally suggests
stock-based compensation transactions be accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. An enterprise may continue to
follow the requirements of Accounting Principles Board (APB) Opinion No. 25,
which does not require compensation to be recorded if the consideration to be
received is at least equal to the fair value at the measurement date. If an
enterprise elects to follow APB Opinion No. 25, it must disclose the pro forma
effects on net income as if compensation were measured in accordance with the
suggestions of Statement No. 123. The Company has not determined if it will
continue to follow APB Opinion No. 25 or follow the guidance of Statement No.
123. However, adoption of this pronouncement in 1996 is not expected to have a
material impact on the financial statements.
NOTE 2. BUSINESS COMBINATIONS
In the period from 1993 to 1995, the Company completed several business
combinations. All of these acquisitions were accounted for as purchase business
combinations with the operations of the acquired business included subsequent to
the acquisition date. Each of the acquired businesses had operations similar to
the Company's. These acquisitions are described as follows:
BRAJDAS ACQUISITION
On April 6, 1993, RicheyImpact merged with Brajdas Corporation, a California
corporation ("Brajdas"), 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. The
Richey-Brajdas Merger was recorded as a reverse purchase acquisition with
RicheyImpact as the accounting acquirer.
IN-STOCK ACQUISITION
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),
located in Boston, Massachusetts.
EDAC AND SUBSIDIARY (DEANCO ACQUISITION)
On December 20, 1995, the Company completed the purchase of all the issued
and outstanding capital stock of Electrical Distribution Acquisition Company
("EDAC"). EDAC, a holding company, and its wholly owned subsidiary, Deanco, Inc.
("Deanco"), were acquired for $34,106,000 of stock payment notes, the assumption
of $5,962,000 of existing EDAC stockholder notes and the assumption of all other
debt of Deanco. 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.
A-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
The preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
CONSIDERATION
Purchase price for EDAC stock, consideration provided with stock payment
notes, due January 2, 1996................................................. $34,106,000
Assumption of EDAC stockholder notes, due January 2, 1996................... 5,962,000
Assumption of other interest-bearing debt................................... 19,300,000
Liabilities assumed, not including EDAC stockholder notes and stock payment
notes and other interest-bearing debt...................................... 12,511,000
Restructuring costs of acquired company..................................... 3,100,000
Transaction costs, including debt issuance costs............................ 1,400,000
-----------
$76,379,000
-----------
-----------
ALLOCATED TO
Estimated fair value of tangible assets acquired............................ $29,998,000
Debt issuance costs......................................................... 500,000
Cost in excess of net assets of business acquired (goodwill)................ 45,881,000
-----------
$76,379,000
-----------
-----------
</TABLE>
On December 20, 1995, the Company also entered into a new credit facility
(see Note 4). This credit facility provided the funds necessary to refinance
$15,713,000 of Deanco debt as of December 20, 1995 and pay off the EDAC stock
payment notes and stockholder notes on January 2, 1996.
In connection with the Deanco Acquisition, the Company will close certain of
its own facilities and incur other costs associated with the consolidation of
the operations of Deanco into the Company. During the fourth quarter, the
Company recognized a restructuring charge of $1,450,000. These costs are
expected to be paid out over the next year, except for amounts related to longer
term real and personal property leases of approximately $300,000. Substantially
all of the original accrual remained unpaid at December 31, 1995. The
restructuring charges consisted of $400,000 for lease obligations for Company
facilities that will be consolidated into Deanco facilities, severance costs for
the Company's employees of $100,000, inventory adjustments related to supplier
terminations of $200,000, computer conversion costs of $250,000, write-down of
Company furniture and fixtures of $150,000 and other items of $350,000.
Also in conjunction 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 related to the operations of Deanco
were recorded as a purchase accounting adjustment, resulting in an increase in
goodwill in the preliminary purchase price allocation. The accrued restructuring
costs consist of approximately $1,000,000 for severance for Deanco employees,
$1,750,000 for lease and facility costs for Deanco facilities to be closed and
other items of $350,000. At December 31, 1995, only a nominal amount of these
costs have been paid. The Company expects all of these costs to be paid within
the next 12 months, except those related to longer term facility leases of
$600,000.
Goodwill represents the costs in excess of tangible net assets acquired in
the acquisition. The Company believes that no separately identifiable intangible
assets were acquired and has assigned a 40-year life to this asset.
INLAND EMPIRE INTERCONNECTS ACQUISITION
On August 16, 1995, the Company completed the purchase of the assets and
business of Inland Empire Interconnects ("IEI"), an Ontario, California cable
assembly company. The purchase price and related transaction costs were
approximately $1,217,000 and were paid in cash. The fair value of
A-39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
the tangible assets acquired was $1,370,000 and the liabilities assumed totaled
$769,000. Intangibles of $616,000, including goodwill of $166,000 are included
in other assets and are being amortized over their estimated useful lives.
PRO FORMA RESULTS (UNAUDITED)
The following pro forma results assume the acquisition of the assets and
business of In-Stock occurred as of the beginning of 1994 and the Deanco
Acquisition occurred as of the beginning of 1994 and 1995. The IEI acquisition
would not have materially changed pro forma reported sales or net income. The
unaudited pro forma results have been prepared utilizing the historical
financial statements of the Company and the acquired businesses before
extraordinary item. The unaudited pro forma results give effect to certain
adjustments, including amortization of acquired intangibles and goodwill,
elimination of duplicate facilities and redundant salaries, interest expense and
related tax effects.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995
---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales........................................................... $ 193,527,000 $ 216,983,000
Net income.......................................................... 2,499,000 4,377,000
Earnings per share.................................................. 0.42 0.54
</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>
1994 1995
------------- -------------
<S> <C> <C>
Improvements.............................................................. $ 293,000 $ 2,084,000
Furniture, fixtures and equipment......................................... 1,431,000 2,597,000
------------- -------------
1,724,000 4,681,000
Less accumulated depreciation and amortization............................ 707,000 1,212,000
------------- -------------
$ 1,017,000 $ 3,469,000
------------- -------------
------------- -------------
</TABLE>
NOTE 4. REVOLVING LINE OF CREDIT, LONG-TERM DEBT, SUBORDINATED DEBT AND
SUBSEQUENT EVENT
REVOLVING LINE OF CREDIT
On December 20, 1995, the Company entered into a new credit agreement
secured by all assets which expires December 31, 1999. The new credit
arrangement is comprised of a revolving line of credit of $45,000,000 and a term
loan facility of $30,000,000. The revolving line of credit allows advances of up
to 85% of eligible receivables and 50% of eligible inventory, as defined. The
revolving line of credit has several interest rate pricing features available
and at December 31, 1995 $17,411,000 bears interest at the Eurodollar rate plus
2.25% (total of 8.06% at December 31, 1995) and $950,000 bears interest at 1%
above the bank's prime rate (total of 9.5% at December 31, 1995). The Company
intends to maintain borrowings of at least the amount outstanding at December
31, 1995 and the portion to be drawn on January 2, 1996 for an uninterrupted
period extending beyond one year; therefore, the December 31, 1995 outstanding
balance of $18,361,000 and $10,068,000 to be refinanced under the revolving line
of credit is classified as long-term debt.
A-40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. REVOLVING LINE OF CREDIT, LONG-TERM DEBT, SUBORDINATED DEBT AND
SUBSEQUENT EVENT (CONTINUED)
The term loan has similar pricing options. The term loan requires no
principal payments in 1996, $7,500,000 in 1997, $10,000,000 in 1998 and
$12,500,000 in 1999. The term loan agreement requires that all proceeds from any
future equity or debt issuance be applied to repay the $30,000,000 term loan.
The Company is required to pay the lender a quarterly unused line fee equal to
3/8%, quarterly, of the difference between the maximum commitments and the daily
average outstanding borrowings for the prior quarter. The credit agreement
contains various restrictive covenants which require the Company to meet certain
financial conditions, including maintaining a minimum level of stockholders'
equity, minimum profitability, fixed charge coverage and cash flow leverage
ratios. In addition, the Company is restricted from the payment of cash
dividends. The loan agreement allows the lender to terminate the commitments on
30 days' notice if there is a change in control of the Company (generally, the
acquisition of more than 50% of the Company's capital stock).
The following is a summary of borrowings under revolving lines of credit:
<TABLE>
<CAPTION>
1993 1994 1995
------------- ---------------- ----------------
<S> <C> <C> <C>
Weighted average interest rate in effect at year
end................................................ 8.5% 10.0% 8.2%
Available borrowings at year end.................... $ 533,000 $ 5,452,000 $ 18,261,000
Maximum outstanding borrowings during the year...... 695,000 12,610,000 18,361,000
Weighted average interest rate for the borrowings
outstanding during the year........................ 8.5% 8.9% 9.3%
</TABLE>
The Company's revolving line of credit provides that up to $3,000,000 of the
available line can be used for letters of credit. None were outstanding at year
end.
SUBSEQUENT EVENT
On January 2, 1996, the stock payment notes and subordinated promissory
notes payable to former EDAC management and stockholders discussed below were
repaid through the $30,000,000 term loan and a $10,068,000 advance from the
revolving line of credit.
A-41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. REVOLVING LINE OF CREDIT, LONG-TERM DEBT, SUBORDINATED DEBT AND
SUBSEQUENT EVENT (CONTINUED)
LONG-TERM DEBT
Long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995
------------- --------------
<S> <C> <C>
Revolving line of credit................................................. $ -- $ 18,361,000
Stock payment notes for Deanco Acquisition, interest at 4.79%, paid
January 2, 1996......................................................... -- 34,106,000
Subordinated promissory notes payable to former EDAC management and
stockholders, interest at 9%, paid January 2, 1996...................... -- 5,962,000
Subordinated promissory notes payable to former stockholders of Deanco,
unsecured, due in annual installments of $1,000,000 beginning in 1997
with a final payment of $982,000 on September 30, 1999, interest payable
annually at 8%.......................................................... -- 2,982,000
Unsecured subordinated note payable to a corporation, due on January 1,
1996, interest payable annually at 8%, subordinated to all bank debt.... -- 700,000
Other.................................................................... -- 376,000
10% senior subordinated note payable to Barclay Financial Group, a
related party, and unsecured. Interest expense was $479,000 and $118,000
for 1994 and 1995, respectively......................................... 4,000,000 --
12% junior subordinated notes payable to stockholders and unsecured.
Interest expense was $145,000 and $43,000 for 1994 and 1995,
respectively............................................................ 1,194,000 --
------------- --------------
5,194,000 62,487,000
Less current maturities.................................................. 1,600,000 835,000
------------- --------------
$ 3,594,000 $ 61,652,000
------------- --------------
------------- --------------
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
<TABLE>
<S> <C>
1996.................................................................. $ 835,000
1997.................................................................. 8,715,000
1998.................................................................. 11,026,000
1999.................................................................. 41,911,000
-----------
$62,487,000
-----------
-----------
</TABLE>
NOTE 5. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Compensation.............................................................. $ 1,163,000 $ 3,193,000
Rent and facilities costs................................................. 85,000 112,000
Interest.................................................................. 273,000 1,040,000
Other..................................................................... 213,000 1,743,000
------------- -------------
$ 1,734,000 $ 6,088,000
------------- -------------
------------- -------------
</TABLE>
A-42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. ACCRUED EXPENSES (CONTINUED)
The accrual for rent and facilities costs is net of sublease income of
$255,000 and $60,000 at December 31, 1994 and 1995, respectively.
NOTE 6. COMMITMENTS AND CONTINGENCIES
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>
1996................................................................... $1,475,000
1997................................................................... 1,440,000
1998................................................................... 1,415,000
1999................................................................... 1,250,000
2000................................................................... 760,000
Thereafter............................................................. 1,835,000
----------
$8,175,000
----------
----------
</TABLE>
Total rent expense under operating leases, including rent for facilities
leased on a month-to-month basis, was $846,000, $678,000 and $903,000 for 1993,
1994 and 1995, respectively.
CONTINGENT LIABILITIES
There are no material legal proceedings pending, or to the knowledge of
management, threatened against the Company.
NOTE 7. SERVICE AND MANAGEMENT AGREEMENT
The Company is party to a Service and Management Agreement dated December
18, 1990, as amended and modified. The Service and Management Agreement
terminates on December 31, 1997; however, the term is automatically extended for
additional two-year consecutive periods unless earlier terminated. Management
fees payable under this and prior agreements were approximately $244,000 in 1993
and 1994 and $234,000 in 1995, including a $64,000 termination payment to a
former party to this agreement.
NOTE 8. INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ------------- -------------
<S> <C> <C> <C>
Currently paid or payable:
Federal.................................................... $ (8,000) $ 60,000 $ 745,000
State...................................................... 3,000 56,000 108,000
Deferred..................................................... 465,000 1,157,000 1,065,000
----------- ------------- -------------
$ 460,000 $ 1,273,000 $ 1,918,000
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
A-43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. 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>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" statutory rate..................... 35% 35% 35%
Increase (decrease) in rate resulting from:
Benefit of income taxed at lower rate................ (1) (1) (1)
State income taxes, net of federal tax benefit....... 7 5 5
Other................................................ (2) 1 1
---- ---- ----
39% 40% 40%
---- ---- ----
---- ---- ----
</TABLE>
Net deferred taxes at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Intangibles recorded at the purchase price for financial reporting
purposes, not recognized in tax-free merger.......................... $ 1,348,000 $ --
Other................................................................. 337,000 314,000
-------------- --------------
1,685,000 314,000
-------------- --------------
Deferred tax assets:
Net operating loss carryforwards (NOLs)............................... 8,421,000 7,096,000
Costs capitalized to inventory for tax purposes....................... 320,000 919,000
Accrued expenses not deductible until paid............................ 210,000 2,462,000
Other................................................................. 244,000 890,000
-------------- --------------
9,195,000 11,367,000
Less valuation allowance.............................................. (3,653,000) (2,126,000)
-------------- --------------
5,542,000 9,241,000
-------------- --------------
Net................................................................. $ 3,857,000 $ 8,927,000
-------------- --------------
-------------- --------------
</TABLE>
Net deferred tax assets described above have been included in the
accompanying balance sheets as follows:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Current assets.......................................................... $ 1,427,000 $ 3,948,000
Noncurrent assets....................................................... 2,430,000 4,979,000
-------------- --------------
$ 3,857,000 $ 8,927,000
-------------- --------------
-------------- --------------
</TABLE>
A-44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
As of December 31, 1995, the Company had acquired net operating loss
carryforwards which have the following expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE FEDERAL CALIFORNIA
- ------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
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
-------------- -------------
-------------- -------------
</TABLE>
Section 382 of the Internal Revenue Code of 1986 and the related regulations
and California law impose certain limitations on a corporation's ability to use
net operating loss carryforwards if more than a 50% ownership change occurs. The
Company's issuance of additional common stock in 1995, together with the Richey
Brajdas Merger, constitutes a more than 50% ownership change. As a result, the
usage of the NOLs are restricted to approximately $3,000,000 on an annual basis.
The Company has been consistently profitable and generated taxable income
before NOL carryforwards of approximately $6.4 million in 1995. 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, consistent
with prior practice, management has continued to maintain 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 approximately $26
million of future taxable income necessary to realize the recorded amount of the
net deferred tax asset prior to the expiration of the NOLs. The amount of
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
NOTE 9. 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.
A-45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. EMPLOYEE BENEFIT PLANS (CONTINUED)
STOCK OPTION PLAN
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 expire ten years from
the date of grant. The options are granted at fair market value at the date of
grant.
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Under option, beginning of year.................................................. -- 226,737
Granted........................................................................ 226,737 266,334
Terminated and canceled........................................................ -- --
Exercised...................................................................... -- --
--------- ---------
Under option, end of year........................................................ 226,737 493,071
--------- ---------
--------- ---------
Options exercisable, end of year................................................. -- 45,642
Available for grant, end of year................................................. 362,197 95,863
Average prices of options:
Granted during the year........................................................ $6.00 $6.63
Under option, end of year...................................................... 6.00 6.34
</TABLE>
401(K) SAVINGS PLAN
The Company has a defined contribution 401(k) savings plan covering
substantially all its employees. The plan does not provide for the Company to
match any contributions by participants, and no contributions were made by the
Company during 1993, 1994 or 1995. As a result of the Deanco acquisition, the
Company acquired Deanco's 401(k) profit sharing plan whereby Deanco had
contributed 25% of each plan participant's covered contribution up to certain
specified limits.
HEALTH INSURANCE TRUST
The Company, through the Deanco Acquisition, has a health insurance trust
which provides benefits to certain employees and their eligible dependents for
medical and dental expenses. The trust is funded by the Company and employee
contributions and reimburses covered claims directly from the trust's funds. The
Company has purchased an insurance policy to provide coverage which pays
benefits if an individual's claims exceed $50,000 and aggregate claims for a
year exceed 150% of the annual expected claims, as computed by the insurance
company. An estimate of the liability for the incurred but not reported claims
is recorded in the financial statements.
A-46
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1995
Net sales....................................... $ 26,596,000 $ 28,305,000 $ 28,803,000 $ 33,353,000
Gross profit.................................... 6,513,000 6,660,000 6,931,000 7,873,000
Net income...................................... 680,000 909,000 1,070,000 209,000
Earnings per common share....................... 0.12 0.11 0.12 0.02
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....................... 0.06 0.09 0.08 0.09
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....................... 0.03 0.02 0.05 0.04
</TABLE>
A-47
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES OR CONVERSION SHARES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 2
Incorporation of Certain Information by
Reference..................................... 2
Risk Factors................................... 4
Use of Proceeds................................ 9
Description of Notes........................... 9
Description of Capital Stock................... 21
Selling Securityholders........................ 22
Plan of Distribution........................... 23
Certain United States Federal Income Tax
Considerations................................ 24
Legal Matters.................................. 29
Experts........................................ 29
</TABLE>
[LOGO]
$55,755,000 PRINCIPAL AMOUNT OF
7% CONVERTIBLE SUBORDINATED
NOTES DUE 2006
3,947,256 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
APRIL , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Notes and the Conversion Shares being registered. All amounts are estimates
except the registration fee.
<TABLE>
<S> <C>
Commission registration fee.................................... $19,225.86
Printing and engraving expenses................................ 4,000.00
Legal fees and expenses........................................ 50,000.00
Trustee's fees (including counsel fees)........................ 1,000.00
Accounting fees and expenses................................... 10,000.00
Miscellaneous.................................................. 8,000.00
----------
Total...................................................... $92,225.86
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of such persons' heirs, executors and administrators; and
empowers the corporation to purchase and maintain insurance on behalf of any
director, officer, employee or agent of the corporation against any
II-1
<PAGE>
liability asserted against him and incurred by him in any of the above
capacities, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under Section 145.
The Company currently maintains directors and officers insurance.
Section 102(b)(7) of DGCL provides that a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director provided that such provision shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived an improper personal benefit.
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.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Purchase Agreement among Richey Electronics, Inc. and Jefferies & Company, Inc.
and Cruttenden Roth Incorporated dated as of February 21, 1996.
2.1 Stock Purchase Agreement, dated November 15, 1995, among Richey Electronics,
Inc., Deanco, Inc., Electrical Distribution Acquisition Company and certain of
the stockholders of Electrical Distribution Acquisition Company. *5* (2.1)
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. *5* (2.2)
2.3 Sales Tax Indemnification Agreement dated December 20, 1995 among Richey
Electronics, Inc. and the stockholders of Electrical Distribution Acquisition
Company identified therein. *5* (2.3)
4.1 Indenture among Richey Electronics, Inc. and First Trust of California, National
Association, dated as of February 15, 1996. *1*(4.1)
4.2 Registration Rights Agreement among Richey Electronics, Inc. and Jefferies &
Company, Inc. and Cruttenden Roth Incorporated, dated as of February 26, 1996.
5.1 Opinion of Dewey Ballantine
10.1 Indemnification Agreement among Barclay and Company, Inc., Brajdas Corporation,
Donald I. Zimmerman and certain former shareholders of RicheyImpact
Electronics, Inc. identified therein dated as of April 5, 1993. *3* (E)
10.2 Letter re Amendment to Indemnification Agreement by Barclay and Company, Inc.
and Donald I. Zimmerman, and agreed to by BRJS Investment Holding Corp.,
Brajdas Corporation and the other persons and entities identified therein dated
April 23, 1993. *2* (10.3)
10.3 Registration Rights Agreement between Brajdas Corporation and BRJS Investment
Holding Corp. dated April 2, 1993. *3* (10.4)
10.4 Amended and Restated Loan and Security Agreement dated as of April 7, 1993
between Sanwa Business Credit Corporation and Brajdas Corporation. *2* (10.15)
10.5 Employment Agreement between William C. Cacciatore and Brajdas Corporation dated
as of April 1, 1993. *2* (10.18)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.6 Addendum to Employment Agreement (William C. Cacciatore) dated as of February
21, 1995. *9* (10.37)
10.7 Employment Agreement between C. Don Alverson and Brajdas Corporation dated as of
April 1, 1993. *2* (10.17)
10.8 Addendum to Employment Agreement (C. Don Alverson) dated as of February 21,
1995. *9* (10.38)
10.9 Employment Agreement between Richard N. Berger and Brajdas Corporation dated as
of April 1, 1993. *2* (10.20)
10.10 Addendum to Employment Agreement (Richard N. Berger) dated as of February 21,
1995. *9* (10.39)
10.11 Employment Agreement between Norbert W. St. John and Brajdas Corporation dated
as of April 1, 1993. *2* (10.19)
10.12 Addendum to Employment Agreement (Norbert W. St. John) dated as of February 21,
1995. *9* (10.40)
10.13 Brajdas Corporation Bonus Plan. *2* (10.21)
10.14 Service and Management Agreement dated December 18, 1990 by and among
RicheyImpact Electronics, Inc., Palisades Associates, Inc. and Saunders Capital
Group, Inc. *4* (10.2)
10.15 Agreement to Assume and Amend the Service and Management Agreement among Brajdas
Corporation, Palisades Associates, Inc. and Saunders Capital Group, Inc. dated
as of April 6, 1993. *4* (10.3)
10.16 1993 Stock Appreciation Rights Plan. *6* (A)
10.17 Modification Agreement among the Company, Palisades Associates, Inc. and
Saunders Capital Group, Inc. dated as of January 2, 1995. *9* (10.26)
10.18 Assumption and Amendment Agreement to Loan and Security Agreement dated as of
December 31, 1993 by and between Sanwa Business Credit Corporation and Richey
Electronics, Inc. *8* (10.31)
10.19 Second Amendment to Amended and Restated Loan and Security Agreement dated as of
March 29, 1994 by and between Sanwa Business Credit Corporation and Richey
Electronics, Inc. *8* (10.32)
10.20 First Amendment to Stockholders Agreement dated December 14, 1994 among the
Company and the individuals and entities listed on Schedule I to the
Stockholders Agreement. *9* (10.31)
10.21 Lease between Principal Mutual Life Insurance Company and Richey Electronics,
Inc. for lease of premises at 7441 Lincoln Way, Garden Grove, California. *9*
(10.32)
10.22 Lease between M&M Enterprises, a California General Partnership and Richey
Electronics, Inc. for lease of premises at 10871 La Tuna Canyon Road, Sun
Valley, California. *9* (10.33)
10.23 Lease between Anchor Group, Inc. and Richey Electronics, Inc. for lease of
premises at 11 Walkup Drive, Westborough, Massachusetts. *9* (10.34)
10.24 Lease between Hownat Trust and Deanco, Inc. for lease of premises at 87 Concord
Street, North Reading, Massachusetts, Boston Massachusetts. *1* (10.24)
10.25 Lease between Murray Center Venture and Deanco ACA Manufacturing, Inc. for lease
of premises at Building 1, Murray Business Center, 3601 SW Murray Blvd.,
Beaverton, Oregon 97201, Beaverton, Oregon. *1* (10.25)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.26 1992 Stock Option Plan. *9* (10.35)
10.27 Form of Incentive Stock Option Agreement. *9* (10.36)
10.28 Modification Agreement by and between Richey Electronics, Inc. and Palisades
Associates, Inc. dated as of February 21, 1995. *9* (10.41)
10.29 Loan Agreement dated as of December 20, 1995 among Richey Electronics, Inc., the
banks named therein and First Interstate Bank of California, as Agent. *5*
(10.1)
10.30 First Amendment to the Loan Agreement dated as of February 26, 1996 among Richey
Electronics, Inc, the banks named therein and First Interstate Bank of
California, as Agent. *1* (10.30)
10.31 Second Addendum to Employment Agreement (William C. Cacciatore) dated as of May
17, 1995. *1* (10.31)
10.32 Second Addendum to Employment Agreement (C. Don Alverson) dated as of May 17,
1995. *1* (10.32)
10.33 Second Addendum to Employment Agreement (Norbert W. St. John) dated as of May
17, 1995. *1* (10.33)
10.34 Agreement to Terminate Stockholders' Agreement. *11* (10.1)
10.35 Employment Agreement between Charles W. Mann and Richey Electronics, Inc. dated
as of April 1, 1995.
12.1 Statement re: computation of ratios
23.1 Consent of Ernst & Young LLP
23.2 Consent of McGladrey & Pullen, LLP
23.3 Consent of Dewey Ballantine (included in exhibit 5.1)
24.1 Power of Attorney
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of First Trust of California, National Association
</TABLE>
- ------------------------
*1* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K for Richey Electronics, Inc. for the fiscal year ended December
31, 1995, filed April 1, 1996.
*2* Incorporated by reference to the designated exhibit of the Annual Report on
Form 10-K for Brajdas Corporation for the fiscal year ended February 28,
1993, filed May 28, 1993.
*3* Incorporated by reference to the designated exhibit of the Statement on
Schedule 13D filed on behalf of BRJS Investment Holding Corp., C. Don
Alverson, William C. Cacciatore, Greg A. Rosenbaum and Norbert W. St. John
with the Securities and Exchange Commission on April 20, 1993.
*4* Incorporated by reference to the designated exhibit of the Transition
Report on Form 10-Q for Brajdas Corporation for the period from January 1,
1993 through July 2, 1993, filed August 4, 1993.
*5* Incorporated by reference to the designated exhibit of Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3, 1996.
*6* Incorporated by reference to the designated exhibit of the definitive proxy
statement for the 1993 Annual Meeting of Stockholders.
*7* Incorporated by reference to the designated exhibit of the Form 8-K for
Brajdas Corporation dated July 7, 1993, filed July 13, 1993.
II-4
<PAGE>
*8* Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 1 to the Shelf Registration Statement on April 18, 1994.
*9* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2, filed February 23, 1995, Registration Statement No.
33-89690.
*10* Incorporated by reference to the designated exhibit of the Quarterly report
on Form 10-Q for Richey Electronics, Inc. for the period ending March 31,
1995, filed May 15, 1995.
*11* Incorporated by reference to the designated exhibit of the Quarterly report
on Form 10-Q for Richey Electronics, Inc. for the period ending September
29, 1995, filed November 13, 1995.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof, and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. In the event that a claim
of indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act ("Act") in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Garden Grove, State of California, on April 25, 1996.
RICHEY ELECTRONICS, INC.
By /s/ RICHARD N. BERGER
--------------------------------------
Richard N. Berger
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman of the Board,
* President, Chief
- ----------------------------------- Executive Officer April 25, 1996
William C. Cacciatore (Principal Executive
Officer)
*
- ----------------------------------- Director, Executive Vice April 25, 1996
C. Don Alverson President -- Sales
Vice President, Chief
Financial
/s/ RICHARD N. BERGER Officer and Secretary
- ----------------------------------- (Principal April 25, 1996
Richard N. Berger Financial and Accounting
Officer)
- ----------------------------------- Director April 25, 1996
Edward L. Gelbach
*
- ----------------------------------- Director, Assistant April 25, 1996
Greg A. Rosenbaum Secretary
*
- ----------------------------------- Director April 25, 1996
Thomas W. Blumenthal
*
- ----------------------------------- Director, Executive Vice April 25, 1996
Norbert W. St. John President -- Marketing
*
- ----------------------------------- Director April 25, 1996
Donald I. Zimmerman
*By: /s/ RICHARD N. BERGER
- ---------------------------------
Richard N. Berger
(Attorney-in-fact)
II-6
<PAGE>
EXHIBIT 1.1
$50,000,000*
RICHEY ELECTRONICS
7% Convertible Subordinated Notes due 2006
PURCHASE AGREEMENT
February 21, 1996
JEFFERIES & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
c/o JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
Los Angeles, California 90025
Ladies/Gentlemen:
Richey Electronics, Inc., a Delaware corporation (the "Company"),
agrees with you as follows:
1. ISSUANCE OF SECURITIES. The Company proposes to issue and sell to you
(the "Initial Purchasers") an aggregate of $50,000,000 principal amount of its
7% Convertible Subordinated Notes due 2006 (the "Firm Notes"). The Company
also proposes to grant to the Initial Purchasers an option to purchase an
aggregate of up to $7,500,000 additional principal amount of its 7% Convertible
Subordinated Notes due 2006 (the "Option Notes") as provided in Section 7
hereof. The Firm Notes and Option Notes will be convertible into shares (the
"Underlying Securities") of common stock, $0.001 par value, of the Company
(the "Common Stock"). The Firm Notes and the Option Notes are referred to
herein collectively as the "Notes." The Notes and the Underlying Securities
are referred to herein collectively as the "Securities." The Notes will be
issued pursuant to the provisions of an Indenture to be dated as of February 15,
1996 (the "Indenture") to be between the Company and First Trust of
California, National Association, as trustee (the "Trustee").
The Notes will be offered and sold without being registered under the
Securities Act of 1933, as amended (the "Act"), in reliance on exemptions
therefrom provided by the Act and the rules and regulations (the "Rules and
Regulations") thereunder.
In connection with the offer and sale of the Notes, the Company has
prepared a preliminary offering circular dated February 1, 1996 (the
"Preliminary Offering Circular") and a final offering circular dated February
21, 1996 (the "Final Offering Circular") for delivery to prospective
purchasers of the Notes. Each of the Preliminary Offering Circular and the
Final Offering Circular includes or incorporates certain information concerning,
among other things, the Company, the Notes and the Underlying Securities. The
Final Offering Circular incorporates by reference each document or report filed
by the Company with the Securities and Exchange Commission (the "Commission")
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") after the date thereof and prior to the
termination of the distribution of the Notes as set forth in the Final Offering
Circular. As used herein, the terms "Preliminary Offering Circular" and
"Final Offering Circular" shall include in each case the documents
incorporated by reference therein, and any and all supplements and amendments to
such documents incorporated by reference therein and any and all amendments and
supplements to the Preliminary Offering Circular or the Final Offering
- -------------------------
* Plus an option to purchase an aggregate of up to $7,500,000 additional
principal amount of the Company's 7% Convertible Subordinated Notes due 2006
from the Company to cover overallotments.
<PAGE>
Circular, as the case may be, and the term "Offering Circular" shall include
the Preliminary Offering Circular and the Final Offering Circular. The terms
"supplement," "amendment" and "amend" as used herein shall include all
documents deemed to be incorporated by reference in the Preliminary Offering
Circular or Final Offering Circular that are filed subsequent to the date of
such Offering Circular with the Commission pursuant to the Exchange Act.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to and agrees with the Initial Purchasers that:
(a) The Preliminary Offering Circular does not, and the Final
Offering Circular as of its date does not, and on the Closing Date and Option
Closing Date (as hereinafter defined) will not, contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in the foregoing sentence do not apply to statements or omissions in either
Offering Circular based upon information relating to the Initial Purchasers
furnished to the Company in writing by you expressly for use therein as
specified in Section 3(c) hereof. The Company is subject to Section 13 or 15(d)
of the Exchange Act. The Company has timely filed with the Commission all the
documents that are incorporated by reference in the Offering Circular and that
the Company was required to file with the Commission under Section 13(a), 13(c),
14 or 15(d) of the Exchange Act (collectively, the "SEC Documents"). The SEC
Documents, when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules, regulations and
instructions of the Commission thereunder, and any documents so filed and
incorporated by reference in any Offering Circular subsequent to the date hereof
will, when they are filed with the Commission, conform in all material respects
to the requirements of the Exchange Act and the rules, regulations and
instructions of the Commission thereunder. No stop order or other similar order
or decree preventing the use of any Offering Circular, or any order or decree
asserting that the transactions contemplated by this Agreement are subject to
the registration requirements of the Act, has been issued and remains in effect
and, to the best knowledge of the Company, no proceedings for that purpose have
been commenced or are contemplated.
(b) Each of the Company and Deanco, Inc. ("Deanco") has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation with full corporate power and
authority to own, lease and operate its properties and conduct its business as
described in each Offering Circular; the Company directly owns (beneficially and
of record) all of the outstanding capital stock of Deanco, free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest
(other than liens and security interests described in the Final Offering
Circular); the Company and Deanco are each duly qualified to do business as a
foreign corporation and are in good standing in each jurisdiction in which the
ownership or leasing of properties or the conduct of their respective business
requires such qualification, except where the failure to be so qualified could
not reasonably be expected to have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and
Deanco taken as a whole, whether or not occurring in the ordinary course of
business (a "Material Adverse Effect"); no proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
(c) The Company does not have any subsidiaries other than Deanco and
RI Interconnect Systems, Inc., nor does it control, directly or indirectly, any
other corporation, association or other entity. Except for the shares of
capital stock of Deanco owned by the Company, and stock in other companies with
an aggregate cost basis less than $50,000, neither the Company nor Deanco owns
any shares of stock or any other securities of any corporation or has any equity
interest in any firm, partnership, association or other entity material in
amount in relation to the net assets of the Company. RI Interconnect Systems,
Inc. does not conduct any business, and is not a party to any contract,
agreement or other instrument, which is or could reasonably be expected to be
material to the business, prospects, financial condition or results of
operations of the Company, nor does it own or lease any real or personal
property.
2.
<PAGE>
(d) The Company has full legal right, power and authority to enter
into this Agreement, the Registration Rights Agreement (as such term is
hereinafter defined), the Indenture and the Notes and to perform the
transactions contemplated hereby and thereby. This Agreement, the Registration
Rights Agreement and the Indenture have been duly and validly authorized,
executed and delivered by the Company and are valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except, in the case of this Agreement and the Registration Rights
Agreement, insofar as indemnification, contribution and waiver provisions may be
limited by applicable law, equitable principles or public policy and except,
with respect to all such agreements, as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights of creditors generally or by equitable principles of general
applicability. The execution and delivery by the Company of, and performance of
its obligations under, this Agreement, the Registration Rights Agreement, the
Indenture and the Notes, and the consummation of the transactions herein and
therein contemplated, does not and will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under, (i) any loan
agreement, note agreement or other evidence of indebtedness, any lease or
contract, or any other agreement or instrument to which the Company or Deanco is
a party or by which the property of the Company or Deanco is bound, or (ii) the
charter or bylaws of the Company or Deanco, or (iii) any law, statute, order,
rule, regulation, writ, injunction, judgment or decree of any court or
governmental agency or body having jurisdiction over the Company or Deanco or
over the properties of the Company or Deanco, except, in the cases of clauses
(i) and (iii), for breaches, violations or defaults which, in the aggregate or
singly, could not reasonably be expected to have a Material Adverse Effect.
(e) The Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of this
Agreement, will (x) constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally or by
equitable principles of general applicability, and (y) be entitled to the
benefits of the Indenture.
(f) The Notes, the Registration Rights Agreement and the Indenture
conform in all material respects to all statements in relation thereto contained
in each Offering Circular. The Underlying Securities have been duly authorized
and duly reserved for issuance and, upon issuance thereof upon conversion of the
Notes in accordance with the terms of the Notes and the Indenture, will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company and will be issued free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest and will not be subject to
any preemptive rights, purchase rights or similar rights.
(g) There is not any pending or, to the Company's knowledge, any
threatened action, suit, claim or proceeding against the Company or Deanco, or
any of their respective officers or any of their properties, assets or rights
before any court or governmental agency or body or otherwise which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect or
which might adversely affect the power or ability of the Company to perform its
obligations under this Agreement, the Indenture, the Registration Rights
Agreement or the Notes, or which might prevent or delay consummation of the
transactions contemplated hereby or thereby, in each case, which have not been
accurately described in all material respects in the Final Offering Circular.
(h) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, and the
authorized and outstanding capital stock of the Company as it will exist on the
Closing Date (as hereinafter defined) is as set forth in the Final Offering
Circular under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Final Offering
Circular (and such statements correctly state the substance of the instruments
defining the capitalization of the Company). No preemptive right, co-sale
right, right of first refusal, other rights to subscribe for or purchase
securities or other right of securityholders similar to any of the foregoing
exists with respect to any of the Securities or the issuance or sale thereof
other than those that have been expressly waived prior to the date hereof and
described in the Final Offering Circular. No further approval or authorization
of
3.
<PAGE>
any stockholder, the Board of Directors or others is required for the issuance
and sale or transfer of the Notes, or the issuance and transfer of the
Underlying Securities, except, with respect to the transfer of the Notes and the
Underlying Securities, as may be required under the Act and which will be
satisfied upon the completion by the Company of its obligations under the
Registration Rights Agreement. All issued and outstanding shares of capital
stock of Deanco have been duly authorized and validly issued and are fully paid
and nonassessable. Except as disclosed in the Final Offering Circular, neither
the Company nor Deanco has any outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description in the Final Offering
Circular of the Company's stock option and other stock plans or arrangements,
and, as of the date stated in the document in which such information appears,
the options or other rights granted and exercised thereunder accurately and
fairly describe such plans, arrangements, options and rights.
(i) McGladrey & Pullen, LLP, which has examined the consolidated
financial statements, together with the related schedules and notes, of the
Company as of December 31, 1993, 1994 and 1995 and for each of the years in the
three years ended December 31, 1995, which are incorporated by reference or
included in the Final Offering Circular (the "Financial Statements") and the
consolidated financial statements and related schedules and notes of Electronic
Distribution Acquisition Company ("EDAC") as of December 19, 1995 and for the
period from January 1, 1995 through December 19, 1995, and Ernst & Young LLP,
which has examined certain other financial statements of EDAC and Deanco
included in the Final Offering Circular, are each independent public accountants
within the meaning of the Act and the Rules and Regulations; the Financial
Statements, the audited financial statements and related notes of Deanco and
EDAC included or incorporated by reference in the Final Offering Circular (the
"Deanco/EDAC Statements") and the unaudited consolidated financial information
of the Company, Deanco and EDAC which are incorporated by reference or included
in the Final Offering Circular, each fairly present the financial position and
the results of operations of the Company, Deanco or EDAC, as the case may be, at
the respective dates and for the respective periods to which they apply; and the
Financial Statements and Deanco/EDAC Financial Statements and such unaudited
consolidated financial information included or incorporated by reference in the
Final Offering Circular have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data incorporated by reference or included in the Final Offering
Circular present fairly the information shown therein and have been compiled on
a basis consistent with the Financial Statements.
(j) Subsequent to the respective dates as of which information is
given in the Final Offering Circular, there has not been any material adverse
change or development with respect to the business, prospects, financial
condition or results of operations of the Company and Deanco, taken as a whole,
whether or not arising in the ordinary course of business, (a "Material Adverse
Change") or any change which would adversely affect the power or ability of the
Company to perform its obligations under this Agreement, the Indenture, the
Registration Rights Agreement or the Notes.
(k) Except as disclosed in the Final Offering Circular, subsequent to
December 31, 1995, (i) neither the Company nor Deanco has (A) issued any
securities (other than the issuance by the Company of 3,500 shares of Common
Stock upon the exercise of outstanding options in accordance with their terms),
(B) incurred any material liabilities or obligations, direct or contingent,
(C) entered into any transaction not in the ordinary course of business,
(D) entered into any transaction with any affiliate (as defined below) of the
Company or Deanco, (E) declared or paid any dividend on its stock, or (F) made
any other distribution to any of its stockholders; and (ii) there has not been
any material change in the capital stock or other equity, or material increase
in the short-term debt or long-term debt, of the Company of Deanco or any
development involving or which may reasonably be expected to involve a Material
Adverse Change. For purposes of this Agreement, the term "Affiliate" shall
have the meaning ascribed thereto in Rule 405 promulgated by the Commission
pursuant to the Act.
4.
<PAGE>
(l) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution and delivery by the
Company of this Agreement, the Registration Rights Agreement, Indenture or the
Notes, or for the consummation by the Company of the transactions contemplated
hereby or thereby, except such as may be required under the Blue Sky laws of any
jurisdiction in connection with the purchase and resale of the Notes by the
Initial Purchasers and except as may be required in connection with the
performance of the Company's obligations under the Registration Rights
Agreement.
(m) Except as set forth in the Final Offering Circular, (i) the
Company has good and marketable title to all properties and assets described in
the Final Offering Circular as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company and Deanco considered as one
enterprise, (ii) the agreements to which the Company or Deanco are a party or by
which their properties are bound described in the Final Offering Circular, or
included as exhibits to filings made with the Commission or which would be
required to be filed as an exhibit to an Annual Report on Form 10-K for the year
ended December 31, 1995 if such Annual Report was now required to be filed
(collectively, "Material Contracts"), are valid agreements, enforceable by the
Company or Deanco (as applicable) in accordance with their respective terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the knowledge of the Company, the other contracting party or parties thereto are
not in material breach or material default under any such agreements, and
(iii) the Company and Deanco have valid and enforceable leases for the
properties described in the Final Offering Circular as leased by them except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the Final
Offering Circular, the Company and Deanco own or lease all such properties as
are necessary to their respective operations as described in the Final Offering
Circular.
(n) The pro forma financial information and the related notes thereto
included in the Preliminary Offering Circular and the Final Offering Circular
have been properly compiled in conformity with the standards set forth in
Rule 11-02 of Regulation S-X and on the pro forma bases described therein and,
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate in all material respects to give effect
to the transactions and circumstances referred to therein. The financial
information of the Company set forth in the Preliminary Offering Circular and
the Final Offering Circular under the captions "OFFERING CIRCULAR SUMMARY--
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA," "SELECTED FINANCIAL DATA,"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" is accurately presented and prepared on a basis consistent with the
relevant financial statements and books and records of the Company from which
such information has been derived.
(o) Each of the Company and Deanco maintains a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(p) The Company has a reasonable basis for its estimate of the cost
savings and resulting pro forma improvements in EBITDA (as defined in the Final
Offering Circular) that it expects to realize, as described in the Offering
Circular under the captions "Offering Circular Summary -- Acquisition of
Deanco" and "Pro Forma Statement of Operations -- Notes to Pro Forma Statement
of Operations"; such estimates were prepared by the Company in good faith on
the basis of reasonable assumptions; and such assumptions used in the
determination of the amount of such estimates constitute all of the material
assumptions relevant to such estimate.
5.
<PAGE>
(q) The Company and Deanco have timely filed all necessary federal,
state and foreign income and franchise tax returns required to be filed by them
and have paid all taxes shown thereon as due, and there is no tax deficiency
that has been or, to the Company's knowledge, might be asserted against the
Company other than such taxes as could not reasonably be expected to have a
Material Adverse Effect, in each case except as described in the Final Offering
Circular.
(r) Each of the Company and Deanco maintains insurance covering its
properties, operations, personnel and businesses. Such insurance insures
against such losses and risks as are adequate in accordance with customary
industry practice to protect the Company and Deanco and their businesses. The
Company has not received written notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will have to
be made in order to continue such insurance. All such insurance is outstanding
and duly in force on the date hereof.
(s) The Company and Deanco own or possess adequate rights to use all
material inventions, trade secrets, trademarks, service marks, trade names and
copyrights ("Intellectual Property") which are material to the conduct of
their businesses as described in the Final Offering Circular; the Company has
not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company or Deanco by others with respect to
any Intellectual Property; neither the Company nor, to the Company's knowledge,
Deanco has received any notice of, or has any knowledge of, any infringement of
or conflict with asserted rights of others with respect to any Intellectual
Property.
(t) There are no material outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company or Deanco to or for the benefit of any of the
executive officers or directors of the Company or any of the members of the
families of any of them.
(u) Each of the Company and Deanco has all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all regulatory or governmental officials, bodies and tribunals ("Permits") to
own or lease its properties and to conduct its business as described in the
Final Offering Circular, except where the failure to obtain the same could not
reasonably be expected to have a Material Adverse Effect, and neither the
Company nor, to the Company's knowledge, Deanco has received any notice or
written threat of proceedings relating to the revocation or modification of any
such Permits; each of the Company and Deanco has fulfilled and performed in all
material respects all of their respective current obligations with respect to
such Permits, and no event has occurred which allows, or after notice or lapse
of time, or both, would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such Permit,
subject in each case to such qualification as may be expressly set forth in the
Final Offering Circular; and, except as described therein, such Permits contain
no restrictions that are materially burdensome to the Company or Deanco. The
Company is not aware of any existing or imminent matter which may adversely
impact the operations or business prospects of it or Deanco other than as
disclosed in the Final Offering Circular.
(v) Neither the Company nor Deanco is (i) in violation of its
respective charter or by-laws, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or Deanco or of any
judgment or any decree of any court or governmental agency or body having
jurisdiction over the Company or Deanco where the consequences of such violation
could reasonably be expected to have a Material Adverse Effect, or (ii) in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease, bond, debenture, bank loan, credit agreement or other
agreement, instrument or evidence of indebtedness to which the Company or Deanco
is a party or by which it is or any of them may be bound, or to which any of the
property or assets of the Company or Deanco is subject, except for violations or
defaults which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
6.
<PAGE>
(w) Neither the Company nor Deanco is in Violation (as defined below)
of any Federal, state, local or foreign laws or regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products ("Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively , "Environmental Laws"), which Violation could be reasonably
expected to have a Material Adverse Effect. As used herein, "Violation"
includes, but is not limited to, noncompliance with any permit or other
governmental authorization required under applicable Environmental Laws and
noncompliance with the terms and conditions of any such permit or authorization.
(x) To the knowledge of the Company, there is no claim, action, cause
of action, investigation or written notice by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (A) the presence, or release into the
environment, of any Material of Environmental Concern at any location owned or
operated by the Company or Deanco or (B) circumstances forming the basis of any
Violation, or alleged violation, of any Environmental Law (collectively,
"Environmental Claims") pending or threatened against the Company or Deanco or
against any person or entity whose liability for any Environmental Claim the
Company or Deanco has retained or assumed either contractually or by operation
of law which liability or violation could be reasonably expected to have a
Material Adverse Effect.
(y) To the knowledge of the Company, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that could prevent compliance by the
Company or Deanco in all material respects with applicable Environmental Laws.
(z) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is quoted on the Nasdaq Stock Market, and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq Stock Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(aa) The Firm Notes and Option Notes satisfy the requirements set
forth in Rule 144A(d)(3) under the Act for securities to be eligible for trading
pursuant to Rule 144A.
(bb) None of the Company, its Affiliates or any person acting on its
or their behalf (other than the Initial Purchasers) has engaged or will engage
in any directed selling efforts (as that term is defined in Regulation S under
the Act ("Regulation S")) with respect to any of the Notes, and the Company
and its Affiliates and any person acting on its or their behalf (other than the
Initial Purchasers) have complied and will comply with the offering restrictions
requirement of Regulation S.
(cc) Neither the Company nor any Affiliate of the Company, directly or
through any agent or any person acting on its or their behalf, (i) has sold,
offered for sale, solicited offers to buy or otherwise negotiated in respect of,
any security (as defined in the Act) which is or will be integrated with the
sale of the Notes under Rule 502(a) of Regulation D under the Act in a manner
that would require the registration under the Act of the Notes or the resale
thereof by the Initial Purchasers, or (ii) has engaged in any form of general
solicitation or general advertising (as those terms are used in Rule 502(c) of
Regulation D under the Act) in connection with the offering of the Notes or the
resale thereof by the Initial Purchasers, or (iii) has engaged or will engage in
any manner in a public offering in connection with the sale of the Notes within
the meaning of
7.
<PAGE>
Section 4(2) of the Act (assuming, with respect to (ii) and (iii), the accuracy
and completeness of the Initial Purchaser's representations, warranties and
agreements in Sections 3(d) and 3(e) hereof).
(dd) It is not necessary in connection with the offer, sale and
delivery of any of the Notes to the Initial Purchasers in the manner
contemplated by this Agreement to register any of the Notes or the Underlying
Securities under the Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(ee) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act").
(ff) The Company has not paid or agreed to pay to any person any
compensation in connection with the solicitation of any person to purchase any
Notes except as contemplated by this Agreement.
(gg) Neither the Company nor any of its Affiliates has taken or will
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Notes or of the Common Stock of the Company to facilitate the sale or resale of
any of the Notes.
(hh) The Company has not at any time during the last five (5) years
(i) made any unlawful contribution to any candidate for foreign office or failed
to disclose fully any contribution in violation of law, or (ii) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(ii) Neither the Company nor Deanco nor any agent thereof acting on
the Company's behalf has taken, and none of them will take, any action that
might cause this Agreement or the issuance or sale of the Notes to violate
Regulation G (12 C.F.R Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R Part 221) or Regulation X (12 C.F.R Part 224) of the
Board of Governors of the Federal Reserve System.
(jj) Upon the issuance of the Notes and the application of the
proceeds thereof as contemplated by the Final Offering Circular, the present
fair saleable value of the assets of the Company will exceed the amount that
will be required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of the Company as they become
absolute and matured; the assets of the Company, upon the issuance of the Notes
and the application of the proceeds thereof as contemplated by the Offering
Circular, will not constitute unreasonably small capital to carry out its
businesses as conducted or as proposed to be conducted, including the capital
needs of the Company, taking into account the projected capital requirements and
capital availability of the Company.
(kk) The Company has complied and will comply with all provisions of
Florida Statutes Section 517.075 and the regulations thereunder, relating to
issuers doing business with Cuba.
(ll) There are no holders of securities of the Company or Deanco with
registration rights to have any securities registered under the Act other than
Barclay & Company, and no holder of securities of the Company has any right to
have any securities registered under the Act as a part of or in connection with
the Shelf Registration Statement contemplated by the Registration Rights
Agreement.
(mm) Certain officers and directors of the Company beneficially owning
an aggregate of at least 1,409,375 shares of Common Stock have agreed in writing
that such persons will not, for a period of 90 days from the effective date of
this Agreement (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common
8.
<PAGE>
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
(collectively, "Company Securities") now owned or hereafter acquired directly
by such person or with respect to which such person has or hereafter acquires
the power of disposition, otherwise than (i) as a bona fide gift or gifts,
provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction or (iii) with the prior written consent of Jefferies &
Company, Inc. The Company has provided to counsel for the Initial Purchasers
true, accurate and complete copies of all of the agreements pursuant to which
such officers and directors have agreed to such or similar restrictions (the
"Lock-up Agreements") presently in effect. In addition each such officer and
director has agreed in writing not to purchase any of the Securities, other than
Securities that have been or are being sold in a transaction registered under
the Act, directly or indirectly, until after three years following the later to
occur of the Closing Date or the latest Option Closing Date, if any.
(nn) The Company and Deanco are not in violation of any federal, state
or local law relating to discrimination in the hiring, promotion or pay of
employees nor any applicable wage or hour laws that, singly or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. There is (i) no
significant unfair labor practice complaint or any complaint relating to the
termination of any severance or similar plan adopted by the Company or Deanco,
pending against the Company or Deanco or, to the knowledge of the Company,
threatened against the Company or Deanco before the National Labor Relations
Board, any state or local labor relations board or any other administrative
agency or court, and (ii) no labor dispute in which the Company or Deanco is
involved nor, to the knowledge of the Company, is any such labor dispute
imminent, other than routine disciplinary and grievance matters. Neither the
Company nor Deanco is a party to or bound by any collective bargaining or
similar agreement with any labor organization or work rules or practices agreed
to with any labor organization or employee association applicable to employees
of the Company or Deanco and none of the employees of the Company or Deanco are
represented by any labor organization and the Company has no knowledge of any
current union organizing activities among the employees of the Company or
Deanco. The Company and Deanco are in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the regulations and published
interpretations thereunder; no "reportable event" (as defined in ERISA and the
regulations and published interpretations thereunder) has occurred or is
reasonably expected to occur with respect to any "pension plan" (as defined in
ERISA and the regulations and published interpretations thereunder) established
or maintained by the Company or Deanco; the amount of "unfunded benefit
liabilities" (as defined in ERISA and the regulations and published
interpretations thereunder) under all "pensions plans" does not exceed
$100,000; the Company and Deanco have not incurred nor expect to incur liability
under Title IV of ERISA with respect to termination of, or withdrawal from, any
"pensions plan" or under Sections 4971, 4975 or 4980B of the Internal Revenue
Code of 1986, as amended (the "Code"); and each "pension plan" established
or maintained by the Company or Deanco that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification. The execution and delivery of this Agreement, the
Registration Rights Agreement and the Indenture and the sale of the Notes to the
Initial Purchasers will not involve any "prohibited transaction" within the
meaning of Section 406 of ERISA, or the rules and regulations promulgated
thereunder, or Section 4975 of the Internal Revenue Code of 1986, as amended
(the "Code"). The representation made by the Company in the preceding
sentence is made in reliance upon and subject to the accuracy of, and compliance
with, the representations and covenants made or deemed made by the Initial
Purchasers as set forth in the Final Offering Circular under the section
entitled "TRANSFER RESTRICTIONS."
(oo) Neither the Company nor any Affiliate thereof has distributed
and, prior to the later to occur of (A) the Option Closing Date or
(B) completion of the resale of the Notes by the Initial Purchasers, will not
distribute without your prior written consent any offering material in
connection with the offering and sale of the Note other than the Offering
Circular.
9.
<PAGE>
3. OFFERING, PURCHASE, SALE AND DELIVERY OF FIRM NOTES AND OPTION NOTES.
(a) You have advised the Company that you have made and will make an
offering of the Firm Notes and Option Notes purchased by you hereunder on the
terms to be set forth in the Final Offering Circular and in this Agreement, as
soon after this Agreement is entered into as in your judgment is advisable.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the Initial Purchasers, and each Initial Purchaser
agrees, severally and not jointly, to purchase from the Company, the aggregate
principal amount of Firm Notes set forth opposite its name on SCHEDULE A hereto
at a purchase price of 96.50% of the principal amount thereof (the "Purchase
Price") plus accrued interest, if any, from February 26, 1996 to the date of
payment and delivery.
Delivery of definitive certificates for the Firm Notes to be purchased
by the Initial Purchasers pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the Initial Purchasers by certified or
official bank check in next-day funds, payable to the order of the Company, at
the offices of Dewey Ballantine, 333 South Hope Street, 30th Floor, Los Angeles,
California 90071 (or at such other place as may be agreed upon between
Jefferies & Company, Inc. (the "Manager") and the Company), at 7:00 a.m., Los
Angeles time (a) on February 26, 1996, or at such other time and date not later
than seven (7) full business days following the first day that Notes are traded
as the Manager and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 10 hereof),
such time and date of payment and delivery being herein called the "Closing
Date." The certificates (including one or more global certificates), if any,
for the Firm Notes to be so delivered will be made available to you at such
office or at such other location including, without limitation, in New York
City, as you may reasonably request for checking at least one full business day
prior to the Closing Date and will be in such names and denominations as you may
request, such request to be made at least two full business days prior to the
Closing Date. To the extent that the Manager so elects, delivery of the Firm
Notes held in global certificates may be made by credit through full fast
transfer to the accounts at DTC designated by the Manager.
(c) The information set forth in the last paragraph on the cover page
of the Final Offering Circular, and in the sixth, eighth and eleventh
paragraphs, under the caption "PLAN OF DISTRIBUTION" in the Final Offering
Circular (in each case, insofar as such information relates to the Initial
Purchasers) constitutes the only information furnished by or on behalf of the
Initial Purchasers to the Company for inclusion in the Final Offering Circular,
and you represent and warrant to the Company that the statements made therein
are true and correct and do not fail to state any material fact necessary in
order to make such statements, in light of the circumstances in which made, not
misleading.
(d) Each Initial Purchaser severally represents and warrants that it
is an accredited investor as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Act (an "Institutional Accredited Investor"). Each
Initial Purchaser severally agrees with the Company that (a) it has not
solicited and will not solicit offers for, or offer or sell, any Notes by any
form of general solicitation or general advertising (as those terms are used in
Rule 502(c) of Regulation D under the Act) or engage in any manner in a public
offering in connection with the sale of the Notes within the meaning of
Section 4(2) of the Act (assuming the accuracy and completeness of the Company's
representations, warranties and compliance with its agreements in
Sections 2(aa), 2(bb), 2(cc), 2(dd), 4(e), 4(f), 4(m) and 4(n) hereof), and
(b) it has solicited and will solicit offers for the Notes only from, and has
offered and will offer and sell the Notes only to, persons that it reasonably
believes to be (A) in the case of offers or sales inside the United States,
either (i) qualified institutional buyers, as defined in Rule 144A(a)(1) under
the Act ("QIBs"), (ii) Institutional Accredited Investors or (iii) a limited
number of other accredited investors as defined in Rule 501(a)(5), (6), or (8)
of Regulation D under the Act (each an "Accredited Investor"); provided, that
(x) sales to any Accredited Investor that is not an Institutional Accredited
Investor may only be made under such circumstances as may be approved by counsel
to the Company and counsel to the Initial Purchasers, and (y) each Institutional
Accredited Investor, prior to its purchase of the Firm Notes and the Option
Notes, shall have delivered to the Initial Purchasers a letter containing the
representations and
10.
<PAGE>
agreements set forth in Annex A to the Final Offering Circular and each other
Accredited Investor shall have delivered to the Initial Purchasers a letter
containing such representations and agreements with such modifications thereto
as may be approved by counsel to the Company and counsel to the Initial
Purchasers; and (B) in the case of offers or sales outside the United States,
either (i) persons described in clause (A) above, (ii) persons other than U.S.
persons (as such term is defined in Rule 902(o) of Regulation S under the Act),
or (iii) a distributor (as such term is defined in Rule 902(c) of Regulation S
under the Act) that has represented and agreed as set forth in Section 3(d),
3(e) and 3(f) hereof as if the provisions of such sections applied to such
distributor rather than to the Initial Purchasers. Each Initial Purchaser shall
maintain for the period required by the National Association of Securities
Dealers, Inc. records relating to compliance with Sections 3(d), 3(e) and 3(f).
(e) Each Initial Purchaser severally agrees that neither it, its
Affiliates nor any persons acting on its or their behalf have engaged or will
engage in any directed selling efforts (within the meaning of Regulation S under
the Act) with respect to any Notes, and such Initial Purchaser, its Affiliates
and any such persons have complied and will comply with the offering
restrictions requirement of Regulation S under the Act.
(f) Each Initial Purchaser severally represents, warrants, and agrees
with respect to offers and sales outside the United States that:
(i) Such Initial Purchaser has (A) not offered or sold, and will
not offer or sell in the United Kingdom by means of any document any Notes other
than to persons whose ordinary business it is to buy and sell shares or notes,
whether as a principal or agent, or in circumstances which do not constitute an
offer to the public within the meaning of the Public Offers of Securities
Regulations 1995 ("Regulations") (B) complied and will comply with all
applicable provisions of the Financial Services Act 1986 and the Regulations
with respect to the Notes in, from or otherwise involving the United Kingdom,
and (C) only issued or passed on and will only issue and pass on to any persons
in the United Kingdom any document received by it in connection with the issue
of the Notes if that person is of a kind described in Article 11(d) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995;
and
(ii) such Initial Purchaser will not offer or sell any Notes
directly or indirectly in Japan or to or from any resident of Japan except
(A) pursuant to an exemption from the registration requirements of the
Securities and Exchange Law of Japan and (B) in compliance with any other
applicable requirements of Japanese law.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
Initial Purchasers as follows:
(a) If, during the period beginning on the date hereof and ending on
the date on which the Initial Purchasers shall have resold all of the Notes, any
event shall occur or condition exist as a result of which it is necessary in the
judgment of the Company or the reasonable judgment of the Manager to amend or
supplement the Final Offering Circular in order to make the statements therein,
in the light of the circumstances existing at the time when such Final Offering
Circular is delivered to a purchaser of Notes, not misleading, or if, in the
opinion of your counsel, it is necessary to amend or supplement such Final
Offering Circular to comply with applicable law, the Company shall forthwith
prepare and furnish, at its own expense, to you either amendments or supplements
to such Final Offering Circular so that the statements in such Final Offering
Circular as so amended or supplemented will not, in the light of the
circumstances when such Final Offering Circular is delivered to a purchaser of
Notes, be misleading or so that such Final Offering Circular, as so amended or
supplemented, will comply with applicable law.
(b) Before amending or supplementing the Final Offering Circular, the
Company shall furnish to you a copy of each such proposed amendment or
supplement and shall not use any such proposed amendment or supplement to which
the Manager may reasonably object.
11.
<PAGE>
(c) The Company will cooperate with the Initial Purchasers and their
counsel to qualify the Securities for sale under the securities or Blue Sky laws
of such jurisdictions in the United States as you may designate and to continue
such qualifications in effect for so long as may be required for purposes of the
distribution of the Securities, except that the Company shall not be required in
connection therewith or as a condition thereof to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction in which it is not otherwise required to be so qualified or to so
execute a general consent to service of process. In each jurisdiction in which
the Securities shall have been qualified as above provided, the Company will
make and file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to the Initial Purchasers, as soon as
available, copies of the Preliminary Offering Circular and the Final Offering
Circular, any documents incorporated by reference therein and any amendments or
supplements to such documents, all in such quantities as you may from time to
time reasonably request until all of the Notes shall have been sold by the
Initial Purchasers.
(e) The Company will not, directly or indirectly, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in the Act) which could be integrated with the sale of any of the
Notes under Rule 502(a) of Regulation D under the Act in a manner which would
require the registration under the Act of the Notes or the resale thereof by the
Initial Purchasers.
(f) The Company will not, directly or indirectly, solicit any offer
to buy or offer or sell any of the Notes by means of any form of general
solicitation or general advertising (as those terms are used in Rule 502(c) of
Regulation D under the Act) or engage in any manner in a public offering in
connection with the sale of the Notes within the meaning of Section 4(2) of the
Act.
(g) To the extent that any Securities remain outstanding and are
"restricted securities" within the meaning of Rule 144 under the Act, during
the three-year period following the Closing Date (or, if later, the Option
Closing Date) and during the three-year period following the sale of any such
Security by an affiliate of the Company (for purposes of this Section 4(g) only,
as such term is defined in Rule 144(a)(1) under the Act), the Company will make
available, upon request, to any seller of such Securities the information
specified in Rule 144A(d)(4) under the Act, unless the Company is then subject
to and in compliance with Section 13 or 15(d) of the Exchange Act.
(h) The Company will use its reasonable best efforts to permit the
Notes to be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL Market and to permit the Notes to be eligible
for clearance and settlement through DTC.
(i) The Company and any person acting on its behalf will not, and the
Company will use its reasonable best efforts to cause its Affiliates or any
person acting on their behalf (other than the Initial Purchasers) not to, engage
in any directed selling efforts (as that term is defined in Regulation S under
the Act) with respect to any of the Notes, and the Company and each person
acting on its behalf (other than the Initial Purchasers) will, and the Company
will use its reasonable best efforts to cause its Affiliates and any person
acting on their behalf to comply with the offering requirements of Regulation S
under the Act.
(j) During the Lock-up Period, the Company will not, without the
prior written consent of the Manager effect a Disposition, directly or
indirectly, of any Company Securities other than: (i) the sale of the Notes and
Underlying Securities hereunder, and (ii) the Company's grant of options to
purchase Common Stock or issuance of Common Stock under the Company's 1992 Stock
Option Plan.
(k) The Company will at all times reserve and keep available, free of
any preemptive rights, co-sale rights, registration rights, rights of first
refusal, other rights to subscribe for or purchase securities or other rights of
securityholders similar to any of the foregoing, out of its authorized but
unissued Common Stock,
12.
<PAGE>
for the purpose of effecting the conversion of the Notes into Common Stock, the
full number of shares of Common Stock issuable upon the conversion of all
outstanding Notes.
(l) The Company will apply the proceeds from the sale of the Notes as
set forth under the caption "USE OF PROCEEDS" in the Final Offering Circular.
(m) The Company will ensure that each certificate representing any
Notes bears the following legend (unless such Note has been resold pursuant to
an effective registration statement under the Act):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION;
(2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR
OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON
STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, AS TRUSTEE, A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE),
(D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
(AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY
WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH
NOTE (OTHER THAN A TRANSFER PURSUANT TO
13.
<PAGE>
CLAUSE 2(F) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO FIRST TRUST
OF CALIFORNIA, NATIONAL ASSOCIATION, AS TRUSTEE. IF THE
PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO FIRST
TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, AS TRUSTEE, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER
IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THIS NOTE EVIDENCED HEREBY
PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF THREE
YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED
HEREBY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
(n) The Company will ensure that each stock certificate representing
Underlying Securities bears the following legend (unless such Underlying
Securities have been resold pursuant to an effective registration statement
under the Act):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES
THAT UNTIL THE EXPIRATION OF THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF THE NOTE UPON THE CONVERSION OF WHICH THE COMMON
STOCK EVIDENCED HEREBY WAS ISSUED, (1) IT WILL NOT RESELL OR
OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE
WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO OTR, INC., AS TRANSFER
AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM SUCH TRANSFER AGENT), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT
14.
<PAGE>
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO
BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY
SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
1(F) ABOVE), IT WILL FURNISH TO OTR, INC., AS TRANSFER
AGENT, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER
TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS
TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE
1(F) ABOVE OR THE EXPIRATION OF THREE YEARS FROM THE
ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION OF WHICH
THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR UPON THE
EARLIER SATISFACTION OF OTR, INC., AS TRANSFER AGENT, THAT
THE COMMON STOCK HAS BEEN OR IS BEING OFFERED AND SOLD IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
(o) The Company will not knowingly sell any of the Securities to any
Affiliate of the Company, and the Company will use its reasonable best efforts
to ensure that no Affiliate of the Company purchases any of the Securities,
other than, in each case, Securities that have been or are being sold in a
transaction registered under the Act, until after three years following the
later to occur of the Closing Date or the latest Option Closing Date, if any.
In connection with the foregoing, certain existing Affiliates of the Company
have executed and the Company will use its reasonable best efforts to secure
from any other person who is currently an Affiliate of the Company, or who
becomes a Affiliate of the Company after the effective date of this Agreement,
written agreements that they will not purchase any of the Securities, other than
Securities that have been or are being sold in a transaction registered under
the Act, until after three years following the later to occur of the Closing
Date or the latest Option Closing Date, if any. In the event that the three-
year holding period specified in Rule 144(k) is reduced to a shorter period,
then references in this paragraph (o) to "three" shall refer instead to such
shorter period.
(p) In connection with any disposition of Securities pursuant to a
transaction made in compliance with applicable state securities laws and
(i) satisfying the requirements of Rule 144(k) under the Act, (ii) satisfying
the requirements of Rule 904 of Regulation S under the Act in the case of the
Underlying Securities, (iii) made pursuant to an effective registration
statement under the Act or (iv) disposed of in any other transaction that does
not require registration under the Act, the Company will reissue certificates
evidencing such Securities without the legends referred to in Section 4(m) or
4(n) hereof (provided, in the case of a transaction specified in clause (iv)
above, that the legal opinion referred to therein supports the removal of such
legends).
(q) The Company agrees to comply with all of the terms and conditions
of the Registration Rights Agreement, and all agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Notes by DTC for "book entry" transfer.
15.
<PAGE>
(r) During the period beginning on the original issuance date of the
Notes and ending on the date that is three years from such date, the Company
will not resell, and will use its reasonable best efforts to prevent any of its
Affiliates from reselling (x) any Notes which constitute "restricted
securities" under Rule 144 or (y) any securities into which such Notes have
been converted under the Indenture, which constitute "restricted securities"
under Rule 144, except in each case for resales by Affiliates in transactions
registered under the Act. In the event that the three-year holding period
specified in rule 144(k) is reduced to a shorter period, then references in this
paragraph (s) to "three" shall refer instead to such shorter period.
(s) During a period of five years commencing with the date hereof,
the Company will furnish to the Initial Purchasers copies of all periodic and
special reports furnished to stockholders of the Company and of all information,
documents and reports filed with Commission pursuant to the Act or the Exchange
Act.
(t) If at any time during the 25-day period after the date of this
Agreement any rumor, publication or event relating to or affecting the Company
shall occur as a result of which in your opinion the market price for the Notes
or the Company's Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Final Offering Circular), the Company will,
after written notice from you advising the Company to the effect set forth
above, consult with you regarding the need to disseminate a press release or
other public statement responding to or commenting on such rumor, publication or
event.
5. EXPENSES.
The Company agrees with each Initial Purchaser that whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, the Company will pay (directly or by reimbursement) and be
responsible for all costs and expenses in connection with the following:
(a) the preparation by the Company, and the printing and distribution, of the
Preliminary Offering Circular and Final Offering Circular (including financial
statements, schedules and exhibits) and any amendments or supplements thereto;
(b) the printing (including, without limitation, word processing and duplication
costs) and delivery of this Agreement, the Registration Rights Agreement and the
Indenture, all preliminary and final Blue Sky memoranda and all other
agreements, memoranda, correspondence and other documents prepared and delivered
in connection herewith; (c) the issuance and delivery of the Firm Notes and the
Option Notes hereunder to the Initial Purchasers, including transfer taxes, if
any, and the cost of all certificates (including one or more global
certificates) representing the Notes; (d) the fees and disbursements of counsel
for the Company; (e) all fees and other charges of the Company's independent
public auditors; (f) the cost of furnishing to the Initial Purchasers copies of
the Preliminary Offering Circular and Final Offering Circular, and any
amendments or supplements to any of the foregoing; (g) the cost of qualifying
the Notes under the laws of such jurisdictions as you may designate (including
filing fees and fees and disbursements of Initial Purchaser's counsel in
connection with such Blue Sky qualifications); (h) the fees and expenses of the
Trustee in connection with the Indenture and the Notes; (i) the fees and
expenses incurred in connection with the admission of such Notes for trading in
the PORTAL Market and for clearance and settlement through DTC; and (j) all
other expenses in connection with the performance by the Company of its
obligations hereunder.
If this Agreement is terminated on or before the Closing Date in accordance
with the provisions of Sections 6 or 10(b) hereof (other than pursuant solely to
clauses (b)(ii)(A) or (ii)(E) of Section 10 hereof) or a failure of the
condition in Section 6(c) hereof), the Company shall reimburse the Initial
Purchasers for all of their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of their attorneys.
6. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations of the
Initial Purchasers to purchase and pay for the Firm Notes and Option Notes as
provided herein, shall be subject to the accuracy, as of the date hereof and the
Closing Date or the applicable Option Closing Date, as the case may be, of the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
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(a) Prior to the Closing Date or the applicable Option Closing Date,
as the case may be, there shall not have occurred any change, or any development
involving a prospective change, in the properties or assets of the Company
described in the Final Offering Circular, or in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and Deanco considered as one enterprise, from that set forth in the Preliminary
Offering Circular that, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable to market the Firm Notes or
Option Notes on the terms and in the manner contemplated in the Final Offering
Circular.
(b) You shall have received on the Closing Date or on the applicable
Option Closing Date, as the case may be, the opinion of Dewey Ballantine,
counsel for the Company, dated the Closing Date or the applicable Option Closing
Date, as the case may be, addressed to the Initial Purchasers, in the form
attached as SCHEDULE C, and the opinion of Richards, Layton & Finger, special
Delaware counsel to the Company, dated the Closing Date or the applicable Option
Closing Date, as the case may be, addressed to the Initial Purchasers, in form
reasonably acceptable to the Initial Purchasers, with respect to the valid
issuance and non-assessability of the shares of Common Stock issued prior to
April 27, 1995 or pursuant to the Underwriting Agreement dated April 19, 1995
among the Company, you and the other Underwriters named therein.
(c) You shall have received on the Closing Date or on the applicable
Option Closing Date, as the case may be, an opinion of Brobeck, Phleger &
Harrison LLP, in form and substance satisfactory to you, with respect to the
sufficiency of all such corporate proceedings and other legal matters relating
to this Agreement, the Indenture, the Registration Rights Agreement, the Notes
and the Underlying Securities and the transactions contemplated hereby and
thereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(d) You shall have received on the Closing Date or on the applicable
Option Closing Date, as the case may be, a letter from McGladrey & Pullen, LLP
addressed to the Initial Purchasers, dated the Closing Date or the applicable
Option Closing Date, as the case may be, confirming that they are independent
certified public accountants with respect to the Company and EDAC, within the
meaning of the Act and the Rules and Regulations and based upon the procedures
described in their letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a
date not more than five business days prior to the Closing Date or the
applicable Option Closing Date, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or the applicable Option Closing
Date, as the case may be; and (ii) setting forth any revisions and additions to
the statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original Letter
since the date of such letter, or to reflect the availability of more recent
financial statements, data or information. The letter shall not disclose any
change or any development involving a prospective change in or affecting the
business or properties of the Company and EDAC which, in your sole judgment,
makes it impracticable or inadvisable to proceed with the sale of the Firm Notes
and the Option Notes as contemplated by the Offering Circular. The Original
Letter from McGladrey & Pullen, LLP shall be addressed to or for the use of the
Initial Purchasers in form and substance satisfactory to the Initial Purchasers
and shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company and EDAC within the meaning of
the Act and the applicable published Rules and Regulations, (ii) set forth their
opinions with respect to their examination of the balance sheet of the Company
as of December 31, 1995 and related consolidated statements of income,
shareholders' equity, and cash flows for the twelve (12) months ended
December 31, 1995, and consolidated balance sheet of EDAC and Subsidiary as of
December 19, 1995 and the related consolidated statements of stockholders'
equity, cash flows and income for the period then ended, (iii) state that in
their opinion, the respective financial statements audited by them and included
in the Offering Circular comply as to form in all material respects with the
applicable accounting requirements of the Act and related published rules and
regulations, (iv) state that McGladrey & Pullen, LLP, has performed the
procedures set out in the Statement on Auditing Standards No. 71 ("SAS 71")
for a review of interim financial information on the financial statements for
each of the quarters in the three year period ended December 31, 1995 (the
"Quarterly Financial Statements"), (v) state that in the course of such
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review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and
(vi) address other matters agreed upon by McGladrey & Pullen, LLP and you. In
addition, you shall have received from McGladrey & Pullen, LLP a letter
addressed to the Company and made available to you stating that their review of
the Company's system of internal accounting controls to the extent they deemed
necessary in establishing the scope of their examination of the Company's
financial statements as of December 31, 1995, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(e) You shall have received on the Closing Date or on the applicable
Option Closing Date, as the case may be, a letter from Ernst & Young LLP
addressed to the Initial Purchasers, dated the Closing Date or the applicable
Option Closing Date, as the case may be, confirming that they are independent
certified public accountants with respect to the Company and Deanco, within the
meaning of the Act and the Rules and Regulations, and which shall state that, in
their opinion, the respective financial statements of EDAC and Deanco audited by
them and included in the Offering Circular comply as to form in all material
respects with the applicable accounting requirements of the Act and related
published rules and regulations.
(f) You shall have received on the Closing Date or on the applicable
Option Closing Date, as the case may be, a certificate of the Company, dated the
Closing Date or the applicable Option Closing Date, as the case may be, signed
on behalf of the Company its Chief Executive Officer and its Chief Financial
Officer, to the effect that, and you shall be satisfied that:
(i) the representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or the
applicable Option Closing Date, as the case may be, and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or the applicable Option
Closing Date, as the case may be;
(ii) as of the date of this Agreement and at all times subsequent
thereto up to the delivery of such certificate, the Final Offering Circular did
not and does not include an untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the
circumstances in which made, not misleading, and, since the date of this
Agreement, there has occurred no event necessary to be set forth in an amended
or supplemented Final Offering Circular in order to make any statements in such
Final Offering Circular, in light of the circumstances under which made, not
misleading, which has not been so set forth; and
(iii) Since December 31, 1995, there has been no Material
Adverse Change.
(g) The Company shall have executed and delivered to you on the
Closing Date the Registration Rights Agreement substantially in the form
attached hereto as Schedule B (the "Registration Rights Agreement").
(h) The Company shall have obtained and delivered to you an agreement
in writing from officers and directors of the Company beneficially owning an
aggregate of at least 1,409,375 shares of Common Stock, prior to the date hereof
that such person will not, during the Lock-up Period, effect the Disposition of
any Company Securities now owned or hereafter acquired directly by such person
or with respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee
or donees thereof agree in writing to be bound by this restriction, (ii) as a
distribution to partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of the Manager.
Furthermore, such person will have also agreed and consented to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Company Securities held by such person except in compliance with
this restriction. Such agreement shall further state that each Affiliate will
not purchase any of the Securities, other than Securities that
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have been or are being sold in a transaction registered under the Act, directly
or indirectly until the expiration of three years from the later to occur of the
Closing Date or the latest Closing Option Date, if any.
(i) You shall have received on the Closing Date or on the applicable
Option Closing Date, as the case may be, a certificate of the Company, dated the
Closing Date or the applicable Option Closing Date, as the case may be, signed
on behalf of the Company by its Chairman, President and Chief Executive Officer
and by its Chief Financial Officer, to the effect that, and you shall be
satisfied that:
(i) The only indentures, mortgages, deeds of trust, loan
agreements, bonds, debentures, note agreements or other evidences of
indebtedness to which the Company or Deanco is a party or by which any of them
are bound shall be those specifically identified in such certificate.
(ii) As of the Closing Date or the applicable Option Closing
Date, as the case may be, the Company is not in breach of, or default under the
provisions of the agreement referred to in paragraph (i) above, nor does any
condition exist which, with the giving of notice or passage of time, would
constitute such a default or breach, and the issuance by the Company of the Firm
Notes and the Option Notes pursuant to the Indenture and this Agreement and the
application by the Company of the net proceeds thereof as set forth under the
caption "Use of Proceeds" in the Final Offering Circular, would not result in
a breach of, or constitute a default under, the provisions of the agreements and
instruments referred to in paragraph (i) above. With respect to any financial
covenants in such agreements and instruments, the representation shall be made
on such certificate as of the Closing Date, and attached as an exhibit to such
certificate shall be computations demonstrating the compliance of such financial
covenants. Such computations have been made in conformity with the provisions
of such agreements and instruments, and the terms used in such agreements and
instruments, and the terms used in such computations have the meanings assigned
thereto in such agreements and instruments.
(iii) Attached as an exhibit to such certificate shall be
copies of any waivers or amendments or consents in respect of the agreements
referred to above.
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates on behalf
of the Company by officers of the Company), as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Initial Purchasers hereunder.
If any condition specified in this Section 6 shall not have been
fulfilled in all material respects when and as required to be fulfilled, this
Agreement may be terminated by the Manager on behalf of the Initial Purchasers,
by written notice to the Company at or prior to the Closing Date.
All opinions, certificates, letters and documents referred to in this
Section 6 will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Initial Purchaser's counsel. The Company will
furnish you with such number of conformed copies of such opinions, certificates,
letters and documents as you shall reasonably request.
7. OPTION SECURITIES.
On the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth, the Company hereby
grants to the Initial Purchasers, for the purpose of covering over-allotments in
connection with their sale of the Firm Notes only, a nontransferable option to
purchase up to an aggregate of $7,500,000 additional principal amount of its 7%
Convertible Subordinated Notes due 2006 at the purchase price for the Firm Notes
set forth in Section 3 hereof (which shall include accrued interest, if any,
from February 26, 1996). Such option may be exercised by the Initial Purchasers
on one or more occasions in whole or in part during the period of thirty (30)
days from and after the date on which the Firm Notes are
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initially sold, by written notice to the Company from the Manager on behalf of
the Initial Purchasers. The aggregate principal amount of Option Notes to be
purchased by each Initial Purchaser upon the exercise of such option shall be
the same proportion that the total principal amount of Firm Notes purchased by
such Initial Purchaser (set forth in Schedule A hereto) bears to the total
principal amount of Firm Notes purchased by the Initial Purchasers (set forth in
Schedule A hereto), adjusted by the Manager in such manner as to avoid issuance
of Notes in principal amounts that are not a multiple of $100,000.
Delivery of definitive certificates for the Option Notes to be
purchased by the Initial Purchasers pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the Initial Purchasers by certified or official bank check or checks
drawn in next-day funds, payable to the order of the Company. Such delivery and
payment shall take place at the offices of Dewey Ballantine, 333 South Hope
Street, 30th Floor, Los Angeles, California 90071, or at such other place as may
be agreed upon between the Manager and the Company (i) on the Closing Date, if
written notice of the exercise of such option is received by the Company at
least two full business days prior to the Closing Date or (ii) on a later date
specified by the Manager which shall not be later than the third (3rd) full
business day following the date the Company receives written notice of the
exercise of such option, if such notice is received by the Company less than two
(2) full business days prior to the Closing Date (each such date, as "Option
Closing Date").
The certificates (including one or more global certificates), if any,
for the Option Notes so to be delivered will be made available to you at such
office or other location including, without limitation, in New York City, as you
may reasonably request for checking at least one full business day prior to the
date of payment and delivery and will be in such names and denominations as you
may request, such request to be made at least two full business days prior to
such date of payment and delivery. To the extent that the Manager so elects,
delivery of the Option Notes in global form may be made by credit through full
fast transfer to the accounts at DTC designated by the Manager.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify, defend and hold harmless each
Initial Purchaser and its affiliates and any person who controls such Initial
Purchaser or any of its affiliates within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, and the respective officers, shareholders,
counsel, agents, employees and directors of each such person, against any loss,
expense, liability or claim (including the reasonable cost of investigating such
claim) which, jointly or severally, such Initial Purchaser or any such other
person may incur under the Act, the Exchange Act or otherwise, as such expenses
are incurred, insofar as such loss, expense, liability or claim arises out of or
is based upon any untrue statement or alleged untrue statement of any material
fact contained in any Offering Circular, or the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading; and agrees to
reimburse each Initial Purchaser and each such other person for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action, as such expenses
are incurred; provided, however, that the Company shall not be liable to any
Initial Purchaser or other such person in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Offering Circular, in reliance upon and in conformity with written
information relating to any Initial Purchaser furnished to the Company by or on
behalf of such Initial Purchaser specifically for use in the preparation thereof
as provided in Section 3(c) and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to the Preliminary Offering Circular
shall not inure to the benefit of any Initial Purchaser or its affiliates,
controlling persons, officers, shareholders, employees or directors with respect
to a claim by any purchaser of Notes from such Initial Purchaser based upon any
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission to state therein a material fact if the Final Offering Circular
corrected any such untrue statement or alleged untrue statement or omission or
alleged omission and such Initial Purchaser failed to send or give a copy of the
Final Offering Circular in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected to such person, within
the time
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required by law, and if the Company has delivered such Final Offering Circular
to such Initial Purchaser in quantity not less than one full business day prior
to the sale by such Initial Purchaser to the person asserting such claim.
(b) Each Initial Purchaser, severally and not jointly, agrees to
indemnify, defend and hold harmless the Company, its affiliates and any person
who controls the Company or any of its affiliates within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and the respective
officers, shareholders, counsel, agents, employees and directors of each such
person, from and against any loss, expense, liability or claim (including the
reasonable cost of investigation) which, jointly or severally, the Company or
any such person may incur under the Act, the Exchange Act or otherwise, as such
expenses are incurred, insofar as such loss, expense, liability or claim arises
out of or is based upon any untrue statement or alleged untrue statement of any
material fact contained in any Offering Circular, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances in which made, not misleading, to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or on behalf of the
Initial Purchasers specifically for inclusion therein as provided in
Section 3(c), and agrees to reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action.
(c) If any action is brought against any party (an "indemnified
party") in respect of which indemnity may be sought against another party (the
"indemnifying party") pursuant to Section 8(a) or 8(b) hereof, such
indemnified party shall promptly notify the indemnifying party in writing of the
institution of such action (provided, that the failure to give such notice shall
not relieve the indemnifying party of any liability which it may have pursuant
to this Agreement, unless it shall have been determined by a court of competent
jurisdiction by final judgment that such failure has resulted in the forfeiture
of substantive rights or defenses by the indemnifying party) and the
indemnifying party shall assume the defense of such action, including the
employment of counsel and payment of reasonable expenses. The indemnified party
or parties shall have the right to employ its or their own counsel in any such
case and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless: (i) the
indemnifying party shall have failed to assume the defense of such action or the
indemnifying party shall have failed to employ counsel reasonably satisfactory
to the indemnified party or parties in any such action within a reasonable time
after notice of the institution thereof; or (ii) such indemnified party or
parties shall have been advised by counsel that there may be one or more
defenses available to it or them that are different from or additional to those
available to the indemnifying party (in which case, if such indemnified party or
parties notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party or parties), in any of which events such fees and expenses
shall be borne by the indemnifying party and paid as incurred; provided, that
the indemnifying party shall be responsible for the fees and expenses of only
one counsel for all indemnified parties hereunder. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement, provided, however, that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnification could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under subsection (a) or (b) of this
Section 8 in respect of any losses, damages, expenses, liabilities or claims
referred to therein, then the indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, expenses,
liabilities or claims (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Initial
Purchasers, on the other hand, from the sale of the Notes or (ii) if the
allocation provided by clause (i) above is not permitted by
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applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions which resulted in such losses,
expenses, liabilities or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Initial Purchasers, on the other hand, shall be deemed to be in the same
proportion as the total proceeds from the sale of the Notes (net of discounts
and commissions but before deducting expenses) received by the Company bear to
the total discounts and commissions received by the Initial Purchasers. The
relative fault of the Company, on the one hand and of the Initial Purchasers on
the other hand, shall be determined by reference to, among other things, whether
the untrue statement or alleged untrue statement of a material fact or omission
or alleged omission related to information supplied by the Company or by the
Initial Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, expenses,
liabilities and claims referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any claim or action.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 8(c) above. Notwithstanding
the provisions of this Section 8, no Initial Purchaser shall be required to
contribute any amount in excess of the discount received by it. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
The Company and the Initial Purchasers each agree promptly to notify the
others of the commencement of any litigation or proceeding against it and, in
either case, against any of its respective officers and directors in connection
with any Offering Circular.
(e) The Company agrees to reimburse on a quarterly basis each Initial
Purchaser for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission described in Section 8(a) hereof, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the obligations under this Section 8 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants and agreements of the Company and the
Initial Purchasers herein or in certificates delivered pursuant hereto, and the
indemnity and contribution agreements contained in Section 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Initial Purchasers or any of its officers,
directors, employees, agents or counsel or any person controlling the Initial
Purchasers within the meaning of the Section 15 of Act or Section 20 of the
Exchange Act, or by or on behalf of the Company or any of its officers,
directors, employees, agents or counsel or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive (a) the delivery of
the Notes to the Initial Purchasers hereunder and (b) the termination of this
Agreement.
10. EFFECTIVE DATE OF AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective upon the execution and
delivery hereof by the Company and the Initial Purchasers.
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(b) The Manager, on behalf of the Initial Purchasers, may terminate
this Agreement at any time on or prior to the Closing Date (or, if applicable,
the Option Closing Date), by written notice to the Company, if:
(i) There has been, since the date of this Agreement or the
respective dates as of which information is given in the Offering Circular, any
Material Adverse Change or development involving a prospective Material Adverse
Change, whether or not arising in the ordinary course of business, that would,
in the Initial Purchaser's judgment, (A) make it impracticable or inadvisable to
proceed with the offering or delivery of the Notes on the terms and in the
manner contemplated in the Offering Circular, or (B) impair the investment
quality of any of the Securities; or
(ii) Since the date of this Agreement:
(A) there shall have occurred any outbreak or escalation of
hostilities or other national or international calamity or crisis or material
adverse change in economic conditions or the financial markets of the United
States or elsewhere, if the effect of such outbreak, escalation, calamity,
crisis or material adverse change in the economic conditions or in the financial
markets of the United State or elsewhere would, in the Initial Purchaser's
judgment, make it impracticable or inadvisable to market or to proceed with the
offering or delivery of the Notes on the terms and in the manner contemplated in
the Offering Circular or to enforce contracts for the sale of any of the Notes;
(B) trading generally on Nasdaq has been suspended (other
than by limitation on hours or number of days of trading), or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for securities
have been required, by Nasdaq or by order of the Commission or any other
governmental authority;
(C) any securities of the Company shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization;
(D) either federal or New York State authorities shall have
declared a banking moratorium; or
(E) there shall have occurred the taking of any action by
any federal, state or local government or agency after the date hereof in
respect of its monetary or fiscal affairs that in the Initial Purchaser's
opinion has a material adverse effect on the financial markets in the United
States; or
(F) there shall have occurred any material default or
breach by the Company hereunder or the failure to satisfy in any material
respect any of the conditions contained in Section 6 hereof.
(c) If this Agreement is terminated pursuant to this Section or any
other provision of this Agreement, such termination shall be without liability
of any party to any other party except as provided in Sections 5 and 8.
11. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Jefferies & Company, Inc., 530 California
Street, Suite 2080, San Francisco, CA 94104, telecopier number (415) 399-4444,
Attention: Jerry M. Gluck, Esq., with a copy to Brobeck, Phleger & Harrison LLP,
One Market, Spear Street Tower, San Francisco, California 94105, telecopier
number (415) 442-1400, Attention: George Tuttle; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Richey Electronics, Inc., 7441 Lincoln
Way, Garden Grove, CA 92641, telecopier number (714) 897-7887, Attention:
Richard Berger, Chief Financial Officer, with a copy to Dewey Ballantine,
telecopier number (213) 625-0562, Attention: Kathy Wales.
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12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Initial Purchasers and the Company, and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
or in respect of this Agreement or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or corporation. No purchaser of any of the Notes from any Initial
Purchaser shall be construed a successor or assign by reason merely of such
purchase.
In all dealings with the Company under this Agreement, the Company
shall be entitled to act and rely upon any statement, request, notice or
agreement made or given by you jointly or by Jefferies & Company, Inc. on behalf
of you.
13. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California without giving
effect to the choice of law or conflict of laws principles thereof..
14. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original and all of which together will
constitute a single instrument.
15. INTEGRATION. This agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes and
replaces all prior agreements or understandings among them.
24.
<PAGE>
If the foregoing correctly sets forth the understanding between the
Company and the Initial Purchasers, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between the Company and the Initial Purchasers.
Very truly yours,
RICHEY ELECTRONICS, INC.
By:_______________________________________________
Printed Name:_____________________________________
Title:____________________________________________
Accepted as of the date
first above written:
JEFFERIES & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
By: JEFFERIES & COMPANY, INC.
By:________________________________
Authorized Signatory
25.
<PAGE>
SCHEDULE A
To the Purchase Agreement
PRINCIPAL
AMOUNT OF
INITIAL PURCHASER NOTES
- ----------------- ------------------
Jefferies & Company, Inc. ............................ $ 45,000,000
Cruttenden Roth Incorporated.......................... 5,000,000
------------
Total............................................. $ 50,000,000
------------
------------
<PAGE>
SCHEDULE B
To the Purchase Agreement
Registration Rights Agreement
Schedule B is the Registration Rights Agreement among Richey Electronics, Inc.,
Jefferies & Company Inc. and Cruttenden Roth Incorporated dated as of February
26, 1996 listed as exhibit 4.2 to the Registration Statement dated as of
April ___, 1996.
<PAGE>
SCHEDULE C
To the Purchase Agreement
February 26, 1996
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
c/o Jefferies & Company, Inc.
580 California Street
San Francisco, California 94104
Attention: John G. Chiles
Ladies and Gentlemen:
We are acting as counsel for Richey Electronics, Inc., a Delaware
corporation (the "Company"), in connection with the private placement of
$50,000,000 in aggregate principal amount of the Company's 7% Convertible
Subordinated Notes due 2006 pursuant to a Purchase Agreement, dated February 21,
1996 (the "Purchase Agreement"), among the Company and Jefferies & Company, Inc.
and Cruttenden Roth Incorporated (the "Initial Purchasers"). This opinion is
being delivered pursuant to Section 6(b) of the Purchase Agreement and
simultaneously with the payment by the Initial Purchasers to the Company for the
Notes. Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Purchase Agreement.
As used herein, the term "Deanco" means Deanco, Inc., a New York
corporation. Deanco is a wholly-owned subsidiary of the Company. The Company
acquired Deanco on December 20, 1995. We call to your attention that the Board
of Directors of the Company has adopted resolutions to merge Deanco into Richey
and that on or about January 19, 1996, the Company submitted to the State of New
York Department of State a Certificate of Merger to effect such merger. The
Company has been notified by such Department that the Company must file certain
New York tax returns before such Department will file such Certificate of
Merger.
The Purchase Agreement, the Indenture, the Registration Rights
Agreement and the Notes are sometimes referred to herein collectively as the
"Agreements."
I. DOCUMENTS REVIEWED.
In connection with this opinion, we have reviewed the following:
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 2
A. The Final Offering Circular dated February 21, 1996;
B. The Notes dated February 26, 1996, to be delivered to the Initial
Purchasers pursuant to the Purchase Agreement (collectively, the "Notes");
C. The Indenture;
D. The Registration Rights Agreement;
E. The Restated Certificate of Incorporation of the Company;
F. The Bylaws of the Company;
G. The Certificate of Incorporation of Deanco, filed with the State
of New York Department of State on June 24, 1964;
H. Certificate of good standing of the Company from the Secretary of
State of the State of Delaware, dated February 23, 1996;
I. Certificate of good standing of Deanco from the State of New York
Department of State, dated February 22, 1996;
J. Certificates relating to the Company's good standing in the
states identified in Exhibit A attached hereto, which certificates are
dated as set forth in such Exhibit;
K. Certificates relating to Deanco's good standing in the states
identified in Exhibit B attached hereto, which certificates are dated as
set forth in such Exhibit;
L. The corporate and stock records of the Company and such other
agreements, documents and instruments of the Company as we have deemed
necessary as a basis for the opinions herein;
M. The First Amendment to Loan Agreement dated as of February 26,
1996, by and among the Company and the other parties identified therein, a
copy of which is attached hereto as Exhibit C, and a fully executed
original of which
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 3
was delivered to the Company on the Closing Date (the "Amendment"); and
N. Such information from officers and other representatives of the
Company and governmental and regulatory officials as we have deemed
necessary as a basis for the opinions herein.
II. FACTUAL MATTERS.
As to any facts material to the opinions expressed herein, we have
relied, to the extent that relevant facts were not independently established by
us and to the extent we deemed reliance proper, on certificates of public
officials and certificates, oaths and declarations of the officers and other
representatives of the Company and on the representations as to facts contained
in the Purchase Agreement, the Indenture and the Registration Rights Agreement.
When in the opinions herein, we have used the phrase "to our
knowledge," we have not made any independent investigation of the applicable
facts, but have relied on the representations made in the Purchase Agreement,
the Indenture or the Registration Rights Agreement and certificates of officers
and other representatives of the Company and on the actual knowledge of
attorneys in this firm who have devoted substantial attention to the Company's
sale of the Notes to the Initial Purchasers pursuant to the Purchase Agreement.
Accordingly, the opinions set forth below which are so limited or so stated are
meant to indicate only that, except as set forth therein and without inquiry
except as expressly set forth in this letter, we have no current actual
knowledge of any information inconsistent with such opinions.
III. ASSUMPTIONS.
In rendering the opinions set forth below, we have assumed (without
investigation) the following:
A. The genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies;
B. The legal capacity of natural persons;
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 4
C. The truth and accuracy of all facts and representations as to
facts contained in the Purchase Agreement, the Indenture or the Registration
Rights Agreement or in certificates of public officials or officers or other
representatives of the Company.
D. That the parties to the Purchase Agreement and the Registration
Rights Agreement, other than the Company, have the power to enter into and
perform such agreements and that such agreements have been duly authorized,
executed and delivered by, and constitute the valid and binding obligations of,
such parties, enforceable against such parties;
E. That the Trustee has the power to enter into and perform the
Indenture and that the Indenture has been duly authorized, executed and
delivered by the Trustee and constitutes the valid and binding obligation of the
Trustee, enforceable against the Trustee; and
F. The Notes have been duly authenticated by the Trustee.
IV. OPINIONS.
Subject to the assumptions, qualifications and limitations set forth
above and the additional assumptions, qualifications, limitations and exceptions
set forth below, we are of the opinion that:
A. The Company is a corporation duly incorporated and validly
existing and in good standing under the laws of the State of Delaware, has all
requisite corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as described in the Final Offering
Circular and, to our knowledge, is duly qualified to conduct its business and is
in good standing in each jurisdiction where the nature of its properties or the
conduct of its business requires such qualification except where the failure to
be so qualified does not have a material adverse effect on the business,
financial condition or results of operations of the Company and Deanco, taken as
a whole ("Material Adverse Effect").
B. Deanco is a corporation validly existing and in good standing
under the laws of the State of New York, has all requisite corporate power and
corporate authority to own, lease and operate its properties and, to our
knowledge, is qualified to
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 5
conduct its business and is in good standing in each jurisdiction where the
nature of its properties or the conduct of its business requires such
qualification except where the failure to be so qualified does not have a
Material Adverse Effect. The Company is the sole record and beneficial owner of
all of the capital stock of Deanco and, to our knowledge, owns such stock free
and clear of all security interests, liens, claims, options, warrants and
encumbrances other than liens in favor of its lenders under the Senior Credit
Facility (as such term is defined in the Final Offering Circular).
C. To our knowledge, except for Deanco and RI Interconnect Systems,
Inc., the Company does not have any direct or indirect subsidiaries.
D. The authorized capital stock of the Company consists of 10,000
shares of Preferred Stock, $0.001 par value, none of which are issued and
outstanding, and 30,000,000 shares of Common Stock, $0.001 par value, of which
9,054,329 shares were issued and outstanding as of December 31, 1995. The
authorized capital stock of the Company conforms in all material respects as to
legal matters to the descriptions thereof contained in the Final Offering
Circular under the caption "Description of Capital Stock." Except as disclosed
in the Final Offering Circular, to our knowledge, the Company does not have
outstanding any options to purchase, or any other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations.
E. The issued and outstanding shares of Common Stock of the Company
have been validly issued, are nonassessable and, to our knowledge, are fully
paid.
F. To our knowledge, the issued and outstanding shares of Common
Stock of the Company have not been issued in violation of any preemptive right
or any co-sale right, registration right, right of first refusal or other
similar right binding upon the Company.
G. The shares of Common Stock issuable upon conversion of the Notes
have been duly authorized and reserved for issuance and when issued and
delivered upon conversion of the Notes will be validly issued, fully paid and
nonassessable. No preemptive rights exist with respect to the issuance of such
shares pursuant to the charter documents or bylaws of the
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 6
Company; and to our knowledge, no contractual preemptive rights, rights of first
refusal or similar rights exist with respect to the issuance of such shares.
H. The Company has all necessary corporate power and corporate
authority to enter into the Purchase Agreement, the Indenture and the
Registration Rights Agreement, to issue, sell and deliver the Notes to the
Initial Purchasers as provided in the Purchase Agreement and to perform its
obligations under the Agreements.
I. The execution and delivery by the Company of the Purchase
Agreement, the Indenture and the Registration Rights Agreement and the execution
by the Company of the Notes have been duly authorized by all necessary corporate
action on the part of the Company. The Purchase Agreement, the Indenture and
the Registration Rights Agreement have been duly executed and delivered by the
Company and the Notes have been duly executed by the Company.
J. Each of the Purchase Agreement, the Indenture and the
Registration Rights Agreement is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms. Upon delivery to
the Initial Purchasers against payment therefor in accordance with terms of the
Purchase Agreement, the Notes will constitute valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms, and
will be entitled to the benefits of the Indenture.
K. The terms and provisions of the Notes, the Indenture and the
Registration Rights Agreement conform in all material respects to the respective
descriptions thereof contained in the Final Offering Circular.
L. The information in the Final Offering Circular under the captions
"Descriptions of Notes," "Descriptions of Capital Stock" and "Transfer
Restrictions," to the extent such information constitutes descriptions of legal
matters or legal conclusions, fairly and correctly presents the material aspects
of such legal matters or legal conclusions.
M. To our knowledge, there are no court decrees or orders binding
upon the Company or Deanco.
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 7
N. The offer, sale or delivery of the Notes to the Initial
Purchasers pursuant to the Purchase Agreement, the application by the Company of
the net proceeds therefrom as set forth in the Final Offering Circular under the
caption "Use of Proceeds," the issuance of the Common Stock upon conversion of
the Notes in accordance with the Indenture, the execution, delivery and
performance by the Company of the Purchase Agreement, the Indenture and the
Registration Rights Agreement, compliance by the Company with provisions thereof
and consummation by the Company of the transactions contemplated thereby do not
and will not (1) result in a violation of the terms or provisions of the
Certificate of Incorporation or Bylaws of the Company, (2) violate any present
law or regulation of any governmental authority of the United States of America
or the State of California or the State of New York or the Delaware General
Corporation Law (the "DGCL") (assuming compliance with all applicable state
securities and Blue Sky laws and, in the case of the Registration Rights
Agreement, compliance with the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the Trust Indenture Act of 1939, as amended (the "1939
Act")) or (3) violate, or constitute a breach or default under, any Material
Contract (assuming that the Company's incurrence of the indebtedness represented
by the Notes and payment thereof will not result in a violation of any of the
financial covenants contained in Sections 6.11, 6.12, 6.13 and 6.14 of the
Senior Credit Facility), except, as to clauses (2) and (3), where such violation
could not reasonably be expected to affect in any material respect the
transactions contemplated by the Agreements or to have a Material Adverse
Effect. We note that the Company has received the Amendment described above.
O. No consent, approval or authorization of any court or
governmental authority or agency of the United States or the State of New York
or the State of California or any Delaware corporate authority or agency is
required on the part of the Company for the valid issuance and sale of the Notes
to the Initial Purchasers as contemplated by the Purchase Agreement and
consummation by the Company of the other transactions contemplated thereby,
except for such consents, approvals or authorizations as may be required (1)
under state securities or Blue Sky laws governing the purchase and resale of the
Notes and the shares of Common Stock issuable upon conversion of the Notes or
(2) in connection with the performance by the Company of its obligations under
the Registration Rights Agreement (including
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 8
its obligations to qualify the Indenture under the 1939 Act), and as to which
requirements we express no opinion.
P. To our knowledge, other than as described in the Final Offering
Circular, there are no legal or governmental proceedings pending or overtly
threatened against the Company or Deanco which are not disclosed in the Final
Offering Circular and which, if adversely decided, could reasonably be expected
to have a Material Adverse Effect or materially affect the issuance of the Notes
or the consummation of the transactions contemplated by the Agreements.
Q. To our knowledge, neither the Company nor Deanco is in violation
of its respective certificate or articles of incorporation or bylaws.
R. No registration of the Notes under the Securities Act is required
for the sale of the Notes to the Initial Purchasers as contemplated in the
Purchase Agreement or for the initial resale of the Notes by the Initial
Purchasers in accordance with Section 3 of the Purchase Agreement (the
("Resales") and no qualification of the Indenture under the 1939 Act is required
in connection with such sale or Resales (assuming (1) that any person to whom
any Note is so resold by an Initial Purchasers is a QIB, an Institutional
Accredited Investor or a person other than a U.S. person (as such term is
defined in Regulation S under the Securities Act) outside the United States, (2)
the accuracy of the Initial Purchasers' representations and those of the Company
in the Purchase Agreement regarding the absence of general solicitation in
connection with the Resales and regarding offers and sales outside the United
States in reliance on Regulation S under the Securities Act, (3) the accuracy of
the representations made by each person to whom the Notes are sold in reliance
on Regulation S under the Securities Act and (4) the accuracy of the
representations made by each Institutional Accredited Investor who purchases
Notes pursuant to a Resale as set forth in the letter of representation executed
by such Institutional Accredited Investor in the form of Annex A to the Final
Offering Circular).
S. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940.
T. To our knowledge, no holders of securities have rights to the
registration of such securities under the Shelf
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 9
Registration Statement (as defined in the Registration Rights Agreement) which
have not been waived.
U. The Notes satisfy the requirements set forth in Rule 144A(d)(3)
under the Act for securities to be eligible for trading pursuant to Rule 144A.
V. Each document incorporated by reference in the Final Offering
Circular (except for financial statements and the notes thereto and the
supporting schedules and other financial and statistical data included therein,
as to which we express no opinion), complied as to form when filed with the
Commission in all material respects with the Exchange Act and the rules and
regulations of the Commission thereunder.
V. OTHER MATTERS.
While we have participated in conferences with officers and
representatives of the Company, representatives of McGladrey & Pullen, LLP and
representatives of the Initial Purchasers at which the contents of the
Preliminary Offering Circular and the Final Offering Circular and related
matters were discussed, we do not express any opinion upon or assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Preliminary Offering Circular or the Final Offering Circular
and have made no independent check or verification thereof (except as expressly
specified above). However, as a result of such participation, no facts have
come to our attention which lead us to believe that the Final Offering Circular,
as of its date, and as of the Closing Date, contained or contains any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading, except that we
express no opinion, statement or belief with respect to financial statements,
notes or schedules thereto or other financial and statistical information
included in or omitted from the Final Offering Circular.
VI. ADDITIONAL QUALIFICATIONS, LIMITATIONS AND EXCEPTIONS.
Notwithstanding anything to the contrary contained herein, the
foregoing opinions are subject to the assumptions, qualifications, limitations
and exceptions set forth above and to
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 10
the following additional qualifications, limitations and exceptions:
A. All of our opinions are limited to the federal laws of the United
States of America, the laws of the State of California, the laws of the State of
New York and the DGCL (and exclude any express or implied opinion as to whether
any laws other than those of the United States of America, the State of
California and the State of New York apply to the Agreements, whether by
application of conflicts of laws principles or otherwise), and we assume no
responsibility as to the applicability or the effect of the laws of any other
jurisdictions. This opinion is limited to the laws of the United States of
America, the laws of the State of California, the laws of the State of New York
and the DGCL in effect on the date hereof and we shall have no obligation to
update this opinion or to advise you of any future developments which might
cause us to modify or retract the opinions expressed herein.
B. With respect to the opinions expressed in paragraph V.B above, we
call to your attention that Deanco has failed to file annual reports in the
following states: Arizona - for 1995; Missouri - for 1995; and New Jersey - for
1991 through 1995. We neither express nor imply any opinion as to whether
Deanco is in good standing in Arizona, Missouri or New Jersey or as to the
effect of any failure of Deanco to be in good standing in Arizona, Missouri or
New Jersey.
C. With respect to the opinion expressed in paragraph V.E above, we
neither express nor imply any opinion as to any outstanding shares of Common
Stock of the Company which were issued prior to April 27, 1995 or which were
issued pursuant to the Underwriting Agreement dated April 19, 1995 among the
Company, Jefferies & Company, Inc., Cruttenden Roth Incorporated and the other
parties identified therein. We understand that as to such shares you are
relying upon the opinion of Richards, Layton & Finger of even date herewith.
D. Our opinions expressed in paragraph V.J above are subject to the
effect of the following:
1. Bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws or judicial decisions relating to or affecting
creditors' rights generally, including, without limitation, statutory or
other laws
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 11
regarding fraudulent conveyances, preferential transfers or equitable
subordination;
2. General principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and
the possible unavailability of the remedy of specific performance,
injunctive relief or other equitable remedies, regardless of whether
considered in a proceeding in equity or at law;
3. Limitations imposed by California Civil Code Section 1671
(concerning liquidated damages) in the event that the laws of the State of
California are applied in determining the enforceability of the liquidated
damages provisions of the Registration Rights Agreement;
4. Limitations on the effectiveness of the "severability"
provisions of any Agreement depending on the materiality of the
unenforceable provision to such Agreement as a whole and to the
undertakings of the parties thereunder; and
5. With respect to the enforcement of the indemnification,
contribution and waiver provisions of the Purchase Agreement and the
Registration Rights Agreement, limitations imposed by applicable laws,
judicial decisions or principles of public policy.
E. With respect to the opinions expressed in paragraph V.J above, we
neither express nor imply any opinion concerning:
1. The application of the doctrines of waiver, estoppel or
election of remedies;
2. The enforceability of the provisions in the Indenture and
the Notes which provide that they shall be governed by or construed in
accordance with the laws of the State of New York or the enforceability of the
provisions in the Purchase Agreement and the Registration Rights Agreements
which provide that they shall be governed by California law;
3. The enforceability of any provisions in the Agreements that
provide that rights or remedies are not exclusive, that every right or remedy is
cumulative and may be exercised in addition to or with any other right or
remedy, that
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 12
election of a particular remedy or remedies does not preclude recourse to one or
more other remedies, that any right or remedy may be exercised without notice or
that failure to exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy; or
4. The enforceability of any provisions in the Indenture to the
effect that acceptance of a payment shall not cure a payment default or prevent
the continued exercise of remedies as to such payment default.
F. With respect to the opinions expressed in paragraph V.J above, we
neither express nor imply any opinion as to the availability of the remedy of
acceleration of the outstanding indebtedness represented by the Notes upon the
breach of any provision of the Notes or Indenture except in the event of
nonpayment of a Note (including non-payment of principal, interest or the
Repurchase Price) when due, or a material breach of the Notes or Indenture.
G. With respect to the opinions expressed in paragraphs V.N and V.O
above, our opinions are limited to our review of only those statutes, rules and
regulations that, in our experience, are normally applicable to transactions of
the type contemplated by the Agreements.
H. In rendering the opinion expressed in paragraph V.P above, no
opinion is herein expressed or intended to be expressed regarding the outcome or
possible outcome of any litigation, investigation or proceeding referred to in
paragraph V.P and no such opinion shall or should be inferred therefrom.
VII. LIMITATIONS ON FURTHER USE.
Our opinions expressed herein are solely for your benefit in
connection with the Purchase Agreement and the transactions contemplated thereby
and may not be (i) relied upon by you for any other purpose or in any other
context, (ii) delivered to any other person, except for your counsel in
connection with such transactions or (iii) relied upon by any other persons,
without our prior written consent.
<PAGE>
Jefferies & Company, Inc.
Cruttenden Roth Incorporated
February 26, 1996
Page 13
This opinion is given as of the date hereof and we assume no further
obligation to update or supplement this opinion to reflect any facts or
circumstance which may hereafter come to our attention or any changes in the law
which may hereafter occur.
Very truly yours,
<PAGE>
EXHIBIT A
Dates of Certificates of Good Standing for the Company
Arizona 2/22/96
California 2/23/96
Colorado 2/16/96
Connecticut 2/23/96
Delaware 2/23/96
Florida 2/23/96
Georgia 2/23/96
Illinois 2/22/96
Kansas 2/22/96
Maryland 2/23/96
Massachusetts 2/23/96
Minnesota 2/23/96
Missouri 2/22/96
New Jersey 2/26/96
New York 2/22/96
Oregon 2/22/96
Texas 2/22/96
Washington 2/23/96
<PAGE>
EXHIBIT B
Dates of Certificates of Good Standing for Deanco
Arizona Delinquent Annual Report
California 2/23/96
Colorado 2/16/96
Connecticut 2/23/96
Florida 2/23/96
Georgia 2/23/96
Illinois 2/22/96
Kansas 2/22/96
Maryland 2/23/96
Massachusetts 2/23/96
Missouri Delinquent Annual Report
New Jersey Delinquent Annual Reports
New York 2/22/96
Oregon 2/22/96
Washington 2/23/96
<PAGE>
EXHIBIT C
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement ("Amendment") is entered into
as of February 26, 1996 by and among Richey Electronics, Inc., a Delaware
corporation (the "Borrower"), each bank which is a party to the Loan Agreement
referred to below (the "Banks") and First Interstate Bank of California, as
Agent (the "Agent") for the Banks.
RECITALS
A. Borrower, the Banks and the Agent have entered into that certain
Loan Agreement dated as of December 20, 1995 (the "Loan Agreement") pursuant to
which the Banks have agreed to lend up to $75,000,000 to Borrower. Terms
defined in the Loan Agreement and not otherwise defined in this Amendment shall
have the meanings defined for those terms in the Loan Agreement.
B. Borrower has informed the Agent and the Banks that Borrower
wishes to issue Convertible Subordinated Notes due 2006 (the "Subordinated
Notes") and, subject to the terms and conditions set forth herein, the Banks
consent to the issuance of the Subordinated Notes.
C. In connection with the issuance of the Subordinated Notes,
Borrower, the Banks and the Agent desire to amend the Loan Agreement on the
terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Borrower, the Banks and the Agent
hereby agree as follows:
1. AMENDMENT TO SECTION 1.1 - REVISIONS. Section 1.1 of the Loan
Agreement is amended to revise the definition of "Adjusted Total Liabilities" to
read in full as follows:
"'ADJUSTED TOTAL LIABILITIES' means, with respect to any Person
and as of any date of determination, the SUM OF (a) the total
liabilities of that Person as of that date determined in
accordance with Generally Accepted Accounting Principles
consistently applied (PROVIDED that, for the purpose of
calculating Cash Flow Leverage in Section 6.13, the
<PAGE>
Subordinated Notes shall be excluded from the calculation of
total liabilities of Borrower), PLUS, (b) the aggregate effective
amount of all letters of credit for which such Person is the
account party as of that date PLUS (c) the aggregate obligations
of that Person under all Guaranty Obligations as of that date."
2. AMENDMENT TO SECTION 1.1 - ADDITION. Section 1.1 of the Loan
Agreement is amended to add the following new definitions at the appropriate
alphabetical places:
"INDENTURE" means the Indenture to be dated on or about
February 26, 1996 between Borrower and First Trust of California,
N.A., as trustee, covering the Subordinated Notes.
"SUBORDINATED NOTES" means the convertible subordinated notes due
2006 to be issued by Borrower pursuant to the Indenture.
3. AMENDMENT TO SECTION 6.9. Section 6.9 of the Loan Agreement is
hereby amended to read in full as follows:
"6.9 INDEBTEDNESS AND GUARANTY OBLIGATIONS. Create, incur or assume
any Indebtedness or Guaranty Obligation EXCEPT:
(a) Indebtedness and Guaranty Obligations existing on the
Closing Date and disclosed in SCHEDULE 6.9, and renewals, extensions
or amendments that do not increase the amount thereof;
(b) Indebtedness and Guaranty Obligations under the Loan
Documents;
(c) Secured Swap Agreements;
(d) Indebtedness owed on an intercompany basis among Borrower
and its Subsidiaries;
(e) Indebtedness consisting of Capital Lease Obligations or
purchase money debt that does not exceed $500,000 incurred during the
term of this Agreement;
(f) Guaranty Obligations in support of the obligations of a
wholly-owned Subsidiary; and
(g) the Subordinated Notes, in a principal amount not in excess
of $57,500,000.
2
<PAGE>
4. CONDITIONS PRECEDENT. This Amendment shall not be effective
until each of the following conditions precedent has been satisfied or waived in
writing by the Requisite Banks:
(a) the Agent shall have received a certified copy of the
Indenture, which shall be in the form of the draft thereof dated
February 6, 1996 with such changes thereto as the Requisite Banks may
approve;
(b) Borrower shall have received (or shall concurrently receive)
on or before March 15, 1996 not less than $40,000,000 in cash proceeds
from the issuance and sale of the Subordinated Notes; and
(c) Borrower shall have applied (or shall concurrently apply)
cash proceeds from the issuance and sale of the Subordinated Notes to
prepay in full and cancel the Line B Notes in accordance with
Section 3.1(f) of the Loan Agreement.
5. REPRESENTATIONS OF BORROWER. Borrower hereby represents and
warrants to the Agent and the Banks that:
(a) The execution, delivery and performance of this Amendment by
Borrower have been authorized by all necessary corporate action;
(b) This Amendment has been duly executed and delivered by
Borrower and constitutes the legal, valid and binding obligations of
Borrower, enforceable in accordance with its terms; and
(c) No Default or Event of Default under the Loan Agreement (as
modified hereby) has occurred and is continuing.
6. EFFECT OF AMENDMENT. Except as expressly amended hereby, the
Loan Agreement shall remain in full force and effect in accordance with its
terms. Except as otherwise provided herein, the Loan Agreement is in all
respects ratified and confirmed.
7. APPLICABLE LAW. This Amendment shall be governed by and shall be
construed and enforced in accordance with the local laws of the State of
California.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their duly authorized officers as of the date first written above.
RICHEY ELECTRONICS, INC. FIRST INTERSTATE BANK OF
CALIFORNIA, as Agent
- ------------------------------- ------------------------------
- ------------------------------- ------------------------------
[Printed Name and Title] [Printed Name and Title]
FIRST INTERSTATE BANK OF
CALIFORNIA, as a Bank
- ------------------------------
- ------------------------------
[Printed Name and Title]
------------------------------
------------------------------
[Printed Name and Title]
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Dated as of February 26, 1996
relating to
Up to $57,500,000 Aggregate Principal Amount
of 7% Convertible Subordinated
Notes due 2006
by and among
Richey Electronics, Inc.,
Jefferies & Company, Inc.
and
Cruttenden Roth Incorporated
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 26, 1996, by and among Richey Electronics, Inc., a
Delaware corporation (the "Company") and Jefferies & Company, Inc. and
Cruttenden Roth Incorporated (the "Initial Purchasers"), who have purchased or
have the right to purchase up to $57,500,000 aggregate principal amount of 7%
Convertible Subordinated Notes due 2006 (the "Notes") of the Company pursuant to
the Purchase Agreement dated February 21, 1996 (the "Purchase Agreement"),
between the Company and the Initial Purchasers.
In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution and delivery of this Agreement is a condition
to the closing of the transactions contemplated by the Purchase Agreement. All
defined terms used but not otherwise defined herein shall have the respective
meanings ascribed to them in the Purchase Agreement or in the Indenture (as such
term is defined below) governing the Notes.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
AFFILIATE: "Affiliate" means, with respect to any specified person,
(i) any other person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, such specified person or (ii) any
officer or director of such other person. For purposes of this definition, the
term "control" (including the terms "controlling," "controlled by" and "under
common control with") of a person means the possession, direct or indirect, of
the power (whether or not exercised) to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
CLOSING DATE: The earliest date of original issuance of any of the
Notes to the Initial Purchasers.
COMMISSION: The Securities and Exchange Commission.
COMMON STOCK: The Common Stock, par value $0.001 per share, of the
Company and any other shares of common stock as may constitute "Common Stock"
for purposes of the Indenture, in each case, issued or issuable upon conversion
of the Notes.
DAMAGES PAYMENT DATE: Each March 1 or September 1 following a
Registration Default, unless no Registration Default shall have occurred and
been continuing since the next preceding September 1 or March 1, respectively.
EFFECTIVENESS TARGET DATE: As defined in Section 2.
EFFECTIVENESS PERIOD: As defined in Section 2.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
1.
<PAGE>
HOLDER: The registered holder or holder of record of any Transfer
Restricted Securities, and any other beneficial owner of Transfer Restricted
Securities of which the Company has knowledge.
INDENTURE: The Indenture, dated as of February 15, 1996, among the
Company and First Trust of California, National Association, as Trustee (the
"Trustee"), pursuant to which the Notes are to be issued, as such Indenture is
amended or supplemented from time to time in accordance with the terms thereof.
MANAGING UNDERWRITERS: The investment banking firm or firms that shall
manage or co-manage an Underwritten Offering.
NASD: National Association of Securities Dealers, Inc.
OFFERING CIRCULAR: The Final Offering Circular, dated February 21,
1996, and all amendments and supplements thereto, relating to the Notes and
prepared by the Company pursuant to the Purchase Agreement.
PERSON: An individual, association, partnership, joint venture, joint
stock company, corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any amendment or prospectus supplement, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
RECORD HOLDER: (i) With respect to the Notes, each Person who is
identified on the Note register (as defined in the Indenture) as a Holder of
record of Notes on the February 15 or August 15 prior to the applicable Damages
Payment Date and (ii) with respect to the Common Stock, each Person who is a
Holder of record of Common Stock on the date fifteen (15) days prior to the
applicable Damages Payment Date.
REGISTRATION DEFAULT: As defined in Section 3 hereof.
REGISTRATION EXPENSES: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
which covers any of the Transfer Restricted Securities pursuant to the
provisions of this Agreement, including any Shelf Registration Statement, any
Subsequent Shelf Registration, any Prospectus, any amendments and supplements to
any such registration statement, and including post-effective amendments, all
exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in any such registration statement.
RULE 144: Rule 144 under the Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission.
RULE 144A: Rule 144A under the Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission.
SHELF REGISTRATION STATEMENT: As defined in Section 2(a) hereof.
SPECIAL COUNSEL: Brobeck, Phleger & Harrison LLP, or such other
counsel as shall be specified by the holders of a majority of the Transfer
Restricted Securities, the fees and expenses of which will be paid by the
Company pursuant to Section 6 hereof.
SUBSEQUENT SHELF REGISTRATION: As defined in Section 4(r) hereof.
SUSPENSION PERIOD: As defined in Section 2(b) hereof.
2.
<PAGE>
TIA: The Trust Indenture Act of 1939, as amended (15 U.S.C. Section
77aaa-77bbbb), as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note and each share of Common
Stock issuable upon conversion of a Note, until the date on which each such
Note or such share of Common Stock (i) has been registered under the Act and
disposed of in accordance with the Shelf Registration Statement, (ii) is
distributed to the public pursuant to Rule 144 or is salable without
restriction under the Act pursuant to Rule 144(k) promulgated under the Act
(or any similar provisions then in force) or (iii) otherwise is freely
transferable under the Act, and, as a result of the event or circumstances
described in any of the foregoing clause (i) through (iii), the legends with
respect to transfer restrictions required under the Indenture are removed or
removable in accordance with the terms of the Indenture.
UNDERWRITTEN OFFERING: A registration in which securities of the
Company are sold to an underwriter for reoffering to the public.
SECTION 2. SHELF REGISTRATION
(a) The Company shall prepare and file with the Commission, as soon
as practicable after the Closing Date, but in any event on or prior to the date
sixty (60) days after the Closing Date, a shelf registration statement pursuant
to Rule 415 promulgated under the Act (the "Shelf Registration Statement") on
Form S-3, or other appropriate form, registering resales of all Transfer
Restricted Securities by the Holders in a manner or manners designated by them
or by the Special Counsel on their behalf (including, without limitation, one or
more Underwritten Offerings). The Company shall use its best efforts to cause
such Shelf Registration Statement to be declared effective by the Commission as
soon as practicable after the date of filing, but in any event on or prior to
the date 120 days after the Closing Date (the "Effectiveness Target Date"). The
Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, subject to the provisions of Section 2(b) hereto, for a
period of three years following the last date of original issuance of any of the
Notes to the Initial Purchaser or such shorter period that will terminate when
each of the Transfer Restricted Securities covered by the Shelf Registration
Statement shall cease to be a Transfer Restricted Security (the "Effectiveness
Period").
(b) In the event (A) of the happening of any event of the kind
described in Section 4(c)(iii), (iv) or (v) hereof (an "A Event") or (B) that,
in the judgment of the Company's Board of Directors, Chief Executive
Officer or Chief Financial Officer, it is advisable to suspend use of the
Prospectus for a discrete period of time due to pending corporate
developments, public filings with the Commission or similar events (a "B
Event"), the Company shall deliver a written certificate (a "Suspension
Certificate") to the Special Counsel, the Initial Purchasers, and to the
Holders (other than any Holders who have requested in writing not to receive
such information), to such effect and stating that the use of the Prospectus
is to be suspended until the Company shall deliver a written notice that the
use of the Prospectus may be resumed, subject to the limitations set forth in
this Section 2(b) and the provision for liquidated damages set forth in
Section 3. Thereafter, the use of the Prospectus shall be suspended, and the
Company, subject to the terms of this Section 2(b), shall thereafter not be
required to maintain the effectiveness or amend or update the Shelf
Registration Statement, or amend or supplement the Prospectus, for a period
of time beginning on the date on which the Company shall have delivered such
Suspension Certificate to the Persons referred to in the preceding sentence
and ending (i) in the case of suspension upon an A Event, as soon as
practicable but not more than thirty (30) days after the Company's delivery
of such Suspension Certificate and (ii) in the case of suspension upon a
B Event, thirty (30) days after any Holder shall thereafter have delivered to
the Company a written certificate in which such Holder represents that it has
a present intent to sell Transfer Restricted Securities pursuant to the Shelf
Registration Statement upon termination of suspension of the use of the
Prospectus (a "Holder Notice").
The Company will use its best efforts to ensure that the use of
the Prospectus may be resumed as soon as practicable, in the case of suspension
upon an A Event and, in the case of suspension upon a B Event, as soon as, in
the judgment of the Company's Board of Directors, Chief Executive Officer or
Chief Financial Officer, disclosure of the material relating to such pending
development, filing or event would not have a
3.
<PAGE>
materially adverse effect on the Company. As soon as the use of the Prospectus
may be resumed, the Company shall deliver a notice to such effect in writing (a
"Resumption Notice") to the Special Counsel, the Initial Purchasers, and to the
Holders (other than any holder who have requested in writing not to receive such
information), together with copies of any amendment or supplement to the
Prospectus, any amendment to the Shelf Registration Statement and any additional
or supplemental filings which are incorporated by reference in the Shelf
Registration Statement. The period (A) beginning (i) in the case of suspension
upon an A Event, on the date of delivery of a Suspension Certificate to the
Special Counsel, Initial Purchasers and such Holders, or (ii) in the case of
suspension upon a B Event, beginning upon the date of delivery of a Holder
Notice, and (B) ending on the date of delivery to the Special Counsel, the
Initial Purchaser and such Holders of a Resumption Notice, is herein referred to
as a "Suspension Period." Notwithstanding the foregoing, (x) the Company shall
not under any circumstances be entitled to more that four (4) Suspension Periods
in any twelve (12) consecutive months; (y) the aggregate number of days in all
Suspension Periods relating to one or more B Events in any twelve (12)
consecutive months shall not exceed sixty (60) days, and (z) no one Suspension
Period shall exceed thirty (30) days in length.
SECTION 3. LIQUIDATED DAMAGES
Each of the Company and the Initial Purchasers (on behalf of
themselves and each subsequent Holder of Transfer Restricted Securities)
agrees that the Holders of Transfer Restricted Securities will suffer
damages, and that it would not be feasible to ascertain the extent of such
damages with precision, if (i) the Shelf Registration has not been filed on
or prior to sixty (60) days after the Closing Date, (ii) the Commission shall
not have declared the Shelf Registration Statement effective by the
Effectiveness Target Date, or (iii) the aggregate number of days in any one
Suspension Period exceeds thirty (30) days or the aggregate number of days in
all Suspension Periods relating to one or B Events in any twelve (12)
consecutive months exceeds sixty (60) days (each of the events of a type
described in any of the foregoing clauses (i) through (iv) are individually
referred to herein as a "Registration Default." Accordingly, the Company
shall pay liquidated damages with respect to Transfer Restricted Securities
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000
outstanding principal amount of Notes and, if applicable, $0.01 per week per
share (subject to adjustment in the event of stock splits, stock
recombinations, stock dividends and the like) of outstanding Common Stock
constituting Transfer Restricted Securities. The amount of the liquidated
damages will increase by an additional $0.05 per week per $1,000 outstanding
principal amount of Notes or $0.01 per week per share (subject to adjustment
as set forth above) of outstanding Common Stock constituting Transfer
Restricted Securities for each subsequent 90-day period until no Registration
Default shall exist and be continuing, up to a maximum amount of liquidated
damages with respect to any Registration Default of $0.25 per week per $1,000
principal amount of Notes or $0.05 per week per share (subject to adjustment
as set forth above) of Common Stock. Such liquidated damages shall be paid
on the applicable Damages Payment Date to the Record Holders of such Notes
and Common Stock with respect to such Damages Payment Date. Interest shall
accrue on liquidated damages which are not paid when due from the applicable
Damages Payment Date until paid at a rate per annum equal to that then
payable on the Notes as set forth in the Indenture (to the extent payment of
such interest is permissible under applicable law). All accrued liquidated
damages and accrued interest thereon shall be paid at the office or agency of
the Company maintained for that purpose; provided, however, that at the
option of the Company, such liquidated damages and interest may be paid by
check mailed to the address of such Record Holder at such address as shall
appear in the Note Register (as such term is defined in the Indenture) or in
the records of the Company's registrar and transfer agent for its Common
Stock. Following the cure of a Registration Default or, if earlier, when all
of the outstanding Notes and shares of Common Stock issued upon conversion
thereof cease to be Transfer Restricted Securities, liquidated damages will
cease to accrue with respect to such Registration Default.
All of the Company's obligations to pay accrued but unpaid liquidated
damages and interest set forth in the preceding paragraph which are outstanding
with respect to any Transfer Restricted Security at the time such security
ceases to be a Transfer Restricted Security shall survive until such time as all
such obligations with respect to such security shall have been satisfied in
full.
4.
<PAGE>
The parties hereto agree that the liquidated damages and interest
provided in this Section 3 constitute a reasonable estimate of the damages that
will be incurred by Holders of Transfer Restricted Securities by reason of the
failure of the Shelf Registration Statement to be filed, declared effective or
to remain effective, as the case may be.
SECTION 4. REGISTRATION PROCEDURES
In connection with the Shelf Registration Statement and the Company's
registration obligations under Section 2, the Company will use its reasonable
best efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution or disposition thereof and, in furtherance thereof, the
Company will as expeditiously as possible:
(a) on or prior to the date 60 days after the Closing Date: (i)
prepare and file with the Commission a Shelf Registration Statement relating
to the registration on any appropriate form under the Act, which form shall
be available for the sale of the Transfer Restricted Securities in accordance
with the intended method or methods of distribution thereof; (ii) cooperate
and assist in any filings required to be made with the NASD; and (iii) use
its reasonable best efforts to cause such Shelf Registration Statement to
become effective on or prior to the Effectiveness Target Date and to remain
effective as provided herein; PROVIDED, THAT at least three (3) full business
days before filing a Shelf Registration Statement or any Prospectus, or any
amendments or supplements thereto, or any documents to be filed with the
Commission before the Shelf Registration Statement shall have been declared
effective by the Commission that would be incorporated or deemed to be
incorporated in the Shelf Registration Statement by reference, the Company
shall furnish to each Holder (if requested by such Holder in writing), each
Initial Purchaser, the Special Counsel and the Managing Underwriters, if any,
copies of all such documents proposed to be filed, which documents shall be
subject to the review of each such Holder, the Initial Purchasers, the
Special Counsel and the Managing Underwriters, if any, and, except as
otherwise required by applicable law, the Company shall not (x) file with the
Commission, before the Shelf Registration Statement is declared effective,
any Registration Statement or amendment thereto or any Prospectus or any
supplement or amendment thereto, or (y) file with the Commission any
amendment required by the Commission to maintain effectiveness of the Shelf
Registration Statement, in either case to which the Holders of at least
$5,000,000 principal amount of the Notes constituting Transfer Restricted
Securities covered by such Shelf Registration Statement (or Common Stock into
which such principal amount of Notes shall have been converted), the Initial
Purchasers, the Special Counsel or the Managing Underwriters, if any, shall
reasonably object in writing within two (2) business days after the receipt
thereof on the basis that the objecting party has concluded in good faith
that the filing of such document could violate the Act or the Exchange Act;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the Shelf Registration Statement as may be necessary to
keep the Shelf Registration Statement effective for the applicable period set
forth in Section 2 hereof; cause the Prospectus to be supplemented by any
required Prospectus supplement, and, as so supplemented, to be filed pursuant to
Rule 424 promulgated under the Act, and to comply fully with the applicable
provisions of Rule 424 promulgated under the Act in a timely manner; and comply
with the provisions of the Act with respect to the disposition of all securities
covered by such Shelf Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Shelf Registration Statement or supplement to the
Prospectus;
(c) advise each Holder (if requested by such Holders in writing),
each Initial Purchaser, the Special Counsel and the Managing Underwriters, if
any, promptly and, if requested by such Persons, to confirm such advice in
writing, (i) when a Prospectus or any Prospectus supplement, a Registration
Statement or a post-effective amendment thereto has been filed, and, with
respect to any Registration Statement or any post-effective amendment thereto,
when the same has become effective, (ii) of any request by the Commission for
post-effective amendments to any Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of any Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purposes, (iv) if any Registration
Statement ceases to be effective for any reason
5.
<PAGE>
at any time during the Effectiveness Period (other than because all Transfer
Restricted Securities registered thereunder shall have been sold or shall have
ceased to be Transfer Restricted Securities), (v) of the existence of any fact
or the occurrence of any event as a result of which a Shelf Registration
Statement (including any amendments thereto and any documents incorporated by
reference therein) shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or as a result of which a Prospectus
(including any amendment or supplement thereto) shall contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (vi) of the
Company's determination to file a post-effective amendment to a Shelf
Registration Statement;
(d) furnish to each Holder (if requested by such Holder in writing),
each Initial Purchaser, the Special Counsel and the Managing Underwriters, if
any, without charge, at least one copy of each Registration Statement, as first
filed with the Commission, and of each amendment thereto, including to the
extent requested by such Holder (if requested by such selling Holder in
writing), such Initial Purchaser, the Special Counsel and the Managing
Underwriters, if any, all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(e) deliver to each Holder, each Initial Purchaser, the Special
Counsel and the Managing Underwriters, if any, without charge, at least one copy
of the Prospectus (including each preliminary Prospectus) and any amendment,
supplement or modification thereto, and such number of additional copies as such
Persons may reasonably request (the Company hereby consents to the use of the
Prospectus and any amendment or supplement thereto by each of the selling
Holders and underwriters, if any, in connection with the public offering and the
sale of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto);
(f) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the Initial Purchaser, the Special Counsel
and the Managing Underwriters, if any, in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or Blue
Sky laws of such jurisdictions as the selling Holders, the Initial Purchasers,
the Special Counsel and the Managing Underwriters, if any, may reasonably
request and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; PROVIDED, HOWEVER, that the Company
shall not be required to register or qualify as a foreign corporation where it
is not now so qualified nor to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters and
transactions relating to the Shelf Registration Statement, in any jurisdiction
where it is not now so subject;
(g) cooperate with the selling Holders, the Initial Purchasers, the
Special Counsel and the Managing Underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and registered in
such names as the Holders may request at least two business days prior to any
sale of Transfer Restricted Securities made by such Holders;
(h) use its best efforts to cause the Transfer Restricted Securities
covered by the Shelf Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (f) above;
(i) upon the existence of any fact or the occurrence of any event as
a result of which a Registration Statement shall contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or as a
result of which a Prospectus (including any amendment or supplement thereto)
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, promptly prepare and file an
6.
<PAGE>
amendment to such Registration Statement or any document incorporated therein by
reference or a supplement to such Prospectus or file a document (such as a
Current Report on Form 8-K) that would be incorporated by reference into the
Registration Statement, so that the Registration Statement shall thereafter not
contain any untrue statement of a material fact required to be stated therein or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and so that the Prospectus will
thereafter not contain any untrue statement of a material fact or omit to state
any material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, as thereafter
delivered to the Holders, and by the Holders to purchasers of the Transfer
Restricted Securities being sold thereunder, and in the case of a post-effective
amendment to a Registration Statement, use its best efforts to cause it to
become effective as soon as practicable.
(j) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of the Shelf Registration Statement and provide
the Trustee under the Indenture and the transfer agent for the Common Stock with
printed certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
(k) make available at reasonable times for inspection by (i) a single
representative of Holders of the Transfer Restricted Securities participating in
any disposition pursuant to such Shelf Registration Statement, (ii) any attorney
or accountant retained by such selling Holders, and (iii) any Holder
participating in such distribution who beneficially owns at least $5,000,000
aggregate principal amount of Notes or Common Stock issued upon conversion of
Notes in such aggregate principal amount that are Transfer Restricted
Securities, all non-confidential financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
reasonably requested by such representative, attorney, accountant or Holder in
connection with such Shelf Registration Statement and cause the officers,
directors and employees of the Company and its subsidiaries to supply all non-
confidential information reasonably requested by any such representative,
attorney, accountant or Holder at reasonable times during business hours and
upon reasonable notice in connection with such Shelf Registration Statement
subsequent to the filing thereof and prior to its effectiveness.
(l) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders a consolidated earning statement meeting the
requirements of Section 11(a) of the Act (which need not be audited) for the
twelve-month period beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Shelf Registration Statement;
(m) cause the Indenture to be qualified under the TIA, and, in
connection therewith, cooperate with the Trustee, the Holders and the Special
Counsel to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute all documents
as may be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner;
(n) use its best efforts to cause all Common Stock covered by the
Shelf Registration Statement to be listed or quoted on each securities exchange
or quotation system on which the Company's Common Stock is then listed no later
than the date the Shelf Registration Statement is declared effective and, in
connection therewith, to the extent applicable, to make such filings under the
Exchange Act (e.g., the filing of a Registration Statement on Form 8-A) as may
be required and to have such filings declared effective thereunder as soon
thereafter as is practicable; and
(o) cooperate and assist in any filings required to be made with the
NASD.
(p) Subject to Section 2(b) and the penultimate paragraph of this
Section 4, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment to the Shelf Registration Statement such information as may be
required by applicable law or that may be reasonably requested by any Initial
Purchaser or Holder
7.
<PAGE>
in order to comply with the requirements of the Act, (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of such information
to be incorporated in such Prospectus supplement or post-effective amendment,
and (iii) supplement or make amendments to any Shelf Registration Statement
consistent with clause (i) or (ii) above; PROVIDED, that the Company shall not
be required to take any actions under this Section 4(p) that, in the opinion of
counsel for the Company would violate applicable law.
(q) Enter into such agreements (including in the event of an
Underwritten Offering, an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including, in the event of an underwritten offering, those
reasonably requested by the Managing Underwriters, if any, or the Holders of a
majority of the Transfer Restricted Securities being sold) as may be reasonably
requested to expedite or facilitate the disposition of Transfer Restricted
Securities and in such connection, whether or not an underwriting agreement is
entered into and if the registration is an underwritten registration, (i) make
such representations and warranties, subject to the Company's ability to do so,
to the Holders of such Transfer Restricted Securities and the underwriters, if
any, with respect to the business of the Company and its subsidiaries, the
Registration Statement, prospectus related thereto and documents incorporated by
reference or deemed incorporated by reference, if any, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings; (ii) use its reasonable efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any, Special Counsel and the Holders of a majority of the
Transfer Restricted Securities being sold) addressed to each selling Holder of
Transfer Restricted Securities and each of the underwriters, if any, covering
the matters customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by such Special Counsel
and Managing Underwriters, if any; (iii) use its reasonable efforts to obtain
"cold comfort" letters and updates thereof from the independent public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or any business acquired or to be
acquired by the Company for which financial statements and financial data is, or
is required to be, included in the Registration Statement), addressed to each of
the Managing Underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with Underwritten Offerings; and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Transfer Restricted Securities being sold, the Special Counsel and the Managing
Underwriters, if any, to evidence the continued validity of the representations
and warranties of the Company and its subsidiaries made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. The
above shall be done at each closing pursuant to such underwriting or similar
agreements and to the extent required thereunder.
(r) If any Shelf Registration Statement (or any Subsequent Shelf
Registration) ceases to be effective for any reason at any time during the
Effectiveness Period (other than because all Transfer Restricted Securities
registered thereunder shall have been sold or shall have ceased to be Transfer
Restricted Securities), or if at any time the Commission shall issue any stop
order suspending the effectiveness of the Shelf Registration Statement, or any
state securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company shall
use its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time, and in any event shall, within thirty (30) days of such
cessation of effectiveness, amend the Shelf Registration Statement, or take
other appropriate action, as could reasonably be expected to result in the
withdrawal of the order suspending the effectiveness thereof, or file an
additional Shelf Registration Statement covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period (subject to Section 2(b).
Each Holder of Transfer Restricted Securities agrees: (i) to furnish
promptly to the Company upon reasonable request from the Company in writing all
information required to be disclosed in the Shelf Registration Statement related
to such Holder as necessary in order to make the information previously
furnished to the
8.
<PAGE>
Company by such Holder not misleading or necessary to cause such Shelf
Registration Statement not to omit a material fact with respect to such Holder,
and (ii) not to misuse or disclose any confidential or proprietary information
relating to the Company which has not been publicly disseminated by the Company
and which such Holder of Transfer Restricted Securities receives pursuant to
this Agreement.
Each Holder of Transfer Restricted Securities agrees by acquisition of
such Transfer Restricted Securities that, upon receipt of any Suspension
Certificate pursuant to Section 2(b), such Holder will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the Shelf Registration
Statement (but without prejudice to such Holder's right to resell or dispose of
Transfer Restricted Securities pursuant to an available exemption from
registration under the Act) until such Holder's receipt of a Resumption Notice
pursuant to Section 2(b). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities current at the time of the Holder's
receipt of such Suspension Certificate.
SECTION 5. REGISTRATION EXPENSES
All fees and expenses incident to the performance of the Company's
obligations under this Agreement shall be borne by the Company whether or not
any Shelf Registration Statement becomes effective. Such fees and expenses
shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (x) with respect to filings
required to be made with the NASD and (y) of compliance with securities or Blue
Sky laws (including, without limitation, fees and disbursements of counsel for
the selling Holders of Transfer Restricted Securities in connection with Blue
Sky qualifications of the Transfer Restricted Securities and determination of
the eligibility of the Transfer Restricted Securities for investment under the
laws of such jurisdictions as holders of a majority in aggregate principal
amount of the Transfer Restricted Securities being sold may designate), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Transfer Restricted Securities in a form eligible for deposit
with the Depository Trust Company and of printing Prospectuses if the printing
of Prospectuses is requested by the Special Counsel, the Initial Purchaser, the
Managing Underwriters, if any, or the Holders of a majority of the Transfer
Restricted Securities included in any Registration Statement), (iii) reasonable
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, the Special Counsel, the Initial Purchaser or the
Managing Underwriters, if any, in connection with the Shelf Registration
(provided that the Company shall not be liable for the reasonable fees and
expenses of more than one separate firm for all parties (other than the Company)
participating in any transaction hereunder), (v) fees and disbursements of all
independent certified public accountants, and (vi) fees and expenses of all
other Persons retained by the Company. In addition, the Company shall pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange on which
similar securities issued by the Company are then listed and rating agency fees
and the fees and expenses of any Person, including special experts, retained by
the Company. The Holders of Transfer Restricted Securities shall bear the
expense of any broker's commission or underwriter's discount or commission with
respect to their sale of such Transfer Restricted Securities.
SECTION 6. INDEMNIFICATION
(a) The Company agrees to indemnify, defend and hold harmless
each Holder, each Initial Purchaser, their respective affiliates, any person who
controls any Holder or Initial Purchaser or any of their affiliates within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the
respective officers, shareholders, counsel, agents, employees and directors of
any such Persons (collectively, "Holder Indemnitees"), from and against any
loss, expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, any such Holder Indemnitee may incur
under the Act, the Exchange Act or otherwise, as such expenses are incurred,
insofar as such loss, expense, liability or claim arises out of or is based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement or any Prospectus, or the omission or alleged
omission to state in any Registration
9.
<PAGE>
Statement or Prospectus a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or the omission or
alleged omission to state in the Prospectus a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and agrees to reimburse each Holder Indemnitee for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action, as
such expenses are incurred; PROVIDED, HOWEVER, that the Company shall not be
liable to any Holder, or its respective Holder Indemnitees, in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Registration Statement or Prospectus, in reliance
upon and in conformity with written information relating to such Holder
furnished to the Company by such Holder specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 6(a) with respect to any Prospectus shall not inure to the benefit of
any Holder or its respective Holder Indemnitees, with respect to a claim by any
purchaser of Transfer Restricted Securities from such Holder based upon any
untrue statement or alleged untrue statement of a material fact in a Prospectus,
or an omission or alleged omission to state therein a material fact, if a copy
of an amended, supplemented or modified form of Prospectus corrected any such
untrue statement or alleged untrue statement or omission or alleged omission and
such Holder failed to send or give a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected to such person, within the time required by law, provided that the
Company has delivered such revised, supplemented or modified Prospectus to such
Holder in quantity not less than one full business day prior to the sale by such
Person asserting such claim.
(b) Each Holder, severally and not jointly, agrees to indemnify,
defend and hold harmless the Company, each Initial Purchaser, each other Holder,
their respective affiliates, and any person who controls any such Person within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the
respective officers, shareholders, counsel, agents, employees and directors of
such Persons, from and against any loss, expense, liability or claim (including
the reasonable cost of investigation) which, jointly or severally, any such
Person may incur under the Act, the Exchange Act or otherwise, as such expenses
are incurred, insofar as such loss, expense, liability or claim arises out of or
is based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement or Prospectus, or the omission or
alleged omission to state in any Registration Statement or Prospectus a material
fact required to be stated therein or necessary to make the statement, therein
not misleading, or the omission or alleged omission to state in any Prospectus a
material fact necessary to make the statements therein, in light of the
circumstances in which made, not misleading; and agrees to reimburse the Company
for any legal or other expenses reasonably incurred by the Company to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Holder specifically for inclusion therein pursuant to clause (i) of the
penultimate paragraph of Section 4.
(c) If any action is brought against any party (an "indemnified
party") in respect of which indemnity may be sought against another party (the
"indemnifying party") pursuant to Section 6(a) or 6(b) hereof, such indemnified
party shall promptly notify the indemnifying party in writing of the institution
of such action (provided, that the failure to give such notice shall not relieve
the indemnifying party of any liability which it may have pursuant to this
Agreement, unless it shall have been determined by a court of competent
jurisdiction by final judgment that such failure has resulted in the forfeiture
of substantive rights or defenses by the indemnifying party) and the
indemnifying party shall assume the defense of such action, including the
employment of counsel and payment of reasonable expenses. The indemnified party
or parties shall have the right to employ its or their own counsel in any such
case and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless: (i) the
indemnifying party shall have failed to assume the defense of such action or the
indemnifying party shall have failed to employ counsel reasonably satisfactory
to the indemnified party or parties in any such action within a reasonable time
after notice of the institution thereof; or (ii) such indemnified party or
parties shall have been advised by counsel that there may be one or more
defenses available to it or them that are different from or additional to those
available to the indemnifying party (in which case, if such indemnified party or
parties notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the
10.
<PAGE>
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by the indemnifying party and paid as incurred;
provided, that the indemnifying party shall be responsible for the fees and
expenses of only one counsel for all indemnified parties hereunder. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved the
terms of such settlement, provided, however, that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under subsection (a) or (b) of this Section
6 in respect of any losses, damages, expenses, liabilities or claims referred to
therein, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, expenses,
liabilities or claims in such proportion as is appropriate to reflect the
relative fault of the Company, on the one hand, and the Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, expenses, liabilities or claims, as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand and of the
Holder on the other hand, shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission related to information supplied by the
Company or by the Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, expenses,
liabilities and claims referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any claim or action.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 6 were determined by PRO
RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 6(c) above.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
SECTION 7. INFORMATION REQUIREMENTS
(a) With a view to making available to the Holders the benefits of
Rule 144 and any other rule or regulation of the Commission that may at any time
permit a Holder to sell Transfer Restricted Securities to the public without
registration, the Company covenants and agrees to: (i) make and keep public
information available, as those terms are understood and defined in Rule 144,
until such date as all of the Transfer Restricted Securities shall have been
resold under the Act; (ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Act and the
Exchange Act; and (iii) furnish to any Holder, upon request, as long as the
Holder owns any Transfer Restricted Securities, (A) a written statement by the
Company that it has complied with the reporting requirements of the Act and the
Exchange Act, (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other information as may be reasonably requested in order
to avail any Holder of any rule or regulation of the Commission that permits the
selling of any Transfer Restricted Securities without registration. Without
limiting the generality of the foregoing, at such time as the Company is not
subject to Section 13 or 15(d) of the Exchange Act, the Company will provide,
upon request of a Holder, such information as is described in Rule 144A(d)(4) as
may be necessary to enable such Holder to transfer any Transfer Restricted
Securities by such Holder pursuant to Rule 144(A).
(b) The Company shall file the reports required to be filed by it
under the Exchange Act and shall comply with all other requirements set forth in
the instructions to Form S-3 in order to allow the Company to be eligible to
file registration statements on Form S-3 after March 1, 1996.
11.
<PAGE>
SECTION 8. MISCELLANEOUS
(a) REMEDIES; THIRD PARTY BENEFICIARIES. The Company acknowledges
that the Holders of Transfer Restricted Securities have acquired such Transfer
Restricted Securities in reliance upon the terms of this Agreement and the
Company's obligations hereunder. Each Holder of Transfer Restricted Securities
is intended to be a beneficiary of the Company's obligations hereunder and shall
be entitled to directly enforce all of the rights provided herein as if it were
a signatory hereto, and in addition to being entitled to exercise all rights
provided herein, and as granted by law, including recovery of damages, such
Holder shall be entitled to specific performance of such Holder's rights under
this Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company shall not on or after
the date of this Agreement enter into any agreement with respect to its
securities that conflicts with the provisions hereof. The Company represents
and warrants that the rights granted to the Holders of Transfer Restricted
Securities hereunder do not in any way conflict with the rights granted to the
holders of the Company's securities under any other agreements.
(c) NO ADVERSE ACTION AFFECTING THE TRANSFER RESTRICTED SECURITIES.
The Company will not take any action with respect to the Transfer Restricted
Securities which would adversely affect the ability of any of the Holders of
Transfer Restricted Securities to include such Transfer Restricted Securities in
a registration undertaken pursuant to this Agreement.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified, or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of a majority of the outstanding Transfer Restricted Securities (with Holders of
Common Stock deemed to be Holders of the aggregate principal amount of Notes
converted into such Common Stock for purposes of such calculation).
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders of Transfer
Restricted Securities whose securities are being sold pursuant to the Shelf
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Transfer Restricted Securities may be given by the
Holders of at least 66-2/3% of the Transfer Restricted Securities being sold.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier or air courier guaranteeing overnight delivery:
(i) if to a Holder of Transfer Restricted Securities, at the
address set forth on the records of the Registrar under the Indenture, with a
copy to the Registrar; and
(ii) if to the Company, Richey Electronics, Inc., 7441 Lincoln
Way, Garden Grove, California 92641, Attention: Richard N. Berger and a copy to:
Dewey Ballantine
333 South Hope Street, 30th Floor
Los Angeles, California 90071
Attention: Kathy T. Wales
12.
<PAGE>
(iii) if to the Special Counsel, to:
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
Attention: George D. Tuttle
Telecopy No.: (415) 442-1010
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
All such notices and communications shall be deemed to have been duly
given and delivered: at the time delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed or telecopied during regular business
hours of the recipient, or if outside such regular business hours, at the
opening of business on the next business day; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in the Indenture.
(f) OWNER OF TRANSFER RESTRICTED SECURITIES. The Company will
maintain, or will cause the Trustee under the Indenture and its registrar and
transfer agent to maintain, registers with respect to the Transfer Restricted
Securities in which all transfers of Transfer Restricted Securities of which the
Company and such Trustee (in the case of the Notes) and such registrar and
transfer agent (in the case of the Common Stock) have received notice will be
recorded.
(g) APPROVAL OF HOLDERS. Whenever the consent or approval of Holders
of a specified percentage of Transfer Restricted Securities is required
hereunder, Transfer Restricted Securities held by the Company or its affiliates
(as such term is defined in Rule 405 under the Act) (other than the Holders or
subsequent Holders of Transfer Restricted Securities if such subsequent Holders
are deemed to be such affiliates solely by reason of their holdings of such
Transfer Restricted Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage. For
purposes of calculating the consent or approval of Holders of a majority of the
then outstanding aggregate principal amount of Transfer Restricted Securities,
Transfer Restricted Securities which have been converted into shares of Common
Stock shall be deemed to bear the principal amount at which such securities were
converted.
(h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder of any Transfer
Restricted Securities; provided, however, that this Agreement shall not inure to
the benefit of or be binding upon a successor or assign of a Holder of Transfer
Restricted Securities unless and to the extent such successor or assign acquires
Transfer Restricted Securities from such Holder. In the event another Person
becomes an obligor on the Notes pursuant to the requirements of the Indenture or
the Notes become convertible into shares of common stock of a Person other than
the Company pursuant to the provisions of Article XII and Article XV of the
Indenture, the Company shall at or prior to the consummation of the transaction
which resulted or will result in such Person becoming an obligor on the Notes or
the Notes becoming convertible into such common stock, to cause such Person to
execute and deliver to the Trustee a written agreement under which it shall
agree to discharge the obligations of the Company hereunder as if it were the
Company for all purposes hereunder to the extent necessary or appropriate to
give effect to the intent of the provisions hereof.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(j) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
13.
<PAGE>
(k) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(l) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(m) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(n) ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(o) FURTHER ASSURANCES. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(p) TERMINATION. This Agreement and the obligations of the parties
hereunder shall terminate after the Effectiveness Period except for any
liabilities or obligations under Sections 6 hereof, which shall remain in effect
in accordance with its terms.
14.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
RICHEY ELECTRONICS, INC.
By: /s/
-----------------------------------------
Name: Richard N. Berger
--------------------------------------
Title: Chief Financial Officer
--------------------------------------
Accepted as of the date first
written above:
JEFFERIES & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
By: JEFFERIES & COMPANY, INC.
By: /s/
-----------------------------------
Authorized Signatory
John G. Childs
15.
<PAGE>
EXHIBIT 5.1
April 25, 1996
Richey Electronics, Inc.
7441 Lincoln Way
Garden Grove, CA 92641
Gentlemen:
We have acted as counsel to Richey Electronics, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-2 (the "Registration Statement") to be filed by the Company with the
Securities and Exchange Commission on or about the date hereof pursuant to the
Securities Act of 1933, as amended, with respect to (i) $55,755,000 aggregate
principal amount of 7% Convertible Subordinated Notes due 2006 (the "Notes") of
the Company issued under and pursuant to an Indenture dated as of February 15,
1996 (the "Indenture") between the Company and First Trust of California,
National Association ("Trustee") and (ii) 3,947,256 shares of common stock, par
value $0.001 per share, of the Company ("Common Stock") initially issuable upon
conversion of the Notes plus an indeterminate number of shares of Common Stock
as may become issuable upon conversion of the Notes by reason of adjustment in
the conversion price (the "Conversion Shares"). As such counsel, we have been
requested to render this opinion.
We have examined and reviewed only such questions of law as we have
deemed necessary or appropriate for the purpose of rendering the opinions set
forth herein. For the purpose of rendering the opinions set forth herein, we
have been furnished with and examined the following documents:
1. The Restated Certificate of Incorporation of the Company, as
amended and presently in effect;
2. The Bylaws of the Company, as amended and presently in effect;
3. Records of proceedings of the Board of Directors of the Company
pertaining to the Offering (as defined in the Registration Statement);
4. The form of the Notes; and
5. The Indenture.
<PAGE>
Richey Electronics, Inc.
April 25, 1996
Page 2
With respect to all of the foregoing documents, we have assumed,
without investigation, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity to originals of
all documents submitted to us as certified or reproduced copies. We also have
obtained from the officers of the Company such advice as to such factual matters
as we consider necessary for the purpose of this opinion, and insofar as this
opinion is based on such matters of fact, we have relied on such advice.
With respect to the opinion express in paragraph A below, we have
assumed that (i) the Trustee has the power and authority to enter into and
perform the Indenture, (ii) the Indenture has been duly authorized, executed and
delivered by the Trustee and is a valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms, and (iii) the
Notes have been duly authenticated and delivered by the Trustee.
Based upon the foregoing, and subject to the assumptions,
qualifications, limitations and exceptions set forth herein, we are of the
opinion that:
A. The Notes have been duly authorized, executed and delivered by
the Company and constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
B. The Conversion Shares have been duly authorized and, when issued
and delivered upon the conversion of the Notes in accordance with the terms of
the Indenture, will be validly issued, fully paid and non-assessable.
Notwithstanding anything to the contrary contained herein, the
foregoing opinions are subject to the limitations and assumptions set forth
above and the following qualifications, limitations and exceptions:
1. Our opinions are limited to the federal laws of the United States
of America, the laws of the State of California, the laws of the State of New
York and the Delaware General Corporation Law ("DGCL") (and exclude any express
or implied opinion as to whether any laws other than those of the United States
of America, the State of California and the State of New York apply to the Notes
and Indenture, whether by application of conflicts of laws principles or
otherwise), and we assume no responsibility as to the applicability or the
effect of
<PAGE>
Richey Electronics, Inc.
April 25, 1996
Page 3
the laws of any other jurisdictions. This opinion is limited to the laws of the
United States of America, the laws of the State of California, the laws of the
State of New York and the DGCL in effect on the date hereof and we shall have no
obligation to update this opinion or to advise you of any future developments
which might cause us to modify or retract the opinions expressed herein.
2. Our opinion expressed in paragraph A above is subject to the
effect of the following:
a. Bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws or judicial decisions relating to or affecting
creditors' rights generally, including, without limitation, statutory or
other laws regarding fraudulent conveyances, preferential transfers or
equitable subordination;
b. General principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and
the possible unavailability of the remedy of specific performance,
injunctive relief or other equitable remedies, regardless of whether
considered in a proceeding in equity or at law; and
c. Limitations on the effectiveness of the "severability"
provisions of the Notes or the Indenture depending on the materiality of
the unenforceable provision to the Indenture and Notes as a whole and to
the undertakings of the parties thereunder.
3. With respect to the opinion expressed in paragraph A above, we
neither express nor imply any opinion concerning:
a. The application of the doctrines of waiver, estoppel or
election of remedies;
b. The enforceability of the provisions in the Indenture and
the Notes which provide that they shall be governed by or construed in
accordance with the laws of the State of New York;
c. The enforceability of any provisions in the Notes and
Indenture that provide that rights or remedies are not exclusive, that
every right or remedy is cumulative and may be exercised in addition to or
with any other right or remedy, that election of a particular remedy or
remedies
<PAGE>
Richey Electronics, Inc.
April 25, 1996
Page 4
does not preclude recourse to one or more other remedies, that any right or
remedy may be exercised without notice or that failure to exercise or delay
in exercising rights or remedies will not operate as a waiver of any such
right or remedy; or
d. The enforceability of any provisions in the Indenture to the
effect that acceptance of a payment shall not cure a payment default or
prevent the continued exercise of remedies as to such payment default.
4. With respect to the opinion expressed in paragraph A above, we
neither express nor imply any opinion as to the availability of the remedy of
acceleration of the outstanding indebtedness represented by the Notes upon the
breach of any provision of the Notes or Indenture except in the event of
nonpayment of a Note (including non-payment of principal, interest or the
repurchase price) when due, or a material breach of the Notes or Indenture.
This opinion letter may be not relied upon by any other person or
entity and may not be circulated, quoted or cited, in whole or in part, without
our express prior written consent.
We hereby consent to the filing of this opinion letter as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
This opinion is given as of the date hereof and we assume no further
obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in the
law which may hereafter occur.
Very truly yours,
/s/ Dewey Ballantine
<PAGE>
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of April 1, 1995, is made by and
between Richey Electronics, Inc., a Delaware Corporation (the "Company") and
Charles Mann (the "Executive"):
WHEREAS, the Company desires to employ the Executive as V,P., VA Services
of the Company, and the Executive desires to accept such 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, effective as
of the effective date of the Merger.
2. TERM OF EMPLOYMENT. 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 April 1, 1995 and ending on the second anniversary
of such effective date (the "Initial Period"); provided, however, that the
Initial Period shall automatically be extended for a period of an additional two
<PAGE>
years unless on or before November 18, 1996, the Company gives the Executive
written notice that the Executive's employment hereunder shall terminate upon
the expiration of the Initial Period. If the Initial Period is so extended by
two years, then the term of Executive's employment hereunder shall thereafter
automatically be extended for additional consecutive periods of two years each
unless terminated by the Company by giving the Executive written notice, no
later than 180 days prior to the expiration of the then applicable two-year
period, that the Executive's employment hereunder shall terminate upon the
expiration of the then applicable two-year period. The Initial Period and each
such additional two-year period (an "Additional Two-Year Period") shall
hereinafter be referred to as the "Employment Period."
3. POSITION/DUTIES/RESPONSIBILITIES. The Executive shall be employed,
initially, as Vice President 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 Board's power to modify the Executive's authority as the Board in its
discretion deems appropriate.
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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 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 Exhibit A,
attached hereto, and made a part hereof. 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
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<PAGE>
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
18 hereof.
5. COMPENSATION. During the Employment Period the Company shall pay to
the Executive a "Base Salary" at the rate of One Hundred Twenty Five Thousand
Dollars ($125,000.00) per annum, commencing on the first day of the Initial
Term, 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. In addition to the Base Salary set forth in this
Section 5, the Executive shall be eligible to participate in the Bonus Plan (or
any successor plan) and, subject to (i) the Board's sole discretion, and (ii)
the Board's reasonable determination that participation in such plan will not
cause an ownership change as defined in section 382 of the Internal Revenue Code
of 1986, as amended, any stock option plans approved by the Board for its
executives and key employees. The Company shall deduct and withhold all
necessary social security and
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withholding taxes and any other similar sums required by law or authorized
by 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 (i) an allowance for the use of an
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automobile of Five Hundred Dollars ($500.00) per month, and (ii) tax preparation
and planning assistance of (a) up to $0 per year if the assistance is
provided by the Company's regular outside accountants or (b) up to $0 per
year if the assistance is provided by another advisor. Tax assistance shall be
reimbursed by the Company upon submission of appropriate receipts to the
Company. The Executive shall be solely responsible for tax filings and
recordkeeping with respect to the automobile allowance.
8. INVOLUNTARY TERMINATION; DISABILITY. 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, at such time or within one year thereafter, give notice to
the Executive that he has been determined to have a "Disability." This
Agreement shall terminate immediately upon giving of such notice. Termination
pursuant to death or Disability shall constitute "Involuntary Termination."
9. TERMINATION FOR CAUSE. The Board may terminate the Employment Period
for "Cause" (such termination being hereinafter called "Termination For Cause")
by giving the Executive notice in writing of such termination which sets forth
in general the grounds
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<PAGE>
for such termination. Such termination shall be effective immediately upon such
notice. For the purpose of this Section 9, "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
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<PAGE>
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.
10. TERMINATION WITHOUT CAUSE. The Board may terminate the employment of
the Executive hereunder at any time during the Employment Period without "Cause"
or for any reason (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.
11. TERMINATION FOR GOOD REASON. The Executive shall have the right to
terminate the Executive's employment with the Company for "good reason" (such
termination being hereinafter called "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
the purpose of this Section 11, "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
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<PAGE>
does not object in the persons who report to the Executive); PROVIDED HOWEVER,
the reasons stated in this Section 11(ii), including the appointment of a non-
executive Chairman of the Board of Directors, shall not constitute Good Reason
if the actions are taken in the year following the expiration of the Initial
Term without a new written employment agreement being entered into, 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.
12. 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, 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.
9
<PAGE>
13. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) Upon the termination of the Executive's employment hereunder pursuant
to a Voluntary Termination or 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) Upon the termination of the Executive's employment hereunder pursuant
to an Involuntary Termination neither the Executive nor his beneficiary or
estate shall have any further rights or claims against the Company under this
Agreement except to receive a termination payment equal to that provided in
Section 13(a) hereof.
(c) Upon the termination of the Executive's employment hereunder pursuant
to a Termination Without Cause or 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 a termination
payment equal to that provided in Section 13(a) hereof, plus as severance (i) a
bonus for the year of termination and (ii) an amount equal to the greater of (a)
twelve (12) months' Base Salary plus bonus or (b)
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<PAGE>
the Base Salary plus bonus which would have been paid had the Executive's
employment continued for the balance of the Initial Period less one year if such
termination occurs during the Initial Period or, if such termination occurs
during an Additional Two-Year Period, the Base Salary plus bonus which would
have been paid had the Executive's employment continued for the balance of such
Additional Two-Year Period (except that if the Initial Period or such Additional
Two-Year Period has automatically been extended for an additional two years as
provided herein, the applicable time period for purposes of this clause (b)
shall be the balance of the Initial Period plus such additional two years if
such termination occurs during the Initial Period or the balance of such
Additional Two-Year Period plus such additional two years if such termination
occurs during such Additional Two-Year Period).
(d) The Executive agrees that the Company may offset from payments due
under this Section 13 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 18 hereof. If the arbitrator 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.
11
<PAGE>
(e) Upon the effective date of any Termination, 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.
(f) For purposes of subsection (c), the bonus for the year of termination
shall be the pro rata amount (computed on the basis of the number of days in the
year prior to termination) of the bonus that would have been paid had the Bonus
Period (as defined in the Bonus Plan) which includes the date of termination
ended on such date and had the Company Performance Standards and Individual
Performance Standards for the Bonus Period been pro rated on the basis of the
number of days in the terminated Bonus Period. The bonus for the entire
severance period described in subsection (c) shall be based on the pro rata
bonus determined under the preceding sentence.
14. DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) The Executive recognizes and acknowledges that all plans, customer
lists, data, systems, methods, designs, procedures, books and records, relating
to the operations, personnel, business activities, practices and procedures of
the Company 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 he will
not ever at any time disclose any part thereof, or use or permit to be used any
such name, style,
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<PAGE>
logo or form, to or by any person, firm, corporation, association, or other
entity for any reason or purpose whatsoever.
(b) 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.
(c) The Executive acknowledges that the restrictions contained in this
Section 14 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 thereof 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 the provisions of this Section 14, the Company shall
be entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief restraining the Executive from disclosing any such
records, documents or information, or using or permitting to be used any such
name, style, logo or form, or from being employed by or otherwise rendering any
services to any person, firm, corporation,
13
<PAGE>
association or other entity to whom such records, documents in whole or in part,
or information have been disclosed or are threatened to be disclosed.
(d) 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, including but not limited to recovery of damages
from the Executive or those acting in concert with him, penalties, earnings,
profits and other benefits.
15. RESTRICTIVE COVENANT.
(a) 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 Executive agrees that during the Employment Period
and for the two (2)-year period immediately following the termination of
employment (or the greater of (i) twelve (12) months or (ii) any remaining
portion of the Initial Term after the termination of employment if such
termination is a result of Termination Without Cause or a Termination For Good
Reason) 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 shall have an interest in, any person, firm, corporation or
business, whether as an employee,
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<PAGE>
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 Employment Period and for the two (2)-year period
immediately following the termination of employment (or if such termination is a
result of Termination Without Cause or a Termination For Good Reason, the
greater of (i) twelve (12) months or (ii) the balance of the Initial Period less
one year if such termination occurs during the Initial Period or, if such
termination occurs during an Additional Two-Year Period, the balance of such
Additional Two-Year Period (except that if the Initial Period or such Additional
Two-Year Period has automatically been extended for an additional two years as
provided herein, the applicable time period for purposes of this clause (ii)
shall be the balance of the Initial Period plus such additional two years if
such termination occurs during the Initial Period or the balance of such
Additional Two-Year Period plus such additional two years if such termination
occurs during such Additional Two-Year Period)), the Executive shall communicate
the contents of this Section 15 to any person, firm, association or corporation
which the Executive intends to be employed by, associated with, or represent
which is engaged in a business which is competitive to the business of the
Company. The covenant set forth in this Section 15 shall be restricted
geographically to only
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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. Notwithstanding anything else
contained in this Section 15(a), the restrictions described herein shall apply
only (i) in the case of a Termination For Cause, and (ii) in the case of a
Termination for Good Reason or Termination Without Cause during periods in which
the Executive has not elected to waive his right to severance benefits under
Section 13(c) hereof.
(b) The Executive understands that the restrictions in this Section 15 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 and stockholder 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. The
Executive acknowledges that the restrictions contained in this Section 15 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
thereof would result in irreparable injury to the Company. Therefore, the
Executive agrees that, in the event of a breach or a threatened breach by the
Executive of the provisions of this Section 15, the damages resulting from such
injury will be incapable of being
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precisely measured and that the Company will not have an adequate remedy at law
to redress the harm which such violation shall cause. Accordingly, the
Executive agrees that the Company shall be entitled to obtain from any court of
competent jurisdiction, the rights and remedies of specific performance and
preliminary and permanent injunctive relief restraining the Executive from any
violation of this Section 15, in addition to any other rights or remedies that
may be available at law or in equity, in respect of any failure or threatened
failure, on the part of the Executive to comply with this Section 15.
(c) Nothing herein shall be construed as prohibiting the Company from
pursuing against the Executive or those acting in concert with him any other
legal or equitable remedies available to it for such breach or threatened
breach, including recovery of damages, penalties, earnings, profits, and other
benefits.
(d) The Company and the Executive acknowledge their intention that the
Company shall have the broadest possible protection of the value of the
Company's business in the trade area set forth above consistent with public
policy and it will not violate the intent of the parties if any court should
determine that, consistent with the established precedent of the forum state,
the public policy of such state requires a more limited restriction in
geographical area or duration of Executive's covenant not to compete, contained
in an appropriate decree.
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16. NON-SOLICITATION. Without limiting the generality of the provisions
of Section 15 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 term
of this agreement, or from any successor in interest to any such person, firm,
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.
17. INTERFERENCE WITH RELATIONSHIPS. During the period of employment and
the immediately following two (2)-year period, the Executive shall not, directly
or indirectly, as 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
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future customer of the Company to terminate or otherwise alter his, her or its
relationship with the Company.
18. ARBITRATION. In accordance with Part 3, Title 9, Sections 1280-1294.2
"Arbitration" of the California Code of Civil Procedure, the parties agree to
arbitrate pursuant to binding arbitration any claim, dispute or controversy
between Executive and the Company or its officers, directors or agents arising
out of or related to the employment or termination of employment of the
Executive.
(a) INITIATION OF THE ARBITRATION. An arbitration can be initiated by any
party hereto pursuant to the notice procedures set forth in Section 20.
(b) TIME FOR MAKING THE CLAIM. An arbitration must be initiated within
one hundred eighty (180) days of the incident or incidents that gave rise to the
dispute or claim, or the party will be deemed to have waived his or its right to
arbitrate or otherwise pursue the claim in any forum.
(c) SELECTION OF THE ARBITRATOR. The arbitrator shall be a retired judge
mutually agreeable to all parties, or if agreement cannot be reached, selected
by the presiding or assistant presiding judge of the Los Angeles Superior Court.
(d) DISCOVERY. There shall be no discovery, other than each side shall
provide the other with a list of witnesses and a list of documents he or it
intends to introduce at the arbitration hearing. The initiating party shall
submit his or its lists of witnesses and
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documents within fifteen (15) days after his or its initial demand for
arbitration, and the responding party shall have fifteen (15) days thereafter to
submit his or its responding lists of documents and witnesses. Within five (5)
days thereafter any party may request copies of any documents on another party's
list, which copies shall be provided within ten (10) calendar days.
(e) CONDUCT OF THE HEARING. Each side is entitled to one (1) day in which
to present the party's case, including all witnesses, documents and argument, to
the arbitrator, and the hearing shall not be longer than two days. All parties
and their attorneys may be present for each side's presentation. Each side may
present its case at the arbitration hearing by counsel or by the party or both.
The rules of evidence shall not apply at the hearing. The arbitrator shall
render a written decision as soon as possible.
(f) THE ARBITRATOR'S FEES. Each side shall bear its pro rata share of the
arbitrator's fee, which shall be agreed upon with the arbitrator in advance and
payable by certified or cashier's check at the commencement of the arbitration
hearing; however, the arbitrator may include the arbitrator's fee in any costs
awarded to the prevailing party pursuant to this Agreement.
(g) JUDGMENT AND WAIVER OF APPEAL. The arbitration award shall be reduced
to a California State Court judgment, unless paid before such a judgment can be
entered; and it shall be a binding, nonappealable judgment, i.e., all parties
hereby waive their right to appeal said judgment.
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(h) CONSENT TO JURISDICTION. The parties consent to the jurisdiction of
the Los Angeles Superior Court for the purpose of accomplishing the above.
19. LOAN COVENANTS. Notwithstanding any other provision of this
Agreement, (i) amounts, other than severance described in Section 13(c) 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 13(c) 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.
20. NOTICES. Notices and other communications hereunder shall be in
writing and shall be delivered personally or sent return receipt requested and
postage prepaid, addressed as follows:
If to the Executive:
____________________________
____________________________
____________________________
If to the Company:
Richey Electronics, Inc.
7441 Lincoln Way
Garden Grove, California 92641
Attn: Chairman of the Compensation Committee
of the Board of Directors
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with a copy to:
Kathy T. Wales, Esq.
Dewey Ballantine
333 South Hope Street
Los Angeles, California 90071
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of delivery if personally delivered; on the business day after
the date when sent if by air courier; and on the fifth business day after the
date when sent if sent by certified mail return receipt requested, in each case
addressed to such party as provided in this Section 20 or in accordance with the
latest unrevoked direction from such party.
21. DEFINITION OF EXECUTIVE. The word "Executive" shall, wherever
appropriate, include his dependents, beneficiaries and legal representatives.
22. 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.
23. 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
<PAGE>
24. 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.
25. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements or understanding among the parties with respect thereto.
26. AMENDMENTS. This agreement may be amended only by an agreement in
writing signed by the parties hereto.
27. 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.
28. SEVERABILITY. Any provision of this Agreement, or the application
thereof, that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provisions in any other jurisdiction.
29. 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
23
<PAGE>
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).
30. EXHIBITS. The provisions of Exhibit A attached hereto are hereby
incorporated by reference in this Agreement with the same force and effect as if
fully set forth herein.
31. 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 as of the
date first above written.
Executive:
/s/ CHARLES W. MANN
______________________________________
CHARLES W. MANN
Richey Electronics, Inc.
By: /s/ DONALD I. ZIMMERMAN
___________________________________
DONALD I. ZIMMERMAN
Title: Chairman of the Compensation
Committee
143731L.1
24
<PAGE>
EXHIBIT A
Current Investments
<PAGE>
EXHIBIT 12.1
RICHEY ELECTRONICS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
Jan 3, Jan. 1, Dec. 31, Dec. 31, Dec. 31,
1992 1993 1993 1994 1995
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income before taxes $1,162 $750 $1,167 $3,166 $4,786
------------------------------------------------
Fixed charges:
Interest expense 476 388 1,198 1,606 867
Amortization of - - - - -
debt costs
Operating lease 317 315 564 452 602
adjustment(1)
------------------------------------------------
TOTAL FIXED 793 703 1,762 2,058 1,469
CHARGES
------------------------------------------------
INCOME BEFORE $1,955 $1,453 $2,929 $5,224 $6,255
TAXES ADJUSTED FOR
FIXED CHARGES
------------------------------------------------
------------------------------------------------
Ratio of earnings to 2.5x 2.1x 1.7x 2.5x 4.3x
fixed charges
------------------------------------------------
------------------------------------------------
</TABLE>
(1) Represents portion of rental expense under operating leases deemed by the
Company to be representative of the interest factor.
<PAGE>
CONSENT OF EXPERTS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-2) and related Prospectus of Richey
Electronics, Inc. for the registration of $55,755,000 principal amount of
its 7% Convertible Subordinated Notes due 2006 and 3,947,256 shares of its
Common Stock and to the incorporation by reference therein of our report dated
April 14, 1995 (except for Note 2 as to which the date is November 9, 1995 and
Note 8 as to which the date is December 19, 1995), with respect to the
consolidated financial statements of Electrical Distribution Acquisition Company
and our report dated April 14, 1995 (except for Note 2 as to which the date is
November 9, 1995), with respect to the financial statements of Deanco, Inc.
included in its Annual Report (Form 10-K), under Item 14(b) Reports on Form 8-K,
for the year ended December 31, 1995 and in its Current Report on Form 8-K/A
dated January 31, 1996, filed with the Securities and Exchange Commission.
/s/Ernst & Young LLP
Syracuse, New York
April 28, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this April 26,
1996 Registration Statement and related prospectus on Form S-2 of our reports,
dated January 19, 1996, which appears on page 29 of the annual report on Form
10-K, relating to the financial statements of Richey Electronics, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 and our report dated January 19, 1996 relating to the
consolidated financial statements of Electrical Distribution Acquisition Company
and subsidiary as of December 19, 1995 and for the period January 1, 1995 to
December 19, 1995. We also consent to the reference to our Firm under the
caption "Experts" appearing in the prospectus.
Pasadena, California /s/McGladrey & Pullen, LLP
April 24, 1996
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Richey Electronics, Inc. (the "Company"), for himself and not for
one another, hereby constitutes and appoints Greg A. Rosenbaum and Richard N.
Berger, and each of them singly (with full power to each of them to act alone),
his true and lawful attorneys-in-fact and agents for him and on his behalf and
in his name, place and stead, in any and all capacities, to sign the
Registration Statement to be filed by the Company with the Securities and
Exchange Commission on or about April 26, 1996 with respect to the proposed
offering of the 7% Convertible Subordinated Notes due 2006 and the shares of
Common Stock of the Company issuable upon conversion of the Notes under the
Securities Act of 1933, as amended, any and all amendments (including post-
effective amendments) thereto, and any other documents in connection therewith,
granting unto said attorneys-in-fact and agents and each of them acting alone
full power and authority to do and perform each and every act and thing
necessary and proper to be done in and about the premises in order to effectuate
the same as fully for all intents and purposes as the undersigned might or could
do in person; and each of the undersigned hereby ratifies and confirms all that
said attorneys-in-fact and agents or either of them or their substitute or
substitutes, may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this
19th day of April, 1996.
/s/ C. Don Alverson /s/ Greg A. Rosenbaum
- -------------------------- -----------------------------
C. Don Alverson Greg A. Rosenbaum
/s/ Thomas W. Blumenthal /s/ Norbert W. St. John
- -------------------------- ----------------------------
Thomas W. Blumenthal Norbert W. St. John
/s/ William C. Cacciatore /s/ Donald I. Zimmerman
- -------------------------- ----------------------------
William C. Cacciatore Donald I. Zimmerman
/s/ Richard N. Berger
- -------------------------- ----------------------------
Edward L. Gelbach Richard N. Berger
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
FORM T-1
Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
____________________
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States 94-3160100
(State of Incorporation) (IRS Employer Identification No.)
550 South Hope Street, Suite 500
Los Angeles, California 90071
(Address of principal executive offices and zip code)
____________________
RICHEY ELECTRONICS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation or organization)
33-0594451
(IRS Employer Identification No.)
7441 LINCOLN WAY
GARDEN GROVE, CA
92641
(Address of principal executive offices and Zip code
Debt Securities
(Title of the indenture securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington DC
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the trustee, describe each
such affiliation.
None
See Note following Item 16.
ITEMS 3-15 ARE NOT APPLICABLE BECAUSE TO THE BEST OF THE TRUSTEE'S
KNOWLEDGE THE OBLIGOR IS NOT IN DEFAULT UNDER ANY INDENTURE FOR WHICH THE
TRUSTEE ACTS AS TRUSTEE.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
Exhibit 1 - Articles of Association of First Trust of California, National
Association dated June 5, 1992. Incorporated herein by reference
to Exhibit 1 filed with Form T-1 statement, Registration No. 33-
50826
Exhibit 2 - Certificate of the Comptroller of Currency as to authority of
First Trust of California, National Association to commence the
business of banking. Incorporated herein by reference to Exhibit
2 filed with Form T-1 Statement, Registration No.33-50826
Exhibit 3 - Authorization of the Comptroller of Currency granting First Trust
of California, National Association, the right to exercise
corporate trust powers. Incorporated herein by reference to
Exhibit 3 filed with Form T-1 Statement, Registration No.33-50826
Exhibit 4 - By-Laws of First Trust of California, National Association, dated
June 15, 1992. Incorporated herein by reference to Exhibit 4
filed with Form T-1 Statement, Registration No.33-50826
Exhibit 5 - Not Applicable
Exhibit 6 - Consent of First Trust of California, National Association
required by Section 321(b) of the Act. Incorporated herein by
reference to Exhibit 6 filed with Form T-1 Statement,
Registration No.33-50826
<PAGE>
Exhibit 7 - Report of Condition of First Trust of California, National
Association, as of the close of business on December 31, 1995
published pursuant to law or the requirements of its supervising
or examining authority.
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligor, or affiliates, are based upon
information furnished to the trustee by the obligor. While the trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
First Trust of California, National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Los Angeles and State of California on the 26st day of April,
1996.
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION
By: /s/FONDA J. HALL
---------------------------------
Fonda J. Hall
Trust Officer
Attest:/s/SHERI B. BALL
-------------------
Sheri B. Ball
Vice President
<PAGE>
EXHIBIT 6
C O N S E N T
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, hereby consents
that reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: April 26, 1996
FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION
By: /s/ FONDA J. HALL
---------------------------------
Fonda J. Hall
Trust Officer
<PAGE>
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION
STATEMENT OF FINANCIAL CONDITION
AS OF 12/31/95
($000'S)
ASSETS:
Cash and Due From Depository Institutions: 32,433
Federal Reserve Stock: 3,317
Fixed Assets: 117
Intangible Assets: 88,792
Other Assets: 5,290
-------
TOTAL ASSETS: 129,949
-------
LIABILITIES:
Other Borrowed Money: 147
Other Liabilities: 7,193
-------
TOTAL LIABILITIES: 7,340
-------
EQUITY:
Common and Preferred Stock: 1,000
Surplus: 121,200
Undivided Profits: 409
-------
TOTAL EQUITY CAPITAL: 122,609
-------
TOTAL LIABILITES AND EQUITY CAPITAL: 129,949
-------
________________________________________________________________________
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
First Trust of California, National Association
By:/s/ S. B. BALL
-------------------------
Vice President
<PAGE>
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION
By /s/ FONDA J. HALL Fonda J. Hall, Trust Officer
-------------------------------------
/s/ SHERI B. BALL
- -------------------------------
Sheri B. Ball
Vice President
