<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998
REGISTRATION NO. ___________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
RICHARDSON ELECTRONICS, LTD.
(Name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2096643
(State or other jurisdiction (I.R.S. Employer
Identification
No.)
of incorporation or
organization)
</TABLE>
40W267 KESLINGER ROAD
LAFOX, IL 60147
(630) 208-2200
(Address, including zip code, and telephone number, including
area code of registrant's principal executive office)
WILLIAM G. SEILS
RICHARDSON ELECTRONICS, LTD.
40W267 KESLINGER ROAD
LAFOX, IL 60147
(630) 208-2370
FAX (630) 208-2950
E-MAIL [email protected]
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to
SCOTT HODES TIMOTHY R. M. BRYANT
DAVID S. GUIN MCDERMOTT, WILL & EMERY
ROSS & HARDIES 227 WEST MONROE STREET, SUITE 3100
150 N. MICHIGAN AVENUE CHICAGO, IL 60606-5096
CHICAGO, IL 60601-7567 (312) 372-2000
(312) 558-1000 FAX (312) 984-3669
FAX (312) 750-8600 E-MAIL [email protected]
E-MAIL [email protected]
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities act of
1933, check the following box. / /
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. / /
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 this form is a post-effective amendment filed pursuant to Rule 462(d) 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>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
3,450,000 SHARES
COMMON STOCK, $.05 PAR VALUE (1) $13 3/8 $46,143,750 $13,612.41
</TABLE>
(1) Includes an option to purchase 450,000 shares granted to the Underwriters to
cover over-allotments.
(2) Based on last sale price of Registrant's Common Stock on March 27, 1998
solely for purposes of calculating the registration fee pursuant to Rule
457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED MARCH 31, 1998
3,000,000 SHARES
[LOGO]
COMMON STOCK
-------------
OF THE 3,000,000 SHARES OF COMMON STOCK OFFERED HEREBY (THE "OFFERING"),
1,500,000 SHARES OF COMMON STOCK ARE BEING SOLD BY RICHARDSON ELECTRONICS, LTD.
(THE "COMPANY" OR "RICHARDSON") AND 1,500,000 SHARES ARE BEING SOLD BY A
STOCKHOLDER OF THE COMPANY (THE "SELLING STOCKHOLDER"). THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDER.
SEE "PRINCIPAL AND SELLING STOCKHOLDERS."
THE COMMON STOCK IS QUOTED AND TRADED ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "RELL." ON MARCH 27, 1998, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK WAS $13 3/8 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
UNDERWRITING PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT COMPANY(1) STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share............................. $ $ $ $
Total (2)............................. $ $ $ $
</TABLE>
(1) Before deducting estimated expenses of $400,000, which are payable by the
Company.
(2) The Company and the Selling Stockholder have granted the Underwriters a
30-day option to purchase from them pro rata up to 450,000 additional shares
of Common Stock on the same terms and conditions as set forth above solely
to cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Stockholder will be $ , $ , $ and $ ,
respectively. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholder. See "Underwriting" and
"Principal and Selling Stockholders."
------------------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THEM, AND SUBJECT TO CERTAIN
OTHER CONDITIONS. IT IS EXPECTED THAT DELIVERY OF THE SHARES OF COMMON STOCK
WILL BE MADE ON OR ABOUT , 1998 AT THE OFFICES OF CLEARY
GULL REILAND & MCDEVITT INC., MILWAUKEE, WISCONSIN.
CLEARY GULL REILAND & MCDEVITT INC.
MCDONALD & COMPANY SECURITIES, INC.
The date of this Prospectus is , 1998.
<PAGE>
[PICTURES TO BE INSERTED]
Electron tubes for industrial, broadcast, avionics and medical applications.
Radio frequency and microwave components for telecommunications and
power-semiconductors for industrial power conversion applications.
Cathode ray tubes, monitors and flat panel displays for data display, marine,
medical, radar and avionics applications.
Closed circuit television (CCTV) systems and related security products for
industrial and commercial security and surveillance applications.
At the top of the page:
Engineered Solutions for a Wide Range of Electronic Products
[PICTURES TO BE INSERTED]
At the bottom of the page:
Richardson serves over 80,000 active customers worldwide
Over 50% of sales are international.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENTS, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS, AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED, (I) THE TERM "COMPANY" OR "RICHARDSON" REFERS TO RICHARDSON
ELECTRONICS, LTD. AND ITS SUBSIDIARIES, AND (II) THE INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED.
THE COMPANY'S FISCAL YEAR ENDS ON THE FRIDAY CLOSEST TO THE END OF MAY OF
EACH YEAR, RESULTING IN EITHER A 52 OR 53 WEEK YEAR. REFERENCES TO FISCAL YEARS
REFER TO THE FISCAL YEAR ENDING IN THAT CALENDAR YEAR; FOR EXAMPLE, "FISCAL
1997" REFERS TO THE COMPANY'S FISCAL YEAR ENDING MAY 30, 1997. FOR CONVENIENCE,
FISCAL YEARS ARE IDENTIFIED AS IF THE YEAR ENDED ON MAY 31.
THE COMPANY
Richardson Electronics, Ltd. is a specialized international distributor of
electronic components, equipment and assemblies primarily for niche industrial
applications. Its product offerings include electron tubes, microwave
generators, radio frequency ("RF") and microwave components, power
semiconductors, data display monitors and electronic security products and
systems. These products are used to control, switch or amplify electrical power
or signals, or as display, recording or alarm devices. They are used in a wide
variety of industrial, communications, medical and scientific applications. The
Company derives over 60% of its sales from components used in replacement or
repair applications, in contrast to components used in original equipment.
Richardson differentiates itself by providing engineered solutions to its
customers. Its capabilities extend beyond simple product distribution to include
specialty product manufacturing and systems integration and include value-added
services such as component assembly, prototype design and manufacture, testing,
kitting and logistics. In fiscal 1997, the Company derived over 45% of its sales
from products that it electronically or physically modified or sold under its
own brand names.
Richardson serves over 80,000 active customers in 130 countries, including
over 40% of the companies in the FORTUNE 500. The Company's salesforce operates
from 88 locations throughout the world and services orders from 29 stocking
locations. Richardson's commitment is to provide excellent customer service
through inventory availability, cost-effective product alternatives and timely
delivery. More than 80% of orders received by 6:00 p.m. are shipped complete the
same day. In the quarter ended February 28, 1998, 51.7% of the Company's sales
were international. The Company sells over 800 vendor lines which encompass more
than 300,000 different products. Richardson sells through its technical sales
staff and field engineers, telemarketing, product catalogs, the Company's web
site and electronic data interchange.
The Company was founded in 1947 as an electron tube distributor. As its
customers migrated to new technologies, Richardson expanded its product
offerings to meet their needs. In the quarter ended February 28, 1998, products
other than electron tubes accounted for 61.6% of sales, up from 35.3% five years
earlier. The Company has increased its sales at a compound annual growth rate of
15.4%, from $34.2 million in 1983, the year of its initial public offering, to
$255.1 million in fiscal 1997, through a combination of internal growth and
selected acquisitions.
Richardson's growth strategy emphasizes: (i) internal sales growth from
geographic and product line expansion, (ii) continuous operational improvement
intended to maximize gross margins; reduce selling, general and administrative
costs as a percentage of revenue; increase inventory turns; and otherwise
improve operating efficiencies and asset utilization and (iii) acquisition of
businesses or significant product lines which will expand the Company's product
offerings, geographic scope or customer base. During the last two years, the
Company completed six acquisitions. Since fiscal 1995, the Company has made key
additions to its management team to support growth and execute this strategy.
3
<PAGE>
Richardson organizes its marketing, sales, product management and purchasing
functions into the following four strategic business units ("SBUs"):
- ELECTRON DEVICE GROUP ("EDG"). EDG's principal products, electron tubes,
are used to control, switch, oscillate or amplify electrical power. This
technology has been used for more than 80 years in electronic circuitry
throughout the industrialized world. With such a vast installed base,
replacement applications represent EDG's primary focus. The Company sells
products directly to end users in industries including automotive,
communications, marine, plastics, steel and textiles. Common applications
include use in broadcasting equipment, motor speed controls, industrial
heating systems, radar systems and welding equipment. The Company believes
it is one of the few distributors offering a broad range of these
products. Certain areas within EDG represent important growth
opportunities, especially sales to customers in developing nations; sales
of products to medical customers for use in x-ray and other imaging
equipment; and sales of microwave generators for a wide variety of
industrial and commercial heating applications. For the first nine months
of fiscal 1998, EDG represented 38.8% of the Company's overall sales and,
compared to the same period in the prior year, sales grew 2.6%, all of
which was internally generated.
- SOLID STATE AND COMPONENTS ("SSC"). SSC focuses its broad product
offerings on two specialized markets. SSC sells (i) RF and microwave
components directly to customers in the growing wireless and
telecommunications markets, as well as in the broadcast and avionics
markets, and (ii) power semiconductors and related components directly to
a wide spectrum of industrial customers for use in electric power
conversion applications. SSC derives the majority of its sales from
products intended for use by original equipment manufacturers in new
finished goods, and in particular, base stations and other RF transmission
applications for the telecommunications market. For the first nine months
of fiscal 1998, SSC represented 28.9% of the Company's overall sales and,
compared to the same period in the prior year, sales grew 21.2%. Excluding
the effects of an acquisition, SSC's internally generated sales grew
16.3%.
- DISPLAY PRODUCTS GROUP ("DPG"). DPG's largest product line is replacement
cathode ray tubes ("CRTs") used in data display monitors for applications
such as in computer networks, instrumentation displays, broadcast
monitors, radar systems, viewfinders and TelePrompTers-Registered
Trademark-. From a base of approximately 200 standard CRTs, DPG can
provide over 200,000 product offerings with its value-added capabilities
to cost-effectively meet its customers' needs. Principal customers include
airlines, banks, hospitals, utilities and both independent and original
equipment service and repair organizations. In addition to CRTs, the
Company markets services such as system integration and engineering. DPG
has recently expanded its product breadth to include the distribution of
new data display monitors and flat panel display products. For the first
nine months of fiscal 1998, DPG represented 10.1% of the Company's overall
sales and, compared to the same period in the prior year, sales grew 4.0%,
all of which was internally generated.
- SECURITY SYSTEMS DIVISION ("SSD"). SSD serves the growing commercial
security and surveillance industry with a primary emphasis on closed
circuit television ("CCTV") systems and components. SSD's principal
value-added service is system design. SSD's products for CCTV applications
include cameras, mounts, monitors, recorders, lenses and related
accessories. Additionally, SSD provides electronic components for burglar
and fire detection systems, access control systems and commercial sound
systems. SSD grew significantly due to the February 1997 acquisition of
Burtek Systems and the August 1997 acquisition of Security Service
International. For the first nine months of fiscal 1998, SSD represented
22.2% of the Company's overall sales and, compared to the same period in
the prior year, sales grew 104%. Excluding the effects of the two
acquisitions, SSD's internally generated sales grew 26.3%.
The Company's executive offices are located at 40W267 Keslinger Road, LaFox,
Illinois 60147, its telephone number is (630) 208-2200, and its web site address
is http://www.rell.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company....................... 1,500,000 shares
Common Stock offered by the Selling Stockholder........... 1,500,000 shares
Common Stock and Class B Common Stock outstanding after
the Offering (1)........................................ 13,746,221 shares
Use of Proceeds........................................... For reduction of indebtedness
and general corporate purposes,
including working capital and
possible acquisitions. See "Use
of Proceeds."
Nasdaq National Market Symbol............................. RELL
</TABLE>
- ------------------------
(1) BASED ON THE NUMBER OF SHARES OUTSTANDING ON MARCH 30, 1998; INCLUDES
3,239,330 SHARES OF OUTSTANDING CLASS B COMMON STOCK, BUT EXCLUDES 3,680,609
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON CONVERSION OF THE
COMPANY'S CONVERTIBLE DEBENTURES AT A WEIGHTED AVERAGE CONVERSION PRICE OF
$19.24 AND 1,389,699 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON
EXERCISE OF OUTSTANDING OPTIONS GRANTED UNDER VARIOUS STOCK OPTION PLANS AT
A WEIGHTED AVERAGE EXERCISE PRICE OF $7.68. UPON CONSUMMATION OF THE
OFFERING, AN AGGREGATE OF 740,159 OPTIONS GRANTED UNDER SUCH PLANS WILL BE
VESTED AND EXERCISABLE. SEE "RISK FACTORS--SHARES ELIGIBLE FOR FUTURE SALE."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, FIRST NINE MONTHS
----------------------------------------------------- -------------------------
1993 1994(1) 1995(2) 1996 1997(3) 1997(3) 1998
--------- --------- --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $ 159,215 $ 172,094 $ 208,118 $ 239,667 $ 255,139 $ 183,874 $ 223,442
Cost of products sold................ 111,620 151,203 152,785 169,123 187,675 137,182 159,596
--------- --------- --------- --------- --------- ----------- ------------
Gross margin....................... 47,595 20,891 55,333 70,544 67,464 46,692 63,846
Selling, general and administrative
expenses............................ 38,070 41,226 48,674 52,974 62,333 46,508 48,525
--------- --------- --------- --------- --------- ----------- ------------
Operating income (loss).......... 9,525 (20,335) 6,659 17,570 5,131 184 15,321
Other expense, net................... 5,023 5,874 4,028 5,559 7,856 5,512 5,711
--------- --------- --------- --------- --------- ----------- ------------
Income (loss) before income taxes
and extraordinary item........... 4,502 (26,209) 2,631 12,011 (2,725) (5,328) 9,610
Income tax provision (benefit)....... 1,700 (6,400) 150 3,900 (1,720) (2,500) 2,880
--------- --------- --------- --------- --------- ----------- ------------
Income (loss) before extraordinary
item............................. 2,802 (19,809) 2,481 8,111 (1,005) (2,828) 6,730
Extraordinary gain (loss), net of
tax................................. -- -- 527 -- (488) (488) --
--------- --------- --------- --------- --------- ----------- ------------
Net income (loss)................ $ 2,802 $ (19,809) $ 3,008 $ 8,111 $ (1,493) $ (3,316) $ 6,730
--------- --------- --------- --------- --------- ----------- ------------
--------- --------- --------- --------- --------- ----------- ------------
INCOME (LOSS) PER SHARE--BASIC:(4)
Before extraordinary item.......... $ .25 $ (1.76) $ .22 $ .70 $ (.08) $ (.24) $ .56
Extraordinary gain (loss), net of
tax.............................. -- -- .05 -- (.04) (.04) --
--------- --------- --------- --------- --------- ----------- ------------
Net income (loss) per share...... $ .25 $ (1.76) $ .27 $ .70 $ (.12) $ (.28) $ .56
--------- --------- --------- --------- --------- ----------- ------------
--------- --------- --------- --------- --------- ----------- ------------
Average shares outstanding......... 11,251 11,285 11,425 11,659 11,892 11,886 12,096
INCOME (LOSS) PER SHARE--DILUTED:(4)
Before extraordinary item.......... $ .25 $ (1.76) $ .21 $ .68 $ (.08) $ (.24) $ .54
Extraordinary gain (loss), net of
tax.............................. -- -- .05 -- (.04) (.04) --
--------- --------- --------- --------- --------- ----------- ------------
Net income (loss) per share...... $ .25 $ (1.76) $ .26 $ .68 $ (.12) $ (.28) $ .54
--------- --------- --------- --------- --------- ----------- ------------
--------- --------- --------- --------- --------- ----------- ------------
Average shares outstanding......... 11,335 11,285 11,566 12,002 11,892 11,886 12,476
DIVIDENDS PAID PER SHARE OF
COMMON STOCK........................ $ .16 $ .16 $ .16 $ .16 $ .16 $ .12 $ .12
NET SALES BY STRATEGIC BUSINESS UNIT:
Electron Device Group (EDG)........ $ 97,846 $ 91,736 $ 105,454 $ 109,925 $ 113,700 $ 84,647 $ 86,823
Solid State & Components (SSC)..... 31,619 42,274 52,409 67,976 74,209 53,201 64,484
Display Products Group (DPG)....... 19,076 27,150 36,502 36,154 29,377 21,737 22,617
Security Systems Division (SSD).... 10,674 10,934 13,753 25,612 37,853 24,289 49,518
--------- --------- --------- --------- --------- ----------- ------------
Consolidated..................... $ 159,215 $ 172,094 $ 208,118 $ 239,667 $ 255,139 $ 183,874 $ 223,442
--------- --------- --------- --------- --------- ----------- ------------
--------- --------- --------- --------- --------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ACTUAL ADJUSTED(5)
----------- -----------
BALANCE SHEET DATA:
Working capital, net......................................................................... $ 141,227 $ 141,227
Total assets................................................................................. 199,654 199,654
Long-term debt, including current portion.................................................... 105,623 87,164
Stockholders' equity......................................................................... 64,211 82,670
</TABLE>
6
<PAGE>
(1) IN SEPTEMBER 1991, THE COMPANY SETTLED AN ANTITRUST SUIT WITH THE U.S.
DEPARTMENT OF JUSTICE RELATED TO ITS PARTICIPATION IN THE ELECTRON TUBE
MANUFACTURING INDUSTRY. AS A CONSEQUENCE, CERTAIN OF ITS MANUFACTURING
ACTIVITIES BECAME UNECONOMIC AND WERE DIVESTED OR DISCONTINUED. IN FISCAL
1994, COST OF PRODUCTS SOLD INCLUDED A $26.5 MILLION PROVISION, OF WHICH
$21.4 MILLION WAS FOR THE DISPOSITION OF THE COMPANY'S MANUFACTURING
OPERATIONS IN BRIVE, FRANCE, AND $5.1 MILLION WAS FOR INCREMENTAL COSTS
RELATED TO THE PHASE-DOWN OF CERTAIN DOMESTIC MANUFACTURING OPERATIONS. NET
OF TAX, THESE CHARGES INCREASED THE NET LOSS BY $19.5 MILLION, OR $1.73 PER
SHARE.
(2) IN FISCAL 1995, THE COMPANY RECORDED A CHARGE FOR THE SETTLEMENT OF A
MONETARY CLAIM RELATED TO A 1989 CONTRACT WHICH REDUCED GROSS MARGIN BY $4.7
MILLION AND NET INCOME BY $2.3 MILLION, OR $.20 PER SHARE. THE COMPANY ALSO
RECORDED AN EXTRAORDINARY GAIN OF $527,000, OR $.05 PER SHARE, NET OF TAX,
ON THE REPURCHASE OF CERTAIN OF THE COMPANY'S CONVERTIBLE DEBENTURES.
(3) IN THE THIRD QUARTER OF FISCAL 1997, THE COMPANY RECORDED SPECIAL CHARGES
FOR SEVERANCE AND OTHER COSTS RELATED TO A CORPORATE REORGANIZATION AND A
RE-EVALUATION OF RESERVE ESTIMATES WHICH INCREASED COST OF PRODUCTS SOLD BY
$7.2 MILLION AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES BY $3.8
MILLION. NET OF TAX, THESE CHARGES REDUCED NET INCOME BY $6.7 MILLION, OR
$.56 PER SHARE. THE COMPANY ALSO RECORDED AN EXTRAORDINARY LOSS OF $488,000,
OR $.04 PER SHARE, NET OF TAX, ON THE EXCHANGE OF CERTAIN OF THE COMPANY'S
CONVERTIBLE DEBENTURES.
(4) THE COMPANY HAS ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
128, "EARNINGS PER SHARE," WHICH BECAME EFFECTIVE DECEMBER 1997. THE
EARNINGS PER SHARE AMOUNTS FOR 1997 AND PRIOR YEARS HAVE BEEN RESTATED TO
COMPLY WITH THIS STATEMENT.
(5) ADJUSTED TO GIVE EFFECT TO THE SALE OF 1,500,000 SHARES OF COMMON STOCK
OFFERED BY THE COMPANY HEREBY AT AN ASSUMED OFFERING PRICE OF $13 3/8 PER
SHARE AND THE APPLICATION OF NET PROCEEDS THEREFROM. SEE "USE OF PROCEEDS."
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS,
IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, BEFORE DECIDING WHETHER TO INVEST IN THE COMMON STOCK OFFERED
HEREBY.
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS ARE STATEMENTS THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). THE WORDS "EXPECT,"
"ESTIMATE," "ANTICIPATE," "PREDICT," "BELIEVE" AND SIMILAR EXPRESSIONS AND
VARIATIONS THEREOF ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY,
ITS DIRECTORS OR ITS OFFICERS WITH RESPECT TO, AMONG OTHER THINGS: (I) TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS; (II) THE
COMPANY'S FINANCING PLANS; (III) THE COMPANY'S BUSINESS AND GROWTH STRATEGIES,
INCLUDING POTENTIAL ACQUISITIONS; (IV) OTHER PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS; AND (V) THE USE OF THE NET PROCEEDS FROM THE SALE OF COMMON STOCK BY
THE COMPANY IN THIS OFFERING. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PREDICTED IN THE FORWARD-LOOKING STATEMENTS, AS A RESULT OF VARIOUS FACTORS. THE
ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE INFORMATION
SET FORTH UNDER THE HEADINGS "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS INFORMATION CONTAINED IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE SUCH
DIFFERENCES.
COMPETITION; INVENTORY RISKS
Each of the Company's SBUs faces substantial competition in its respective
markets. Many of the Company's competitors have significantly greater resources
and broader name recognition than the Company. Richardson faces competition
mainly from original equipment manufacturers in the after-market for replacement
of parts and from hundreds of electronic component distributors of various
sizes, locations and market focuses. Engineering capability, vendor
representation and product diversity create segmentation among distributors.
Richardson believes that the key competitive factors in its markets are the
ability to provide engineered solutions, inventory availability, quality,
reliable delivery and price. There can be no assurance that the Company will be
able to continue to compete effectively with existing or potential competitors.
In addition, gross margins in the businesses in which the Company's SSC
strategic business unit competes have declined in recent years due to
competitive pressures. Also the size of the available market for certain of the
products historically sold by Richardson has declined in recent years due to
technological changes. The Company believes these trends will continue. See
"Business-Strategic Business Units" and "Business-Competition." Further, because
a portion of the business of its EDG strategic business unit is trailing edge
technology and manufacturers are exiting the business, Richardson occasionally
makes last time inventory purchases. There can be no assurance that the Company
will be able to dispose of all of such inventory.
DEPENDENCE UPON KEY VENDORS
Many kinds of products distributed by the Company are currently produced by
a relatively small number of manufacturers. The Company's future success will
depend, in large part, on maintaining current vendor relationships and
developing new relationships. Richardson believes that vendors supplying
products to certain of the product lines of its EDG strategic business unit are
consolidating their distribution relationships or exiting the business.
Richardson's three largest suppliers are Communications & Power Industries,
Inc., Covimag S.A. and M/A-COM, Inc., which accounted for 10.3%, 5.6% and 5.0%
of the Company's overall purchases in fiscal 1997, respectively. See
"Business-Distribution and Marketing." The loss of, or significant disruptions
in the relationship with, several principal vendors could have a material
adverse effect on Richardson. The Company has in the past and may in the future
experience difficulties
8
<PAGE>
obtaining, in a timely manner, certain products. The inability of suppliers to
provide the Company with the required quantity or quality of products could have
a material adverse effect on the Company's business until such time as an
alternate source of supply for such products is found.
STRATEGIC BUSINESS UNIT CUSTOMER CONCENTRATION
Each of the Company's SBUs has one or several key customers that account for
a meaningful share of its sales though no single customer accounted for more
than 2% of the Company's sales in fiscal 1997. Generally, the Company does not
have long term supply contracts with its customers and they may unilaterally
reduce or discontinue their purchases. Product sales by Richardson are typically
made on a purchase-order basis. The loss of several of the Company's largest
customers, or their substantial reduction in level of purchases, or the failure
of several of such customers to pay for their purchases from the Company on a
timely basis, could have a material adverse effect on the Company. There can be
no assurance that the Company's largest customers will continue to place orders
with Richardson or that orders by such customers will continue at their previous
levels.
CONTROL BY PRINCIPAL STOCKHOLDER
Upon completion of this Offering, Edward J. Richardson, Chairman of the
Board and Chief Executive Officer, will beneficially own a 31.9% economic share
and a 77.2% voting share of the Company. The Company's certificate of
incorporation does not provide for cumulative voting. As a result, Mr.
Richardson effectively is able to control the Company, including the election of
directors, and a sale of the Company could not be effected without his approval.
See "Principal and Selling Stockholders." The Company's new $50.0 million
revolving credit facility contains provisions which would result in a default
thereunder if Mr. Richardson owns fewer shares of the Company's voting stock
than is required to elect a majority of the Company's Board of Directors and
control any amendment to its by-laws.
DEPENDENCE UPON KEY AND TECHNICAL PERSONNEL
The recent success of the Company has been largely dependent upon the
efforts and abilities of certain key members of its senior management, including
Edward J. Richardson, Chairman of the Board and Chief Executive Officer, and
Bruce W. Johnson, President and Chief Operating Officer. See "Management." The
loss of their services for any reason could have a material adverse effect on
the Company. In addition, the Company's success is dependent upon its ability to
recruit and retain qualified personnel, including technical and engineering
personnel. Competition for such personnel is intense, and there can be no
assurance that Richardson will be successful in attracting or retaining such
personnel. The failure to attract or retain such persons could have a material
adverse effect on the Company.
INTERNATIONAL TRADE AND EXCHANGE RATE FLUCTUATIONS
In fiscal 1997, 48.5% and 33.4% of the Company's sales and purchases of
products, respectively, were made internationally and 7.4% and 13.1%,
respectively, were made in Asia. Many Asian countries have recently experienced
economic distress, including currency devaluation, bank failures and general
contraction of economic output. The Company cannot predict the impact of these
recent events on its future business performance. International trade is subject
to numerous risks, including labor strikes, shipping costs and delays, political
or economic instability, trade restrictions, export controls, customs
regulations, tariff and import duties, foreign exchange restrictions which limit
the repatriation of investments and earnings therefrom, changes in taxation or
international tax treaties, other government regulation, military action and
other hostilities and confiscation of property. Such risks could result in
substantial increases in costs, the reduction of profit, the inability to do
business and other adverse effects.
Since the revenues and expenses of Richardson's foreign operations are
generally denominated in local currencies, exchange rate fluctuations between
local currencies and the U.S. dollar subject the
9
<PAGE>
Company to currency exchange risks with respect to the results of its foreign
operations to the extent it is unable to denominate its purchases or sales in
U.S. dollars or otherwise shift to its customers or suppliers the risk of
currency exchange rate fluctuations. The Company currently does not engage in
currency hedging transactions but may do so in the future. Fluctuations in
exchange rates may affect the results of the Company's international operations
reported in U.S. dollars and the value of such operations' net assets reported
in U.S. dollars. Additionally, the competitive position of the Company may be
affected by the relative strength of the currencies in countries where its
products are sold. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISKS OF BUSINESS ACQUISITIONS
Richardson's growth strategy includes expansion through acquisitions. A
portion of the net proceeds from this Offering may be used for potential
acquisitions. See "Use of Proceeds." There can be no assurance that the Company
will be able to successfully negotiate with potential acquisition candidates,
secure acquisition financing on acceptable terms, complete acquisitions,
integrate acquired operations and management into existing operations or expand
into new markets. There can be no assurance that acquisitions will not have an
adverse effect on the Company's operating results, particularly in the periods
following the completion of such acquisitions while the management and
operations of the acquired business are being integrated into Richardson's
operations. Once integrated, acquired operations may not achieve levels of
profitability or productivity comparable with those of Richardson's existing
operations, or otherwise perform as expected. In addition, the Company competes
for acquisition and expansion opportunities with companies that have
substantially greater resources than those of Richardson. The Company currently
has no agreements, arrangements or understandings with respect to any future
material acquisition and there can be no assurance that any such acquisition
will be consummated. See "Business-Growth Strategy."
MANAGEMENT OF GROWTH
The Company's ability to sustain its historical growth rate will depend upon
several factors, including Richardson's ability to recruit, train and retain a
skilled workforce to support its expanding operations. There can be no assurance
that the Company will be able to sustain its historical rate of sales growth,
continue its profitable operations, develop the required workforce or manage any
future growth successfully.
MARKET CONDITIONS; POSSIBLE VOLATILITY OF STOCK PRICE
From time to time, there may be significant volatility in the market price
for the Common Stock. The Company is not able to predict the effect on market
prices from the distribution of the shares of Common Stock covered by this
Prospectus. Further, factors such as new distribution franchise announcements by
the Company, quarterly fluctuations in the Company's operating results and
general conditions in the securities markets may have a significant impact on
the market price of the Common Stock. These fluctuations may be compounded by
the historically low trading volume in the Common Stock. In addition, in recent
years the stock market has experienced extreme price and volume fluctuations.
This volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance.
CONTINUATION OF DIVIDENDS
There can be no assurance that Richardson will continue to pay cash
dividends on its Common Stock. The Company may decide that cash otherwise
available for dividends needs to be retained for various reasons. Also, the
Company's convertible debentures and other borrowing arrangements contain
restrictions on the payment of cash dividends. See "Dividend Policy."
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 13,746,221 shares of
Common Stock and Class B Common Stock outstanding. All of these shares will be
freely tradable without restriction under the Securities Act, unless held by
affiliates of the Company. In addition to the foregoing, as of March 30, 1998,
the Company had outstanding options for 1,389,699 shares of Common Stock, of
which 740,159 options were then currently exercisable, and there were 3,680,609
shares of Common Stock issuable upon conversion of the Company's convertible
debentures. Furthermore there were an additional 784,622 shares of Common Stock
available for shares which may be granted or sold in the future under the
Company's various plans. All such shares of Common Stock either have been
registered on previously filed and currently effective registration statements
or do not require registration and as such will be freely tradable without
restriction under the Securities Act upon issuance unless held by affiliates of
the Company. Except in specific limited circumstances, the Company, the Selling
Stockholder, and the Company's executive officers and directors have agreed not
to offer, sell, transfer, pledge, contract to do the same, or otherwise dispose
of any of their shares of Common Stock for a period of 120 days after the date
of this Prospectus without the prior written consent of Cleary Gull Reiland &
McDevitt Inc. The Company makes no prediction as to the effect, if any, that
future sales of shares or the availability of shares for future sale will have
on the prevailing market price of the Common Stock. Sales of substantial amounts
of Common Stock in the public market or the perception that such sales could
occur could have an adverse effect on the prevailing market price of the Common
Stock. See "Description of Capital Stock and Debentures."
IMPACT OF ANTI-TAKEOVER MEASURES
Certain provisions of the Company's certificate of incorporation and bylaws
and the Delaware General Corporation Law may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
Common Stock. Pursuant to the Company's certificate of incorporation, the Board
of Directors is authorized to fix the rights, preferences, privileges and
restrictions, including voting rights, of unissued shares of the Company's
preferred stock and to issue such stock without any further vote or action by
Richardson's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be created and issued in the future.
Richardson is subject to Section 203 of the Delaware General Corporation Law
which restricts certain transactions and business combinations between a
corporation and an "Interested Stockholder" owning 15% or more of the
corporation's outstanding voting stock for a period of three years from the date
the stockholder becomes an Interested Stockholder. Subject to certain
exceptions, unless the transaction is approved in a prescribed manner, such
Section 203 prohibits significant business transactions such as a merger with,
disposition of assets to, or receipt of disproportionate financial benefits by
the Interested Stockholder, or any other transactions that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock by the
Company hereby, after deducting the underwriting discount and the estimated
expenses of this Offering and assuming an offering price of $13 3/8 per share,
will be $18.5 million ($21.3 million if the Underwriters' over-allotment option
is exercised in full). The Company will not receive any proceeds from the sale
of Common Stock by the Selling Stockholder.
The net proceeds will be used to pay down the Company's revolving credit
facility. This will increase the availability of funds under such facility which
the Company may re-borrow in the future for working capital and general
corporate purposes, including sales, marketing and customer support efforts;
redemption or purchase of the Company's outstanding securities; expansion of
operations; and acquisitions of businesses, products or technologies that
present opportunities to expand Richardson's distribution channels, grow its
customer base and add to its product line. The Company evaluates acquisition
opportunities on an ongoing basis. Although there are no current agreements or
understandings with respect to any material acquisitions, the Company desires to
be able to respond to opportunities as they arise. There can be no assurances,
however, that Richardson will complete any acquisitions.
The Company has not determined the amounts it plans to expend on any of
these uses or the timing of the expenditures. The amounts actually expended for
these uses, if any, are at the discretion of the Company and may vary
significantly depending upon a number of factors, including future revenue
growth and the amount of cash generated by the Company's operations.
12
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the capitalization of the Company as of
February 28, 1998 on an actual basis and as adjusted to give effect to the
issuance and sale of 1,500,000 shares of Common Stock offered by the Company at
an assumed offering price of $13 3/8 per share and the application of the net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in or incorporated by reference into the Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
---------------------------
AS ADJUSTED
ACTUAL (1)
----------- --------------
<S> <C> <C>
Revolving credit facility due January 1999(2)........................................ $ 26,332 $ 7,873
Revolving credit and term loan due January 1999(3) and other long-term debt.......... 8,466 8,466
8 1/4% Convertible debentures due June 2006(4)....................................... 40,000 40,000
7 1/4% Convertible debentures due December 2006(4)................................... 30,825 30,825
----------- --------------
Total debt......................................................................... 105,623 87,164
----------- --------------
Stockholders' equity:
Common Stock, $.05 par value, 30,000,000 shares authorized, 8,967,891 shares issued
and outstanding(4)............................................................... 449 524
Class B Common Stock, convertible, $.05 par value, 10,000,000 shares authorized,
3,242,240 issued and outstanding................................................. 162 162
Preferred Stock, $1.00 par value, 5,000,000 authorized, none issued................ -- --
Additional paid-in capital......................................................... 55,549 73,933
Retained earnings.................................................................. 14,396 14,396
Foreign currency translation adjustment............................................ (6,345) (6,345)
----------- --------------
Total stockholders' equity....................................................... 64,211 82,670
----------- --------------
Total capitalization............................................................. $ 169,834 $ 169,834
----------- --------------
----------- --------------
</TABLE>
- ------------------------
(1) ADJUSTED TO GIVE EFFECT TO THE SALE OF 1,500,000 SHARES OF COMMON STOCK BY
THE COMPANY HEREBY AT AN ASSUMED OFFERING PRICE OF $13 3/8 PER SHARE AND THE
APPLICATION OF NET PROCEEDS THEREFROM. SEE "USE OF PROCEEDS."
(2) THIS AGREEMENT WAS REPLACED ON MARCH 1, 1998 WITH A NEW $50.0 MILLION
REVOLVING CREDIT FACILITY WHICH EXPIRES IN MARCH 2001.
(3) THIS AGREEMENT WAS AMENDED EFFECTIVE MARCH 1, 1998 TO EXTEND ITS EXPIRATION
DATE TO MARCH, 2001.
(4) EXCLUDES 1,436,699 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF
OUTSTANDING OPTIONS WHICH HAD A WEIGHTED AVERAGE EXERCISE PRICE OF $7.62 PER
SHARE. ALSO EXCLUDES 3,380,609 SHARES OF COMMON STOCK RESERVED IN THE EVENT
OF CONVERSION FOR THE COMPANY'S 8 1/4% AND 7 1/4% CONVERTIBLE DEBENTURES
WHICH HAVE CONVERSION PRICES OF $18.00 AND $21.14, RESPECTIVELY, AND 120,687
SHARES OF COMMON STOCK RESERVED FOR THE COMPANY'S EMPLOYEES STOCK PURCHASE
PLAN. SEE "DESCRIPTION OF CAPITAL STOCK AND DEBENTURES."
13
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"RELL." The number of registered stockholders of Common Stock and Class B Common
Stock at March 30, 1998 was 652 and 31, respectively. The number of record
holders of Common Stock may not be representative of the number of beneficial
holders because many shares of Common Stock are held by depositories, brokers or
other nominees. The quarterly high and low sales prices of the Common Stock as
reported by the Nasdaq National Market were as follows for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended May 31, 1996
First Quarter............................................................. $ 8 1/8 $ 7
Second Quarter............................................................ 11 3/4 6 7/8
Third Quarter............................................................. 11 1/4 9
Fourth Quarter............................................................ 11 7/8 9 3/4
Fiscal Year Ended May 31, 1997
First Quarter............................................................. 10 1/2 9
Second Quarter............................................................ 10 7
Third Quarter............................................................. 10 1/4 8
Fourth Quarter............................................................ 8 1/4 6 3/4
Fiscal Year Ending May 31, 1998
First Quarter............................................................. 8 3/4 8
Second Quarter............................................................ 13 3/4 8 3/8
Third Quarter............................................................. 12 5/8 9 3/4
Fourth Quarter (through March 27, 1998)................................... 14 10 1/4
</TABLE>
On March 27, 1998, the last sale price of the Common Stock was $13 3/8 per
share as reported by the Nasdaq National Market.
DIVIDEND POLICY
The Company has declared a dividend on its Common Stock of $.04 per share
and on its Class B Common Stock of $.036 per share for 39 consecutive quarters.
Annual dividend payments approximate $1.9 million currently and, assuming the
continuation of payment of dividends at the same rate, will be approximately
$2.1 million upon completion of the Offering. The policy regarding payment of
dividends is reviewed periodically by the Board of Directors in light of the
Company's operating needs and capital structure. Any determination as to the
payment of dividends will depend upon future earnings, results of operations,
capital requirements, the financial condition of Richardson and such other
factors as the Board of Directors of the Company may consider. In addition, the
Company's debt agreements contain covenants restricting payments of dividends or
distributions on its capital stock or to stockholders (other than stock
dividends) and the purchase, redemption, acquisition or retirement of its
capital stock for value by the Company. As of March 1, 1998, $10.0 million of
retained earnings was free of such restrictions and, subsequent to this
Offering, the Company expects such amount to increase to approximately $28.5
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," Note F to Consolidated Financial Statements and "Risk
Factors -- Continuation of Dividends."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected consolidated financial data presented below has been derived
from the Consolidated Financial Statements. The Consolidated Financial
Statements as of and for the fiscal years ended May 31, 1993, 1994, 1995, 1996
and 1997 have been audited by Ernst & Young LLP, independent auditors. The
selected consolidated financial data as of and for the first nine month periods
of fiscal 1997 and 1998 have been derived from the unaudited interim
consolidated financial statements of the Company and reflect, in management's
opinion, all adjustments, consisting only of normally recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for such periods. Results of operations for interim periods are not
necessarily indicative of results for the full year. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements and Notes thereto and other information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FIRST
NINE
FISCAL YEAR ENDED MAY 31, MONTHS
----------------------------------------------------- ---------
1993 1994(1) 1995(2) 1996 1997(3) 1997(3)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 159,215 $ 172,094 $ 208,118 $ 239,667 $ 255,139 $ 183,874
Cost of products sold.......................................... 111,620 151,203 152,785 169,123 187,675 137,182
--------- --------- --------- --------- --------- ---------
Gross margin................................................. 47,595 20,891 55,333 70,544 67,464 46,692
Selling, general and administrative expenses................... 38,070 41,226 48,674 52,974 62,333 46,508
--------- --------- --------- --------- --------- ---------
Operating income (loss).................................... 9,525 (20,335) 6,659 17,570 5,131 184
Other expense, net............................................. 5,023 5,874 4,028 5,559 7,856 5,512
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item..... 4,502 (26,209) 2,631 12,011 (2,725) (5,328)
Income tax provision (benefit)................................. 1,700 (6,400) 150 3,900 (1,720) (2,500)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item...................... 2,802 (19,809) 2,481 8,111 (1,005) (2,828)
Extraordinary gain (loss), net of tax.......................... -- -- 527 -- (488) (488)
--------- --------- --------- --------- --------- ---------
Net income (loss).......................................... $ 2,802 $ (19,809) $ 3,008 $ 8,111 $ (1,493) $ (3,316)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) PER SHARE - BASIC(4):
Before extraordinary item.................................... $ .25 $ (1.76) $ .22 $ .70 $ (.08) $ (.24)
Extraordinary gain (loss), net of tax........................ -- -- .05 -- (.04) (.04)
--------- --------- --------- --------- --------- ---------
Net income (loss) per share................................ $ .25 $ (1.76) $ .27 $ .70 $ (.12) $ (.28)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Average shares outstanding................................... 11,251 11,285 11,425 11,659 11,892 11,886
INCOME (LOSS) PER SHARE - DILUTED(4):
Before extraordinary item.................................... $ .25 $ (1.76) $ .21 $ .68 $ (.08) $ (.24)
Extraordinary gain (loss), net of tax........................ -- -- .05 -- (.04) (.04)
--------- --------- --------- --------- --------- ---------
Net income (loss) per share................................ $ .25 $ (1.76) $ .26 $ .68 $ (.12) $ (.28)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Average shares outstanding................................... 11,335 11,285 11,566 12,002 11,892 11,886
DIVIDENDS PAID PER SHARE OF COMMON STOCK....................... $ .16 $ .16 $ .16 $ .16 $ .16 $ .12
<CAPTION>
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 223,442
Cost of products sold.......................................... 159,596
---------
Gross margin................................................. 63,846
Selling, general and administrative expenses................... 48,525
---------
Operating income (loss).................................... 15,321
Other expense, net............................................. 5,711
---------
Income (loss) before income taxes and extraordinary item..... 9,610
Income tax provision (benefit)................................. 2,880
---------
Income (loss) before extraordinary item...................... 6,730
Extraordinary gain (loss), net of tax.......................... --
---------
Net income (loss).......................................... $ 6,730
---------
---------
INCOME (LOSS) PER SHARE - BASIC(4):
Before extraordinary item.................................... $ .56
Extraordinary gain (loss), net of tax........................ --
---------
Net income (loss) per share................................ $ .56
---------
---------
Average shares outstanding................................... 12,096
INCOME (LOSS) PER SHARE - DILUTED(4):
Before extraordinary item.................................... $ .54
Extraordinary gain (loss), net of tax........................ --
---------
Net income (loss) per share................................ $ .54
---------
---------
Average shares outstanding................................... 12,476
DIVIDENDS PAID PER SHARE OF COMMON STOCK....................... $ .12
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
-----------------------------------------------------
BALANCE SHEET DATA: 1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Working capital, net........................................... $ 103,987 $ 96,494 $ 106,235 $ 133,151 $ 140,821
Total assets................................................... 205,043 179,467 173,514 180,158 192,514
Long-term debt, including current portion...................... 101,989 88,288 81,504 92,025 107,275
Stockholders' equity........................................... 75,417 52,573 56,154 62,792 59,590
<CAPTION>
FEBRUARY 28,
BALANCE SHEET DATA: 1998
-------------
<S> <C>
Working capital, net........................................... $ 141,227
Total assets................................................... 199,654
Long-term debt, including current portion...................... 105,623
Stockholders' equity........................................... 64,211
</TABLE>
- ------------------------------
(1) IN SEPTEMBER 1991, THE COMPANY SETTLED AN ANTITRUST SUIT WITH THE U.S.
DEPARTMENT OF JUSTICE RELATED TO ITS PARTICIPATION IN THE ELECTRON TUBE
MANUFACTURING INDUSTRY. AS A CONSEQUENCE, CERTAIN OF ITS MANUFACTURING
ACTIVITIES BECAME UNECONOMIC AND WERE DIVESTED OR DISCONTINUED. IN FISCAL
1994, COST OF PRODUCTS SOLD INCLUDED A $26.5 MILLION PROVISION, OF WHICH
$21.4 MILLION WAS FOR THE DISPOSITION OF THE COMPANY'S MANUFACTURING
OPERATIONS IN BRIVE, FRANCE, AND $5.1 MILLION WAS FOR INCREMENTAL COSTS
RELATED TO THE PHASE-DOWN OF CERTAIN DOMESTIC MANUFACTURING OPERATIONS. NET
OF TAX, THESE CHARGES INCREASED THE NET LOSS BY $19.5 MILLION, OR $1.73 PER
SHARE.
(2) IN FISCAL 1995, THE COMPANY RECORDED A CHARGE FOR THE SETTLEMENT OF A
MONETARY CLAIM RELATED TO A 1989 CONTRACT WHICH REDUCED GROSS MARGIN BY $4.7
MILLION AND NET INCOME BY $2.3 MILLION, OR $.20 PER SHARE. THE COMPANY ALSO
RECORDED AN EXTRAORDINARY GAIN OF $527,000, OR $.05 PER SHARE, NET OF TAX,
ON THE REPURCHASE OF CERTAIN OF THE COMPANY'S CONVERTIBLE DEBENTURES.
15
<PAGE>
(3) IN THE THIRD QUARTER OF FISCAL 1997, THE COMPANY RECORDED SPECIAL CHARGES
FOR SEVERANCE AND OTHER COSTS RELATED TO A CORPORATE REORGANIZATION AND A
RE-EVALUATION OF RESERVE ESTIMATES WHICH INCREASED COST OF PRODUCTS SOLD BY
$7.2 MILLION AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES BY $3.8
MILLION. NET OF TAX, THESE CHARGES REDUCED NET INCOME BY $6.7 MILLION, OR
$.56 PER SHARE. THE COMPANY ALSO RECORDED AN EXTRAORDINARY LOSS OF $488,000,
OR $.04 PER SHARE, NET OF TAX, ON THE EXCHANGE OF CERTAIN OF THE COMPANY'S
CONVERTIBLE DEBENTURES.
(4) THE COMPANY HAS ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.
128, "EARNINGS PER SHARE," WHICH BECAME EFFECTIVE DECEMBER 1997. THE
EARNINGS PER SHARE AMOUNTS FOR 1997 AND PRIOR YEARS HAVE BEEN RESTATED TO
COMPLY WITH THIS STATEMENT.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, AND THE SECOND PARAGRAPH UNDER THE
HEADING "RISK FACTORS" INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
NOTED, REFERENCES TO SPECIFIC YEARS IN THIS SECTION RELATE TO FISCAL YEARS. FOR
EXAMPLE, "1997" REFERS TO THE FISCAL YEAR ENDED MAY 31, 1997.
Richardson Electronics, Ltd. is a specialized international distributor of
electronic components, equipment and assemblies primarily for niche industrial
applications. Richardson operates in one industry segment. The marketing and
sales structure of the Company is organized into four strategic business units
("SBUs"): Electron Device Group ("EDG"), Solid State and Components ("SSC"),
Display Products Group ("DPG") and Security Systems Division ("SSD").
RESULTS OF OPERATIONS--FIRST NINE MONTHS OF FISCAL 1998 COMPARED TO FIRST NINE
MONTHS OF
FISCAL 1997
Net sales for the first nine months of fiscal 1998 were $223.4 million, a
21.5% increase from $183.9 million in the prior year. Sales gains include the
effect of recent acquisitions, which contributed $21.4 million in fiscal 1998.
Overall gross margins as a percent of sales in the nine-month period were
28.6%, compared to 29.3% in the prior period, excluding the effect of the
special charges. Year-to-date margin comparisons are affected by changes in
product mix, with lower margin SSD sales contributing a proportionately greater
percentage to total sales.
Sales, gross margins and gross margin as a percent of sales by SBU are
summarized in the following table. Manufacturing variances, warranty expenses,
LIFO provisions and miscellaneous costs are included under the caption "Other"
(in thousands):
<TABLE>
<CAPTION>
SALES GROSS MARGINS
-------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FISCAL % OF FISCAL % OF FISCAL % OF FISCAL
1997 TOTAL 1998 TOTAL 1997(1) SALES 1998
---------- --------- ---------- --------- --------- ----- ---------
EDG............................................ $ 84,647 46.1 $ 86,823 38.8 $ 22,585 26.7 $ 27,360
SSC............................................ 53,201 28.9 64,484 28.9 13,835 26.0 18,459
DPG............................................ 21,737 11.8 22,617 10.1 5,875 27.0 7,633
SSD............................................ 24,289 13.2 49,518 22.2 5,151 21.2 11,457
---------- --------- ---------- --------- --------- ---------
Total...................................... $ 183,874 100.0 $ 223,442 100.0 47,446 25.8 64,909
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Other.......................................... (754) (1,063)
--------- ---------
Consolidated............................... $ 46,692 25.4 $ 63,846
--------- ---------
--------- ---------
<CAPTION>
<S> <C>
% OF
SALES
-----
EDG............................................ 31.5
SSC............................................ 28.6
DPG............................................ 33.7
SSD............................................ 23.1
Total...................................... 29.0
Other..........................................
Consolidated............................... 28.6
</TABLE>
- ------------------------
(1) IN THE THIRD QUARTER OF FISCAL 1997, THE COMPANY RE-EVALUATED ITS RESERVE
ESTIMATES FOR INVENTORY AND ACCOUNTS RECEIVABLE IN LIGHT OF CHANGED MARKET
CONDITIONS AND PROVIDED FOR SEVERANCE AND OTHER COSTS ASSOCIATED WITH A
CORPORATE REORGANIZATION. THE SPECIAL CHARGE INCLUDED IN COST OF SALES WAS
$7.2 MILLION, WHICH REDUCED GROSS MARGINS FOR EDG BY $2.8 MILLION, SSC BY
$2.4 MILLION, DPG BY $1.9 MILLION AND SSD BY $100,000.
EDG's sales increased 2.6%. Gross margins as a percent of sales were 31.5%,
compared to the prior period rate of 30.0%, excluding the special charges. Gross
margins improved as a result of changes in pricing policies and higher
efficiencies in x-ray tube loading operations.
SSC's sales increased 21.2%. SSC's sales growth includes the October 1996
acquisition of Compucon. Without the contribution from this acquisition, SSC's
internally generated sales growth was 16.3%. Gross
17
<PAGE>
margins as a percent of sales were 28.6%, down from 30.6%, excluding the special
charges. The margin change is primarily due to product mix and competitive
pressures.
DPG's sales increased 4.0%. Gross margins as a percent of sales declined to
33.7% from 35.6%, excluding the special charges. The sales gain and margin
change reflect the resumption of sales to a major European customer, partially
offset by a decline in sales of monochrome CRTs.
SSD's sales increased 104%. SSD's sales growth includes the acquisition of
Burtek Systems in February 1997 and Security Service International in August
1997. Without the contribution from these acquisitions, SSD's internally
generated sales growth was 26.3%. Gross margins as a percent of sales were
23.1%, compared to the prior year's 21.6%, excluding the special charges. The
margin improvement results from higher margins on proprietary and franchise
product lines obtained with the acquisitions of Burtek and SSI.
On a geographic basis, the Company categorizes its sales by destination:
North America, Europe and Rest of World ("ROW"). Sales, gross margins and gross
margin as a percent of sales by area are summarized in the following table (in
thousands):
<TABLE>
<CAPTION>
SALES GROSS MARGINS
-------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FISCAL % OF FISCAL % OF FISCAL % OF FISCAL
1997 TOTAL 1998 TOTAL 1997(1) SALES 1998
---------- --------- ---------- --------- --------- ----- ---------
North America................................... $ 109,398 59.5 $ 139,128 62.3 $ 27,798 25.4 $ 39,446
Europe.......................................... 40,929 22.3 48,498 21.7 11,568 28.3 14,932
Rest of World................................... 33,547 18.2 35,816 16.0 8,080 24.1 10,531
---------- --------- ---------- --------- --------- ---------
Total....................................... $ 183,874 100.0 $ 223,442 100.0 47,446 25.8 64,909
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Other........................................... (754) (1,063)
--------- ---------
Consolidated................................ $ 46,692 25.4 $ 63,846
--------- ---------
--------- ---------
<CAPTION>
<S> <C>
% OF
SALES
-----
North America................................... 28.4
Europe.......................................... 30.8
Rest of World................................... 29.4
Total....................................... 29.0
Other...........................................
Consolidated................................ 28.6
</TABLE>
- ------------------------
(1) THE SPECIAL CHARGE IN THE THIRD QUARTER OF FISCAL 1997 INCLUDED IN COST OF
SALES REDUCED GROSS MARGINS FOR NORTH AMERICA BY $4.1 MILLION, EUROPE BY
$1.7 MILLION AND ROW BY $1.4 MILLION.
For the first nine months of fiscal 1998, the Company achieved sales growth
of 27.2% in North America, 18.5% in Europe and 6.8% in ROW. Excluding the
aforementioned acquisitions, North America achieved internally generated sales
growth of 7.6%. North America gross margins as a percent of sales were 28.4%,
compared to 29.1% in the prior period, excluding the special charges. Gross
margins as a percent of sales for Europe were 30.8% compared to 32.3% in the
prior year, excluding the special charges. ROW gross margins as a percent of
sales were 29.4% compared to 28.4% in the prior year, excluding the special
charges. The margin comparisons reflect the higher contribution from SSD sales,
competitive pressures affecting SSC margins and lower margins realized on sales
to one European customer.
Selling, general and administrative expenses increased to $48.5 million in
the first nine months of fiscal 1998 compared with $46.5 million in the prior
year. The prior year expenses included special charges of $3.8 million for
accounts receivable provisions, severance and other costs associated with a
corporate reorganization. As a percentage of sales, selling, general and
administrative expenses were reduced to 21.7% compared with 23.2% in the prior
year, excluding the special charges.
Collectively, special charges affecting net income before extraordinary item
in the third quarter of fiscal 1997 amounted to $11.0 million pre-tax or $6.7
million, net of tax, reducing earnings per share by $.56. The Company also
recorded an $800,000 extraordinary charge for the write-off of unamortized debt
issuance costs attributable to the 7 1/4% convertible debentures, which were
exchanged for a new issue. Net of tax, the charge was $488,000, or $.04 per
share.
18
<PAGE>
RESULTS OF OPERATIONS--FISCAL YEAR ENDED MAY 31, 1997 COMPARED TO FISCAL 1996
AND FISCAL 1995
SALES AND GROSS MARGIN ANALYSIS
Consolidated sales in fiscal 1997 were a record $255.1 million. Sales and
gross margin data by SBU are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
SALES GROSS MARGINS
---------------------------------------------------------------- ---------------------------------
FISCAL % OF FISCAL % OF FISCAL % OF FISCAL FISCAL
1995 TOTAL 1996 TOTAL 1997 TOTAL 1995 % OF SALES 1996
--------- --------- --------- --------- --------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EDG.................. $ 105,454 50.7 $ 109,925 45.8 $ 113,700 44.6 $ 30,884 29.3 $ 33,416
SSC.................. 52,409 25.2 67,976 28.4 74,209 29.1 16,416 31.3 20,840
DPG.................. 36,502 17.5 36,154 15.1 29,377 11.5 12,463 34.1 13,156
SSD.................. 13,753 6.6 25,612 10.7 37,853 14.8 3,037 22.1 5,425
--------- --------- --------- --------- --------- --------- --------- ---------
Total.............. $ 208,118 100.0 $ 239,667 100.0 $ 255,139 100.0 62,800 30.2 72,837
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Other................ (7,467) (2,293)
--------- ---------
Consolidated....... $ 55,333 26.6 $ 70,544
--------- ---------
--------- ---------
<CAPTION>
FISCAL
% OF SALES 1997 % OF SALES
----- --------- -----
<S> <C> <C> <C>
EDG.................. 30.4 $ 32,220 28.3
SSC.................. 30.7 19,923 26.8
DPG.................. 36.4 8,465 28.8
SSD.................. 21.2 8,267 21.8
---------
Total.............. 30.4 68,875 27.0
Other................ (1,411)
---------
Consolidated....... 29.4 $ 67,464 26.4
---------
---------
</TABLE>
Sales and gross margin data by geographic area are summarized in the
following table (in thousands):
<TABLE>
<CAPTION>
SALES GROSS MARGINS
---------------------------------------------------------------- ---------------------------------
FISCAL % OF FISCAL % OF FISCAL % OF FISCAL FISCAL
1995 TOTAL 1996 TOTAL 1997 TOTAL 1995 % OF SALES 1996
--------- --------- --------- --------- --------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America........ $ 123,508 59.4 $ 139,743 58.3 $ 153,221 60.1 $ 37,100 30.0 $ 41,257
Europe............... 46,071 22.1 57,219 23.9 55,881 21.9 14,753 32.0 19,186
Rest of World........ 38,539 18.5 42,705 17.8 46,037 18.0 10,947 28.4 12,394
--------- --------- --------- --------- --------- --------- --------- ---------
Total.............. $ 208,118 100.0 $ 239,667 100.0 $ 255,139 100.0 62,800 30.2 72,837
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Other................ (7,467) (2,293)
--------- ---------
Consolidated....... $ 55,333 26.6 $ 70,544
--------- ---------
--------- ---------
<CAPTION>
FISCAL
% OF SALES 1997 % OF SALES
----- --------- -----
<S> <C> <C> <C>
North America........ 29.5 $ 40,514 26.4
Europe............... 33.5 16,194 29.0
Rest of World........ 29.0 12,167 26.4
---------
Total.............. 30.4 68,875 27.0
Other................ (1,411)
---------
Consolidated....... 29.4 $ 67,464 26.4
---------
---------
</TABLE>
North American sales increased 9.6% in 1997, following a 13.1% increase in
1996. In both years, the sales gains were primarily attributable to SSD and, to
a lesser extent, SSC and EDG. Sales in Europe declined 2.3% in 1997, after a
24.2% increase in 1996. In 1997, sales gains by SSD and SSC were more than
offset by a 32.6% decline in DPG European sales from the loss of a single large
customer. In 1996, SSD, DPG and SSC all had European sales gains in excess of
50%. ROW sales increased 7.8% in 1997, following a 10.8% gain in 1996. In both
years, the largest ROW sales gains were achieved by SSD and SSC.
Sales denominated in currencies other than U.S. dollars were 43.1%, 42.3%
and 39.2% of total sales in 1997, 1996 and 1995, respectively. Exchange rate
changes reduced foreign sales by an average of 2.9% in 1997 and increased
foreign sales by 1.0% in 1996. Sales and gross margin trends are analyzed for
each strategic business unit in the following sections.
ELECTRON DEVICE GROUP. The electron tube industry in which EDG operates is
characterized by mature products, the presence of tube rebuilders and vigorous
price competition. The Company estimates that overall industry sales are
modestly contracting. EDG's sales gains of 3.4% and 4.2% in 1997 and 1996,
respectively, result from an increase in market share. International sales
accounted for 56.5%, 56.5% and 56.6% of EDG's sales in 1997, 1996 and 1995,
respectively.
The medical imaging replacement business is a growth segment of the electron
tube industry. Demand for the replacement of x-ray, computed tomography (CT),
medical resonance imaging (MRI) and radiation therapy components is expected to
continue to grow in response to the cost effectiveness of purchasing rebuilt
components from the Company as opposed to purchasing new or rebuilt products
directly from original equipment manufacturers. Richardson expanded its medical
sales force in 1996 and 1997. In addition, the Company acquired x-ray tube and
image intensifier reloading facilities in the United States in 1996 and in 1997
established a reloading facility in the Netherlands. Sales in the medical EDG
product line
19
<PAGE>
increased 56.5% to $17.5 million in 1997, following a 110% increase in 1996.
Other product lines within EDG which are growing include microwave generators,
pulse power tubes, industrial magnetrons and broadcast transmitters.
Gross margins were affected in 1997 by the special charges described below
in "--Cost of Sales and Gross Margins." Excluding the special charges, gross
margins as a percent of sales increased to 30.6% in 1997, compared to 30.4% and
29.3% in 1996 and 1995, respectively. The gross margin percentage improvements
in 1997 and 1996 resulted from heightened focus on pricing policies, proprietary
product lines and value-added services.
SOLID STATE AND COMPONENTS. SSC operates in several markets, including the
rapidly growing wireless telecommunications industry. Sales increased 9.2% in
1997 to $74.2 million, following a 29.7% increase in 1996. Sales in 1997 were
adversely impacted by the loss of a major vendor which resulted in a $9.6
million decline in sales. The Company has been successful in replacing a portion
of these sales with products from other vendors and the acquisition of
complimentary product lines. In October 1996, the Company purchased Compucon, a
distributor of interconnect devices operating in the northeastern United States
with annual sales prior to the acquisition of $7.9 million. International sales
represented 37.6%, 36.3% and 36.2% of SSC's sales in 1997, 1996 and 1995,
respectively.
Gross margins were affected in 1997 by the special charges described below
in "--Cost of Sales and Gross Margins." Excluding the special charges, gross
margins as a percent of sales were 30.1% in 1997, compared to 30.7% and 31.3% in
1996 and 1995, respectively. The decline in gross margins as a percentage of
sales reflects competitive pricing pressures and a change in product mix.
DISPLAY PRODUCTS GROUP. DPG sales declined 18.7% in 1997 and 1.0% in 1996.
The 1997 sales decline is largely attributable to the loss of a single customer
in Europe. Sales in both years were hampered by product shortages, primarily for
color cathode ray tubes ("CRTs"), as glass manufacturers were unable to meet
market demand. DPG's product mix had been shifting from monochrome to higher
priced color CRTs for several years. This trend was interrupted in 1997 due to
the aforementioned product shortages, as color CRTs represented 15.6% of units
sold in 1997, compared to 18.0% and 16.0% in 1996 and 1995, respectively.
International sales represented 46.1%, 51.4% and 34.9% of DPG's sales in 1997,
1996 and 1995, respectively.
Gross margins were affected in 1997 by the special charges described below
in "--Cost of Sales and Gross Margins." Excluding the special charges, gross
margins as a percent of sales were 35.1% in 1997 compared to 36.4% and 34.1% in
1996 and 1995, respectively. Industry shortages of color CRTs in 1997 had an
unfavorable effect on product mix and gross margins. Improved gross margins,
comparing 1996 to 1995, reflect the shift in product mix to higher margin color
CRTs.
SECURITY SYSTEMS DIVISION. SSD specializes in products for the growing
electronic security equipment market, particularly closed circuit television
("CCTV") components and systems. In February 1997, the Company acquired Burtek,
a Canadian security systems distributor with annual sales of $18.0 million. This
acquisition follows the decision by the Company to significantly increase the
SSD sales staff in 1995. These factors contributed to the 47.8% growth in sales
in 1997 and the 86.2% sales growth in 1996. International sales represented
47.7%, 38.8% and 39.3% of SSD's sales in 1997, 1996 and 1995, respectively.
Gross margins were 21.8%, 21.2% and 22.1% of sales in 1997, 1996 and 1995,
respectively. Inventory turnover rates achieved by SSD are higher than the
Company's other SBUs, which mitigates the effect of lower gross margin.
20
<PAGE>
COST OF SALES AND GROSS MARGINS
The following table reconciles product margins to gross margin data (% of
sales) reported in the Statements of Operations:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Product margin............................................................. 30.7% 31.0% 29.9%
Overstock provisions....................................................... (0.5) (0.1) (3.0)(1)
Customer returns and scrap................................................. (0.6) (0.7) (0.3)
Manufacturing and warranty costs........................................... (0.5) (0.3) (0.1)
Claim settlement........................................................... (2.2 (2) -- --
Other costs................................................................ (0.3) (0.5) (0.1)
--------- --------- ---------
Gross margin............................................................. 26.6% 29.4% 26.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) IN CONJUNCTION WITH A CORPORATE REORGANIZATION AND REVIEW OF OPERATIONS,
AND IN RESPONSE TO CHANGED MARKET CONDITIONS, THE COMPANY RE-EVALUATED ITS
RESERVES FOR OVERSTOCK INVENTORY IN THE THIRD QUARTER OF FISCAL 1997. AS A
RESULT OF THIS REVIEW, THE COMPANY PROVIDED A $7.2 MILLION CHARGE TO COST OF
SALES.
(2) IN THE FOURTH QUARTER OF FISCAL 1995, THE COMPANY PAID $4.7 MILLION TO
SETTLE A MONETARY CLAIM RELATED TO A CONTRACT COMPLETED IN 1989 FOR CERTAIN
NIGHT-VISION TUBES.
Fluctuations in product margin percentages primarily reflect the shift in
product mix. Lower gross margin SSD sales have increased and higher gross margin
DPG sales have declined as a percent of consolidated sales. Product margins are
also affected by changes in selling prices, product costs and foreign exchange
rate variations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses represented 24.4%, 22.1% and
23.4% of sales in 1997, 1996 and 1995, respectively. In 1997, selling, general
and administrative expenses includes $3.8 million in special charges for
severance and other costs related to a corporate reorganization. Excluding the
special charges, 1997 selling, general and administrative expenses were 22.9% of
sales and increased $5.6 million over 1996, reflecting business acquisitions and
the expansion of the EDG medical and SSC sales forces. Selling, general and
administrative expenses in 1996 increased $4.3 million over 1995 as a result of
expansion of the SSC and SSD sales forces and incentive payments on higher gross
margins.
OTHER (INCOME) EXPENSE
Interest expense increased to $7.6 million in 1997 compared to $6.6 million
and $6.5 million in 1996 and 1995, respectively, primarily due to higher
borrowing levels. Investment income declined to $392,000 in 1997 from $1.2
million in 1996 and $1.9 million in 1995 as a result of lower investment levels
and lower realized capital gains. Fluctuations in foreign exchange and other
expenses primarily reflect changes in the value of the U.S. dollar relative to
foreign currencies. A general strengthening of the dollar in fiscal 1997, and to
a lesser extent in 1996, resulted in net foreign exchange losses, while the
weakening of the dollar in fiscal 1995 generated exchange gains for Richardson.
INCOME TAX PROVISION
The effective income tax rates for the Company were 63.1%, 32.5% and 5.7% in
fiscal 1997, 1996 and 1995, respectively. The effective rate of the 1997 income
tax benefit differs from the statutory rate of 34% due to the utilization of
foreign operating losses where no tax benefit was recorded in prior years, the
Company's foreign sales corporation benefit on export sales and state income
taxes. The 1995 rate differs from the U.S. statutory rate of 34% as a result of
the carryback of the $4.7 million contract settlement to prior years at a 46%
statutory rate.
21
<PAGE>
NET INCOME (LOSS) AND PER SHARE AMOUNTS
The comparability of net income (loss) and net income (loss) per share for
1997, 1996 and 1995 is affected by several unusual charges. In 1997, the special
charge for severance and other costs related to a corporate reorganization and
the re-evaluation of certain reserves reduced net income by $6.7 million, or
$.56 per share. In addition, the extraordinary loss resulting from the write-off
of the original issuance costs on convertible debentures which were exchanged
reduced net income by $488,000, or $.04 per share. In 1995, the settlement of a
1989 contract dispute resulted in a reduction in net income of $2.3 million, or
$.20 per share. Additionally in 1995, the Company recorded an extraordinary
gain, net of tax, of $527,000, or $.05 per share, on the repurchase of certain
of its convertible debentures.
FINANCIAL CONDITION
LIQUIDITY
In order to provide rapid response and superior customer service as a
distributor of replacement parts, Richardson maintains relatively high levels of
electron tube, semiconductor and CRT inventories. Some of these products
represent trailing-edge technology which may not be available from other
sources, and may not be currently manufactured. Also, in many cases, the
products are components of production equipment for which immediate availability
is critical to the customer.
Liquidity is provided by the operating activities of the Company, adjusted
for non-cash items, and is reduced by working capital requirements, debt
service, capital expenditures, dividends and capital acquisitions. Comparing
fiscal years, cash provided by (used in) operations was $3.6 million in 1997,
$(7.9) million in 1996 and $(6.7) million in 1995. Additional investments in
working capital to support rising sales were $7.3 million, $22.0 million and
$14.6 million in 1997, 1996 and 1995, respectively. Higher accounts receivable
balances in each year reflect growth in sales. Inventory levels were held
approximately constant in 1997, in spite of higher sales, after increases in
1996 and 1995. Other working capital requirements in 1995 included $6.3 million
for severance and other payments related to the phase-down of certain
manufacturing operations.
Comparing the first nine months of fiscal 1998 to 1997, cash provided by
operations was $9.0 million in 1998, compared to $1.6 million in the prior year.
Working capital changes reduced cash by $2.5 million compared to $6.9 million
the prior year. Accounts payable increased $5.5 million compared to a decline of
$1.0 million, reflecting the timing of inventory purchases. Accounts receivable
increased $4.8 million in the current year, as a result of sales growth.
Business acquisitions, capital expenditures and dividend payments were funded
primarily by cash generated by operations or borrowings under the Company's
credit facilities.
At May 31, 1997, the Company had net operating loss carryforwards of $14.5
million for U.S. federal and state income tax purposes which are available to
offset future tax liabilities. Earnings levels are expected to be sufficient to
utilize these carryforwards before they expire.
The Company has proposed a plan to the Illinois Environmental Protection
Agency to monitor and process soil and groundwater at the LaFox facility.
Contamination is believed to have resulted from practices previously employed at
the site. The present value of the estimated future remediation costs was
$631,000 at February 28, 1998 and was included as an accrued liability in the
Company's financial statements at that date.
After the application of the net proceeds from the sale of Common Stock by
the Company in this Offering, the Company believes that cash generated from
operations and amounts available under its credit agreements will be sufficient
for the Company to meet its working capital and capital expenditure needs for
its operations as presently conducted for the foreseeable future. See
"Financing." The Company's growth strategy includes growth through acquisitions.
The net proceeds from the sale of Common Stock by the Company in this Offering,
together with cash generated from operations, may not be
22
<PAGE>
adequate to finance such acquisitions and the Company may be required to seek
additional financing. Further, there can be no assurance that other financing
would be available in amounts and on terms acceptable to the Company.
FINANCING
In the first quarter of 1997, the Company amended its $25.0 million senior
revolving credit note agreement to increase the credit line to $35.0 million and
in November 1997 extended its maturity to January 31, 1999. Effective March 1,
1998, this facility was replaced by a new $50.0 million revolving credit
agreement which expires March 1, 2001. The loan bears interest at prime or 100
basis points over the London InterBank Offering Rate, at the Company's option.
On February 15, 1997, the Company exchanged $40.0 million of new 8 1/4%
convertible debentures for an equivalent face value of its outstanding 7 1/4%
convertible debentures. See Note F to the Consolidated Financial Statements. The
principal purpose of the exchange was to improve the Company's future liquidity
and capital position by refinancing a sufficient number of the debentures to
eliminate sinking fund requirements until December 15, 2004.
To complete the acquisition of Burtek, the Company entered into a revolving
credit agreement and term loan aggregating $6.0 million. An additional $5.5
million was borrowed under this agreement in August 1997 to finance the
acquisition of Security Services International. At February 28, 1998, $8.5
million remained outstanding under this agreement. The loan bears interest at
the Canadian prime rate and expires March 1, 2001.
In connection with the Company's debt agreements, certain restrictions exist
relating to the purchase of treasury stock and the payment of cash dividends and
other distributions on the Company's Common Stock. At March 1, 1998, $10.0
million was free of such restrictions. Annual dividend payments approximate $1.9
million. The policy regarding payment of dividends is reviewed periodically by
the Board of Directors in light of the Company's operating needs and capital
structure.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited summarized quarterly operating
results for the Company for each of the four quarters in fiscal 1997 and the
first three quarters of fiscal 1998. Third quarter 1997 results include
valuation reserve adjustments and severance and other costs which reduced gross
margin by $7.2 million, operating income by $11.0 million and net income by $6.7
million, as described in Note B to the Consolidated Financial Statements. Such
quarterly results of operations are not necessarily indicative of the results of
operations for any future period.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
------------------------------------------ -------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 8/31/96 11/30/96 2/28/97 5/31/97 8/31/97 11/30/97 2/28/98
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................................... $ 57,544 $ 62,167 $ 64,163 $ 71,265 $ 71,600 $ 78,646 $ 73,196
Gross margin................................... 16,783 18,738 11,171 20,772 20,638 22,348 20,860
Operating income (loss)........................ 3,449 4,687 (7,952) 4,947 4,828 5,642 4,851
Net income (loss) before extraordinary item.... 1,293 1,932 (6,053) 1,823 1,808 2,740 2,182
Extraordinary loss, net of tax................. -- -- (488) -- -- -- --
Net income (loss).............................. 1,293 1,932 (6,541) 1,823 1,808 2,740 2,182
Net income (loss) per share before
extraordinary item - diluted.................. $ .11 $ .16 $ (.51) $ .15 $ .15 $ .22 $ .17
Net income (loss) per share - diluted.......... $ .11 $ .16 $ (.55) $ .15 $ .15 $ .22 $ .17
Average shares outstanding..................... 12,209 12,121 11,908 12,067 12,228 12,575 12,626
</TABLE>
23
<PAGE>
CURRENCY FLUCTUATIONS
The Company's foreign denominated assets and liabilities are cash, accounts
receivable, inventory and accounts payable, primarily in member countries of the
European community and, to a lesser extent, in Canada, Asia/Pacific and Latin
America. The Company monitors its foreign exchange exposure and may enter into
forward contracts to hedge significant transactions. Other tools which may be
used to manage foreign exchange exposures include the use of currency clauses in
sales contracts and the use of local debt to offset asset exposures.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs which are written
using two digits rather than four to define the applicable year. Such programs
may be incapable of correctly processing information beginning in the year 2000;
which could be read as 1900 or 2000. The Company's current computer database
correctly stores date stamps which include four digit years. Based on a recent
assessment, the Company anticipates its systems will function properly with
respect to dates in the year 2000 and thereafter. In addition, the Company does
not anticipate significant year 2000 issues relating to interface systems with
third parties. Based upon the foregoing, the Company does not currently expect
that the year 2000 issue will have a material impact on its financial condition
or results of operations.
24
<PAGE>
BUSINESS
INTRODUCTION AND BUSINESS STRATEGY
Richardson Electronics, Ltd. is a specialized international distributor of
electronic components, equipment and assemblies primarily for niche industrial
applications. Its products include electron tubes, microwave generators, radio
frequency ("RF") and microwave components, power semiconductors, data display
monitors and electronic security products and systems. These products are used
to control, switch or amplify electrical power or signals, or as display,
recording or alarm devices in a variety of industrial, communication, medical
and scientific applications. Richardson differentiates itself by providing
engineered solutions to its customers. Its capabilities extend beyond simple
product distribution to include specialty product manufacturing and systems
integration and include value-added services such as component assembly,
prototype design and manufacture, testing, kitting and logistics.
The Company's objective is to be the preeminent international supplier of
niche electronic components to industrial and commercial users. To fulfill this
objective, the Company employs the following basic strategies:
CAPITALIZE ON ENGINEERING AND MANUFACTURING EXPERTISE. Richardson believes
that its success is largely attributable to its core engineering and
manufacturing competency and skill in identifying cost competitive solutions for
its customers. Historically, the Company's primary business was the distribution
and manufacture of electron tubes and it continues to be a major distributor of
these products. Today, the Company out-sources manufacturing requirements for
products sold in volume, but retains its engineering and manufacturing
expertise, leveraging this knowledge in finding engineered solutions for the
customers' applications, not only in electron tube technology but in each of the
product areas in which it specializes. Approximately 45% of the Company's sales
are derived from products the Company electronically or physically modifies or
sells under its own brand names.
SPECIALIZE IN SELECTED NICHE MARKETS. The Company specializes in selected
niche markets which demand technical service and where price is not the primary
competitive factor. Richardson seldom competes against commodity distributors.
In many parts of its business, the Company's principal competitors are not other
distributors but rather original equipment manufacturers ("OEMs"). The Company
offers engineered solutions to its customers including the design, prototype
manufacturing and/or electrical or mechanical modification and distribution of
approximately 80,000 products ranging in price from $1 to $100,000 each. The
Company estimates that over 60% of its sales are attributable to products
intended for replacement and repair applications, in contrast to use as
components in original equipment.
LEVERAGE CUSTOMER BASE. The Company strives to grow by offering new
products to its existing customer base. The Company has followed the migration
of its customers from electron tubes to newer technologies primarily
semiconductors. Sales of products other than electron tubes represented 61.2% of
sales in the nine-month period ended February 28, 1998, compared to 35.3% five
years ago.
MAINTAIN SUPERIOR CUSTOMER SERVICE. The Company maintains more than 300,000
part numbers in its inventory data base. More than 80% of all orders received by
6:00 p.m. are shipped complete the same day.
PROVIDE GLOBAL SERVICE. Richardson has kept pace with the globalization of
the electronics industry, and addresses the growing demands in lesser developed
countries for modern business and industrial equipment, as well as related
parts, service and technical assistance. Today, the Company's operations are
worldwide in scope through 88 sales offices, including 31 located outside of
North America. In fiscal 1997, 48.5% of sales were derived from outside the
United States.
MAINTAIN STATE-OF-THE-ART INFORMATION SYSTEMS. Through a global,
information systems network, all offices have real-time access to the Company's
database including customer information, product cross-referencing, competitive
market analysis, stock availability and quotation activity. Customers have
on-line
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access to product information via Richardson's web site. The Company offers
electronic data interchange to those customers requiring this type of service.
GROWTH STRATEGY
Richardson's long range plan for growth and profit maximization is defined
in three broad categories: internal growth, continuous operational improvement
and acquisitions. Each category is discussed in the following paragraphs:
INTERNAL GROWTH. The Company believes that, in most circumstances, internal
growth provides the best means of expanding its business. Both geographic and
product line expansion have and will be employed. In many instances,
Richardson's original product line, electron tubes, provides the foundation for
establishing new customer relationships, particularly in developing countries
where older technologies are still predominately employed. From that base, the
Company can identify and capitalize on new market opportunities for its other
products. Over the last five years the Company has expanded its sales offices
from 22 to 88 to support its new business development efforts.
Expansion of the Company's product offerings is an on-going program. Of
particular note, the following areas have generated significant recent sales
gains: microwave generators; medical imaging components; amplifiers,
transmitters and pallets for wireless communication; and CCTV security systems.
Additional opportunities currently being explored include flat panel displays,
monitors and solar energy power tubes.
CONTINUOUS OPERATIONAL IMPROVEMENT. During the last two years, the Company
embarked on a vigorous program to improve operating efficiencies and asset
utilization. Incentive programs were revised to heighten Richardson managers'
commitment to these goals. As a result, selling, general and administrative
expenses as a percent of sales were reduced from 23.4% in fiscal 1995 to 21.7%
in the first nine months of fiscal 1998. Inventory turns improved from 1.7 to
2.1 over the same period. Additional programs are on-going. The Company believes
European logistics and stocking levels may offer additional opportunities for
cost savings.
ACQUISITIONS. The Company has a successful record of acquiring and
integrating businesses. Since 1980, 23 companies or significant product lines
have been acquired by the Company. The Company evaluates acquisition
opportunities on an ongoing basis. The Company's acquisition criteria require
that a target provide either (i) product line growth opportunities permitting
Richardson to leverage its existing customer base or (ii) additional geographic
coverage of Richardson's existing product offerings. In the last two years, the
Company's acquisition pace has accelerated with the purchases of six businesses
including, most significantly, Tubemaster (medical imaging--EDG), Compucon
(interconnect devices for RF applications--SSC) and Burtek and Security Service
International (security systems--SSD).
STRATEGIC BUSINESS UNITS
The marketing, sales, product management and purchasing functions of
Richardson are organized as four strategic business units: Electron Device Group
("EDG"), Solid State and Components ("SSC"), Display Products Group ("DPG") and
Security Systems Division ("SSD"). Common logistics, information systems,
finance, legal, human resources and general administrative functions support the
entire organization. The Company is highly centralized with most corporate
functions located at its administrative headquarters and principal stocking
facility in LaFox, Illinois.
ELECTRON DEVICE GROUP
EDG's principal products, electron tubes, are used to control, switch,
oscillate or amplify electrical power. This technology has been used for more
than 80 years in electronic circuitry throughout the industrialized world. With
such a vast installed base, replacement applications represent EDG's primary
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focus. In certain situations, including high power broadcasting and industrial
equipment, electron tubes are the only economical technology capable of meeting
power requirements or withstanding severe environmental or other operating
conditions.
EDG serves a multitude of industries including automotive, avionics,
communications, marine, plastics, rubber, steel and textile. Several major
applications include dielectric and induction heating, motor speed controls,
radar, resistance welding equipment and television and radio broadcast
equipment. Microwave generator systems are designed and assembled by the Company
for use in the manufacture of wafers for the semiconductor industry and other
industrial heating applications.
In addition to the industries set forth above, Richardson believes the
increased emphasis on containment of medical costs offers significant
opportunities to supply the diagnostic medical imaging market, estimated by the
Company at $900 million. EDG distributes high voltage switch tubes, x-ray tubes
and image intensifiers used in x-ray imaging equipment and specialty tubes for
analytical equipment, as well as camera tubes, photomultipliers, switch tubes,
magnetrons, hydrogen thyratrons and imaging equipment to the medical industry.
In the last several years, the Company has capitalized on its engineering skill,
expanding its product offering to include assistance in systems integration and
upgrades of existing medical equipment to incorporate state-of-the-art imaging
systems. In 1996, Richardson purchased two North American x-ray tube reloading
facilities. During 1997, the Company continued its growth in the medical imaging
market and established a European facility to supply the European market with
reloaded x-ray tubes. Additionally, EDG has broadened its product offerings to
include microwave generators used in semiconductor wafer fabrication and other
industrial heating applications.
Certain sectors of the electron tube market in which the Company
participates are modestly contracting due to the continued substitution of
semiconductor technology for traditional electron tube applications. EDG is
expanding its customer base beyond North America and Europe. As industrialized
countries convert to solid state, the used equipment employing tube technology
is being redeployed to lesser developed areas of the world. Richardson's global
expansion is, in part, to capitalize on this opportunity. The annual global
market for electron tubes served by EDG is estimated by the Company to be more
than $3.0 billion. As a result of product line and global expansion, EDG sales
increased in each of the last three years.
The following is a description of EDG's major product groups:
POWER AMPLIFIER / OSCILLATOR TUBES are vacuum or gas-filled tubes used in
applications where current or voltage amplification and/or oscillation is
required. Some areas of use are induction heating, diathermy equipment,
communications and radar systems and power supplies for voltage regulation or
amplification.
X-RAY TUBES AND X-RAY IMAGE INTENSIFIERS are glass and glass/metal vacuum
tubes which generate high-frequency radiation for use in industrial, analytical
and medical equipment. Stationary anode x-ray tubes are used primarily for
inspection and non-destructive testing of solid materials and in
crystallography. Rotating anode x-ray tubes are primarily used in medical
applications, including fluoroscopy and computer-aided tomography (CAT-scan).
INDUSTRIAL RECEIVING TUBES are vacuum tubes used to regulate or amplify
small amounts of power in a wide variety of electrical and electronic equipment.
Communications, medical instrumentation, consumer electronics, audiophile and
industrial controls are typical applications for this product.
MICROWAVE GENERATORS incorporate magnetrons which are high vacuum oscillator
tubes used to generate energy at microwave frequencies. The pulsed magnetron is
predominantly used to generate high energy microwave signals for radar
applications. Magnetrons are also used in vulcanizing rubber, in the manufacture
of wafers for the semiconductor industry and other industrial heating
applications such as microwave ovens and by the medical industry for
sterilization.
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IGNITRONS are mercury pool tubes used to control the flow of large amounts
of electrical current. Their primary applications are in welding equipment,
power conversion, fusion research and power rectification equipment.
HYDROGEN THYRATRONS are electron tubes capable of high speed and high
voltage switching. They are used to control the power in laser and radar
equipment and in linear accelerators for cancer treatment.
THYRATRONS AND RECTIFIERS are vacuum or gas-filled tubes used to control the
flow of electrical current. Thyratrons are used to control ignitrons, electric
motor speed controls, theatrical lighting and machinery such as printing presses
and various types of medical equipment. Rectifiers are used to restrict electric
current flow to one direction in power supply applications.
SOLID STATE AND COMPONENTS
SSC focuses its broad product offerings on two specialized markets. SSC
serves many of the same customers and industries as EDG. Because of the
Company's expertise in electron tube technology, it developed a strong
competency in wireless communications and industrial applications requiring high
power. SSC sells (i) Radio Frequency ("RF") and microwave components and (ii)
power semiconductors and related components. In addition to the distribution of
products, SSC provides design, prototype assembly, kitting, testing and other
essential services to these markets. SSC's RF and microwave components are used
by the emerging wireless and telecommunications markets as well as Richardson's
traditional communications, broadcast and avionics customers. SSC's power
semiconductors and related components serve industrial markets in power
conversion applications.
The majority of SSC's business is with OEMs. Because time-to-market is so
critical in today's electronics industry, OEMs are outsourcing engineering
design-in of devices and components. Richardson employs its core engineering
expertise and distribution competency in wireless and industrial applications to
meet customer requirements for design-in and prototype assembly of silicon
controlled rectifier assemblies, amplifiers, pallets and transmitters.
In October 1996, the Company acquired Compucon, a distributor of
inter-connect devices operating in the northeastern United States. The
acquisition brought to the Company a new product line and management with the
specialized knowledge of its applications. The Company believes that it can
achieve significant growth in this line by expanding Compucon's regional
specialization through its worldwide sales network.
The following is a description of SSC's major product groups:
RF POWER TRANSISTORS are solid-state, high-frequency power amplifiers used
in broadcast, cellular, aircraft and satellite communications and in many types
of electronic instrumentation. The Company designs and provides prototype
assemblies of amplifiers and pallets incorporating RF power transistors. In many
circumstances, the customer prefers to acquire the complete assembly as opposed
to the discrete transistor.
HIGH VOLTAGE AND POWER CAPACITORS are used in industrial, avionics, medical
and broadcast applications for filtering, high-current by-pass, feed-through
capacitance for harmonic attenuation, pulse shaping, grid and plate blocking,
tuning of tank circuits, antenna coupling and energy discharge.
SILICON CONTROLLED RECTIFIERS ("SCRS"), HEAT SINK ASSEMBLIES AND POWER
SEMICONDUCTOR MODULES are used in many industrial control applications because
of their ability to switch large amounts of power at high speeds. These silicon
power devices are capable of operating at up to 4,000 volts at 2,000 amperes.
INTER-CONNECT DEVICES are passive components used to connect all types of
electronic equipment including those employing RF technology.
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DISPLAY PRODUCTS GROUP
DPG sells data display and instrumentation cathode ray tubes ("CRTs") that
are used in data display, marine, medical, radar and avionic applications. It
recently expanded its product line to include flat panel displays and monitors.
DPG's primary market is users of replacement CRTs and related components,
principally large manufacturing and service companies. Its customer base also
includes both independent and original equipment service organizations.
Richardson estimates annual factory sales of CRTs in the global market to be $12
billion. DPG offers a cost effective alternative to purchasing a complete data
display monitor by replacing only the defective CRT. In addition to product
sales, DPG provides engineered solutions to its customers including; system
integration, extensive cross-referencing and other value-added capabilities that
enable DPG to offer off-the-shelf availability for more than 200,000
manufacturers' part numbers from an inventory of approximately 200 standard
CRTs.
Computer terminals and monitors, broadcast monitors, viewfinders and
TelePrompTers-Registered Trademark-, radar and instrumentation displays are some
of the many product applications. Large mainframe systems, using multiple data
display terminals, represent the largest market served by DPG. Typical users
include hospitals, airports, airlines, brokerage offices, banks, television
studios, utilities and assembly lines.
The following is a description of DPG's major product groups:
CATHODE RAY TUBES are vacuum tubes which convert an electrical signal into a
visual image to display information on computer terminals or televisions. CRTs
are used in various environments, including hospitals, financial institutions,
airports and numerous other applications wherever electronic data is shared by
large user groups. The product line includes both monochrome and color tubes.
DATA DISPLAY MONITORS are peripheral components incorporating a color or
monochrome CRT capable of displaying an analog or digitally generated video
signal.
FLAT PANEL DISPLAYS are display monitors incorporating a liquid crystal
display or plasma panel, rather than a CRT, typically a few inches in depth and
ranging from 10" to 42" measured diagonally.
SECURITY SYSTEMS DIVISION
SSD serves the commercial security and surveillance industry with a primary
emphasis on closed circuit television ("CCTV") systems and components. SSD's
strategy is to leverage Richardson's existing customer base of FORTUNE 500
customers and other large end-users, as opposed to security dealers or
retailers. SSD's principal value-added service is system design. The Company
believes heightened concerns over crime and the increasing incidence of
liability claims, industrial and commercial organizations are expanding the use
of CCTV systems to monitor and document activities in a wide range of
applications. Industry sources estimate that North American wholesale sales of
CCTV and related security equipment were $750 million in 1997 with a projected
annual growth rate of 10% through 2000. In addition to its CCTV product
offerings, SSD provides electronic components for burglar and fire detection
systems, access control systems and commercial sound systems.
Technology is changing continuously in the electronic surveillance industry.
SSD offers its customers engineered solutions including systems integration,
education and training. These engineered solutions assure SSD's customers remain
at the forefront of the industry in terms of product knowledge and end user
requirements.
SSD's sales increased significantly in 1996 and 1997. Acquisitions and a
significant increase in SSD's field sales force were principally responsible for
these significant sales gains. In February 1997, the Company acquired Burtek and
in August 1997 acquired Security Services International, both of which are
security systems distributors operating in Canada, with combined annual sales of
$38 million.
The following is a description of SSD's major product groups:
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CCTV PRODUCTS which include cameras, lenses, monitors, scanners, time lapse
recorders and associated accessories, are used in surveillance applications and
for monitoring hazardous environments in the workplace.
BURGLAR AND FIRE DETECTION SYSTEMS are devices used to detect unauthorized
access to an area or the presence of smoke or fire.
COMMERCIAL SOUND SYSTEMS are sound reproduction components used in
background music, paging and telephonic interconnect systems.
DISTRIBUTION AND MARKETING
The Company purchases vacuum tubes, RF and power semiconductors, related
electronic components and electronic security products and systems from various
sources, including Burle Industries, Clinton Electronics, Communication and
Power Industries ("CPI"), Covimag, Ericsson, General Electric, Huber & Suhner,
Jennings, Litton, M/A-COM, MPD, New Japan Radio, Orion/Daewoo, Panasonic, Pelco,
Philips, Powerex, Samsung, Samtell, Sanyo, SGS THOMSON, Semtech, Sensormatic,
Sony, Teletube, Toshiba, Triton Services, and Varian Associates. No single
outside supplier currently accounts for more than 10% of the Company's purchases
in any year, other than CPI, which accounted for 10.3%, 12.6% and 16.6% of
purchases in fiscal 1997, 1996 and 1995, respectively.
In 1991 the Company settled an antitrust suit with the U.S. Department of
Justice related to its participation in the electron tube manufacturing
industry. As a consequence, certain of its manufacturing activities became
uneconomic and were divested or discontinued. Covimag is the entity formed to
acquire the Company's former Brive, France manufacturing operation. Formal
transfer of ownership occurred in January 1995. Covimag is managed by the same
individuals previously employed by the Company at this facility. Under an
evergreen agreement, the Company negotiates a purchase commitment on an annual
basis. Covimag is highly dependent on Richardson, which is its primary customer.
Settlement of purchases under the contract are at standard terms. Except for the
supply contract, Richardson has no other financial commitment to or from
Covimag. Relationships under the supply contract are believed by the Company to
be satisfactory.
In addition to the agreement with Covimag, the Company has marketing
distribution agreements with various manufacturers in the electron tube,
semiconductor and CCTV industries. The most significant distributor agreement is
with CPI under which the Company is the exclusive distributor of power grid
tubes throughout the world, with the exception of the United States and certain
Eastern European countries. In these areas, however, the Company remains the
only CPI stocking distributor.
Customer orders are taken by the regional sales offices and generally
directed to one of Richardson's principal distribution facilities in LaFox,
Illinois; Houston, Texas; Vancouver, British Columbia; or Lincoln, England.
There are 28 additional stocking locations throughout the world. The Company
utilizes a sophisticated data processing network which provides on-line,
real-time interconnection of all sales offices and central distribution
operations. Information on stock availability, cross-reference information,
customers and competitive market analyses are instantly obtainable throughout
the entire distribution network.
MANUFACTURING
The Company distributes its proprietary products principally under the trade
names "National," "Cetron," "RF Gain" and "Amperex." Approximately 22% of the
Company's sales are from products it manufactures or modifies through
value-added services, primarily at its LaFox, Illinois facility. The Company
also sells products under these brand names made by independent manufacturers to
the Company's specifications.
The products currently manufactured by the Company, or subcontracted on a
proprietary basis for the Company, include thyratrons and rectifiers, power
tubes, ignitrons, microwave generators, solar collector
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power tubes, electronic display tubes, phototubes, SCR assemblies, spark gap
tubes, RF amplifiers, transmitters and pallet assemblies. Richardson reloads and
remanufactures medical x-ray tube housings. The materials used in the
manufacturing process consist of glass bulbs and tubing, nickel, stainless steel
and other metals, plastic and metal bases, ceramics and a wide variety of
fabricated metal components.
EMPLOYEES
As of February 28, 1998, the Company employed 798 individuals on a full-time
basis. Of these, 471 are located in the United States, including 61 employed in
administrative and clerical positions, 312 in sales and distribution and 98 in
value-added and product manufacturing. The Company's international subsidiaries
employ an additional 327 individuals engaged in administration, sales and
distribution. All of Richardson's employees are non-union. The Company's
relationship with its employees is considered to be good.
COMPETITION
Richardson believes that, on a global basis, it is a significant distributor
of electron tubes, RF and power semiconductors and subassemblies, CRTs and
security systems. For many of its product offerings, the Company competes
against the OEM for sales of replacement parts and system upgrades to service
existing installed equipment. In addition, the Company competes worldwide with
other general line distributors and other distributors of electronic components.
PATENTS AND TRADEMARKS
The Company holds or licenses certain manufacturing patents and trademark
rights, including the trademarks "National," "Cetron" and "Amperex." The Company
believes that although the patents and trademarks obtained have value, they will
not determine the Company's success, which depends principally upon its core
engineering capability, marketing technical support, product delivery and the
quality and economic value of its products.
PROPERTIES
The Company's corporate facility and largest distribution center is owned by
the Company and is located on approximately 300 acres in LaFox, Illinois,
consisting of approximately 255,000 square feet of manufacturing, warehouse and
office space. Richardson also owns a building containing approximately 45,000
square feet of warehouse space on 1.5 acres in Geneva, Illinois. Owned
facilities outside of the United States are located in England, Spain and Italy.
The Company also maintains branch sales offices in or near major cities
throughout the world, including 62 locations in North America, 12 in Europe, 9
in the Far East / Pacific Rim and 3 in Latin America. The Company leases
production facilities in Texas, Virginia and the Netherlands for its medical
tube reloading operation. The Company also leases a facility from a trust, of
which Edward J. Richardson, Chairman of the Board of the Company, is the
principal beneficiary. Such facility is used by SSD as its sales office and
warehouse. Under the terms of this lease, the Company is obligated to make
rental payments of $68,705 per year, expiring in 1999. The lease is on terms no
less favorable to the Company than similar leases which would be available from
unrelated third parties.
LITIGATION
The Company is a defendant in PANACHE BROADCASTING OF PENNSYLVANIA V.
RICHARDSON ELECTRONICS, LTD. in United States District Court, Northern District
of Illinois, filed in 1990. The complaint purports to be a class action on
behalf of all persons and businesses in the United States who purchased electron
power tubes from one or more of the defendant corporations at any time since
February 26, 1986. The complaint
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alleges antitrust violations and seeks treble damages, injunctive relief and
attorneys fees. The Company has denied the material allegations. The case
remains primarily in the preliminary discovery stage.
The Company is also a defendant in ARIUS, INC. V. RICHARDSON ELECTRONICS,
LTD. pending in state court in Orlando, Florida. The complaint filed in 1995
alleges a breach of a confidentiality agreement between Richardson and Arius and
other causes of action against Richardson and three employees. The court entered
an order prohibiting, among other things, contact by Richardson and one of its
employees with Arius customers, except in the ordinary course of business.
Shortly after entry of this order, Arius filed a Chapter 7 bankruptcy petition
and ceased to be a going concern. In early 1998, Arius' bankruptcy trustee filed
a motion seeking to penalize Richardson for having made sales to alleged Arius
customers subsequent to the date Arius filed its bankruptcy petition. Richardson
is vigorously contesting this motion and has asserted, among other things, that
it had no contact with alleged Arius customers except in the ordinary course of
business and that Arius' bankruptcy terminated Arius' customer relationships.
From time to time the Company is involved in other litigation arising in the
normal course of its business which is not expected to have a material adverse
effect on the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and members of the Board of Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Edward J. Richardson............... 56 Chairman of the Board and Chief Executive Officer
Bruce W. Johnson................... 57 President, Chief Operating Officer and Director
William J. Garry................... 50 Vice President of Finance, Chief Financial Officer and Director
Bart F. Petrini.................... 59 Executive Vice President-Electron Device Group
Norman A. Hilgendorf............... 37 Vice President-Solid State and Components
Charles J. Acurio.................. 38 Executive Vice President-Display Products Group
Flint Cooper....................... 36 Executive Vice President-Security Systems Division
Robert Prince...................... 36 Executive Vice President of Worldwide Sales
Pierluigi Calderone................ 40 Vice President and Managing Director of European Operations
William G. Seils................... 62 Senior Vice President, General Counsel and Secretary
Joseph C. Grill.................... 53 Vice President-Human Resources
Arnold R. Allen.................... 66 Director
Jacques Bouyer..................... 69 Director
Kenneth J. Douglas................. 75 Director
Scott Hodes........................ 60 Director
Ad Ketelaars....................... 41 Director
Harold L. Purkey................... 53 Director
Samuel Rubinovitz.................. 68 Director
</TABLE>
Mr. Richardson has been employed by the Company or its predecessor since
1961, holding several positions. He was Chairman of the Board, President and
Chief Executive Officer from September 1989 until November 1996, when Mr.
Johnson became President. Mr. Richardson continues to hold the offices of
Chairman of the Board and Chief Executive Officer.
Mr. Johnson has been President, Chief Operating Officer and Director since
joining the Company in November 1996. Prior thereto, from January 1992 until
January 1996, he was president of Premier Industrial Corporation, a New York
Stock Exchange listed company which was acquired by Farnell Ltd. in April 1996.
He was executive vice president of Premier from February 1987 until January
1992. Premier is a full service business to business supplier of electronic
components for industrial and consumer products, essential maintenance and
repair products for industrial, commercial and institutional applications and
manufactured high-performance fire-fighting equipment.
Mr. Garry has been Vice President of Finance, Chief Financial Officer and
Director since joining the Company in June 1994. Prior to joining the Company he
was vice president of finance and chief financial officer and a director of GEO
International Corporation of Chicago, Illinois from August 1986 until May 1994.
GEO International Corporation filed a voluntary petition for bankruptcy
protection in October 1993 and emerged from bankruptcy under a plan of
reorganization effective May 12, 1995.
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Mr. Petrini has been Executive Vice President - EDG since February 1998. He
was Vice President - EDG from April 1994 until February 1998. From June 1989
until joining Richardson in April 1994, he was a consultant with Petrini, Frank
& Co.
Mr. Hilgendorf has been Vice President - SSC since January 1998. He joined
the Company in May 1994 and has served as Product Manager and Business Unit
Manager in SSC from May 1994 until January 1998. From June 1990 until May 1994
he was employed by W. W. Grainger, Inc.
Mr. Acurio has been Executive Vice President - DPG since February 1998. He
was Vice President - DPG from April 1993 until February 1998 and prior thereto
held the titles of CRT Division Manager and DPG Strategic Business Unit Manager
since June 1988.
Mr. Cooper has been Executive Vice President - SSD since joining the Company
in November 1994. He was director of CCTV sales with Arius, Inc. from February
1991 until November 1994 and purchasing agent at ADT Security Systems, a
distributor of electronic security equipment, from August 1988 to January 1991.
Mr. Prince has been Executive Vice President of Worldwide Sales since
February 1998 and was Vice President of Worldwide Sales from November 1996 until
February 1998. He was Vice President of Sales from October 1992 until November
1996 and held several other positions since joining the Company in November
1978.
Mr. Calderone has been Vice President and Managing Director of European
Operations since March 1998. He joined the Company in July 1990 as District
Sales Manager for Italy and served as Regional Sales Manager of Italy from
February 1991 until March 1998.
Mr. Seils has been Senior Vice President since January 1992 and General
Counsel and Secretary since May 1986. Prior to joining the Company in 1986, he
was a partner in the law firm of Arvey, Hodes, Costello and Burman, Chicago,
Illinois.
Mr. Grill has been Vice President - Human Resources since October 1993 and
was Vice President - Corporate Administration from January 1992 until October
1993. He served in other office capacities of the Company since joining it in
October 1987.
Mr. Allen has been a Director of the Company since September 1985 when he
also joined the Company as its President and Chief Operating Officer. He retired
as President of the Company in September 1989. Since his retirement Mr. Allen
has been a management consultant and presently provides management consulting
services to Richardson. He served as Chairman of the Strategic Planning
Committee of the Company's Board of Directors from April 1991 until April 1992.
Mr. Bouyer has been a Director of the Company since 1990. He served as
chairman of the board of Philips Composants of Paris, France, engaged in the
manufacture and sale of electronic components and a subsidiary of N.V. Philips
of The Netherlands, from April 1, 1990 until January 1, 1994 when he became
honorary chairman of the board and a director until December 31, 1995. Mr.
Bouyer also was vice chairman of the BIPE Institute for Economic and Market
Research from 1981 until 1997. He has been a consultant in business strategies
and management since January 1994. Mr. Bouyer is serving Richardson as an
independent management consultant principally with respect to European matters.
He is also a director of LTX Corporation.
Mr. Douglas has been a Director of the Company since 1987. He was vice
chairman of Dean Foods Company for the period from December 1988 to September
1992, when he retired. Prior to becoming vice chairman, he served as chairman of
Dean Foods for many years. He is now the chairman of the board of West Suburban
Hospital Medical Center. He is also a director of Andrew Corporation.
Mr. Hodes has been a Director of the Company since 1983 and is a partner at
the law firm of Ross & Hardies, which firm provides legal services to the
Company.
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Mr. Ketelaars has been a Director of the Company since April 1996 and
presently serves the Company as an employee of certain foreign subsidiaries. He
joined Richardson as Vice President and Managing Director of Europe in May 1993
and resigned from that position effective May 31, 1996 to become chief executive
officer of EnerTel, a new telecommunications company established by Dutch
electric utility companies and CATV companies. Prior to joining Richardson he
was general manager of Philips Printed Circuit Boards since 1988 and product
group manager professional tubes of Philips Components since 1987.
Mr. Purkey has been a Director of the Company since 1994. He has been
president of Forum Capital Markets L.P. since May 1997 and senior managing
director of such company since May 1994. From July 1990 until February 1994 he
was employed by Smith Barney Shearson, holding the position of senior managing
director and manager of the convertible bond department.
Mr. Rubinovitz has been a Director of the Company since 1984. He also serves
Richardson as a consultant. He was executive vice president of EG&G, Inc., a
diversified manufacturer of instruments and components, from April 1989 until
his retirement in January 1994. He is also chairman of the board of directors of
LTX Corporation, and a director of KLA-Tencor Corporation and Kronos, Inc.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock as of January 31, 1998 and as adjusted to reflect
the sale of 1,500,000 shares of Common Stock by the Company and the sale of
1,500,000 shares of Common Stock by the Selling Stockholder, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) the Selling Stockholder, (iii) each director of
the Company, (iv) each of the executive officers of the Company and (v) all
executive officers and directors of the Company as a group. Since Class B Common
Stock is convertible into Common Stock the number of shares listed as owned
under the Common Stock column in the table also includes the number of shares of
Class B Common Stock owned by such person.
Edward J. Richardson, Chairman of the Board and Chief Executive Officer is
offering to sell 1,500,000 shares of Common Stock (and an additional 225,000
shares if the Underwriters elect to exercise their over-allotment option). No
other stockholder of the Company is selling any shares in this Offering.
<TABLE>
<CAPTION>
COMMON STOCK AND CLASS B COMMON STOCK
BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------------------ ------------------------------------
NUMBER OF TOTAL NUMBER OF TOTAL
SHARES OF PERCENT VOTING SHARES OF PERCENT VOTING
NAME OF BENEFICIAL OWNER COMMON (1) OF CLASS PERCENT (2) COMMON (1) OF CLASS PERCENT (2)
- ------------------------------------- ------------ --------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Richardson................. 5,856,521(3) 48.2% 83.6% 4,356,521 31.9% 77.2%
Scott Hodes.......................... 43,424(4) * * 43,424 * *
Samuel Rubinovitz.................... 40,431(5) * * 40,431 * *
Arnold R. Allen...................... 76,223(6) * 1.0% 76,223 * *
Kenneth J. Douglas................... 46,344(7) * * 46,344 * *
Jacques Bouyer....................... 37,000(8) * * 37,000 * *
William J. Garry..................... 32,428(9) * * 32,428 * *
Harold L. Purkey..................... 17,000(10) * * 17,000 * *
Ad Ketelaars......................... 44,800(11) * * 44,800 * *
Bruce W. Johnson..................... 20,250(12) * * 20,250 * *
Bart F. Petrini...................... 29,683 * * 29,683 * *
Norman A. Hilgendorf................. 1,652 * * 1,652 * *
Charles J. Acurio.................... 12,828(13) * * 12,828 * *
Flint Cooper......................... 8,885 * * 8,885 * *
Robert Prince........................ 36,177 * * 36,177 * *
Pierluigi Calderone.................. 5,400(14) * * 5,400 * *
William G. Seils..................... 60,276(15) * * 60,276 * *
Joseph C. Grill...................... 47,638 * * 47,638 * *
Royce & Associates, Inc.............. 1,107,686(16) 12.4% 12.4% 1,107,686 10.6% 10.6%
Royce Management Company
and Charles M. Royce
1414 Avenue of the Americas
New York, New York 10019
T. Rowe Price Associates, Inc........ 743,652(17) 8.3% 8.3% 743,652 7.1% 7.1%
100 East Pratt Street
Baltimore, Maryland 21202
Loomis Sayles & Company, L.P. 1,009,240(18) 10.2% 10.2% 1,009,240 8.9% 8.9%
One Financial Center
Boston, MA 02111
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK AND CLASS B COMMON STOCK
BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------------------ ------------------------------------
NUMBER OF TOTAL NUMBER OF TOTAL
SHARES OF PERCENT VOTING SHARES OF PERCENT VOTING
NAME OF BENEFICIAL OWNER COMMON (1) OF CLASS PERCENT (2) COMMON (1) OF CLASS PERCENT (2)
- ------------------------------------- ------------ --------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kalmar Investments, Inc. ............ 517,614(19) 5.8% 5.8% 517,614 4.9% 4.9%
Barley Mill House
3701 Kenner Pike
Greenville, DE 19807
Investment Advisors, Inc. ........... 479,700(20) 5.4% 5.4% 479,700 4.6% 4.6%
3700 First Bank Place,
Box 357
Minneapolis, MN 55440
Executive Officers and Directors as a 6,416,960 50.8% 85.8% 4,916,960 34.8% 79.3%
group (18 persons)
</TABLE>
- ------------------------
(*) Less than 1%.
(1) Except as noted, beneficial ownership of each of the shares listed is
comprised of either sole investment and sole voting power, or investment
power and voting power that is shared with the spouse of the Director or
officer, or voting power that is shared with the Trustees of the Company's
Employees Stock Ownership Plan ("ESOP") with respect to shares identified
as allocated to the individual's ESOP account.
(2) Common Stock is entitled to one vote per share and Class B Common Stock is
entitled to ten votes per share. Computation assumes that Class B Common
Stock held or subject to acquisition pursuant to stock option is not
converted into Common Stock.
(3) Includes 3,191,421 shares of Common Stock which would be issued upon
conversion of Mr. Richardson's Class B Common Stock (which represents 98.4%
of such Class), 23,006 shares of Common Stock allocated to the account of
Mr. Richardson under the ESOP and 804 shares of Common Stock which would be
issued upon conversion of $17,000 principal amount of the Corporation's
7 1/4% Convertible Subordinated Debentures, and 4,611 shares of Common
Stock which would be issued upon conversion of $83,000 principal amount of
the Corporation's 8 1/4% Convertible Senior Subordinated Debentures owned
by a Trust of which Mr. Richardson is a co-trustee and as such shares
investment and voting power. Does not include 10,900 shares of Common Stock
held by William G. Seils as custodian for Mr. Richardson's sons, Alexander
and Nicholas, as to which Mr. Richardson disclaims beneficial ownership.
(4) Includes 3,712 shares of Common Stock which would be issued upon conversion
of Mr. Hodes' Class B Common Stock. Also includes 35,000 shares of Common
Stock to which Mr. Hodes holds stock options exercisable within 60 days.
(5) Includes 825 shares of Common Stock which would be issued upon conversion
of Mr. Rubinovitz' Class B Common Stock. Also includes 35,000 shares of
Common Stock to which Mr. Rubinovitz holds stock options exercisable within
60 days.
(6) Includes 37,393 shares of Common Stock to which Mr. Allen holds stock
options exercisable within 60 days and an additional 37,393 shares of
Common Stock which would be issued upon conversion of 37,393 shares of
Class B Common Stock as to which he also holds stock options exercisable
within 60 days.
(7) Includes 1,347 shares of Common Stock which would be issued upon conversion
of Mr. Douglas' Class B Common Stock. Also includes 35,000 shares of Common
Stock to which Mr. Douglas holds stock options exercisable within 60 days.
37
<PAGE>
(8) Includes 35,000 shares of Common Stock to which Mr. Bouyer holds stock
options exercisable within 60 days.
(9) Includes 17,000 shares of Common Stock to which Mr. Garry holds stock
options exercisable within 60 days. Also includes 1,485 shares of Common
Stock allocated to the account of Mr. Garry under the ESOP.
(10) Includes 15,000 shares of Common Stock as to which Mr. Purkey holds stock
options exercisable within 60 days.
(11) Includes 44,800 shares of Common Stock as to which Mr. Ketelaars holds
stock options exercisable within 60 days.
(12) Includes 250 shares allocated to the account of Mr. Johnson under the
ESOP. Does not include an additional 55,000 shares under options which are
not yet vested.
(13) Includes 7,500 shares of Common Stock as to which Mr. Acurio holds stock
options exercisable within 60 days and 5,228 shares of Common Stock
allocated to the account of Mr. Acurio under the ESOP.
(14) Includes 1,900 shares of Common Stock as to which Mr. Calderone holds
stock options exercisable within 60 days.
(15) Includes 50,970 shares of Common Stock as to which Mr. Seils holds stock
options exercisable within 60 days. Also includes 8,123 shares of Common
Stock allocated to the account of Mr. Seils under the ESOP. Does not
include 10,900 shares of Common Stock held by Mr. Seils as custodian for
Mr. Richardson's sons, Alexander and Nicholas.
(16) Charles M. Royce may be deemed a controlling person of Royce & Associates,
Inc. ("Royce") and Royce Management Company ("RMC") which own 112,516
shares of Common Stock and as such may be deemed to beneficially own the
shares of Common Stock beneficially owned by Royce and RMC. Mr. Royce does
not own any shares outside of Royce and RMC, and disclaims beneficial
ownership of the shares held by Royce and RMC. Information disclosed in
this table was obtained by reviewing Schedule 13G filed jointly by Royce,
RMC and Mr. Royce on February 4, 1998.
(17) These securities are owned by various individual and institutional
investors including T. Rowe Price Small Cap Value Fund, Inc. which owns
743,652 shares, representing 8.1% of the shares outstanding, which T. Rowe
Price Associates, Inc. ("Price Associates") serves as investment adviser
with power to direct investments and/or sole power to vote the securities.
For purposes of the reporting requirements of the Securities Exchange Act
of 1934, Price Associates is deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities. Information disclosed in
this table was obtained by reviewing Schedule 13G jointly filed by Price
Associates and T. Rowe Price Small Cap Value Fund, Inc. on February 12,
1998.
(18) Loomis Sayles & Company, L.P. ("Loomis"), an investment advisor, shares
the power to dispose of the shares and shares the power to vote 255,434
shares. Clients of Loomis have the economic interest, but no one client
has such an interest relating to more than 5% of the class. Loomis
indicates that the shares reported for Loomis relate to such party's
ownership of the Company's convertible debentures. Information disclosed
in this table was obtained by reviewing Schedule 13G filed by Loomis on
February 12, 1998.
(19) Kalmar Investments, Inc. is an investment advisor having sole power to
dispose of these shares. Information disclosed in this table was obtained
by reviewing Schedule 13G filed by Kalmer Investments, Inc. on January 20,
1998.
(20) Investment Advisors, Inc. is an investment advisor reporting with respect
to shares held by various custodian banks for various clients none of
which hold more than 5% of the Common Stock, and shared voting and
dispositive power with respect to 134,300 of such shares. Information
disclosed in this table was obtained by reviewing Schedule 13G filed by
Investment Advisors, Inc. on March 10, 1998.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AND DEBENTURES
The Company is presently authorized to issue 30,000,000 shares of Common
Stock, par value $.05 per share ("Common Stock"), 10,000,000 shares of Class B
Common Stock, par value $.05 per share ("Class B Common Stock") and 5,000,000
shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"). The
Preferred Stock may be issued in series at the election of the Board of
Directors which may fix the terms of each such series without further
stockholder action. No Preferred Stock is presently outstanding. Shares of Class
B Common Stock are subject to conversion into shares of Common Stock on a share
for share basis as described below. See "--Terms of Common Stock and Class B
Common Stock" below.
The Company has $40,000,000 principal amount of 8 1/4% Convertible Senior
Subordinated Debentures due June 15, 2006 (the "8 1/4% Debentures"), and
$30,825,000 principal amount of 7 1/4% Convertible Subordinated Debentures due
December 15, 2006 (the "7 1/4% Debentures"), presently outstanding (the 8 1/4%
Debentures and the 7 1/4% Debentures are sometimes jointly referred to as the
"Debentures").
The statements relating to the Common Stock, Class B Common Stock and
Debentures are summaries and do not purport to be complete. Such summaries use
terms defined in and are qualified in their entirety by express reference to
Article Fourth of the Restated Certificate of Incorporation of the Company and
the indentures under which the Debentures are issued.
TERMS OF COMMON STOCK AND CLASS B COMMON STOCK
Except for voting by class in instances required by law, holders of Common
Stock and Class B Common Stock vote with holders of Preferred Stock (if any are
issued with voting rights) as a single class on all matters including the
election of directors, with each share of Common Stock having one vote and each
share of Class B Common Stock having ten votes. There is no cumulative voting in
the election of directors and stockholders voting a majority of the votes
(including Edward J. Richardson, who presently owns shares having approximately
83.6% of the voting power and 77.2% after completion of this Offering) at any
annual meeting will be able to elect all the directors to be elected, and the
minority will not be able to elect any directors.
Subject to the terms and preferences of the Preferred Stock, if any is
issued from time to time and the limitations on cash dividends contained in the
indentures under which the 7 1/4% Debentures and 8 1/4% Debentures are issued,
the Common Stock and the Class B Common Stock rank equally and have the same
rights with respect to dividends and distributions, except that the Class B
Common Stock is entitled to receive 90% of the cash dividend declared and paid
on the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note F to the Consolidated Financial
Statements and "--Terms of Debentures."
The Common Stock is freely transferable and shares of Common Stock may be
registered as requested by the holder thereof. Pursuant to the terms of the
Company's certificate of incorporation, shares of Class B Common Stock generally
are not freely transferable except to a family member or entity holding for the
benefit of the owner or a family member (a "Permitted Transferee"). A transfer
of Class B Common Stock to any person or entity other than a Permitted
Transferee results in the automatic conversion of such Class B Common Stock into
shares of Common Stock on a share-for-share basis. Shares of Class B Common
Stock are convertible into Common Stock on a share-for-share basis at all times
at the option of the holder thereof. Shares of Common Stock are not convertible
into shares of Class B Common Stock.
If at any time the number of issued and outstanding shares of Class B Common
Stock falls below 10% of the aggregate number of issued and outstanding shares
of Common Stock, Class B Common Stock and Preferred Stock, all the outstanding
shares of Class B Common Stock immediately and automatically are converted into
shares of Common Stock.
39
<PAGE>
Pursuant to the terms of the Company's certificate of incorporation, the
Company cannot issue any additional shares of Class B Common Stock, except
pursuant to exercise of options already granted prior to December 10, 1986 under
Richardson's stock purchase or option plans or in connection with stock splits,
stock dividends, reclassifications or other subdivisions, unless such issuance
is authorized by the vote of holders of a majority of the outstanding shares of
Common Stock and Class B Common Stock voting separately as a class.
Stockholders of the Company do not have preemptive or other rights to
subscribe for additional shares of either Common Stock or Class B Common Stock.
Neither the Common Stock nor the Class B Common Stock is callable or subject to
optional or mandatory redemption, except that shares of Class B Common Stock are
subject to automatic conversion into shares of Common Stock as described above.
TERMS OF DEBENTURES
The 8 1/4% Debentures mature June 15, 2006 and bear interest at 8 1/4% per
annum, payable on each June 15 and December 15 to holders of record on June 1
and December 1, respectively. They can be converted into Common Stock at $18.00
per share, subject to certain adjustments. They are redeemable at any time at
100% of principal amount plus accrued interest. There are no sinking fund
provisions applicable to the 8 1/4% Debentures. They are unsecured obligations
of the Company, subordinated to all Senior Indebtedness (as defined in the
Indenture under which they are issued) of the Company. The 8 1/4% Debentures
rank senior in right of payment to the 7 1/4% Debentures.
The 7 1/4% Debentures mature December 15, 2006 and bear interest at 7 1/4%
per annum, payable on each June 15 and December 15 to holders of record on June
1 and December 1, respectively. They can be converted into Common Stock at
$21.14 per share, subject to certain adjustments. They are redeemable at any
time at 100% of principal amount plus accrued interest. There is an annual
sinking fund payment of $6,225,000 due on each December 15, however, the Company
has acquired sufficient 7 1/4% Debentures to satisfy such requirement in full
through December 15, 2003. On December 15, 2004, $275,000 will be due and
$6,225,000 will be due on December 15, 2005. The 7 1/4% Debentures are unsecured
obligations of the Company, subordinated to all Senior Indebtedness (as defined
in the indenture under which they are issued) of Richardson.
40
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, Cleary Gull Reiland & McDevitt Inc. and McDonald & Company
Securities, Inc. (the "Representatives"), have severally agreed, subject to the
terms and conditions of the underwriting agreement (the "Underwriting
Agreement") by and among the Company, the Selling Stockholder and the
Underwriters, to purchase from the Company and the Selling Stockholder the
number of shares of Common Stock set forth below opposite their respective
names, at the offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Cleary Gull Reiland & McDevitt Inc.............................................................
McDonald & Company Securities, Inc.............................................................
-----------------
Total.................................................................................... 3,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to certain conditions precedent and that the Underwriters will purchase
all of the Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.
The Company and the Selling Stockholder have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public at the offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After commencement
of the Offering, the offering price and other selling terms may be changed by
the Underwriters.
Certain of the Underwriters and the selling group members that currently act
as market makers for the Common Stock may engage in "passive market making" in
the Common Stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Exchange Act. Rule 103 permits, upon satisfaction of
certain conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making activity when Rule 101 would
otherwise prohibit such activity. Rule 103 prohibits underwriters and selling
group members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities displayed on the Nasdaq National Market by a market maker that is not
participating in the distribution of the Common Stock. Each underwriter or
selling group member engaged in passive market making is subject to a daily net
purchase limitation equal to 30% of such entity's average daily trading volume
during the two full consecutive calendar months immediately preceding the date
of the filing of the Registration Statement of which this Prospectus forms a
part.
The Company and the Selling Stockholder have granted the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 450,000 additional shares of Common Stock from them pro rata, at
the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the
41
<PAGE>
total number of shares offered by the Company and the Selling Stockholder
hereunder, and the Company and the Selling Stockholder will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,000,000 shares are being offered.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain civil
liabilities in connection with this Offering, including liabilities under the
Securities Act.
Except in specified circumstances, the Company, the Selling Stockholder, and
the Company's executive officers and directors have agreed not to offer, sell,
transfer, pledge, contract to do the same, or otherwise dispose of any of their
shares of Common Stock or stock equivalents for a period of 120 days after the
closing date of this Offering without the prior written consent of Cleary Gull
Reiland & McDevitt Inc.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the
Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus forms a part.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by Ross & Hardies, Chicago, Illinois.
Scott Hodes, a partner in Ross & Hardies, is also a Director of the Company and
beneficially owns 43,424 shares of Common Stock. Certain legal matters related
to the Offering will be passed upon for the Underwriters by McDermott, Will &
Emery, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Richardson Electronics, Ltd. at May
31, 1997 and 1996, and for each of the three years in the period ended May 31,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational 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 filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the following Regional offices of the Commission: Chicago Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, electronically filed
registration statements, reports, proxy statements and other information
regarding the Company may be obtained on the Internet from the Commission's Web
site at http://www.sec.gov. The Common Stock is traded on the Nasdaq National
Market and certain of the Company's reports, proxy materials and other
information may be available for inspection at the offices of the National
Association of Securities Dealers, Inc., 1801 K Street, N.W., Washington, D.C.
20006.
42
<PAGE>
This Prospectus, which constitutes a part of a registration statement on
Form S-2 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act, omits certain of the information set forth in the
Registration Statement. Reference is hereby made to the Registration Statement
and to the exhibits and schedules thereto for further information with respect
to the Company and the securities offered hereby. Statements contained herein
concerning the provisions of any contract or documents 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,
although the Company believes such summaries accurately describe all material
provisions of such documents. Copies of the Registration Statement and the
exhibits and schedules thereto are on file at the offices of the Commission and
may be obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K for
the year ended May 31, 1997; (ii) Quarterly Reports on Form 10-Q and Form 10-Q/A
for the quarters ended August 31, 1997, November 30, 1997 and February 28, 1998;
and (iii) Proxy Statement for the Company's Annual Meeting of Stockholders held
on October 7, 1997.
The Company will furnish without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon written or
oral request, a copy of any or all of the documents incorporated by reference as
a part of the Registration Statement (other than exhibits to such documents,
except such exhibits as are specifically incorporated by reference into the
documents that this Prospectus incorporates). Requests should be directed to the
principal executive office of Richardson, 40W267 Keslinger Road, LaFox, Illinois
60147; Attention: Investor Relations, telephone number (630) 208-2371, fax (630)
208-2950, E-mail [email protected].
43
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPORT OF INDEPENDENT AUDITORS............................................................................. F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of May 31, 1996 and 1997 and February 28, 1998 (unaudited)................ F-3
Consolidated Statements of Operations for the years ended May 31, 1995, 1996 and 1997 and the nine month
periods ended February 28, 1997 and 1998 (unaudited)................................................... F-4
Consolidated Statements of Cash Flows for the years ended May 31, 1995, 1996 and 1997 and the nine month
periods ended February 28, 1997 and 1998 (unaudited)................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended May 31, 1995, 1996 and 1997 and the
nine month period ended February 28, 1998 (unaudited).................................................. F-6
Notes to the Consolidated Financial Statements........................................................... F-7
</TABLE>
F-1
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
Stockholders and Directors
Richardson Electronics, Ltd.
LaFox, Illinois
We have audited the accompanying consolidated balance sheets of Richardson
Electronics, Ltd. and subsidiaries as of May 31, 1997 and 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended May 31, 1997. 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 consolidated financial position of Richardson
Electronics, Ltd. and subsidiaries at May 31, 1997 and 1996, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended May 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
July 8, 1997, except for
"Earnings per Share" in Note A
as to which the date is February 28, 1998
F-2
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
------------------------
1996 1997
----------- ----------- FEBRUARY 28,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents................................................................... $ 6,784 $ 10,012 $ 6,886
Receivables, less allowance of $1,461, $2,102 and $1,775............................... 48,232 53,333 58,786
Inventories............................................................................ 94,327 92,194 93,777
Other.................................................................................. 8,062 10,497 9,998
----------- ----------- ------------
TOTAL CURRENT ASSETS............................................................... 157,405 166,036 169,447
Investments............................................................................ 2,190 2,152 2,776
Property, plant and equipment, net..................................................... 16,054 17,526 18,140
Other assets........................................................................... 4,509 6,800 9,291
----------- ----------- ------------
TOTAL ASSETS....................................................................... $ 180,158 $ 192,514 $ 199,654
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................................................... $ 14,503 $ 12,766 $ 18,037
Accrued liabilities.................................................................... 9,751 12,449 10,183
----------- ----------- ------------
TOTAL CURRENT LIABILITIES.......................................................... 24,254 25,215 28,220
Long-term debt......................................................................... 92,025 107,275 105,623
Deferred income taxes.................................................................. 1,087 434 1,600
----------- ----------- ------------
TOTAL LIABILITIES.................................................................. 117,366 132,924 135,443
STOCKHOLDERS' EQUITY
Common Stock, $.05 par value........................................................... 428 437 449
Class B Common Stock, convertible, $.05 par value...................................... 162 162 162
Preferred Stock, $1.00 par value....................................................... -- -- --
Additional paid-in capital............................................................. 52,185 53,512 55,549
Retained earnings...................................................................... 12,430 9,082 14,396
Foreign currency translation adjustment................................................ (2,413) (3,603) (6,345)
----------- ----------- ------------
TOTAL STOCKHOLDERS' EQUITY....................................................... 62,792 59,590 64,211
----------- ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $ 180,158 $ 192,514 $ 199,654
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST NINE
FISCAL YEAR ENDED MAY 31, MONTHS(1)
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES....................................................................... $208,118 $239,667 $255,139 $183,874 $223,442
Cost of products sold........................................................... 152,785 169,123 187,675 137,182 159,596
-------- -------- -------- -------- --------
Gross margin.............................................................. 55,333 70,544 67,464 46,692 63,846
Selling, general and administrative expenses.................................... 48,674 52,974 62,333 46,508 48,525
-------- -------- -------- -------- --------
OPERATING INCOME.......................................................... 6,659 17,570 5,131 184 15,321
Other (income) expense:
Interest expense............................................................ 6,473 6,624 7,622 5,588 6,218
Investment income........................................................... (1,863) (1,238) (392) (249) (534)
Foreign exchange and other.................................................. (582) 173 626 173 27
-------- -------- -------- -------- --------
4,028 5,559 7,856 5,512 5,711
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary item.................. 2,631 12,011 (2,725) (5,328) 9,610
Income tax provision (benefit).................................................. 150 3,900 (1,720) (2,500) 2,880
-------- -------- -------- -------- --------
Income (loss) before extraordinary item................................... 2,481 8,111 (1,005) (2,828) 6,730
Extraordinary gain (loss), net of tax........................................... 527 -- (488) (488) --
-------- -------- -------- -------- --------
NET INCOME (LOSS)......................................................... $ 3,008 $ 8,111 $ (1,493) $ (3,316) $ 6,730
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
INCOME (LOSS) PER SHARE--BASIC:
Before extraordinary item..................................................... $ .22 $ .70 $ (.08) $ (.24) $ .56
Extraordinary gain (loss), net of tax......................................... .05 -- (.04) (.04) --
-------- -------- -------- -------- --------
Net income (loss) per share................................................. $ .27 $ .70 $ (.12) $ (.28) $ .56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average shares outstanding.................................................... 11,425 11,659 11,892 11,886 12,096
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
INCOME (LOSS) PER SHARE--DILUTED:
Before extraordinary item..................................................... $ .21 $ .68 $ (.08) $ (.24) $ .54
Extraordinary gain (loss), net of tax......................................... .05 -- (.04) (.04) --
-------- -------- -------- -------- --------
Net income (loss) per share................................................. $ .26 $ .68 $ (.12) $ (.28) $ .54
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average shares outstanding.................................................... 11,566 12,002 11,892 11,886 12,476
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends per common share...................................................... $ .16 $ .16 $ .16 $ .12 $ .12
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------------------
(1) FOR THE NINE-MONTH PERIODS ENDED FEBRUARY 28, 1997 AND 1998, RESPECTIVELY.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST
NINE
FISCAL YEAR ENDED MAY 31, MONTHS(1)
--------------------------------- ---------
1995 1996 1997
---------- ---------- --------- 1997
---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 3,008 $ 8,111 $ (1,493) $ (3,316)
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation......................................................... 2,669 2,709 2,627 1,973
Amortization of intangibles and financing costs...................... 427 360 1,318 1,091
Deferred income taxes................................................ 1,310 2,338 (3,305) (3,026)
Stock contribution to employee ownership plan........................ 500 500 800 800
Special charges...................................................... -- -- 11,000 11,000
---------- ---------- --------- ---------
Net adjustments...................................................... 4,906 5,907 12,440 11,838
---------- ---------- --------- ---------
Changes in working capital, net of currency translation effects and
business acquisitions:
Receivables.......................................................... (7,215) (5,310) (4,277) (3,549)
Inventories.......................................................... (5,600) (12,920) 406 (922)
Other current assets................................................. (429) 1,567 253 (845)
Accounts payable..................................................... 5,079 (3,448) (3,719) (974)
Accrued liabilities.................................................. (6,437) (1,843) 28 (600)
---------- ---------- --------- ---------
Net changes in working capital....................................... (14,602) (21,954) (7,309) (6,890)
---------- ---------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................. (6,688) (7,936) 3,638 1,632
---------- ---------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings................................................. 8,000 22,200 57,890 56,918
Payments on debt......................................................... (6,784) (19,679) (42,640) (40,123)
Proceeds from sale of common stock....................................... 145 1,713 536 218
Cash dividends........................................................... (1,779) (1,822) (1,855) (1,389)
---------- ---------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. (418) 2,412 13,931 15,624
---------- ---------- --------- ---------
INVESTING ACTIVITIES:
Business acquisitions.................................................... -- (1,450) (9,902) (9,409)
Capital expenditures..................................................... (2,703) (2,352) (4,004) (2,947)
Sales of investments..................................................... 22,118 11,425 3,582 3,141
Purchases of investments................................................. (11,335) (6,660) (3,613) (3,181)
Other.................................................................... 438 194 (404) (99)
---------- ---------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.................. 8,518 1,157 (14,341) (12,495)
---------- ---------- --------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS.......................... 1,412 (4,367) 3,228 4,761
Cash and equivalents at beginning of year.................................. 9,739 11,151 6,784 6,784
---------- ---------- --------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD................................ $ 11,151 $ 6,784 $ 10,012 $ 11,545
---------- ---------- --------- ---------
---------- ---------- --------- ---------
<CAPTION>
1998
----------
<S> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 6,730
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation......................................................... 2,606
Amortization of intangibles and financing costs...................... 366
Deferred income taxes................................................ 1,508
Stock contribution to employee ownership plan........................ 285
Special charges...................................................... --
----------
Net adjustments...................................................... 4,765
----------
Changes in working capital, net of currency translation effects and
business acquisitions:
Receivables.......................................................... (4,758)
Inventories.......................................................... (862)
Other current assets................................................. 68
Accounts payable..................................................... 5,504
Accrued liabilities.................................................. (2,460)
----------
Net changes in working capital....................................... (2,508)
----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................. 8,987
----------
FINANCING ACTIVITIES:
Proceeds from borrowings................................................. 14,531
Payments on debt......................................................... (15,943)
Proceeds from sale of common stock....................................... 1,764
Cash dividends........................................................... (1,416)
----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. (1,064)
----------
INVESTING ACTIVITIES:
Business acquisitions.................................................... (6,262)
Capital expenditures..................................................... (3,201)
Sales of investments..................................................... 3,003
Purchases of investments................................................. (3,432)
Other.................................................................... (1,157)
----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.................. (11,049)
----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS.......................... (3,126)
Cash and equivalents at beginning of year.................................. 10,012
----------
CASH AND EQUIVALENTS AT END OF PERIOD................................ $ 6,886
----------
----------
</TABLE>
- ------------------------
(1) FOR THE NINE-MONTH PERIODS ENDED FEBRUARY 28, 1997 AND 1998, RESPECTIVELY.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(SHARES AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES ISSUED
------------------------ ADDITIONAL
CLASS B PAR PAID-IN
COMMON COMMON VALUE CAPITAL
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE JUNE 1, 1994.............................................................. 8,056 3,248 $ 565 $ 49,352
Shares contributed to ESOP........................................................ 133 -- 7 493
Shares issued under ESPP and stock option plan.................................... 35 -- 1 144
Conversion of Class B shares to common shares..................................... 1 (1) -- --
Dividends......................................................................... -- -- -- --
Currency translation.............................................................. -- -- -- --
Net income........................................................................ -- -- -- --
----- ----- --------- -----------
BALANCE MAY 31, 1995.............................................................. 8,225 3,247 573 49,989
Shares contributed to ESOP........................................................ 69 -- 3 497
Shares issued under ESPP and stock option plan.................................... 265 -- 14 1,699
Conversion of Class B shares to common shares..................................... 3 (3) -- --
Dividends......................................................................... -- -- -- --
Currency translation.............................................................. -- -- -- --
Net income........................................................................ -- -- -- --
----- ----- --------- -----------
BALANCE MAY 31, 1996.............................................................. 8,562 3,244 590 52,185
Shares contributed to ESOP........................................................ 84 -- 5 795
Shares issued under ESPP and stock option plan.................................... 74 -- 4 532
Conversion of Class B shares to common shares..................................... 1 (1) -- --
Dividends......................................................................... -- -- -- --
Currency translation.............................................................. -- -- -- --
Net loss.......................................................................... -- -- -- --
----- ----- --------- -----------
BALANCE MAY 31, 1997.............................................................. 8,721 3,243 599 53,512
Shares contributed to ESOP........................................................ 34 -- 2 283
Shares issued under stock option plan............................................. 212 -- 10 1,754
Conversion of Class B shares to common shares..................................... 1 (1) -- --
Dividends......................................................................... -- -- -- --
Currency translation.............................................................. -- -- -- --
Net income........................................................................ -- -- -- --
----- ----- --------- -----------
BALANCE FEBRUARY 28, 1998(1)...................................................... 8,968 3,242 $ 611 $ 55,549
----- ----- --------- -----------
----- ----- --------- -----------
<CAPTION>
RETAINED FOREIGN
EARNINGS CURRENCY TOTAL
---------- --------- ----------
<S> <C> <C> <C>
BALANCE JUNE 1, 1994.............................................................. $ 4,912 $ (2,256) $ 52,573
Shares contributed to ESOP........................................................ -- -- 500
Shares issued under ESPP and stock option plan.................................... -- -- 145
Conversion of Class B shares to common shares..................................... -- -- --
Dividends......................................................................... (1,779) -- (1,779)
Currency translation.............................................................. -- 1,707 1,707
Net income........................................................................ 3,008 -- 3,008
---------- --------- ----------
BALANCE MAY 31, 1995.............................................................. 6,141 (549) 56,154
Shares contributed to ESOP........................................................ -- -- 500
Shares issued under ESPP and stock option plan.................................... -- -- 1,713
Conversion of Class B shares to common shares..................................... -- -- --
Dividends......................................................................... (1,822) -- (1,822)
Currency translation.............................................................. -- (1,864) (1,864)
Net income........................................................................ 8,111 -- 8,111
---------- --------- ----------
BALANCE MAY 31, 1996.............................................................. 12,430 (2,413) 62,792
Shares contributed to ESOP........................................................ -- -- 800
Shares issued under ESPP and stock option plan.................................... -- -- 536
Conversion of Class B shares to common shares..................................... -- -- --
Dividends......................................................................... (1,855) -- (1,855)
Currency translation.............................................................. -- (1,190) (1,190)
Net loss.......................................................................... (1,493) -- (1,493)
---------- --------- ----------
BALANCE MAY 31, 1997.............................................................. 9,082 (3,603) 59,590
Shares contributed to ESOP........................................................ -- -- 285
Shares issued under stock option plan............................................. -- -- 1,764
Conversion of Class B shares to common shares..................................... -- -- --
Dividends......................................................................... (1,416) -- (1,416)
Currency translation.............................................................. -- (2,742) (2,742)
Net income........................................................................ 6,730 -- 6,730
---------- --------- ----------
BALANCE FEBRUARY 28, 1998(1)...................................................... $ 14,396 $ (6,345) $ 64,211
---------- --------- ----------
---------- --------- ----------
</TABLE>
- ------------------------
(1) ACTIVITY AFTER MAY 31, 1997 AND THE FEBRUARY 28, 1998 BALANCES ARE
UNAUDITED.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF FEBRUARY 28, 1998 AND FOR THE
NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts and operations of the Company and its subsidiaries. All significant
intercompany transactions are eliminated.
INTERIM INFORMATION: The consolidated interim financial statements as of
February 28, 1998 and for the nine-month periods ended February 28, 1997 and
1998 included herein are unaudited. Such information reflects all adjustments,
consisting solely of normal recurring adjustments, which in the opinion of
management are necessary for a fair presentation of the consolidated balance
sheet as of February 28, 1998 and the consolidated results of operations and
cash flows for the nine-month periods ended February 28, 1997 and 1998.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS: The Company considers short-term investments that have a
maturity of three months or less, when purchased, to be cash equivalents. The
carrying amounts reported in the balance sheet for cash and equivalents
approximate the fair market value of these assets.
INVENTORIES: Inventories are stated at the lower of cost or market.
Inventory costs determined using the last-in, first-out ("LIFO") method
represent 84.2%, 78.5% and 76.5% of total inventories at May 31, 1996, May
31,1997 and February 28, 1998, respectively. For the remaining inventories, cost
is determined on the first-in, first-out ("FIFO") method. If the FIFO method had
been used for all inventories, the cost of inventories would have been increased
by $5.7 million at May 31, 1996, $4.7 million at May 31, 1997 and $4.7 million
at February 28, 1998. However, as a result of the increase in overstock reserves
recorded in 1997, the LIFO carrying value of all inventories approximated market
value at May 31, 1997 and at February 28, 1998. Substantially all inventories
represent finished goods held for sale.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Provisions for depreciation are computed principally using the
straight-line method for financial reporting purposes. Property, plant and
equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------- FEBRUARY 28,
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
Land and improvements..................................... $ 2,624 $ 2,620 $ 2,618
Buildings and improvements................................ 18,052 18,251 18,355
Machinery and equipment................................... 22,020 25,098 27,812
--------- --------- ------------
Property at cost........................................ 42,696 45,969 48,785
Accumulated depreciation.................................. (26,642) (28,443) (30,645)
--------- --------- ------------
Property, net............................................. $ 16,054 $ 17,526 $ 18,140
--------- --------- ------------
--------- --------- ------------
</TABLE>
F-7
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION: Foreign currency transactions and financial
statements are translated into U. S. dollars at current rates, except that
revenues, costs and expenses are translated at average rates during each
reporting period. Gains and losses resulting from foreign currency transactions
are included in income currently. Foreign currency transaction gains (losses)
reflected in operations were $316,000, $(228,000) and $(563,000), in 1995, 1996,
and 1997, respectively, and were $(269,000) and $(318,000) for the first nine
months of fiscal 1997 and 1998. Gains and losses resulting from translation of
foreign subsidiary financial statements are credited or charged directly to a
separate component of shareholders' equity.
REVENUE RECOGNITION: Revenues are recorded upon shipment.
INCOME TAXES: Deferred tax assets and liabilities are established for
differences between financial reporting and tax accounting of assets and
liabilities and are measured using the marginal tax rates.
STOCK-BASED COMPENSATION: The Company accounts for its stock option plans
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", and related interpretations. As
such, compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Financial Accounting Standards Board issued Statement ("SFAS") No. 123
"ACCOUNTING FOR STOCK-BASED COMPENSATION", which requires estimation of the fair
value of options granted to employees. As permitted by SFAS No. 123, the Company
has elected to present this estimated fair value information in Note I, and to
continue to apply APB Opinion No. 25 for the determination of compensation
expense.
EARNINGS PER SHARE: Net income (loss) per share amounts and average shares
outstanding for all periods presented have been restated in accordance with SFAS
No. 128 "EARNINGS PER SHARE", which became effective December 1997. The
restatement of primary earnings per share to basic earnings per share resulted
in increases in net income per share of $.01 in 1995 and $.02 in 1996. Under
SFAS No. 128, net income per share is reported by two amounts: basic earnings
per share and diluted earnings per share. Basic earnings per share is calculated
by dividing net income (loss) by the weighted average number of Common and Class
B Common shares outstanding. Diluted earnings per share is calculated by
dividing net income (loss) by basic shares outstanding and share equivalents
that would arise from the exercise of dilutive stock options. The per share
amounts presented in the Statement of Operations were based on the following
amounts (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, FIRST NINE MONTHS
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NUMERATOR FOR BASIC AND DILUTED EPS:
Net income (loss) before extraordinary item......... $ 2,481 $ 8,111 $ (1,005) $ (2,828) $ 6,730
Extraordinary loss, net of income taxes............. 527 -- (488) (488) --
--------- --------- --------- --------- ---------
Net income (loss)................................. $ 3,008 $ 8,111 $ (1,493) $ (3,316) $ 6,730
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
DENOMINATOR FOR BASIC EPS:
Shares outstanding at beginning of period........... 11,303 11,472 11,806 11,806 11,964
Additonal shares for options exercised.............. 122 187 86 80 132
--------- --------- --------- --------- ---------
Weighted average shares outstanding............... 11,425 11,659 11,892 11,886 12,096
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
DENOMINATOR FOR DILUTED EPS:
Weighted average shares outstanding................. 11,425 11,659 11,892 11,886 12,096
Effect of dilutive stock options.................... 141 343 -- -- 380
--------- --------- --------- --------- ---------
Adjusted average shares outstanding............... 11,566 12,002 11,892 11,886 12,476
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-8
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Out-of-the money (exercise price higher than market price) stock options and
the Company's 8 1/4% and 7 1/4% convertible debentures were excluded from the
calculation because they were anti-dilutive. In-the-money stock options were
excluded from the calculation for the fiscal 1997 full year and first nine-month
period because the Company had a net loss.
RECLASSIFICATIONS: Certain amounts in the 1995 and 1996 financial
statements have been reclassified to conform to the 1997 presentation. Certain
amounts in the fiscal 1997 nine-month interim financial statements have been
reclassified to conform to the fiscal 1998 nine-month interim presentation.
NOTE B--SPECIAL CHARGES AND EXTRAORDINARY ITEMS
In the third quarter of fiscal 1997, the Company re-evaluated its reserve
estimates in light of changed market conditions and provided for severance and
other costs associated with a corporate reorganization. Inventory reserve
adjustments of $7.2 million were included in cost of sales, and provisions for
accounts receivable, severance and other costs of $3.8 million were included in
selling, general and administrative expense. Collectively, these charges
amounted to $11.0 million pre-tax or $6.7 million, net of tax, reducing earnings
per share by $.56.
Also in the third quarter of fiscal 1997, the Company recorded an $800,000
extraordinary charge for the write-off of unamortized debt issuance costs
associated with the Company's 7 1/4% convertible subordinated debentures, which
were exchanged for a new issue (See Note F). Net of tax, the charge was
$488,000, or $.04 per share.
In 1995 the Company recorded as a charge to cost of sales a $4.7 million
payment to the U. S. Government in return for a release of monetary claims in
connection with a contract completed in 1989. Also during fiscal 1995, the
Company repurchased $4.9 million at face value of its 7 1/4% convertible
debentures for $4.0 million. Net of unamortized deferred financing costs of
$90,000, and income taxes of $337,000, an extraordinary gain of $527,000 was
recorded.
NOTE C--ACQUISITIONS
Several business acquisitions were made in fiscal 1997. In October 1996, the
SSC business unit acquired Compucon Distributors, Inc., a distributor of
interconnect devices operating in the northeastern United States. In February
1997, the SSD unit acquired Burtek Systems, Inc., a security systems distributor
operating in Canada with annual sales of $18.0 million. The Company also
acquired two smaller companies operating in the wireless communications and
diagnostic medical imaging markets, respectively.
In August 1997, the Company acquired the assets and liabilities of Security
Service International, Inc. (SSI), a Canadian distributor of security systems
with annual sales of $20.0 million.
Each of the acquisitions was accounted for by the purchase method, and
accordingly, their results of operations are included in the consolidated
statements of operations from the respective dates of acquisition. The impact of
these acquisitions on results of operations was not significant and would not
have been significant if they had been included for the entire year.
F-9
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--MARKETING AGREEMENTS
The Company is party to several marketing distribution agreements with
various manufacturers in the electron tube and semiconductor businesses. The
most significant is a distribution agreement with Communications and Power
Industries, Inc., formerly the Electron Device Group of Varian Associates, Inc.
Product sales under this distribution agreement accounted for 17.2%, 14.8%, and
13.0%, of net sales in fiscal 1995, 1996, and 1997, respectively.
As part of the divestiture of the Company's Brive, France, manufacturing
operations in 1994, the Company entered into a supply agreement with Covimag, S.
A., the corporation created by the local management group to continue operating
the Brive facility. Under this agreement, the Company must purchase electron
tubes valued at approximately $11.0 million per year through calendar 1997.
Under a successor agreement, the purchase commitment is negotiated on an annual
basis and requires the Company to acquire $8.3 million in calendar 1998.
NOTE E--INVESTMENTS
SFAS No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES" requires investments to be classified as trading, available-for-sale
or held-to-maturity. Management has determined these investments are properly
classified as available-for-sale. The investment portfolio at May 31, 1996, May
31, 1997 and February 28, 1998 is stated at fair value based on quoted market
prices or dealers' quotes and consists of securities available-for-sale, as
follows (in thousands).
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
At May 31, 1996:
Equity securities................................................. $ 1,571 $ 174 $ (29) $ 1,716
Bonds--one year or less........................................... 510 -- (36) 474
--------- ----- ----------- -----------
Total investments............................................... $ 2,081 $ 174 $ (65) $ 2,190
--------- ----- ----------- -----------
--------- ----- ----------- -----------
At May 31, 1997:
Equity securities................................................. $ 1,766 $ 206 $ (190) $ 1,782
Bonds--one year or less........................................... 370 -- -- 370
--------- ----- ----------- -----------
Total investments............................................... $ 2,136 $ 206 $ (190) $ 2,152
--------- ----- ----------- -----------
--------- ----- ----------- -----------
At February 28, 1998:
Equity securities................................................. $ 1,861 $ 237 $ (47) $ 2,051
Bonds--six to ten years........................................... 101 12 -- 113
Bonds--one year or less........................................... 612 -- -- 612
--------- ----- ----------- -----------
Total investments............................................... $ 2,574 $ 249 $ (47) $ 2,776
--------- ----- ----------- -----------
--------- ----- ----------- -----------
</TABLE>
Interest and dividend income are accrued as earned. Gains and losses on the
investment portfolio are recognized in income when securities are sold or to
reflect a decline in market value estimated by management to be of a permanent
nature. Investment income includes capital gains of $1.2 million, $1.1 million,
and $47,000 in fiscal 1995, 1996 and 1997 and $80,000 and $421,000 for the first
nine months of fiscal 1997 and 1998. Of these amounts, sales of equity
securities generated gains of $1.0 million, $1.1
F-10
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--INVESTMENTS (CONTINUED)
million, $30,000 in fiscal 1995, 1996 and 1997 and $88,000 and $421,000 for the
first nine months of fiscal 1997 and 1998, respectively.
NOTE F--DEBT FINANCING
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
--------------------- FEBRUARY 28,
1996 1997 1998
--------- ---------- ------------
<S> <C> <C> <C>
8 1/4% Convertible debentures due June 2006.............. $ -- $ 40,000 $ 40,000
7 1/4% Convertible debentures due December 2006 70,825 30,825 30,825
Floating-rate revolving credit facility due January 1999
(6.6% at May 31, 1997 and 6.9% at February 28, 1998)... 21,200 30,332 26,332
Revolving credit and term loan due January 1999
(4.6% at May 31, 1997 and 5.4% at February 28, 1998)... -- 5,704 8,461
Other.................................................... -- 414 5
--------- ---------- ------------
Long-term debt......................................... $ 92,025 $ 107,275 $ 105,623
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
On February 15, 1997, the Company exchanged $40.0 million of new 8 1/4%
convertible debentures for an equivalent face value of its outstanding 7 1/4%
convertible debentures. The new debentures are payable at maturity in June 2006,
and are convertible to common stock at $18.00 per share. The principal purpose
of the exchange was to improve the Company's future liquidity and capital
position by refinancing a sufficient number of the 7 1/4% convertible debentures
to eliminate sinking fund requirements until December 15, 2004. The 8 1/4%
convertible debentures are subordinated to senior debt.
The 7 1/4% convertible debentures are unsecured and subordinated to other
long-term debt, including the 8 1/4% convertible debentures. Each $1,000
debenture is convertible into the Company's Common Stock at any time prior to
maturity at $21.14 per share. The Company is required to make sinking fund
payments of $3.9 million in 2004 and $6.2 million in 2005.
In November 1995, the Company entered into a $25.0 million senior revolving
credit note agreement. Subsequent amendments increased this line to $35.0
million and extended the maturity date to January 1999. The Company has replaced
this agreement effective March 1, 1998 with a new $50.0 million floating-rate
revolving credit facility from its primary lender. The loan bears interest at
prime or 100 basis points over LIBOR, at the Company's option, and expires March
1, 2001.
To complete the acquisition of Burtek, a subsidiary of the Company entered
into a revolving credit and term loan agreement aggregating $6.0 million with a
Canadian affiliate of the Company's primary bank. The loan is guaranteed by the
Company and bears interest at the Canadian prime rate. The amount of this
agreement was increased to $12.4 million in August 1997 to facilitate the
acquisition of Security Services International, Inc. and, in conjunction with
the terms of the aforementioned $50.0 million facility, the maturity date was
extended to March 1, 2001.
Financial covenants under the debt agreements set benchmark levels for
tangible net worth, debt to tangible net worth ratio and annual debt service
coverage and restrict the use of retained earnings for the
F-11
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--DEBT FINANCING (CONTINUED)
payment of dividends or purchase of treasury stock. As of May 31, 1997 and March
1, 1998, $18.3 million and $10.0 million, respectively, were free of such
restrictions.
Aggregate maturities of debt under currently effective agreements during the
next five fiscal years at May 31, 1997 were $36.5 million in 1999 and at
February 28, 1998 were $34.8 million in 2001. Cash payments for interest were
$6.5 million, $6.4 million, and $7.5 million in 1995, 1996, and 1997,
respectively, and $6.5 million and $7.5 million for the first nine months of
fiscal 1997 and 1998.
In the following table, the fair values of the Company's 7 1/4% and 8 1/4%
convertible debentures are based on quoted market prices. However, trading in
the Company's bonds is infrequent and, therefore, quoted market prices may not
be indicative of the fair market value of the entire issue. The fair values of
the bank term loans are based on carrying value, adjusted for market interest
rate changes and are as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1997 FEBRUARY 28, 1998
-------------------- --------------------- ---------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
7 3/4% Convertible debentures $ 70,825 $ 59,847 $ 30,825 $ 24,044 $ 30,825 $ 25,585
8 1/4% Convertible debentures -- -- 40,000 31,800 40,000 37,200
Floating-rate revolving loan................. 21,200 21,200 30,332 30,330 26,332 26,332
Revolving credit and term loan............... -- -- 5,704 5,704 8,461 8,461
Other........................................ -- -- 414 414 5 5
--------- --------- ---------- --------- ---------- ---------
Total.................................... $ 92,025 $ 81,047 $ 107,275 $ 92,292 $ 105,623 $ 97,583
--------- --------- ---------- --------- ---------- ---------
--------- --------- ---------- --------- ---------- ---------
</TABLE>
NOTE G--INCOME TAXES
The components of income (loss) before income taxes and extraordinary item
are (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, FIRST NINE MONTHS
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
United States......................................... $ 781 $ 9,954 $ (4,558) $ (7,119) $ 7,530
Foreign............................................... 1,850 2,057 1,833 1,791 2,080
--------- --------- --------- --------- ---------
Income (loss) before taxes and extraordinary item..... $ 2,631 $ 12,011 $ (2,725) $ (5,328) $ 9,610
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-12
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--INCOME TAXES (CONTINUED)
The provision (credit) for income taxes differs from income taxes computed
at the federal statutory tax rate of 34% as a result of the following items:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FIRST NINE MONTHS
MAY 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Federal statutory rate................................................... 34.0% 34.0% 34.0% 34.0% 34.0%
Effect of:
State income taxes, net of federal tax benefit......................... (1.4) 3.5 11.3 11.0 2.5
FSC benefit on export sales............................................ (10.4) (3.2) 12.3 7.6 (6.6)
Realization of tax benefit on
prior years' foreign losses.......................................... -- (2.5) 14.7 1.6 (0.6)
Foreign vs. U.S. rates................................................. 6.8 -- (7.5) (2.9) 0.7
Claim settlement taxed at 46%
carry back year statutory rate....................................... (22.8) -- -- -- --
Other.................................................................. (0.5) 0.7 (1.7) (4.3) --
--------- --------- --------- --------- ---------
Effective tax rate....................................................... 5.7% 32.5% 63.1% 47.0% 30.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
In 1994, the Company recorded a provision of $21.4 million for the
disposition of its Brive, France manufacturing facility. Tax benefits of $8.0
million will be realized if the disposition of these French operations is
treated as an ordinary loss for U. S. federal tax purposes. A tax benefit of
$5.0 million was recorded in 1994 based upon alternative tax strategies. The
Company's U. S. federal tax return has been examined for 1994 and submitted to
the Congressional Joint Committee on Taxation recommending no change to the
Company's ordinary loss position on this issue.
In 1995, due to the timing and nature of a claim settlement (see Note B),
the Company utilized a ten-year carryback provision permitted by the Internal
Revenue Service. The Company's U. S. federal tax returns have been examined
through 1995. As part of this examination, in December, 1997, the Internal
Revenue Service contested the Company's carryback of the aforementioned claim
settlement. The Company is appealing the IRS position. However, if the Company
were ultimately unsuccessful, the claim would be available for carryforward at
the then current statutory rate and the impact on the Company's financial
position and results of operations would not be material.
F-13
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--INCOME TAXES (CONTINUED)
The provisions (credits) for income taxes before extraordinary item consist
of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, FIRST NINE MONTHS
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Currently payable:
Federal..................................................... $ (1,930) $ 1,158 $ 299 $ (362) $ 298
State....................................................... (150) 139 -- (65) 100
Foreign..................................................... 1,250 274 609 (93) 974
--------- --------- --------- --------- ---------
Total currently payable................................... (830) 1,571 908 (520) 1,372
--------- --------- --------- --------- ---------
Deferred:
Federal..................................................... 1,386 1,806 (2,626) (2,541) 1,621
State....................................................... 93 498 (441) (420) 238
Foreign..................................................... (499) 25 439 981 (351)
--------- --------- --------- --------- ---------
Total deferred............................................ 980 2,329 (2,628) (1,980) 1,508
--------- --------- --------- --------- ---------
Income tax provision (benefit) before extraordinary item...... $ 150 $ 3,900 $ (1,720) $ (2,500) $ 2,880
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Non-current deferred tax
assets and liabilities are offset on the balance sheet within tax jurisdictions.
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
AT MAY 31, 1996 AT MAY 31, 1997 AT FEBRUARY 28, 1998
------------------------ ------------------------ ------------------------
CURRENT NONCURRENT CURRENT NONCURRENT CURRENT NONCURRENT
ASSET(1) LIABILITY ASSET(1) LIABILITY ASSET(1) LIABILITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Operating loss carryforward................. $ -- $ 1,440 $ -- $ 1,778 $ -- $ 868
Intercompany profit in inventory............ 1,611 -- 1,422 -- 1,343 --
Inventory valuation......................... 3,462 -- 6,312 -- 5,971 --
Environmental and other reserves............ -- 600 -- 1,368 -- 1,188
Other, net.................................. 17 271 14 -- 14 --
----------- ----------- ----------- ----------- ----------- -----------
Net deferred tax assets................... 5,090 2,311 7,748 3,146 7,328 2,056
Deferred tax liabilities:
Accelerated depreciation.................... -- (3,398) -- (3,516) -- (3,514)
Other, net.................................. -- -- -- (64) -- (142)
----------- ----------- ----------- ----------- ----------- -----------
Net deferred tax.......................... $ 5,090 $ (1,087) $ 7,748 $ (434) $ 7,328 $ (1,600)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) INCLUDED IN OTHER CURRENT ASSETS ON THE BALANCE SHEET
F-14
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--INCOME TAXES (CONTINUED)
Operating loss carryforwards of $14.5 million for U. S. tax purposes expire
in 2009 and 2010. Net income taxes paid (refunds received) were $(361,000),
$(1.1 million) and $523,000 in 1995, 1996, and 1997, respectively, and $29,000
and $341,000 for the first nine months of fiscal 1997 and 1998.
NOTE H--ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------------- FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Compensation and payroll taxes...................... $ 3,558 $ 4,320 $ 4,944
Interest............................................ 2,690 2,849 1,589
Income taxes........................................ 314 712 742
Other accrued expenses.............................. 3,189 4,568 2,908
------------ ------------ ------------
Accrued liabilities............................... $ 9,751 $ 12,449 $ 10,183
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE I--STOCKHOLDERS' EQUITY
The Company has authorized 30,000,000 shares of Common Stock, 10,000,000
shares of Class B Common Stock, and 5,000,000 shares of Preferred Stock. The
Class B Common Stock has ten votes per share and generally votes together with
the Common Stock. The Class B Common Stock has transferability restrictions;
however, it may be converted into Common Stock on a share-for-share basis at any
time. With respect to dividends and distributions, shares of common stock and
Class B common stock rank equally and have the same rights, except that Class B
Common Stock is limited to 90% of the amount of Common Stock cash dividends.
Total common stock issued and outstanding was 8,721,315 shares at May 31,
1997 and 8,967,891 shares At February 28, 1998. An additional 9,387,743 shares
of common stock at May 31, 1997 and 9,144,170 shares at February 28, 1998 have
been reserved for future issuance under the Employee Stock Purchase and Option
Plans and potential conversion of the convertible debentures and Class B Common
Stock.
The Employee Stock Purchase Plan ("ESPP") provides substantially all
employees an opportunity to purchase common stock of the Company at 85% of the
stock price at the beginning of the year or the end of the year, whichever is
lower. The plan has reserved 120,687 shares for future issuance.
The Employees' 1996 Incentive Compensation Plan authorizes the issuance of
up to 800,000 shares as incentive stock options, non-qualified stock options or
stock awards. Under this plan and predecessor plans, 1,939,005 shares at May 31,
1997 and 1,696,879 shares at February 28, 1998 were reserved for future
issuance. The Plan authorizes the granting of incentive stock options at the
fair market value at the date of grant. Generally, these options become
exercisable over staggered periods and expire up to ten years from the date of
grant.
Under the 1996 Stock Option Plan for Non-Employee Directors and a
predecessor plan, 400,000 shares at May 31, 1997 and at February 28, 1998 have
been reserved for future issuance relating to stock options exercisable based on
the passage of time. Each option is exercisable over a period from its date of
grant at the market value on the grant date and expires after ten years.
F-15
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--STOCKHOLDERS' EQUITY (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its option plans. Accordingly, no compensation expense has been
recognized for the Company's option plans in the accompanying Consolidated
Statement of Operations. Applying SFAS No. 123 requires the calculation of the
fair value of options at the date of grant using certain assumptions. The fair
value of options granted was $2.81, $3.17 and $3.59 in 1996, 1997 and 1998,
respectively. In addition, the option value of shares offered under the ESPP was
$1.14, $1.50 and $1.19 in 1996, 1997 and 1998, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants: $.16 annual
dividend rate, expected annual standard deviation of stock price of 40%, risk
free interest rate of 5.6%, 5.2% and 5.5% in 1996, 1997 and 1998, respectively,
and weighted average expected life of 6.0, 6.0 and 6.6 years, in 1996, 1997 and
1998, respectively. Had compensation cost for the Company's option plans and
stock purchase plan been determined consistent with SFAS No. 123, the Company's
net income (loss) and net income (loss) per share on a diluted basis would have
been as follows (in thousands):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
------------------------ ------------------------
NET INCOME PER NET INCOME PER
(LOSS) SHARE (LOSS) SHARE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1996............................................................. $ 8,111 $ .68 $ 7,977 $ .66
Fiscal 1997............................................................. (1,493) (.12) (1,800) (.15)
Fiscal 1997 first nine months........................................... (3,316) (.28) (3,557) (.30)
Fiscal 1998 first nine months........................................... 6,730 .54 6,353 .51
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure is not
indicative of the effects on future years, because SFAS No. 123 does not apply
to grants issued prior to fiscal 1996.
F-16
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the share activity and weighted average exercise prices for the
Company's option plans is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------- ---------------------
SHARES PRICE SHARES PRICE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
At June 1, 1994....................................................... 1,104,111 $ 8.00 544,137 $ 8.44
Granted............................................................... 296,100 4.02
Exercised............................................................. (9,000) 3.88
Cancelled............................................................. (57,918) 11.45
----------
At May 31, 1995....................................................... 1,333,293 6.99 1,055,499 7.02
Granted............................................................... 263,450 7.40
Exercised............................................................. (245,141) 5.71
Cancelled............................................................. (99,758) 9.91
----------
At May 31, 1996....................................................... 1,251,844 7.10 855,404 7.16
Granted............................................................... 285,800 8.00
Exercised............................................................. (33,030) 4.82
Cancelled............................................................. (15,812) 7.72
----------
At May 31, 1997....................................................... 1,488,802 7.31 936,112 7.21
Granted............................................................... 251,300 8.50
Exercised............................................................. (204,844) 6.40
Cancelled............................................................. (98,559) 7.26
----------
At February 28, 1998.................................................. 1,436,699 7.62 787,159 7.44
----------
----------
</TABLE>
The following table summarizes information about stock options outstanding
as of May 31, 1997 and February 28, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------- -------------------------------
EXERCISE PRICE RANGE SHARES PRICE LIFE SHARES PRICE LIFE
- ------------------------------------------------------- ------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AT MAY 31, 1997:
$3.75 to $5.25....................................... 181,826 $ 4.16 7.1 135,826 $ 4.03 7.1
$6.00 to $7.50....................................... 563,360 6.66 6.5 371,080 6.41 5.7
$8.00 to $8.125...................................... 650,053 8.02 6.8 351,643 8.04 4.8
$10.813 to $12.95.................................... 93,563 12.45 5.6 77,563 12.79 4.9
------------ ---------
Total.............................................. 1,488,802 7.31 6.7 936,112 7.21 5.5
------------ ---------
------------ ---------
AT FEBRUARY 28, 1998:
$3.75 to $5.25....................................... 142,877 $ 4.27 6.5 108,877 $ 4.16 6.5
$6.00 to $7.50....................................... 468,970 6.80 6.4 299,370 6.64 5.4
$8.00 to $8.50....................................... 731,289 8.18 7.3 301,349 8.03 5.2
$10.813 to $12.95.................................... 93,563 12.45 5.1 77,563 12.79 4.5
------------ ---------
Total.............................................. 1,436,699 7.62 6.7 787,159 7.44 5.4
------------ ---------
------------ ---------
</TABLE>
F-17
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--EMPLOYEE RETIREMENT PLANS
The Company's domestic employee retirement plans consist of a profit sharing
plan and a stock ownership plan ("ESOP"). Annual contributions in cash or
Company stock are made at the discretion of
the Board of Directors. In addition, the profit sharing plan has a 401(k)
provision whereby the Company matches 50% of employee contributions up to 4% of
base pay. Charges to expense for discretionary and matching contributions to
these plans were $745,000, $1.1 million and $992,000 in 1995, 1996 and 1997,
respectively and were $953,000 and $1,050,000 for the first nine months of
fiscal 1997 and 1998. Stock contributions to the ESOP were $500,000, $500,000
and $800,000 in 1995, 1996 and 1997, respectively, based on the stock price at
the date contributed. Shares are included in the calculation of earnings per
share, and dividends are paid to the ESOP from the date the shares are
contributed. Foreign employees are covered by a variety of primarily government
mandated programs.
NOTE K--INDUSTRY AND MARKET INFORMATION
The Company operates in one industry as a distributor of electronic
components, including vacuum tubes, semiconductors and other products. The
Company invoices its customers and ships from two primary geographic locations:
North America (which services the U. S., Canada, Latin America, and the Far
East) and Europe (in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, FIRST NINE MONTHS
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SALES:
North America...................................... $ 186,103 $ 211,912 $ 223,277 $ 159,619 $ 195,017
Less intersegment transfers........................ 15,316 21,778 18,728 12,485 15,102
---------- ---------- ---------- ---------- ----------
To unaffiliated customers........................ 170,787 190,134 204,549 147,134 179,915
---------- ---------- ---------- ---------- ----------
Europe............................................. 49,244 51,987 54,946 40,025 47,563
Less intersegment transfers........................ 11,913 2,454 4,356 3,285 4,036
---------- ---------- ---------- ---------- ----------
To unaffiliated customers........................ 37,331 49,533 50,590 36,740 43,527
---------- ---------- ---------- ---------- ----------
Consolidated................................... $ 208,118 $ 239,667 $ 255,139 $ 183,874 $ 223,442
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OPERATING INCOME:
North America...................................... $ 6,187 $ 13,040 $ 1,999 $ (2,809) $ 11,124
Europe............................................. 1,984 6,263 4,949 4,171 5,328
Corporate expenses................................. (1,512) (1,733) (1,817) (1,178) (1,131)
---------- ---------- ---------- ---------- ----------
Consolidated..................................... $ 6,659 $ 17,570 $ 5,131 $ 184 $ 15,321
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
IDENTIFIABLE ASSETS:
North America...................................... $ 142,031 $ 143,536 $ 148,026 $ 155,898 $ 157,647
Europe............................................. 21,653 32,794 34,905 33,449 37,330
Corporate assets................................... 9,830 3,828 9,583 6,915 4,677
---------- ---------- ---------- ---------- ----------
Consolidated..................................... $ 173,514 $ 180,158 $ 192,514 $ 196,262 $ 199,654
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Intersegment transfers originate mainly from the United States or Europe and
are accounted for on an "arm's length" basis with profits eliminated in
consolidation. Export sales shipped directly from the
F-18
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--INDUSTRY AND MARKET INFORMATION (CONTINUED)
United States were $38.7 million, $37.9 million and $36.3 million in 1995, 1996,
and 1997, respectively, and $27.4 million and $29.3 million for the first nine
months of fiscal 1997 and 1998.
Operating income was reduced by $11.0 million in North America in the third
quarter of fiscal 1997 for valuation reserve adjustments, severance and other
costs and by $4.7 million in North America in 1995 for the payment of a claim
settlement, as described in Note B. Corporate assets consist primarily of cash
and investments.
The Company sells its products to companies in diversified industries and
performs periodic credit evaluations of its customers' financial condition.
Terms are generally on open account, payable net 30 days in North America and
Latin America, and vary throughout Europe and the Far East. Estimates of credit
losses are recorded in the financial statements based on periodic reviews of
outstanding accounts and actual losses have been consistently within
management's estimates.
Sales by product line and by geographic destination are summarized in
Management's Discussion and Analysis.
NOTE L--LITIGATION
On June 19, 1990, the Company was served with a complaint in PANACHE
BROADCASTING OF PENNSYLVANIA, INC. V. RICHARDSON ELECTRONICS, LTD.; VARIAN
ASSOCIATES, INC.; AND VARIAN SUPPLY COMPANY (VASCO--A JOINT VENTURE BETWEEN THE
COMPANY AND VARIAN ASSOCIATES, INC.), in U. S. District Court for the Eastern
Division of Pennsylvania alleging violations of Sections 1 and 2 of the Sherman
Act and Section 7 of the Clayton Act. This action purports to be a class action
on behalf of all persons and businesses in the U. S. "who purchased electron
power tubes from one or more of the defendant corporations at any time" since
the formation of VASCO. The suit seeks treble damages alleged to be in excess of
$100,000, injunctive relief, and attorneys' fees. The litigation has been
transferred to the U. S. District Court for the Northern District of Illinois,
Eastern Division as cause No. 90C6400, and is in the discovery stage. The Court
has not determined whether the action may be maintained on behalf of a class.
The Company is defending itself against this action. It is not possible at this
time to predict the outcome of this legal action.
NOTE M--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996, 1997 and the first nine months
of fiscal 1998 follow. There were no material fourth quarter adjustments in 1997
or 1996. Third quarter 1997 results include valuation reserve adjustments and
severance and other costs which reduced gross margin by $7.2 million
F-19
<PAGE>
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
and net income by $6.7 million, or $.56 per share, as described in Note B (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTALS
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FISCAL 1996:
Net sales............................................. $ 57,201 $ 61,669 $ 56,367 $ 64,430 $ 239,667
Gross margin.......................................... 17,138 17,934 16,816 18,656 70,544
Net income............................................ 1,730 2,240 1,821 2,320 8,111
Net income per share--diluted......................... $ .15 $ .19 $ .15 $ .19 $ .68
FISCAL 1997:
Net sales............................................. $ 57,544 $ 62,167 $ 64,163 $ 71,265 $ 255,139
Gross margin.......................................... 16,783 18,738 11,171 20,772 67,464
Net income (loss) before extraordinary item........... 1,293 1,932 (6,053) 1,823 (1,005)
Extraordinary loss, net of tax........................ -- -- (488) -- (488)
Net income (loss)..................................... 1,293 1,932 (6,541) 1,823 (1,493)
Net income (loss) per share before extraordinary
item--diluted....................................... $ .11 $ .16 $ (.51) $ .15 $ (.08)
Net income (loss) per share--diluted.................. $ .11 $ .16 $ (.55) $ .15 $ (.12)
FISCAL 1998:
Net sales............................................. $ 71,600 $ 78,646 $ 73,196 $ 223,442
Gross margin.......................................... 20,638 22,348 20,860 63,846
Net income............................................ 1,808 2,740 2,182 6,730
Net income per share--diluted......................... $ .15 $ .22 $ .17 $ .54
</TABLE>
The 1996, 1997 and first two quarters of 1998 have been restated to comply
with SFAS No. 128.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDER, OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 12
Capitalization............................................................ 13
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 25
Management................................................................ 33
Principal and Selling Stockholders........................................ 36
Description of Capital Stock and Debentures............................... 39
Underwriting.............................................................. 41
Legal Matters............................................................. 42
Experts................................................................... 42
Available Information..................................................... 42
Incorporation of Certain Documents by Reference........................... 43
Index to Consolidated Financial Statements................................ F-1
</TABLE>
3,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
CLEARY GULL
REILAND & MCDEVITT INC.
MCDONALD & COMPANY
SECURITIES, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
TOTAL
EXPENSE
-------------
<S> <C>
Securities and Exchange Commission Registration Fee............................ $ 13,612.41
NASD Fees...................................................................... 22,614.38
Accounting Fees and Expenses(1)................................................ 50,000.00
Legal Fees and Expenses(1)..................................................... 80,000.00
Printing(1).................................................................... 90,000.00
Miscellaneous(1)............................................................... 143,773.21
-------------
Total.................................................................... $ 400,000.00
-------------
-------------
</TABLE>
- ------------------------
(1) Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions relating to indemnification of officers and directors of the
Registrant are found in Articles Sixth and Seventh of its Certificate of
Incorporation, in Article VII of its by-laws and in Section 145 of the General
Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware provides
as follows:
Section 145. Indemnification of officers, directors, employees and agents;
insurance
(a) A corporation shall have the power 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 proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person 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 the person
acted in good faith and in a manner the person 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 the person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not actin good faith and in a manner which the person reasonably believes to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) A corporation shall have power 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 the person 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) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such
S-1
<PAGE>
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.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, the person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the present or former director,
officer, employee or agent is proper in the circumstances because the person has
met the applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made with respect to a person who is a
director or officer at the time of such determination, (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors even though less than a quorum, or (3) if there
are no such directors or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who 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 any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purpose of this section, references to "other enterprise" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee
S-2
<PAGE>
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section 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 the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any by-law, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Articles Sixth and Seventh of Registrant's Certificate of Incorporation provides
as follow:
SIXTH: The Corporation shall, to the full extent permitted by Section 145 of
the General Corporation Law of Delaware, as amended from time to time,
indemnify, advance payment of expenses on behalf of and purchase and maintain
insurance against liability on behalf of all persons for whom it may take each
such respective action pursuant to such Section.
SEVENTH: No Director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability (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 General Corporation Law of Delaware, or (iv)
for any transaction from which the Director derived an improper personal
benefit. No amendment to or repeal of this Article SEVENTH shall apply to or
have any effect on the liability or alleged liability of any Director of the
Corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment.
Article VII of the Registrant's By-laws contains additional provisions
regarding indemnification.
The Company maintains a liability insurance policy for its directors and
officers and for the Company providing coverage of claims in excess of certain
minimum retained limits at an annual expense of approximately $255,000.
The Underwriting Agreement contains certain provisions for the
indemnification by the Underwriters of the Company, the Selling Stockholder and
the Company's directors and officers who signed the Registration Statement
against civil liabilities under the Securities Act.
ITEM 16. EXHIBITS
See Exhibit Index attached hereto on page E-1.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in
S-3
<PAGE>
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
S-4
<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 of 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 LaFox, State of Illinois, on March 31, 1998.
<TABLE>
<S> <C> <C>
RICHARDSON ELECTRONICS, LTD.
By: /s/ EDWARD J. RICHARDSON
-----------------------------------------
Edward J. Richardson
CHAIRMAN OF THE BOARD
By: /s/ WILLIAM J. GARRY
-----------------------------------------
William J. Garry
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated. Further, KNOW ALL MEN BY THESE PRESENTS,
that each person whose signature appears below hereby constitutes and appoints
Edward J. Richardson, William J. Garry and William G. Seils, and each of them
severally, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, and on behalf of registrant, to sign any and all
amendments (including post-effective amendments or any abbreviated registration
statement, and any amendment thereto, filed pursuant to Rule 462(b)) to this
registration statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ EDWARD J. RICHARDSON Chairman of the Board
- ------------------------------ (principal executive March 31, 1998
Edward J. Richardson officer) and Director
/s/ BRUCE W. JOHNSON
- ------------------------------ President and Director March 31, 1998
Bruce W. Johnson
Vice President and Chief
/s/ WILLIAM J. GARRY Financial Officer
- ------------------------------ (principal financial and March 31, 1998
William J. Garry accounting officer) and
Director
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ SCOTT HODES
- ------------------------------ Director March 31, 1998
Scott Hodes
/s/ SAMUEL RUBINOVITZ
- ------------------------------ Director March 31, 1998
Samuel Rubinovitz
/s/ ARNOLD R. ALLEN
- ------------------------------ Director March 31, 1998
Arnold R. Allen
/s/ KENNETH J. DOUGLAS
- ------------------------------ Director March 31, 1998
Kenneth J. Douglas
/s/ JACQUES BOUYER
- ------------------------------ Director March 31, 1998
Jacques Bouyer
/s/ HAROLD L. PURKEY
- ------------------------------ Director March 31, 1998
Harold L. Purkey
/s/ AD KETELAARS
- ------------------------------ Director March 31, 1998
Ad Ketelaars
</TABLE>
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION FILING METHOD
- ----------- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
1 Form of Underwriting Agreement E
3(b) By-laws of the Company, as amended incorporated by reference to the Company's Annual NA
Report on Form 10-K for the fiscal year ended May 31, 1997.
4(a) Restated Certificate of Incorporation of the Company, incorporated by reference to NA
Appendix B to the Proxy Statement/ Prospectus dated November 13, 1986, incorporated
by reference to the Company's Registration Statement on Form S-4 Commission File No.
33-8696.
4(b) Specimen forms of Common Stock and Class B Common Stock certificates of the Company NA
incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on
Form S-1, Commission File No. 33-10834.
4(c) Indenture between the Company and Continental Illinois National Bank and Trust Company NA
of Chicago (including form of 7 1/4% Convertible Subordinated Debentures due
December 15, 2006) incorporated by reference to Exhibit 4(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1987.
4(c)(1) First Amendment to the Indenture between the Company and First Trust of Illinois, a NA
National Association, as successor to Continental Illinois National Bank and Trust
Company of Chicago, dated February 18, 1997, incorporated by reference to Exhibit
4(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February
28, 1997.
4(d) Indenture between the Company and American National Bank and Trust Company, as NA
Trustee, for 8 1/4% Convertible Senior Subordinated Debentures due June 15, 2006
(including form of 8 1/4% Convertible Senior Subordinated Debentures due June 15,
2006) incorporated by reference to Exhibit 10 of the Company's Schedule 13E-4, filed
February 18, 1997.
5 Opinion of Ross & Hardies regarding legality E
10(a) $35,000,000 Amended and Restated Senior Revolving Credit Note Facility Agreement dated NA
August 20, 1996 with American National Bank and Trust Company incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1997.
10(a)(1) Second Amended Agreement regarding $35,000,000 Amended and Restated Senior Revolving NA
Credit and Note Facility Agreement made as of November 28, 1997 between Richardson
Electronics, Ltd. as Borrower and American National Bank and Trust Company as
Lender, incorporated by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1997.
10(a)(2) Loan Agreement dated as of March 1, 1998 among Richardson Electronics, Ltd., various NA
lending institutions and American National Bank and Trust Company of Chicago as
Agent, establishing a $50,000,000 Credit Facility, incorporated by reference to
Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1998.
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION FILING METHOD
- ----------- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
10(b) Industrial Building Lease, dated April 10, 1996 between the Company and the American NA
National Bank and Trust Company, as trustee under Trust No. 56120 dated 2-23-83
incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996.
10(c) Revolving credit agreement and term loan dated February 18, 1997 between Richardson NA
Electronics Acquisition Corporation and First Chicago NBD Bank, Canada, together
with guarantee of the Company, incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997.
10(c)(1) Second Amending Agreement made as of August 22, 1997 between Burtek Systems Inc. as NA
Borrower and First Chicago NBD Bank, Canada as Lender and Richardson Electronics,
Ltd. as Guarantor, incorporated by reference to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997.
10(c)(2) Amended and Restated Credit Agreement made as of March 1, 1998 between Burtek Systems NA
Inc. as Borrower and First Chicago NBD Bank, Canada as Lender and Richardson
Electronics, Ltd. and Guarantor, incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
10(d) The Corporate Plan for Retirement NA
The Profit Sharing / 401(k) Plan
Fidelity Basic Plan Document No. 07 dated June 1, 1996, incorporated by reference to NA
Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996
10(e) The Company's Amended and Restated Incentive Stock Option Plan effective April 8, 1987 NA
incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1987.
10(e)(1) First Amendment to the Company's Amended and Restated Incentive Stock Option Plan NA
effective April 11, 1989 incorporated by reference to Exhibit 10(l)(1) to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1989.
10(e)(2) Second Amendment to the Company's Amended and Restated Incentive Stock Option Plan NA
effective April 11, 1989 incorporated by reference to Exhibit 10(l)(2) to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991.
10(e)(3) Third Amendment to the Company's Amended and Restated Incentive Stock Option Plan NA
effective April 11, 1989 dated August 15, 1996, incorporated by reference to the
Company's Proxy Statement used in connection with its Annual Meeting of Stockholders
held October 1, 1996.
10(f) The Company's Amended and Restated Employees Stock Purchase Plan, incorporated by NA
reference to the Company's Proxy Statement used in connection with its Annual
Meeting of Stockholders held October 2, 1985.
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION FILING METHOD
- ----------- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
10(f)(1) First Amendment to Amended and Restated Employees Stock Purchase Plan, incorporated by NA
reference to Appendix D to the Company's Proxy Statement/Prospectus dated November
13, 1986 included in its Registration Statement on Form S-4, Commission File No.
33-8696.
10(f)(2) Second Amendment to Amended and Restated Employees Stock Purchase Plan, incorporated NA
by reference to Appendix E to the Company's Proxy Statement/Prospectus dated
November 13, 1986 included in its Registration Statement on Form S-4, Commission
File No. 33-8696.
10(f)(3) Third Amendment to Amended and Restated Employees Stock Purchase Plan incorporated by NA
reference to Exhibit 10(m)(3) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1990.
10(f)(4) Fourth Amendment to Amended and Restated Employees Stock Purchase Plan incorporated by NA
reference to Exhibit 10(m)(4) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991.
10(f)(5) Fifth Amendment to Amended and Restated Employees Stock Purchase Plan incorporated by NA
reference to Exhibit 10(m)(5) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991.
10(f)(6) Sixth Amendment to Amended and Restated Employees Stock Purchase Plan dated August 15, NA
1996, incorporated by reference to the Company's Proxy Statement used in connection
with its Annual Meeting of Stockholders held October 1, 1996.
10(g) Richardson Electronics, Ltd. Employees 1996 Stock Purchase Plan incorporated by NA
reference to Appendix A of the Company's Proxy Statement dated September 3, 1996 for
its Annual Meeting of Stockholders held on October 1, 1996.
10(h) Employees Stock Ownership Plan and Trust Agreement, effective as of June 1, 1987, NA
dated July 14, 1994, incorporated by reference to Exhibit 10(f) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1994.
10(h)(1) First Amendment to Employees Stock Ownership Plan and Trust Agreement, dated July 12, NA
1995, incorporated by reference to Exhibit 10(g)(1) to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995.
10(h)(2) Second Amendment to Employees Stock Ownership Plan and Trust Agreement, dated July 12, NA
1995, dated April 10, 1996, incorporated by reference to the Company's Proxy
Statement used in connection with its Annual Meeting of Stockholders held October 1,
1996.
10(i) Stock Option Plan for Non-Employee Directors incorporated by reference to Appendix A NA
to the Company's Proxy Statement dated August 30, 1989 for its Annual Meeting of
Stockholders held on October 18, 1989.
10(j) Richardson Electronics, Ltd. 1996 Stock Option Plan for Non-Employee Directors, NA
incorporated by reference to Appendix C of the Company's Proxy Statement dated
September 3, 1996 for its Annual Meeting of Stockholders held on October 1, 1996.
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION FILING METHOD
- ----------- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
10(k) The Company's Employees' Incentive Compensation Plan incorporated by reference to NA
Appendix A to the Company's Proxy Statement dated August 31, 1990 for its Annual
Meeting of Stockholders held on October 9, 1990.
10(k)(1) First Amendment to Employees Incentive Compensation Plan incorporated by reference to NA
Exhibit 10(p)(1) to the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1991.
10(k)(2) Second Amendment to Employees Incentive Compensation Plan dated August 15, 1996, NA
incorporated by reference to the Company's Proxy Statement used in connection with
its Annual Meeting of Stockholders held October 1, 1996.
10(l) Richardson Electronics, Ltd. Employees' 1994 Incentive Compensation Plan incorporated NA
by reference to Exhibit A to the Company's Proxy Statement dated August 31, 1994 for
its Annual Meeting of Stockholders held on October 11, 1994.
10(l)(1) First Amendment to the Richardson Electronics, Ltd. Employees' 1994 Incentive NA
Compensation Plan dated August 15, 1996, incorporated by reference to the Company's
Proxy Statement used in connection with its Annual Meeting of Stockholders held
October 1, 1996.
10(m) Richardson Electronics, Ltd. 1996 Incentive Compensation Plan incorporated by NA
reference to Appendix B of the Company's Proxy Statement dated September 3, 1996 for
its Annual Meeting of Stockholders held on October 1, 1996.
10(n) Correspondence outlining Agreement between the Company and Arnold R. Allen with NA
respect to Mr. Allen's employment by the Company, incorporated by reference to
Exhibit 10(v) to the Company's Annual Report on Form 10-K, for the fiscal year ended
May 31, 1985.
10(n)(1) Letter dated February 3, 1992 between the Company and Arnold R. Allen outlining Mr. NA
Allen's engagement as a consultant by the Company, incorporated by reference to
Exhibit 10 (r)(1) to the Company's Annual Report on Form 10-K, for the fiscal year
ended May 31, 1992.
10(n)(2) Letter dated April 1, 1993 between the Company and Arnold R. Allen regarding Mr. NA
Allen's engagement as consultant by the Company, incorporated by reference to
Exhibit 10(i)(2) to the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1994.
10(o) Letter dated January 14, 1992 between the Company and Jacques Bouyer setting forth the NA
terms of Mr. Bouyer's engagement as a management consultant by the Company for
Europe, incorporated by reference to Exhibit 10(t)(1) to the Company's Annual Report
on Form 10-K for the fiscal year ended on May 31, 1992.
10(o)(1) Letter dated January 15, 1992 between the Company and Jacques Bouyer setting forth the NA
terms of Mr. Bouyer's engagement as a management consultant by the Company for the
United States, incorporated by reference to Exhibit 10(t)(1) to the Company's Annual
Report on Form 10-K for the fiscal year ended on May 31, 1992.
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION FILING METHOD
- ----------- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
10(p) Letter dated January 13, 1994 between the Company and Samuel Rubinovitz setting forth NA
the terms of Mr. Rubinovitz' engagement as management consultant by the Company
incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended on May 31, 1994.
10(q) Letter dated April 4, 1994 between the Company and Bart F. Petrini setting forth the NA
terms of Mr. Petrini's employment by the Company, incorporated by reference to
Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended
on May 31, 1994.
10(r) Letter dated May 20, 1994 between the Company and William J. Garry setting forth the NA
terms of Mr. Garry's employment by the Company, incorporated by reference to Exhibit
10(p) to the Company's Annual Report on Form 10-K for the fiscal year ended on May
31, 1994.
10(s) Letter dated October 17, 1994 between the Company and Flint Cooper setting forth the NA
terms of Mr. Cooper's employment by the Company, incorporated by reference to
Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1994.
10(t) Agreement dated January 16, 1997 between the Company and Dennis Gandy setting forth NA
the terms of Mr. Gandy's employment by the Company, incorporated by reference to
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997.
10(u) Agreement dated March 21, 1997 between the Company and David Gilden setting forth the NA
terms of Mr. Gilden's employment by the Company, incorporated by reference to
Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997.
10(v) Employment agreement dated as of November 7, 1996 between the Company and Bruce W. NA
Johnson incorporated by reference to Exhibit (c)(4) of the Company's Schedule 13
E-4, filed December 18, 1996.
10(w) Employment Agreement dated as of January 26, 1998 between the Company and Norman NA
Hilgendorf, incorporated by reference to Exhibit 10(c) of the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998.
10(x) Employment contract dated May 10, 1993 as amended March 23, 1998 between the Company NA
and Pierluigi Calderone incorporated by reference to Exhibit 10(d) of the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998.
10(y) The Company's Directors and Officers Liability Insurance Policy issued by Chubb Group NA
of Insurance Companies Policy Number 8125-64-60A, incorporated by reference to
Exhibit 10(u) to the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1991.
10(y)(1) The Company's Directors and Officers Liability Insurance Policy renewal issued by NA
Chubb Group of Insurance Companies Policy Number 8125-64-60E, incorporated by
reference to Exhibit 10(t)(1) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION FILING METHOD
- ----------- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
10(y)(2) The Company's Excess Directors and Officers Liability and Corporate Indemnification NA
Policy issued St. Paul Mercury Insurance Company Policy Number 900DX0216,
incorporated by reference to Exhibit 10(t)(2) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996.
10(y)(3) The Company's Directors and Officers Liability Insurance Policy issued by CNA NA
Insurance Companies Policy Number DOX600028634, incorporated by reference to Exhibit
10(t)(3) to the Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
10(z) Distributor Agreement, executed August 8, 1991, between Registrant and Varian NA
Associates, Inc., incorporated by reference to Exhibit 10(d) of the Company's
Current Report on Form 8-K for September 30, 1991.
10(z)(1) Amendment, dated as of September 30, 1991, between Registrant and Varian Associates, NA
Inc., incorporated by reference to Exhibit 10(e) of the Company's Current Report on
Form 8-K for September 30, 1991.
10(z)(2) First Amendment to Distributor Agreement between Varian Associates, Inc. and the NA
Company as of April 10, 1992, incorporated by reference to Exhibit 10(v)(5) of the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1992.
10(z)(3) Consent to Assignment and Assignment dated August 4, 1995 between Registrant and NA
Varian Associates Inc., incorporated by reference to Exhibit 10(s)(4) of the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1995.
10(z)(4) Final Judgment, dated April 1, 1992, in the matter of United States of America v. NA
Richardson Electronics, Ltd., filed in the United States District Court for the
Northern District of Illinois, Eastern Division, as Docket No. 91 C 6211
incorporated by reference to Exhibit 10(v)(7) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1992.
10(aa) Trade Mark License Agreement dated as of May 1, 1991 between North American Philips NA
Corporation and the Company incorporated by reference to Exhibit 10(w)(3) of the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991.
10(bb) Agreement among Richardson Electronics, Ltd., Richardson Electronique S.A., Covelec NA
S.A. (now known as Covimag S.A.), and Messrs. Denis Dumont and Patrick Pertzborn,
delivered February 23, 1995, translated from French, incorporated by reference to
Exhibit 10(b) to the Company's Report on Form 8-K dated February 23, 1995.
10(cc) Settlement Agreement by and between the United States of America and Richardson NA
Electronics, Ltd. dated May 31, 1995 incorporated by reference to Exhibit 10(a) to
the Company's Report on Form 8-K dated May 31, 1995.
23(a) Consent of Independent Auditors. E
23(b) Consent of Ross & Hardies. E+
</TABLE>
- ------------------------
NA Previously filed.
+ Included in Exhibit 5.
S-12
<PAGE>
RICHARDSON ELECTRONICS, LTD.
3,000,000 SHARES OF COMMON STOCK (*)
UNDERWRITING AGREEMENT
_______________, 1998
CLEARY GULL REILAND & McDEVITT INC.
MCDONALD & COMPANY SECURITIES, INC.
As Representatives of the Several Underwriters
Identified in Schedule II Annexed Hereto
c/o Cleary Gull Reiland & McDevitt Inc.
100 East Milwaukee Avenue
Milwaukee, WI 53202
Ladies and Gentlemen:
SECTION 1. INTRODUCTORY. Richardson Electronics, Ltd., a Delaware
corporation (the "Company"), and Edward J. Richardson (the "Selling
Stockholder") propose to sell 3,000,000 shares (the "Firm Shares") of common
stock, $.05 par value per share (the "Common Stock"), to the several
underwriters identified in Schedule II annexed hereto (the "Underwriters"), who
are acting severally and not jointly. In addition, the Company and the Selling
Stockholder have agreed to grant to the Underwriters an option to purchase up to
450,000 additional shares of Common Stock (the "Optional Shares") as provided in
section 6 hereof. The Firm Shares and, to the extent such option is exercised,
the Optional Shares are hereinafter collectively referred to as the "Shares."
You, as representatives of the Underwriters (the "Representatives"), have
advised the Company and the Selling Stockholder that the Underwriters propose to
make a public offering of their respective portions of the Shares as soon
hereafter as in your judgment is advisable and that the public offering price of
the Shares initially will be $_____ per share.
The Company and the Selling Stockholder hereby confirm their respective
agreements with the Underwriters and each other as follows:
- ------------------
(*) PLUS AN OPTION TO ACQUIRE UP TO 450,000 ADDITIONAL SHARES OF COMMON STOCK
FROM THE COMPANY AND THE SELLING SHAREHOLDERS TO COVER OVER-ALLOTMENTS.
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters, and shall
be deemed to represent and warrant to the several Underwriters on each Closing
Date (as hereinafter defined), that:
(a) Each of the Company and the subsidiaries of the Company that are
listed on Exhibit 21 of the Company's most recent Annual Report on Form
10-K incorporated by reference into the Registration Statement (as
hereinafter defined) (individually, a "Subsidiary" and collectively, the
"Subsidiaries") has been duly incorporated and is validly existing as a
corporation and 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 to conduct its business as presently conducted
and described in the Prospectus (as hereinafter defined) and the
Registration Statement; each of the Company and the Subsidiaries is duly
registered and qualified to do business as a foreign corporation under the
laws of, and is in good standing as such in, each jurisdiction in which
such registration or qualification is required, except where the failure to
so register or qualify would not have a material adverse effect on the
condition (financial or other), business, property, net worth, results of
operations or prospects of the Company and the Subsidiaries, taken as a
whole ("Material Adverse Effect"); and 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.
Complete and correct copies of the certificate of incorporation, articles
of incorporation, or other organizational documents, as amended or restated
(the "Articles of Incorporation") and by-laws, as amended or restated
("By-laws"), of the Company and each of the Subsidiaries or the equivalent
documents to the Articles of Incorporation and By-laws for those
Subsidiaries which have been formed in jurisdictions in which Articles of
Incorporation and By-laws are not applicable, as in effect on the date
hereof have been delivered to the Representatives, and no changes thereto
will be made on or subsequent to the date hereof and prior to each Closing
Date.
(b) The shares of Common Stock issued and outstanding immediately
prior to the issuance and sale of the Shares hereunder as set forth in the
Prospectus have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus and the Registration Statement. There are no preemptive,
preferential or, except as described in the Prospectus, other rights to
subscribe for or purchase any shares of Common Stock (including the
Shares), and no shares of Common Stock have been issued in violation of
such rights. The Shares to be issued and sold to the Underwriters have
been duly authorized and, when issued, delivered and paid for pursuant to
this Agreement, will be validly issued, fully paid and nonassessable and
will conform to the description thereof contained in the Prospectus and the
Registration Statement. The delivery of certificates for the Shares to be
issued and sold hereunder and payment therefor pursuant to the terms of
this Agreement will pass valid title to such Shares to the Underwriters,
free and clear of any lien, claim, encumbrance or defect in title. Except
as described in the Prospectus, there are no
-2-
<PAGE>
outstanding options, warrants or other rights of any description,
contractual or otherwise, entitling any person to be issued any class of
security by the Company or any Subsidiary, and there are no holders of
Common Stock or other securities of the Company or any Subsidiary, or of
securities that are convertible or exchangeable into Common Stock or other
securities of the Company or any Subsidiary, that have rights to the
registration of such Common Stock or securities under the Securities Act
of 1933, as amended, and the regulations thereunder (together, the "Act")
or the securities laws or regulations of any of the states (the "Blue
Sky Laws").
(c) Except for the Subsidiaries, and as otherwise set forth in the
Prospectus or Schedule 2(c) hereto, the Company has no subsidiaries and
does not own any equity interest in or control, directly or indirectly, any
other corporation, limited liability company, partnership, joint venture,
association, trust or other business organization. Except as set forth on
Schedule 2(c) hereto, the Company owns directly or indirectly all of the
issued and outstanding capital stock of each Subsidiary, free and clear of
any and all liens, claims, encumbrances or security interests, and all such
capital stock has been duly authorized and validly issued and is fully paid
and nonassessable. There are no outstanding options, warrants or other
rights of any description, contractual or otherwise, entitling any person
to subscribe for or purchase any shares of capital stock of any Subsidiary.
(d) The Company has full corporate power and authority to enter into
and perform this Agreement, and the execution and delivery by the Company
of this Agreement and the performance by the Company of its obligations
hereunder and the consummation of the transactions described herein, have
been duly authorized with respect to the Company by all necessary corporate
action and will not: (i) violate any provisions of the Articles of
Incorporation or By-laws of the Company or any Subsidiary; (ii) violate any
provisions of, or result in the breach, modification or termination of, or
constitute a default under, any provision of any agreement, lease,
franchise, license, indenture, permit, mortgage, deed of trust, evidence of
indebtedness or other instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary, or any property owned or
leased by the Company or any Subsidiary, may be bound or affected; (iii)
violate any statute, ordinance, rule or regulation applicable to the
Company or any Subsidiary, or order or decree of any court, regulatory or
governmental body, arbitrator, administrative agency or instrumentality of
the United States or other country or jurisdiction having jurisdiction over
the Company or any Subsidiary; or (iv) result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary. No consent, approval, authorization or other
order of any court, regulatory or governmental body, arbitrator,
administrative agency or instrumentality of the United States or other
country or jurisdiction is required for the execution and delivery of this
Agreement by the Company, the performance of its obligations hereunder or
the consummation of the transactions contemplated hereby, except for
compliance with the Act, the Securities Exchange Act of 1934, as amended,
and the regulations thereunder (together, the "Exchange Act"), the Blue Sky
Laws
-3-
<PAGE>
applicable to the public offering of the Shares by the several
Underwriters and the clearance of such offering and the underwriting
arrangements evidenced hereby with the National Association of Securities
Dealers, Inc. (the "NASD"). This Agreement has been duly executed and
delivered by and on behalf of the Company and is a valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms.
(e) A registration statement on Form S-2 (Reg. No. 333-______) with
respect to the Shares, including a preliminary form of prospectus, has been
carefully prepared by the Company in conformity with the requirements of
the Act and has been filed with the Securities and Exchange Commission (the
"Commission"). The conditions for use of Form S-2, set forth in the General
Instructions thereto, have been satisfied. Such registration statement, as
finally amended and revised at the time such registration statement was or
is declared effective by the Commission (including the information
contained in the form of final prospectus, if any, filed with the
Commission pursuant to Rule 424(b) and Rule 430A under the Act and deemed
to be part of the registration statement if the registration statement has
been declared effective pursuant to Rule 430A(b)) and as thereafter amended
by post-effective amendment, if any, is herein referred to as the
"Registration Statement." The related final prospectus in the form first
filed with the Commission pursuant to Rule 424(b) or, if no such filing is
required, as included in the Registration Statement, or any supplement
thereto, is herein referred to as the "Prospectus." The prospectus subject
to completion in the form included in the Registration Statement at the
time of the initial filing of the Registration Statement with the
Commission, and each such prospectus as amended from time to time until the
date of the Prospectus, is referred to herein as the "Preliminary
Prospectus." Reference made herein to each Preliminary Prospectus or the
Prospectus, as amended or supplemented, shall include all documents and
information incorporated by reference therein under the Exchange Act. The
Company has prepared and filed such amendments to the Registration
Statement since its initial filing with the Commission, if any, as may have
been required to the date hereof, and will file such additional amendments
thereto as may hereafter be required. There have been delivered to the
Representatives two signed copies of the Registration Statement and each
amendment thereto, if any, including one copy of any document filed under
the Exchange Act and deemed to be incorporated by reference into the
Registration Statement, together with one copy of each exhibit filed
therewith or incorporated by reference therein, and such number of
conformed copies for each of the Underwriters of the Registration Statement
and each amendment thereto, if any (but without exhibits), and of each
Preliminary Prospectus and of the Prospectus as the Representatives have
requested.
(f) Neither the Commission nor any state securities commission has
issued any order preventing or suspending the use of any Preliminary
Prospectus, nor, to the knowledge of the Company, have any proceedings for
that purpose been initiated or threatened, and each Preliminary Prospectus
filed with the Commission as part of the Registration Statement as
originally filed or as part of any amendment or supplement thereto complied
when so filed with the requirements of the Act and, as of its date, did not
include any untrue statement of a material fact or omit to state a material
fact required
-4-
<PAGE>
to be stated therein or necessary to make the statements therein not
misleading. As of the effective date of the Registration Statement, and
at all times subsequent thereto up to each Closing Date, the Registration
Statement and the Prospectus contained or will contain all statements that
are required to be stated therein in accordance with the Act and conformed
or will conform in all respects to the requirements of the Act, and neither
the Registration Statement nor the Prospectus included or will include any
untrue statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the
statements, therein not misleading. Neither the Company, nor to the
Company's knowledge, any person that controls, is controlled by (including
the Subsidiaries) or is under common control with the Company, has
distributed or will distribute prior to each Closing Date any offering
material in connection with the offering and sale of the Shares other than
a Preliminary Prospectus, the Prospectus, the Registration Statement or
other materials permitted by the Act and provided to the Representatives.
(g) The documents that are incorporated by reference in each
Preliminary Prospectus, the Prospectus or the Registration Statement or
from which information is so incorporated by reference, when they became
effective or were filed with the Commission, as the case may be, compiled
with the requirements of the Act or the Exchange Act, as applicable, and
when read together with the other information included in such Preliminary
Prospectus, the Prospectus or the Registration Statement, as the case may
be, do not contain an 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 light of the circumstances under which they were
made, not misleading.
(h) Ernst & Young LLP, which has expressed its opinion with respect
to the audited consolidated financial statements filed with the Commission
or incorporated by reference and included as a part of each Preliminary
Prospectus, the Prospectus or the Registration Statement are independent
accountants as required by the Act.
(i) The consolidated financial statements and the related notes
thereto included or incorporated by reference in each Preliminary
Prospectus, the Prospectus and the Registration Statement present fairly
the financial position, results of operations and cash flows of the Company
as of their respective dates or for the respective periods covered thereby,
all in conformity with generally accepted accounting principles
consistently applied throughout the periods involved. The financial
statement schedules, if any, included in the Registration Statement present
fairly the information required to be stated therein on a basis consistent
with the consolidated financial statements of the Company contained
therein. The Company had an outstanding capitalization as set forth in the
Registration Statement and under "Capitalization" in the Prospectus as of
the date indicated therein, and there has been no material change thereto
since such date except as disclosed in the Prospectus. The financial and
statistical information and data relating to the Company in each
Preliminary Prospectus, the Prospectus and the Registration Statement are
accurately presented and prepared on a basis consistent with the audited
-5-
<PAGE>
consolidated financial statements and books and records of the Company.
The consolidated financial statements and schedules and the related notes
thereto included or incorporated by reference in each Preliminary
Prospectus, the Prospectus or the Registration Statement are the only such
financial statements and schedules required under the Act to be set forth
therein.
(j) Neither the Company nor any Subsidiary is, nor with the giving of
notice or passage of time or both, would be, in violation or in breach of:
(i) its respective Articles of Incorporation, or By-laws; (ii) any statute,
ordinance, order, rule or regulation applicable to the Company or such
Subsidiary; (iii) any order or decree of any court, regulatory body,
arbitrator, administrative agency or other instrumentality of the United
States or other country or jurisdiction having jurisdiction over the
Company or such Subsidiary; or (iv) any provision of any agreement, lease,
franchise, license, indenture, permit, mortgage, deed of trust, evidence of
indebtedness or other instrument to which the Company or such Subsidiary is
a party or by which any property owned or leased by the Company or such
Subsidiary is bound or affected, except, in the cases of clauses (ii) and
(iv) above, for such violations or breaches that would not have a Material
Adverse Effect. Neither the Company nor any Subsidiary has received notice
of any violation of any applicable statute, ordinance, order, rule or
regulation applicable to the Company or any Subsidiary. The Company and
each Subsidiary have obtained and hold, and are in compliance with, all
permits, certificates, licenses, approvals, registrations, franchises,
consents and authorizations of governmental or regulatory authorities
required under all laws, rules and regulations in connection with their
businesses (hereinafter "permit" or "permits") except where such failure
would not have a Material Adverse Effect, and all of such permits are in
full force and effect; and the Company and each Subsidiary have fulfilled
and performed all of their respective obligations with respect to each such
permit and no event has occurred which would result in, or after notice or
lapse of time would result in, revocation or termination of any such permit
or result in any other impairment of the rights of the holder of such
permit. Neither the Company nor any Subsidiary is or has been (by virtue
of any action, omission to act, contract to which it is a party or other
occurrence) in violation of any applicable foreign, federal, state,
municipal or local statutes, laws, ordinances, rules, regulations or orders
(including those relating to environmental protection, occupational safety
and health and equal employment practices) heretofore or currently in
effect, the violation of which could have a Material Adverse Effect.
(k) There are no legal or governmental proceedings or investigations
pending or, to the knowledge of the Company, threatened to which the
Company or any Subsidiary is or may be a party or to which any property
owned or leased by the Company or any Subsidiary is or may be subject,
including, without limitation, any such proceedings that are related to
environmental or employment discrimination matters, which are required to
be described in the Registration Statement or the Prospectus which are not
so described, or which question the validity of this Agreement or any
action taken or to be taken pursuant hereto. Except as described in the
Registration Statement or the Prospectus,
-6-
<PAGE>
neither the Company nor any Subsidiary: (i) is in violation of any statute,
ordinance, rule or regulation, or any decision, order or decree of any
court, regulatory body, arbitrator, administrative agency or other
instrumentality of the United States or other country or jurisdiction
having jurisdiction over the Company or such Subsidiary relating to the
use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environmental or human exposure to
hazardous or toxic substances (collectively, "environmental laws");
(ii) owns or operates any real property contaminated with any substance
that is subject to any environmental laws; (iii) is liable for any
off-site disposal or contamination pursuant to any environmental laws; or
(iv) is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim identified in (i) through
(iv) above could have a Material Adverse Effect.
(l) There is no transaction, relationship, obligation, agreement or
other document required to be described in the Registration Statement or
the Prospectus or to be filed or deemed to be filed as an exhibit to the
Registration Statement by the Act, which has not been described or filed as
required. All such contracts or agreements to which the Company or any
Subsidiary is a party have been duly authorized, executed and delivered by
the Company or such Subsidiary, constitute valid and binding agreements of
the Company or such Subsidiary, and are enforceable by and against the
Company or such Subsidiary, in accordance with the respective terms
thereof, subject to bankruptcy, insolvency, and moratorium laws and other
principles of equity.
(m) The Company or a Subsidiary has good and valid title to all
property and assets reflected as owned by the Company or such Subsidiary in
the Company's consolidated financial statements included or incorporated by
reference in the Registration Statement (or the Prospectus), free and clear
of all liens, claims, mortgages, security interests or other encumbrance of
any kind or nature whatsoever except those, if any, reflected in such
financial statements (or elsewhere in the Registration Statement or the
Prospectus). All property (real and personal) held or used by the Company
or a Subsidiary under leases, licenses, franchises or other agreements is
held by the Company or such Subsidiary under valid, subsisting, binding and
enforceable leases, franchises, licenses or other agreements.
(n) Neither the Company nor, to the Company's knowledge, any person
that controls, is controlled by (including the Subsidiaries) or is under
common control with the Company has taken or will take, directly or
indirectly, any action designed to cause or result in, or which
constituted, or which could cause or result in, stabilization or
manipulation, under the Exchange Act or otherwise, of the price of any
security of the Company to facilitate the sale or resale of the Common
Stock.
(o) Except as described in the Registration Statement or the
Prospectus, since the respective dates as of which information is given in
the Registration Statement or the Prospectus and prior to each Closing
Date: (i) neither the Company nor any Subsidiary has or will have incurred
any liability or obligation, direct or contingent, or entered into
-7-
<PAGE>
any transaction, that is material to the Company, except in the ordinary
course of business; (ii) except for regular quarterly dividends paid in the
ordinary course of business, if any, the Company has not and will not have
paid or declared any dividend or other distribution with respect to its
capital stock and neither the Company nor any Subsidiary is or will be
delinquent in the payment of principal or interest on any outstanding debt
obligation; and (iii) there has not been and will not have been any change
in the capital stock, any material change in the indebtedness of the
Company or any Subsidiary, or any change or development involving or which
could be expected to involve, a Material Adverse Effect, whether or not
arising from transactions in the ordinary course of business.
(p) Neither the Company nor any person that controls, is controlled
by (including the Subsidiaries) or is under common control with the Company
has, directly or indirectly: (i) made any unlawful contribution to any
candidate for political office, or failed to disclose fully any
contribution in violation of law; or (ii) made any payment to any federal,
state or foreign 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 or
applicable foreign jurisdictions.
(q) The Company or a Subsidiary owns or possesses adequate rights to
use all patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights and
licenses presently used in or necessary for the conduct of its business or
ownership of its properties, and neither the Company nor any Subsidiary has
violated or infringed upon the rights of others, or received any notice of
conflict with the asserted rights of others, in respect thereof, except
where such violation would not have a Material Adverse Effect.
(r) The Company or a Subsidiary has in place and effective such
policies of insurance, with limits of liability in such amounts, as are
normal and prudent in the ordinary course of the business of the Company
and its Subsidiaries.
(s) No labor dispute with the employees of the Company or any
Subsidiary, which dispute could reasonably be expected to result in a
Material Adverse Effect, exists or, to the knowledge of the Company, is
imminent, and neither the Company nor any Subsidiary is a party to any
collective bargaining agreement and, to the knowledge of the Company, no
union organizational attempts are pending. There has been no change in the
relationship of the Company or any Subsidiary with any of its principal
suppliers, manufacturers, contractors or customers resulting in or that
could result in a Material Adverse Effect.
(t) Neither the Company nor any Subsidiary is an "investment
company", an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended.
-8-
<PAGE>
(u) Except for (i) an appeal which the Company will file with respect
to an anticipated Notice of Deficiency from the Internal Revenue Service
contesting the Company's utilization of a ten-year carryback provision
contained in the Internal Revenue Code, which appeal, if unsuccessful,
would not have a Material Adverse Effect on the Company, and (ii) a
value-added tax assessment by the French government with respect to the
disposition of the Brive facility which is being contested by the Company,
which assessment, if paid, would not have a Material Adverse Effect on the
Compnay, all federal, state and local tax returns required to be filed by
or on behalf of the Company or any Subsidiary have been filed (or are the
subject of valid extension) with the appropriate federal, state and local
authorities, and all such tax returns, as filed, are accurate in all
material respects; all federal, state and local taxes (including estimated
tax payments) required to be shown on all such tax returns or claimed to be
due from or with respect to the business of the Company or such Subsidiary
have been paid or reflected as a liability on the financial statements of
the Company or such Subsidiary for appropriate periods; all deficiencies
asserted as a result of any federal, state or local tax audits have been
paid or finally settled, and no issue has been raised in any such audit
which, by application of the same or similar principles, reasonably could
be expected to result in a proposed deficiency for any other period not so
audited; no state of facts exist or has existed which would constitute
grounds for the assessment of any tax liability with respect to the periods
which have not been audited by appropriate federal, state or local
authorities; there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any federal, state or local
tax return of any period; and neither the Company nor any Subsidiary has
ever been a member of an affiliated group of corporations filing
consolidated federal income tax returns, other than a group of which the
Company is and has been the common parent.
(v) Except for the Company's group health, life, disability or other
welfare plan and its contributory or noncontributory defined contribution
retirement plan and defined benefit retirement plans listed as Exhibits to
the Company's most recent Annual Report on Form 10-K (collectively, the
"Plans"), neither the Company nor any Subsidiary is a participating
employer or plan sponsor with respect to any employee pension benefit plan
as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or any employee welfare benefit plan as
defined in Section 3(l) of ERISA, including, without limitation, any
multiemployer welfare or pension plan. With respect to the Plans, the
Company is in substantial compliance with all applicable regulations,
including ERISA and the Code. With respect to each defined benefit
retirement plan, such plan does not have benefit liabilities (as defined in
Section 4001(a)(16) of ERISA) exceeding the assets of the plan. The
Company or the administrator of each of the Plans, as the case may be, has
timely filed the reports required to be filed by ERISA and the Code in
connection with the maintenance of the Plans, and no facts, including,
without limitation, any "reportable event" as defined by ERISA and the
regulations thereunder, exist in connection with the Plans which, under
applicable law, would constitute grounds for the termination of any of the
Plans by the Pension Benefit Guaranty Corporation or for the appointment by
the appropriate United
-9-
<PAGE>
States District Court of a trustee to administer any of the Plans.
(w) The Company and each Subsidiary maintain 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 consolidated 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 authorizations; 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.
(x) None of the Company, any Subsidiary, any officer or director of
the Company or any Subsidiary, or, to the Company's knowledge, any person
who owns, of record or beneficially, any class of securities issued by the
Company is: (i) an officer, director or partner of any brokerage firm,
broker or dealer that is a member of the NASD ("NASD Member"); or (ii)
directly or indirectly, a "person associated with" an NASD member or an
"affiliate", of an NASD member, as such terms are used in the NASD Rules of
the Association.
(y) The Common Stock has been registered pursuant to Section 12(g) of
the Exchange Act. The Company has prepared and filed with the Commission a
registration statement for the Common Stock pursuant to Section 12(g) of
the Exchange Act. Such registration statement either has been declared
effective by the Commission under the Exchange Act or will be declared
effective by the Commission prior to or concurrently with the commencement
of the public offering of the Shares. The Common Stock has been approved
for designation upon notice of issuance as a Nasdaq National Market
security on The Nasdaq Stock Market ("Nasdaq") concurrently with the
effectiveness of the Registration Statement.
(z) All offers and sales of the securities of the Company and each
Subsidiary prior to the date hereof were made in compliance with the Act
and all other applicable state and federal laws or regulations.
(aa) Except with respect to Shares of Common Stock sold to the
Company in connection with a "cashless exercise" relating to any of the
Company's stock option plans, the Company has obtained for the benefit of
the Underwriters the agreement, enforceable by Cleary Gull Reiland &
McDevitt Inc. ("Cleary Gull"), of each of the officers and directors of
the Company, and each of the stockholders of the Company who are listed on
Schedule III hereof, who owns of record the number of shares of Common
Stock set forth on Schedule III opposite such stockholder's name, that for
a period of 120 days after the date of the Prospectus, such persons will
not, without the prior written consent of Cleary Gull, directly or
indirectly, offer, sell, transfer, or pledge, contract to sell, transfer or
pledge, or cause or in any way permit to be sold, transferred, pledged, or
otherwise
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<PAGE>
disposed of, except where shares of Common Stock are required to
be pledged by the Selling Stockholder pursuant to an existing line of
credit with American National Bank, which line of credit shall not be
increased, any: (i) shares of Common Stock; (ii) rights to purchase shares
of Common Stock (including, without limitation, shares of Common Stock that
may be deemed to be beneficially owned by any such stockholder in
accordance with the applicable regulations of the Commission and shares of
Common Stock that may be issued upon the exercise of a stock option,
warrant or other convertible security); or (iii) securities that are
convertible or exchangeable into shares of Common Stock.
(bb) A copy of the Custody Agreement executed by the Selling
Stockholder and a copy of the Selling Stockholder's Selling Stockholder's
Questionnaire have been furnished to counsel for the Underwriters prior to
the date hereof, along with such other information as such counsel may
reasonably request in connection with their review thereof.
A certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby. A certificate delivered by the Company to its counsel for
purposes of enabling such counsel to render the opinion referred to in section
10(d) will also be furnished to the Representatives and counsel for the
Underwriters and shall be deemed to be additional representations and warranties
to the Underwriters by the Company as to the matters covered thereby.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents and warrants to and agrees with the several
Underwriters and the Company, and shall be deemed to represent and warrant to
the several Underwriters and the Company on each Closing Date, that:
(a) The Selling Stockholder has duly executed a custody agreement
("Custody Agreement") naming __________________ as custodian ("Custodian")
of the Shares of the Selling Stockholder for the purpose of selling such
Shares to the Underwriters on each Closing Date and receiving payment
therefor.
(b) All consents, approvals, authorizations and orders necessary for
the execution and delivery by the Selling Stockholder of this Agreement and
the Custody Agreement and for the sale and delivery of the Shares to be
sold by the Selling Stockholder hereunder, as set forth on Schedule I
annexed hereto, have been obtained. The Selling Stockholder has, and at
the time of delivery thereof hereunder the Selling Stockholder will have,
good and valid title to the Shares proposed to be sold by the Selling
Stockholder hereunder, free and clear of all voting trust arrangements,
liens, encumbrances, security interests, equities, and claims, other than
any created by the Custody Agreement or this Agreement for the benefit of
the Underwriters. The Selling Stockholder has full right, power and
authority to enter into this Agreement and the Custody Agreement and to
sell,
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assign, transfer and deliver such Shares hereunder, free and clear of
all voting trust arrangements, liens, encumbrances, security interests,
equities, claims and community or marital property rights, other than any
created by the Custody Agreement or this Agreement for the benefit of the
Underwriters. Upon delivery of and payment for such Shares hereunder, the
Underwriters will acquire good and valid title thereto, free and clear of
all voting trust arrangements, liens, encumbrances, security interests,
equities, claims and community or marital property rights.
(c) The Selling Stockholder has not distributed and will not
distribute any Preliminary Prospectus, the Prospectus or any other material
in connection with the offering and sale of the Shares. The Selling
Stockholder has not taken and will not take, directly or indirectly, any
action designed to or which could cause or result in, under the Exchange
Act or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Common
Stock.
(d) The execution, delivery and performance by the Selling
Stockholder of this Agreement and the Custody Agreement will not, if
applicable, result in the violation of any provisions of the Articles of
Incorporation, By-laws or other governing documents of the Selling
Stockholder, or constitute a breach, or be in contravention, of any
provision of any agreement, franchise, license, indenture, mortgage, deed
of trust or other instrument to which the Selling Stockholder is a party or
by which the Selling Stockholder or the Selling Stockholder's property may
be bound or affected, or any statute, rule or regulation applicable to the
Selling Stockholder, or violate any order or decree of any court,
regulatory body, administrative agency or other governmental body having
jurisdiction over the Selling Stockholder or any of the Selling
Stockholder's property. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of, and performance under,
this Agreement by the Selling Stockholder or the consummation by the
Selling Stockholder of the transactions contemplated by this Agreement,
except for compliance with the Act, the Exchange Act, the Blue Sky Laws
applicable to the public offering of the Shares by the Underwriters and the
clearance of such offering with the NASD. The Selling Stockholder hereby
represents and warrants that the Custody Agreement has been duly executed
and delivered by or on behalf of the Selling Stockholder to the
Representatives.
(e) This Agreement and the Custody Agreement are each valid and
binding agreements of the Selling Stockholder enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency, and
moratorium laws and other principles of equity.
(f) The Selling Stockholder has deposited in custody, under the
Custody Agreement, certificates in negotiable form for the Shares to be
sold hereunder by the Selling Stockholder as set forth opposite the Selling
Stockholder's name on Schedule I annexed hereto (including the maximum
number of Optional Shares set forth on Schedule
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<PAGE>
1) for the purpose of further delivery pursuant to this Agreement. The
Selling Stockholder agrees that the Shares of the Selling Stockholder on
deposit with the Custodian are subject to the interests of the Company and
the Underwriters, that the arrangements made for such custody, pursuant to
the Custody Agreement, are to that extent irrevocable, and that the
obligations of the Selling Stockholder hereunder and under the Custody
Agreement shall not be terminated, except as provided in this Agreement and
the Custody Agreement, by any act of the Selling Stockholder, by operation
of law, by the death or incapacity of the Selling Stockholder or, by the
occurrence of any other event. If any Selling Stockholder should die or
become incapacitated, or if any other event should occur before the
delivery of the Shares hereunder, the certificates for Shares then on
deposit with the Custodian shall, to the extent such Shares are purchased
by the Underwriters, be delivered by the Custodian in accordance with the
terms and conditions of this Agreement and the Custody Agreement as if
such death, incapacity, or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof. The
Selling Stockholder represents that the Custodian has been authorized to
receive and acknowledge receipt of the proceeds of sale of the Shares sold
by the Selling Stockholder against delivery thereof and otherwise to act
on behalf of the Selling Stockholder.
(g) Insofar as it relates to the Selling Stockholder, each
Preliminary Prospectus, as of its date, has conformed in all material
respects with the requirements of the Act and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to, make the statements therein not misleading; and
on the effective date of the Registration Statement and at all times
subsequent thereto up to each Closing Date, (i) the Registration Statement
and the Prospectus, as they relate to the Selling Stockholder, did or will
conform to the requirements of the Act, and (ii) neither the Registration
Statement nor the Prospectus as it relates to the Selling Stockholder did
or will include 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.
(h) To the knowledge of the Selling Stockholder, the representations
and warranties of the Company set forth in section 2 hereof are true and
correct.
(i) The information contained in the Selling Stockholder's Selling
Stockholders' Questionnaire completed in connection with the Company's
public offering and delivered to the Representatives was, as of the date of
such questionnaire, and is, as of the date of this Agreement, true and
correct.
A certificate signed by or on behalf of the Selling Stockholder as such and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Selling Stockholder to the
Underwriters as to the matters covered thereby. A certificate delivered by or
on behalf of the Selling Stockholder to counsel for the Selling Stockholder for
purposes of enabling such counsel to render the opinion referred in Section
10(e) will also be furnished to the Representatives and counsel for the
Underwriters and shall be
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<PAGE>
deemed to be additional representations and warranties to the Underwriters by
the Selling Stockholder as to the matters covered thereby.
SECTION 4. REPRESENTATION OF UNDERWRITERS. The Representatives will act
as the representatives for the several Underwriters in connection with the
public offering of the Shares, and any action under or in respect of this
Agreement taken by the Representatives will be binding upon all of the
Underwriters.
SECTION 5. INFORMATION FURNISHED BY THE UNDERWRITERS. The information set
forth in the last paragraph on the outside front cover page of the Prospectus
concerning the terms of the offering by the Underwriters, the paragraph on the
inside front cover page of the Prospectus relating to stabilization practices
and passive market making, and the concession and reallowance amounts appearing
under the caption "Underwriting" in the Prospectus constitute all of the
information furnished to the Company by and on behalf of the Underwriters for
use in connection with the preparation of the Registration Statement and the
Prospectus, as such information is referred to in this Agreement.
SECTION 6. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Company agrees to sell to the Underwriters identified in Schedule II
annexed hereto 1,500,000 Firm Shares, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company the number of Firm
Shares as hereinafter set forth at the price per share of $________. The
obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full Firm Shares which (as nearly as practicable in
full shares as determined by the Representatives) bears the same proportion
to the number of Firm Shares to be sold by the Company as the number of
shares set forth opposite the name of such Underwriter in Schedule II
annexed hereto bears to the total number of Firm Shares to be purchased by
all of the Underwriters under this Agreement.
(b) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Selling Stockholder agrees, to sell to the Underwriters that number of
full Firm Shares set forth opposite the name of the Selling Stockholder in
Schedule I annexed hereto (a total of 1,500,000 shares), and each of the
Underwriters agrees, severally and not jointly, to purchase from the
Selling Stockholder the number of Firm Shares as hereinafter set forth at
the same purchase price per share as stated in the preceding paragraph. The
obligation of each Underwriter to the Selling Stockholder shall be to
purchase from the Selling Stockholder that number of full Firm Shares which
(as nearly as practicable in full shares as determined by the
Representatives) bears the same proportion to the number of Firm Shares to
be sold by the Selling Stockholder as the number of shares set forth
opposite the name of such Underwriter in Schedule II annexed hereto bears
to the total number of Firm Shares to be purchased by all of the
Underwriters under this Agreement.
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<PAGE>
(c) On the First Closing Date (as hereinafter defined), the Company
and the Custodian on behalf of the Selling Stockholder will deliver to the
Representatives, at the offices of Cleary Gull Reiland & McDevitt Inc.,
100 East Milwaukee Avenue, Milwaukee, WI 53202, or through the facilities
of The Depository Trust Company, for the accounts of the several
Underwriters, certificates representing the Firm Shares to be sold by them
against payment of the purchase price therefor by wire transfer of
immediately available funds to the accounts specified by the Company and
the Selling Stockholder. As referred to in this Agreement, the "First
Closing Date" shall be on the third full business day after the date of the
Prospectus, at 9:00 a.m., Milwaukee, Wisconsin time, or at such other date
or time not later than ten full business days after the date of the
Prospectus as the Representatives, the Company and the Selling Stockholder
may agree. The certificates for the Firm Shares to be so delivered will be
in denominations and registered in such names as the Representatives
request by notice to the Company and the Selling Stockholder, or either of
them, prior to the First Closing Date, and such certificates will be made
available for checking and packaging at 9:00 a.m., Milwaukee, Wisconsin
time on the first full business day preceding the First Closing Date at a
location to be designated by the Representatives.
(d) In addition, on the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein
set forth, the Company and the Selling Stockholder hereby agree to sell to
the Underwriters, and the Underwriters, severally and not jointly, shall
have the right at any time within thirty days after the date of the
Prospectus to purchase up to 225,000 Optional Shares from the Company and
up to 225,000 Optional Shares from the Selling Stockholder at the purchase
price per share to be paid for the Firm Shares, for use solely in covering
any over-allotments made by the Underwriters in the sale and distribution
of the Firm Shares. The option granted hereunder may be exercised upon
notice by the Representatives to the Company and the Selling Stockholder,
or either of them, within thirty days after the date of the Prospectus
setting forth the aggregate number of Optional Shares to be purchased by
the Underwriters and sold by the Company and the Selling Stockholder, the
names and denominations in which the certificates for such shares are to be
registered and the date and place at which such certificates will be
delivered. Such date of delivery (the "Second Closing Date") shall be
determined by the Representatives, provided that the Second Closing Date,
which may be the same as the First Closing Date, shall not be earlier than
the First Closing Date and, if after the First Closing Date, shall not be
earlier than three nor later than ten full business days after delivery of
such notice to exercise. The number of Optional Shares to be sold by the
Company pursuant to such notice shall equal that number of full Optional
Shares which (as nearly as practicable in full shares as determined by the
Representatives) bears the same proportion to the number of Optional Shares
to be purchased by the Underwriters as the number of Firm Shares to be sold
by the Company under this Agreement bears to the total number of Firm
Shares. The number of Optional Shares to be sold by the Selling
Stockholder pursuant to such notice shall equal that number of full
Optional Shares which (as nearly as practicable in full shares as
determined by the Representatives) bears the same proportion to the number
of
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<PAGE>
Optional Shares to be purchased by the Underwriters as the number of
Firm Shares to be sold by the Selling Stockholder bears to the total number
of Firm Shares. Certificates for the Optional Shares will be made
available for checking and packaging at 9:00 a.m., Milwaukee, Wisconsin
time, on the first full business day preceding the Second Closing Date at a
location to be designated by the Representatives. The manner of payment
for and delivery of (including the denominations of and the names in which
certificates are to be registered) the Optional Shares shall be the same as
for the Firm Shares.
(e) The Representatives have advised the Company and the Selling
Stockholder that each Underwriter has authorized the Representatives to
accept delivery of the Shares and to make payment therefor. It is
understood that the Representatives, individually and not as
representatives of the Underwriters, may (but shall not be obligated to)
make payment for any Shares to be purchased by any Underwriter whose funds
shall not have been received by the Representatives by the First Closing
Date or the Second Closing Date, as the case may be, for the account of
such Underwriter, but any such payment shall not relieve such Underwriter
from any obligation under this Agreement. As referred to in this
Agreement, "Closing Date" shall mean either the First Closing Date or the
Second Closing Date.
SECTION 7. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters that:
(a) If the effective time of the Registration Statement is not prior
to the execution and delivery of this Agreement, the Company will use its
best efforts to cause the Registration Statement to become effective at the
earliest possible time and, upon notification from the Commission that the
Registration Statement has become effective, will so advise the
Representatives and counsel to the Underwriters promptly. If the effective
time of the Registration Statement is prior to the execution and delivery
of this Agreement and any information shall have been omitted therefrom in
reliance upon Rule 430A, the Company, at the earliest possible time, will
furnish the Representatives with a copy of the Prospectus to be filed by
the Company with the Commission to comply with Rule 424(b) and Rule 430A
under the Act and, if the Representatives do not object to the contents
thereof, will comply with such Rules. Upon compliance with such Rules, the
Company will so advise the Representatives promptly. The Company will
advise the Representatives and counsel to the Underwriters and the Selling
Stockholder promptly of the issuance by the Commission or any state
securities commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose, and will also advise the Representatives and
counsel to the Underwriters and the Selling Stockholder promptly of any
request of the Commission for amendment or supplement of the Registration
Statement, of any Preliminary Prospectus or of the Prospectus, or for
additional information, and the Company will not file any amendment or
supplement to the Registration Statement (either before or after it becomes
effective),
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<PAGE>
to any Preliminary Prospectus or to the Prospectus (including a prospectus
filed pursuant to Rule 424(b)), or file any document under the Exchange
Act in the time period from the execution of this Agreement through the
First Closing Date with respect to the Firm Shares, or from the time of
notice by the Representatives exercising the option to purchase the
Optional Shares through the Second Closing Date with respect to the
Optional Shares, without first providing the Underwriters with a copy prior
to such filing (with a reasonable opportunity to review such amendment or
supplement) or if the Representatives object to such filing.
(b) If, at any time when a prospectus relating to the Shares is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event occurs as a result of which the Prospectus would
include an untrue statement of a material fact, or would 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, or if it is necessary at any time to supplement the
Prospectus to comply with the Act, the Company promptly will advise the
Representatives and counsel to the Underwriters and the Selling Stockholder
thereof and will promptly prepare and file with the Commission, at its
expense, an amendment to the Registration Statement which will correct such
statement or omission or an amendment which will effect such compliance;
and, if any Underwriter is required to deliver a prospectus after the
effective date of the Registration Statement, the Company, upon request of
the Representatives, will prepare promptly such prospectus or prospectuses
as may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Act. The Company consents to the use, in accordance with
the provisions of the Act and with the Blue Sky Laws of the jurisdictions
in which the Shares are offered by the several Underwriters and by dealers,
of each Preliminary Prospectus.
(c) Neither the Company nor any Subsidiary will, prior to the Second
Closing Date, if any, incur any liability or obligation, direct or
contingent, or enter into any material transaction, other than in the
ordinary course of business, or enter into any transaction with an
"affiliate," as defined in Rule 405 under the Act, which is required to be
described in the Prospectus pursuant to Item 404 of Regulation S-K under
the Act, except as described in the Prospectus.
(d) Except with respect to Shares of Common Stock acquired in
connection with a "cashless exercise" relating to any of the Company's
stock option plans, neither the Company nor any Subsidiary will, prior to
the Second Closing Date, if any, acquire any of the Common Stock nor,
except for the Company's regular quarterly dividend paid int eh ordinary
course of business, if any, will the Company declare or pay any dividend or
make any other distribution upon its Common Stock payable to stockholders
of record on a date prior to such earlier date, except as described in the
Prospectus.
(e) The Company will make generally available to its security holders
and the Representatives an earnings statement as soon as practicable, but
in no event later than
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sixty days after the end of its fiscal quarter in which the first
anniversary of the effective date of the Registration Statement occurs,
covering a period of twelve consecutive calendar months beginning after
the effective date of the Registration Statement, which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act and Rule 158
promulgated thereunder.
(f) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company
will furnish to the Representatives, at the expense of the Company, copies
of the Registration Statement, the Prospectus, any Preliminary Prospectus
and all amendments and supplements to any such documents, including any
document filed under the Exchange Act and deemed to be incorporated by
reference in the Registration Statement, in each case as soon as available
and in such quantities as the Representatives may reasonably request.
(g) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder for the purposes set forth in the
Prospectus.
(h) The Company will cooperate with the Representatives and counsel
to the Underwriters in qualifying or registering the Shares for sale under
the Blue Sky Laws of such jurisdictions as the Representatives designates,
and will continue such qualifications or registrations in effect so long as
reasonably requested by the Representatives to effect the distribution of
the Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified. In each jurisdiction
where any of the Shares shall have been qualified as provided above, the
Company will file such reports and statements as may be required to
continue such qualification for a period of not less than one year from the
date of the Prospectus. The Company shall promptly prepare and file with
the Commission, from time to time, such reports as may be required to be
filed by the Act and the Exchange Act, and the Company shall comply in all
respects with the undertakings given by the Company in connection with the
qualification or registration of the Shares for offering and sale under the
Blue Sky Laws.
(i) During the period of three years from the date of the Prospectus,
the Company will furnish to each of the Representatives and to each of the
other Underwriters who may so request, as soon as available, each report,
statement or other document of the Company or its Board of Directors mailed
to its stockholders or filed with the Commission, and such other
information concerning the Company as the Representatives may reasonably
request.
(j) The Company shall deliver the requisite notice of issuance to
Nasdaq and shall take all necessary or appropriate action within its power
to maintain the authorization for trading of the Common Stock as a Nasdaq
National Market security, or take such action to authorize the Common Stock
for listing on the New York Stock Exchange or the American Stock Exchange,
for a period of at least thirty-six months after the date of the
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Prospectus.
(k) Except for (i) awards pursuant to the Mrs. Richardson Stock Award
Program, (ii) the Company's contribution of shares of its Common Stock to
the Company's ESOP or profit sharing plans, (iii) the issuance and sale by
the Company of Common Stock upon exercise of presently existing outstanding
stock options, (iv) the sale of the Shares to be sold by the Company
pursuant to this Agreement, (v) the grant of employee stock options
pursuant to the Company's stock option plan listed as Exhibits in the
Company's most recent Annual Report on Form 10-K, copies of which are filed
as exhibits to the Registration Statement or incorporated by reference, and
provided that none of such options shall be exercisable during the 120-day
period herein described and (vi) shares of Common Stock issued upon
conversion of the Company's currently outstanding convertible debt, the
Company shall not, for a period of 120 days after the date of the
Prospectus, without the prior written consent of Cleary Gull, directly or
indirectly, offer, sell or otherwise dispose of, contract to sell or
otherwise dispose of, or cause or in any way permit to be sold or otherwise
disposed of, any: (i) shares of Common Stock; (ii) rights to purchase
shares of Common Stock; or (iii) securities that are convertible or
exchangeable into shares of Common Stock.
(l) The Company will maintain a transfer agent and, if required by
law or the rules of The Nasdaq Stock Market or any national securities
exchange on which the Common Stock is listed, a registrar (which, if
permitted by applicable laws and rules, may be the same entity as the
transfer agent) for its Common Stock. The Company shall, as soon as
practicable after the date hereof, use its best efforts to obtain listing
in Standard and Poor's Stock Guide, or such other recognized securities
manuals for which it may qualify for listing, and the Company shall use its
best efforts to maintain such listings for at least five years after the
First Closing Date.
(m) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any rumor, publication or event
relating to of affecting the Company shall occur as a result of which, in
the opinion of Cleary Gull, the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to the Prospectus), the
Company will, after written notice from Cleary Gull advising the Company of
any of the matters set forth above, promptly consult with Cleary Gull
concerning the advisability and substance of, and, if the Company and
Cleary Gull jointly determine that it is appropriate, disseminate, a press
release or other public statement responding to or commenting on, such
rumor, publication or event.
(n) The Company will comply or cause to be complied with the
conditions to the obligations of the Underwriters in section 10 hereof.
SECTION 8. COVENANTS OF THE SELLING STOCKHOLDER. The Selling Stockholder
covenants and agrees with the several Underwriters and the Company as follows:
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(a) If the effective time of the Registration Statement is not prior
to the execution and delivery of this Agreement, the Selling Stockholder
will cooperate to the extent necessary to cause the Registration Statement
to become effective at the earliest possible time; and the Selling
Stockholder will do and perform all things to be done and performed by the
Selling Stockholder prior to each Closing Date, pursuant to this Agreement
or the Custody Agreement.
(b) The Selling Stockholder agrees to deliver to the Custodian on or
prior to the First Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable substitute form or
statement specified by Treasury Department regulations in lieu thereof).
(c) The Selling Stockholder will pay all federal and other taxes, if
any, on the transfer or sale of the Shares being sold by the Selling
Stockholder to the Underwriters.
(d) For a period of 120 days after the date of the Prospectus, the
Selling Stockholder will not, without the prior written consent of Cleary
Gull, directly or indirectly, offer, sell, transfer, or pledge, contract to
sell, transfer or pledge or cause or in any way permit to be sold,
transferred, pledged or otherwise disposed of any: (i) shares of Common
Stock; (ii) rights to purchase shares of Common Stock (including, without
limitation, shares of Common Stock that may be deemed to be beneficially
owned by the Selling Stockholder in accordance with the rules and
regulations of the Commission and shares of Common Stock that may be issued
upon exercise of a stock option, warrant or other convertible security); or
(iii) securities that are convertible or exchangeable into shares of Common
Stock. For a period of one year after the date of the Prospectus, the
Selling Stockholder will not, without the prior written consent of Cleary
Gull, exercise or cause to be exercised, directly or indirectly, any rights
to initiate the registration of Common Stock under the Act or Blue Sky
Laws.
(e) The Selling Stockholder will furnish any documents, instruments
or other information which the Representatives may reasonably request in
connection with the sale and transfer of the Shares to the Underwriters.
SECTION 9. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective, or
if this Agreement is terminated for any reason, the Company will pay the costs,
fees and expenses incurred in connection with the public offering of the Shares.
Such costs, fees and expenses to be paid by the Company include, without
limitation:
(a) All costs, fees and expenses (excluding the expenses incurred by
the Underwriters and the legal fees and disbursements of counsel for the
Underwriters, but including such fees and disbursements described in
subsection (b) of this section 9) incurred in connection with the
performance of the Company's obligations hereunder, including without
limiting the generality of the foregoing: the registration fees related to
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the filing of the Registration Statement with the Commission; the fees and
expenses related to the quotation of the Shares on Nasdaq or other national
securities exchange; the fees and expenses of the Company's counsel,
accountants, transfer agent and registrar; the costs and expenses incurred
in connection with the preparation, printing,. shipping and delivery of the
Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all agreements and
supplements provided for herein, this Agreement and the Custody Agreement,
including, without limitation, shipping expenses via overnight delivery
and/or courier service to comply with applicable prospectus delivery
requirements; and the costs and expenses associated with the production of
materials related to, and travel expenses incurred by the management of the
Company in connection with, the various meetings to be held between the
Company's management and prospective investors.
(b) All registration fees and expenses, including legal fees and
disbursements of counsel for the Underwriters incurred in connection with
qualifying or registering all or any part of the Shares for offer and sale
under the Blue Sky Laws and the clearing of the public offering and the
underwriting arrangements evidenced hereby with the NASD.
(c) All fees and expenses related to printing of the certificates for
the Shares, and all transfer taxes, if any, with respect to the sale and
delivery of the Shares to the Underwriters. Notwithstanding the foregoing,
the Selling Stockholder shall be solely responsible for any transfer or
sales tax imposed upon the transfer and sale of the Selling Stockholder's
Shares to the Underwriters and for the Selling Stockholder's respective pro
rata share of all fees and expenses of the Custodian. All costs and
expenses incident to the performance of the Selling Stockholder's
obligations hereunder which are not otherwise specifically provided for in
this section will be borne and paid solely by the Selling Stockholder. In
the event the Selling Stockholder shall fail to pay the Selling
Stockholder's pro rata share of the costs, fees and expenses described in
this section within five days after demand by the Representatives therefor,
the Company shall be obligated to pay such costs, fees and expenses on
demand.
SECTION 10. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters under this Agreement shall be subject to
the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholder herein set forth as of the date hereof and as of
each Closing Date, to the accuracy of the statements of the Company's officers
and the Selling Stockholder made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholder of their respective
obligations hereunder, and to the following additional conditions, unless waived
in writing by the Representatives:
(a) The Registration Statement shall have been declared effective by
the Commission not later than 5:30 p.m., Washington, D.C. time, prior to
the date on the date of this Agreement, or such later time as shall have
been consented to by the Representatives, which consent shall be deemed to
have been given if the Registration
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Statement shall have been declared effective on or before the date and
time requested in the acceleration request submitted on behalf of the
Representatives pursuant to Rule 461 under the Act; all filings required
by Rules 424(b) and 430A under the Act shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement
shall have been issued by the Commission or any state securities
commission nor, to the knowledge of the Company, shall any proceedings
for that purpose have been initiated or threatened; and any request of
the Commission or any state securities commission for inclusion of
additional information in the Registration Statement, or otherwise,
shall have been complied with to the satisfaction of the Representatives.
(b) Since the dates as of which information is given in the
Registration Statement:
(i) there shall not have occurred any change or development
involving, or which could be expected to involve, a Material Adverse
Effect, whether or not arising from transactions in the ordinary
course of business; and
(ii) the Company shall not have sustained any loss or
interference from any labor dispute, strike, fire, flood, windstorm,
accident or other calamity (whether or not insured) or from any court
or governmental action, order or decree,
the effect of which on the Company, in any such case described in clause
(i) or (ii) above, is in the opinion of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares on the terms and in the
manner contemplated in the Registration Statement and the Prospectus.
(c) The Representatives shall not have advised the Company that the
Registration Statement or the Prospectus contains an untrue statement of
fact that, in the opinion of the Representatives or counsel for the
Underwriters, is material, or omits to state a fact that, in the opinion of
the Representatives or such counsel, is material and is required to be
stated therein or necessary to make the statements therein not misleading.
(d) The Representatives shall have received an opinion of Ross &
Hardies, counsel for the Company addressed to the Representatives, as the
representatives of the Underwriters, and dated the First Closing Date or
the Second Closing Date, as the case may be, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation and 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
presently conducted and as described in the Prospectus and the
Registration Statement; the Company is duly registered and qualified
to do business as a foreign corporation under the laws of, and is in
good
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standing as such in, each jurisdiction in which such registration
or qualification is required, except where the failure to so register
or qualify would not have a Material Adverse Effect;
(ii) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, par value $.05 per share,
10,000,000 shares of Class B Common Stock, par value $.05, and
5,000,000 shares of Preferred Stock, par value $1.00 per share, and
all such stock conforms as to legal matters to the descriptions
thereof in the Prospectus and the Registration Statement;
(iii) The issued and outstanding shares of capital stock of the
Company immediately prior to the issuance and sale of the Shares to be
sold by the Company hereunder have been duly authorized and validly
issued, are fully paid and nonassessable, and there are no preemptive,
preferential or, except as described in the Prospectus, other rights
to subscribe for or purchase any shares of capital stock of the
Company, and, to such counsel's knowledge, no shares of capital stock
of the Company have been issued in violation of such rights;
(iv) To such counsel's knowledge, except for the Subsidiaries,
the Company has no subsidiaries, and the Company does not own any
equity interest in or control, directly or indirectly, any other
corporation, limited liability company, partnership, joint venture,
association, trust or other business organization except as described
in the Prospectus, the Registration Statement and Schedule 2(c)
hereto; each Subsidiary 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 to conduct its business
as presently conducted and as described in the Prospectus and the
Registration Statement; each Subsidiary is duly registered or
qualified to do business as a foreign corporation under the laws of,
and is in good standing as such in, each jurisdiction in which such
registration or qualification is required, except where the failure to
so register or qualify would not have a Material Adverse Effect; the
issued and outstanding shares of the capital stock of each Subsidiary
have been duly authorized and validly issued, are fully paid and
nonassessable and there are no preemptive, preferential or, to such
counsel's knowledge, other rights to subscribe for or purchase any
shares of capital stock of any Subsidiary, and to such counsel's
knowledge, no shares of capital stock of any Subsidiary have been
issued in violation of such rights; the Company owns directly and, to
such counsel's knowledge, beneficially all of the issued and
outstanding capital stock of each Subsidiary, free and clear of any
and all liens, claims, encumbrances and security interests;
(v) The certificates for the Shares to be delivered hereunder
are in due and proper form and conform to the requirements of
applicable law; and when duly countersigned by the Company's transfer
agent, and delivered to the
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Representatives or upon the order of the Representatives against
payment of the agreed consideration therefor in accordance with the
provisions of this Agreement, the Shares to be sold by the Company
represented thereby will be duly authorized and validly issued,
fully paid and nonassessable, and free of any preemptive, preferential
or other rights to subscribe for or purchase shares of Common Stock;
(vi) The Registration Statement has become effective under the
Act, and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or are threatened
under the Act or any Blue Sky Laws; the Registration Statement and the
Prospectus and any amendment or supplement thereto, including any
document incorporated by reference in the Registration Statement,
(except for the financial statements and other statistical or
financial data included therein as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act; the conditions for use of Form S-2, set forth
in the General Instructions thereto, have been satisfied; no facts
have come to the attention of such counsel which lead it to believe
that either the Registration Statement or the Prospectus or any
amendment or supplement thereto, including any document incorporated
by reference in the Registration Statement, contains any untrue
statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of the
First Closing Date or the Second Closing Date, as the case may be,
contained any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances under which they were made (except for the financial
statements and other financial data included therein as to which such
counsel need express no opinion); to such counsel's knowledge, there
are no legal or governmental proceedings pending or threatened,
including, without limitation, any such proceedings that are related
to environmental or employment discrimination matters, required to be
described in the Registration Statement or the Prospectus which are
not so described or which question the validity of this Agreement or
any action taken or to be taken pursuant thereto, nor is there any
transaction, relationship, agreement, contract or other document of a
character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to or incorporated by
reference in the Registration Statement by the Act, which is not
described, filed or incorporated by reference as required;
(vii) The Company has full corporate power and authority to
enter into and perform this Agreement; the performance of the
Company's obligations hereunder and the consummation of the
transactions described herein have been duly authorized by the Company
by all necessary corporate action and this Agreement has been duly
executed and delivered by and on behalf of the Company, and is a
legal, valid and binding agreement of the Company enforceable
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against the Company in accordance with its terms, except that rights
to indemnity or contribution may be limited by applicable law and
except as enforceability of this Agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, and by equitable principles
limiting the right to specific performance or other equitable relief;
no consent, approval, authorization or other order or decree of any
court, regulatory or governmental body, arbitrator, administrative
agency or other instrumentality of the United States or other country
or jurisdiction having jurisdiction over the Company is required for
the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement (except for compliance
with the Act, the Exchange Act, applicable Blue Sky Laws and the
clearance of the underwriting arrangements by the NASD);
(viii) The execution, delivery and performance of this Agreement
by the Company will not: (A) violate any provisions of the Articles of
Incorporation or By-laws of the Company or any Subsidiary; (B) to such
counsel's knowledge, violate any provisions of, or result in the
breach, modification or termination of, or constitute a default under,
any agreement, lease, franchise, license, indenture, permit, mortgage,
deed of trust, other evidence of indebtedness or other instrument to
which the Company or any Subsidiary is a party or by which the Company
or such Subsidiary, or any of their respective owned or leased
property is bound, and which is filed or incorporated by reference as
an exhibit to the Registration Statement; or (C) violate any statute,
ordinance, rule, or regulation of any regulatory or governmental body,
or to such counsel's knowledge, any order or decree of any court,
arbitrator, administrative agency or other instrumentality of the
United States or other country or jurisdiction having jurisdiction
over the Company or any Subsidiary (assuming compliance with all
applicable federal and state securities laws);
(ix) To such counsel's knowledge, except as described in the
Prospectus, there are no holders of Common Stock or other securities
of the Company, or securities that are convertible or exchangeable
into Common Stock or other securities of the Company, that have rights
to the registration of such securities under the Act or any Blue Sky
Laws;
(x) The Common Stock has been designated for inclusion as a
National Market security on The Nasdaq Stock Market and is registered
under the Exchange Act;
(xi) Neither the Company nor any Subsidiary is, nor with the
giving of notice or passage of time or both would be, in violation of
its respective Articles of Incorporation or By-laws or, to such
counsel's knowledge, in default in any material respect in the
performance of any agreement, lease, franchise, license, permit,
mortgage, deed of trust, evidence of indebtedness or other instrument,
or
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any other document that is filed as an exhibit to or incorporated
by reference in the Registration Statement, to which the Company or
any Subsidiary is subject or bound;
(xii) Neither the Company nor any Subsidiary is an "investment
company", an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended, and, upon its
receipt of any proceeds from the sale of the Shares, the Company will
not become or be deemed to be an "investment company" thereunder;
(xiii) The description or incorporation by reference in the
Registration Statement and the Prospectus of statutes, law,
regulations, legal and governmental proceedings, and contracts and
other legal documents described or incorporated by reference therein
fairly and correctly present, in all material respects, the
information required to be included therein by the Act; and
(xiv) All offers and sales by the Company of its capital stock
before the date hereof were at all relevant times duly registered
under or exempt from the registration requirements of the Act, and
were duly registered under or the subject of an available exemption
from the registration requirements of any applicable Blue Sky Laws.
In rendering such opinion, counsel for the Company may rely, to the extent
counsel deems such reliance proper, as to matters of fact upon certificates of
officers of the Company and of governmental officials, and copies of all such
certificates shall be furnished to the Representatives and for the Underwriters
on or before each Closing Date. Such opinion may incorporate reasonable
exclusions and qualifications.
(e) The Representatives shall have received an opinion from Ross &
Hardies, counsel for the Selling Stockholder, dated the First Closing Date
or the Second Closing Date, as the case may be, to the effect that:
(i) Each of this Agreement and the Custody Agreement has been
duly authorized, executed and delivered by or on behalf of the Selling
Stockholder and such agreement constitutes the valid and binding
agreement of the Selling Stockholder, enforceable in accordance with
its respective terms, except that rights to indemnity or contribution
thereunder may be limited by applicable law and except as
enforceability of such agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws generally
affecting the rights of creditors and by equitable principles limiting
the right to specific performance or other equitable relief;
(ii) The execution and delivery of this Agreement and the
Custody
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<PAGE>
Agreement and the consummation of the transactions herein and
therein contemplated will not, if applicable, result in the violation
of any provisions of the Articles of Incorporation, By-laws or other
governing documents of the Selling Stockholder, or constitute a
breach, or to such counsel's knowledge, be in contravention, of any
provision of any agreement, franchise, license, indenture, mortgage,
deed of trust or other instrument to which the Selling Stockholder is
a party or by which the Selling Stockholder or the Selling
Stockholder's property may be bound or affected, or any statute, rule
or regulation applicable to the Selling Stockholder, or to such
counsel's knowledge, violate any order or decree of any court,
regulatory or governmental body, administrative body or
instrumentality of the United States or other jurisdiction having
jurisdiction over the Selling Stockholder or any of the Selling
Stockholder's property, which violation would reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), business, properties, net worth or results of operations
of the Selling Stockholder;
(iii) To such counsel's knowledge, the Selling Stockholder has
full legal right, power and authority, and has secured any consent,
approval, authorization and order required to enter into and perform
this Agreement and the Custody Agreement and to sell, assign, transfer
and deliver title to the Shares to be sold by the Selling Stockholder
as provided herein; and upon delivery to the Underwriters or upon the
order of the Representatives against payment of the agreed
consideration therefor in accordance with the provisions of this
Agreement, to such counsel's knowledge, the Underwriters will acquire
good and marketable title to the Shares to be sold hereunder by the
Selling Stockholder, free and clear of all voting trust arrangements,
liens, encumbrances, security interests, equities, claims and
community or marital property rights; and
(iv) To such counsel's knowledge, the information concerning the
Selling Stockholders contained in the Prospectus under the caption
"Principal and Selling Stockholders" complies in all material respects
with the Act.
In rendering such opinion, counsel for the Selling Stockholder may rely, to
the extent counsel deems such reliance proper, as to matters of fact upon
certificates of the Selling Stockholder, and copies of all such certificates
shall be furnished to the Representatives and counsel for the Underwriters on or
before each Closing Date. Such opinion may incorporate reasonable exclusions
and qualifications.
(f) The Representatives shall have received an opinion of McDermott,
Will & Emery, counsel for the Underwriters, dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the issuance
and sale of the Shares by the Company, the Registration Statement and other
related matters as the Representatives may require, and the Company shall
have furnished to such counsel such documents and shall have exhibited to
them such papers and records as they request for the purpose of
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enabling them to pass upon such matters.
(g) The Representatives shall have received on each Closing Date, a
certificate of Edward J. Richardson, Chairman and Chief Executive Officer,
and Bruce W. Johnson, President and Chief Operating Officer, of the
Company, to the effect that:
(i) The representations and warranties of the Company set forth
in section 2 hereof are true and correct as of the date of this
Agreement and as of the date of such certificate, and the Company has
complied with all the agreements and satisfied all the conditions to
be performed or satisfied by it at or prior to the date of such
certificate;
(ii) The Commission has not issued an order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus or
any amendment or supplement thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued; and to
the knowledge of the respective signatories, no proceedings for that
purpose have been initiated or are pending or contemplated under the
Act or under the Blue Sky Laws of any jurisdiction;
(iii) Each of the respective signatories has carefully examined
the Registration Statement and the Prospectus, and any amendment or
supplement thereto, including any documents filed under the Exchange
Act and deemed to be incorporated by reference in the Registration
Statement, and such documents contain all statements required to be
stated therein, and do not include 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, and since
the date on which the Registration Statement was initially filed, no
event has occurred that was required to be set forth in an amended or
supplemented prospectus or in an amendment to the Registration
Statement that has not been so set forth; and
(iv) Since the date on which the Registration Statement was
initially filed with the Commission, there shall not have occurred any
change or development involving, or which could be expected to
involve, a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as disclosed
in the Prospectus and the Registration Statement as heretofore amended
or (but only if the Representatives expressly consent thereto in
writing) as disclosed in an amendment or supplement thereto filed with
the Commission and delivered to the Representatives after the
execution of this Agreement; since such date and except as so
disclosed or in the ordinary course of business, the Company has not
incurred any liability or obligation, direct or indirect, or entered
into any transaction which is material to the Company; since such date
and except as so disclosed, there has not been any change in the
outstanding capital stock of the Company, or any change that is
material to the Company in the short-term debt or long-term debt of
the Company; since such date and except as so disclosed
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or as contemplated in this Agreement, the Company has not acquired any
of the Common Stock or other capital stock of the Company nor has the
Company declared or paid any dividend, or made any other distribution,
upon its outstanding Common Stock payable to stockholders of record on
a date prior to such Closing Date; since such date and except as so
disclosed, the Company has not incurred any material contingent
obligations, and no material litigation is pending or threatened
against the Company; and, since such date and except as so disclosed,
the Company has not sustained any material loss or interference from
any strike, fire, flood, windstorm, accident or other calamity
(whether or not insured) or from any court or governmental action,
order or decree.
The delivery of the certificate provided for in this subsection (g) shall
be and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (i), (ii), (iii) and (iv) to be
set forth in said certificate.
(h) The Representatives shall have received a certificate from the
Selling Stockholder, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that: (i) the representations and
warranties of the Selling Stockholder in Section 3 of this Agreement are
true and correct as of the date of this Agreement and as of the date of
such certificate, as if again made on and as of such Closing Date, and the
Selling Stockholder has complied with all of the agreements and satisfied
all of the conditions to be performed or satisfied by the Selling
Stockholder at or prior to such Closing Date; and (ii) the Selling
Stockholder has no reason to believe that the Registration Statement or any
amendment thereto, including any documents filed under the Exchange Act and
deemed to be incorporated by reference in the Registration Statement, at
the time it was declared effective by the Commission contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus, as amended or supplemented, including
any documents filed under the Exchange Act and deemed to be incorporated by
reference in the Registration Statement, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(i) At the time this Agreement is executed and also on each Closing
Date, there shall be delivered to the Representatives a letter addressed to
the Representatives, as the representatives of the Underwriters, from Ernst
& Young LLP, the Company's independent accountants, the first letter to be
dated the date of this Agreement, the second letter to be dated the First
Closing Date and the third letter (if applicable) to be dated the Second
Closing Date, which shall be in form and substance satisfactory to the
Representatives and shall contain information as of a date within five days
of the date of such letter. There shall not have been any change or
decrease set forth in any of the letters referred to in this subsection (i)
which makes it impracticable or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase of the
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Shares as contemplated hereby.
(j) The Shares shall have been qualified or registered for sale under
the Blue Sky Laws of such jurisdictions as shall have been specified by the
Representatives, the underwriting terms and arrangements for the offering
shall have been cleared by the NASD, and the Common Stock shall have been
designated for inclusion as a Nasdaq National Market security on the Nasdaq
Stock Market and shall have been registered under the Exchange Act.
(l) Such further certificates and documents as the Representatives
may reasonably request (including certificates of officers of the Company).
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to the
Representatives and to McDermott, Will & Emery, counsel for the Underwriters.
The Company and the Selling Stockholder shall furnish the Representatives with
such manually signed or conformed copies of such opinions, certificates, letters
and documents as the Representatives may reasonably request.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at either Closing Date is not so satisfied, this Agreement at the
election of the Representatives will terminate upon notification to the Company
and the Selling Stockholder, or any one of them, without liability on the part
of any Underwriter, including the Representatives, the Company or the Selling
Stockholder except for the provisions of section 7(n) hereof, the expenses to be
paid by the Company and the Selling Stockholder pursuant to section 9 hereof and
except to the extent provided in section 12 hereof.
SECTION 11. MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. The Company
will use its best efforts and the Selling Stockholder will use his best efforts
to prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement, and, if such stop order is issued, to obtain as soon as
possible the lifting thereof.
SECTION 12. INDEMNIFICATION.
(a) The Company and the Selling Stockholder, jointly and severally,
subject to the last paragraph of this Section 12, agree to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act or the Exchange Act, from and
against any losses, claims, damages, expenses, liabilities or actions in
respect thereof ("Claims"), joint or several, to which such Underwriter or
each such controlling person may become subject under the Act, the
Exchange Act, Blue Sky Laws or other federal or state statutory laws or
regulations, at common law or otherwise (including payments made in
settlement of any litigation), insofar as such Claims arise out of or are
based upon any breach of any representation, warranty or covenant made by
the Company in this Agreement, or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
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any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or in any application filed under any Blue Sky Law or other
document executed by the Company for that purpose or based upon written
information furnished by the Company and filed in any state or other
jurisdiction to qualify any or all of the Shares under the securities laws
thereof (any such document, application or information being hereinafter
called a "Blue Sky Application") or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Company and the Selling Stockholder, jointly and
severally, subject to the last paragraph of this Section 12, agree to
reimburse each Underwriter and each such controlling person for any legal
fees or other expenses incurred by such Underwriter or any such controlling
person in connection with investigating or defending any such Claim;
provided, however, that the Company and the Selling Stockholder will not be
liable in any such case to the extent that: (i) any such Claim arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or supplement thereto or in any Blue
Sky Application in reliance upon and in conformity with the written
information furnished to the Company pursuant to section 5 of this
Agreement or (ii) such statement or omission was contained or made in any
Preliminary Prospectus and corrected in the Prospectus and (1) any such
Claim suffered or incurred by any Underwriter (or any person who controls
any Underwriter) resulted from an action, claim or suit by any person who
purchased Shares which are the subject thereof from such Underwriter in the
offering, and (2) such Underwriter failed to deliver or provide a copy of
the Prospectus to such person at or prior to the confirmation of the sale
of such Shares, unless such failure was due to failure by the Company to
provide copies of the Prospectus to the Underwriters as required by this
Agreement. The indemnification obligations of the Company and the Selling
Stockholder as provided above are in addition to and in no way limit any
liabilities the Company and the Selling Stockholder may otherwise have.
(b) The Selling Stockholder, agrees to indemnify and hold harmless
each Underwriter and each controlling person from and against any Claims to
which such Underwriter or each such controlling person may become subject
under the Act, the Exchange Act, Blue Sky laws or other federal or state
statutory laws or regulations, at common law or otherwise (including
payments made in settlement of any litigation), insofar as such Claims
arise out of or are based upon any breach of any representations, warranty
or covenant made by the Selling Stockholder in this Agreement.
(c) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors and each of its officers
who signs the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Act or the Exchange Act and the
Selling Stockholder against any Claim to which the Company, or any such
director, officer, controlling person or Selling Stockholder may become
subject under the Act, the Exchange Act, Blue Sky Laws or other federal or
state statutory laws or regulations, at common law or otherwise (including
payments made in
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settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter and Cleary Gull), insofar as such
Claim arises out of or is based upon any untrue or alleged untrue statement
of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or in any Blue Sky Application, or arises out of or is based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or in
any Blue Sky Application, in reliance solely upon and in conformity with
the written information furnished by the Representatives to the Company
pursuant to section 5 of this Agreement. Each Underwriter will severally
reimburse any legal fees or other expenses incurred by the Company, or any
such director, officer, controlling person or Selling Stockholder in
connection with investigating or defending any such Claim, and from any and
all Claims solely resulting from failure of an Underwriter to deliver a
Prospectus, if the person asserting such Claim purchased Shares from such
Underwriter and a copy of the Prospectus (as then amended if the Company
shall have furnished any amendments thereto) was not sent or given by or on
behalf of such Underwriter to such person, at or prior to the written
confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended) would have cured the defect giving rise to such
Claim. The indemnification obligations of each Underwriter as provided
above are in addition to any liabilities any such Underwriter may otherwise
have. Notwithstanding the provisions of this section, no Underwriter shall
be required to indemnify or reimburse the Company, or any officer,
director, controlling person or the Selling Stockholder in an aggregate
amount in excess of the total price at which the Shares purchased by any
such Underwriter hereunder were offered to the public, less the amount of
any damages such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
(d) The Selling Stockholder agrees to indemnify and hold harmless the
Company, each of its directors and each of its officers who signs the
Registration Statement, and each person, if any, controlling the Company
within the meaning of the Act or the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Underwriter set forth in
subsection (a) of this section. In case any Claim shall be brought or
asserted against the Company, its directors, such officers or any such
controlling person, in respect of which indemnity may be sought against the
Selling Stockholder, the Selling Stockholder shall have the rights and
duties given to the Company, and the Company, such directors or officers
and any such controlling person shall have the rights and duties given to
the Underwriters by subsection (a) of this section.
(e) Promptly after receipt by an indemnified party under this section
of notice of the commencement of any action in respect of a Claim, such
indemnified party will, if a Claim in respect thereof is to be made against
an indemnifying party under this section,
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notify the indemnifying party in writing of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve
an indemnifying party from any liability it may have to any indemnified
party under this section or otherwise, except to the extent that the
failure to so notify the indemnifying party causes such party prejudice.
In case any such action is brought against any indemnified party, and such
indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in and, to
the extent that he, she or it may wish, jointly with all other indemnifying
parties, similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and
any indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to the indemnified
party and/or other indemnified parties which are different from or
additional to those available to any indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense
of such action on behalf of such indemnified party or parties.
(f) Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election to assume the
defense of such action and upon approval by the indemnified party of
counsel selected by the indemnifying party, the indemnifying party will not
be liable to such indemnified party under this section for any legal fees
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, unless:
(i) the indemnified party shall have employed separate counsel
in connection with the assumption of legal defenses in accordance with
the proviso to the last sentence of subsection (e) of this section (it
being understood, however, that the indemnifying party shall not be
liable for the legal fees and expenses of more than one separate
counsel, approved by Cleary Gull, if one or more of the Underwriters
or their controlling persons are the indemnified parties);
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the indemnified
party's notice to the indemnifying party of commencement of the
action; or
(iii) the indemnifying party has authorized the employment of
counsel at the expense of the indemnifying party.
(g) If the indemnification provided for in this section is
unavailable to an indemnified party under subsection (a), (b), (c) or (d)
hereof in respect of any Claim referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall, subject to
the limitations hereinafter set forth, contribute to the amount paid or
payable by such indemnified party as a result of such Claim:
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<PAGE>
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Selling Stockholder and the
Underwriters from the offering of the Shares; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Company, the Selling
Stockholder and the Underwriters in connection with the statements or
omissions which resulted in such Claim, as well as any other relevant
equitable considerations.
The relative benefits received by each of the Company, the Selling
Stockholder and the Underwriters shall be deemed to be in such proportion so
that the Underwriters are responsible for that portion represented by the
percentage that the amount of the underwriting discounts and commissions per
share appearing on the cover page of the Prospectus bears to the public offering
price per share appearing thereon, and the Company, and the Selling Stockholder,
are responsible for the remaining portion. The relative fault of the Company,
the Selling Stockholder and the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholder, or the
Underwriters 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 Claims referred to above shall be
deemed to include, subject to the limitations set forth in subsections (e) and
(f) of this section, any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
(h) The Company, the Selling Stockholder and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
section were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method or allocation which does not take into account the equitable
considerations referred to in subsection (f) of this section.
Notwithstanding the other provisions of this section, no Underwriter shall
be required to contribute any amount that is greater than the amount by
which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. 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
Underwriters' obligations to contribute pursuant to this section are
several in proportion to their respective underwriting commitments and not
joint.
(i) Notwithstanding any provision of this section 12 to the contrary,
the liability of the Selling Stockholder arising under this section 12
shall not exceed the purchase price
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<PAGE>
received by the Selling Stockholder from the Underwriters for the Shares
sold by the Selling Stockholder.
SECTION 13. DEFAULT OF UNDERWRITERS. It shall be a condition to the
obligations of each Underwriter to purchase the Shares in the manner as
described herein, that, except as hereinafter provided in this section, each of
the Underwriters shall purchase and pay for all the Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such Shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Shares hereunder on either
the First Closing Date or the Second Closing Date and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed ten percent (10%) of the total number of Shares which
the Underwriters are obligated to purchase on such Closing Date, the
Representatives may make arrangements for the purchase of such Shares by other
persons, including any of the Underwriters, but if no such arrangements are made
by such Closing Date the nondefaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Shares which such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of Shares with respect to which such default or defaults occur
is greater than ten percent (10%) of the total number of Shares which the
Underwriters are obligated to purchase on such Closing Date, and arrangements
satisfactory to the Representatives for the purchase of such Shares by other
persons are not made within thirty-six hours after such default, this Agreement
will terminate without liability on the part of any nondefaulting Underwriter,
the Company, and the Selling Stockholder except to the extent provided in
section 12 hereof.
In the event that Shares to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representatives shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, for not more than seven business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 14. EFFECTIVE DATE. This Agreement shall become effective upon
the execution and delivery of this Agreement by the parties hereto. Such
execution and delivery shall include an executed copy of this Agreement sent by
telecopier, facsimile transmission or other means of transmitting written
documents.
SECTION 15. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Representatives prior to or on the First Closing Date and the
over-allotment option from the Company and the Selling Stockholder referred to
in section 6 hereof, if exercised, may be cancelled by the Representatives at
any time prior to or on the Second Closing Date, if in the judgment of the
Representatives, payment for and delivery of the Shares is rendered
impracticable or inadvisable
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<PAGE>
because:
(a) additional governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or the American Stock Exchange,
or trading in securities generally shall have been suspended or materially
limited on either such exchange or on The Nasdaq Stock Market or a general
banking moratorium shall have been established by either federal or state
authorities in New York, Florida, Illinois or Wisconsin;
(b) any event shall have occurred or shall exist which makes untrue
or incorrect in any material respect any statement or information contained
in the Registration Statement or which is not reflected in the Registration
Statement but should be reflected therein to make the statements or
information contained therein not misleading in any material respect; or
(c) an outbreak or escalation of hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated to such
extent, in the judgment of the Representatives, as to have a material
adverse effect on the financial markets of the United States, or to make it
impracticable or inadvisable to proceed with completion of the sale of and
payment for the Shares as provided in this Agreement.
Any termination pursuant to this Section shall be without liability on the
part of any Underwriter to the Company or the Selling Stockholder, or on the
part of the Company or the Selling Stockholder to any Underwriter, except for
expenses to be paid by the Company and the Selling Stockholder pursuant to
section 9 hereof or reimbursed by the Company pursuant to section 7(n) hereof
and except as to indemnification to the extent provided in section 12 hereof.
SECTION 16. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, covenants and
other statements of the Company, of its officers or directors, of the Selling
Stockholder, and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, Selling Stockholder or
the Company or any of its or their partners, officers, directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder.
SECTION 17. NOTICES. All communications hereunder will be in writing and,
if sent to the Representatives, will be mailed, delivered, telecopied (with
receipt confirmed) or telegraphed and confirmed to Cleary Gull Reiland &
McDevitt Inc. at 100 East Milwaukee Avenue, Milwaukee, WI 53202, Attention:
John R. Peterson, Managing Director, with a copy to Timothy R.M. Bryant, Esq.,
McDermott, Will & Emery, 227 W. Monroe Street, Chicago, Illinois 60606 and if
sent to the Company, will be mailed, delivered, telecopied (with receipt
confirmed) or telegraphed and confirmed to the Company at Richardson
Electronics, Attention: Edward J.
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<PAGE>
Richardson with a copy to Ross & Hardies, 150 N. Michigan Avenue, Suite 2500,
Chicago, Illinois 60601 and, if sent to the Selling Stockholder, will be
mailed, delivered, telecopied (with receipt confirmed) or telegraphed and
confirmed, in care of the Company, with copies to Ross & Hardies, 150 N.
Michigan Avenue, Suite 2500, Chicago, Illinois 60601;.
SECTION 18. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors, personal
representatives and assigns, and to the benefit of the officers and directors
and controlling persons referred to in section 12 hereof and no other person
will have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 19. PARTIAL UNENFORCEABILITY. If any section, paragraph, clause
or provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph clause or provision hereof.
SECTION 20. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Wisconsin without reference to conflict of law principles thereunder. This
Agreement may be signed in various counterparts which together shall constitute
one and the same instrument, and shall be effective when at least one
counterpart hereof shall have been executed by or on behalf of each party
hereto.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholder and the
several Underwriters, including the Representatives, all in accordance with its
terms.
Very truly yours,
RICHARDSON ELECTRONICS, LTD.
By: ______________________________
_____________________, President
THE SELLING STOCKHOLDER:
By: ____________________________
Edward J. Richardson
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<PAGE>
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<PAGE>
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
CLEARY GULL REILAND & McDEVITT INC.
MCDONALD & COMPANY SECURITIES, INC.
By: Cleary Gull Reiland & McDevitt Inc.
Acting as Representatives of the several
Underwriters (including themselves) identified
in Schedule II annexed hereto.
By: ______________________________________
Authorized Representative
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<PAGE>
RICHARDSON ELECTRONICS, LTD.
SCHEDULE I
NUMBER OF NUMBER OF
FIRM SHARES OPTIONAL SHARES
The Company __________________________ ________________________
Edward J. Richardson
<PAGE>
RICHARDSON ELECTRONICS, LTD.
SCHEDULE II
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
Cleary Gull Reiland & McDevitt Inc. . . . . . . . . . . . . . . . . .
McDonald & Company Securities, Inc. . . . . . . . . . . . . . . . . .
<PAGE>
RICHARDSON ELECTRONICS, LTD.
SCHEDULE III
<PAGE>
Exhibit 5
March 31, 1998
Richardson Electronics, Ltd.
40W267 Keslinger Road
LaFox, Illinois 60147
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-2 (the "Registration
Statement") being filed by Richardson Electronics, Ltd., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the offer and sale of up to 3,450,000 shares of Common Stock, $0.05 par
value per share (the "Common Stock") of the Company (including a 15%
underwriter's over-allotment option) of which up to 1,725,000 will be sold by
the Company and up to 1,725,000 will be sold by the Selling Stockholder.
Each term used herein that is defined in the Registration Statement and
not otherwise defined herein shall have the meaning specified in the
Registration Statement.
We are familiar with the proceedings to date with respect to the proposed
offering of the Common Stock and have examined such records, documents and
questions of law, and satisfied ourselves as to such matters of procedure,
law and fact, as we have considered relevant and necessary as a basis for the
opinion expressed in this letter. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to orginals of all documents submitted to
us as certified copies or photocopies and the authenticity of the originals
of such copied or photocopied documents.
Based on the foregoing, and subject to the qualifications set forth
hereinafter, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the laws
of the State of Delaware.
<PAGE>
Richardson Electronics, Ltd.
March 31, 1998
Page 2
2. The Common Stock has been duly authorized and, when issued and sold
by the Company in accordance with the Registration Statement, will be legally
issued, fully paid and nonassessable shares of Common Stock of the Company.
We express no opinion as to the application of the securities or blue sky
laws of the various states to the issuance of the Common Stock.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and the related Prospectus, and to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
ROSS & HARDIES
By: /s/ David S. Guin
------------------------------
A Partner
<PAGE>
Exhibit 23(a)
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" in the Registration Statement on
Form S-2 and related Prospectus of Richardson Electronics Ltd. for the
registration of 3,450,000 shares of its common stock and to the inclusion of
and incorporation by reference therein of our report dated July 8, 1997
(except for "Earnings per Share" in Note A as to which the date is February
28, 1998) with respect to the consolidated financial statements of Richardson
Electronics Ltd. incorporated by reference in its Annual Report (Form 10-K)
for the year ended May 31, 1997 and the related schedule included therein,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
March 30, 1998
