UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 0-12906
RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 36-2096643
(State of incorporation) (I.R.S. Employer Identification No.)
40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois 60147-0393
(Address of principal executive offices)
Registrant's telephone number including area code: (630) 208-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.05
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of August 24, 1998, there were outstanding 11,288,726 shares of Common
Stock, $.05 par value, and 3,235,621 shares of Class B Common Stock, $.05 par
value, which are convertible into Common Stock on a share for share basis, of
the registrant and the aggregate market value of such shares, based on the
reported last sale price of the common stock on such date, held by non-
affiliates of the registrant was approximately $104,800,000.
(Cover page continued)
page 1
Portions of the 1998 Annual Report to Stockholders of registrant for fiscal
year ended May 31, 1998 are incorporated in Parts I, II, and IV of this Report.
Portions of the registrant's Proxy Statement dated September 3, 1998 for the
Annual Meeting of Stockholders scheduled to be held October 6, 1998, which will
be filed pursuant to Regulation 14(A), are incorporated by reference in Part
III of this Report. Except as specifically incorporated herein by reference,
the above mentioned Annual Report to Stockholders and Proxy Statement are not
deemed filed as part of this report.
The exhibit index is located at pages 16 through 23.
Page 2
PART I
Item 1. 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
supplier 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 new 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
3
customers from electron tubes to newer technologies, primarily semiconductors.
Sales of products other than electron tubes represented 60.8% of sales in the
year ended May 31, 1998, compared to 38.5% 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
the United States. In fiscal 1998, 51.6% 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
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 three 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 21.5%
in 1998. Inventory turns improved from 1.7 to 2.2 over the same period.
4
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, 24 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 three years, the Company's
acquisition pace has accelerated with the purchases of eight businesses includ-
ing, 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, os-
cillate 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. 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, commu-
nications, marine, plastics, rubber, steel and textile. Several major applica-
tions 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 in-
creased emphasis on containment of medical costs offers significant
opportunities to supply the diagnostic medical imaging market, estimated by the
Company at $900 million annually. 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
5
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 facilities, one for x-ray tube reloading and the second for digital
imaging systems. 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.
Certain sectors of the electron tube market in which the Company partici-
pates 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, equipment employing tube technology is
frequently 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).
Microwave Generators incorporate magnetrons which are high vacuum oscilla-
tor 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, food
processing, packaging, wood / glue drying, 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 and cancer
therapy.
Broadcast Equipment includes video products, camera tubes, klystrons,
transmitters and accessories used for radio and television broadcasting.
Hydrogen Thyratrons are electron tubes capable of high speed and high volt-
age switching. They are used to control the power in laser and radar equipment
and in linear accelerators for cancer treatment.
6
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.
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.
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.
Solid State and Components
SSC serves many of the same customers and industries as EDG and focuses its
broad product offerings on two specialized markets. Because of the Company's
expertise in electron tube technology, it developed a strong competency in
power semiconductors. From this base in power semiconductors, SSC has expanded
into related products for Radio Frequency ("RF") and microwave 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 other components.
In October 1996, the Company acquired Compucon, a distributor of intercon-
nect devices operating in the northeastern United States. This acquisition
brought to the Company a new product line and management with the specialized
knowledge of its applications. The Company has achieved 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 and Microwave Devices include a wide variety of components, such as mix-
ers, switches, amplifiers, oscillators and RF diodes, which are used in telecom
munications and other related markets, such as broadcast, cable TV, cellular
and PCS, satellite, wireless LANs and various other wireless applications.
7
Power Semiconductors are solid-state, high-frequency power amplifiers used
in broadcast, cellular, aircraft and satellite communications and in many types
of electronic instrumentation. In many circumstances, the customer prefers to
acquire the complete assembly as opposed to the discrete transistor.
Accordingly, the Company expanded its product offering to include design and
prototype assembly of amplifiers and pallets incorporating RF power
transistors.
Interconnect Devices are passive components used to connect all types of
electronic equipment including those employing RF technology.
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.
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.
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 worldwide annual factory sales of CRTs excluding
television tubes to be $2 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 Tele-
PrompTersr, 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.
8
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 1000
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 that due to 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 indus-
try. 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, 1997 and 1998. Acquisitions
and a significant increase in SSD's field sales force were principally
responsible for these significant sales gains. In February 1997 and August
1997, respectively, the Company acquired Burtek and 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:
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 back-
ground 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 Advanced Power Technology, Burle Industries, Clinton
9
Electronics, Communication and Power Industries ("CPI"), Covimag, Dunlee,
Ericsson, General Electric, Hi Sharp, Huber & Suhner, Jennings, Litton, M/A-
COM, MPD, New Japan Radio, Orion/Daewoo, Panasonic, Pelco, Philips, Powerex,
QMI, RF Prime, RF Products, Samsung, Samtell, Sanyo, SGS THOMSON, Semtech,
Sensormatic, Sony, Stanford Microdevices, Stellex Microwave Systems, Teletube,
Toshiba, Triton Services, and Varian Associates. No single outside supplier
accounted for more than 10% of the Company's purchases in any one of the last
three years, other than CPI, which accounted for 8.4%, 10.3% and 12.6% of
purchases in fiscal 1998, 1997 and 1996, 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. Under an evergreen agreement,
the Company and Covimag negotiate a purchase commitment on an annual basis.
Covimag is managed by the same individuals previously employed by the Company
at this facility. 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 dis-
tribution 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 di-
rected 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", 'Amperex." and "MONORAY". Approxi-
mately 22% of the Company's sales are from products it manufactures or modifies
through value-added services. The Company also sells products under these brand
names made by independent manufacturers to the Company's specifications.
10
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 power tubes, electronic
display tubes, phototubes, SCR assemblies, spark gap tubes, RF amplifiers,
transmitters and pallet assemblies. Richardson reloads and remanufactures
medical x-ray tubes. 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 May 31, 1998, the Company employed 792 individuals on a full-time ba-
sis. Of these, 470 are located in the United States, including 60 employed in
administrative and clerical positions, 313 in sales and distribution and 97 in
value-added and product manufacturing. The Company's international subsidiaries
employ an additional 322 individuals engaged in administration, sales, distribu
tion and value-added operations. 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 distribu-
tor 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 its patents and trademarks 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.
Item 2. 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 35 locations in North America, 13 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
11
tube reloading operations. The Company also leased facilities in Franklin Park,
Illinois, from a trust, of which Edward J. Richardson, Chairman of the Board of
the Company, is the principal beneficiary, for a term which expired June 30,
1998. Under the terms of this net lease, the Company made rental payments of
$68,705 per year. In the opinion of management, the lease was on terms no less
favorable to the Company than similar leases which would have been available
from unrelated third parties.
Item 3. Legal Proceedings
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 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. The motion was denied by the court on July 14, 1998.
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders, through the solicita-
tion of proxies or otherwise, during the fourth quarter of the fiscal year
ended May 31, 1998.
12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Incorporated herein by reference to pages 8 (for dividend payments) and 17
(for market data) of the Annual Report.
Item 6. Selected Financial Data
Incorporated herein by reference to page 3 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated herein by reference to pages 4 to 6 of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable until Report on Form 10-K for fiscal year ended May 31,
1999.
Item 8. Financial Statements and Supplementary Data
Incorporated herein by reference to pages 7 through 16 of the Annual
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
No event has occurred within the 24 month period prior to the date of the
Company's most recent financial statements, which would require disclosure
under Item 9 of this Report.
13
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning Directors and Executive Officers of the Company is
contained in the Company's Proxy Statement to be used in connection with its
Annual Meeting of Stockholders scheduled to be held October 6, 1998, under the
captions "ELECTION OF DIRECTORS - Information Relating to Directors, Nominees
and Executive Officers", "ELECTION OF DIRECTORS - Affiliations" and "SECTION 16
FILINGS", which information is incorporated herein by reference.
Item 11. Executive Compensation
Incorporated herein by reference is information concerning executive
compensation contained in the Company's Proxy Statement to be used in
connection with its Annual Meeting of Stockholders scheduled to be held October
6, 1998, under the captions "ELECTION OF DIRECTORS - Directors Compensation"
and "EXECUTIVE COMPENSATION", except for captions "REPORT ON EXECUTIVE
COMPENSATION" and "PERFORMANCE GRAPH".
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is contained in the Company's Proxy Statement to be used in
connection with its Annual Meeting of Stockholders scheduled to be held October
6, 1998, under the caption "ELECTION OF DIRECTORS - Information Relating to
Directors, Nominees and Executive Officers" and "PRINCIPAL STOCKHOLDERS", which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
contained in the Company's Proxy Statement to be used in connection with its
Annual Meeting of Stockholders scheduled to be held October 6, 1998, under the
caption "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider
Participation", which information is incorporated herein by reference.
14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following consolidated financial statements of the registrant and
its subsidiaries included on pages 7 through 16 of the Annual Report are
incorporated herein by reference:
Filing Method
Report of Independent Accountants E
1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - May 31, 1998 and
1997 E
Consolidated Statements of Operations - Years
ended May 31, 1998, 1997 and 1996 E
Consolidated Statements of Cash Flows - Years
ended May 31, 1998, 1997 and 1996 E
Consolidated Statements of Stockholders' Equity -
Years ended May 31, 1998, 1997 and 1996 E
Notes to Consolidated Financial Statements E
The following consolidated financial information for the fiscal years
1998, 1997 and 1996 is submitted herewith:
2. FINANCIAL STATEMENT SCHEDULES:
II. Valuation and Qualifying Accounts E
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore,
have been omitted.
(b) REPORTS ON FORM 8-K.
None.
15
(c) EXHIBITS
Filing Method
3(b) By-laws of the Company, as amended, incorporated by NA
reference to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997.
4(a) Restated Certificate of Incorporation of the Com- NA
pany, incorporated by reference to 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 NA
Stock certificates of the Company incorporated by
reference to Exhibit 4(a) to the Company's Regis-
tration Statement on Form S-1, Commission File No.
33-10834.
4(c) Indenture between the Company and Continental NA
Illinois National Bank and Trust Company 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 Com- NA
pany and First Trust of Illinois, a National Asso-
ciation, 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 NA
Bank and Trust Company, as Trustee, for 8 1/4% Con-
vertible Senior Subordinated Debentures due June
15, 2006 (including form of 8 1/4% Convertible Senior
Subordinated Debentures due June 15, 2006) incorpo-
rated by reference to Exhibit 10 of the Company's
Schedule 13E-4, filed February 18, 1997.
10(a) Loan Agreement dated as of March 1, 1998 among NA
Richardson Electronics, Ltd., various lending
institutions and American National Bank and Trust
Company of Chicago as Agent, establishing a
$50,000,000 Credit Facility, incorporated by refer-
ence to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended February
28, 1998.
16
10(b) Industrial Building Lease, dated April 10, 1996 NA
between the Company and the American 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) Amended and Restated Credit Agreement made as of NA
March 1, 1998 between Burtek Systems, Inc. as
Borrower and First Chicago NBD Bank, Canada as
Lender Richardson Electronics, Ltd. as 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 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 NA
Option Plan effective April 8, 1987 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 Re- NA
stated Incentive Stock Option Plan 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 NA
Restated Incentive Stock Option Plan 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 Re- NA
stated Incentive Stock Option Plan 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.
17
10(f) Richardson Electronics, Ltd. Employees 1996 Stock NA
Purchase Plan incorporated by 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(g) Employees Stock Ownership Plan and Trust Agreement, NA
effective as of June 1, 1987, 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(g)(1)First Amendment to Employees Stock Ownership Plan NA
and Trust Agreement, dated July 12, 1995, incorpo-
rated 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(g)(2)Second Amendment to Employees Stock Ownership Plan NA
and Trust Agreement, dated July 12, 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(g)(3)Third Amendment to Employees Stock Ownership Plan E
and Trust Agreement, dated July 12, 1995, dated
April 9, 1997.
10(h) Stock Option Plan for Non-Employee Directors incor- NA
porated by reference to Appendix A to the Company's
Proxy Statement dated August 30, 1989 for its
Annual Meeting of Stockholders held on October 18,
1989.
10(i) Richardson Electronics, Ltd. 1996 Stock Option Plan NA
for Non-Employee Directors, incorporated by refer-
ence to Appendix C of the Company's Proxy Statement
dated September 3, 1996 for its Annual Meeting of
Stockholders held on October 1, 1996.
10(j) The Company's Employees' Incentive Compensation NA
Plan incorporated by reference to Appendix A to the
Company's Proxy Statement dated August 31, 1990 for
its Annual Meeting of Stockholders held on October
9, 1990.
10(j)(1)First Amendment to Employees Incentive Compensation NA
Plan incorporated by reference to Exhibit 10(p)(1)
to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991.
18
10(j)(2)Second Amendment to Employees Incentive Compensa- NA
tion 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(k) Richardson Electronics, Ltd. Employees' 1994 Incen- NA
tive Compensation Plan incorporated by reference to
Exhibit A to the Company's Proxy Statement dated
August 31, 1994 for its Annual Meeting of Stock-
holders held on October 11, 1994.
10(k)(1)First Amendment to the Richardson Electronics, Ltd. NA
Employees' 1994 Incentive 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(l) Richardson Electronics, Ltd. 1996 Incentive Compen- E
sation Plan incorporated by 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(m) Richardson Electronics, Ltd. 1998 Incentive Compen- NA
sation Plan incorporated by reference to Appendix A
of the Company's Proxy Statement dated September 3,
1998 for its Annual Meeting of Stockholders held on
October 6, 1998.
10(n) Correspondence outlining Agreement between the NA
Company and Arnold R. Allen with 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 NA
and Arnold R. Allen outlining Mr. Allen's engage-
ment 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 NA
Arnold R. Allen regarding Mr. Allen's engagement as
consultant by the Company, incorporated by refer-
ence to Exhibit 10(i)(2) to the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1994.
19
10(o) Letter dated January 14, 1992 between the Company NA
and Jacques Bouyer setting forth the 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 NA
and Jacques Bouyer setting forth the 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.
10(p) Letter dated January 13, 1994 between the Company NA
and Samuel Rubinovitz setting forth 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 NA
Bart F. Petrini setting forth the 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 NA
William J. Garry setting forth the 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) Employment, Nondisclosure and Non-Compete Agreement E
dated June 1, 1998 between the Company and Flint
Cooper setting forth the terms of Mr. Cooper's
employment by the Company.
10(t) Agreement dated January 16, 1997 between the Com- NA
pany and Dennis Gandy setting forth 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.
20
10(u) Agreement dated March 21, 1997 between the Company NA
and David Gilden setting forth the terms of Mr.
Gilden's employment by the Company, incorporated by
reference to Exhibit 10(c) to the Company's Quar-
terly Report on Form 10-Q for the quarter ended
February 28, 1997.
10(v) Employment agreement dated as of November 7, 1996 NA
between the Company and Bruce W. Johnson incorpo-
rated by reference to Exhibit (c)(4) of the Com-
pany's Schedule 13 E-4, filed December 18, 1996.
10(w) Employment agreement dated as of January 26, 1998 NA
between the Company and Norman Hilgendorf, incorpo-
rated by reference to Exhibit 10(c) of the Com-
pany's Quarterly Report on Form 10-Q for the quar-
ter ended February 28, 1998.
10(x) Employment agreement dated as of May 10, 1993 as NA
amended March 23, 1998 between the Company 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 NA
Insurance Policy issued by Chubb Group of Insurance
Companies Policy Number 8125-64-60A, incorporated
by reference to Exhibit 10(t) 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 Executive E
Liability and Indemnification Insurance Policy
renewal issued by Chubb Group of Insurance Compa-
nies - Policy Number 8125-64-60E.
10(y)(2)The Company's Excess Directors and Officers Liabil- E
ity and Corporate Indemnification Policy issued by
St. Paul Mercury Insurance Company - Policy Number
900DX0414.
10(y)(3)The Company's Directors and Officers Liability E
Insurance Policy issued by CNA Insurance Companies
- Policy Number DOX600028634.
10(z) Distributor Agreement, executed August 8, 1991, NA
between Registrant and Varian Associates, Inc.,
incorporated by reference to Exhibit 10(d) of the
Company's Current Report on Form 8-K for September
30, 1991.
21
10(z)(1)Amendment, dated as of September 30, 1991, between NA
Registrant and Varian Associates, Inc., incorpo-
rated by reference to Exhibit 10(e) of the Com-
pany's Current Report on Form 8-K for September 30,
1991.
10(z)(2)First Amendment to Distributor Agreement between NA
Varian Associates, Inc. and the 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 NA
4, 1995 between Registrant and 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 NA
of United States of America v. Richardson Electron-
ics, Ltd., filed in the United States District
Court for the Northern District of Illinois, East-
ern 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, NA
1991 between North American Philips 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., NA
Richardson Electronique S.A., Covelec 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 NA
of America and Richardson 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.
13 Annual Report to Stockholders for fiscal year E
ending May 31, 1998 (except for the pages and
information thereof expressly incorporated by
reference in this Form 10-K, the Annual Report to
Stockholders is provided solely for the information
of the Securities and Exchange Commission and is
not deemed "filed" as part of this Form 10-K).
22
21 Subsidiaries of the Company. E
23 Consent of Independent Auditors. E
27 Financial Data Schedule. E
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD.
By:/s/ By:/s/
Edward J. Richardson, Bruce W. Johnson,
Chairman of the Board and President and Chief Operating
Chief Executive Officer Officer
By:/s/
William J. Garry
Senior Vice President
Date: August 24, 1998 Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the regis-
trant and in the capacities and on the dates indicated.
/s/ /s/
Edward J. Richardson, Chairman Bruce W. Johnson, President,
of the Board, Chief Executive Chief Operating Officer, and Director
Officer (principal executive officer) August 24, 1998
and Director
August 24, 1998
/s/ /s/
William J. Garry, Senior Vice Ad Ketelaars, Director
President and Chief Financial August 24, 1998
Officer (principal financial and
accounting officer) and Director
August 24, 1998
/s/ /s/
Scott Hodes, Director Samuel Rubinovitz, Director
August 24, 1998 August 24, 1998
/s/ /s/
Arnold R. Allen, Director Kenneth J. Douglas, Director
August 24, 1998 August 24, 1998
/s/ /s/
Jacques Bouyer, Director Harold L. Purkey, Director
August 24, 1998 August 24, 1998
24
The following portions of the Company's Annual Report to Stockholders for the
Year Ended May 31, 1998 are incorporated by reference. The page numbers as
indicated are the same as he printed copy which was distributed to the
shareholders.
<TABLE>
Five-Year Financial Review
<CAPTION>
(in thousands, except per share amounts)
Statement of Operations Data
Year Ended May 31
------------------------------------------------
1998 1997 (1) 1996 1995 (2) 1994 (3)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $304,172 $255,139 $239,667 $208,118 $172,094
Cost of products sold 217,509 187,675 169,123 152,785 151,203
Selling, general and administrative
Expenses 65,393 62,333 52,974 48,674 41,226
Other expense, net 7,334 7,856 5,559 4,028 5,874
-------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item 13,936 (2,725) 12,011 2,631 (26,209)
Income tax provision (benefit) 4,200 (1,720) 3,900 150 (6,400)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 9,736 (1,005) 8,111 2,481 (19,809)
Extraordinary gain (loss), net of tax -- (488) -- 527 --
-------- -------- -------- -------- --------
Net income (loss) $ 9,736 $ (1,493) $ 8,111 $ 3,008 $(19,809)
======== ======== ======== ======== ========
Income (loss) per share - basic:
Before extraordinary item $ .79 $ (.08) $ .70 $ .22 $ (1.76)
Extraordinary gain (loss), net of tax -- (.04) -- .05 --
-------- -------- -------- -------- --------
Net income (loss) per share $ .79 $ (.12) $ .70 $ .27 $ (1.76)
======== ======== ======== ======== ========
Income (loss) per share - diluted:
Before extraordinary item $ .77 $ (.08) $ .68 $ .21 $ (1.76)
Extraordinary gain (loss), net of tax -- (.04) -- .05 --
-------- -------- -------- -------- --------
Net income (loss) per share $ .77 $ (.12) $ .68 $ .26 $ (1.76)
======== ======== ======== ======== ========
Dividends per common share $ .16 $ .16 $ .16 $ .16 $ .16
======== ======== ======== ======== ========
Net Sales by Strategic Business Unit Year Ended May 31
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Net Sales by Strategic Business Unit:
Electron Device Group (EDG) $119,157 $113,700 $109,925 $105,454 $ 91,736
Solid State & Components (SSC) 88,014 74,209 67,976 52,409 42,274
Display Products Group (DPG) 30,639 29,377 36,154 36,502 27,150
Security Systems Division (SSD) 66,362 37,853 25,612 13,753 10,934
-------- -------- -------- -------- --------
Consolidated $304,172 $255,139 $239,667 $208,118 $172,094
======== ======== ======== ======== ========
Balance Sheet Data As of May 31
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Receivables $ 63,431 $ 53,333 $ 48,232 $ 42,768 $ 34,901
Inventories 96,443 92,194 94,327 81,267 73,863
Working capital, net 149,577 140,821 133,151 106,235 96,494
Property, plant and equipment, net 18,477 17,526 16,054 16,388 16,932
Total assets 209,700 192,514 180,158 173,514 179,467
Long-term debt 87,427 107,275 92,025 79,647 86,421
Stockholders' equity 91,585 59,590 62,792 56,154 52,573
</TABLE>
(1)In 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 $7,200 and selling, general and
administrative expenses by $3,800. Net of tax, these charges reduced income by
$6,712, or $.56 per share. The Company also recorded an extraordinary loss of
$800, less a related tax benefit of $312, or $.04 per share, on the exchange of
certain of the Company's debentures. (See Note B to the Consolidated Financial
Statements.)
(2)In 1995, the Company recorded a charge which reduced gross margin by $4,700
and net income by $2,300, or $.25 per share, for the settlement of a claim
related to a 1989 contract.
(3)In 1994, cost of products sold included a $26,500 provision, of which
$21,400 was for the disposition of the Company's manufacturing operations in
Brive, France, and $5,100 for incremental costs related to a provision for the
phase-down of domestic manufacturing operations established in 1991. Net of
tax, these charges reduced results of operations by $19,500, or $1.72 per
share.
3
Management's Discussion and Analysis
Results of Operations
Sales and Gross Margin Analysis
Richardson Electronics, Ltd. is a specialized international distributor of
electronic components, equipment and assemblies primarily for niche industrial
applications. The marketing and sales structure of the Company is organized in
four strategic business units (SBUs): Electron Device Group (EDG), Solid State
and Components (SSC), Display Products Group (DPG) and Security Systems
Division (SSD). Consolidated sales in fiscal 1998 were a record $304.2 million.
Sales by SBU and percent of consolidated sales are presented in the following
table (in thousands):
Sales 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
EDG $119,157 39.2 $113,700 44.6 $109,925 45.8
SSC 88,014 28.9 74,209 29.1 67,976 28.4
DPG 30,639 10.1 29,377 11.5 36,154 15.1
SSD 66,362 21.8 37,853 14.8 25,612 10.7
-------- ----- -------- ----- -------- -----
Consolidated $304,172 100.0 $255,139 100.0 $239,667 100.0
======== ===== ======== ===== ======== =====
Gross margin for each SBU and margin as a percent of sales are shown in
the following table. Gross margin reflects the distribution product margin less
overstock, customer returns and other provisions. In 1997, gross margin was
reduced by a $7.2 million charge - see Note B to the Consolidated Financial
Statements. Manufacturing variances, warranty provisions, LIFO provisions and
miscellaneous costs are included under the caption "other" (in thousands):
Gross Margins 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
EDG $37,219 31.2 $32,220 28.3 $33,416 30.4
SSC 25,160 28.6 19,923 26.8 20,840 30.7
DPG 10,464 34.2 8,465 28.8 13,156 36.4
SSD 15,335 23.1 8,267 21.8 5,425 21.2
-------- -------- --------
Total 88,178 29.0 68,875 27.0 72,837 30.4
Other (1,515) (1,411) (2,293)
-------- -------- --------
Consolidated $86,663 28.5 $67,464 26.4 $70,544 29.4
======== ======== ========
On a geographic basis, the Company categorizes its sales by destination:
North America, Europe and Rest of World (ROW). Sales and gross margin by
geographic area are as follows (in thousands):
Sales 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
North America $189,221 62.2 $153,221 60.1 $139,743 58.3
Europe 65,996 21.7 55,881 21.9 57,219 23.9
Rest of World 48,955 16.1 46,037 18.0 42,705 17.8
-------- ----- -------- ----- -------- -----
Consolidated $304,172 100.0 $255,139 100.0 $239,667 100.0
======== ===== ======== ===== ======== =====
Gross Margins 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
North America $ 53,421 28.2 $ 40,514 26.4 $ 41,257 29.5
Europe 20,456 31.0 16,194 29.0 19,186 33.5
Rest of World 14,301 29.2 12,167 26.4 12,394 29.0
-------- -------- --------
Total 88,178 29.0 68,875 27.0 72,837 30.4
Other (1,515) (1,411) (2,293)
-------- -------- --------
Consolidated $ 86,663 28.5 $ 67,464 26.4 $ 70,544 29.4
======== ======== ========
North American sales increased 23.5% in 1998, following a 9.6% increase in
1997. In both years, the sales gains were primarily attributable to SSD, and,
to a lesser extent, SSC and EDG. Sales in Europe increased 18.1% in 1998, after
a 2.3% decrease in 1997. In 1998, European sales increased in each SBU, with
SSC up 37.7%, SSD up 35.2%, DPG up 19.2% and EDG up 6.4%. In 1997, significant
sales gains by SSD and SSC were more than offset by a 32.6% decline in DPG
European sales from the loss of a customer. ROW sales increased 6.3% in 1998,
following a 7.8% gain in 1997. In both years, the largest ROW sales gains were
achieved by SSD and SSC.
Sales denominated in currencies other than U. S. dollars were 39%, 34%,and
32% of total sales in 1998, 1997 and 1996, respectively. Foreign currency
exchange rate changes reduced foreign sales by an average of 5.9% in 1998 and
increased foreign sales by 2.9% in 1997. Average selling prices, excluding the
effects of exchange rate changes, declined 0.3% in 1998, were unchanged in 1997
and increased 2.4% in 1996.
Sales and gross margin trends are analyzed for each strategic business
unit in the following sections.
Electron Device Group
EDG serves the vacuum tube industry, which is characterized by mature
products, the emergence of tube rebuilders, and vigorous price competition. The
Company estimates that overall industry sales are modestly contracting. EDG's
sales gains of 4.8% in 1998 and 3.4% in 1997 result from an increase in market
share and emphasis on medical x-ray imaging. Foreign sales as a percent of
total sales for EDG were 54.8% in 1998 and 56.5% in 1997 and 1996.
The medical electronics replacement business is a growth segment of the
vacuum 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 as opposed to purchasing new or rebuilt products
directly from original equipment manufacturers. The Company has invested in
expanding its medical sales force and has acquired x-ray tube and image
intensifier reloading facilities in the United States and established a similar
facility in the Netherlands. Sales in this EDG product line increased 21.9% to
$21.4 million in 1998, following a 56.5% increase in 1997. Other growth areas
in EDG include microwave generators, pulse power tubes, industrial magnetrons
and broadcast transmitters.
Gross margin as a percent of sales increased to 31.2% in 1998, compared to
30.6% in 1997 and 30.4% in 1996. For this comparison, the 1997 gross margin has
been adjusted to exclude the effect of the special charge for re-evaluation of
overstock provisions, which is described below. Gross margin improvement in
1998, 1997, and 1996 resulted from additional focus on pricing policies,
emphasis on proprietary product lines and value-added services.
4
Management's Discussion and Analysis
Solid State and Components
SSC operates in several markets, including the rapidly growing wireless
telecommunications industry. Sales increased 18.6% in 1998 to $88.0 million,
following a 9.2% increase in 1997. Sales outside of the United States
represented 39.8%, 37.6% and 36.3% of SSC's sales in 1998, 1997 and 1996,
respectively.
Gross margin as a percent of sales was 28.6% in 1998, compared to 30.1% in
1997 and 30.7% in 1996. For this comparison, the 1997 gross margin has been
adjusted to exclude the effect of the special charge. The gradual decline in
margin reflects competitive pricing pressures and changes in product mix.
Display Products Group
DPG sales increased 4.3% in 1998 and declined 18.7% in 1997. The 1997
sales decline is largely attributable to the loss of a major customer in
Europe. Sales in 1997 were hampered by product shortages, primarily for color
CRTs, as glass manufacturers were unable to meet demand. Sales outside the
United States represented 48.8%, 46.1% and 51.4% of DPG's sales in 1998, 1997
and 1996, respectively.
Gross margin as a percent of sales was 34.2% in 1998, compared to 35.1% in
1997 and 36.4% in 1996. For this comparison, the 1997 gross margin has been
adjusted to exclude the effect of the special charge. The margin trend reflects
competitive pressure, a shift in product mix from CRT's to monitors and other
display products and industry shortages.
Security Systems Division
SSD operates in the rapidly expanding security systems market. In August
1997, the Company acquired Security Service International, Inc. (SSI), a
Canadian security systems distributor, with annual sales of $20.0 million. The
acquisition follows the acquisition in February 1997 of Burtek Systems Inc.
(Burtek), a Canadian security systems distributor, with annual sales of $18
million. These acquisitions contributed to the 75.3% growth in sales in 1998
and the 47.8% sales growth in 1997. Sales outside of the United States
represented 63.5% of SSD's sales in 1998, 47.7% in 1997, and 38.8% in 1996.
Gross margin was 23.1%, 21.8% and 21.2% of sales in 1998, 1997 and 1996.
The improvement in gross margin rates reflects proprietary product lines and
franchises obtained with the SSI and Burtek acquisitions. Inventory turnover
rates achieved by SSD are significantly higher than the Company's other SBU's,
which mitigates the effect of lower gross margin rates.
Cost of Sales and Gross Margins
The following table reconciles product margins on distribution activities
to gross margins reported in the Consolidated Statements of Operations:
(% of sales) 1998 1997 1996
-------- -------- --------
Distribution product margin 29.6 % 29.9 % 31.0 %
Overstock provisions 0.1 % (3.0)% (0.1)%
Customer returns and scrap (0.6)% (0.3)% (0.7)%
Manufacturing and warranty costs 0.0 % (0.1)% (0.3)%
Other costs (0.6)% (0.1)% (0.5)%
-------- -------- --------
Gross margin 28.5 % 26.4 % 29.4 %
======== ======== ========
Fluctuations in distribution margins primarily reflect the shift in
product mix as SSD sales have increased as a percent of consolidated sales.
Distribution margins are also affected by changes in selling prices, product
costs, and foreign exchange rate variations. In the third quarter of 1997, 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. As a result of this review, the Company provided a
$7.2 million charge to cost of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented 21.5% of sales in
1998, 24.4% in 1997 and 22.1% in 1996. The 1998 improvement reflects policy and
procedural changes initiated by the Company to reduce these costs. In 1997,
selling, general and administrative expenses included a $3.8 million special
charge for severance and other costs related to a corporate reorganization.
Excluding the special charge, 1997 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.
Other (Income) Expense
Interest expense increased 6.0% in 1998, reflecting higher borrowing
levels during the year. Investment income includes realized capital gains of
$506,000 in 1998 and $1.1 million in 1996. 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 1998 and 1996, resulted in net foreign exchange losses.
Income Tax Provision
The effective tax rates were 30.1% in fiscal 1998, 63.1% in 1997 and 32.5%
in 1996. The 1998 and 1996 rates differ from the statutory rate of 34.0%
primarily due to the Company's foreign sales corporation benefit on export
sales. The 1997 rate reflects the realization of tax benefits on prior years'
foreign losses, foreign sales corporation benefits on export sales and state
taxes.
Net Income (Loss) and per Share Data
The comparability of net income (loss) and net income (loss) per share for
1998, 1997 and 1996 is affected by certain events in 1997. A special charge was
recorded in 1997 for severance and other costs related to a corporate
reorganization and the re-evaluation of certain reserves which reduced net
income before extraordinary loss by $6.7 million, or $.56 per share. Also in
1997, an extraordinary loss reduced net income by $488,000, or $.04 per share.
5
Management's Discussion and Analysis
Financial Condition
Liquidity
The Company offers engineered solutions, including prototype design and
assembly, in niche product areas to its customers. Additionally, many 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. Accordingly, the Company enjoys
higher gross margins, but necessarily has larger investments in inventory than
those of a commodity electronics distributor.
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 business acquisitions. Cash
provided by (used in) operations was $6.3 million in fiscal 1998, $3.6 million
in 1997 and $(7.9) million in 1996. Additional investments in working capital
to support sales growth were $10.6 million, $7.3 million and $22.0 million in
1998, 1997 and 1996, respectively.
At May 31, 1998, the Company had net operating loss carryforwards of $7.9
million for U. S. federal and state income tax purposes, which are available to
offset future tax liabilities. Current earnings levels are sufficient to
realize 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
$600,000 and is included in accrued liabilities at May 31, 1998.
Financing
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 E 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, a subsidiary of the Company
entered into a revolving credit agreement and term loan aggregating $6.0
million with an affiliate of the Company's primary bank. An additional $5.5
million was borrowed under this agreement in August 1997 to finance the
acquisition of the assets of Security Services International, Inc. At May 31,
1998, $9.4 million remained outstanding under this agreement. The loan is
guaranteed by the Company, bears interest at the Canadian prime rate and
matures March 1, 2001.
In March 1998, the Company replaced its existing senior revolving credit
note agreement with a new $50.0 million floating-rate revolving credit
agreement which expires March 1, 2001. Loans under the agreement bear interest
at prime or 125 basis points over the London Inter-Bank Offered Rate (LIBOR),
at the Company's option. The premium over LIBOR varies with certain performance
benchmarks. At May 31, 1998, $43.4 million was available under this line.
In May 1998, the Company sold 2,070,000 shares of its common stock in a
public offering at a price of $12.50 per share. The net proceeds to the
Company, after deducting an underwriting discount of 6% and issuance costs of
$253,000, were $24.1 million. The proceeds were used to reduce borrowings under
the Company's revolving debt agreement.
Annual dividend payments approximate $2.3 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.
Currency Fluctuations
The Company's foreign denominated assets and liabilities are cash,
accounts receivable, inventory and accounts payable, primarily in Canada and
member countries of the European community and, to a lesser extent, in Asia /
Pacific and Latin America. The Company monitors its foreign exchange exposures
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. 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.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Except for the historical information contained herein, the matters discussed
in this Annual Report (including the Annual Report on Form 10-K) are forward-
looking statements relating to future events which involve certain risks and
uncertainties, including those identified herein and in the Annual Report on
Form 10-K.
6
Consolidated Balance Sheets
May 31
--------------------
(in thousands) 1998 1997
--------- ---------
Assets
Current assets
Cash and equivalents $ 8,031 $ 10,012
Receivables, less allowance of $2,230
and $2,102 63,431 53,333
Inventories 96,443 92,194
Other 9,681 10,497
--------- ---------
Total current assets 177,586 166,036
Property, plant and equipment, net 18,477 17,526
Other assets 13,637 8,952
--------- ---------
Total assets $ 209,700 $ 192,514
========= =========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 17,320 $ 12,766
Accrued liabilities 10,689 12,449
--------- ---------
Total current liabilities 28,009 25,215
Long-term debt 87,427 107,275
Deferred income taxes 2,679 434
--------- ---------
Total liabilities 118,115 132,924
Stockholders' equity
Common Stock, $.05 par value 561 437
Class B Common Stock, convertible, $.05 par
value 162 162
Preferred Stock, $1.00 par value -- --
Additional paid-in capital 80,606 53,512
Retained earnings 16,842 9,082
Foreign currency translation adjustment (6,586) (3,603)
--------- ---------
Total stockholders' equity 91,585 59,590
--------- ---------
Total liabilities and stockholders' equity $ 209,700 $ 192,514
========= =========
See notes to consolidated financial statements.
7
Consolidated Statements of Operations
Year Ended May 31
---------------------------------
(in thousands, except per share amounts) 1998 1997 1996
--------- --------- ---------
Net sales $ 304,172 $ 255,139 $ 239,667
Costs and expenses:
Cost of products sold 217,509 187,675 169,123
Selling, general and
administrative expenses 65,393 62,333 52,974
--------- --------- ---------
282,902 250,008 222,097
--------- --------- ---------
Operating income 21,270 5,131 17,570
Other (income) expense:
Interest expense 8,084 7,622 6,624
Investment income (1,005) (392) (1,238)
Foreign exchange and other 255 626 173
--------- --------- ---------
7,334 7,856 5,559
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item 13,936 (2,725) 12,011
Income tax provision (benefit) 4,200 (1,720) 3,900
--------- --------- ---------
Income (loss) before extraordinary item 9,736 (1,005) 8,111
Extraordinary loss, net of tax benefit -- (488) --
--------- --------- ---------
Net income (loss) $ 9,736 $ (1,493) $ 8,111
========= ========= =========
Income (loss) per share - basic:
Before extraordinary item $ .79 $ (.08) $ .70
Extraordinary loss, net of tax benefit -- (.04) --
--------- --------- ---------
Net income (loss) per share $ .79 $ (.12) $ .70
========= ========= =========
Average shares outstanding 12,264 11,892 11,659
Income (loss) per share - diluted:
Before extraordinary item $ .77 $ (.08) $ .68
Extraordinary loss, net of tax benefit -- (.04) --
--------- --------- ---------
Net income (loss) per share $ .77 $ (.12) $ .68
========= ========= =========
Average shares outstanding 12,689 11,892 12,002
Dividends per common share $ .16 $ .16 $ .16
========= ========= =========
Comprehensive income (loss):
Net income (loss) $ 9,736 $ (1,493) $ 8,111
Foreign currency translation adjustment (2,983) (1,190) (1,864)
--------- --------- ---------
Comprehensive income (loss) $ 6,753 $ (2,683) $ 6,247
========= ========= =========
See notes to consolidated financial statements.
8
Consolidated Statements of Cash Flows
(in thousands)
Year Ended May 31
----------------------------
1998 1997 1996
-------- -------- --------
Operating Activities:
Net income (loss) $ 9,736 $(1,493) $ 8,111
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation 3,477 2,627 2,709
Amortization of intangibles and
financing costs 632 1,318 360
Deferred income taxes 2,779 (3,305) 2,338
Stock contribution to employee
ownership plan 285 800 500
Special charges -- 11,000 --
-------- -------- --------
Net adjustments 7,173 12,440 5,907
-------- -------- --------
Changes in working capital, net of currency
translation effects and business
acquisitions:
Receivables (9,170) (4,277) (5,310)
Inventories (3,658) 406 (12,920)
Other current assets 186 253 1,567
Accounts payable 4,366 (3,719) (3,448)
Accrued liabilities (2,350) 28 (1,843)
-------- -------- --------
Net changes in working capital (10,626) (7,309) (21,954)
-------- -------- --------
Net cash provided by (used in)
operating activities 6,283 3,638 (7,936)
-------- -------- --------
Financing activities:
Proceeds from borrowings 16,731 57,890 22,200
Payments on debt (35,642) (42,640) (19,679)
Proceeds from sale of common stock 26,933 536 1,713
Cash dividends (1,976) (1,855) (1,822)
-------- -------- --------
Net cash provided by financing
activities 6,046 13,931 2,412
-------- -------- --------
Investing activities:
Business acquisitions (6,798) (9,902) (1,450)
Capital expenditures (4,116) (4,004) (2,352)
Other (3,396) (435) 4,959
-------- -------- --------
Net cash (used in) provided by
investing activities (14,310) (14,341) 1,157
-------- -------- --------
(Decrease) increase in cash
and equivalents (1,981) 3,228 (4,367)
Cash and equivalents at beginning of year 10,012 6,784 11,151
-------- -------- --------
Cash and equivalents at end of year $ 8,031 $10,012 $ 6,784
======== ======== ========
See notes to consolidated financial statements.
9
<TABLE>
Consolidated Statements of Stockholder's Equity
<CAPTION>
Consolidated Statements of Stockholders' Equity
Shares Issued Accumulated
--------------- Additional Other
(shares and dollars Class B Par Paid-in Retained Comprehensive
in thousands) Common Common Value Capital Earnings Income(Loss) Total
------ ------ ------ --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 1995 8,225 3,247 $ 573 $ 49,989 $ 6,141 $ (549) $ 56,154
Shares contributed to ESOP 69 -- 3 497 -- -- 500
Shares issued under ESPP
and stock option plans 265 -- 14 1,699 -- -- 1,713
Conversion of Class B
Shares to common shares 3 (3) -- -- -- -- --
Dividends -- -- -- -- (1,822) -- (1,822)
Currency translation -- -- -- -- -- (1,864) (1,864)
Net income -- -- -- -- 8,111 -- 8,111
------ ----- ------ ------ -------- ------------ ------
Balance May 31, 1996 8,562 3,244 590 52,185 12,430 (2,413) 62,792
Shares contributed to ESOP 84 -- 5 795 -- -- 800
Shares issued under ESPP
and stock option plan 74 -- 4 532 -- -- 536
Conversion of Class B
Shares to common shares 1 (1) -- -- -- -- --
Dividends -- -- -- -- (1,855) -- (1,855)
Currency translation -- -- -- -- -- (1,190) (1,190)
Net loss -- -- -- -- (1,493) -- (1,493)
------ ----- ------ ------ -------- ------------ ------
Balance May 31, 1997 8,721 3,243 599 53,512 9,082 (3,603) 59,590
Shares contributed to ESOP 34 -- 2 283 -- -- 285
Shares issued under ESPP
And stock option plan 354 -- 19 2,845 -- -- 2,864
Public stock offering 2,070 -- 103 23,966 -- -- 24,069
Conversion of Class B
4 (4) -- -- -- -- --
Dividends -- -- -- -- (1,976) -- (1,976)
Currency translation -- -- -- -- -- (2,983) (2,983)
Net income -- -- -- -- 9,736 -- 9,736
------ ----- ------ -------- -------- ------------ -------
Balance May 31, 1998 11,183 3,239 $ 723 $ 80,606 $ 16,842 $ (6,586) $91,585
====== ===== ====== ======== ======== ============ =======
</TABLE>
See notes to consolidated financial statements
10
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
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.
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 80% of
total inventories at May 31, 1998 and 78% at May 31, 1997. 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 total amount of
inventories would have been increased by $3,569 and $4,742 at May 31, 1998 and
1997, respectively. 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, 1998 and 1997. 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 over the estimated useful life of the asset. Property, plant and
equipment consist of the following:
May 31
------------------------
1998 1997
-------- --------
Land and improvements $ 2,721 $ 2,620
Buildings and improvements 18,479 18,251
Machinery and equipment 28,595 25,098
-------- --------
Property at cost 49,795 45,969
Accumulated depreciation (31,318) (28,443)
-------- --------
Property, net $ 18,477 $ 17,526
======== ========
Other Assets: Deferred financing costs, goodwill and other deferred charges are
amortized using the straight-line method. Other assets consist of the
following:
May 31
------------------------
1998 1997
-------- --------
Investments (at market) $ 2,931 $ 2,152
Notes receivable 3,158 86
Deferred financing costs, net 502 511
Goodwill, net 5,558 4,831
Other deferred charges, net 1,488 1,372
-------- --------
Other assets, net $ 13,637 $ 8,952
======== ========
Accrued Liabilities: Accrued liabilities consist of the following:
May 31
------------------------
1998 1997
-------- --------
Compensation and payroll taxes $ 5,072 $ 4,320
Interest 2,546 2,849
Income taxes 362 712
Other accrued expenses 2,306 4,568
Notes and current portion of debt 403 -
-------- --------
Accrued liabilities $ 10,689 $ 12,449
======== ========
Foreign Currency Translation: Foreign currency balances and financial
statements are translated into U. S. dollars at end-of-period rates, except
that revenues, costs and expenses are translated at the current rate on the
date of the transaction. Gains and losses resulting from foreign currency
transactions are included in income currently. Foreign currency transaction
losses reflected in operations were $299, $563, and $228 in 1998, 1997, and
1996, respectively. Gains and losses resulting from translation of foreign
subsidiary financial statements are credited or charged directly to a separate
component of stockholders' 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. Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation", requires estimation of the fair value of options granted to
employees. As permitted by SFAS No. 123, the Company presents this estimated
fair value information in Note G, and continues to apply APB Opinion No. 25 for
the determination of compensation expense.
Comprehensive Income: SFAS No. 130, "Reporting Comprehensive Income" requires
the presentation of comprehensive income in the financial statements for fiscal
years beginning after December 15, 1997. The Company has elected early adoption
of this statement, and has included the calculation of comprehensive income in
the Consolidated Statement of Operations.
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 an increase in net income per share of $.02 in 1996 and no change in 1997.
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
11
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
Common and Class B Common shares outstanding. Diluted earnings per share is
calculated by dividing net income (loss) by the basic shares outstanding and
share equivalents that would arise from the exercise of stock options. The per
share amounts presented in the Consolidated Statement of Operations were based
on the following amounts:
1998 1997 1996
------- ------- -------
Numerator for basic and diluted EPS:
Net income (loss) before
extraordinary item $ 9,736 $(1,005) $ 8,111
Extraordinary loss, net of tax benefit - (488) -
------- ------- -------
Net income (loss) $ 9,736 $(1,493) $ 8,111
======= ======= =======
Denominator for basic EPS:
Shares outstanding at
beginning of period 11,964 11,806 11,472
Additional shares for stock
issued 300 86 187
------- ------- -------
Weighted average shares
outstanding 12,264 11,892 11,659
======= ======= =======
Denominator for diluted EPS:
Weighted average shares
outstanding 12,264 11,892 11,659
Effect of dilutive stock
options 425 - 343
------- ------- -------
Adjusted average shares
outstanding 12,689 11,892 12,002
======= ======= =======
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 in 1997 because the Company reported a net loss.
Reclassifications: Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform to the 1998 presentation.
Note B -- Special Charges and Extraordinary Item
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 $7,200 were included in cost of sales, and provisions for
accounts receivable, severance and other costs of $3,800 were included in
selling, general and administrative expense. Collectively, these charges
amounted to $11,000 pre-tax, or $6,712, net of tax, reducing earnings per share
by $.56.
Also in the third quarter of fiscal 1997, the Company recorded an $800
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 E). Net of tax, the charge was $488,
or $.04 per share.
Note C -- Acquisitions
In August 1997 the Company's SSD unit acquired the assets of Security
Service International, Inc. (SSI), a Canadian distributor of security systems
with annual sales of $20.0 million.
In February 1997, the SSD unit acquired Burtek Systems, Inc., (Burtek) a
security systems distributor operating in Canada with annual sales of $18.0
million. In October 1996, the SSC business unit acquired Compucon Distributors,
Inc., a distributor of interconnect devices operating in the northeastern
United States with annual sales of $8.0 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.
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 10%, 13%, and
15%, of net sales in fiscal 1998, 1997 and 1996, respectively.
Note E -- Debt Financing
Long-term debt consists of the following:
May 31
------------------------
1998 1997
--------- ---------
8 1/4% Convertible debentures, due
June 2006 $ 40,000 $ 40,000
7 1/4% Convertible debentures, due
December 2006 30,825 30,825
Floating-rate revolving credit
facility, due March 2001
(6.92% at May 31, 1998) 6,582 30,332
Revolving credit and term loan due
March 2001 (6.46% at May 31, 1998) 9,365 5,704
Other 1,010 414
--------- ---------
Long-term debt 87,782 107,275
Less current portion (355) --
--------- ---------
Long-term debt $ 87,427 $ 107,275
========= =========
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 $3,850 in 2004 and $6,225 in 2005.
Effective March 1998, the Company replaced its existing senior revolving
credit note agreement with a new $50.0 million floating-rate revolving credit
facility which expires March 1, 2001. Loans under the agreement bear interest
at prime or 125 basis points over LIBOR, at the Company's option. The premium
over LIBOR varies with certain performance benchmarks.
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
12
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
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 $12.1 million in August 1997 to facilitate the
acquisition of SSI and matures March 1, 2001.
The debt agreements contain financial covenants with which the Company was
in full compliance at May 31, 1998. The most restrictive covenants set
benchmark levels for tangible net worth, debt to tangible net worth ratio, cash
flow to senior funded debt and annual debt service coverage.
Aggregate maturities of debt during the next five years are: $355 in 1999,
$328 in 2000 and $16,274 in 2001. Cash payments for interest were $8,387,
$7,463 and $6,445 in 1998, 1997 and 1996, respectively.
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. The fair values of
the bank term loans are based on carrying value, adjusted for market interest
rate changes.
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
8 1/4% Convertible
debentures $ 40,000 $ 38,000 $ 40,000 $ 31,800
7 1/4% Convertible
debentures 30,825 27,126 30,825 24,044
Floating-rate revolving
credit facility 6,582 6,582 30,332 30,330
Revolving credit and
term loan 9,365 9,365 5,704 5,704
Other 1,010 1,010 414 414
-------- -------- -------- --------
Total 87,782 82,083 107,275 92,292
Less current portion (355) (355) -- --
-------- -------- -------- --------
Total $ 87,427 $ 81,728 $107,275 $ 92,292
======== ======== ======== ========
Note F -- Income Taxes
The components of income (loss) before income taxes and extraordinary item
are:
1998 1997 1996
--------- --------- ---------
United States $ 11,070 $ (4,558) $ 9,954
Foreign 2,866 1,833 2,057
--------- --------- ---------
Income (loss) before taxes
and extraordinary item $ 13,936 $ (2,725) $ 12,011
========= ========= =========
The provision (benefit) for income taxes differs from income taxes
computed at the federal statutory tax rate of 34% as a result of the following
items:
1998 1997 1996
--------- --------- ---------
Federal statutory rate 34.0 % 34.0 % 34.0 %
Effect of:
State income taxes, net of
federal tax benefit 3.5 11.3 3.5
FSC benefit on export sales (6.2) 12.3 (3.2)
Realization of tax benefit on
prior years' foreign losses - 14.7 (2.5)
Foreign taxes at other rates (0.3) (7.5) -
Other (0.9) (1.7) 0.7
--------- --------- ---------
Effective tax rate 30.1 % 63.1 % 32.5 %
========= ========= =========
In 1995, due to the timing and nature of a claim settlement, 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.
The provisions (benefits) for income taxes before extraordinary item
consist of the following:
1998 1997 1996
--------- --------- ---------
Currently payable:
Federal $ 973 $ 299 $ 1,158
State 155 -- 139
Foreign 293 609 274
--------- --------- ---------
Total currently payable 1,421 908 1,571
--------- --------- ---------
Deferred:
Federal 1,867 (2,626) 1,806
State 275 (441) 498
Foreign 637 439 25
--------- --------- ---------
Total deferred 2,779 (2,628) 2,329
--------- --------- ---------
Income tax provision (benefit) $ 4,200 $ (1,720) $ 3,900
========= ========= =========
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 as of May 31, 1998 and 1997 are as follows:
Balance Sheet Presentation
--------------------------
Current Noncurrent
Asset (1) Liability
---------- ----------
At May 31, 1998:
Deferred tax assets:
Operating loss carryforward $ -- $ 180
Intercompany profit in inventory 1,372 --
Inventory valuation 5,748 --
Environmental and other reserves -- 955
Other, net 15 --
---------- ----------
Deferred tax assets 7,135 1,135
Deferred tax liabilities:
Accelerated depreciation -- (3,633)
Other, net -- (181)
---------- ----------
Net deferred tax $ 7,135 $ (2,679)
At May 31, 1997:
Deferred tax assets:
Operating loss carryforward $ -- $ 1,778
Intercompany profit in inventory 1,422 --
Inventory valuation 6,312 --
Environmental and other reserves -- 1,368
Other, net 14 --
---------- ----------
Deferred tax assets 7,748 3,146
Deferred tax liabilities:
Accelerated depreciation -- (3,516)
Other, net -- (64)
---------- ----------
Net deferred tax $ 7,748 $ (434)
========== ==========
(1) Included in other current assets on the balance sheet
Operating loss carryforwards of $7.9 million for U. S. tax purposes expire
in 2009 and 2010. Net income taxes paid (refunded) were $850, $523, and
$(1,112) in 1998, 1997 and 1996, respectively.
13
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
Note G -- Stockholders' Equity
The Company has authorized 30.0 million shares of Common Stock, 10.0
million shares of Class B Common Stock, and 5.0 million 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.
In May 1998, the Company sold 2,070 shares of its common stock through a
public offering at a price of $12.50 per share. The net proceeds to the
Company, after deducting an underwriting discount of 6% and issuance costs of
$253 were $24,069. Proceeds were used to pay down the revolving credit
facility.
Total common stock issued and outstanding at May 31, 1998 was 11,183
shares. An additional 9,791 shares of common stock 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 71 shares for future issuance.
On July 14, 1998, the Board of Directors approved the Employees 1998
Incentive Compensation Plan. The plan is subject to stockholders' approval,
which will be voted at the annual meeting on October 6, 1998. The information
in this footnote assumes stockholders' approval.
The Employees' 1998 Incentive Compensation Plan authorizes the issuance of
up to 800 shares as incentive stock options, non-qualified stock options or
stock awards. Under this plan and predecessor plans, 2,394 shares are 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 shares 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.
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. SFAS No. 123 requires the calculation of the fair
value of each option granted. This fair value is estimated on the date of grant
using the Black-Scholes option-pricing model with the assumptions indicated
below. 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 would have been as follows:
1998 1997 1996
------- ------- -------
Net income (loss), as reported $ 9,736 $(1,493) $ 8,111
Effect of options (475) (307) (134)
------- ------- -------
Adjusted net income (loss) $ 9,261 $(1,800) $ 7,977
======= ======= =======
Net income (loss) per share - diluted:
As reported $ .77 $ (.12) $ .68
Effect of options (.04) (.03) (.02)
------- ------- -------
Adjusted net income (loss) $ .73 $ (.15) $ .66
======= ======= =======
Assumptions used:
Risk-free interest rate 5.5% 5.2% 5.6%
Annual standard deviation
of stock price 40% 40% 40%
Weighted average expected life (years) 5.6 6.0 6.0
Annual dividend rate $ .16 $ .16 $ .16
Weighted average fair value
per option $ 3.49 $ 3.07 $ 2.95
Option value of ESPP per share $ 1.19 $ 1.50 $ 1.14
Fair value of options granted
during the year $ 948 $ 940 $ 776
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.
A summary of the share activity and weighted average exercise prices for
the Company's option plans is as follows:
Outstanding Exercisable
------------------- --------------------
Shares Price Shares Price
-------- -------- -------- --------
At June 1, 1995 1,333 $ 6.99 1,055 $ 7.02
Granted 263 7.40
Exercised (245) 5.71
Cancelled (99) 9.91
--------
At May 31, 1996 1,252 7.10 855 7.16
Granted 286 8.00
Exercised (33) 4.82
Cancelled (16) 7.72
--------
At May 31, 1997 1,489 7.31 936 7.21
Granted 291 8.70
Exercised (308) 6.57
Cancelled (99) 7.26
--------
At May 31, 1998 1,373 7.74 697 7.52
========
The following table summarizes information about stock options outstanding
as of May 31, 1998:
Outstanding Exercisable
Exercise ------------------------ ----------------------
Price Range Shares Price Life Shares Price Life
- ----------------- ------- ----- ---- ------- ----- ----
$3.75 to $5.25 131 $4.32 6.1 102 $4.27 6.1
$6.00 to $7.50 458 6.88 6.3 272 6.72 5.3
$8.00 to $8.50 671 8.19 7.1 241 8.04 3.9
$10.813 to $12.95 113 12.46 5.8 82 12.69 4.4
------- -------
Total 1,373 7.74 6.6 697 7.52 4.8
======= ===== ==== ======= ===== ====
Note H -- 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
14
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
discretionary and matching contributions to these plans were $1,341, $995 and
$1,075 in 1998, 1997 and 1996. Stock contributions to the ESOP were $285, $800
and $500 in 1998, 1997 and 1996, 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 I -- 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.
1998 1997 1996
-------- -------- --------
Sales:
North America $265,984 $223,277 $211,912
Less intersegment transfers 21,366 18,728 21,778
-------- -------- --------
To unaffiliated customers 244,618 204,549 190,134
-------- -------- --------
Europe 65,092 54,946 51,987
Less intersegment transfers 5,538 4,356 2,454
-------- -------- --------
To unaffiliated customers 59,554 50,590 49,533
-------- -------- --------
Consolidated $304,172 $255,139 $239,667
======== ======== ========
Operating income:
North America $ 16,060 $ 1,999 $ 13,040
Europe 6,689 4,949 6,263
Corporate expenses (1,479) (1,817) (1,733)
-------- -------- --------
Consolidated $ 21,270 $ 5,131 $ 17,570
======== ======== ========
Identifiable assets:
North America $163,624 $148,026 $143,536
Europe 39,910 34,905 32,794
Corporate assets 6,166 9,583 3,828
-------- -------- --------
Consolidated $209,700 $192,514 $180,158
======== ======== ========
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 United States were
$39,814, $36,325 and $37,913 in 1998, 1997 and 1996.
Operating income was reduced by $11.0 million in North America in 1997 for
valuation reserve adjustments, severance and other costs.
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. The Financial Accounting Standards Board
has issued Statement No. 131 "Disclosures about Segments of an Enterprise and
Related Information" effective for years beginning after December 15, 1997. The
Company is currently reviewing its internal cost allocations and reporting
procedures in light of the Statement's requirements.
Note J -- 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 K -- Selected Quarterly Financial Data
(Unaudited)
Summarized quarterly financial data for 1998 and 1997 follow. There were
no material fourth quarter adjustments in 1998 or 1997. Third quarter 1997
results include valuation reserve adjustments and severance and other costs
which reduced gross margin by $7,200 and net income before extraordinary item
by $6,712 or $.56 per share, as described in Note B.
First Second Third Fourth
------- ------- ------- -------
1998:
Net sales $71,600 $78,646 $73,196 $80,730
Gross margin 20,638 22,348 20,860 22,817
Net income 1,808 2,740 2,182 3,006
Net income per
share - basic $ .15 $ .23 $ .18 $ .23
Net income per
share - diluted $ .15 $ .22 $ .17 $ .23
1997:
Net sales $57,544 $62,167 $64,163 $71,265
Gross margin 16,783 18,738 11,171 20,772
Net income (loss)
before
extraordinary item 1,293 1,932 (6,053) 1,823
Extraordinary loss,
net of tax - - (488) -
------- ------- ------- -------
Net income (loss) 1,293 1,932 (6,541) 1,823
Net income (loss) per
share - basic and
diluted, before
extraordinary loss $ .11 $ .16 $ (.51) $ .15
Net income (loss) per
share - basic
and diluted $ .11 $ . 16 $ (.55) $ .15
15
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, 1998 and 1997, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended May 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended May 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
July 14, 1998
Corporate Officers and Board of Directors
Corporate Officers
Edward J. Richardson
Chairman of the Board and Chief Executive Officer
Bruce W. Johnson
President and Chief Operating Officer
Charles J. Acurio
Executive Vice President and General Manager, Display Products Group
Pierluigi Calderone
Vice President and Manager of European Operations
Page Y. Chiang
Vice President and Operations Manager, Security Systems Division
Kevin M. Connor
Vice President of Sales, Solid State and Components Group
Flint Cooper
Executive Vice President and General Manager, Security Systems Division
William J. Garry
Senior Vice President, Finance and Chief Financial Officer
Joseph C. Grill
Vice President, Human Resources
Norman A. Hilgendorf
Vice President and General Manager, Solid State and Components Group
Kathleen M. McNally
Vice President, Marketing Operations
Bart Petrini
Executive Vice President and General Manager, Electron Device Group
Robert Prince
Executive Vice President, Worldwide Sales
Kevin F. Reilly
Vice President and Chief Information Officer
William G. Seils
Senior Vice President, General Counsel and Corporate Secretary
Ronald G. Ware
Treasurer and Assistant Secretary
Board of Directors
Edward J. Richardson (1)
Arnold R. Allen
Consultant
Jacques Bouyer (6)
Consultant
Kenneth J. Douglas (2,3,4)
Chairman of the Board, West Suburban Hospital Medical Center
William J. Garry
Scott Hodes (2,3,5)
Partner, Law Firm of Ross & Hardies
Bruce W. Johnson (1)
Ad Ketelaars (6)
Consultant
Harold L. Purkey (2)
President, Forum Capital Markets
Samuel Rubinovitz (1,3,4,5,6)
Consultant and Chairman, LTX Corporation
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Stock Option Committee
(5) Executive Oversight Committee
(6) Strategic Planning Committee
17
Stockholder Information
Corporate Office
Richardson Electronics, Ltd.
40W267 Keslinger Road
PO BOX 393
LaFox, Illinois 60147-0393
(630) 208-2200
Internet:www.rell.com
E-mail: [email protected]
Annual Meeting
We encourage stockholders to attend the annual meeting scheduled for Tuesday,
October 6, 1998 at 3:15 p.m. at the Company's corporate office. Further details
are available in your proxy materials.
Transfer Agent and Registrar
Continental Stock Transfer Company
2 Broadway, 19th Floor
New York, NY 10004
Auditors
Ernst & Young LLP
233 S. Wacker Drive
Chicago, Illinois 60606
Brokerage Reports
Barrington Research
Cleary Gull Reiland & McDevitt Inc.
McDonald & Company Securities, Inc.
Pauli & Company
Market Makers
Barrington Research
William Blair & Co.
Cleary Gull Reiland & McDevitt Inc.
C. L. King & Associates
McDonald & Company Securities, Inc.
Pauli & Company
Smith Barney Shearson
Wechsler & Krumholz, Inc.
Form 10K and Other Information
A copy of the Company's Annual Report on Form 10K, filed with the Securities
and Exchange Commission is available without charge upon request. All inquiries
should be addressed to the Investor Relations Department, Richardson
Electronics, Ltd., 40W267 Keslinger Road, PO BOX 393, LaFox, Illinois 60147-
0393. Press releases and other information can be found on the Internet at the
Company's home page at http://www.rell.com.
Market Price of Common Stock
The common stock is traded on the NASDAQ National Market System under the
symbol "RELL".The number of stockholders of record of Common Stock and Class B
Common Stock at May 31, 1998 was 645 and 32, respectively. The Company believes
there are approximately an additional 1,300 holders who own shares of the
Company's Common Stock in street name. The quarterly market price ranges of the
Company's common stock were as follows:
1998 1997
------------------- --------------------
Fiscal Quarters High Low High Low
-------- -------- -------- --------
First 8 3/4 8 10 1/2 9
Second 13 3/4 8 3/8 10 7
Third 12 5/8 9 3/4 10 1/4 8
Fourth 14 1/2 10 1/4 8 1/4 6 3/4
17
Richardson Electronics, Ltd. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(in thousands)
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
- ------------------------- --------- ------------------- ----------- -------
(1) (2)
Balance Charged Charged to Balance
at to Costs Other at
Beginning and Accounts- Deductions- End of
DESCRIPTION of Period Expenses Describe Describe Period
- ------------------------- --------- -------- --------- ----------- -------
Year ended May 31, 1998:
Allowance for sales
returns and doubtful
accounts $ 2,102 $ 431 $ - $ 303(1) $2,230
Other reserves $ 1,956 $ 41(2)$ - $ 635(3) $1,362
Year ended May 31, 1997:
Allowance for sales
returns and doubtful
accounts $ 1,461 $1,749 $ - $ 1,108(1) $2,102
Other reserves $ 1,539 $ 900(4)$ - $ 483(3) $1,956
Year ended May 31, 1996:
Allowance for sales
returns and doubtful
accounts $ 1,385 $ (42) $ - $ (118)(1) $1,461
Other reserves $ 1,728 $ 400(2)$ - $ 589 (3) $1,539
(1) Uncollectible amounts written off, net of recoveries and foreign currency
translation.
(2) Provision to increase EPA groundwater remediation reserve
(3) Expenditures made for reserved items
(4) Provision for corporate reorganization and increase in EPA groundwater
remediation reserve.
Exhibit 10(g)(3)
Third Amendment to Restated Richardson Electronics, Ltd.
Employees Stock Ownership Plan
RICHARDSON ELECTRONICS, LTD., a Delaware corporation, hereby
amends the Richardson Electronics, Ltd. Employees Stock Ownership
Plan, as amended and restated on July 14, 1994, effective June 1,
1989, and as further amended (the "Plan"), as follows:
1. The following sentence is added to Section 2.1 of the
Plan effective June 1, 1996:
There shall also be maintained, in the case of a
Participant who incurs a Break in Service, a Forfeiture
Suspense Account in accordance with Section 18.3(d).
2. Section 7.4 of the Plan is deleted and the following is
substituted in its place effective June 1, 1996:
7.4 Crediting of Forfeitures
Forfeitures, if any, occurring during the Plan Year pursuant
to Section 18.3(d) and allocated from the Forfeiture
Suspense Accounts shall be allocated among the Employer
Contribution Accounts of all Participants eligible to
receive an allocation of the Employer's contribution under
Section 6.1(a) in the proportion that the Compensation paid
or accrued to each such Participant during such Plan Year
bears to the Compensation paid or accrued to all such
Participants during such Plan Year.
3. Section 14.3 of the Plan is deleted and the following
is substituted in its place effective May 31, 1997:
14.3 Diversification Elections.
(a) Each Qualified Participant may make an election (the
"Election") within 90 days after each Anniversary Date
during the Qualified Election Period to direct the Plan to
distribute to him or on his behalf, a portion of his Account
Balance equal to his Diversification Amount. An Election
shall be made in, in writing, on a form to be supplied by
the Administrator for such purpose. A Participant shall
become a "Qualified Participant: on the first day on or
after which he has both attained age 55 and completed 10
years of participation in the Plan. The "Qualified Election
Period" shall be the 6-year period commencing with the Plan
Year in which the Participant first becomes a Qualified
Participant. During any one of the first 5 Plan Years of
the Qualified Election Period, the "Diversification Amount"
shall be an amount equal to the excess, if any, of 25% of:
(1) the number of shares of Stock credited to the
Qualified Participant's Account on or before the
last Anniversary Date preceding the Plan Year for
which such Election is made, less
(2) the number of shares of Stock previously
distributed to such Qualified Participant (or,
where he had requested a distribution in cash, the
number of shares of Stock in connection with such
a cash distribution to him).
In the last Plan Year of the Qualified Election Period, the
preceding sentence shall be applied by substituting "50%" for
"25%." In applying either such percentage, any resultant
fractional share under .5 shall be disregarded and any resultant
fractional share of .5 or more shall be considered as an
additional full share.
(b) Not later than 90 days after the close of each 90-day
period described in Section 14.3(a), the Administrator
shall implement such Qualified Participant's Election
by distributing to him Stock equal to the
Diversification Amount, or, if so directed by him, the
Administrator shall cause such Stock to be sold on the
open market and the net proceeds distributed to him, or
on his behalf, subject to Section 9.10.
(c) The Administrator shall have the sole responsibility
for and complete discretion in establishing and, if it
deems it necessary, amending the rules and procedures
governing the time and manner in which Qualified
Participants may make, modify or revoke any Election
pursuant to this Section 14.3. The discretion of the
Administrator in this regard shall only be limited by
the general requirement that such discretion be
exercised in a non-discriminatory manner and in
compliance with the requirements of Code Section
401(a)(28) and any regulations promulgated thereunder.
(d) The purpose of this Section 14.3 is to conform to the
requirements of Code Section 401(a)(28). To the extent
that this Section 14.3 is inconsistent with Section
401(a)(28), the provisions of Section 401(a)(28) shall
control.
4. Article XVIII, in the form attached hereto as Exhibit
A, is added to the Plan effective June 1, 1996.
IN WITNESS WHEREOF, the undersigned has caused this
instrument to be executed as of this 9th day of April, 1997.
RICHARDSON ELECTRONICS, LTD.
By /s/ William G. Seils
As Its Senior Vice President
EXHIBIT A
ARTICLE XVIII
REVISED VESTING PROVISIONS
18.1 Scope and Effective Date.
As to each Employee who is actively employed by the Employer
on or after June 1, 1996, the vested interest of such Employee in
his Account shall be determined in accordance with this Article
XVIII notwithstanding any other provision of the Plan to the
contrary; provided, however, Sections 8.1, 8.2, 8.3, 8.4, 8.7 and
8.8 of the Plan shall continue to apply.
18.2 Definitions.
For purposes of this Article XVIII, the following terms
shall have the meanings set forth, notwithstanding any definition
of any such term elsewhere in the Plan:
(a) "Break in Service" A Period of Severance of at least
12 consecutive months. In the case of an individual
who is absent from work for maternity or paternity
reasons, the 12-consecutive month period beginning on
the first anniversary of the first date of such absence
shall n to constitute a Break in Service. An "absence
from work for maternity or paternity reasons" shall
mean an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of
the individual, (3) by reason of the placement of a
child with the individual in connection with the
adoption of such child by such individual, or (4) for
purposes of caring for such child for a period
beginning immediately following such birth or
placement.
(b) "Hour of Service" Each hour for which an Employee is
paid or entitled to payment for the performance of
duties for the Employer or a Related Employer.
(c) "Period of Service" An Employee's period of service
commencing on the date he first completes an Hour of
Service, and ending on the date a Break in Service
begins; provided, however, that for purposes of Section
18.2(c), any Employee to whom Section 18.4 applies
shall be deemed to have a hire date of May 31, 1997.
(d) "Period of Severance" A continuous period of time
during which an Employee is not employed by the
Employer. Such period begins on the date such Employee
retires, quits or is discharged, or if earlier, the 12-
month anniversary of the date on which such Employee
was otherwise first absent from service.
(e) "Years of Service" The number of whole years of an
Employee's Period of Service with the Employer or a
Related Employer.
18.3 General Vesting Rules.
(a) For purposes of determining his Years of Service, an
Employee shall receive credit for any Period of
Severance of less than 12 consecutive months.
Nonconsecutive Periods of Service shall be aggregated.
Additionally, fractional periods of a year shall be
expressed in terms of days, and less-than-whole-year
Periods of Service shall be aggregated on the basis
that 365 days of service shall equal a whole Year of
Service.
(b) In the case of a Participant who has 5 consecutive
Breaks in Service, all Years of Service after such
Breaks in Service shall be disregarded for the purpose
of determining his vesting in his Account balance which
accrued before such breaks, but both pre-break and
post-break service shall count for the purposes of
vesting the Employer-derived Account balance that
accrues after such breaks. Both such balances shall
share in the earnings and losses of the Trust.
(c) In the case of a Participant who does not have 5
consecutive Breaks in Service, both the pre-break and
post-break service shall count in vesting both the pre-
break and post-break Employer-derived Account balances.
(d) The excess of a Participant's Account Balance over his
Vested Account Balance shall be transferred from such
Participant's Employer Contribution Account to his
Forfeiture Suspense Account as of the date on which
such Participant incurs a Break in Service, and shall
be forfeited on the date on which such Participant
incurs 5 consecutive Breaks in Service. If such a
Participant returns to the employment of the Employer
or any Related Employer before incurring 5 consecutive
Breaks in Service, any amount transferred to his
Forfeiture Suspense Account from such his Employer
Contribution Account pursuant to the preceding sentence
shall be restored to his Employer Contribution Account.
(e) If a Participant receives a distribution of all or a
portion of his Employer Contribution Account Balance at
a time when it is possible for him to increase the
vested percentage of his Employer Contribution Account
(including a Participant who received a distribution
upon incurring a Termination of Employment and who
returns to the employment of the Employer or any
Related Employer before incurring at least 5
consecutive Breaks in Service), then such Participant's
Vested Account Balance at any time after he is re-
employed shall be determined by (1) increasing the
Participant's Employer Contribution Account Balance at
such time by the Adjusted Distribution (as hereafter
defined), (2) then multiplying the Employer
Contribution Account Balance (as so increased) by the
relevant vesting percentage under Section 8.4, and (3)
then subtracting the Adjusted Distribution from the
product obtained. The "Adjusted Distribution" shall be
equal to the amount of the distribution multiplied by a
fraction, the numerator of which is the Participant's
Account Balance at the time the formula is applied and
the denominator of which is the Account Balance
immediately following the distribution (without regard
to forfeitures).
(f) If a Participant returns to the employment of the
Employer or any Related Employer after incurring at
least 5 Breaks in Service, and such Participant did not
receive payment of the full amount of his Vested
Account Balance, his Vested Account Balance remaining
unpaid shall be placed in a separate Pre-Break Account
for the Participant. The Pre-Break Account shall be
treated in the same manner as the Employer Contribution
Account of the Participant, except that it shall not be
credited with the Employer's contributions and the
Participant shall be 100% vested in such Pre-Break
Account.
18.4 Transitional Rules
Each Employee described in Section 18.1 who was actively
employed by the Employer on May 31, 1996 shall receive credit for
a Period of Service equal to the sum of:
(a) A number of years equal to the number of Years of
Service credited to him under the Plan (determined
without regard to this Article XVIII) as of the
Computation Period ended May 31, 1996; and
(b) The greater of (1) the Period of Service which would be
credited to him under this Article XVIII during the
Computation Period ending May 30, 1997 or (2) the
service which would be taken into account under the
Plan (determined without regard to this Article XVIII)
during the Computation Period ended May 30, 1997.
In addition, each such Employee shall receive credit for service
determined under this Article XVIII commencing on May 31, 1997.
Exhibit 10(s)
EMPLOYMENT, NONDISCLOSURE AND NON-COMPETE AGREEMENT
EMPLOYMENT, NONDISCLOSURE AND NON-COMPETE AGREEMENT
("Agreement") made and entered into as of this 1st day of June,
1998 by and between RICHARDSON ELECTRONICS, LTD., a Delaware
corporation with its principal place of business located at P.O.
Box 393, 40W267 Keslinger Road, LaFox, IL 60147-0393 (the
"Company"), and FLINT COOPER of 12543 Still Harbour Drive, Houston
TX 77041 (hereinafter called "Executive").
RECITALS
WHEREAS, the Company desires to continue to employ Executive
as its Executive Vice President and General Manager, Security
Systems Division upon the terms and conditions stated herein; and
WHEREAS, Executive desires to continue to be so employed by
the Company at the salary and benefits provided for herein; and
WHEREAS, Executive acknowledges and understands that during
the course of his employment, Executive has and will become
familiar with certain confidential information of the Company which
provides Company with a competitive advantage in the marketplace in
which it competes, is exceptionally valuable to the Company, and is
vital to the success of the Company's business; and
WHEREAS, the Company and Executive desire to protect such
confidential information from disclosure to third parties or its
use to the detriment of the Company; and
WHEREAS, the Executive acknowledges that the likelihood of
disclosure of such confidential information would be substantially
reduced, and that legitimate business interests of the Company
would be protected, if Executive refrains from competing with the
Company and from soliciting its customers and employees during and
following the term of the Agreement, and Executive is willing to
covenant that he will refrain from such actions.
NOW THEREFORE, in consideration of the promises and of the
mutual covenants and agreements hereinafter set forth, the parties
hereto acknowledge and agree as follows:
ARTICLE ONE
NATURE AND TERM OF EMPLOYMENT
1.01 Employment. The Company hereby agrees to continue to
employ Executive and Executive hereby accepts continued employment
as the Company's Executive Vice President and General Manager,
Security Systems Division.
1.02 Term of Employment. Executive's employment pursuant to
this Agreement shall commence on June 1, 1998 and, subject to the
other provisions of this Agreement, the term of such employment
(the "Employment Term") shall continue indefinitely. This
Agreement and Executive's employment may be terminated without
reason or cause by not less than one (1) year written notice given
by one party to the other. In the event of such termination the
Company may assign such duties or no duties to Executive as it, in
its discretion, desires during such notice period. The Company may
terminate the Employment Term earlier so long as it pays
compensation in lieu of notice for the required balance of notice
period. This Agreement and Executive's employment may also be
terminated in the circumstances and manner provided in Article Five
below.
1.03 Duties. Executive shall perform such managerial duties
and responsibilities in connection with the Company's Security
Systems Division or its successor, and/or such other duties and
responsibilities as may be assigned by the President/COO, or such
other person as the Company may designate from time to time.
1.04 Compliance With Company Policy. Executive will adhere to
the policies and procedures of the Company, including, without
limitation, its Code of Conduct, and will follow the supervision
and direction of Company's President/COO or such other person as
the Company may designate from time to time in the performance of
his duties. Executive agrees to devote his full working time,
attention and energies to the diligent and satisfactory performance
of his duties hereunder and to developing and improving the
business and best interests of the Company. Executive agrees to
perform such duties and responsibilities to the satisfaction of the
President of the Company. Executive shall not engage in any other
business activity, whether or not such business activity is pursued
for gain or any other pecuniary advantage, without the prior
written consent of the Company. The Company hereby consents to
Executive's engaging in a tropical plant business so long as his
activity in connection therewith does not interfere with his
performance of his duties and obligations as an employee of the
Company. Executive will use all reasonable efforts to promote and
protect the good name of the Company and will comply with all of
his obligations, undertakings, promises, covenants and agreements
as set forth in this Agreement. Executive will not, during the
Employment Term or during any period during which Executive is
receiving payments pursuant to Section 1.02, Article 2 and/or
Section 5.06, engage in any activity which would have, or
reasonably be expected to have, an adverse affect on the Company's
reputation, goodwill or business relationships or which would
result, or reasonably be expected to result, in economic harm to
the Company.
ARTICLE TWO
COMPENSATION AND BENEFITS
For all services to be rendered by Executive in any capacity
hereunder (including as an officer, director, committee member or
otherwise of the Company or any parent or subsidiary thereof or any
division of any thereof) on behalf of the Company, the Company
agrees to pay Executive so long as he is employed hereunder, and
the Executive agrees to accept, the compensation set forth below.
2.01 Salary. During the term of Executive's employment
hereunder, the Company shall pay to Executive an annual salary
("Salary") of One Hundred Forty Thousand and 00/100 Dollars
($140,000.00), payable in installments as are customary under the
Company's payroll practices from time to time. The Company at its
sole discretion may, but is not required to, review and adjust the
Executive's Salary from year to year; provided, however, that,
except as may be expressly consented otherwise in writing by
Executive, Company may not decrease Executive's Salary. No
additional compensation shall be payable to Executive by reason of
the number of hours worked or by reason of hours worked on
Saturdays, Sundays, holidays or otherwise.
2.02 Bonus Plan. During the term of the Executive's
employment hereunder, the Executive shall be a participant in the
Strategic Business Unit Manager Incentive Plan, as modified from
time to time (the "Annual Incentive Plan"). The Executive's
"target bonus percentage" for purposes of the Annual Incentive Plan
shall be fifty percent (50%) of base Salary for fiscal year 1999.
Such bonus shall be determined and paid strictly in accordance with
the Annual Incentive Plan as modified or reduced by Company from
time to time at its discretion, and for any partial fiscal year the
bonus shall be computed and paid only for the portion of the fiscal
year Executive is employed hereunder, i.e. until the end of the
Employment Term.
2.03 Special Bonus. The Company shall pay Executive a special
bonus in the amount of One Hundred Eighty Seven Thousand Five
Hundred Dollars ($187,500), of which amount Forty Six Thousand
Eight Hundred Seventy Five Dollars will be paid in the form of a
Restricted Stock Award under the Company's 1996 Incentive
Compensation Plan on June 1, 1998 and the balance of One Hundred
Forty Thousand Six Hundred Twenty Five Dollars will be paid in cash
in three equal annual installments of Forty Six Thousand Eight
Hundred Seventy Five Dollars each on December 1, 1998, December 1,
1999 and December 1, 2000.
2.03 Other Benefits. Company will provide Executive such
benefits (other than bonus, severance and incentive compensation
benefits) as are generally provided by the Company to its other
Executives, including but not limited to, health/major medical
insurance, dental insurance, disability insurance, life insurance,
sick days and other Executive benefits (collectively "Other
Benefits"), all in accordance with the terms and conditions of the
applicable Other Benefits Plan. Nothing in this Agreement shall
require the Company to maintain any benefit plan nor prohibit the
Company from modifying any such plan as it sees fit from time to
time. It is only intended that Executive shall be entitled to
participate in any such plan offered for which he may qualify under
the terms of any such plan as it may from time to time exist, in
accordance with the terms thereof.
2.04 Disability. Any compensation Executive receives under
any disability benefit plan provided by Company during any period
of disability, injury or illness shall be in lieu of the
compensation which Executive would otherwise receive under Article
Two during such period of disability, injury or sickness.
2.05 Withholding. All salary, bonus and other payments
described in this Agreement shall be subject to withholding for
federal, state or local taxes, amounts withheld under applicable
benefit policies or programs, and any other amounts that may be
required to be withheld by law, judicial order or otherwise.
ARTICLE THREE
CONFIDENTIAL INFORMATION
RECORDS AND
REPUTATION
3.01 Definition of Confidential Information. For purposes of
this Agreement, the term "Confidential Information" shall mean all
of the following materials and information (whether or not reduced
to writing and whether or not patentable) to which Executive
receives or has received access or develops or has developed, in
whole or in part, as a direct or indirect result of his employment
with Company, its predecessors or its subsidiaries or through the
use of any of the Company's, its predecessors' or its
subsidiaries's facilities or resources:
(1) Customer lists, including, but not limited to, customer
names, customer contact persons, customer requirements,
and customer data; supplier lists, including, but not
limited to, supplier names, supplier contact persons,
supplier capabilities, and supplier data; marketing
techniques; practices; methods; plans; systems;
processes; purchasing information; price lists; pricing
policies; quoting procedures; product information;
operating policies and procedures; financial information;
and other materials or information relating to the manner
in which the Company, its predecessors or its subsidiar-
ies, or its customers and/or suppliers do business;
(2) Discoveries, concepts and ideas, whether patentable or
not, or copyrightable or not, including without
limitation the nature and results of research and
development activities, processes, formulas, techniques,
"know-how," designs, drawings and specifications;
(3) Any other materials or information related to the
business or activities of Company which are not generally
known to others engaged in similar businesses or
activities or which could not be gathered or obtained
without expenditure of time, effort and money; and
(4) All inventions and ideas which are derived from or relate
to Executive's access to or knowledge of any of the above
enumerated materials and information.
The Confidential Information shall not include any materials or
information of the types specified above to the extent that such
materials or information are publicly known or generally utilized
by others engaged in the same business or activities in the course
of which the Company, its predecessors or its subsidiaries
utilized, developed or otherwise acquired such information or
materials and which Executive has gathered or obtained from such
other public sources by his own (other than on behalf of the
Company, its predecessors or subsidiaries) expenditure of time,
effort and money. Failure to mark any of the Confidential Informa-
tion as confidential shall not affect its status as part of the
Confidential Information under the terms of this Agreement.
3.02 Ownership of Confidential Information. Executive agrees
that the Confidential Information is and shall at all times remain
the sole and exclusive property of Company. Executive agrees to
disclose immediately to Company all Confidential Information
developed in whole or part by him during the term of his
employment with Company under this Agreement or any prior or
subsequent agreement (oral or written) and to assign to Company any
right, title or interest he may have in such Confidential
Information.
Without limiting the generality of the foregoing, every invention,
improvement, product, process, apparatus, or design which Executive
may take, make, devise or conceive, individually or jointly with
others, during the period of his employment by the Company under
this Agreement or any prior or subsequent agreement (oral or
written), whether during business hours or otherwise, which relates
in any manner to the business of the Company either now or at any
time during the period of his employment), or which may be related
to the Company in connection with its business (hereinafter
collectively referred to as "Invention") shall belong to and be the
exclusive property of the Company and Executive will make full and
prompt disclosure to the Company of every Invention. Executive
will assign to the Company, or its nominee, every Invention and
Executive will execute all assignments and other instruments or
documents and do all other things necessary and proper to confirm
the Company's right and title in and to every Invention; and
Executive will perform all proper acts within his power necessary
or desired by the Company to obtain letters patent or copyright or
other registration in the name of the Company (at the Company's
expense) for every Invention in whatever countries the Company may
desire, without payment by the Company to Executive of any royalty,
license fee, price or additional compensation.
3.03. Non Disclosure of Confidential Information. Except
as required in the faithful performance of Executive's duties
hereunder (or as required by law), during the term of his
employment with Company under this Agreement or any prior or
subsequent agreement (oral or written) and for a period after the
termination of such employment until the Confidential Information
no longer meets the definition set forth above of Confidential
Information with respect to Executive, Executive agrees not to
directly or indirectly reveal, report, publish, disseminate,
disclose or transfer any of the Confidential Information to any
person or entity, or utilize for himself or any other person or
entity any of the Confidential Information for any purpose
(including, without limitation, in the solicitation of existing
Company customers or suppliers), except in the course of performing
duties assigned to him by Company. Executive further agrees to use
his best endeavors to prevent the use for himself or others, or
dissemination, publication, revealing, reporting or disclosure of,
any Confidential Information.
3.04 Protection of Reputation. Executive agrees that he will
at no time, either during his employment with the Company under
this Agreement or any prior or subsequent agreement (oral or
written) or at any time after termination of such employment,
engage in conduct which injures, harms, corrupts, demeans, defames,
disparages, libels, slanders, destroys or diminishes in any way the
reputation or goodwill of the Company, its subsidiaries, or their
respective shareholders, directors, officers, employees, or agents,
or the services provided by the Company or the products sold by the
Company, or its other properties or assets, including, without
limitation, its computer systems hardware and software and its data
or the integrity and accuracy thereof.
3.05 Records and Use of Company Facilities. All notes, data,
reference materials, memoranda and records, including, without
limitation, data on the Company's computer system, computer
reports, products, customers and suppliers lists and copies of
invoices, in any way relating to any of the Confidential
Information or Company's business, all records relating to the
Company's or any subsidiary's operations, investigations, and
business, and any notes with respect to such records, made or
received by Executive in connection with his employment under this
Agreement or any prior or subsequent agreement (oral or written) ,
and all copies of such records or notes made by, for, or with the
consent of Executive, are and shall be the Company's property
exclusively, and Executive agrees to maintain them in a manner so
as to secure their confidentiality and to turn over to Company all
copies of such materials (in whole or in part) in his possession
or control at the request of Company or, in the absence of such a
request, upon the termination of Executive's employment with
Company. Upon termination of Executive's employment with Company,
Executive shall immediately refrain from seeking access to
Company's (a) telephonic voice mail, E-mail or message systems, (b)
computer system and (c) computer data bases and software. The
foregoing shall not prohibit Executive from using Company's public
Internet (not Intranet) site.
ARTICLE FOUR
NON-COMPETE AND NON-SOLICITATION COVENANTS
4.01 Non-Competition and Non-Solicitation. Executive
acknowledges that it may be very difficult for him to avoid using
or disclosing the Confidential Information in violation of Article
Three above in the event that he is employed by any person or
entity other than the Company in a capacity similar or related to
the capacity in which he is employed by the Company. Accordingly
for that reason, as well as independently thereof, Executive agrees
that he will not, during the term of employment with Company under
this or any subsequent agreement (oral or written) and for a period
of two (2) years after the termination of such employment,
irrespective of the time, manner or cause of such termination
(except that if Executive's termination of employment is
involuntary then the period of restriction shall be for one year
after the end of the period for which the Company has paid
compensation to Executive, or if Executive's termination of
employment is by Executive because, and Company has not, provided
the capital investment called for by the agreed to annual Business
Plan, then the restriction shall terminate on the date of termination
of employment), directly or indirectly (whether or not for
compensation or profit):
(1) Engage in any business or enterprise the nature of which
is directly competitive with that of the Company,
including, without limitation, a business or enterprise
engaged primarily in the business of distributing closed
circuit television security systems and fire or burglar
alarm systems, and parts, components or services for such
systems in the territories served by the Company's
Security Systems Division and in the channels and to the
customers served by such Division, or manufacturing of
such products if also engaged in distribution thereof
such as, Ultrak, any Pittway company and any DSC/Tried
company, (a "Prohibited Business"); or
(2) Participate as an officer, director, creditor, promoter,
proprietor, associate, agent, employee, partner,
consultant, sales representative or otherwise, or promote
or assist, financially or otherwise, or directly or
indirectly own any interest in any person or entity
involved in any Prohibited Business; or
(3) Canvas, call upon, solicit, entice, persuade, induce,
respond to, or otherwise deal with, directly or
indirectly, any individual or entity which, during
Executive's term of employment with the Company under
this or any subsequent agreement (oral or written), was
or is a customer or supplier, or proposed customer or
supplier, of the Company, for the following:
(a) to purchase (with respect to customers) or sell
(with respect to suppliers) products of the types
or kinds sold by the Company or which could be
substituted for (including, but not limited to,
rebuilt products), or which serve the same purpose
or function as, products sold by the Company (all
of which products are herein sometimes referred to,
jointly and severally, as "Prohibited Products"),
or
(b) to request or advise any such customer or
supplier to withdraw, curtail or cancel its business with
the Company; or
(4) For himself or for or through any other individual or
entity call upon, solicit, entice, persuade, induce or
offer any individual who, during Executive's term of
employment with the Company under this or any subsequent
agreement (oral or written), was an employee or sales
representative or distributor of the Company, employment
by, or representation as sales agent or distributor for,
any one other than the Company, or request or advise any
such employee or sales agent or distributor to cease
employment with or representation of the Company, and
Executive shall not approach, respond to, or otherwise
deal with any such employee or sales representative or
distributor of Company for any such purpose, or authorize
or knowingly cooperate with the taking of any such
actions by any other individual or entity.
Notwithstanding the foregoing, Executive may hire former
employees of the Company, subject to any confidentiality
and non-competition or other obligations any such
employee may have to the Company, at any time after that
date which is (i) one (1) year after the date of such
former employee's date of termination of employment with
the Company if the termination was voluntary on the part
of the employee, or (ii) the date of such former
employee's date of termination of employment with the
Company if the termination was involuntary on the part of
the employee.
4.02 Obligation independent Each obligation of each
subparagraph and provision of Section 4.01 shall be independent of
any obligation under any other subparagraph or provision hereof or
thereof.
4.03 Public Stock Nothing in Section 4.01, however, shall
prohibit Executive from owning (directly or indirectly through a
parent, spouse, child or other relative or person living in the
same household with Executive or any of the foregoing), as a
passive investment, up to 1% of the issued and outstanding shares
of any class of stock of any publicly traded company.
4.04 Business Limitation If, at the termination of
Executive's employment under this or any subsequent agreement (oral
or written) and for the entire period of twelve (12) months prior
thereto his duties and responsibilities are limited by the Company
so that he is specifically assigned to, or responsible for, one or
more divisions, subsidiaries or business units of the Company, then
subparagraphs (1) through (3) of Section 4.01 shall apply only to
any business or products which compete with the business or
products of such divisions, subsidiaries or business units.
4.05 Area Limitation If at the termination of Executive's
employment under this or any subsequent agreement (oral or written)
and for the entire period of twelve (12) months prior thereto he
has responsibility for only a designated geographic area, then
subparagraphs (1) through (3) of Section 4.01 shall apply only
within such area.
4.06 Permitted Activity For purpose of further clarification
it is agreed that Executive may be employed by an entity who or
which is (a) only a manufacturer of a Prohibited Product so long as
such manufacturer does not also act as a distributor, such as,
Ultrak, any Pittway company or any DSC/Tried company, or (b) a
dealer in Prohibited Products so long as such dealer does not also
act as a distributor; provided that in such activity Executive does
not violate the other provisions of this Article Four in his
activities for such an employer except that in his activities on
behalf of a security dealer he may contact and purchase product
from the Company's suppliers.
ARTICLE FIVE
TERMINATION
5.01 Termination of Executive for Cause. The Company shall
have the right to terminate Executive's employment at any time for
"cause." Prior to such termination, the Company shall provide
Executive with written notification of any and all allegations
constituting "cause" and the Executive shall be given five (5)
working days after receipt of such written notification to respond
to those allegations in writing. Upon receipt of the Executive's
response, the Company shall meet with the Executive to discuss the
allegations, but, thereafter, Company may take such action as it
deems appropriate, including, termination of employment.
For purposes hereof, "cause" shall mean (i) an act or acts of
personal dishonesty taken by the Executive and intended to result
in personal enrichment of the Executive, (ii) material violations
by the Executive of the Executive's obligations or duties under, or
any terms of, this Agreement, which are not remedied in a
reasonable period (not to exceed ten (10) days) after receipt of
written notice thereof from the Company, (iii) any violation by the
Executive of any of the provisions of Articles Three, or Four, (iv)
Executive commits or is arrested for, charged with, indicted for or
convicted (by trial, guilty or no contest plea or otherwise) of (a)
a felony, (b) any other crime involving moral turpitude, (c) any
violation of law which would impair the ability of the Company or
any affiliate to obtain any license or authority to do any business
deemed necessary or desirable for the conduct of its actual or
proposed business, or (d) any other criminal activity or conduct in
violation of the Company's Code of Conduct which, in the good faith
opinion of the Company, would impair the Executive's ability to
perform his duties hereunder or would impair the business or
reputation of the Company, (v) the Security Systems Division of the
Company (or the successor entity to such business) fails in any
fiscal year to meet the earnings goal therefor as set forth in the
Business Plan for such fiscal year, or (vi) Executive commits an
act, or omits to take action, in bad faith or in detriment of the
Company.
5.02 Termination of Executive Because of Executive's
Disability, Injury or Illness. The Company shall have the right to
terminate Executive's employment if Executive is unable to perform
the duties assigned to him by the Company because of Executive's
disability, injury or illness, provided however, such inability
must have existed for a total of one hundred eighty (180)
consecutive days before such termination can be made effective.
Any compensation Executive receives under any disability benefit
plan provided by Company during any period of disability, injury or
illness shall be in lieu of the compensation which Executive would
otherwise receive under Article Two during such period of
disability, injury or sickness.
5.03 Termination as a Result of Executive's Death. The
obligations of the Company to Executive pursuant to this Agreement
shall automatically terminate upon Executive's death.
5.04 Termination of Executive for any Other Reason. The
Company shall have the right to terminate Executive's employment at
any time at will without cause or reason as specified in Section
1.02 above on prior written notice to Executive as therein
specified.
5.05 Termination by Executive. Executive may terminate his
employment by the Company at any time by written notice to Company
as specified in Section 1.02 above.
5.06 Compensation on Termination. If Executive's employment
is terminated by the Company for any reason set forth in Sections
5.01, 5.02 or 5.03 above, the Company's obligation to pay
Executive's Salary and bonus pursuant to the Annual Incentive Plan
for the year in which such termination occurs shall cease on the
date on which the termination of employment occurs and shall be
prorated and accrued to the date of termination. In such case
Executive shall not be entitled to receive, unless otherwise
required by law, any subsequent Other Benefits. If Executive's
employment is terminated as set forth in Sections 5.04 or 5.05,
subject to its rights as specified in Section 1.02, the Company
shall be obligated to continue to pay to Executive his then current
Salary and Other Benefits accrued up to and including the date on
which Executive's employment is so terminated. The Special Bonus
provided for in Section 2.03 will be payable on the dates provided
in Section 2.03 regardless if termination occurs through Section
5.01. 5.02, 5.03, 5.04 or 5.05.
ARTICLE SIX
REMEDIES
6.01 Executive acknowledges that the restrictions contained in
this Agreement will not prevent him from obtaining such other
gainful employment he may desire to obtain or cause him any undue
hardship and are reasonable and necessary in order to protect the
legitimate interests of Company and that violation thereof would
result in irreparable injury to Company. Executive therefor
acknowledges and agrees that in the event of a breach or threatened
breach by Executive of the provisions of Article Three or Article
Four or Section 1.04, Company shall be entitled to an injunction
restraining Executive from such breach or threatened breach and
Executive shall lose all rights to receive any payments under
Section 5.06. Nothing herein shall be construed as prohibiting or
limiting Company from pursuing any other remedies available to
Company for such breach or threatened breach, the rights
hereinabove mentioned being in addition to and not in substitution
of such other rights and remedies. The period of restriction
specified in Article Four shall abate during the time of any
violation thereof, and the portion of such period remaining at the
commencement of the violation shall not begin to run until the
violation is cured.
6.02 Survival. The provisions of this Article Six and of
Articles Three and Four shall survive the termination or expiration
of this Agreement.
ARTICLE SEVEN
MISCELLANEOUS
7.01 Assignment. Executive and Company acknowledge and agree
that the covenants, terms and provisions contained in this
Agreement constitute a personal employment contract and the rights
and obligations of the parties thereunder cannot be transferred,
sold, assigned, pledged or hypothecated, excepting that the rights
and obligations of the Company under this Agreement may be assigned
or transferred pursuant to a sale of the business of the Company's
Security Systems Division, merger, consolidation, share exchange,
sale of substantially all of the Company's assets of its Security
Systems Division, or other reorganization described in Section 368
of the Code, or through liquidation, dissolution or otherwise,
whether or not the Company is the continuing entity, provided that
the assignee, or transferee is the successor to all or
substantially all of the assets of the Company's Security Systems
Division and such assignee or transferee assumes the rights and
duties of the Company, if any, as contained in this Agreement,
either contractually or as a matter of law.
7.02 Severability. Should any of Executive's obligations
under this Agreement or the application of the terms or provisions
of this Agreement to any person or circumstances, to any extent, be
found illegal, invalid or unenforceable in any respect, such
illegality, invalidity or unenforceability shall not affect the
other provisions of this Agreement, all of which shall remain
enforceable in accordance with their terms, or the application of
such terms or provisions to persons or circumstances other than
those to which it is held illegal, invalid or unenforceable.
Despite the preceding sentence, should any of Executive's
obligations under this Agreement be found illegal, invalid or
unenforceable because it is too broad with respect to duration,
geographical or other scope, or subject matter, such obligation
shall be deemed and construed to be reduced to the maximum
duration, geographical or other scope, and subject matter allowable
under applicable law.
The covenants of Executive in Articles Three and Four and each
subparagraph of Section 4.01 are of the essence of this Agreement;
they shall be construed as independent of any other provision of
this Agreement; and the existence of any claim or cause of action
of Executive against the Company, whether predicated on the
Agreement or otherwise shall not constitute a defense to
enforcement by the Company of any of these covenants. The
covenants of Executive shall be applicable irrespective of whether
termination of employment hereunder shall be by the Company or by
Executive, whether voluntary or involuntary, or whether for cause
or without cause.
7.03 Notices. Any notice, request or other communication
required to be given pursuant to the provisions hereof shall be in
writing and shall be deemed to have been given when delivered in
person or three (3) days after being deposited in the United States
mail, certified or registered, postage prepaid, return receipt
requested and addressed to the party at its or his last known
addresses. The address of any party may be changed by notice in
writing to the other parties duly served in accordance herewith.
7.04 Waiver. The waiver by the Company or Executive of any
breach of any term or condition of this Agreement shall not be
deemed to constitute the waiver of any other breach of the same or
any other term or condition hereof. Failure by any party to claim
any breach or violation of any provision of this Agreement shall
not constitute a precedent or be construed as a waiver of any
subsequent breaches hereof.
7.05 Continuing Obligation. The obligations, duties and
liabilities of Executive pursuant to Articles Three and Four of
this Agreement are continuing, absolute and unconditional and shall
remain in full force and effect as provided herein and survive the
termination of this Agreement.
7.06 Intentionally Blank
7.07 Attorneys Fees. In the event that Executive or Company
has been found to have violated any of the terms of Articles Three
or Four of this Agreement either after a preliminary injunction
hearing or a trial on the merits or otherwise, the losing party
shall pay the prevailing party's costs and expenses, including
attorneys fees, in enforcing the terms of Articles Three or Four
of this Agreement.
7.08 Advise New Companies. During Executive's employment with
the Company and for two (2) years thereafter, Executive will
communicate the contents of Articles Three and Four to any
individual or entity which Executive intends to be employed by,
associated with, or represent which is engaged in a business which
is competitive to the business of Company.
7.09 Captions. The captions of Articles and Sections this
Agreement are inserted for convenience only and are not to be
construed as forming a part of this Agreement.
7.10 Entire Agreement. This Agreement supersedes any and all
other agreements, written or oral, between the parties hereto with
respect to the employment of Executive by the Company and contains
all of the covenants and agreements between the parties with
respect to such employment. Each party acknowledges that no
representations, inducements, promises, or agreements, written,
oral or otherwise, have been made by any party, or anyone acting or
purporting to act on behalf of any party, which are not embodied
herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid and binding.
7.11 Modifications. This Agreement shall not be subject to
change, modification, or discharge, in whole or in part, except by
written instrument signed by the parties; provided, however, that
if any of the terms, provisions or restrictions of Articles Three
or Four are held to be in any respect unreasonable restrictions
upon Executive, then the court so holding shall reduce the
territory to which it pertains and/or the period of time in which
it operates or effect any other change to the extent necessary to
render any of said terms, provisions or restrictions enforceable.
EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS READ AND FULLY
UNDERSTANDS EACH AND EVERY PROVISION OF THE FOREGOING AND DOES
HEREBY ACCEPT AND AGREE TO THE SAME.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
Executive Company
/s/ Flint Cooper /s/ Edward J. Richardson
Title: Chairman
EXHIBIT 10(y)(1)
CHUBB Executive Protection Policy
Endorsement
Coverage Section: General Terms
Company: Federal Insurance Company
Effective date of this endorsement: May 31, 1997
Endorsement No. 2
To be attached to and form part of Policy Number 8125-64-60E
Issued to: Richardson Electronics, Ltd.
It is agreed that coverage is continued under this policy and that
Item 2 of the Declarations is amended in its entirety to read as
follows:
Policy Period: From 12:01 A.M. on MAY 31, 1997
To 12:01 A.M. MAY 31, 1998
Local time at the address shown in Item 1.
All other terms and conditions remain unchanged.
/s/ John S. Bain
Authorized Representative
Date: July 8, 1997
Coverage Section: Executive Liability
Company: Federal Insurance Company
Effective date of this endorsement: May 31, 1997
Endorsement No. 8
To be attached to and form part of Policy No. 8125-64-60E
Issued to: Richardson Electronics, Ltd.
It is agreed that:
1. The following is added to this coverage section:
Investigative Costs Coverage
Insuring Clause 4
The Company shall pay on behalf of the Insured Organization
all Investigation Costs which such Insured Organization becomes
legally obligated to pay on account of any Shareholder Derivative
Demand first made during the Policy Period or, if exercised, the
Extended Reporting Period, for Wrongful Act committed or
attempted, by an Insured Person before or during the Policy
Period.
2. Subsection 5 Exclusions Applicable to Insuring Clauses 1 and
2, is amended by deleting the subsection heading in its
entirety and inserting the following:
Exclusions Applicable to Insuring Clauses 1, 2 and 4
3. Subsection 8, Limit of Liability, Deductible and Coinsurance,
is amended as follows:
a. The following is added to paragraph two:
The Company's maximum liability for all Investigative
Costs covered under Insuring Clause 4 on account of all
Shareholder Derivative Demands first made during the
same Policy Period shall be $250,000. This is a
sublimit which further limits and does not increase the
Company's maximum liability under this coverage section
as set forth in Item 2(B) of the Declarations for this
coverage section.
b. The following is added to paragraph three:
No deductible account shall apply to Investigative
Costs covered under Insuring Clause 4.
4. Subsection 11, Defense and Settlement, is amended for
purposes of coverage under Insuring Clause 4 by deleting the
first paragraph in its entirety and inserting the following:
Subject to this subsection, it shall be the duty of the
Insured Organization and not the duty of the Company to
investigate and evaluate any Shareholder Derivative Demand.
5. Subsection 18, Definitions, is amended by adding the
following:
Investigation Costs means reasonable costs, charges, fees
(including but not limited to attorneys' fees and experts'
fees) and expenses (other than regular or overtime wages,
salaries or fees of the directors, officers or employee of
the Insured Organization) incurred by the Insured
Organization (including its board of directors) in connection
with the investigation or evaluation of any Shareholder
Derivative Demand.
Shareholder Derivative Demand means any written demand, by
one or more shareholders of an Insured Organization, upon the
board of the directors of such Insured Organization, to bring
a civil proceeding in a court of law against any Insured
Person for a Wrongful Act committed attempted or allegedly
committed or attempted by an Insured Person before or during
the Policy Period.
6. For purposes of coverage under Insuring Clause 4 only,
a. all references in this coverage section to Loss or
Defense Costs shall only mean Investigative Costs; and
b. all references in this coverage section to Claim or to
Claim against any Insured Person shall only mean any
Shareholder Derivative Demand.
All other terms and conditions remain unchanged.
/s/ John S. Bain
Authorized Representative
Date: July 8, 1997
Coverage Section: Executive Liability
Company: Federal Insurance Company
Effective date of this endorsement: May 31, 1997
Endorsement No. 9
To be attached to and form part of Policy No. 8125-64-60E
Issued to: Richardson Electronics, Ltd.
It is agreed that the Deductible Amount specified in Item 4 of the
Declarations is decreased as follows:
Insuring Clause 2 From: $500,000 To: $250,000
Provided, however, that the decreased deductible shall apply only
to Claims first made against the Insured on or after the effective
date of this endorsement.
All other terms and conditions remain unchanged:
/s/ John S. Bain
Authorized Representative
Date: July 8, 1997
EXHIBIT 10(y)(2)
IMPORTANT NOTE: THIS IS CLAIMS MADE COVERAGE. PLEASE READ THIS
POLICY CAREFULLY.
THIS POLICY, SUBJECT TO THE DECLARATIONS, INSURING AGREEMENTS,
TERMS, CONDITIONS, LIMITATIONS AND AMENDMENTS, APPLIES ONLY TO
CLAIM OR CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED(S) AND
REPORTED TO THE INSURER DURING THE POLICY PERIOD OR DISCOVERY
PERIOD (IF APPLICABLE).
THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS
SHALL BE REDUCED AND MAY BE EXHAUSTED BY AMOUNTS INCURRED FOR
DEFENSE COSTS, CHARGES AND EXPENSES. THE RETENTION(S) APPLY(IES) TO
DEFENSE COSTS, CHARGES AND EXPENSES.
ST. PAUL MERCURY
INSURANCE COMPANY
St. Paul, Minnesota 55102
A Capital Stock Company
Herein Called the Insurer
EXCESS DIRECTORS AND OFFICERS LIABILITY AND CORPORATE
INDEMNIFICATION POLICY
DECLARATIONS
Item 1. Named Insured: The Directors and Officers of
Richardson Electronics, Ltd.
Item 2. Address (No., Street, City, State and Zip Code)
40W267 Keslinger Road
LaFox, IL 60147
Item 3. Policy Period
From 5/31/97 To 05-31-98 (12:01 A.M. Standard Time at the
address stated in Item 2.)
Item 4. Limit of Liability $15,000,000. each Policy Period and
this shall be the combined Limit of Liability for both Insuring
Agreements A and B. The Limit of Liability available to pay
judgments or settlements shall be reduced and may be exhausted by
amounts incurred for Defense Costs, Charges and Expenses.
Item 5. Retentions (Applicable to Section 2(B)(2))
$250,000. Corporate Indemnification Each Loss
$ 0 Each Insured Each Loss
$ 0 Aggregate All Insureds Each Loss
Item 6. Premium $ 72,000
Item 7. Schedule of Underlying Insurer(s)
(A) 1. Underlying Insurer: Federal Insurance Company
2. Policy Number: 8125-64-60
3. Policy Period: From: 05-31-97 To: 05-31-98
4. Limit of Liability: $15,000,000.
5. Retentions:
$250,000 Corporate Indemnification Each Loss
$ 0 Each Insured Each Loss
$ 0 Aggregate All Insureds Each Loss
(B) 1. Underlying Insurer: Not Applicable
2. Policy Number:
3. Policy Period: From: To:
4. Limit of Liability: $
(C) 1. Underlying Insurer: Not Applicable
2. Policy Number:
3. Policy Period: From: To:
4. Limit of Liability: $
(D) 1. Underlying Insurer: Not Applicable
2. Policy Number:
3. Policy Period: From: To:
4. Limit of Liability: $
(E) Total amount of Underlying Limit of Liability
$15,000,000 and any retentions or deductibles as
applicable under the policy(ies) as stated in this
Item 7.
Item 8. Subject to the Terms, Conditions and Limitations of this
policy as hereinafter provided, this policy follows the form of:
Insurer's Name: Federal Insurance Company
Policy Number: 8125-64-60
Item 9. Forms Attached
1) St. Paul Mercury Insurance Company Policy, Form #50408.
2) Endorsements one through four.
3) St.Paul Mercury Insurance Company Application, Form #
50264.
James C. Styer
Authorized Representative
Countersignature Date 9/26/97
Countersigned At Chicago, IL
INSURING CLAUSE
In consideration of the payment of the premium, in reliance upon
the statements made to the Insurer by application including its
attachments, a copy of which is attached to and forms a part of
this policy, and any material submitted therewith (which shall be
retained on file by the Insurer and be deemed attached hereto), and
except as hereinafter otherwise provided or amended, this policy is
subject to the same Insuring Agreement(s), Terms, Conditions and
Limitations as provided by the policy stated in Item 8 of the
Declarations and any amendments thereto, provided:
A. 1. the Insurer has received prior written notice from the
Insured(s) of any amendments to the policy stated in Item 8 of the
Declarations, and
2. the Insurer has given to the Insured(s) its written
consent to any amendments to the policy stated in Item 8 of the
Declarations. and
3. the Insured has paid any required additional premium.
B. This policy is not subject to the same premium or the amount
and Limit of Liability of the policy stated in Item 8 of the
Declarations.
TERMS, CONDITIONS AND LIMITATIONS
Section 1. UNDERLYING INSURANCE
A. It is a condition precedent to the Insured(s) rights under
this policy that the Insured(s) notify the Insurer, as soon as
practicable in writing, of a failure to maintain in full force
and effect, except as provided for under Section 2(B), and
without alteration of any Terms, Conditions, Limit of
Liability or Retentions, any of the underlying insurance
policies as stated in Item 7 of the Declarations.
B. Failure to maintain, as set forth above, any of the underlying
insurance policies as stated in Item 7 of the Declarations,
except as provided for under Section 2(B), shall not
invalidate this policy, but the liability of the Insurer for
loss under this policy shall apply only to the same extent it
would have been liable had the underlying insurance policies
been maintained as set forth above. In no event shall the
Insurer be liable to pay loss under this policy until the
total amount of the Underlying Limit of Liability, as stated
in Item 7(E) of the Declarations, has been paid solely by
reason of the payment of loss.
Section 2. LIMIT OF LIABILITY
A. The Insurer shall only be liable to make payment under this
policy after the total amount of the Underlying Limit of
Liability as stated in Item 7(E) of the Declarations has been
paid solely by reason of the payment of loss.
B. In the event of the reduction or exhaustion of the total
amount of the Underlying Limit of Liability as stated in Item
7(E) of the Declarations solely by reason of the payment of
loss, this policy shall:
1. in the event of such reduction pay excess of the reduced
amount of the Underlying Limit of Liability but not to
exceed the amount stated in Item 4 of the Declarations,
or
2. in the event of exhaustion continue in force provided
always that this policy shall only pay the excess over
the Retention amount stated in Item 5 of the Declarations
as respects each and every loss hereunder, but not to
exceed the amount stated in Item 4 of the Declarations.
C. The Insurers' liability for loss subject to paragraphs (A) and
(B) above shall be the amount stated in Item 4 of the
Declarations which shall be the maximum liability of the
Insurer in the Policy Period stated in Item 3 of the
Declarations. The Limit of Liability of the Insurer for the
Discovery Period, if elected, shall be part of, and not in
addition to, the Limit of Liability as stated in Item 4 of the
Declarations.
Section 3. LOSS PROVISIONS
The Insured(s) shall as a condition precedent to the right to be
indemnified under this policy give to the Insurer notice in
writing, as soon as practicable and during the Policy Period or
during the Discovery Period, if effective, of any claim made
against the Insured(s).
Section 4. NOTICE
Notice hereunder shall be given to St. Paul Mercury Insurance
Company, 385 Washington Street, St. Paul, MN 55102.
Section 5. CANCELLATION
This policy may be cancelled by the Corporation at any time by
mailing written notice to the Insurer at the address shown in
Section 4 stating when thereafter such cancellation shall be
effective or by surrender of this policy to the Insurer or its
authorized agent. This policy may also be cancelled by or on
behalf of the Insurer by delivering to the Corporation or by
mailing to the Corporation by registered, certified, or other first
class mail, at the Corporation's address as shown in Item 2 of the
Declarations, written notice stating when, not less than sixty (60)
days thereafter, the cancellation shall be effective. The mailing
of such notice as aforesaid shall be sufficient proof of notice.
The Policy Period terminates at the date and hour specified in such
notice, or at the date and time of surrender.
If the period of limitation relating to the giving of notice is
prohibited or made void by any law controlling the construction
thereof, such period shall be deemed to be amended so as to be
equal to the minimum period of limitation permitted by such law.
Section 6. DISCOVERY PERIOD
If the Insurer shall cancel or refuse to renew (refusal to renew is
hereafter referred to as non-renewal) this policy, the Corporation
or the Insureds shall have the right, upon payment of the
additional premium of 75% of the premium hereunder, to an extension
of the cover granted by this policy to report any claim or claims
in accordance with Section 3, which claim or claims are made
against the Insureds during the period of twelve (12) months after
the effective date of cancellation or non-renewal, herein called
the Discovery Period, but only for any Wrongful Act committed
before the effective date of such cancellation or non-renewal and
otherwise covered by this policy.
This right shall terminate, however, unless the Corporation or the
Insureds provide written notice of such election together with the
payment of the additional premium due and this is received by the
Insurer at the address shown in Section 4 within ten (10) days
after the effective date of cancellation or non-renewal.
Discovery Period wherever used in this policy shall also mean
optional extension period or extended reporting period as defined
by the policy stated in Item 8 of the Declarations.
The offer by the Insurer of renewal terms, conditions, limits of
liability and/or premiums different from those of the expiring
policy shall not constitute non-renewal.
The provisions of this Section 6 and the rights granted herein to
the Corporation or the Insureds shall not apply to any cancellation
resulting from non-payment of premium.
Section 7. NUCLEAR ENERGY LIABILITY EXCLUSION
It is agreed that:
A. This policy does not apply:
1. Under any Liability Coverage, to bodily injury or
property damage
a. with respect to which an Insured under this policy
is also an Insured under a nuclear energy liability
policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of
Canada, or would be an Insured under any such
policy but for its termination upon exhaustion of
its limit of liability; or
b. resulting from the hazardous properties of nuclear
material and with respect to which (1) any person
or organization is required to maintain financial
protection pursuant to the Atomic Energy Act of
1954, or any law amendatory thereof, or (2) the
Insured is, or had this policy not been issued
would be, entitled to indemnity from the United
States of America, or an agency thereof, under any
agreement entered into by the United States of
America, or any agency thereof with any person or
organization.
2. Under any Medical Payments coverage, or under any
Supplementary Payments provision relating to first aid,
to expenses incurred with respects to bodily injury
resulting from the hazardous properties of nuclear
material and arising out of the operation of a nuclear
facility by any person or organization.
3. Under any Liability Coverage, to bodily injury or
property damage resulting from the hazardous properties
of nuclear material, if
a. the nuclear material (1) is at any nuclear facility
owned by, or operated by or on behalf of an Insured
or (2) has been discharged or dispersed therefrom;
b. the nuclear material is contained in spent fuel or
waste at any time possessed, handled, used,
processed, stored, transported or disposed of by or
on behalf of an Insured, or
c. the bodily injury or property damage arises out of
the furnishing by an Insured of services,
materials, parts or equipment in connection with
the planning, construction, maintenance, operation
or use of any nuclear facility, but if such
facility is located within the United States of
America, its territories or possessions or Canada,
this exclusion (c) applies only to property damage
to such nuclear facility and any property thereat.
B. As used in this exclusion:
"hazardous properties" include radioactive, toxic or explosive
properties;
"nuclear material" means source material, special nuclear
material or by-product material;
"source material," "special nuclear material," and by-product
material have the meanings given them in the Atomic Energy Act
of 1954 or in any law amendatory thereof;
"spent fuel" means any fuel element or fuel component, solid
or liquid, which has been used or exposed to radiation in a
nuclear reactor;
"waste" means any waste material (1) containing by-product
material and (2) resulting from the operation by any person or
organization of any nuclear facility included within the
definition of nuclear facility under paragraph (1) or (2)
thereof;
"nuclear facility" means
(1) any nuclear reactor,
(2) any equipment or device designed or used for (1)
separating the isotopes of uranium or plutonium, (2)
processing or utilizing spent fuel, or (3) handling,
processing or packaging waste,
(3) any equipment or device used for the processing,
fabricating or alloying of special nuclear material if at any
time the total amount of such material in the custody of the
Insured and the premises where such equipment or device is
located consists of or contains more than 25 grams of
plutonium or uranium 233 or any combination thereof, or more
than 250 grams of uranium 235,
(4) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste,
and includes the site on which any of the foregoing is
located, and operations conducted on such site and all
premises used for such operations;
"nuclear reactor" means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or
to contain critical mass of fissionable material, "property
damage" includes all forms of radioactive contamination of
property.
Section 8. ACTION AGAINST THE INSURER
No action shall lie against the Insurer unless, as a condition
precedent thereto, there shall have been full compliance with all
of the terms of this policy, nor until the amount of the
Corporation's obligation to pay and/or the Insureds' obligation to
pay have been finally determined either by judgment against the
Insureds after actual trial or by written agreement of the
Corporation and/or the Insureds, the claimant and the Insurer.
Any person or organization or the legal representative thereof who
has secured such judgment or written agreement shall thereafter be
entitled to recover under this policy to the extent of the
insurance afforded by this policy. No person or organization shall
have any right under this policy to join the Insurer as a party to
any action against the Corporation and/or Insureds to determine the
Insureds' liability, nor shall the Insurer be impleaded by the
Corporation and/or Insureds or their legal representatives.
Bankruptcy or insolvency of the Corporation or the Corporation's
estate, or bankruptcy or insolvency of the Insureds or the
Insureds' estate shall not relieve the Insurer of any of its
obligations hereunder.
IN WITNESS WHEREOF, the Insurer designated on the Declarations page
has caused this policy to be signed by its President and Secretary
and countersigned on the Declarations page by a duly authorized
representative of the Insurer.
/s/ Paul D. Ziccarelli /s/ D. Leatherdale
Secretary President
ENDORSEMENT #1
ATTACHED TO AND FORMING PART OF POLICY NO. 900DX0414
ILLINOIS AMENDATORY ENDORSEMENT
M1137 Ed. 6-90
In Consideration of the premium charged, it is hereby understood
and agreed that:
1. The first paragraph under Section 5. CANCELLATION is hereby
deleted in its entirety and substituted with the following:
This policy may be cancelled by the Corporation at any time by
mailing written notice to the Insurer at the address shown in
Section 4 stating when thereafter such cancellation shall be
effective or by surrender of this policy to the Insurer or its
authorized agent. This policy may also be cancelled by or on
behalf of the Insurer by mailing to the Corporation, by registered,
certified or other first class mail, at the last mailing address
known to the Insurer, written notice stating when, not less than
sixty (60) days thereafter, the cancellation shall be effective.
All such notices shall contain the specific reason(s) for
cancellation. If this policy has been in effect for more than
sixty (60) days, the cancellation must be for one of the following
reasons:
A. Nonpayment of premium;
B. Misrepresentation or fraud made by or with the knowledge
of the Corporation or the Insureds in obtaining the
policy or in pursuing a claim under the policy;
C. A violation by any Insured of any of the terms and
conditions of the policy;
D. A substantial increase in the risk originally assumed;
E. Loss of reinsurance by the Insurer which provided
coverage to the Insurer for a significant amount of the
underlying risk insured. Certification of the loss of
reinsurance must be given to the Director of Insurance.
F. A determination by the Director of Insurance that the
continuation of the policy would place the Insurer in
violation of the insurance laws of the State of Illinois.
It is further agreed that this policy may be non renewed by or
on behalf of the Insurer by mailing written notice to the
Corporation, by registered, certified, or other first class
mail, at the last mailing address known to the Insurer. All
such notices shall contain the specific reason(s) for non
renewal. It is further agreed that non renewal of this policy
will be effective sixty (60) days after receipt of the Insured
of written notice from the Insurer of its desire to non renew
this policy, or at the time and date set forth in the notice
of non renewal, provided sixty (60) days notice has been given
the Corporation prior to said date.
2. It is further understood and agreed that Section 6. DISCOVERY
PERIOD is hereby deleted in its entirety and replaced with the
following:
If the Insurer or the Insured(s) shall cancel or refuse to
renew (refusal to renew is hereafter referred to as
non-renewal) this policy, the Corporation or the Insured(s)
shall have the right, upon payment of the additional premium
of seventy five percent (75%) of the expiring annual premium
hereunder, to report any claim or claims in accordance with
Section 3, which claim or claims are made against the
Insured(s) during the period of twelve (12) months after the
effective date of cancellation or non-renewal, herein called
the Discovery Period, but only for any Wrongful Act committed
before the effective date of such cancellation or non-renewal
and otherwise covered by this policy.
This right shall terminate, however, unless the Corporation or
the Insured(s) provide written notice of such election
together with the payment of the additional premium due and
this is received by the Insurer at the address shown in
Section 4 within thirty (30) days after the effective date of
cancellation or non-renewal.
The additional premium for the Discovery Period shall be fully
earned at the inception of the Discovery Period. The Discovery
Period is not cancelable.
Nothing herein contained shall be held to vary, alter, waive or
extend any of the terms, conditions, provisions, agreements or
limitations of the above mentioned policy, other than as above
stated.
In Witness Whereof, the Company has caused this endorsement to be
signed by a duly authorized representative of the Company.
Authorized Representative
ENDORSEMENT #2
ATTACHED TO AND FORMING PART OF POLICY NO. 900DX0414
PRIOR AND PENDING LITIGATION EXCLUSION
M1150 Ed. 3-90
In consideration of the premium charged, it is hereby understood
and agreed that the Insurer shall not be liable to make any payment
for loss in connection with any claim or claims made against the
Insured(s) arising from any prior or pending litigation as of
05-31-90, as well as all future claims or litigation based upon the
pending or prior litigation or derived from the same or essentially
the same facts (actual or alleged) that gave rise to the prior or
pending litigation.
Nothing herein contained shall be held to vary, alter, waive or
extend any of the terms, conditions, provisions, agreements or
limitations of the above mentioned policy, other than as above
stated.
In Witness Whereof, the Company has caused this endorsement to be
signed by a duly authorized representative of the Company.
Authorized Representative
ENDORSEMENT #3
ATTACHED TO AND FORMING PART OF POLICY NO. 900DX0414
Specific Event Exclusion
M1316 Ed. 12/92
In consideration of the premium charged, it is understood and
agreed that the Insurer shall not be liable to make any payment for
Loss in connection with any claim or claims made against the
Insureds, based upon, arising out of, attributable to or in any way
involving the following:
1. Panache Broadcasting of Pennsylvania, Inc. v. Richardson
Electronics, Ltd.; Varian Associates, Inc.; and Varian
Supply Company (Case No. 90 C 6400); or
2. A contract to supply tubes to the United States
Government which was completed in 1989 as described in
Note K - Litigation on page 23 of the Richardson
Electronics, Ltd. 1994 Annual Report; or
3. Arius, Inc. v. Richardson Electronics, Ltd., Flint
Cooper, William Alexander, Kevin Dutton (case number CI.
95-202 in the Circuit Court of the Ninth Judicial Circuit
in and for Orange County, Florida)
Nothing herein contained shall be held to vary, alter, waive or
extend any of the terms, conditions, provisions, agreements or
limitations of the above mentioned policy, other than as above
stated.
In Witness Whereof, the Company has caused this endorsement to be
signed by a duly authorized representative of the Company.
Authorized Representative
ENDORSEMENT #4
ATTACHED TO AND FORMING PART OF POLICY NO. 900DX0414
REPORTED INCIDENTS EXCLUSION
M1117 Ed. 3-90
In consideration of the premium charged, it is hereby understood
and agreed that under this policy the Insurer shall not be liable
to make any payment for Loss in connection with any claim or claims
made against the Insured(s) arising from any circumstances of which
notice has been given under any insurance in force prior to the
inception date of this policy including any applicable discovery
period.
Nothing herein contained shall be held to vary, alter, waive or
extend any of the terms, conditions, provisions, agreements or
limitations of the above mentioned policy, other than as above
stated.
In Witness Whereof, the Company has caused this endorsement to be
signed by a duly authorized representative of the Company.
Authorized Representative
EXHIBIT 10(y)(3)
CNA INSURANCE COMPANIES
CNA Plaza.
Chicago, IL 60685
DECLARATIONS EXCESS INSURANCE POLICY
NOTICE
THIS IS A "CLAIMS-MADE" POLICY AND, SUBJECT TO ITS PROVISIONS,
APPLIES ONLY TO ANY CLAIM FIRST MADE AGAINST THE INSUREDS DURING
THE POLICY PERIOD. NO COVERAGE EXISTS FOR ANY CLAIM FIRST MADE
AFTER THE END OF THE POLICY PERIOD UNLESS, AND TO THE EXTENT, THE
EXTENDED REPORTING PERIOD APPLIES. THE LIMIT OF LIABILITY SHALL BE
REDUCED BY AMOUNTS INCURRED AS DEFENSE COSTS.
ACCOUNT NUMBER 45386
COVERAGE PROVIDED BY CONTINENTAL CASUALTY COMPANY
POLICY NUMBER DOX 600028634
AGENCY 910 701862
NAMED ENTITY AND PRINCIPAL ADDRESS
Item 1.
RICHARDSON ELECTRONICS, LTD.
40W267 KESLINGER RD.
LAFOX, IL 60147
Attn: William J. Garry
AGENT
Mesirow Insurance Services, Inc.
Ms. Robina K. Fisher
600 Central Ave., Ste. #390
Highland Park, IL 60035
Item 2. Policy Period:
May 31, 1997 to May 31, 1998
12:01 a.m. Standard Time at the Principal Address stated in Item 1.
Item 3. Limit of Liability (Inclusive of Defense Costs):
$5,000,000 Maximum aggregate Limit of Liability for the Policy
Period.
Item 4. Schedule of Underlying Insurance:
A. Primary Policy:
Name of Carrier Federal Insurance Company
Policy No. 8125-64-60E
Limits $15,000,000
Deductible/Retention Amount 0/0/$250,000
B. Underlying Excess Policy(ies):
Name of Carrier St. Paul Mercury Insurance Company
Policy No. 900DX0414
Limits $15,000,000
Deductible/Retention Amount N/A
Item 5. Policy Premium:
$18,000
Item 6. Forms and Endorsements forming a part of this policy at
inception: G-11713-A12, FIG-1005-A, FIG-1006-A, FIG-1014-A
These Declarations along with the completed and signed Application
and the Excess Insurance Policy, shall constitute the contract
between the Insureds, the Named Entity, and the Insurer.
Authorized Representative /s/ Juli Antoya
Date: 2/23/98
Excess Insurance Policy
In consideration of the payment of the premium and in reliance on
all statements made and information furnished to Continental
Casualty Company (hereinafter called the "Insurer"), and/or to the
insurers of the Underlying Insurance, including the statements made
in the Application made a part hereof and subject to all of the
provisions of this Policy, the Insurer and the Insured agree as
follows:
I. INSURING AGREEMENT
The Insurer shall provide the Insureds with excess coverage over
the Underlying Insurance as set forth in Item 4 of the Declarations
during the Policy Period set forth in Item 2 of the Declarations.
Coverage hereunder shall attach only after all such Underlying
Insurance has been exhausted by payments for losses and shall then
apply in conformance with the same provisions of the Primary Policy
at its inception, except for premium, limit of liability and as
otherwise specifically set forth in the provisions of this Policy.
II. POLICY DEFINITIONS
Application shall mean the written application for this Policy,
including any materials submitted therewith, which together shall
be on file with the Insurer and deemed a part of and attached
hereto as if physically attached to this Policy.
Named Entity means the organization named in Item 1 of the
Declarations.
Insureds means those persons or organization(s) insured under the
Primary Policy, at its inception.
Policy Period means the period from the effective date and hour of
this Policy as set forth in Item 2. of the Declarations, to the
Policy expiration date and hour set forth in Item 2. of the
Declarations, or its earlier cancellation date or termination date,
if any.
Primary Policy means the Policy scheduled in Item 4(a) of the
Declarations.
Underlying Insurance means all those Policies scheduled in Item 4
of the Declarations and any Policies replacing them.
III. MAINTENANCE OF UNDERLYING INSURANCE
All of the Underlying Insurance scheduled in Item 4 of the
Declarations shall be maintained during the Policy Period in full
effect, except for any reduction of the aggregate limit(s) of
liability available under the Underlying Insurance solely by reason
of payment of losses thereunder. Failure to comply with the
foregoing shall not invalidate this Policy but the Insurer shall
not be liable to a greater extent than if this condition had been
complied with. To the extent that any Underlying Insurance is not
maintained in full effect during the currency of this Policy
Period, then the Insureds shall be deemed to have retained any loss
for the amount of the limit of liability of any Underlying
Insurance which is not maintained as set forth above.
In the event of any actual or alleged (a) failure by the Insureds
to give notice or to exercise any extensions under any Underlying
Insurance or (b) misrepresentation or breach of warranties by any
of the Insureds with respect to any Underlying Insurance, the
Insurer shall not be liable hereunder to a greater extent than it
would have been in the absence of such actual or alleged failure,
misrepresentation or breach.
It is further a condition of this Policy that the Insurer shall be
notified in writing, as soon as practicable of cancellation and/or
alteration of any provisions of any of the policies of Underlying
Insurance.
IV. LIMIT OF LIABILITY
The amount set forth in Item 3 of the Declarations shall be the
maximum aggregate Limit of Liability of the Insurer for the Policy
Period.
Costs of defense shall be part of and not in addition to the Limit
of Liability in Item 3 of the Declarations, and such costs of
defense shall reduce the Limit of Liability stated in Item 3 of the
Declarations.
V. DEPLETION OF UNDERLYING LIMIT(S)
In the event of the depletion of the limit(s) of liability of the
Underlying Insurance solely as the result of actual payment of
losses thereunder by the applicable insurers, this Policy shall,
subject to the Insurer's Limit of Liability and to the other terms
of this Policy, continue to apply to losses as Excess Insurance
over the amount of insurance remaining under such Underlying
Insurance. In the event of the exhaustion of all of the limit(s)
of liability of such Underlying Insurance solely as a result of
payment of losses thereunder, the remaining limits available under
this Policy shall, subject to the Insurer's Limit of Liability and
to the other provisions of this Policy, continue for subsequent
losses as primary insurance and any retention specified in the
Primary Policy shall be imposed under this Policy as to each claim
made; otherwise no retention shall be imposed under this Policy.
This Policy only provides coverage excess of the Underlying
Insurance. This Policy does not provide coverage for any loss not
covered by the Underlying Insurance except and to the extent that
such loss is not paid under the Underlying Insurance solely by
reason of the reduction or exhaustion of the available Underlying
Insurance through payments of loss thereunder. In the event the
insurer of one or more of the Underlying Insurance policies fails
to pay loss in connection with any claim covered under the
Underlying Insurance as a result of the insolvency, bankruptcy, or
liquidation of said insurer, then the Insureds hereunder shall be
deemed to have retained any loss for the amount of the limit of
liability of said insurer which is not paid as a result of such
insolvency, bankruptcy or liquidation.
If any Underlying Insurance bears an effective date which is prior
to the effective date of this Policy and if any such insurance
becomes exhausted or impaired by payment of loss with respect to
any claim which, shall be deemed to be made prior to the effective
date of this Policy, then with respect to any claim made after the
effective date of this Policy, the Insureds shall be deemed to have
retained any loss for the amount of any such Underlying Insurance
which is exhausted or impaired by payment of loss with respect to
such claim made prior to the effective date of this Policy.
VI. CLAIM PARTICIPATION
The Insured shall not admit liability, consent to any judgment
against them, or agree to any settlement which is reasonably likely
to involve the Limit of Liability of this Policy without the
Insurer's consent, such consent not to be unreasonably withheld.
The Insurer may, at its sole discretion, elect to participate in
the investigation, settlement or defense of any claim against any
of the Insureds for matters covered by this Policy even if the
Underlying Insurance has not been exhausted.
All provisions of the Underlying Insurance are considered as part
of this Policy except that it shall be the duty of the Insureds and
not the duty of the Insurer to defend any claims against any of the
Insureds.
VII. SUBROGATION - RECOVERIES
In that this Policy is "Excess Coverage", the Insureds and the
Insurer's right of recovery against any person or other entity may
not be exclusively subrogated. Despite the foregoing, in the event
of any payment under this Policy, the Insurer shall be subrogated
to all the Insured's rights of recovery against any person or
organization, and the Insureds shall execute and deliver
instruments and papers and do whatever else is necessary to secure
such rights.
Any amounts recovered after payment of loss hereunder shall be
apportioned in the inverse order of payment to the extent of actual
payment. The expenses of all such recovery proceedings shall be
apportioned in the ratio of respective recoveries.
VIII. NOTICE
The Insurer shall be given notice in writing as soon as is
practicable in the event of (a) the cancellation of any Underlying
Insurance and (b) any additional or return premiums charged or
allowed in connection with any Underlying Insurance. Notice
regarding (a) and (b) above shall be given to Manager, Directors
and Officers Liability Underwriting, CNA Insurance Companies, CNA
Plaza, Chicago, Illinois 60685.
The Insurer shall be given notice as soon as practicable of any
notice of claim or any situation that could give rise to a claim
under any Underlying Insurance. Notice of any claim to the Insurer
shall be given in writing to Manager, Professional Liability
Claims, CNA Insurance Companies, CNA Plaza, Chicago, Illinois
60685.
IX. COMPANY AUTHORIZATION CLAUSE
By acceptance of this Policy, the Named Entity named in Item 1 of
the Declarations agrees to act on behalf of all the Insureds with
respect to the giving and receiving of notice of claim or
cancellations, the payment of premiums and the receiving of any
return premiums that may become due under this Policy and the
Insureds agree that the Named Entity shall in all cases be
authorized to act on their behalf.
X. ALTERATION
No change in or modification of this Policy shall be effective
except when made by endorsement signed by an authorized employee of
the Insurer or any of its agents relating to this Policy.
XI. POLICY CANCELLATION
This Policy may be cancelled by the Named Entity at any time by
written notice or by surrender of this Policy to the Insurer. This
Policy may also be cancelled by or on behalf of the Insurer by
delivery to the Named Entity or by mailing to the Named Entity, by
registered, certified or other first class mail, at the address
shown in Item 1 of the Declarations, written notice stating when,
not less than thirty (30) days thereafter, the cancellation shall
become effective. The mailing of such notice as aforesaid shall be
sufficient proof of notice and this Policy shall cancel at the date
and hour specified in such notice.
If the period of limitation relating to the giving of notice is
prohibited or made void by any law controlling the construction
thereof, such period shall be deemed to be amended so as to be
equal to the minimum period of limitation permitted by such law.
The Insurer shall refund the unearned premium computed at less than
pro-rata if the Policy is cancelled in its entirety by the Named
Entity. Under any other circumstances the refund shall be computed
pro rata.
XII. EXCLUSIONS
Notwithstanding any provisions of the Underlying Insurance, the
Insurer shall not be liable to make payment for loss in connection
with any claim based upon, arising out of, relating to, directly or
indirectly resulting from, or in consequence of, or in any way
involving:
1. nuclear reaction, radiation or contamination regardless of
causes;
2. pollutants, including but not limited to loss arising out of
any:
a. request, demand or order that any of the Insureds or
others test for, monitor, clean up, remove, contain,
treat, detoxify or neutralize, or in any way respond to,
or assess the effects of pollutants, or
b. claim by or on behalf of a governmental authority for
damages because of testing for, monitoring, cleaning up,
removing, containing, treating, detoxifying or
neutralizing or in any way responding to or assessing the
effects of pollutants;
Pollutants means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste. Waste includes materials to be recycled,
reconditioned or reclaimed .
XIII. CONDITIONS
No action shall be taken against the Insurer unless, as a condition
precedent, there shall have been full compliance with all the
provisions of this Policy, nor until the amount of the Insureds
obligation to pay shall have been finally determined either by
final and nonappealable judgement against the Insureds after trial,
or by written agreement of the Insureds, the claimant and the
Insurer.
D.W. Lowry, Secretary D.H. Chookasigian, Chairman of the Board
State Provisions - Illinois
Any cancellation or non-renewal provisions contained in the policy
to which this endorsement is attached are deleted and replaced by
the following:
1. Cancellation
A. This policy can be cancelled by either the first named insured
or the insurer.
1. The named insured can cancel this policy at any time by
mailing advance written notice to the insurer stating when the
cancellation is to be effective.
2. The insurer can cancel this policy by giving written
notice to the named insured at least:
a. 10 days, if cancellation is for non-payment of
premium. However, the named insured may continue the coverage by
payment in full at any time prior to the effective date of
cancellation;
b. 30 days, if cancellation is for any other reason
provided that the policy has been in effect for 60 days or less; or
c. 60 days, if the policy has been in effect for more
than 60 days and cancellation is for any other reason as set forth
below;
before the effective date of cancellation.
B. The insurer will mail notice to the named insured at the
last mailing address known to the insurer, and a copy shall also be
mailed to the named insured's agent.
C. Notice of cancellation will state the effective date of
cancellation. The policy will end on that date. The specific
reason for such cancellation shall also be stated.
D. Proof of mailing will be sufficient proof of notice.
E. If this policy is cancelled, the insurer will send the
first named insured any premium refund due. If the insurer
cancels, the refund will be pro-rata. If the named insured
cancels, the refund may be less than pro-rata.
The cancellation will be effective even if the insurer has not
made or offered a refund.
If this policy has been in effect for more than 60 days, the
insurer shall not terminate this policy except for one or more of
the following conditions:
1. Non-payment of premium;
2. Material misrepresentation;
3. A material increase in the hazard insured against;
4. Violation of any terms or conditions of the policy by the
named insured;
5. Substantial loss of reinsurance by the insurer affecting
this particular type of insurance, certified to the insurance
regulatory authority;
6. A determination by the insurance regulatory authority
that continuation of the policy will place the insurer in violation
of the insurance laws of the state.
II. Non-Renewal
If the insurer decides not to renew this policy, 60 days advance
written notice shall be mailed to the named insured as the last
known address.
The notice shall include the specific reason for such non-renewal.
If the insurer offers to renew this policy at terms which involve
an increase in premium of 30% or more or changes in deductibles or
coverage that materially alter the policy, such terms will take
effect on the renewal date if the insurer has notified the named
insured of the terms at least 60 days prior to the expiration date
of this policy.
This notice is to advice the named insured that should any
complaints arise regarding this insurance, the named insured may
contact the following:
CNA Insurance Companies
Attn: Consumer Affairs Department - 13S
CNA Plaza
Chicago, IL 60685
and/or
Illinois Department of Insurance
Consumer Division or Public Service Section
Springfield, IL 62767
This endorsement, which forms a part of and is for attachment to
the following described Policy issued by the designated Insurers
takes effect on the effective date of said Policy, unless another
effective date is shown below, at the hour stated in said Policy
and expires concurrently with said Policy.
Endt. No. 01
Policy No. 600028634
CNA Authorized Representative
Prior Notice Exclusion
In consideration of the premium paid for this policy, it is agreed
that Section XII, Exclusions, is amended with the addition of the
following:
Any fact, circumstance, situation, transaction or event which
constitutes the basis of notice of claim to the Insurer or any
insurance carriers designated in Item 4 of the Declarations, prior
to the inception date of this policy.
All other provisions of the policy remain unchanged.
This endorsement, which forms a part of and is for attachment to
the following described Policy issued by the designated Insurers
takes effect on the effective date of said Policy, unless another
effective date is shown below, at the hour stated in said Policy
and expires concurrently with said Policy.
Endt. No. 02
Policy No. 600028634
CNA Authorized Representative
Prior or Pending Litigation Exclusion
In consideration of the premium paid for this policy, it is agreed
that Section XII, is amended with the addition of the following:
3. Any fact, circumstance, situation, transaction or event
underlying or alleged in any prior and/or pending litigation as of
5/31/91, regardless of the legal theory upon which such litigation
is predicated.
All other provisions of the policy remain unchanged.
This endorsement, which forms a part of and is for attachment to
the following described Policy issued by the designated Insurers
takes effect on the effective date of said Policy, unless another
effective date is shown below, at the hour stated in said Policy
and expires concurrently with said Policy.
Endt. No. 03
Policy No. 600028634
CNA Authorized Representative
Inapplicability of Primary Policy Endorsement
In consideration of the premium paid for this policy, it is agreed
that for the coverage afforded under this policy endorsement number
8 to the Primary Policy shall not apply to this Policy.
All other provisions of the policy remain unchanged.
This endorsement, which forms a part of and is for attachment to
the following described Policy issued by the designated Insurers
takes effect on the effective date of said Policy, unless another
effective date is shown below, at the hour stated in said Policy
and expires concurrently with said Policy.
Endt. No. 04
Policy No. 600028634
CNA Authorized Representative
Exhibit 21
SUBSIDIARIES
OF
RICHARDSON ELECTRONICS, LTD.
Richardson Electronics Canada, Ltd. Canada
Richardson Electronics (Europe) Ltd. United Kingdom
RESA, SNC France
Richardson Electronique SNC France
Richardson Electronics Italy SRL Italy
Richardson Electronics Iberica, S.A. Spain
Richardson Electronics GmbH Germany
Richardson Electronics Japan K.K. Japan
Richardson Electronics Pte Ltd. Singapore
Richardson Electronics S.A. de C.V. Mexico
Richardson Electronics Benelux B.V. The Netherlands
Richardson Electronics do Brasil Ltda. Brasil
Richardson Electronics Pty Limited Australia
Tubemaster, Inc. United States
Richardson Electronics Korea Limited Korea
Richardson Electronics (Thailand) Ltd. Thailand
Burtek Systems Inc. Canada
Richardson Electronics Argentina S.A. Argentina
Eternal Graphics, Inc. United States
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report
on Form 10-K for the year ended May 31, 1998 of Richardson
Electronics, Ltd. of our report dated July 14, 1998, included in
the 1998 Annual Report to Shareholders of Richardson Electronics,
ltd.
Our audit also included the financial statement schedule of
Richardson Electronics, Ltd. listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in Post
Effective Amendment Number 1 to Registration Statement Number 2-
89888 on Form S-8, Registration Statement Number 33-36475 on Form
S-8, Registration Statement Number 33-54745 on Form S-8,
Registration Statement Number 333-02865 on Form S-8, Registration
Statement Number 333-03965 on Form S-8, Registration Statement
Number 333-04071 on Form S-8, Registration Statement Number 333-
04457 on Form S-8, Registration Statement Number 333-04767 on
Form S-8, Registration Statement Number 333-49005 on Form S-2 and
Registration Statement Number 333-51513 on Form S-2, of our
report dated July 14, 1998, with respect to the consolidated
financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the
financial statement schedule included in the Annual Report on
Form 10-K for the year ended May 31, 1998 of Richardson
Electronics, Ltd.
/s/ Ernst & Young
Chicago, Illinois
August 24, 1998
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