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, 1999
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 or organization) (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 26, 1999, there were outstanding 9,392,024 shares of Common
Stock, $.05 par value, and 3,233,009 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 $64,100,000.
(1)
(Cover page continued)
Portions of the 1999 Annual Report to Stockholders of registrant for fiscal
year ended May 31, 1999 are incorporated in Parts I, II, and IV of this
Report. Portions of the registrant's Proxy Statement dated September 3, 1999
for the Annual Meeting of Stockholders scheduled to be held October 12, 1999,
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.
(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, security and medical imaging 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. Richardson uses this expertise
to identify engineered solutions for customers' applications, not only in
electron tube technology but in each product area 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 customers from electron
tubes to newer technologies, primarily semiconductors. Sales of products
other than electron tubes represented 62.6% of sales in the year ended May
31, 1999, compared to 46.7% five years ago.
Maintain Superior Customer Service.
The Company maintains more than 300,000 part numbers in its inventory
database. 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, related parts, service and technical
assistance. Today, the Company's operations are worldwide in scope through 69
sales offices, including 39 located outside of the United States. In fiscal
1999, 49.4% 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, market analysis, stock availability and quotation
activity. Customers have on-line access to product information and purchasing
capability via Richardson's web site. The Company offers electronic data
interchange to those customers requiring this service.
Growth Strategy
Richardson's long range plan for growth and profit maximization is defined in
three broad categories, 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 continue to 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 tripled the number of sales offices to 69 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 recently generated significant
sales gains: microwave generators; medical imaging components; amplifiers,
transmitters and pallets for wireless communication, flat panel displays,
monitors; and CCTV security systems.
Continuous Operational Improvement.
During the last four 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 22.1% in 1999. Inventory turns
improved from 1.7 to 2.2 over the same period. Additional programs are
ongoing, including a significant investment in a full suite of enterprise
resource planning modules scheduled for installation over the next two years.
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, the Company has acquired 28 companies or significant product
lines. 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 four years, the Company's acquisition
pace has accelerated with the purchases of twelve businesses including, most
significantly, Tubemaster (medical imaging-EDG), Compucon (interconnect
devices for RF applications-SSC) and Burtek, Security Service International
and Adler Video (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's support organization is highly
centralized with most corporate functions located at its administrative
headquarters and principal stocking facility in LaFox, Illinois.
Electron Device Group
EDG's principal products, electron tubes, are used to control, switch,
oscillate or amplify electrical power. This technology has been used for more
than 80 years in electronic circuitry throughout the industrialized world.
With such a vast installed base, replacement applications represent EDG's
primary focus. In certain situations, including high power broadcasting and
industrial equipment, electron tubes are the only economical technology
capable of meeting power requirements or withstanding severe environmental or
other operating conditions.
EDG serves a multitude of industries including automotive, avionics,
communications, marine, plastics, rubber, steel and textile. Several major
applications include dielectric and induction heating, motor speed controls,
radar, resistance welding equipment and television and radio broadcast
equipment. Microwave generator systems are designed and assembled by the
Company for use in the manufacture of wafers for the semiconductor industry
and other industrial heating applications.
In addition to the industries set forth above, Richardson believes the
increased emphasis on containment of medical costs offers significant
opportunities to supply replacement tubes and system upgrades to 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 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 participates
are modestly contracting due to the continued substitution of semiconductor
technology for traditional electron tube applications. EDG is expanding its
customer base beyond North America and Europe. As industrialized countries
convert to solid state, 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 four 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. Applications include 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 oscillator
tubes used to generate energy at microwave frequencies. The pulsed magnetron
is predominantly used to generate high-energy microwave signals for radar
applications. Magnetrons are also used in vulcanizing rubber, 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 voltage
switching. They are used to control the power in laser and radar equipment
and in linear accelerators for cancer treatment.
Thyratrons and Rectifiers are vacuum or gas-filled tubes used to control the
flow of electrical current. Thyratrons are used to control ignitrons,
electric motor speed controls, theatrical lighting and machinery such as
printing presses and various types of medical equipment. Rectifiers are used
to restrict electric current flow to one direction in power supply
applications.
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, manufacturing, 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 interconnect
devices operating in the northeastern United States. This acquisition brought
to the Company a new complimentary 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. In 1999, the company
acquired TRL Technologies, an engineering design firm and manufacturer of
amplifier circuits. In August 1999, the Company expanded its product
offering, signing a global distribution agreement with Motorola .
The following is a description of SSC's major product groups:
RF and Microwave Devices include a wide variety of components, such as
mixers, switches, amplifiers, oscillators and RF diodes, which are used in
telecommunications and other related markets, such as broadcast, cable TV,
cellular and PCS, satellite, wireless LANs and various other wireless
applications.
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.
This business unit 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
TelePrompTers(r), 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 Company acquired Eternal Graphics Inc. and
Pixelink in fiscal 1998 and 1999, respectively, expanding DPG's expertise to
include monitors, flat panel displays and related systems integration for
financial institutions and medical imaging applications.
The following is a description of DPG's major product groups:
Cathode Ray Tubes are vacuum tubes that 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 large user
groups share electronic data visually. The product line includes both
monochrome and color tubes.
Data Display Monitors are peripheral components incorporating a color or
monochrome CRT capable of displaying an analog or digitally generated video
signal.
Flat Panel Displays are display monitors incorporating a liquid crystal
display or plasma panel, rather than a CRT, typically a few inches in depth
and ranging from 10" to 42" measured diagonally.
Security Systems Division
SSD serves the commercial security and surveillance industry with 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 industry.
SSD offers its customers engineered solutions including systems integration,
education and training. These engineered solutions assure SSD's customers
remain at the forefront of the industry in terms of product knowledge and end
user requirements.
SSD's sales increased significantly in 1997 and 1998 and more modestly in
1999. Acquisitions and a significant increase in SSD's field sales force were
principally responsible for these 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 approximately $38.0 million. In
December, 1998 the Company acquired Adler Video Systems, a southern
California based distributor of CCTV systems with annual sales of
approximately $8.4 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 background
music, paging and telephonic interconnect systems.
Distribution and Marketing
The Company purchases vacuum tubes, RF and power semiconductors, related
electronic components and electronic security products and systems from
various sources, including Advanced Power Technology, Ad-Tech Industries,
Burle Industries, Clinton Electronics, Communication and Power Industries
("CPI"), Covimag, Dunlee, Ericsson, FIMI, Fujitsu, Gasser & Sons, General
Electric, Hi Sharp, Huber & Suhner, Jennings, KDI Electronics, Litton, M/A-
COM, MPD, New Japan Radio, Orion/Daewoo, NEC Tecnologies, Panasonic, Paradox,
Pelco, Philips, Powerex, QMI, RF Prime, Samsung, Samtell, Sanyo, SCT Societe
des Ceramiques, Semtech, Sensormatic, Sony, Stanford Microdevices, Stellex
Microwave Systems, Teletube, THOMSON, Toshiba, Triton Services, United
Monolithic Semiconductor, Varian Associates and Watkins Johnson. 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 10.3% of
purchases in fiscal 1997.
In August 1999, the Company entered into a non-exclusive distributor
agreement with Motorola. This agreement reinstates Richardson as an
authorized distributor, reversing an almost three-year old decision to reduce
their number of stocking distributors. The new relationship expands upon the
former agreement in two ways. It extends the previous North American
franchise to a global level. Also, it encompasses a wider array of components
to include wireless RF / IF product in addition to the previous offering of
RF power transistors. Under the prior agreement in its last full year before
termination in fiscal 1996, the Company sold approximately $17.0 million of
Motorola products. Future revenues under the new agreement cannot be
predicted with any level of certainty. However, because of the significant
amount of engineering required to design-in the product, recovery and
expansion of the Motorola line will be gradual.
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, including the sale of the
Company's former Brive, France manufacturing operation to local management.
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 is
at standard terms. Except for the supply contract, Richardson has no other
financial commitment to or from Covimag. Relationships under the supply
contract are believed by the Company to be satisfactory.
In addition to the agreement with Covimag, the Company has marketing
distribution agreements with various manufacturers in the electron tube,
semiconductor and CCTV industries. The most significant distributor agreement
is with CPI under which the Company is the exclusive distributor of power
grid tubes throughout the world, with the exception of the United States and
certain Eastern European countries. In these areas, however, the Company
remains the only CPI stocking distributor.
Customer orders are taken by the regional sales offices and generally
directed to one of Richardson's principal distribution facilities in LaFox,
Illinois; Houston, Texas; Vancouver, British Columbia; or Lincoln, England.
There are 32 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 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".
Approximately 21% 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.
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, 1999, the Company employed 884 individuals on a full-time
basis. Of these, 528 are located in the United States, including 74 employed
in administrative and clerical positions, 361 in sales and distribution and
93 in value-added and product manufacturing. The Company's international
subsidiaries employ an additional 356 individuals engaged in administration,
sales, distribution 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 distributor
of electron tubes, RF and power semiconductors and subassemblies, CRTs and
security systems. For many of its product offerings, the Company competes
against the OEM for sales of replacement parts and system upgrades to service
existing installed equipment. In addition, the Company competes worldwide
with other general line distributors and other distributors of electronic
components.
Patents and Trademarks
The Company holds or licenses certain manufacturing patents and trademark
rights, including the trademarks "National," "Cetron" and "Amperex." The
Company believes that although 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 42 locations in North America, 13 in Europe,
10 in the Far East / Pacific Rim and 4 in Latin America. The Company leases
production facilities in Texas, Virginia and the Netherlands for its medical
tube reloading operations.
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 is a class action for
purposes of liability determination 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.
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
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended May 31, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Incorporated herein by reference to pages 12 (for dividend payments) and
23 (for market data) of the Annual Report.
Item 6. Selected Financial Data
Incorporated herein by reference to page 6 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated herein by reference to pages 7 to 10 of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Incorporated herein by reference to page 10 of the Annual Report..
Item 8. Financial Statements and Supplementary Data
Incorporated herein by reference to pages 11 through 22 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.
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 12, 1999,
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 12, 1999, 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 12, 1999, 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 12, 1999, under
the caption "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and
Insider Participation", which information is incorporated herein by
reference.
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 11 through 22 of the Annual Report are
incorporated herein by reference:
Filing Method
Report of Independent Accountants E
1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - May 31, 1999 and 1998 E
Consolidated Statements of Operations - Years ended
May 31, 1999, 1998 and 1997 E
Consolidated Statements of Cash Flows - Years ended
May 31, 1999, 1998 and 1997 E
Consolidated Statements of Stockholders' Equity -
Years ended May 31, 1999, 1998 and 1997 E
Notes to Consolidated Financial Statements E
The following consolidated financial information for the
fiscal years 1999, 1998 and 1997 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.
(c) EXHIBITS
Filing
Method
3(b) By-laws of the Company, as amended, incorporated
by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997. NA
4(a) Restated Certificate of Incorporation of the Company,
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. NA
4(b) Specimen forms of Common Stock and Class B Common
Stock certificates of the Company incorporated by
reference to Exhibit 4(a) to the Company's Registration
Statement on Form S-1, Commission File No. 33-10834. NA
4(c) Indenture between the Company and Continental Illinois
National Bank and Trust Company of Chicago (including
form of 71/4% 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. NA
4(c)(1) First Amendment to the Indenture between the Company and
First Trust of Illinois, a National Association, as
successor to Continental Illinois National Bank and Trust
Company of Chicago, dated February 18, 1997, incorporated
by reference to Exhibit 4(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1997. NA
4(d) Indenture between the Company and American National Bank
and Trust Company, as Trustee, for 81/4% Convertible Senior
Subordinated Debentures due June 15, 2006 (including form
of 81/4% Convertible Senior Subordinated Debentures due
June 15, 2006) incorporated by reference to Exhibit 10 of
the Company's Schedule 13E-4, filed February 18, 1997. NA
10(a) Loan Agreement dated as of March 1, 1998 among 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 reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended February 28, 1998. NA
10(b) Industrial Building Lease, dated April 10, 1996 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. NA
10(c) Amended and Restated Credit Agreement made as of
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. NA
10(d) The Corporate Plan for Retirement
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. NA
10(e) The Company's Amended and Restated Incentive Stock
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. NA
10(e)(1) First Amendment to the Company's Amended and Restated
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. NA
10(e)(2) Second Amendment to the Company's Amended and 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. NA
10(e)(3) Third Amendment to the Company's Amended and Restated
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. NA
10(f) Richardson Electronics, Ltd. Employees 1996 Stock
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. NA
10(g) Employees Stock Ownership Plan and Trust Agreement,
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. NA
10(g)(1) First Amendment to Employees Stock Ownership Plan and
Trust Agreement, dated July 12, 1995, incorporated by
reference to Exhibit 10(g)(1) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995. NA
10(g)(2) Second Amendment to Employees Stock Ownership Plan 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. NA
10(g)(3) Third Amendment to Employees Stock Ownership Plan and
Trust Agreement, dated July 12, 1995, dated April 9, 1997
incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1998. NA
10(h) Richardson Electronics, Ltd. Employees 1999 Stock
Purchase Plan. E
10(i) Stock Option Plan for Non-Employee Directors incorporated
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. NA
10(j) Richardson Electronics, Ltd. 1996 Stock Option Plan
for Non-Employee Directors, incorporated by reference
to Appendix C of the Company's Proxy Statement dated
September 3, 1996 for its Annual Meeting of Stockholders
held on October 1, 1996. NA
10(k) The Company's Employees' Incentive Compensation 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. NA
10(k)(1) First Amendment to Employees Incentive Compensation
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. NA
10(k)(2) Second Amendment to Employees 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. NA
10(l) Richardson Electronics, Ltd. Employees' 1994 Incentive
Compensation Plan incorporated by reference to Exhibit A
to the Company's Proxy Statement dated August 31, 1994
for its Annual Meeting of Stockholders held on
October 11, 1994. NA
10(l)(1) First Amendment to the Richardson Electronics, Ltd.
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. NA
10(m) Richardson Electronics, Ltd. 1996 Incentive Compensation
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. NA
10(n) Richardson Electronics, Ltd. 1998 Incentive Compensation
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. NA
10(o) Correspondence outlining Agreement between the 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. NA
10(o)(1) Letter dated February 3, 1992 between the Company and
Arnold R. Allen outlining Mr. Allen's engagement as a
consultant by the Company, incorporated by reference to
Exhibit 10 (r)(1) to the Company's Annual Report on
Form 10-K, for the fiscal year ended May 31, 1992. NA
10(o)(2) Letter dated April 1, 1993 between the Company and
Arnold R. Allen regarding Mr. Allen's engagement as
consultant by the Company, incorporated by reference
to Exhibit 10(i)(2) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1994. NA
10(p) Letter dated January 14, 1992 between the Company 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. NA
10(p)(1) Letter dated January 15, 1992 between the Company 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. NA
10(q) Letter dated January 13, 1994 between the Company 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. NA
10(r) Letter dated April 4, 1994 between the Company and
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. NA
10(s) Letter dated May 20, 1994 between the Company and 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. NA
10(t) Employment, Nondisclosure and Non-Compete Agreement dated
June 1, 1998 between the Company and Flint Cooper setting
forth the terms of Mr. Cooper'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, 1998. NA
10(u) Agreement dated January 16, 1997 between the Company
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. NA
10(v) Agreement dated March 21, 1997 between the Company 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 Quarterly Report on
Form 10-Q for the quarter ended February 28, 1997. NA
10(w) Employment agreement dated as of November 7, 1996
between the Company and Bruce W. Johnson incorporated
by reference to Exhibit (c)(4) of the Company's
Schedule 13 E-4, filed December 18, 1996. NA
10(x) Employment agreement dated as of January 26, 1998
between the Company and Norman Hilgendorf, incorporated
by reference to Exhibit 10(c) of the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998. NA
10(y) Employment agreement dated as of May 10, 1993 as 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. NA
10(z) The Company's Directors and Officers Liability 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. NA
10(z)(1) The Company's Directors and Officers Executive Liability and
Indemnification Insurance Policy renewal issued by Chubb
Group of Insurance Companies - Policy Number 8125-64-60F. E
10(z)(2) The Company's Excess Directors and Officers Liability and
Corporate Indemnification Policy issued by St. Paul
Mercury Insurance Company - Policy Number 900DX0414. E
10(z)(3) The Company's Directors and Officers Liability Insurance
Policy issued by CNA Insurance Companies - Policy
Number DOX600028634. E
10(aa) Distributor Agreement, executed August 8, 1991, 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. NA
10(aa)(1) Amendment, dated as of September 30, 1991, between
Registrant and Varian Associates, Inc., incorporated
by reference to Exhibit 10(e) of the Company's Current
Report on Form 8-K for September 30, 1991. NA
10(aa)(2) First Amendment to Distributor Agreement between 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. NA
10(aa)(3) Consent to Assignment and Assignment dated August 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. NA
10(aa)(4) Final Judgment, dated April 1, 1992, in the matter of
United States of America v. Richardson Electronics, Ltd.,
filed in the United States District Court for the
Northern District of Illinois, Eastern Division, as
Docket No. 91 C 6211 incorporated by reference to
Exhibit 10(v)(7) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1992. NA
10(bb) Trade Mark License Agreement dated as of May 1, 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. NA
10(cc) Agreement among Richardson Electronics, Ltd.,
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. NA
10(dd) Settlement Agreement by and between the United States
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. NA
13 Annual Report to Stockholders for fiscal year ending
May 31, 1999 (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). E
21 Subsidiaries of the Company. E
23 Consent of Independent Auditors. E
27 Financial Data Schedule. E
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/Edward J. Richardson By:/s/Bruce W, Johnson
Edward J. Richardson, Bruce W. Johnson,
Chairman of the Board and President and Chief Operating
Chief Executive Officer Officer
By:/s/William J. Garry
William J. Garry
Senior Vice President and
Date: August 27, 1999 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
registrant and in the capacities and on the dates indicated.
/s/ Edward J. Richardson /s/ Bruce W. Johnson
Edward J. Richardson, Chairman Bruce W. Johnson, President,
of the Board, Chief Executive Chief Operating Officer, and Director
Officer (principal executive officer) August 27, 1999
and Director
August 27, 1999
/s/ William J. Garry /s/ Ad Ketelaars
William J. Garry, Senior Vice Ad Ketelaars, Director
President and Chief Financial August 27, 1999
Officer (principal financial and
accounting officer) and Director
August 27, 1999
/s/ Scott Hodes /s/ Samuel Rubinovitz
Scott Hodes, Director Samuel Rubinovitz, Director
August 27, 1999 August 27, 1999
/s/ Arnold R. Allen /s/ Ken Douglas
Arnold R. Allen, Director Ken Douglas, Director
August 27, 1999 August 27, 1999
/s/ Jacques Bouyer /s/ Harold L. Purkey
Jacques Bouyer, Director Harold L. Purkey, Director
August 27, 1999 August 27, 1999
EXHIBIT 10(h)
RICHARDSON ELECTRONICS, LTD.
EMPLOYEES 1999 STOCK PURCHASE PLAN
Richardson Electronics, Ltd. (the "Company") hereby establishes the
Richardson Electronics, Ltd. Employees 1999 Stock Purchase Plan (the "Plan"),
an employee stock purchase plan as defined in Section 423(b) of the Internal
Revenue Code of 1954.
Article I
Purpose
The purpose of the Plan is to provide Employees with an opportunity to
acquire a proprietary interest in the Company through the exercise of options
to purchase shares of the Common stock of the Company. It is the judgment of
the Board that the acquisition of a proprietary interest in the Company by
its Employees will increase their personal interest in its growth and
progress and encourage them to remain in the Company's employ, thereby
promoting the interests of the Company and all its stockholders. The Company
intends that the Plan shall qualify as an "employee stock purchase plan"
within the meaning of Section 423(b) of the Code.
Article II
Definitions
The following words and terms, as used in the Plan, shall have the
respective meanings hereinafter set forth unless a different meaning is
clearly required by the context. Whenever appropriate, words used in the
singular shall be deemed to include the plural, and the masculine gender
shall be deemed to include the feminine gender.
2.1 Board. The Board of Directors of the Company.
2.2 Code. The Internal Revenue Code of 1954, as now in effect or as
hereafter amended.
2.3 Committee. The Stock Option Committee or such other committee
appointed by the Board in accordance with the provisions of Article IV to
administer the Plan.
2.4 Common Stock. The common stock, $.05 per share par value, of the
Company.
2.5 Company. Richardson Electronics, Ltd., a corporation organized
and existing under the laws of the State of Delaware, and any successor to
it.
2.6 Employee. Any individual employed by and receiving compensation
from the Company or a Related Company.
2.7 Exercise Date. The last business day prior to the expiration of
the term of an Option, or, if an Option expires on a pay day, the day of
expiration of the term of such Option.
2.8 Grant Date. The date on which the Company makes an Offering
under the Plan.
2.9 Offering. A grant of Options under the Plan to all Participants.
2.10 Option. An option to purchase shares of the Common Stock granted
by the Company pursuant to an Offering under the Plan .
2.11 Option Price. The purchase price of the Common Stock subject to
an Option, as set forth in Article XII.
2.12 Optionee. A Participant who elects to participate in an Offering
under the Plan in accordance with the provisions of Article VII.
2.13 Participant. An Employee who satisfies the eligibility
requirements set forth in Article V.
2.14 Plan. The Richardson Electronics, Ltd. Employees 1999 Stock
Purchase Plan, as set forth herein, as may be amended from time to time
hereafter.
2.15 Related Company. As of any Grant Date, the term "Related
Company" shall include all "parents" and "subsidiaries" (as hereinafter
defined) of the Company. A "parent" shall be any corporation that owns stock
possessing at least 50% of the total combined voting power of all stock of
the Company or of another parent. A "subsidiary" shall be any corporation if
stock possessing at least 50% of the total combined voting power of all stock
of such corporation is owned by the Company or by another subsidiary.
Article III
Shares Subject to Plan
3.1 The total number of shares of the Common Stock which are
available for purchase upon the exercise of Options under the Plan shall be
One Hundred Fifty Thousand (150,000) shares, subject to appropriate
adjustment as provided in Article XIX
3.2 The shares of the Common Stock issued to an Optionee upon the
exercise of an Option shall be made available, in the discretion of the
Board, either from the authorized but unissued Common Stock or from any
Common Stock reacquired by the Company, including Common Stock purchased in
the open market by the Company.
3.3 If an Offering shall terminate and all shares of the Common Stock
available for purchase thereunder are not purchased by the Optionees, the
unpurchased shares of the Common Stock subject to the Offering shall become
available for the granting of Options in other Offerings.
3.4 Anything to the contrary notwithstanding, if at any time during
the term of the Plan the available shares of the Common Stock in connection
with any Offering are oversubscribed for by the Optionees, the Committee may,
in its sole discretion, either:
(a) increase the number of shares of the Common Stock in the
Offering, provided that the Committee shall not have the authority to
increase the total number of shares of the Common Stock which are available
for purchase under the Plan, as set forth in Section 3.1 above, or the
maximum number of shares of Common Stock which an Optionee may purchase in
the Offering, as set forth in Sections 10.1 and 10.2 below; or
(b) make a pro rata allocation of the available shares of the Common
Stock allocated to such Offering in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable.
3.5 In the event that the Committee elects to make a pro rata
allocation (as described in Section 3.4(b) above), the payroll deductions
elected by the Optionees shall be appropriately reduced to properly
effectuate such allocation and the Committee shall give written notice of
such reduction to each Optionee.
Article IV
Administration
4.1 The authority to control and manage the operations and
administration of the Plan shall be vested exclusively in the Committee.
4.2 The Committee shall be appointed by the Board and shall consist
of not fewer than two (2) members of the Board. All members of the Committee
shall be persons who are "Non-Employee Directors" as that term is defined by
Rule 16b-3 of the Securities and Exchange Commission as in effect and
interpreted from time to time. In the event of any vacancy in the membership
of the Committee, a successor member shall be appointed by the Board to fill
such vacancy as promptly as practical.
4.3 The Committee shall fix the Grant Dates and shall give written
notice to the Participants of each Offering, specifying the number of shares
of the Common Stock available for purchase in such Offering.
4.4 The Committee shall be authorized to interpret the Plan and may
from time to time adopt such rules and regulations for carrying out the
purpose of the Plan as it deems appropriate in its sole discretion. Any such
interpretations shall be final and binding unless otherwise determined by the
Board.
4.5 No member of the Committee or the Board shall be liable for any
action or determination made in good faith with respect to the Plan.
4.6 The Committee may in its discretion from time to time determine
the method and timing of fixing the applicable exchange rates for Optionees
whose compensation is not paid in United States currency.
Article V
Eligibility
5.1 Each Employee who is employed by the Company or a Related Company
who the Committee has designated as a Related Company whose employees may
participate shall be eligible to participate in, and be granted an Option
under, the Plan. For purposes of this Plan, an Employee shall not include
any individual whose customary employment with the Company or a Related
Company is for twenty (20) hours or less per week or is for not more than
five (5) months in any calendar year.
5.2 Anything to the contrary notwithstanding, no Employee may
participate in, and be granted an Option under, the Plan if, immediately
after the Option is granted, such Employee would own stock possessing 5% or
more of the total voting power of all classes of stock of the Company or of
any Related Company. For purposes of determining the ownership of the Common
Stock by an Employee, the stock attribution rules of Section 425(d) of the
Code shall apply and the maximum number of shares of the Common Stock which
the Employee could purchase under such Option pursuant to Section 10.1, and
the maximum number of shares of stock which the Employee could purchase under
all other outstanding options (whether or not issued under this Plan) granted
by the Company or by any Related Company, shall be treated as then owned by
such Employee.
Article VI
Common Stock Offerings
6.1 The Committee shall, from time to time, fix a Grant Date on which
the Company shall grant Options to purchase such aggregate number of shares
of the Common Stock as the Company, in its sole discretion, shall determine.
The Committee shall, at least thirty (30) days prior to any Grant Date fixed
by it, give written notice of the Offering to all Participants.
6.2 No Grant Date shall precede or coincide with the Expiration Date
of a previously granted Option.
Article VII
Participation in Plan
7.1 Participants may become Optionees by completing and delivering to
the Personnel Department of the Company such election and other forms as may
be required by the Committee, including a payroll deduction form, no later
than ten (10) days prior to a Grant Date or such earlier date as the
Committee may require in its written notice of the Offering. Such payroll
deduction form shall become effective as of the Grant Date. An Optionee may
not have more than one payroll deduction form in effect simultaneously.
7.2 Payroll deductions for an Optionee shall commence on the first
pay day on or after the Grant Date and shall end on the last pay day prior to
the expiration of the Option (as set forth in Article XI below) or, if the
Option expires on a pay day, on that day, unless sooner terminated by the
Optionee as provided in Article XV below.
Article VIII
Payroll Deductions
8.1 Each payroll deduction form delivered by an Optionee shall (a)
state the percentage of the Optionee's base compensation which shall be
deducted from his regular paycheck on each pay day during the term of the
Option, (b) authorize the purchase of shares of the Common Stock for the
Optionee on the Exercise Date and (c) specify the exact name (or names,
subject to Section 16.3 below) in which the shares of the Common Stock
purchased for the Optionee are to be issued by the Company.
8.2 An Optionee may authorize payroll deductions in any full
percentage of his base compensation (before withholding and any other
deductions), up to but not more than ten percent (10%), in effect on the
Grant Date; provided, however, that for purposes of determining base
compensation hereunder, an Optionee's annual base compensation in excess of
Two Hundred Fifty Thousand Dollars ($250,000) shall be excluded.
Notwithstanding the preceding, if amounts withheld are in excess of the
amount necessary to acquire the maximum number of shares of Common Stock set
forth in Section 10.1 or 10.2, no further amounts shall be withheld, and any
excess shall be refunded to such Optionee.
8.3 An Optionee shall not be entitled to increase or decrease the
amount of his payroll deduction during the term of an Option.
8.4 Whenever an adjustment in an Optionee's base compensation occurs
during the term of an Option, the amount of such Optionee's payroll deduction
shall be automatically adjusted to reflect such change, unless the Optionee
indicates otherwise. Notwithstanding the preceding sentence, if increases in
an Optionee's base compensation during the term of an Option would result in
amounts being withheld in excess of the amount necessary to acquire the
maximum number of shares of Common Stock set forth in Section 10.1 or 10.2,
no further amounts shall be withheld, and any excess shall be refunded to
such Optionee.
8.5 All payroll deductions made on behalf of an Optionee shall be
credited to his separate account maintained under the Plan, as set forth in
Article XVIII below.
8.6 An Optionee may discontinue his participation in an Offering as
provided in Article XV below, but no other change can be made by the Optionee
during the term of an Option.
Article IX
Conditions to Options
All Options granted in an Offering under this Plan shall be evidenced
by agreements in such form as the Committee shall from time to time recommend
and the Board shall approve; provided, however, that all Optionees shall have
the same rights and privileges (except in connection with the number of
shares of the Common Stock which may be purchased by an Optionee on the basis
of his annual base compensation).
Article X
Granting of Options
10.1 As of each Grant Date, the Optionees shall be granted Options for
as many full shares of the Common Stock as they shall be able to purchase
with the amount of payroll deductions previously authorized by them and
credited to their respective separate accounts during the term of the Option;
provided, however, that the maximum number of full shares of Common Stock
which may be purchased by an Optionee under the Option granted on any Grant
Date shall not exceed the amount which could be purchased by the amount of
payroll deductions authorized by such Optionee if his base compensation
during the period of the Option were equal to 150% of the amount of his base
compensation on such Grant Date. The Committee may set a different uniform
percentage of base compensation for any Offering by written notice included
in the notice specified in Section 6.1, but may not thereafter alter such
percentage for such Offering.
10.2 Anything to the contrary notwithstanding, no Optionee shall be
granted an Option which would permit his right to purchase shares of the
Common Stock or any other class of stock under the Plan or any other employee
stock purchase plan (as defined in Section 423(b) of the Code) maintained by
the Company or by a Related Company to accrue at a rate which exceeds Twenty-
Five Thousand Dollars ($25,000) of fair market value of such stock
(determined on the Grant Date) for each calendar year in which such Option is
outstanding. For purposes of this Section 10.2, (a) the right to purchase
stock under an option accrues when the option (or any portion thereof) first
becomes exercisable during the calendar year, (b) the right to purchase stock
under an option accrues at the rate provided in the option but in no case may
such rate exceed Twenty-Five Thousand Dollars ($25,000) of fair market value
of such stock (determined on the Grant Date) for any one calendar year, and
(c) a right to purchase Common Stock which has accrued under an Option
granted pursuant to the Plan may not be carried over to any other Option.
Article XI
Term of Options
The term of each Option shall expire on the last business day of the
eleventh calendar month commencing after the calendar month which includes
the Grant Date.
Article XII
Option Price
The Option Price shall be equal to the lesser of:
(i) an amount equal to eighty-five percent (85%) of the Fair Market
Value (as that term is defined below) of the Common Stock at the time such
Option is granted; or
(ii) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the Common Stock at the time of the exercise of the Option.
For purposes of this Article XII, the term "Fair Market Value" of the Common
Stock shall be defined as an amount equal to either (a) the mean of the
closing bid and asked quotations in the over-the-counter market on such date
(rounded up to the nearest cent), as reported by the National Association of
Securities Dealers Automated Quotation System, or (b) in the event the Common
Stock is listed on any exchange, the last sale price on such exchange on such
date or, if there are no sales on such date, the mean of the bid and asked
prices (founded up to the nearest cent) for the Common Stock on such exchange
at the close of business on such date.
Article XIII
Exercise of Options
Unless an Optionee gives written notice of termination to the Company
as provided in Article XV below, Options shall be exercised automatically for
him on the Exercise Date for the purchase of the number of full shares of the
Common Stock which the balance of the payroll deductions credited to such
Optionee's separate account during the term of the Option shall purchase at
the Option Price.
Article XIV
Delivery of Certificates
The Company shall deliver to an Optionee certificates representing the
shares of the Common Stock purchased by him upon the exercise of an Option as
soon as practical after the end of an Offering. At the expiration of the
term of an Option the Company shall make a cash payment equal to the balance
of any payroll deductions previously credited to such Optionee's separate
account during the term of the Option which have not been used for the
purchase of shares of the Common Stock.
Article XV
Termination of Options
An Optionee may terminate an Option by giving written notice of
termination to the Committee prior to the Exercise Date, in such manner as
the Committee may require. Such written notice shall terminate the
Optionee's participation in an Offering and his payroll deductions shall
terminate effective as of the end of the next pay period in the fiscal
quarter of the Company in which the written notice of termination is received
by the Committee. After the termination of an Option the Company shall make
a cash payment equal to the balance of any amount held in the Optionee's
separate account. An Optionee's termination of employment with the Company
or a Related Company for any reason (including death or disability) while an
Offering is outstanding shall be deemed the equivalent of the written notice
of termination described above and shall be effective as of the date of the
Optionee's termination of employment.
Article XVI
Rights as Stockholder
16.1 An Optionee shall not have any interest in shares of the Common
Stock subject to an Option until such Option is exercised by him.
16.2 An Optionee who has exercised an Option shall not be entitled to
any of the rights or privileges of a stockholder of the Company, including
but not limited to the right to vote the shares and the right to receive any
dividends which may be declared by the Company with respect to the shares,
until such time as stock certificates representing the shares are issued to
him.
16.3 Certificates for shares of the Common Stock shall be issued to an
Optionee as soon as practical after the end of the Offering and, when issued,
shall be registered in the name of the Optionee or, if the Optionee so
directs in his payroll deduction form, in the names of the Optionee and such
other person as may be designated by the Optionee, as joint tenants with
right of survivorship, to the extent permitted by applicable law.
Article XVII
Non-Transferability of Options
An Optionee's rights with regard to the exercise of an Option are
exercisable only by him during his lifetime and such rights may not be
assigned, transferred, pledged or otherwise disposed of in any way by the
Optionee other than by his last will and testament or by the laws of descent
and distribution. Any such attempted assignment, transfer, pledge or other
disposition by the Optionee shall be without effect, except that the Company
may treat such act as an election to terminate an Option in accordance with
Article XV above.
Article XVIII
Accounts of Optionees
Payroll deductions received or held by the Company under this Plan
shall not be used by the Company for any corporate purpose and the Company
shall segregate such payroll deductions in separate accounts. On the
Exercise Date, payroll deductions shall be withdrawn in accordance with
Article XIII above. No interest shall be paid to an Optionee in connection
with any payroll deductions held in such separate accounts by the Company.
Article XIX
Anti-Dilution
In the event that the number of outstanding shares of the Common Stock
shall be changed by reason of split-ups or combinations of shares or
recapitalizations or by reason of stock dividends, the number of shares of
the Common Stock subject to the Plan not yet granted as Options, the number
of shares of the Common Stock then subject to Options granted under an
Offering and the Option Price payable upon the exercise of an Option by an
Optionee shall be appropriately adjusted, as determined by the Board, so as
to give proper effect to such changes. Anything to the contrary
notwithstanding, no adjustment shall be made hereunder which would result in
a modification of the Options in a manner which would disqualify the Plan as
an "employee stock purchase plan" under the provisions of Section 423(b) of
the Code or which would cause the Options to be considered new options under
Section 425(b) of the Code.
Article XX
Amendment
20.1 The Company shall have the right at any time to amend the Plan by
action of its Board without obtaining the approval of the stockholders of the
Company. Any amendment to the Plan shall be set forth in writing.
20.2 Anything to the contrary notwithstanding, the Company shall not
amend the Plan without obtaining the approval of the stockholders of the
Company if such amendment:
(a) increases the number of shares of the Common Stock that are
reserved for issuance under the Plan;
(b) alters the classification of Employees eligible to be
Participants;
(c) increases the Option Price;
(d) impairs the rights of any Optionee without his consent; or
(e) would cause the Plan to fail to qualify as an "employee stock
purchase plan" as defined in Section 423(b) of the Code.
Article XXI
Termination
21.1 The Company shall have the right at any time to terminate the
Plan by action of its Board without obtaining the approval of the
stockholders of the Company.
21.2 Upon the termination of the Plan, shares of the Common Stock
purchased by Optionees shall be issued to them as if it were the end of an
Offering. Any termination of the Plan shall be effected so that the then
existing rights of all Optionees shall not be adversely affected.
Article XXII
Application of Funds
Any proceeds received by the Company from the sale of shares of Common
Stock may be used for any corporate purpose.
Article XXIII
Notice
Any notice to the Company required under this Plan shall be in writing
and shall either be delivered in person or sent by registered or certified
mail, return receipt requested, postage prepaid, to the Company at its
offices at 40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois 60147-0393,
Attention: Stock Option Committee.
Article XXIV
Effective Date
The Plan is effective April 13, 1999. The Plan shall be submitted to
the stockholders for approval not later than April 12, 2000. If the Plan has
not been approved, it shall terminate on such date in accordance with Article
XXI, and all Options outstanding on such date shall be exercised as provided
in Section 21.2.
EXHIBIT 10(z)(1)
EXECUTIVE PROTECTION POLICY
DECLARATIONS
EXECUTIVE LIABILITY AND
INDEMNIFICATION COVERAGE SECTION
Item 1. Parent Organization:
RICHARDSON ELECTRONICS, LTD.
Item 2. Limits of Liability:
(A) Each Loss $15,000,000.
(B) Each Policy Period $15,000,000.
Note that the limits of liability and any deductible or retention are
reduced or exhausted by Defense Costs.
Item 3. Coinsurance Percent: NONE
Item 4. Deductible Amount:
Insuring Clause 2 $100,000.
Item 5. Insured Organization:
RICHARDSON ELECTRONICS, LTD. AND ITS SUBSIDIARIES.
Item 6. Insured Persons:
ANY PERSON WHO HAS BEEN NOW IS, OR SHALL BECOME A DULY ELECTED
DIRECTOR OR A DULY ELECTED OR APPOINTED OFFICER OF THE INSURED
ORGANIZATION AND WITH RESPECT TO ANY SUBSIDIARY INCORPORATED
OUTSIDE THE UNITED STATES OF AMERICA, ITS FUNCTIONAL
EQUIVALENT.
Item 7. Extended Reporting Period:
(A) Additional Premium: 75% OF THE ANNUAL PREMIUM
(B) Additional Period: ONE YEAR
Item 8. Pending or Prior Date: OCTOBER 12, 1983
Item 9. Continuity Date: OCTOBER 12, 1983
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 1
To be attached to and form part of Policy No. 8125-64-60F
ILLINOIS AMENDATORY ENDORSEMENT
It is agreed that:
Subsection 4, "Extended Reporting Period", shall be deleted and replaced by
the following:
EXTENDED REPORTING PERIOD
4. If the Company or the Insured terminates or refuses to renew this
coverage section, the Parent Organization and the Insured Persons shall
have the right, upon payment of the additional premium set forth in Item
7(A) of the Declarations for this coverage section, to an extension of the
coverage granted by the coverage section for a period of one year as set
forth in Item 7(B) of the Declarations for this coverage section (Extended
Reporting Period) following the effective date of termination or
nonrenewal, but only for any Wrongful Act committed, attempted, or
allegedly committed or attempted, prior to the effective date of
termination or nonrenewal. This right of extension shall lapse unless
written notice of such election, together with payment of the additional
premium due, is received by the Company within 30 days following the
effective date of termination or nonrenewal. Any Claim made during the
Extended Reporting Period shall be deemed to have been made during the
immediately preceding Policy Period.
It is further agreed that Subsection 18, "Definitions", shall be amended by
deleting Defense Costs and replacing it with the following:
Defense Costs means that part of Loss consisting of 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 employees of the Insured Organization or the
salaries of the employees, officers or staff attorneys of the Company)
incurred in defending or investigating Claims and the premium for appeal,
attachment or similar bonds.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 2
To be attached to and form part of Policy No. 8125-64-60F
OPTIONAL GUARANTEED DEFENSE COSTS ALLOCATION
In consideration of the premium paid, it is agreed that subsection 12,
Allocation, is deleted in its entirety and the following is inserted:
Allocation
12. If both Loss covered by this coverage section and loss not covered
by this coverage section are incurred, either because a Claim against an
Insured Person includes both covered and uncovered matters or because a
Claim is made against both an Insured Person and others, including the
Insured Organization, the Insureds and the Company shall allocate such
amount as follows:
(a) with respect to Defense Costs, to create certainty in
determining a fair and proper allocation of Defense Costs, 80%
of all Defense Costs which must otherwise be allocated as
described above shall be allocated to covered Loss and shall
be advanced by the Company on a current basis; provided,
however, that no Defense Costs shall be allocated to the
Insured Organization to the extent the Insured Organization is
unable to pay by reason of Financial Impairment.
This Defense Cost allocation shall be the final and binding allocation of
such Defense Costs and shall not apply to or create any presumption with
respect to the allocation of any other Loss;
(b) with respect to Loss other than Defense Costs:
(i) the Insureds and the Company shall allocate such amount
between covered Loss and uncovered loss based upon
the relative legal exposures of the parties to such
matters; and
(ii) If the Insureds and the Company cannot agree on any
allocation, no presumption as to allocation shall exist
in any arbitration, suit or other proceeding. The
Company, if requested by shall submit the allocation
dispute to binding arbitration. The rules of the
American Arbitration Association shall apply except with
respect to the selection of the arbitration panel, which
shall consist of one arbitrator selected by the
Insureds, one arbitrator selected by the Company third
independent arbitrator selected by the first two
arbitrators.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 3
To be attached to and form part of Policy No.8125-64-60F
It is agreed that Item 6, Insured Persons of the Declarations page is
amended to include the following:
Any Employee of the Insured Organization with the title, Manager.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 4
To be attached to and form part of Policy No.8125-64-60F
It is agreed that subsection 5, EXCLUSIONS: EXCLUSIONS APPLICABLE TO
INSURING CLAUSES 1 AND 2, is amended by deleting para graph (f) in its
entirety with respect to a CLAIM brought and maintained:
1. Solely and entirely in a jurisdiction other than the United States
of America, its territories and possessions; and
2. Subject to the substantive and prodedural laws of a jurisdiction
other than the United States of America, its territories and possessions.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 5
To be attached to and form part of Policy No.8125-64-60F
It is agreed that with respect to each loss on account any claim, which in
whole or in part, is based upon, arising from or in consequence of any
securities transaction, the deductible amount specified in Item 4 of the
Declarations is increased as follows:
FROM TO
INSURING CLAUSE 2 AND/OR 3: $100,000. $250,000.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1999
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 6
To be attached to and form part of Policy No. 8125-64-60F
It is agreed that:
1. This coverage section is amended by adding the following:
Insured Organization Coverage insuring Clause 3
The Company shall pay on behalf of any Insured Organization all Loss for
which it becomes legally obligated to pay on account of any Claim first
made against it during the Policy Period or, if exercised, during the
Extended Reporting Period, for a Wrongful Act committed, attempted, or
allegedly committed or attempted, by any Insured before or during the
Policy Period.
2. Subsection 18, Definitions, is amended as follows:
a. The definitions of Claim and Wrongful Act are deleted in their
entirety and the following is inserted:
Claim means:
(a) For purposes of coverage under Insuring Clauses 1 or 2:
(i) a written demand for monetary or non-monetary damages;
(ii) a civil proceeding commenced by the service of a
complaint or similar pleading;
(iii) a criminal proceeding commenced by the return of an
indictment; or
(iv) a formal administrative or regulatory proceeding
commenced by the filing of a notice of charges, formal
investigative order or similar document,
against any Insured Person for a Wrongful Act, including
any appeal therefrom;
(b) For purposes of coverage under Insuring Clause 3:
(i) a written demand for monetary or non-monetary damages;
(ii) a civil proceeding commenced by the service of a
complaint or similar pleading; or
(iii) a criminal proceeding commenced by the return of an
indictment;
against any Insured Organization for a Wrongful Act, including
any appeal therefrom.
Wrongful Act means:
(a) For purposes of coverage under Insuring Clauses 1 or 2, any
error, misstatement, misleading statement, act, omission,
neglect, or breach of duty committed, attempted, or allegedly
committed or attempted, by any Insured Person, individually or
otherwise, in his Insured Capacity, or matter claimed against
him solely by reason of serving in such Insured Capacity;
(b) For purposes of coverage under Insuring Clause 3, any error,
misstatement, misleading state act, omission, neglect, or
breach of duty committed, attempted, or allegedly committed or
attempted by any Insured based upon, arising from, or in
consequence of any Securities Transaction.
b. The following definition is added:
Securities Transaction means the purchase or sale of, or offer to purchase
or sell, any securities issued by any Insured Organization.
c. The definitions of Insured Person and Loss are amended by adding
the following:
Insured Person also means:
(i) For purposes of coverage under Insuring Clause 1 or 2,
any past, present or future employee of the Insured
Organization, but only for Wrongful Acts based upon,
arising from or in consequence of any Securities
Transaction; and
(ii) For purposes of coverage under Insuring Clause 3, the
Insured Organization
Loss does not include any amount allocated to uncovered loss
pursuant to subsection 12, Allocation. For purposes of
coverage under Insuring Clause 3, Loss includes punitive or
exemplary damages which any Insured Organization becomes
legally obligated to pay, provided the punitive or exemplary
damages are other wise covered under Insuring Clause 3 and
are insurable under the law pursuant to which this coverage
section is construed.
3. The heading for subsection 5 is deleted in its entirety and the
following is inserted:
Exclusions Applicable to all Insuring Clauses
4. Subsection 5, Exclusions: Exclusions Applicable to all Insuring
Clauses, is amended by adding the following to paragraph (c):
(iv) a Claim that is brought by any Insured Person identified
in section 2c(i) of this endorsement for any Wrongful
Act based upon, arising from or in consequence of any
Securities Transaction.
5. Exclusions is amended by adding the following subsections:
Exclusions Applicable to Insuring Clause 3 Only
6.1 The Company shall not be liable under Insuring Clause 3 for
Loss on account of any Claim made against any Insured
Organization based upon, arising from, or in consequence of
any deliberately fraudulent act or omission or any willful
violation of any statute or regulation by any past. present or
future chief financial officer, President or Chairman if a
judgment or other final adjudication adverse to the Insured
Organization establishes such a deliberately fraudulent act or
omission or willful violation.
6.2 The Company shall not be liable under Insuring Clause 3 for
that part of Loss, other than Defense Costs:
(a) which is based upon, arises from, or is in consequence
of the actual or proposed payment by any Insured
Organization of allegedly inadequate or excessive
consideration in connection with its purchase of
securities issued by any Insured Organization; or
(b) which is based upon, arises from, or is in consequence
of any Insured Organization having gained in fact any
profit or advantage to which it was not legally
entitled.
6. The second, third and fourth paragraphs of subsection 8, Limit of
Liability, Deductible and Coinsurance, are deleted in their entirety and
the following is inserted:
The Company's maximum liability for each Loss, whether covered under one or
more Insuring Clauses, shall be the Limit of Liability for each Loss set
forth in Item 2(a) of the Declarations for this coverage section. The
Company's maximum aggregate liability for all Loss on account of all Claims
first made during the same Policy Period, whether covered under one or more
Insuring Clauses, shall be the Limit of Liability for each Policy Period
set forth in Item 2(B) of the Declarations for this coverage section.
The Company's liability under Insuring Clause 2 or Insuring Clause 3 shall
apply only to that part of each Loss which is excess of the Deductible
Amount set forth in Item 4 of the Declarations for this coverage section,
and such Deductible Amount shall be borne by the Insureds uninsured and at
their own risk. However, the Deductible Amount applicable to each Loss on
account of any Claim for any Wrongful Acts based upon, arising from or in
consequence of any Securities Transaction shall:
(a) apply to that part of Loss which constitutes Defense Costs;
and
(b) not apply if:
(i) a final adjudication with prejudice pursuant to a trial,
motion to dismiss or motion for summary judgment in such
Claim, or
(ii) a complete and final settlement of such Claim with
prejudice,
establishes that no Insured in such Claim is liable for any
Loss, other than Defense Costs. The Company shall reimburse
any Insured which has funded a Deductible Amount if such
amount subsequently becomes inapplicable based upon (i) or
(ii) above.
The maximum Deductible Amount applicable to a single Loss which is covered
under more than one Insuring Clause shall be the amount set forth in Item 4
of the Declarations for this coverage section.
7. The first paragraph of subsection 12, Allocation, is deleted in its
entirety and the following is inserted:
(a) If a Claim based on, arising from or in consequence of a
Securities Transaction covered, in whole or in part, under
Insuring Clauses 2 or 3 results in any Insured Person under
Insuring Clause 2 or any Insured Organization under Insuring
Clause 3 incurring both Loss covered by this coverage section
and loss not covered by this coverage section, because such
Claim includes both covered and uncovered matters or is made
against both covered and uncovered parties, the Insureds and
the Company shall allocate such amount to Loss as follows:
(i) 100% of such amount constituting defense costs shall be
allocated to covered Loss; and
(ii) 100 % of such amount other than defense costs shall be
allocated to covered Loss.
(b) If any other Claim results in both Loss covered by this
coverage section and loss not covered by this coverage
section, because such Claim includes both covered and
uncovered matters or is made against both covered and such
uncovered parites, the Insureds and the Company shall allocate
amount between covered Loss and uncovered loss based upon
the relative legal exposures of the parties to such matters.
8. For purposes of coverage under Insuring Clause 3 only, the second
paragraph of subsection 17, Representations and Severability, is deleted in
its entirety and the following is inserted:
With respect to the declarations and statements contained in the written
application(s) for coverage, all declarations and statements contained in
such application and knowledge possessed by any Insured Person identified
in Item 6 of the Declarations shall be imputed to any Insured Organization
for the purpose of determining if coverage is available.
9. For purposes of coverage under Insuring Clause 3 only, subsection 7,
Severability of Exclusions, is deleted in its entirety and the following is
inserted:
With respect to the exclusions in subsections 5, 6.1 and 6.2, only facts
pertaining to and knowledge possessed by any past, present or future chief
financial officer, President or Chairman of any Insured Organization shall
be imputed to any Insured Organization to determine if coverage is
available for such Insured Organization.
10. For purposes of coverage for employees who are Insured Persons
pursuant to paragraph 2c(i) of this endorsement, subsection 9 Presumptive
Indemnification, is amended as follows:
a. Paragraph (b) is deleted in its entirety and the following is
inserted:
(b) is permitted or required to indemnify the Insured
Person for such Loss pursuant to common or statutory
law,
b. The final paragraph in the subsection is deleted in its
entirety and the following is inserted:
For purposes of this subsection 9, the shareholder and board of director
resolutions of the Insured Organization shall be deemed to provided
indemnification for such Loss to the fullest extent permitted by common or
statutory law.
ALL OTHER TERMS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 7
To be attached to and form part of Policy No. 8125-64-60F
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 a Wrongful Act committed, attempted, or allegedly 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 amount shall apply to Investigation 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
employees of the Insured Organization) incurred by the Insured Organization
(including its board of directors or any committee of the 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 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 Investigation Costs;
(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
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No 8
To be attached to and form part of Policy No. 8125-64-60F
It is agreed that:
1. Item 6 of the Declarations, Insured Persons, is amended by adding
the following:
... and any elected or appointed officer of the Insured Organization
in an Outside Directorship.
2. Subsection 18, "Definitions", is amended by adding the following:
Outside Directorship means the position of director, officer, trustee,
governor, or equivalent executive position with an Outside Entity if
service by an Insured Person in such position was at the specific request
of the Insured Organization or was part of the duties regularly assigned to
the Insured Person by the Insured Organization.
Outside Entity means any non-profit corporation, community chest, fund
organization or foundation exempt from federal income tax as an
organization described in Section 501 (c)(3), Internal Revenue Code of
1986, as amended.
3. The following subsection is added to this coverage section:
OUTSIDE DIRECTORSHIPS
19. Coverage provided to any Insured Person in an Outside
Directorship shall:
(a) not extend to the Outside Entity or to any director,
officer, trustee, governor or any other equivalent
executive or employee of the Outside Entity, other than
the Insured Person serving in the Outside Directorship;
(b) be specifically excess of any indemnity (other than any
indemnity provided by the Insured Organization) or
insurance available to such Insured Person by reason of
serving in the Outside Directorship, including any
indemnity or insurance available from or provided by the
Outside Entity;
(c) not extend to Loss on account of any Claim made against
any Insured Person for a Wrongful Act committed,
attempted, or allegedly committed or attempted by such
Insured Person while serving in the Outside Directorship
if such Wrongful Act is committed, attempted, or allegedly
committed or attempted, after the date (i) such Insured
Person ceases to be an officer of the Insured
Organization, or (ii) service by such Insured Person in
the Outside Directorship ceases to be at the specific
request of the Insured Organization or a part of the
duties regularly assigned to the Insured Person by the
Insured Organization;
(d) not extend to Loss on account of any Claim made against
any Insured Person for a Wrongful Act committed, attempted
or allegedly committed or attempted by such Insured Person
while serving in the Outside Directorship where such Claim
is (i) by the Outside Entity, or (ii) on behalf of the
Outside Entity and a director, officer, trustee, governor
or equivalent executive of the Outside Entity instigates
such Claim, or (iii) by any director, officer, trustee,
governor or equivalent executive of the Outside Entity.
4. The Company's maximum liability to pay Loss under this coverage
section, including this endorsement, shall not exceed the amount set forth
in Item 2 of the Declarations. This endorsement does not increase the
Company's maximum liability beyond the Limits of Liability set forth in
Item 2 of the Declarations.
5. Payment by the Company or any of its subsidiaries or affiliated
companies under another policy on account of a Claim also covered pursuant
to this endorsement shall reduce by the amount of the payment the Company's
Limits of Liability under this coverage section with respect to such Claim.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1998
Date
EXECUTIVE PROTECTION POLICY
ENDORSEMENT
Coverage Section: EXECUTIVE LIABILITY
Effective date of this endorsement: MAY 31, 1998
Issued to: RICHARDSON ELECTRONICS, LTD.
Company: FEDERAL INSURANCE COMPANY
Endorsement No. 9
To be attached to and form part of Policy No. 8125-64-60F
It is agreed that if a Claim against an Insured Person includes a claim
against the Insured Person's lawful spouse solely by reason of (i) such
spouse's status as a spouse of the Insured Person, or (ii) such spouse's
ownership interest in property which the claimant seeks as recovery for
alleged Wrongful Acts of the Insured Person, all loss which such spouse
becomes legally obligated to pay on account of such Claim shall be treated
for purposes of this coverage section as Loss which the Insured Person
becomes legally obligated to pay on account of the Claim made against the
Insured Person. All limitations, conditions, provisions and other terms of
coverage (including the deductible) applicable to the Insured Person's Loss
shall also be applicable to such spousal loss.
The coverage extension afforded by this Endorsement does not apply to any
Claim alleging any wrongful act or omission by the Insured Person's spouse.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
Robert Hamburger
Authorized Representative
May 28, 1998
Date
Exhibit 10(z)(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 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
EXCESS DIRECTORS AND OFFICERS LIABILITY AND CORPORATE
INDEMNIFICATION POLICY
DECLARATIONS St. Paul, Minnesota 55102
A Capital Stock Company
Herein Called the Insurer
Policy No.: 0512CM0014
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: 5/31/98 To: 5/31/99(12:01 A.M.
Standard time at the address stated in Item 2).
Item 4.Limit of Liability: $15,000,000 each Policy Period in
excess of Item 7(E). The limit of liability available to pay
judgments or settlements shall be reduced and may be exhausted by
amounts incurred for legal defense costs, charges and expense.
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: $ 61,000
Item 7. Schedule of Underlying Insurer(s):
1.Underlying Insurer: Federated Insurance Company
2.Policy Number: 8125-64-60F
3.Policy Period: From: 5/31/98 To: 5/31/99
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
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: Federated Insurance Company
Policy Number: 8125-64-60F
Item 9. Forms Attached
1) St. Paul Mercury Insurance Company Policy, Form #50408
2) Endorsements one through four
3) St. Paul Mercury Insurance Company Renewal Application,
Form #50264
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 to 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 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 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 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 to
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 of
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 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 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-pro duct 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, not until the amount of the
Corporation's obligation to pay and/or the Insured's 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 of their
legal representatives. Bankruptcy or insolvency of the
Corporation or the Corporation's estate, or bankruptcy or
insolvency of 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.
Secretary President
Paul D. Zicarelli Deufetherdale
ENDORSEMENT OR RIDER NO. 4
The following spaces preceded by an (*)need not be completed if
this endorsement or rider and the Bond or Policy have the same
inception date.
ATTACHED TO AND FORMING PART DATE ENDORSEMENT OR EFFECTIVE DATE
OF BOND OR POLICY NO.: 512CM0014
DATE ENDORSEMENT OR RIDER EXECUTED: 5/31/98
* EFFECTIVE DATE OF ENDORSEMENT OR RIDER: 12:01 A.M. STANDARD
TIME AS SPECIFIED IN THE BOND OR POLICY
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.
(If this box is x'd, the signature requested below is
required.)
ACCEPTED BY INSURED By: Title:
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 Bond or Policy, other than as
above stated.
ST. PAUL MERCURY INSURANCE COMPANY
In Witness Hereof the company has
caused this endorsement to be signed by
a duly authorized representative of the
Company.
By: COPY
Authorized Representative
AGENT
ENDORSEMENT OR RIDER NO. 3
The following spaces preceded by an (*)need not be completed if
this endorsement or rider and the Bond or Policy have the same
inception date.
ATTACHED TO AND FORMING PART DATE ENDORSEMENT OR EFFECTIVE DATE
OF BOND OR POLICY NO.: 512CM0014
DATE ENDORSEMENT OR RIDER EXECUTED: 5/31/98
* EFFECTIVE DATE OF ENDORSEMENT OR RIDER: 12:01 A.M. STANDARD
TIME AS SPECIFIED IN THE BOND OR POLICY
SPECIFIC EVENT EXCLUSION
M1316 Ed. 12/92
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) based upon, arising out of or
attributable to or in any way involving the
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 Cl. 95-202 in the
Circuit Court of the Ninth Judicial Circuit in and for Orange
County, Florida)
(If this box is x'd, the signature requested below is
required.)
ACCEPTED BY INSURED By: Title:
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 Bond or Policy, other than as
above stated.
ST. PAUL MERCURY INSURANCE COMPANY
In Witness Hereof the company has
caused this endorsement to be signed by
a duly authorized representative of the
Company.
By: COPY
Authorized Representative
AGENT
ENDORSEMENT OR RIDER NO. 2
The following spaces preceded by an (*) need not be completed if
this endorsement or rider and the Bond or Policy have the same
inception date.
ATTACHED TO AND FORMING PART DATE ENDORSEMENT OR EFFECTIVE DATE
OF BOND OR POLICY NO.: 512CM0014
DATE ENDORSEMENT OR RIDER EXECUTED: 5/31/98
* EFFECTIVE DATE OF ENDORSEMENT OR RIDER: 12:01 A.M. STANDARD
TIME AS SPECIFIED IN THE BOND OR POLICY
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 5-31-90, 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.
(If this box is x'd, the signature requested below is
required.)
ACCEPTED BY INSURED By: Title:
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 Bond or Policy, other than as
above stated.
ST. PAUL MERCURY INSURANCE COMPANY
In Witness Hereof the company has
caused this endorsement to be signed by
a duly authorized representative of the
Company.
By: COPY
Authorized Representative
AGENT
ENDORSEMENT I
The following spaces preceded by an asterisk (*) need not be
completed if this endorsement and the policy have the same
inception date.
ATTACHED TO AND FORMING PART OF POLICY NO.: 512CM0014
* EFFECTIVE DATE OF ENDORSEMENT OR RIDER: 5/31/98
* ISSUED TO: RICHARDSON ELECTRONICS
ILLINOIS AMENDATORY ENDORSEMENT
M 1137 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 and
substituted with the following:
This policy may be cancelled by the Corporation at any time by
mailing written notice 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 adress 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 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 law of the State of Illinois.
Nothing herein contained shall be hold 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
*Agency Name and Address be signed by a duly authorized
representative of the Company
COPY
Authorized Representative
AGENT
ENDORSEMENT 1
The following spaces preceded by an asterisk (*) need not be
completed if this endorsement and the policy have the same
inception date.
ATTACHED TO AND FORMING PART OF POLICY NO.: 512CM0014
* EFFECTIVE DATE OF ENDORSEMENT OR RIDER: 5/31/98
* ISSUED TO: RICHARDSON ELECTRONICS
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) day 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 a 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 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 cancellable.
Nothing herein contained shall be hold 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 by
*Agency Name and Address a duly be signed authorized
representative of the Company
COPY
Authorized Representative
AGENT
Exhibit 10(z)(3)
CNA INSURANCE COMPANIES
CNA Plaza
Chicago, IL 60685
NOTICE
DECLARATIONS
EXCESS INSURANCE POLICY
THIS 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
POLICY NUMBER: DOX 600028634
COVERAGE PROVIDED BY: Continental Casualty Company
AGENCY: 910 701862
AGENT: Mesirow Insurance Services, Inc.
Robina Fisher
0610 Central Ave.
Suite 200
Highland Park, IL, 6003 5
Item
1. NAMED, ENTITY AND PRINCIPAL: Richardson Electronics Ltd
140W267 Keslinger Road
Lafox, IL, 60147
Attn. William J. Garry
Item
2. Policy Period: 5/31/98 To 5/31/99
12:01 A.M. Standard Time at the Principal Address stated in
item
Item
3. Limit of Liability (Inclusive of Defense Costs):
$5,000,000 Maximum aggregate Limit of Liability each Policy
Period.
Item
4. Schedule of Underlying Insurance:
A. Primary Policy
Name of Carrier Policy No.Limits Ded/Ret. Amount
Federal Insurance Co. 8125-64-60F $15,000,000 0/0/$250,000
B. Underlying Excess Policy(ies):
SEE ATTACHED SCHEDULE
Item
5. Policy Premium
$ 15,300
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, FIG-0787-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: Lisa Fenell
Date: 10/20/98
D.H. Chookaszian D. W. Lowry
Chairman of the Board Secretary
UNDERLYING EXCESS POLICY SCHEDULE
Name of Carrier
St. Paul Mercury insurance Company
Policy No.
0512CM0014
Limits
$15,000,000
Ded/Ret. Amount
$0/$0/$0
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
Insureds 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
the Policy expiration date and hour set forth in Item 2 of the
Declarations, or its earliest cancellation 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 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 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, land such costs
of defense shall reduce the Limit 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 insolvency, bankruptcy, or as
liquidation of said insurer, then the Insureds hereunder shall be
deemed to have retained any loss for the amount of 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 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 reasonable
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 Insured's 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 and (b) any additional or return premiums charged or
allowed in connection 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 employee of the
Insurer or any of its agents relating to this Policy.
XI. POLICY CANCELLATION
This Policy may be canceled by the Named Entity at any time by
written notice or by surrender of this Policy to the Insurer.
This Policy may also be canceled 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 of 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 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 canceled 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.H. Chookaszian D. W. Lowry
Chairman of the Board Secretary
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 canceled by either the first
named insured or the insurer.
1. The named insured can cancel this policy at any
time by mailing advanced 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 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 canceled, 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.
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.
Must be Completed:
ENDT. NO.: I
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT: 06/01/1998
Countersigned by: Lisa Fenell, Authorized Representative
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 if 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 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.
Must be completed:
ENDT. NO.: I
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT 06/01/1998
Countersigned by: Lisa Fennell, Authorized Representative
This notice is to advise 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 at 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.
Must be completed:
ENDT. NO.: 1
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy:
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT: 06/01/1998
Countersigned by: Lisa Fenell, 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.
Must be Completed:
ENDT. NO.: 2
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy:
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT: 06/01/1998
Countersigned by: Lisa Fenell, 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:
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 to the designated Insurers
takes effect on the effective date of said Policy, unless another
effective date said Policy and expires concurrently with said
Policy.
Must be Completed:
ENDT. NO.: 3
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT: 06/01/1998
Countersigned by: Lisa Fenell, 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.
Must be Completed:
ENDT. NO.: 4
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT: 06/01/1998
Countersigned by: Lisa Fenell, Authorized Representative
AMENDMENT OF PRIMARY POLICY DEFINITION TO FOLLOW
CHUBB D&O COVERAGE
In consideration of the premium paid for this Policy, it is
agreed that:
1. Item 4.A. of the Declarations is deleted and the following
is substituted:
A. Primary Policy
Name of Carrier: Federal Insurance Company
Policy No.8125-64-60F
Applicable Coverage Section:
Executive Liability and Indemnification Coverage
Section (Form 14-02-0943) and any applicable
endorsements and General Terms and Conditions (Form 14-
02-0941) pertaining thereto Limit of Liability of
Primary Policy Applicable to Executive Liability and
Indemnification Coverage Section
(a) each Loss: $15,000,000
(b) each Policy Period: $15,000,000
Deductible of Primary Policy Applicable to Executive
Liability and Idemnification Coverage Section:
$100,000,
2. II. POLICY DEFINITIONS is amended by deleting "Primary
Policy means the Policy scheduled in Item 4.A of
the Declarations" and substituting the following:
"Primary Policy" means only the Executive Liability and
Indemnification Coverage Section (Form 14-02-0943), and
any applicable endorsements and General Terms and
Conditions (Form 14-02-0941)pertaining thereto of the
Executive Protection Policy issued by Federal Insurance
Company, as such policy is identified in Item 4.A. of
the Declarations, and shall not include any other
coverage section contained in such 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 of said Policy unless another effective date is
shown below, at the hour stated in said Policy and expires
concurrently with said Policy.
Must be Completed:
ENDT NO.: 5
POLICY NO.: 600028634
Complete Only When This Endorsement Is Not Prepared with the
Policy or is Not to be Effective with the Policy:
ISSUED TO: Richardson Electronics Ltd
EFFECTIVE DATE OF THIS ENDORSEMENT 06/01/1998
Countersigned by: Lisa Fenell, Authorized Representative
<TABLE>
Five-Year Financial Review
<CAPTION>
(in thousands, except per share amounts) Year Ended May 31
Statement of Operations Data 1999 1998 1997(1) 1996 1995(2)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $320,941 $304,172 $255,139 $239,667 $208,118
Cost of products
sold 231,328 217,509 187,675 169,123 152,785
Selling, general and
administrative expenses 70,870 65,393 62,333 52,974 48,674
Other expense, net 6,886 7,334 7,856 5,559 4,028
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 11,857 13,936 (2,725) 12,011 2,631
Income tax provision
(benefit) 3,505 4,200 (1,720) 3,900 150
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item 8,352 9,736 (1,005) 8,111 2,481
Extraordinary gain (loss),
net of tax -- -- (488) -- 527
--------- --------- --------- --------- ---------
Net income (loss) $ 8,352 $ 9,736 $ (1,493) $ 8,111 $ 3,008
========= ========= ========= ========= =========
Income (loss) per share - basic:
Before extraordinary item $ .60 $ .79 $ (.08) $ .70 $ .22
Extraordinary gain (loss),
net of tax -- -- (.04) -- .05
--------- --------- --------- --------- ---------
Net income (loss) per share $ .60 $ .79 $ (.12) $ .70 $ .27
========= ========= ========= ========= =========
Income (loss) per share - diluted:
Before extraordinary item $ .60 $ .77 $ (.08) $ .68 $ .21
Extraordinary gain (loss),
net of tax -- -- (.04) -- .05
--------- --------- --------- --------- ---------
Net income (loss) per share $ .60 $ .77 $ (.12) $ .68 $ .26
========= ========= ========= ========= =========
Dividends per common share $ .16 $ .16 $ .16 $ .16 $ .16
========= ========= ========= ========= =========
Year Ended May 31
Net Sales by Strategic Business Unit 1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
Electron Device Group (EDG) $119,882 $119,157 $113,700 $109,925 $105,454
Solid State & Components (SSC) 93,463 88,014 74,209 67,976 52,409
Display Products Group (DPG) 37,416 30,639 29,377 36,154 36,502
Security Systems Division (SSD) 70,180 66,362 37,853 25,612 13,753
--------- -------- --------- --------- ---------
Consolidated $320,941 $304,172 $255,139 $239,667 $208,118
========= ======== ========= ========= =========
As of May 31
Balance Sheet Data 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
Receivables $ 62,448 $ 63,431 $ 53,333 $ 48,232 $ 42,768
Inventories 107,724 96,443 92,194 94,327 81,267
Working capital, net 161,640 149,577 140,821 133,151 106,235
Property, plant and equipment, net 23,047 18,477 17,526 16,054 16,388
Total assets 235,678 209,700 192,514 180,158 173,514
Long-term debt 113,658 87,427 107,275 92,025 79,647
Stockholders' equity 84,304 91,585 59,590 62,792 56,154
</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 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. The Company also recorded an extraordinary gain
of $864, less tax of $337, or $.05 per share, on the repurchase of certain
of the Company's debentures.
Page 6
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 1999
were a record $320.9 million. Sales by SBU and percent of consolidated sales
are presented in the following table (in thousands):
Sales 1999 % 1998 % 1997 %
-------- ----- -------- ----- -------- -----
EDG $119,882 37.3 $119,157 39.2 $113,700 44.6
SSC 93,463 29.1 88,014 28.9 74,209 29.1
DPG 37,416 11.7 30,639 10.1 29,377 11.5
SSD 70,180 21.9 66,362 21.8 37,853 14.8
-------- ----- -------- ----- -------- -----
Total $320,941 100.0 $304,172 100.0 $255,139 100.0
======== ===== ======== ===== ======== =====
Sales growth of 5.5% in 1999 and 19.2% in 1998 benefited from several
business acquisitions. Excluding the effect of these acquisitions, internally
generated sales growth was 1.6% in 1999 and 11.8% in 1998.
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 "Corporate" (in thousands):
Gross Margins 1999 % 1998 % 1997 %
-------- ----- -------- ----- -------- -----
EDG $ 36,828 30.7 $ 37,219 31.2 $ 32,220 28.3
SSC 26,590 28.4 25,160 28.6 19,923 26.8
DPG 11,474 30.7 10,464 34.2 8,465 28.8
SSD 16,184 23.1 15,335 23.1 8,267 21.8
-------- -------- --------
Total 91,076 28.4 88,178 29.0 68,875 27.0
Corporate (1,463) (1,515) (1,411)
-------- -------- --------
Consolidated $ 89,613 27.9 $ 86,663 28.5 $ 67,464 26.4
======== ======== ========
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
net sales gain of 0.6% in 1999 reflects a 7.0% contraction of the core business
offset by growth in medical x-ray imaging and the sale of logistics services.
The core business was adversely affected by economic difficulties in Latin
America and weak demand for microwave products used in the manufacture of
semiconductors. The 4.8% sales growth in 1998 resulted from an increase in
market share and emphasis on medical x-ray imaging. Foreign sales as a percent
of total sales for EDG were 50.9%, 54.8% and 56.5% in 1999, 1998 and 1997,
respectively.
The medical electronics replacement business is a growth segment of the
vacuum tube industry. Demand for rebuilt 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 expanded its medical sales
force and acquired existing x-ray tube and image intensifier reloading
facilities in the United States and built a similar facility in the
Netherlands. Sales in this EDG product line increased 9.5% to $22.3 million in
1999, following a 21.9% increase in 1998. Other growth areas in EDG, include
microwave generators, pulse power tubes, industrial magnetrons and broadcast
transmitters.
Gross margin as a percent of sales was 30.7% in 1999, compared to 31.2%
in 1998 and 30.6% (adjusted to exclude the special charge) in 1997. The gross
margin change in 1999 reflects a change in product mix as lower-margin medical
sales comprise a larger portion of total sales. The margin improvement in 1998
resulted from additional focus on pricing policies, emphasis on proprietary
product lines and value-added services.
Solid State and Components
SSC operates in several markets, including the rapidly growing wireless
telecommunications industry. Sales increased 6.2% in 1999 to $93.5 million,
following an 18.6% increase in 1998. Sales growth in 1999 slowed due to a
general weakness in the semiconductor industry. Sales outside of the United
States represented 43.7%, 39.8% and 37.6% of SSC's sales in 1999, 1998 and
1997, respectively. The largest sales gains in 1999 outside the United States
were in Asia/Pacific, up 55.9%, and Europe, up 17.2%.
During fiscal 1999, the Company acquired TRL Technologies, Inc. Although
the acquisition added only $800,000 to fiscal 1999 sales, their design and
manufacturing capabilities in the wireless telecommunications market are
projected to generate significant sales in future years, including a $4.5
million contract to be delivered in fiscal 2000.
Gross margin as a percent of sales was 28.4% in 1999, compared to 28.6%
in 1998 and 30.1% (adjusted to exclude the special charge) in 1997. The decline
in margin in 1999 reflects competitive pricing pressures and changes
in product mix.
Page 7
Management's Discussion and Analysis
Display Products Group
DPG sales increased 22.1% in 1999 and 4.3% in 1998. The sales growth in
1999 reflects the expansion of the DPG product line into monitors and related
systems integration. Sales outside the United States represented 39.9%, 48.8%
and 46.1% of DPG's sales in 1999, 1998 and 1997, respectively.
Sales growth also benefited from the acquisitions of Eternal Graphics in
March 1998 and PixeLink in March 1999. Excluding the effect of acquisitions,
DPG's sales growth was 10.4% in 1999 and 0.7% in 1998.
Gross margin as a percent of sales was 30.7% in 1999, compared to 34.2%
in 1998 and 35.1% (adjusted to exclude the special charge) in 1997. 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 provides security systems and related design services with an
emphasis on closed circuit television (CCTV). In December 1998, the Company
acquired Adler Video Systems, a distributor in southern California with annual
sales of approximately $8.4 million. This purchase follows the acquisition of
two Canadian distributors, Security Service International, Inc. (SSI) in August
1997 and Burtek Systems Inc. (Burtek) in February 1997, with annual sales of
approximately $20.0 million and $18.0 million, respectively. These acquisitions
contributed to the 5.8% growth in sales in 1999 and the 75.3% sales growth in
1998. Excluding the effect of acquisitions, sales declined 4.4% in 1999 and
increased 27.7% in 1998. SSD's sales in 1999 were adversely affected by a soft
Canadian economy and by foreign exchange, as a 7.0% decline in the value of the
Canadian dollar generated a 3.4% reduction in reported sales. Sales outside of
the United States represented 59.4% of SSD's sales in 1999, 63.5% in 1998, and
47.7% in 1997.
Gross margin was 23.1% of sales in 1999 and 1998 and 21.8% of sales in
1997. The improvement in gross margin in 1998 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, mitigating the effect of lower gross margin rates.
Sales by Geographic Area
On a geographic basis, the Company categorizes its sales by destination:
North America, Europe, Latin America, Asia/Pacific and Other. Prior year data
has been restated to reflect this categorization. Other includes sales to
export distributors and to countries where the Company does not have offices,
including Eastern Europe and the Middle East. Sales and gross margin by
geographic area are as follows (in thousands):
Sales 1999 % 1998 % 1997 %
-------- ----- -------- ----- -------- -----
North America $205,013 63.8 $189,116 62.2 $153,205 60.0
Europe 65,365 20.4 62,706 20.6 51,681 20.3
Latin America 16,734 5.2 20,755 6.8 17,861 7.0
Asia/Pacific 23,390 7.3 21,155 7.0 20,261 7.9
Other 10,439 3.3 10,440 3.4 12,131 4.8
-------- ----- -------- ----- -------- -----
Consolidated $320,941 100.0 $304,172 100.0 $255,139 100.0
======== ===== ======== ===== ======== =====
Gross Margins 1999 % 1998 % 1997 %
-------- ----- -------- ----- -------- -----
North America $ 55,569 27.1 $ 53,372 28.2 $ 40,596 26.5
Europe 20,607 31.5 19,449 31.0 15,016 29.1
Latin America 4,729 28.3 5,763 27.8 4,313 24.1
Asia/Pacific 7,169 30.6 6,427 30.4 5,682 28.0
Other 3,002 28.8 3,167 30.3 3,268 26.9
-------- -------- --------
Total 91,076 28.4 88,178 29.0 68,875 27.0
Corporate (1,463) (1,515) (1,411)
-------- -------- --------
Consolidated $ 89,613 27.9 $ 86,663 28.5 $ 67,464 26.4
======== ======== ========
North American sales increased 8.4% in 1999, following a 23.5% increase
in 1998. The 1999 increase reflects growth in SSC, DPG monitor sales and
acquisitions. The 1998 increase reflects growth in SSC, EDG, SSD and
acquisitions. Sales in Europe increased 4.2% in 1999 and 21.3% in 1998.
The crash in Asian markets affected sales for the latter half of fiscal
1998 and the first half of fiscal 1999. Performance improved significantly in
the second half of 1999. Overall, Asia/Pacific sales grew 4.4% in 1998 and
10.6% in 1999. Shortly after the Asian crisis, the Brazilian market declined.
Latin American sales did not recover throughout 1999, as sales declined 19.4%
in 1999 after a 16.2% increase in 1998.
Sales denominated in currencies other than U.S. dollars were 40.2%,
39.0% and 34.0% of total sales in 1999, 1998 and 1997, respectively. Foreign
currency exchange rate changes reduced foreign sales by an average of 3.0%
in 1999 and 5.9% in 1998. Average selling prices, excluding the effects of
exchange rate changes declined 0.4% in 1999 and 0.3% in 1998 and were
unchanged in 1997.
The following table reconciles product margins on distribution activities
to gross margins reported in the Consolidated Statements of Operations:
(% of sales) 1999 1998 1997
-------- -------- --------
Distribution product margin 29.0 % 29.6 % 29.9 %
Customer returns and scrap (0.4) (0.6) (0.3)
Freight costs not inventoried (0.3) (0.3) (0.3)
Overstock provisions - 0.1 (3.0)
Other costs (0.4) (0.3) 0.1
-------- -------- --------
Gross margin 27.9 % 28.5 % 26.4 %
======== ======== ========
Page 8
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 1997, in conjunction with a
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 22.1% of sales
in 1999, 21.5% in 1998 and 24.4% in 1997. In the third quarter of 1999, the
Company adjusted staffing in light of current sales levels, resulting in a
reduction in annual operating costs of approximately $2.5 million, beginning
in the fourth quarter. Related severance costs were $340,000. In the fourth
quarter of 1999, the Company recorded a $500,000 provision for potential
losses on certain Latin American accounts receivable. The 1998 improvement
reflects policy and procedural changes initiated by the Company to reduce
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.
Other (Income) Expense
Interest expense decreased 4.9% in 1999, reflecting lower borrowing
levels during the year. Investment income includes realized capital gains
of $39,000 in 1999 and $506,000 in 1998. Foreign exchange and other expenses
primarily reflect changes in the value of the U.S. dollar relative to foreign
currencies.
Income Tax Provision
The effective tax rates were 29.6% in fiscal 1999, 30.1% in 1998
and 63.1% in 1997. The 1999 and 1998 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
Net income declined 14.2% in 1999, to $8.4 million, or $.60 per share,
from $9.7 million, or $.77 per share in 1998. 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 income before extraordinary
loss by $6.7 million, or $.56 per share. Also in 1997, an extraordinary loss
reduced income by $488,000, or $.04 per share.
Financial Condition
Liquidity
The Company provides engineered solutions, including prototype design and
assembly, in niche product areas to its customers. Additionally, the Company
specializes in certain products representing trailing-edge technology that may
not be available from other sources, and may not be currently manufactured. In
many cases, the Company's 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, business acquisitions and, in
1999, purchases of treasury stock. Cash provided by operations was $4.1 million
in fiscal 1999, $6.3 million in 1998 and $3.6 million in 1997. Additional
investments in working capital to support sales growth were $10.2 million,
$10.6 million and $7.3 million in 1999, 1998 and 1997, respectively.
At May 31, 1999, the Company had net operating loss carryforwards of
$7.3 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 proposed a plan, which has been accepted by 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 charged to operations in 1996. The
balance of the reserve is $544,000 and is included in accrued liabilities at
May 31, 1999.
Financing
In March 1998, the Company replaced its existing senior revolving
credit note agreement with a new $50.0 million floating-rate revolving credit
agreement expiring 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 can be reduced if the Company
meets certain performance benchmarks. At May 31, 1999, $16.4 million was
available under this line.
In fiscal 1999, the Company purchased a suite of enterprise resource
planning software utilizing state-of-the-art client-server technology. The
Company entered into a financing arrangement with quarterly payments through
March 2001 and an implicit interest rate of 7.5%.
Page 9
Management's Discussion and Analysis
In May 1998, the Company sold 2.1 million 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.
In fiscal 1999, the Company purchased 2.0 million shares of its Common
Stock at an average cost of $5.76 per share.
Based on shares outstanding at May 31, 1999, annual dividend payments
approximate $2.0 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, while historically has not, in the future may enter into
forward contracts to hedge significant transactions. Other tools that 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.
There are no outstanding forward exchange contracts at May 31, 1999.
Impact of Year 2000
The year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. The Company's current
computer database correctly stores date stamps that include four digit years.
The Company sets standard configuration guidelines for personal computer
systems used within the Company, which are year 2000 compliant. Based on a
recent assessment, the Company anticipates its systems will function properly
with respect to dates in the year 2000 and thereafter.
Future operating results may also be affected by the readiness of the
Company's trading partners to meet year 2000 requirements. The Company is in
the process of surveying its vendors of products with embedded chips or date-
sensitive systems concerning their year 2000 readiness. The use of electronic
data interchanges by the Company is limited to a few vendors and customers and
the Company does not anticipate significant year 2000 issues relating to
interface systems with these parties. The Company has no single customer that
accounts for more than 2% of its sales or any vendor that accounts for more
than 9% of its purchases. Based upon the foregoing, the Company believes that
its risk of significant financial impact resulting from the inability of its
trading partners to meet year 2000 requirements is minimal.
Conversion to the Euro
On January 1, 1999, eleven member countries of the European Union began
conversion to a common currency, the Euro. From January 1, 1999 until
January 1, 2002, companies operating in Europe must be able to process business
transactions either in legacy currencies or in Euros. After January 1, 2002,
all transactions will be processed only in Euros. These changes could have
significant impacts on transaction processing costs, pricing policies and
foreign currency exchange risk management.
The Company has verified that its transaction processing systems can
accommodate the Euro and dual currency processing requirements without
significant additional costs. While the exact impact on pricing is
indeterminable, the Company believes that since most of its pricing is based
on U.S. dollar costs, the effect of conversion to the Euro will not be
significant. The Company expects to adopt the Euro as the functional currency
for each of its subsidiaries within the European Union. While it is possible
that this change may result in reduced volatility of foreign exchange results,
these benefits cannot be quantified at this time.
Risk Management and Market Sensitive Financial Instruments
As discussed above, the Company's debt financing, in part, varies with
market rates and certain of its operations and assets and liabilities are
denominated in foreign currencies that subject the Company to foreign exchange
risk.
In order to provide the user of these financial statements guidance
regarding the magnitude of these risks, the Securities and Exchange
Commission requires the Company to provide certain disclosures based upon
hypothetical assumptions. Specifically, these disclosures require the
calculation of the effect a 10% increase in market interest rates and a uniform
10% strengthening of the U. S. dollar against foreign currencies would have on
the reported net earnings of the Company. Under these assumptions in 1999,
additional interest expense, tax effected, would have reduced net income by
$150,000 and foreign currency exchange rates would have decreased net income by
$140,000.
The interpretation and analysis of these disclosures should not be
considered in isolation since such variances in interest rates and foreign
currency exchange rates would likely influence other economic factors. Such
factors, which are not readily quantifiable, would likely also affect the
Company's 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.
Page 10
Consolidated Balance Sheets
As of May 31
(in thousands) 1999 1998
-------- --------
Assets
Current assets
Cash and equivalents $ 12,569 $ 8,031
Receivables, less allowance
of $2,584 and $2,230 62,448 63,431
Inventories 107,724 96,443
Other 12,817 9,681
-------- --------
Total current assets 195,558 177,586
Property, plant and equipment, net 23,047 18,477
Other assets 17,073 13,637
-------- --------
Total assets $235,678 $209,700
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 21,829 $ 17,320
Accrued liabilities 10,259 10,286
Notes and current portion of
long-term debt 1,830 403
-------- --------
Total current liabilities 33,918 28,009
Long-term debt 113,658 87,427
Deferred income taxes 3,798 2,679
-------- --------
Total liabilities 151,374 118,115
Stockholders' equity
Common Stock, $.05 par value 570 561
Class B Common Stock, convertible,
$.05 par value 162 162
Preferred Stock, $1.00 par value - -
Additional paid-in capital 82,309 80,606
Treasury stock (11,532) -
Retained earnings 23,044 16,842
Foreign currency translation adjustment (10,249) (6,586)
-------- --------
Total stockholders' equity 84,304 91,585
-------- --------
Total liabilities and stockholders'
equity $235,678 $209,700
======== ========
See notes to consolidated financial statements.
Page 11
Consolidated Statements of Operations
Year Ended May 31
(in thousands, except per share amounts) 1999 1998 1997
-------- -------- --------
Net sales $320,941 $304,172 $255,139
Cost of products sold 231,328 217,509 187,675
-------- -------- --------
Gross margin 89,613 86,663 67,464
Selling, general and
administrative expenses 70,870 65,393 62,333
-------- -------- --------
Operating income 18,743 21,270 5,131
Other (income) expense:
Interest expense 7,689 8,084 7,622
Investment income (636) (1,005) (392)
Foreign exchange and other (167) 255 626
-------- -------- --------
6,886 7,334 7,856
-------- -------- --------
Income (loss) before income taxes
and extraordinary item 11,857 13,936 (2,725)
Income tax provision (benefit) 3,505 4,200 (1,720)
-------- -------- --------
Income (loss) before extraordinary item 8,352 9,736 (1,005)
Extraordinary loss, net of tax benefit - - (488)
-------- -------- --------
Net income (loss) $ 8,352 $ 9,736 $ (1,493)
======== ======== ========
Income (loss) per share - basic:
Before extraordinary item $ .60 $ .79 $ (.08)
Extraordinary loss, net of tax
benefit - - (.04)
-------- -------- --------
Net income (loss) per share $ .60 $ .79 $ (.12)
======== ======== ========
Average shares outstanding 13,822 12,264 11,892
Income (loss) per share - diluted:
Before extraordinary item $ .60 $ .77 $ (.08)
Extraordinary loss, net of tax
benefit - - (.04)
-------- -------- --------
Net income (loss) per share $ .60 $ .77 $ (.12)
======== ======== ========
Average shares outstanding 14,026 12,689 11,892
Dividends per common share $ .16 $ .16 $ .16
Comprehensive income (loss):
Net income (loss) $ 8,352 $ 9,736 $ (1,493)
Foreign currency translation adjustment (3,663) (2,983) (1,190)
-------- -------- --------
Comprehensive income (loss) $ 4,689 $ 6,753 $ (2,683)
======== ======== ========
See notes to consolidated financial statements.
Page 12
Consolidated Statements of Cash Flows
Year Ended May 31
(in thousands) 1999 1998 1997
------- ------- -------
Operating activities:
Net income (loss) $ 8,352 $ 9,736 $(1,493)
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Depreciation 3,605 3,477 2,627
Amortization of intangibles
and financing costs 633 632 1,318
Deferred income taxes 1,237 2,779 (3,305)
Stock contribution to
employee ownership plan 485 285 800
Special charges -- -- 11,000
------- ------- -------
Net adjustments 5,960 7,173 12,440
------- ------- -------
Changes in working capital,
net of currency translation
effects and business acquisitions:
Receivables 1,108 (9,170) (4,277)
Inventories (10,985) (3,658) 406
Other current assets (3,015) 186 253
Accounts payable 3,172 4,366 (3,719)
Accrued liabilities (509) (2,350) 28
------- ------- -------
Net changes in working capital (10,229) (10,626) (7,309)
------- ------- -------
Net cash provided by
operating activities 4,083 6,283 3,638
------- ------- -------
Financing activities:
Proceeds from borrowings 31,528 16,731 57,890
Payments on debt (3,743) (35,642) (42,640)
Proceeds from sale of common stock 385 26,933 536
Purchases of treasury stock (11,527) -- --
Cash dividends (2,150) (1,976) (1,855)
------- ------- -------
Net cash provided
by financing activities 14,493 6,046 13,931
------- ------- -------
Investing activities:
Business acquisitions (3,795) (6,798) (9,902)
Capital expenditures (7,647) (4,116) (4,004)
Other (2,596) (3,396) (435)
------- ------ -------
Net cash used in
investing activities (14,038) (14,310) (14,341)
------- ------- -------
Increase (decrease) in cash
and equivalents 4,538 (1,981) 3,228
Cash and equivalents at beginning of year 8,031 10,012 6,784
------- ------- -------
Cash and equivalents at end of year $12,569 $ 8,031 $10,012
======= ======= =======
See notes to consolidated financial statements.
Page 13
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Shares Issued Accumulated
--------------- Additional Other
(shares and dollars Class B Par Paid-in Treasury Retained Comprehensive
in thousands) Common Common Value Capital Stock Earnings Income(Loss) Total
------ ------- ----- ---------- -------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 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
shares to common
shares 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
Shares contributed
to ESOP 12 -- 1 484 -- -- -- 485
Shares issued under ESPP
and stock option plan 189 -- 8 1,219 (5) -- -- 1,222
Purchase of 2,000 shares
of Common Stock -- -- -- -- (11,527) -- -- (11,527)
Conversion of Class B
shares to common
shares 6 (6) -- -- -- -- -- --
Dividends -- -- -- -- -- (2,150) -- (2,150)
Currency translation -- -- -- -- -- -- (3,663) (3,663)
Net income -- -- -- -- -- 8,352 -- 8,352
------ ------- ----- ---------- --------- -------- ------------ -------
Balance May 31, 1999 11,390 3,233 $ 732 $ 82,309 $(11,532) $ 23,044 $ (10,249) $84,304
====== ======= ===== ========== ========= ======== ============ =======
</TABLE>
See notes to consolidated financial statements.
Page 14
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.
Reclassifications: Certain amounts in the 1998 and 1997 financial statements
are reclassified to conform to the 1999 presentation.
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 78% of
total inventories at May 31, 1999 and 80% at May 31, 1998. 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 $2,058 and $3,569 at May 31, 1999
and 1998, 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, 1999 and 1998. Substantially all inventories represent
finished goods held for sale.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Provisions for depreciation are computed principally using the
straight-line method over the estimated useful life of the asset. Property,
plant and equipment consist of the following:
May 31
1999 1998
-------- --------
Land and improvements $ 2,764 $ 2,721
Buildings and improvements 18,776 18,479
Machinery and equipment 36,003 28,595
-------- --------
Property at cost 57,543 49,795
Accumulated depreciation (34,496) (31,318)
-------- --------
Property, net $ 23,047 $ 18,477
======== ========
Other Assets: Deferred financing costs, goodwill and other deferred charges
are amortized using the straight-line method. Goodwill is generally amortised
over a period of 20 to 40 years. However, the Company continually evaluates
the carrying value of goodwill based upon its recoverability from related
projected undiscounted cash flows. Other assets consist of the following:
May 31
1999 1998
-------- --------
Investments (at market) $ 2,603 $ 2,931
Notes receivable 5,680 3,158
Deferred financing costs, net 436 502
Goodwill, net 7,126 5,558
Other deferred charges, net 1,228 1,488
-------- --------
Other assets, net $ 17,073 $ 13,637
======== ========
Accrued Liabilities: Accrued liabilities consist of the following:
May 31
1999 1998
-------- --------
Compensation and payroll taxes $ 4,048 $ 5,072
Interest 2,758 2,546
Income taxes 1,042 362
Other accrued expenses 2,411 2,306
-------- --------
Accrued liabilities $ 10,259 $ 10,286
======== ========
Foreign Currency Translation: Foreign currency balances and financial
statements are translated into U.S. dollars at end-of-period rates, except
that revenues 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 gains (losses)
reflected in operations are $77, $(299), and $(563) in 1999, 1998, and 1997,
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.
Page15
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Earnings per Share: Basic earnings per share is calculated by dividing net
income (loss) by the weighted average number of Common and Class B Common
shares outstanding. Diluted earnings per share is calculated by dividing net
income (loss) by the actual 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 are based on the
following amounts:
1999 1998 1997
------- ------- -------
Numerator for EPS:
Income (loss) before
extraordinary item $ 8,352 $ 9,736 $(1,005)
Extraordinary loss, net of tax - - (488)
------- ------- -------
Net income (loss) $ 8,352 $ 9,736 $(1,493)
======= ======= =======
Denominator for basic EPS:
Beginning shares outstanding 14,422 11,964 11,806
Additional shares issued 106 300 86
Reduction for shares acquired (706) - -
------- ------- -------
Average shares outstanding 13,822 12,264 11,892
======= ======= =======
Denominator for diluted EPS:
Average shares outstanding 13,822 12,264 11,892
Effect of dilutive stock options 204 425 -
------- ------- -------
Average shares outstanding 14,026 12,689 11,892
======= ======= =======
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 are excluded from
the calculation because they are anti-dilutive. In-the-money stock options are
excluded from the calculation in 1997 because the Company reported a net loss.
Note B -- Special Charges and Extraordinary Item
In 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 are included in cost of sales, and provisions for accounts receivable,
severance and other costs of $3,800 are included in selling, general and
administrative expense. Collectively, these charges amount to $11,000, or
$6,712, net of tax, reducing earnings per share by $.56.
Also in fiscal 1997, the Company recorded an $800 extraordinary charge
for the write-off of unamortized debt issuance costs associated with a portion
of the Company's 7 1/4% convertible subordinated debentures, which were
exchanged for a new 8 1/4% debenture. Net of tax, the charge was
$488, or $.04 per share.
Note C -- Acquisitions
Fiscal 1999: In December 1998, the Company's SSD unit acquired Adler
Video Systems, a southern California based distributor of closed circuit
television (CCTV) systems with annual sales of approximately $8,400. The
Company also made three smaller acquisitions with annual sales of about
$2,000 each. These acquisitions included TRL Technologies, a manufacturer
of amplifier circuits for the SSC business unit's wireless communications
operations; Sahab S.A., a Mexican distributer of broadcast transmitters for
the EDG Business unit; and PixeLink, a systems integrator specializing in
medical monitors for the DPG business unit.
The aggregate cash outlay for business acquisitions in 1999 was $3,795.
Additional non-cash payments of $1,113 were made in the form of the Company's
Common Stock and the foregiveness of an account receivable.
Fiscal 1998: 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 approximately $20,000. In March 1998, the Company
acquired Eternal Graphics, a systems integrator specializing in financial
applications for the DPG business unit with annual sales of approximately
$4,200.
Fiscal 1997: In February 1997, the SSD unit acquired Burtek Systems, Inc.,
(Burtek) a security systems distributor operating in Canada with annual sales of
approximately $18,000. 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 approximately $8,000.
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. If
each of these acquisitions had occurred at the beginning of the year,
consolidated sales would have increased by approximately $6,900, $6,000 and
$12,000 in 1999, 1998 and 1997, respectively.
The terms of certain of the Company's acquisition agreements provide for
additional consideration to be paid if the acquired entity's results of
operations exceed certain targeted levels. Such amounts are paid in cash and
recorded when earned as additional consideration, and in 1999, amounted
to $927. Assuming the goals established in all agreements outstanding at
May 31, 1999 were met, additional consideration aggregating approximately
$4,500 would be payable through 2003.
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 7.9%, 9.6%, and
13.0%, of net sales in fiscal 1999, 1998 and 1997, respectively.
Page 16
Note E -- Debt Financing
Long-term debt consists of the following:
May 31
1999 1998
-------- --------
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 (6.07% at May 31, 1999) 33,582 6,582
Revolving credit and term loan due
March 2001 (5.63% at May 31, 1999) 7,694 9,365
Software financing arrangement 2,673 -
Other 714 1,058
-------- --------
Long-term debt 115,488 87,830
Less current portion (1,830) (403)
-------- --------
Long-term debt $113,658 $ 87,427
======== ========
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 of the
7 1/4% debenture is convertible into the Company's Common Stock at any time
prior to maturity at $21.14 per share and the 8 1/4% debentures are convertible
at $18.00 per share. The Company is required to make sinking fund payments of
$3,850 in 2004 and $6,225 in 2005.
The Company has a $50,000 floating-rate revolving credit facility which
expires March 1, 2001. At May 31, 1999, $33,582 was outstanding under this
agreement. Loans under the agreement bear interest at the Company's option at
prime or at a premium over LIBOR. The premium over LIBOR varies with certain
performance benchmarks. At May 31, 1999, the premium was 125 basis points and
$16,400 was available for future borrowing.
To complete the acquisition of Burtek in 1997, a subsidiary of the
Company entered into a revolving credit and term loan agreement aggregating
$6,000 with a Canadian affiliate of the Company's primary bank. The loan is
guaranteed by the Company and bears interest at the Canadian prime rate. The
amount of this agreement was increased to $12,100 in August 1997 to facilitate
the acquisition of SSI and matures March 1, 2001. At May 31, 1999, $7,694 was
outstanding and an additional $948 was available under the agreement.
In fiscal 1999, the Company purchased a suite of enterprise resource
planning software utilizing state-of the-art client-server technology. The
Company entered into a financing arrangement with quarterly payments through
March 2001 with an average implicit interest rate of 7.5%.
The loan and debenture agreements contain financial covenants with which
the Company was in full compliance at May 31, 1999. 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: $1,830 in
2000, $42,833 in 2001 and $3,850 in 2004. Cash payments for interest were
$7,477, $8,387 and $7,463 in 1999, 1998 and 1997, 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.
1999 1998
-------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
8 1/4% Convertible
debentures $ 40,000 $ 33,800 $ 40,000 $ 38,000
7 1/4% Convertible
debentures 30,825 22,965 30,825 27,126
Floating-rate revolving
credit facility 33,582 33,582 6,582 6,582
Revolving credit and
term loan 7,694 7,694 9,365 9,365
Software financing
arrangement 2,673 3,036 - -
Other 714 714 1,058 1,058
-------- -------- -------- --------
Total 115,488 101,791 87,830 82,131
Less current portion (1,830) (1,830) (403) (403)
-------- -------- -------- --------
Total $113,658 $ 99,961 $ 87,475 $ 81,728
======== ======== ======== ========
Note F -- Income Taxes
The components of income (loss) before income taxes and extraordinary
item are:
1999 1998 1997
---------- ---------- ----------
United States $ 9,531 $ 11,070 $ (4,558)
Foreign 2,326 2,866 1,833
---------- ---------- ----------
Income (loss) before taxes
and extraordinary item $ 11,857 $ 13,936 $ (2,725)
========== ========== ==========
Page 17
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The provision (benefit) for income taxes differs from income taxes
computed at the federal statutory tax rate of 34.0% as a result of the following
items:
1999 1998 1997
---------- ---------- ----------
Federal statutory rate 34.0 % 34.0 % 34.0 %
Effect of:
State income taxes, net of
federal tax benefit 2.8 3.5 11.3
FSC benefit on export sales (7.2) (6.2) 12.3
Realization of tax benefit on
prior years' foreign losses - - 14.7
Foreign taxes at other rates 0.5 (0.3) (7.5)
Other (0.5) (0.9) (1.7)
---------- ---------- ----------
Effective tax rate 29.6 % 30.1 % 63.1 %
========== ========== ==========
The provision (benefit) for income taxes before extraordinary item
consist of the following:
1999 1998 1997
---------- ---------- ----------
Currently payable:
Federal $ 1,294 $ 973 $ 299
State (44) 155 -
Foreign 1,018 293 609
---------- ---------- ----------
Total currently payable 2,268 1,421 908
Deferred:
Federal 730 1,867 (2,626)
State 545 275 (441)
Foreign (38) 637 439
---------- ---------- ----------
Total deferred 1,237 2,779 (2,628)
---------- ---------- ----------
Income tax provision (benefit) $ 3,505 $ 4,200 $ (1,720)
========== ========== ==========
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.
Operating loss carryforwards of $7,300 for U.S. tax purposes expire in
2009 and 2010. Net income taxes paid were $1,758, $850, and $523 in 1999, 1998
and 1997, respectively.
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, 1999 and 1998 are as follows:
Balance Sheet Presentation
--------------------------
Current Noncurrent
Asset (1) Liability
----------- -----------
At May 31, 1999:
Deferred tax assets:
Intercompany profit in inventory $ 1,492 $ -
Inventory valuation 5,674 -
Environmental and other reserves - 756
Other, net 11 -
---------- -----------
Deferred tax assets 7,177 756
Deferred tax liabilities:
Accelerated depreciation - (3,834)
Other, net - (720)
---------- -----------
Net deferred tax $ 7,177 $ (3,798)
========== ===========
At May 31, 1998:
Deferred tax assets:
Intercompany profit in inventory $ 1,372 $ -
Inventory valuation 5,748 -
Environmental and other reserves - 955
Other, net 15 180
--------- -----------
Deferred tax assets 7,135 1,135
Deferred tax liabilities:
Accelerated depreciation - (3,633)
Other, net - (181)
---------- -----------
Net deferred tax $ 7,135 $ (2,679)
========== ===========
(1) Included in other current assets on the balance sheet
Note G -- Stockholders' Equity
The Company has authorized 30,000 shares of Common Stock, 10,000 shares
of Class B Common Stock, and 5,000 shares of Preferred Stock. The Class B
Common Stock has ten votes per share. 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.
In fiscal 1999, the Company purchased 2,000 shares of Common Stock at
an average cost of $5.76 per share.
Page 18
Total Common Stock issued and outstanding at May 31, 1999 was 9,390
shares. An additional 9,621 shares of Common Stock have been reserved for
future issuance under the Employee Stock 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. At May 31, 1999, the plan had no shares reserved for future issuance. On
July 13, 1999, the Board of Directors approved the 1999 Employee Stock Purchase
Plan, authorizing an additional 150 shares for future issuance. The plan is
subject to stockholders' approval, which will be voted upon at the annual
meeting on October 12, 1999.
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, 2,304 shares are reserved
at May 31, 1999 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, at May 31, 1999, 400 shares of Common Stock 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 and, accordingly, has not recorded compensation
expense for such plans. 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 the plans and stock purchase plan been treated as compensatory under
the provisions of SFAS No. 123, the Company's net income (loss) and net income
(loss) per share would have been affected as follows:
1999 1998 1997
------- ------- -------
Net income (loss), as reported $ 8,352 $ 9,736 $(1,493)
Proforma net income (loss) 7,629 9,261 (1,800)
Proforma net income (loss) per share
Basic $ .55 $ .76 $ (.15)
Diluted .54 .73 (.15)
Assumptions used:
Risk-free interest rate 5.4% 5.5% 5.2%
Annual standard deviation
of stock price 50% 40% 40%
Average expected life (years) 6.1 5.6 6.0
Annual dividend rate $ .16 $ .16 $ .16
Average fair value per option $ 3.31 $ 3.49 $ 3.07
Option value of ESPP per share $ 1.13 $ 1.19 $ 1.50
Fair value of options granted
during the year $ 1,115 $ 948 $ 940
The effect of applying SFAS No. 123 in this proforma 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, 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
Granted 338 7.19
Exercised (20) 4.68
Cancelled (5) 7.86
--------
At May 31, 1999 1,686 $7.66 855 $7.62
The following table summarizes information about stock options outstanding as
of May 31, 1999:
Outstanding Exercisable
Exercise ----------------------- -----------------------
Price Range Shares Price Life Shares Price Life
------ ------ ----- ------ ------ -----
$3.75 to $5.375 136 $ 4.54 5.8 104 $ 4.40 5.1
$6.00 to $7.50 750 6.93 6.9 324 6.79 4.7
$8.00 to $8.50 666 8.19 6.1 337 8.10 4.3
$10.813 to $12.95 134 12.35 5.6 90 12.60 4.1
------ ------
Total 1,686 $ 7.66 6.4 855 $ 7.62 4.5
====== ======
Page 19
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
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 discretionary and matching contributions to these plans were $1,370,
$1,341 and $995 in 1999, 1998 and 1997, respectively. Such amounts included
contributions in stock of $285 in 1998 and $800 in 1997, 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 government
mandated programs.
Note I -- Industry and Market Information
The following disclosures are made in accordance with the SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
marketing and sales structure of the Company is organized into four strategic
business units (SBU's): Electron Device Group (EDG), Solid State and Components
(SSC), Display Products Group (DPG) and Security Systems Division (SSD).
EDG's principal products, electron tubes, are used to control, switch,
oscillate or amplify electrical power. This technology has been used for more
than 80 years throughout the industrialized world. EDG serves a multitude of
industries including automotive, avionics, communications, marine, plastics,
rubber, steel, textile, medical imaging and wafer fabrication for
semiconductors. EDG's products are largely for replacement applications.
SSC's products include radio frequency and microwave components and power
semiconductors. These products are used in wireless communication and
industrial applications, serving many of the same customers and industries as
EDG. SSC's products are in most cases used in original equipment applications.
DPG's products include cathode ray tubes, monitors and related systems
integration. Large computer systems using multiple data display terminals
represent the largest market served by DPG. Typical users include hospitals,
airports, brokerage offices, financial institutions, television studios,
utilities and assembly lines. DPG's products are largely for replacement
applications and system upgrades.
SSD serves the commercial security and surveillance industry, with
emphasis on closed circuit television systems, components and related design
and integration services. SSD's customer base includes industrial end-users
and system installers.
Each SBU is directed by a Vice President and General Manager who reports
to the President and Chief Operating Officer. The President evaluates
performance and allocates resources, in part, based on the direct operating
contribution of each SBU. Direct operating contribution is defined as gross
margin less product management and direct selling expenses. In North America
and Europe, the sales force is organized by SBU and, accordingly, these costs
are included in direct expenses. In Latin America, Asia/Pacific and the rest
of the world, the regional sales force is shared and, accordingly, is not
included in direct expenses. Inter-segment sales are not significant.
Accounts receivable, inventory, goodwill and certain notes receivable are
identified by SBU. Cash, net property and other assets are not identifiable by
SBU. Accordingly, depreciation, amortization expense and financing costs are
not identifiable by SBU.
Operating results for each SBU are summarized in the following table:
EDG SSC DPG SSD Total
--------- --------- --------- --------- ---------
Fiscal 1999
Sales $ 119,882 $ 93,463 $ 37,416 $ 70,180 $ 320,941
Gross Margin 36,828 26,590 11,474 16,184 91,076
Contribution 27,491 15,754 7,647 7,201 58,093
Assets 75,112 48,493 19,207 30,341 173,153
Fiscal 1998
Sales $ 119,157 $ 88,014 $ 30,639 $ 66,362 $ 304,172
Gross Margin 37,219 25,160 10,464 15,335 88,178
Contribution 27,968 15,703 7,828 7,088 58,587
Assets 70,633 43,007 15,350 28,684 157,674
Fiscal 1997
Sales $ 113,700 $ 74,209 $ 29,377 $ 37,853 $ 255,139
Gross Margin 32,220 19,923 8,465 8,267 68,875
Contribution 24,436 11,545 6,333 4,381 46,695
Assets 68,770 39,134 16,721 14,265 138,890
Page 20
A reconciliation of gross margin, direct operating contribution and
assets to the relevant consolidated amounts is as follows. (Other assets not
identified includes miscellaneous receivables, manufacturing inventories and
other assets.)
1999 1998 1997
--------- --------- ---------
Gross margin - segments total $ 91,076 $ 88,178 $ 68,875
Manufacturing variances and
other costs (1,463) (1,515) (1,411)
--------- --------- ---------
Gross margin $ 89,613 $ 86,663 $ 67,464
========= ========= =========
Segment profit contribution $ 58,093 $ 58,587 $ 46,695
Manufacturing variances and
other costs (1,463) (1,515) (1,411)
Regional selling expenses (13,062) (12,360) (16,293)
Administrative expenses (24,825) (23,442) (23,860)
--------- --------- ---------
Operating income $ 18,743 $ 21,270 $ 5,131
========= ========= =========
Segment assets $ 173,153 $ 157,674 $ 138,890
Cash and equivalents 12,569 8,031 10,012
Other current assets 12,817 9,681 10,497
Net property 23,047 18,477 17,526
Other assets not identified 14,092 15,837 15,589
--------- --------- ---------
Total assets $ 235,678 $ 209,700 $ 192,514
========= ========= =========
Geographic sales information is grouped by customer destination into five
areas: North America, Europe, Latin America, Asia/Pacific and Other. Sales to
Mexico are included as part of Latin America. Other includes sales to export
distributors and to countries where the Company does not have sales offices,
including Eastern Europe and the Middle East.
The United States and Canada are the only countries for which sales
disclosure under SFAS No. 131 is required. Fiscal 1999 sales and long-lived
assets (net property and other assets) were as follows:
Sales Assets
--------- ---------
United States $ 162,388 $ 30,937
Canada 42,625 2,773
--------- ---------
North America 205,013 33,710
Europe 65,365 2,967
Latin America 16,734 300
Asia / Pacific 23,390 540
Other 10,439 0
--------- ---------
Total $ 320,941 $ 37,517
========= =========
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.
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 is a class action for the
purpose of determining liability only 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, 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 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 1999 and 1998 follow. The fourth
quarter of fiscal 1999 includes a $500 provision for bad debts in Latin America
which reduced net income by $305 or $.02 per share. There were no material
fourth quarter adjustments in 1998.
First Second Third Fourth
-------- -------- -------- --------
1999:
Net sales $ 76,038 $ 82,232 $ 77,092 $ 85,579
Gross margin 21,712 23,262 21,388 23,251
Net income 2,501 3,279 693 1,879
Net income per share - basic .17 .23 .05 .15
Net income per share - diluted .17 .23 .05 .15
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
Page 21
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, 1999 and 1998,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended
May 31, 1999. 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, 1999 and 1998,
and the consolidated results of their operations and cash flows for each
of the three years in the period ended May 31, 1999, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
July 13, 1999
Officers and 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 Managing Director of European Operations
Kevin M. Connor
Vice President of Sales, Solid State and Components Group
Flint Cooper
Executive Vice President and General Manager, Security
Systems Division
Lawrence T. Duneske
Vice President, Worldwide Logistics
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 (2,3,4,7)
William J. Garry
Scott Hodes (2,3,5)
Partner, Law Firm of Ross & Hardies
Bruce W. Johnson (1)
Ad Ketelaars (6)
CEO Comsys Holding B.V.
Harold L. Purkey (2)
President, Forum Capital Markets
Samuel Rubinovitz (1,3,4,5,6)
Consultant & Chairman of the Board, LTX Corporation
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Stock Option Committee
(5) Executive Oversight Committee
(6) Strategic Planning Committee
(7) Retiring Director
Page 22
Stockholder Information
Corporate Office
Richardson Electronics, Ltd.
40W267 Keslinger Road
P.O. 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 12, 1999 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
McDonald & Company Securities, Inc.
Stifel, Nicolaus & Company, Inc.
Tucker Anthony Cleary Gull
Market Makers
Barrington Research
William Blair & Co.
Forum Capital Markets
McDonald & Company Securities, Inc.
Smith Barney Shearson
Stifel, Nicolaus & Company, Inc.
Tucker Anthony Cleary Gull
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, P.O. 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, 1999 was 663 and 24, 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:
1999 1998
--------------------- ----------------------
Fiscal Quarters High Low High Low
--------- --------- ---------- --------
First $ 14 $ 7 1/2 $ 8 3/4 $ 8
Second 8 3/4 6 7/16 13 3/4 8 3/8
Third 10 5 1/4 12 5/8 9 3/4
Fourth 6 7/8 4 7/8 14 1/2 10 1/4
Page 23
<TABLE>
Richardson Electronics, Ltd. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(in thousands)
<CAPTION>
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
- ------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1999:
Allowance for sales
returns and doubtful
accounts $ 2,230 $ 934 $ - $ 580 <F1> $ 2,584
Other reserves $ 1,362 $ 46 <F2> $ - $ 172 <F3> $ 1,236
Year ended May 31, 1998:
Allowance for sales
returns and doubtful
accounts $ 2,102 $ 431 $ - $ 303 <F1> $ 2,230
Other reserves $ 1,956 $ 41 <F2> $ - $ 635 <F3> $ 1,362
Year ended May 31, 1997:
Allowance for sales
returns and doubtful
accounts $ 1,461 $ 1,749 $ - $ 1,108 <F1> $ 2,102
Other reserves $ 1,539 $ 900 <F4> $ - $ 483 <F3> $ 1,956
<FN>
<F1> Uncollectible amounts written off, net of recoveries and foreign currency translation.
<F2> Provision to increase EPA groundwater remediation reserve
<F3> Expenditures made for reserved items
<F4> Provision for corporate reorganization and increase in EPA groundwater remediation reserve.
</FN>
</TABLE>
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
Richardson Electronics Colombia S.A. Colombia
Ingenium S.R.L. Italy
Richardson Electronics Trading
(Shanghai) Co., Ltd. China
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, 1999 of Richardson Electronics, Ltd. of our
report dated July 13, 1999, included in the 1999 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 I 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, Registration Statement
Number 333-51513 on Form S-2, Registration Statement Number 333-66215 on
Form S-8 and Registration Statement Number 333-76897 on Form S-8 of our
report dated July 13, 1999, 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 I 10-K for the year ended May 31,
1999 of Richardson Electronics, Ltd.
/s/Ernst & Young
Chicago, Illinois
August 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 12,569
<SECURITIES> 0
<RECEIVABLES> 65,032
<ALLOWANCES> 2,584
<INVENTORY> 107,724
<CURRENT-ASSETS> 195,558
<PP&E> 57,543
<DEPRECIATION> (34,496)
<TOTAL-ASSETS> 235,678
<CURRENT-LIABILITIES> 33,918
<BONDS> 113,658
0
0
<COMMON> 570
<OTHER-SE> 83,734
<TOTAL-LIABILITY-AND-EQUITY> 235,678
<SALES> 320,941
<TOTAL-REVENUES> 320,941
<CGS> 231,328
<TOTAL-COSTS> 231,328
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 934
<INTEREST-EXPENSE> 7,689
<INCOME-PRETAX> 11,857
<INCOME-TAX> 3,505
<INCOME-CONTINUING> 8,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,352
<EPS-BASIC> .60
<EPS-DILUTED> .60
</TABLE>
