-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QZakEZJUHGUf0svbm1zLHDPBbsbsI6REB+DAGIuUX9lACCYL7ui66ZM3wNdC/e4k abDpB2hFn9FVOamldBGXOw== 0000912057-95-009581.txt : 19951119 0000912057-95-009581.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009581 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950929 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RICHEY ELECTRONICS INC CENTRAL INDEX KEY: 0000320591 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 953335821 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09788 FILM NUMBER: 95589211 BUSINESS ADDRESS: STREET 1: 7441 LINCOLN WAY STE 100 CITY: GARDEN GROVE STATE: CA ZIP: 92641 BUSINESS PHONE: 7148988288 MAIL ADDRESS: STREET 1: 7441 LINCOLN WAY CITY: GARDEN GROVE STATE: CA ZIP: 92641 FORMER COMPANY: FORMER CONFORMED NAME: BRAJDAS CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MICRO Z CORP DATE OF NAME CHANGE: 19840611 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 1995 Commission File Number: 0-9788 RICHEY ELECTRONICS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 33-0594451 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7441 LINCOLN WAY, GARDEN GROVE, CALIFORNIA 92641 -------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) (714) 898-8288 ---------------------------------------------------- (Registrant's Telephone Number, including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 9, 1995, 9,054,329 shares of the registrant's Common Stock, $0.001 par value, were issued and outstanding. RICHEY ELECTRONICS, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
September 29, December 31, 1995 1994 ------------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,776,000 $ 9,000 Trade receivables 14,239,000 11,167,000 Inventories 17,358,000 14,913,000 Deferred income taxes 1,427,000 1,427,000 Other current assets 345,000 435,000 ----------- ----------- Total current assets $35,145,000 $27,951,000 ----------- ----------- LEASEHOLD IMPROVEMENTS, EQUIPMENT FURNITURE AND FIXTURES, net $ 1,931,000 $ 1,017,000 ----------- ----------- OTHER ASSETS AND INTANGIBLES Deferred income taxes $ 2,430,000 $ 2,430,000 Intangibles, less accumulated amortization of $1,722,000 and $1,439,000, respectively 1,987,000 3,261,000 Goodwill 757,000 82,000 Deposits and other 260,000 94,000 ----------- ----------- $ 5,256,000 $ 6,045,000 ----------- ----------- $42,332,000 $35,013,000 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of subordinated notes payable $ 0 $ 1,600,000 Notes payable, revolving line of credit 3,131,000 8,843,000 Accounts payable 10,262,000 10,457,000 Accrued expenses 1,756,000 1,734,000 ----------- ----------- Total current liabilities $15,149,000 $22,634,000 ----------- ----------- SUBORDINATED NOTES PAYABLE $ 0 $ 3,594,000 ----------- ----------- STOCKHOLDERS' EQUITY Preferred Stock, $0.001 par value, authorized 10,000 shares, issued none $ 0 $ 0 Common Stock, $0.001 par value, authorized 30,000,000 shares, issued and outstanding 9,054,000 shares 9,000 6,000 Additional paid-in-capital 20,976,000 5,240,000 Retained earnings 6,198,000 3,539,000 ----------- ----------- Total stockholders' equity $27,183,000 $ 8,785,000 ----------- ----------- $42,332,000 $35,013,000 ----------- ----------- ----------- -----------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS 2 RICHEY ELECTRONICS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter Ended Nine Months Ended ------------------------------- -------------------------------- September 29, September 30, September 29, September 30, 1995 1994 1995 1994 ------------- ------------- ------------- ------------- Net Sales: $28,803,000 $22,838,000 $83,704,000 $66,190,000 Cost of Goods Sold: 21,872,000 17,045,000 63,600,000 49,980,000 ----------- ----------- ----------- ----------- Gross Profit: $ 6,931,000 $ 5,793,000 $20,104,000 $16,210,000 ----------- ----------- ----------- ----------- Operating expenses: Selling, warehouse, general, and administrative $ 4,957,000 $ 4,409,000 $14,658,000 $12,293,000 Amortization of intangibles 107,000 143,000 317,000 442,000 ----------- ----------- ----------- ----------- $ 5,064,000 $ 4,552,000 $14,975,000 $12,735,000 ----------- ----------- ----------- ----------- Operating income $ 1,867,000 $ 1,241,000 $ 5,129,000 $ 3,475,000 Interest Expense 80,000 454,000 687,000 1,203,000 ----------- ----------- ----------- ----------- Income before income taxes $ 1,787,000 $ 787,000 $ 4,442,000 $ 2,272,000 Federal and state income taxes 717,000 316,000 1,783,000 914,000 ----------- ----------- ----------- ----------- Net income $ 1,070,000 $ 471,000 $ 2,659,000 $ 1,358,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings per Share $0.12 $0.08 $0.35 $0.23 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Weighted Average number of shares outstanding 9,054,000 5,889,000 7,688,000 5,889,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS 3 RICHEY ELECTRONICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ---------------------------------- September 29, September 30, 1995 1994 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,659,000 $ 1,358,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 636,000 571,000 Deferred income taxes 991,000 914,000 Changes in operating assets and liabilities: (Increase) in trade receivables (2,563,000) (1,112,000) (Increase) in inventories (2,032,000) (542,000) Decrease in other assets 115,000 113,000 Increase (Decrease) in accounts payable and accrued expenses (889,000) 877,000 ----------- ----------- Net cash provided by (used in) operating activities (1,083,000) 2,179,000 ----------- ----------- CASH FLOWS (USED IN) INVESTING ACTIVITIES Purchase of leasehold improvements and equipment (722,000) (275,000) Business acquisitions (1,261,000) (2,664,000) ----------- ----------- Net cash (used in) investing activities (1,983,000) (2,939,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net advances (repayments) on revolving line of credit (5,712,000) 3,719,000 Principal payments on subordinated debt (5,194,000) (2,957,000) Proceeds from issuance of common stock, net of offering expenses of $446,000 15,739,000 -- ----------- ----------- Net cash provided by financing activities 4,833,000 762,000 ----------- ----------- Increase in cash and cash equivalents 1,767,000 2,000 CASH AND CASH EQUIVALENTS Beginning 9,000 7,000 ----------- ----------- Ending 1,776,000 9,000 ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Payments For: Interest 983,000 1,262,000 ----------- ----------- ----------- ----------- Income taxes 573,000 46,000 ----------- ----------- ----------- -----------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS 4 RICHEY ELECTRONICS, INC. CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED (UNAUDITED)
Nine Months Ended ---------------------------------- September 29, September 30, 1995 1994 ------------- ------------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of In-Stock Products: Working capital acquired $ 1,464,000 Fair market value of other assets acquired including goodwill 377,000 ----------- Purchase price and related transaction costs $ 1,841,000 ----------- ----------- Acquisition of Inland Empire Interconnects: Working capital acquired $ 156,000 Fair market value of equipment acquired 520,000 Fair market value of other assets acquired including goodwill 541,000 ----------- Purchase price and related transaction costs $ 1,217,000 ----------- -----------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS 5 RICHEY ELECTRONICS, INC. CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 29, 1995 (UNAUDITED)
Common Stock --------------------------------------- Additional Preferred Shares paid-in Retained Stock Outstanding Par Value Capital Earnings Total --------- ----------- --------- ------------ ---------- ----------- Balance, December 31, 1994 -- 5,889,000 $6,000 $5,240,000 $3,539,000 $ 8,785,000 Issuance of common stock, net of offering expenses of $446,000 -- 3,165,000 3,000 15,736,000 -- 15,739,000 Net income -- -- -- -- 2,659,000 2,659,000 ------- --------- ------ ----------- ---------- ----------- Balance, September 29, 1995 -- 9,054,000 $9,000 $20,976,000 $6,198,000 $27,183,000 ------- --------- ------ ----------- ---------- ----------- ------- --------- ------ ----------- ---------- -----------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS 6 RICHEY ELECTRONICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Richey Electronics, Inc. (which conducts business under the name RicheyCypress Electronics), is a multi-regional, specialty distributor of electronic components and a provider of value- added assembly services. The Company distributes connectors, switches, cable and other interconnect, electromechanical and passive components used in the assembly and manufacturing of electronic equipment. Richey Electronics also provides a wide variety of value-added assembly services. These value-added assembly services consist of (i) component assembly, which is the assembly of components to manufacturer specifications and (ii) contract assembly, which is the assembly of cable assemblies, battery packs and mechanical assemblies to customer specifications. The Company's customers are primarily small- and medium-sized original equipment manufacturers. Approximately 80% of the Company's inventory is located at its centralized distribution facility in Los Angeles, and the remaining inventory is located in regional warehouses in Boston, San Diego and San Jose. SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for the complete financial statements. In management's opinion, the accompanying financial statements reflect all material adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results for the interim periods ended September 29, 1995 and September 30, 1994 are not necessarily indicative of the results which will be reported for the entire year. Income tax expense in these interim financial statements is recorded based upon the Company's expected annual effective income tax rate. The benefit from the previously unrecognized net operating loss carryforwards acquired in the merger of RicheyImpact Electronics, Inc. and Brajdas Corporation (the "Richey-Brajdas Merger") is used to reduce the carrying value of intangibles. Amortization expense of the reduced intangibles is adjusted prospectively on a monthly basis. For further information, refer to the audited financial statements of the Company and notes thereto for the year ended December 31, 1994, included in the Company's Annual Report on Form 10-K. 7 RICHEY ELECTRONICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt instruments purchased with an original maturity of 3 months or less to be cash equivalents. NOTE 2. BUSINESS COMBINATIONS IN-STOCK On April 4, 1994, the Company completed the purchase of the assets and business of the In-Stock Products Division of Anchor Group, Inc. ("In-Stock"), a Boston, Massachusetts area distributor of electronic components, for approximately $1,841,000 in cash, including acquisition costs (the "In-Stock Acquisition"). The In-Stock Acquisition was accounted for as a purchase. The fair value of the tangible assets acquired was $2,513,000 and the liabilities assumed totaled $946,000, resulting in goodwill of $274,000 which is included in other assets and is being amortized over 15 years. The results of operations of In-Stock subsequent to the date of the In-Stock Acquisition are included in the Company's financial statements. INLAND EMPIRE INTERCONNECTS On August 16, 1995, the Company completed the purchase of the assets and business of Inland Empire Interconnects ("IEI"), an Ontario, California cable assembly company specializing in molded interconnect products with approximately $5,000,000 in annual sales. The purchase price and related transaction costs were approximately $1,217,000 and were paid in cash (the "IEI Acquisition"). The IEI Acquisition was accounted for as a purchase. The fair value of the tangible assets acquired was $1,455,000 and the liabilities assumed totaled $769,000, resulting in intangibles of $531,000 which are being amortized between 3 and 15 years. The results of operations of IEI subsequent to the date of the IEI Acquisition are included in the Company's financial statements. The pro forma results, assuming the In-Stock and IEI Acquisitions occurred as of the beginning of 1994 and 1995, respectively, would not have materially changed reported sales or net income. NOTE 3. PUBLIC OFFERING AND NET OPERATING LOSS CARRYFORWARDS PUBLIC OFFERING On April 27, 1995 and May 24, 1995, the Company sold 3,000,000 and 165,000 shares of common stock, respectively, through an underwritten public offering. Proceeds to 8 RICHEY ELECTRONICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) the Company were $15.7 million, net of underwriting discounts and expenses associated with the offering. The proceeds were used to repay approximately $3.6 million in senior and junior subordinated debt, and the balance was used to reduce the Company's revolving line of credit with its asset based lender by $12.1 million. The Company has, as a result of the offering, entered into negotiations with its asset based lender to revise the terms and conditions of its loan agreement. NET OPERATING LOSS CARRYFORWARDS As of December 31, 1994, the Company had net operating loss carryforwards ("NOLs") with the following expiration dates:
Expiration Date Federal California - --------------- ----------- ---------- 1997......................... $ -- $3,599,000 1998......................... 3,450,000 953,000 1999......................... 2,935,000 270,000 2000......................... 490,000 -- 2005......................... 2,000,000 -- 2006......................... 2,053,000 -- 2007......................... 9,700,000 -- 2008......................... 2,500,000 -- 2009......................... 771,000 -- ----------- ---------- $23,899,000 $4,822,000 ----------- ---------- ----------- ----------
Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382") and the related regulations impose certain limitations on a corporation's ability to use NOLs if more than a 50% ownership change occurs. California law conforms to the provisions of Section 382. The Richey-Brajdas Merger did not result in a more than 50% ownership change. However, as a result of the public offering in April 1995, the Company effectuated a "change of ownership" as understood by Section 382. Management estimates that this "change of ownership" will restrict the Company's use of the NOLs to approximately $2.1 million per year. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SUMMARY OF SELECTED DATA (UNAUDITED) The following table sets forth certain items in the statements of operations as a percent of net sales for periods shown and additional items of a statistical nature.
Quarter Ended Nine Months Ended ------------------------- ---------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 1995 1994 ------------ ----------- ---------- ---------- STATEMENTS OF OPERATIONS DATA: Net Sales................................ 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold....................... 75.9 74.6 76.0 75.5 ----- ----- ----- ----- Gross Profit......................... 24.1 25.4 24.0 24.5 ----- ----- ----- ----- Selling, warehouse, general & administrative......................... 17.2 19.3 17.5 18.6 Amortization of intangibles.............. 0.4 0.6 0.4 0.7 ----- ----- ----- ----- Operating Income..................... 6.5 5.5 6.1 5.2 Interest Expense......................... 0.3 2.0 0.8 1.8 ----- ----- ----- ----- Income before income taxes........... 6.2 3.5 5.3 3.4 Federal and state income taxes........... 2.5 1.4 2.1 1.4 ----- ----- ----- ----- Net Income............................... 3.7% 2.1% 3.2% 2.0% ----- ----- ----- ----- ----- ----- ----- -----
Sept. 29, June 30, Mar. 31, Dec. 31, Sept. 30, July 1, April 1, 1995 1995 1995 1994 1994 1994 1994 --------- -------- -------- -------- --------- ------- -------- BALANCE SHEET DATA: Total assets (000) ........... $42,332 $40,810 $38,083 $35,013 $34,434 $33,090 $30,834 Working capital (000)......... $19,996 $19,828 $ 6,471 $ 5,317 $ 5,908 $ 5,235 $ 4,573 Ratio of current assets to current liabilities......... 2.3 2.3 1.3 1.2 1.3 1.3 1.2 Line of credit (000).......... $ 3,131 $ 3,212 $13,864 $ 8,843 $10,714 $10,731 $10,714 Subordinated notes payable (000)............... $ 0 $ 0 $ 3,594 $ 5,194 $ 5,194 $ 5,194 $ 5,194 Inventory turnover............ 5.0 5.2 5.0 4.9 4.9 5.4 5.2 Days sales outstanding in accounts receivable......... 45.0 42.1 45.4 42.3 44.0 41.5 41.2 Stockholders' equity.......... $27,183 $26,122 $ 9,465 $ 8,785 $ 8,250 $ 7,779 $ 7,247 Return on stockholders' equity...................... 19.7% 18.2% 29.8% 24.1% 26.2% 25.7% 21.0%
10 GENERAL Richey Electronics is a multi-regional, specialty distributor of electronic components and a provider of value-added assembly services. The Company distributes connectors, switches, cable and other interconnect, electromechanical and passive components used in the assembly and manufacturing of electronic equipment. Richey Electronics also provides a wide variety of value-added assembly services, which typically generate higher gross margins than traditional component distribution. These value-added assembly services consist of (i) component assembly, which is the assembly of components to manufacturer specifications and (ii) contract assembly, which is the assembly of cable assemblies, battery packs and mechanical assemblies to customer specifications. The Company's customers are primarily small- and medium-sized original equipment manufacturers. Approximately 80% of the Company's inventory is located at its centralized distribution facility in Los Angeles, and the remaining inventory is located in regional warehouses in Boston, San Diego and San Jose. The Company completed the acquisition (the "In-Stock Acquisition") of the In-Stock Division of Anchor Group, Inc. ("In-Stock") in April 1994 for $1.9 million in cash funded by its revolving line of credit. The Company has devoted significant efforts to improving the performance of those operations. The Company's financial statements exclude the financial results of In-Stock prior to the In-Stock Acquisition. The Company completed the acquisition (the "IEI Acquisition") of Inland Empire Interconnects ("IEI") in August 1995 for $1.2 million in cash funded by its revolving line of credit. The Company closed IEI's Ontario, California facility on November 6, 1995 and moved all of its operations to Richey's Sun Valley, California facility. This integration is part of the Company's cost cutting program to eliminate duplicate personnel, sales, warehouse and corporate facilities, computer systems and communication networks. The Company's financial statements exclude the financial results of IEI prior to the IEI Acquisition. According to the April 17, 1995 edition of ELECTRONIC BUYERS' NEWS, the Company ranked as the 26th largest electronics distributor in the United States in 1994. 11 RESULTS OF OPERATIONS Net sales for the quarter ended September 29, 1995 increased to $28,803,000 from $22,838,000 for the corresponding period of 1994, an increase of 26.1%. Net sales of electronic components increased to $20,523,000 in the third quarter of 1995 from $17,427,000 in the third quarter of 1994, an increase of 17.8%. Net sales of value-added assembly services increased to $8,280,000 for the quarter ended September 29, 1995 from $5,411,000 for the corresponding period of 1994, an increase of 53%. Net sales for the first nine months of 1995 were $83,704,000 compared to net sales of $66,190,000 for the same period in 1994. Net sales of electronic components increased to $60,079,000 for the nine months ended September 29, 1995 from $51,237,000 for the corresponding nine months of 1994, an increase of 17.3%. Component sales increased (i) primarily as a result of the general strength in the electronic marketplace, as exhibited by an increased demand for all types of component products, and (ii) because of an increase in product offerings due to new franchises and expanded geographic coverage of existing franchises. Net sales of value-added assembly services increased to $23,625,000 for the nine months ended September 29, 1995 from $14,953,000 for the corresponding nine months of 1994, an increase of 58%. Value-added sales increased to 28.2% of total net sales for the first nine months of 1995 from 22.6% for the same period in 1994, in part, as a result of the In-Stock Acquisition in April 1994 and the IEI Acquisition in August 1995. Management estimates that approximately one-half of the increase in value-added assembly service revenues is due to the In-Stock and IEI Acquisitions and the balance of the increase is due to the trend toward outsourcing of cable and other types of assemblies by original equipment manufacturers, both of which continue to create new opportunities for the Company. The Company believes that order backlog (confirmed orders from customers for shipment within the next 12 months) generally averages two to three months' sales in the electronic distribution industry. Order backlog at September 29, 1995 was $30,300,000, up 56% from $19,400,000 at September 30, 1994. Gross profit margin for the third quarter of 1995 rose 0.6% from margins achieved in the second quarter of 1995. However, gross profit margin for the nine months ended September 29, 1995 was 24% compared to 24.5% for the nine months ended September 30, 1994, a decline of 0.5%. Gross profit margin was 24.1% for the third quarter of 1995 compared to 25.4% for the third quarter of 1994, a decline of 1.3%. Management attributes the year-to-date decline in gross profit margin to increased competitive pressure on incremental sales of component products. Gross profit margin on value-added services decreased in the third quarter of 1995 as compared to the third quarter of 1994, as a result of rescheduling of assembly work and shipments to comply with several larger customer requests. These customer delays resulted in the Company absorbing less assembly expenses, primarily labor costs. Operating expenses for the quarter ended September 29, 1995 increased to $5,064,000 from $4,552,000 for the corresponding period in 1994, an increase of 11.2%, but, as a percentage of net sales, decreased 2.3% for the quarter ended September 29, 1995 compared 12 to the same period in 1994. For the nine months ended September 29, 1995, operating expenses were $14,975,000 compared to operating expenses of $12,735,000 for the corresponding period in 1994, an increase of 17.6%. However, as a percentage of net sales for the nine month period, operating expenses decreased to 17.9% from 19.3%. The Company's primary operating expenses include salaries and benefits, warehouse and corporate facilities costs and telecommunications which do not increase proportionally with increases in sales; therefore the Company continues to achieve operating leverage as revenues increase. As a result of the Company's revenue growth and improved operating leverage, operating income increased 47.6% from $3,475,000 for the nine months ended September 30, 1994 to $5,129,000 for the nine months ended September 29, 1995. Interest expense for the third quarter of 1995 was $80,000 as compared with $454,000 for the third quarter of 1994. The decrease in interest expense for the third quarter of 1995 was due to the Company repaying, in late April 1995, all of its senior and junior subordinated notes and most of its revolving line of credit, using the proceeds from the public offering. The Company expects interest expense to be minimal for the balance of 1995. See Note 3 of Notes to Condensed Financial Statements. Federal and state income tax expense increased to $717,000 (40% effective rate) for the quarter ended September 29, 1995 from $316,000 (40% effective rate) for the corresponding period of 1994. This increase was proportional to the increase in pre-tax earnings for the quarter. See Note 3 of Notes to Condensed Financial Statements for further discussion of income tax matters. LIQUIDITY AND CAPITAL RESOURCES During April and May of 1995, the Company sold 3,165,000 shares of common stock, raising $15,739,000. The proceeds were used to completely pay down the senior and junior subordinated notes and most of the Company's revolving line of credit. As a result of the public offering, working capital increased to $19,996,000 on September 29, 1995 from $5,317,000 on December 31, 1994, an increase of $14,679,000. During the first nine months of 1995, the Company generated $5,765,000 of earnings before interest, income taxes, depreciation and amortization ("EBITDA") as compared to EBITDA of $4,046,000 for the first nine months of 1994, an increase of 42.5%. The Company generated $4,286,000 in cash in the first nine months of 1995 from net income, depreciation, amortization and deferred income taxes. During the same period, the Company invested $2,563,000 in accounts receivable, $2,032,000 in inventories and $889,000 in accounts payable and accrued expenses. Thus, the Company used net cash of $1,083,000 to fund operating activities in the first nine months of 1995 compared to generating $2,179,000 from operating activities for the same period of 1994. The Company believes that this use of cash was caused primarily by the faster pace of sales growth in 1995 over 1994, necessitating high levels of investment in inventories and accounts receivable. The Company used an additional $1,983,000 of cash for investing activities, including 13 $722,000 for capital expenditures and $1,217,000 for the IEI Acquisition. This use of funds was financed by borrowing against the Company's revolving line of credit. For the quarter ended September 29, 1995, inventory turnover increased to 5.0x compared 4.9x for the quarter ended December 31, 1994. The improved inventory turnover ratio is a result of the enhanced inventory control and supplier product return programs instituted by the Company and the general improvement in business activity experienced in the first nine months of 1995. Days sales outstanding were 45 days at September 29, 1995 compared to 42 days at December 31, 1994. Excluding the IEI Acquisition, days sales outstanding were 44 days. Management believes that the 2-day increase in days sales outstanding is a result of a general industry trend toward greater flexibility in extensions of credit to customers. The Company currently maintains, with its asset based lender, a revolving line of credit of $15,000,000 based upon eligible accounts receivable and inventory, with an interest rate of 1.5% over prime. The revolving line of credit restricts payment of cash dividends on the Company's common stock, without prior approval of its lender. As a result of certain terms in its loan agreement, the Company is required to borrow approximately $3,000,000 to meet minimum interest requirements. The Company invests this money in short-term investment instruments with maturities of approximately 30 days. The Company is in negotiation with its lender to increase its available line of credit and improve the terms and conditions of its loan agreement. The Company believes that its current line of credit will be adequate to meet its anticipated funding commitments for the remainder of 1995. The Company does not anticipate that the adoption of any of the recently issued FASB statements will have a material impact on the Company's financial statements. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits required by Item 601 of Regulation S-K. 10.1 Noncompetition Agreement dated August 16, 1995 between Richey Electronics, Inc. and Steven A. Burk. 10.2 Noncompetition Agreement dated August 16, 1995 between Richey Electronics, Inc. and Loc M. Ha. 10.3 Noncompetition Agreement dated August 16, 1995 between Richey Electronics, Inc. and Gary L. Lancaster. (b) Reports on Form 8-K. None. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RICHEY ELECTRONICS, INC. (Registrant) By /s/ Richard N. Berger --------------------- Richard N. Berger Vice President, Chief Financial Officer and Secretary November 10, 1995 16 EX-10.1 2 EXHIBIT 10.1 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated August 16, 1995, is between RICHEY ELECTRONICS, INC., a Delaware corporation ("Richey"), and Steven A. Burk ("Shareholder"). RECITALS A. Inland Empire Interconnects, a California corporation ("IEI"), the shareholders of IEI (including Shareholder) and Richey are parties to that certain Asset Purchase Agreement, dated as of August __, 1995 (the "Purchase Agreement"), pursuant to which Richey is purchasing substantially all of the assets of and relating to IEI's business of custom cable assembly and manufacture of interconnect products (the "Business") and the goodwill of the Business. The Business has been carried on in the 58 counties of the State of California and in the states of Oregon, Washington, New York and Ohio, and in the countries of Italy, France and Canada (hereinafter referred to as the "Restricted Territory"). B. Shareholder owns approximately thirty-three and one-third percent (33 1/3%) of the issued and outstanding shares of IEI. C. In order to induce Richey to consummate the purchase contemplated by the Purchase Agreement and to assure the transfer of the goodwill of the Business to Richey, Shareholder has agreed to enter into this Agreement with Richey for the consideration set forth herein. The other shareholders of IEI have also entered into agreements not to compete with Richey. NOW, THEREFORE, the parties agree as follows: 1. REPRESENTATIONS. Shareholder represents and warrants to Richey that IEI has carried on the Business in the Restricted Territory including, without limitation, in each of the 58 counties of the State of California. 2. CONSIDERATION FOR COVENANT. As consideration for this Agreement, Richey is paying Shareholder the sum of $135,833 in cash concurrently with the execution and delivery of this Agreement. 3. COVENANT NOT-TO-COMPETE. During the Noncompetition Period (as hereinafter defined), Shareholder shall not, in the Restricted Territory, directly or indirectly, by ownership of debt or equity interests in any businesses, or by participation in the management or operations of any businesses, or by the solicitation of customers or suppliers, or otherwise, participate or engage in any line of business or activity which is the same as or substantially similar to IEI's business of -1- custom cable assembly and manufacture of interconnect products, and Shareholder shall not affirmatively assist or induce any third party to engage in any activity which is so prohibited. The foregoing restrictions shall not apply to or prohibit the ownership by Shareholder of less than 5% of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market. In addition, the foregoing restrictions shall not apply to services performed by Shareholder for Richey while employed by Richey. 4. NONCOMPETITION PERIOD. The Noncompetition Period shall be a period of three years beginning on the date of this Agreement and ending on the third anniversary of the date of this Agreement unless Shareholder's employment by Richey is terminated on or after the third anniversary of the date of this Agreement in which case the Noncompetition Period shall be a period of 42 months from the date of this Agreement. 5. EMPLOYMENT BY RICHEY. This Agreement is entered into by Shareholder in order to induce Richey to consummate the acquisition of the Business and to assure the transfer of the goodwill of the Business to Richey. As consideration for this Agreement, Richey is paying Shareholder the sum provided for herein. As a matter completely separate and apart from such acquisition, Richey and Shareholder have entered into an employment agreement of even date herewith (the "Employment Agreement"). It is the parties' intention that their respective obligations under this Agreement and under the Employment Agreement shall be completely separate and independent and that the performance of one agreement shall not be a condition of an obligation to perform the other agreement. Without limiting the generality of the foregoing, it is understood and agreed that any breach by Richey of its obligations under the Employment Agreement or any claims Shareholder may have against Richey arising out of an employment relationship between Richey and Shareholder shall not excuse or discharge Shareholder's obligations under this Agreement. 6. SEVERABILITY. If any one or more provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. It is the desired intent of the parties that the provisions of this Agreement shall be enforceable to the fullest extent permissible in each jurisdiction in which such enforcement is sought. Accordingly, if any portion of the covenant not to compete contained in this Agreement is held by any court of -2- competent jurisdiction to be unreasonable, arbitrary, against public policy or otherwise invalid or unenforceable, then said covenant not to compete shall be considered divisible both as to time and as to geographical area, and each month of the Noncompetition Period shall be deemed a separate period of time, and each state, county, city, parish or other local jurisdiction in the Restricted Territory shall be deemed a separate geographical area, so that the court may reduce the scope thereof or otherwise amend or reform the portion thus adjudicated to a lesser period of time or a smaller geographical area that is determined to be reasonable, not arbitrary, not against public policy and, valid and enforceable by Richey, such amendment or reformation to apply only with respect to the operation of this Agreement in the particular jurisdiction in which such adjudication is made. 7. REMEDIES. The parties recognize that the performance of the obligations under this Agreement by Shareholder is special, unique and extraordinary in character, and that in the event of a breach by Shareholder of the terms and conditions of this Agreement, Richey shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Shareholder and/or to enjoin Shareholder from any violation thereof. 8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their legal representatives, successors, permitted assigns and heirs. Neither this Agreement nor any rights or obligations hereunder shall be assignable by Shareholder. This Agreement and the rights and obligations hereunder shall be assignable by Richey without the consent of Shareholder to (a) an affiliate of Richey, (b) a person that acquires all or substantially all of the assets of Richey or all or substantially all of the assets used or held for use in the Business or (c) a person to which the Purchase Agreement is assigned by Richey. 9. WAIVER; REMEDIES. No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law or equity. 10. AMENDMENT. This Agreement or any term hereof may be changed, waived, discharged or terminated only by an agreement in writing signed by the party against whom such change, waiver, discharge or termination is sought to be enforced. Any change, waiver, discharge or termination referred to in the preceding -3- sentence will apply only to the change, waiver, discharge or termination specifically referred to in the writing and will not be construed or applied to constitute a change, waiver, discharge or termination of any future rights or powers of any party under this Agreement. 11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its conflicts of laws principles or rules. 12. HEADINGS. The headings of the sections contained in this Agreement have been inserted for convenience of reference only and shall not form a part of or affect the meaning, construction or scope thereof. 13. CONSTRUCTION. Each party has reviewed and revised this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 14. ATTORNEYS' FEES. Should any party institute any action or proceeding to enforce any provisions of this Agreement, or for damages by reason of an alleged breach of any provision of this Agreement, or for a declaration of rights hereunder, the prevailing party (as determined by the court, agency or other authority before which such action or proceeding is commenced) shall, in addition to such other relief as may be awarded, be entitled to recover attorneys' fees, expenses and costs of investigation as actually incurred (including, without limitation, attorneys' fees, expenses and costs of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapter 7, 11 or 13 of the Bankruptcy Code). 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Signatures may be exchanged by telecopy, and each party agrees to be bound by its own telecopied signature and to accept the telecopied signatures of the other parties. 16. ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral and written agreements and understandings between the parties with respect to such matters. -4- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. RICHEY ELECTRONICS, INC. SHAREHOLDER By /s/ Richard N. Berger /s/ Steven A. Burk ---------------------- ------------------ RICHARD N. BERGER STEVEN A. BURK Chief Financial Officer -5- EX-10.2 3 EXHIBIT 10.2 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated August 16, 1995, is between RICHEY ELECTRONICS, INC., a Delaware corporation ("Richey"), and Loc M. Ha ("Shareholder"). RECITALS A. Inland Empire Interconnects, a California corporation ("IEI"), the shareholders of IEI (including Shareholder) and Richey are parties to that certain Asset Purchase Agreement, dated as of August __, 1995 (the "Purchase Agreement"), pursuant to which Richey is purchasing substantially all of the assets of and relating to IEI's business of custom cable assembly and manufacture of interconnect products (the "Business") and the goodwill of the Business. The Business has been carried on in the 58 counties of the State of California and in the states of Oregon, Washington, New York and Ohio and in the countries of Italy, France and Canada (hereinafter referred to as the "Restricted Territory"). B. Shareholder owns approximately thirty-three and one-third percent (33-1/3%) of the issued and outstanding shares of IEI. C. In order to induce Richey to consummate the purchase contemplated by the Purchase Agreement and to assure the transfer of the goodwill of the Business to Richey, Shareholder has agreed to enter into this Agreement with Richey for the consideration set forth herein. The other shareholders of IEI have also entered into agreements not to compete with Richey. NOW, THEREFORE, the parties agree as follows: 1. REPRESENTATIONS. Shareholder represents and warrants to Richey that IEI has carried on the Business in the Restricted Territory including, without limitation, in each of the 58 counties of the State of California. 2. CONSIDERATION FOR COVENANT. As consideration for this Agreement, Richey is paying Shareholder the sum of $135,833 in cash concurrently with the execution and delivery of this Agreement. 3. COVENANT NOT-TO-COMPETE. During the Noncompetition Period (as hereinafter defined), Shareholder shall not, in the Restricted Territory, directly or indirectly, by ownership of debt or equity interests in any businesses, or by participation in the management or operations of any businesses, or by the solicitation of customers or suppliers, or otherwise, participate or engage in any line of business or activity which is the same as or substantially similar to IEI's business of custom cable assembly and manufacture of interconnect products, -1- and Shareholder shall not affirmatively assist or induce any third party to engage in any activity which is so prohibited. The foregoing restrictions shall not apply to or prohibit the ownership by Shareholder of less than 5% of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market. In addition, the foregoing restrictions shall not apply to services performed by Shareholder for Richey while employed by Richey. 4. NONCOMPETITION PERIOD. The Noncompetition Period shall be a period of three years beginning on the date of this Agreement and ending on the third anniversary of the date of this Agreement unless Shareholder's employment by Richey is terminated on or after the third anniversary of the date of this Agreement in which case the Noncompetition Period shall be a period of 42 months from the date of this Agreement. 5. EMPLOYMENT BY RICHEY. This Agreement is entered into by Shareholder in order to induce Richey to consummate the acquisition of the Business and to assure the transfer of the goodwill of the Business to Richey. As consideration for this Agreement, Richey is paying Shareholder the sum provided for herein. As a matter completely separate and apart from such acquisition, Richey and Shareholder have entered into an employment agreement of even date herewith (the "Employment Agreement"). It is the parties' intention that their respective obligations under this Agreement and under the Employment Agreement shall be completely separate and independent and that the performance of one agreement shall not be a condition of an obligation to perform the other agreement. Without limiting the generality of the foregoing, it is understood and agreed that any breach by Richey of its obligations under the Employment Agreement or any claims Shareholder may have against Richey arising out of an employment relationship between Richey and Shareholder shall not excuse or discharge Shareholder's obligations under this Agreement. 6. SEVERABILITY. If any one or more provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. It is the desired intent of the parties that the provisions of this Agreement shall be enforceable to the fullest extent permissible in each jurisdiction in which such enforcement is sought. Accordingly, if any portion of the covenant not to compete contained in this Agreement is held by any court of competent jurisdiction to be unreasonable, arbitrary, against public policy or otherwise invalid or unenforceable, then said covenant not to compete shall be considered divisible both as to -2- time and as to geographical area, and each month of the Noncompetition Period shall be deemed a separate period of time, and each state, county, city, parish or other local jurisdiction in the Restricted Territory shall be deemed a separate geographical area, so that the court may reduce the scope thereof or otherwise amend or reform the portion thus adjudicated to a lesser period of time or a smaller geographical area that is determined to be reasonable, not arbitrary, not against public policy and, valid and enforceable by Richey, such amendment or reformation to apply only with respect to the operation of this Agreement in the particular jurisdiction in which such adjudication is made. 7. REMEDIES. The parties recognize that the performance of the obligations under this Agreement by Shareholder is special, unique and extraordinary in character, and that in the event of a breach by Shareholder of the terms and conditions of this Agreement, Richey shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Shareholder and/or to enjoin Shareholder from any violation thereof. 8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their legal representatives, successors, permitted assigns and heirs. Neither this Agreement nor any rights or obligations hereunder shall be assignable by Shareholder. This Agreement and the rights and obligations hereunder shall be assignable by Richey without the consent of Shareholder to (a) an affiliate of Richey, (b) a person that acquires all or substantially all of the assets of Richey or all or substantially all of the assets used or held for use in the Business or (c) a person to which the Purchase Agreement is assigned by Richey. 9. WAIVER; REMEDIES. No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law or equity. 10. AMENDMENT. This Agreement or any term hereof may be changed, waived, discharged or terminated only by an agreement in writing signed by the party against whom such change, waiver, discharge or termination is sought to be enforced. Any change, waiver, discharge or termination referred to in the preceding sentence will apply only to the change, waiver, discharge or termination specifically referred to in the writing and will not be construed or applied to constitute a change, waiver, discharge or termination of any future rights or powers of any party under this Agreement. -3- 11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its conflicts of laws principles or rules. 12. HEADINGS. The headings of the sections contained in this Agreement have been inserted for convenience of reference only and shall not form a part of or affect the meaning, construction or scope thereof. 13. CONSTRUCTION. Each party has reviewed and revised this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 14. ATTORNEYS' FEES. Should any party institute any action or proceeding to enforce any provisions of this Agreement, or for damages by reason of an alleged breach of any provision of this Agreement, or for a declaration of rights hereunder, the prevailing party (as determined by the court, agency or other authority before which such action or proceeding is commenced) shall, in addition to such other relief as may be awarded, be entitled to recover attorneys' fees, expenses and costs of investigation as actually incurred (including, without limitation, attorneys' fees, expenses and costs of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapter 7, 11 or 13 of the Bankruptcy Code). 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Signatures may be exchanged by telecopy, and each party agrees to be bound by its own telecopied signature and to accept the telecopied signatures of the other parties. 16. ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral and written agreements and understandings between the parties with respect to such matters. -4- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. RICHEY ELECTRONICS, INC. SHAREHOLDER By /s/ Richard N. Berger /s/ Loc M. Ha --------------------- ------------- RICHARD N. BERGER LOC M. HA Chief Financial Officer -5- EX-10.3 4 EXHIBIT 10.3 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated August 16 1995, is between RICHEY ELECTRONICS, INC., a Delaware corporation ("Richey"), and Gary L. Lancaster ("Shareholder"). RECITALS A. Inland Empire Interconnects, a California corporation ("IEI"), the shareholders of IEI (including Shareholder) and Richey are parties to that certain Asset Purchase Agreement, dated as of August __, 1995 (the "Purchase Agreement"), pursuant to which Richey is purchasing substantially all of the assets of and relating to IEI's business of custom cable assembly and manufacture of interconnect products (the "Business") and the goodwill of the Business. The Business has been carried on in the 58 counties of the State of California and in the states of Oregon, Washington, New York and Ohio, and in the countries of Italy, France and Canada (hereinafter referred to as the "Restricted Territory"). B. Shareholder owns approximately thirty-three and one-third percent (33 1/3%) of the issued and outstanding shares of IEI. C. In order to induce Richey to consummate the purchase contemplated by the Purchase Agreement and to assure the transfer of the goodwill of the Business to Richey, Shareholder has agreed to enter into this Agreement with Richey for the consideration set forth herein. The other shareholders of IEI have also entered into agreements not to compete with Richey. NOW, THEREFORE, the parties agree as follows: 1. REPRESENTATIONS. Shareholder represents and warrants to Richey that IEI has carried on the Business in the Restricted Territory including, without limitation, in each of the 58 counties of the State of California. 2. CONSIDERATION FOR COVENANT. As consideration for this Agreement, Richey is paying Shareholder the sum of $178,334 in cash concurrently with the execution and delivery of this Agreement. 3. COVENANT NOT-TO-COMPETE. During the Noncompetition Period (as hereinafter defined), Shareholder shall not, in the Restricted Territory, directly or indirectly, by ownership of debt or equity interests in any businesses, or by participation in the management or operations of any businesses, or by the solicitation of customers or suppliers, or otherwise, participate or engage in any line of business or activity which is the same as or substantially similar to IEI's business of -1- custom cable assembly and manufacture of interconnect products, and Shareholder shall not affirmatively assist or induce any third party to engage in any activity which is so prohibited. The foregoing restrictions shall not apply to or prohibit the ownership by Shareholder of less than 5% of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market. In addition, the foregoing restrictions shall not apply to services performed by Shareholder for Richey while employed by Richey. 4. NONCOMPETITION PERIOD. The Noncompetition Period shall be a period of three years beginning on the date of this Agreement and ending on the third anniversary of the date of this Agreement. 5. EMPLOYMENT BY RICHEY. This Agreement is entered into by Shareholder in order to induce Richey to consummate the acquisition of the Business and to assure the transfer of the goodwill of the Business to Richey. As consideration for this Agreement, Richey is paying Shareholder the sum provided for herein. As a matter completely separate and apart from such acquisition, Richey and Shareholder have entered into an employment agreement of even date herewith (the "Employment Agreement"). It is the parties' intention that their respective obligations under this Agreement and under the Employment Agreement shall be completely separate and independent and that the performance of one agreement shall not be a condition of an obligation to perform the other agreement. Without limiting the generality of the foregoing, it is understood and agreed that any breach by Richey of its obligations under the Employment Agreement or any claims Shareholder may have against Richey arising out of an employment relationship between Richey and Shareholder shall not excuse or discharge Shareholder's obligations under this Agreement. 6. SEVERABILITY. If any one or more provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. It is the desired intent of the parties that the provisions of this Agreement shall be enforceable to the fullest extent permissible in each jurisdiction in which such enforcement is sought. Accordingly, if any portion of the covenant not to compete contained in this Agreement is held by any court of competent jurisdiction to be unreasonable, arbitrary, against public policy or otherwise invalid or unenforceable, then said covenant not to compete shall be considered divisible both as to -2- time and as to geographical area, and each month of the Noncompetition Period shall be deemed a separate period of time, and each state, county, city, parish or other local jurisdiction in the Restricted Territory shall be deemed a separate geographical area, so that the court may reduce the scope thereof or otherwise amend or reform the portion thus adjudicated to a lesser period of time or a smaller geographical area that is determined to be reasonable, not arbitrary, not against public policy and, valid and enforceable by Richey, such amendment or reformation to apply only with respect to the operation of this Agreement in the particular jurisdiction in which such adjudication is made. 7. REMEDIES. The parties recognize that the performance of the obligations under this Agreement by Shareholder is special, unique and extraordinary in character, and that in the event of a breach by Shareholder of the terms and conditions of this Agreement, Richey shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Shareholder and/or to enjoin Shareholder from any violation thereof. 8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their legal representatives, successors, permitted assigns and heirs. Neither this Agreement nor any rights or obligations hereunder shall be assignable by Shareholder. This Agreement and the rights and obligations hereunder shall be assignable by Richey without the consent of Shareholder to (a) an affiliate of Richey, (b) a person that acquires all or substantially all of the assets of Richey or all or substantially all of the assets used or held for use in the Business or (c) a person to which the Purchase Agreement is assigned by Richey. 9. WAIVER; REMEDIES. No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law or equity. 10. AMENDMENT. This Agreement or any term hereof may be changed, waived, discharged or terminated only by an agreement in writing signed by the party against whom such change, waiver, discharge or termination is sought to be enforced. Any change, waiver, discharge or termination referred to in the preceding sentence will apply only to the change, waiver, discharge or termination specifically referred to in the writing and will not be construed or applied to constitute a change, waiver, discharge -3- or termination of any future rights or powers of any party under this Agreement. 11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its conflicts of laws principles or rules. 12. HEADINGS. The headings of the sections contained in this Agreement have been inserted for convenience of reference only and shall not form a part of or affect the meaning, construction or scope thereof. 13. CONSTRUCTION. Each party has reviewed and revised this Agreement and, therefore, the rule of construction requiring that any ambiguity be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 14. ATTORNEYS' FEES. Should any party institute any action or proceeding to enforce any provisions of this Agreement, or for damages by reason of an alleged breach of any provision of this Agreement, or for a declaration of rights hereunder, the prevailing party (as determined by the court, agency or other authority before which such action or proceeding is commenced) shall, in addition to such other relief as may be awarded, be entitled to recover attorneys' fees, expenses and costs of investigation as actually incurred (including, without limitation, attorneys' fees, expenses and costs of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapter 7, 11 or 13 of the Bankruptcy Code). 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Signatures may be exchanged by telecopy, and each party agrees to be bound by its own telecopied signature and to accept the telecopied signatures of the other parties. 16. ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral and written agreements and understandings between the parties with respect to such matters. -4- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. RICHEY ELECTRONICS, INC. SHAREHOLDER By /s/ Richard N. Berger /s/ Gary L. Lancaster --------------------- --------------------- RICHARD N. BERGER GARY L. LANCASTER Chief Financial Officer -5- EX-27 5 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1995 JAN-01-1995 SEP-29-1995 1,776,000 0 14,239,000 0 17,358,000 35,145,000 2,967,000 1,036,000 42,332,000 15,149,000 0 9,000 0 0 27,174,000 42,322,000 83,704,000 83,704,000 63,600,000 63,600,000 0 0 687,000 4,442,000 1,783,000 2,659,000 0 0 0 2,659,000 .35 .35
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