-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rLvYHyfmKoVl+rV7zcW9wU+XripfG0Z3fWtkhfIIC5u2NeZrc+56FivcSKrh/751 QOiBn2xIYTEyQM3entlp3g== 0000355948-95-000011.txt : 19950830 0000355948-95-000011.hdr.sgml : 19950830 ACCESSION NUMBER: 0000355948-95-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950829 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RICHARDSON ELECTRONICS LTD/DE CENTRAL INDEX KEY: 0000355948 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 362096643 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12906 FILM NUMBER: 95568037 BUSINESS ADDRESS: STREET 1: 40W267 KESLINGER RD CITY: LAFOX STATE: IL ZIP: 60147 BUSINESS PHONE: 7082082200 MAIL ADDRESS: STREET 1: 40W267 KESLINGER ROAD CITY: LAFOX STATE: IL ZIP: 60147 10-K 1 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, 1995 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, LaFox, Illinois 60147 (Address of principal executive offices) Registrant's telephone number including area code: (708) 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, $.05 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of August 25, 1995, there were outstanding 8,299,594 shares of Common Stock,$.05 par value, and 3,247,118 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, held by non- affiliates of the registrant was approximately $37,900,000. Portions of the 1995 Annual Report to Stockholders of Registrant for fiscal year ended May 31, 1995 are incorporated in Parts I, II, and IV of this Report. Portions of the Registrant's Proxy Statement dated August 31, 1995 for the Annual Meeting of Stockholders scheduled to be held October 10, 1995 are incorporated 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. Exhibit index located at pages 14 through 21. PART I Item 1. Business The registrant (herein with its subsidiaries referred to as the "Company" or "Richardson") operates in one industry as a value-added distributor of electronic components, including vacuum tubes, semiconductors and related products. These devices are used primarily to control, switch or amplify electrical power or signals, or as display devices in a variety of industrial, communication, scientific and other applications. The Company offers a wide range of value-added services, including labeling, testing and repackaging. The Company manufactures certain of the electron tubes it distributes. In addition, the Company distributes a variety of closed circuit television ("CCTV") equipment and other security systems related products. Consolidated sales in 1995 set a new record at $208.1 million, up 21% over the prior year. The Company believes that much of its growth is attributable to its concentration on specialized areas of the electronics market. Historically, the Company's primary business was the distribution of electron tubes and it continues to be a major distributor of these products. In recent years, the Company has followed the migration of its customers to newer technologies, capitalizing on its expertise as a value-added distributor. In 1995, due to the significant increase in new product offerings including solid state components and cathode ray tubes, these product lines represented 49% of consolidated sales compared to 23% five years ago. The addition of new product lines is primarily based upon compatibility with the Company's existing customer base. The Company also seeks new applications and customers (including, without limitation, through new and expanded distribution franchises) for its existing product lines. A significant portion of the Company's sales are of replacement parts. Specialized areas of the original equipment industry and research and development applications are also served by the Company. The marketing and sales organization of the Company is divided into four strategic business units (SBUs): Electron Device Group (EDG), Solid State and Components Group (SSC), Display Products Group (DPG), and Security Systems Division (SSD). EDG distributes power grid tubes and continuous wave magnetrons for industrial heating applications and also thyratrons, ignitrons, receiving tubes and special purpose tubes which are sold to many industries, including automotive, steel, plastics and textiles companies. EDG also distributes high voltage switch tubes and x-ray tubes 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. Power grid tube and camera tube product lines are sold by EDG to the radio and television broadcast industry. In addition, EDG assists other SBU's to market cathode ray tubes (CRTs), semiconductors and other products to the broadcast industry. EDG also serves the avionics, marine, microwave and communications markets with product lines including traveling wave tubes, klystrons, planar triodes, hydrogen thyratrons, magnetrons and display storage tubes. SSC distributes RF transistors and amplifiers, communications modules, passive components, silicon controlled rectifiers, integrated circuits, semiconductors, high voltage capacitors, resistors, broadcast amplifiers, and other RF and microwave semiconductors for avionics, broadcast, communications, data display and industrial applications. DPG markets data display and instrumentation CRTs that are used in data display, marine, medical, radar, and avionic applications. It also distributes flyback transformers and various components for monitor and terminal repair. SSD distributes CCTV equipment, as well as fiber optic, microwave, intercommunication, access control and other security related products, equipment and accessories, for both initial installation and replacement. In addition, SSD is an approved repair service organization. Sales trends for each SBU are summarized and analyzed in Management's Discussion and Analysis on pages 11-13 of the Annual Report to Stockholders for the Year Ended May 31, 1995 (Annual Report). Sales in the global market for electron tubes in which the Company participates, principally through EDG, is estimated by the Company to be approximately $2 billion. The Company participates through SSC in specialized segments of the semiconductor portion of the market by distributing power semiconductors and RF and microwave semiconductors. According to industry estimates, European, United States and Japan-based factory sales for power semiconductors approximate $5 billion. Richardson estimates the portion of this market it serves at $700 million. DPG estimates factory sales of CRTs in the global market approximate $5 billion. The Company estimates that annual wholesale sales for CCTV and related security equipment in which the Company participates as a distributor, principally through SSD, approximate $320 million. (Estimates are based on applicable industry statistics for calendar year 1994.) Sales of solid state components, primarily RF semiconductors, have grown rapidly in recent years. Semiconductors have been replacing electron tubes in many applications, such as low power television and radio transmitters. However, in other applications, including higher power broadcasting and industrial equipment, electron tubes are more suitable than semiconductors due to the higher power capabilities of tubes and their ability to withstand severe environmental and other conditions which often damage semiconductors. Semiconductors, however, continue to expand the range of their applications. Consequently, many parts of the electron tube market in which the Company participates, are declining. The Company countered the trend in the electron tube market through several initiatives by its EDG unit, including greater emphasis on international sales and expansion of the sales force serving the medical replacement market. As a result, EDG sales increased 15% in 1995 after declining 6% in 1994, and 5% in 1993 (see "Management's Discussion and Analysis of Results of Operations and Financial Condition - Sales and Gross Margin Analysis, EDG" in the Annual Report). The Company has found that a replacement market for power semiconductors exists and that many of its electron tube customers have semiconductor requirements as well. In addition SSC's sales to original equipment manufacturers continue to grow, accounting for approximately 63% of the SBU's 1995 sales. SSC's sales increased 24% in 1995, 34% in 1994 and 15% in 1993 (see "Management's Discussion and Analysis of Results of Operations and Financial Condition - Sales Analysis, SSC" in the Annual Report.) The Company's sales of CRT's and other display products increased 34% in 1995, 42% in 1994 and 17% in 1993 (see "Management's Discussion and Analysis of Results of Operations and Financial Condition - Sales Analysis, DPG" in the Annual Report.) SSD's sales increased 26% in 1995, 2% in 1994 and declined 13% in 1993 (see "Management's Discussion and Analysis of Results of Operations and Financial Condition - Sales Analysis, SSD" in the Annual Report.) Developments in the Past Fiscal Year In May, 1995, the Company reached an agreement with the U.S. Department of Justice (DOJ) regarding a claim filed that the Company was civilly liable for damages and penalties under the False Claims Act and the Lanham Act in connection with a 1989 Department of Defense contract for night-vision tubes. The Company paid $4.7 million to the Government in return for a release of monetary claims in connection with the contract. See Note B of the "Notes to Consolidated Financial Statements" of the Annual Report. In 1995, the Company transferred ownership of the Brive, France manufacturing operations to local management and transferred ownership of the Brive land and building to the mortgagor in exchange for the release of the related mortgage obligation. See Other Charges in Note B of the "Notes to Consolidated Financial Statements" of the Annual Report. In 1993, the Company developed a plan to reorganize its sales staff on a specialty basis by SBU wherever possible. This plan was implemented throughout North America in 1994. During 1995, we expanded the specialty sales concept to Europe. The Company also made a major commitment to the rapidly expanding CCTV market in 1995. A new general manager was hired for SSD, and the sales force was doubled in size. Products The following is a description of some of the Company's products: Power Amplifier / Oscillator Tubes are vacuum or gas filled tubes used in applications where current or voltage amplification and/or oscillation is required. Some areas of use are: induction heating, diathermy equipment, sonic generators, communications and radar systems and power supplies for voltage regulation or amplification. RF Power Transistors are "solid state" high-frequency power amplifiers used in land mobile, aircraft and satellite communications and in many types of electronic instrumentation. Cathode Ray Tubes ("CRTs") are vacuum tubes which convert an electrical signal into a visual image to display information on computer terminals or televisions used in the medical, scientific and publishing industries as well as in general business applications. Includes both monochrome and color monitors. Closed-circuit Television ("CCTV") products include cameras, lenses, monitors, scanners, time lapse recorders and associated accessories. CCTV products are used in surveillance applications and monitoring hazardous environments in the work-place. Magnetrons are high vacuum oscillator tubes which are 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 heating applications such as microwave ovens and devices used by the medical industry. Silicon Controlled Rectifiers (SCR's) and Power Semiconductor Modules are used in many industrial control applications, and have spawned new 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. Planar Triodes are high frequency triodes manufactured using a special process to enable them to operate at several thousand megahertz (MHz). Aircraft instrumentation and television translators use planar triodes. 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. Computer Terminal Components are electronic components used in repair of computer terminals and monitors, including flyback transformers, semiconductors, power supplies, controls and switches. Receiving/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, and industrial controls are typical applications for this product. Hydrogen Thyratrons are electron tubes capable of high speed and high voltage switching. They are used in switching of power to radar magnetrons and lasers. Camera Tubes are vacuum tubes used to change a visible light image to electronic signals which are then transmitted to a monitor for conversion back to a visible image. Camera tubes are used in broadcast, security and medical applications. 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. X-ray Tubes are used 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 used primarily in medical applications, including fluoroscopy and computer-aided tomography (CAT-scan). Microwave Diodes are specialized diodes intended for use at microwave and RF frequencies for oscillator, mixer, switching, and power control, and amplifier applications in broadcast, avionic, telecommunication, medical and industrial equipment. 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 and power rectification equipment. Distribution and Marketing The Company buys, warehouses and distributes more than 62,000 types of tubes and semiconductors ranging in price from $1 to $35,000 for tubes and $.10 to $2,500 for semiconductors and related components. The Company processes approximately 570 orders per day averaging $1,460 each (for an average total of $832,000 per day). The Company distributes electron tubes it manufactures as well as electron tubes, power, RF and microwave semiconductors and related products purchased from other sources, including Varian Associates, Inc., Motorola, Inc., Panasonic Industrial Company, Clinton Electronics Corp., Burle Industries, Inc., Philips, Powerex, ITT Electron Technology Division, SGS THOMSON, M/A-COM, Microwave Associates, RF Products, Litton Electron Devices, Computer Components Source, Joslyn Jennings, MPD Inc., New Japan Radio, General Electric, Pelco and CEIEC. No single outside supplier currently accounts for more than 10% of the Company's purchases in any year, other than Varian Associates, Inc., which accounted for approximately 18%, 17% and 22% of purchases in fiscal 1995, 1994 and 1993, respectively. The Company believes that the loss of any one supplier, other than Varian, would not cause a material adverse impact on its earnings and revenues. On August 14, 1995 Varian announced the consummation of the sale of its electron device business, the business unit of Varian with which the Company has principally done business, to a new entity, Communications and Power Industries, Inc. ("CPII"), having the same management and operating personnel as Varian's former electron device business. The Company believes that relationships with CPII will continue to be satisfactory. The Company has entered into marketing distribution agreements with various manufacturers in the tube, semiconductor, and CCTV industries. The most significant is a distributor agreement with the Electron Device Group of Varian Associates, Inc. (this agreement was assigned to CPII in connection with Varian's sale of its electron device business) under which the Company is such group's exclusive distributor of power grid tubes throughout the world with the exception of the United States and certain Eastern European countries where the Company is one of such group's stocking distributors. Varian product accounted for 17%, 18% and 20% of net sales of the Company in fiscal 1995, 1994 and 1993, respectively. Customer orders are taken by the regional sales offices and directed to the Company's headquarters and distribution facility in LaFox, Illinois or to one of its international distribution centers. The Company utilizes a sophisticated data processing network which provides on-line, real-time interconnection of all sales offices, manufacturing facilities and central distribution operations. Information on stock availability, customers, and competitive market analyses are instantly obtainable throughout the entire distribution network. Most of the products distributed by Richardson are critical to the function of the equipment in which they are used, therefore, Richardson utilizes this system, achieving same-day shipment on over 90% of its customer orders. The Company markets its products to manufacturers and end-users in, among others, the areas of communications, industrial heating, marine, medical care and avionics. The Company also sells to customers who purchase for resale, including electronics distributors and service companies. The Company has established supply contracts, generally for a one-year term, with certain customers, and is committed pursuant to these contracts to maintain minimum inventories so as to provide product without significant delay. Management believes that for the past two fiscal years approximately 20% of the Company's sales were made under such supply contracts. During the past five years, no single customer represented more than 10% of the Company's sales. The Company emphasizes sales to replacement markets. Some of these markets may expand as new equipment utilizing electron tubes continues to be sold. For example: equipment such as video monitors and computer display terminals which use cathode ray tubes also present expanding market opportunities for replacement purposes; new communications equipment using microwave devices such as traveling wave tubes and klystrons and RF transistors continue to be developed for applications with high power or high-frequency requirements that tube technology alone can provide. The Company's backlog of firm orders scheduled for future delivery within 12 months was $46,300,000, $29,700,000 and $22,400,000 as of May 31, 1995, 1994 and 1993, respectively. The Company's backlog primarily consists of commercial contracts that require future shipping dates, and the 1995 increase reflects higher contract levels for SSC and DPG. The level of the Company's backlog, which is not significant to annual sales, does not provide a reliable indicator of future sales levels. International International sales, including export sales, represented approximately 46% of the Company's fiscal 1995 sales. These sales were $96,644,000, $79,123,000, and $75,101,000 in fiscal years 1995, 1994 and 1993, respectively. Export sales from the United States were $38,653,000, $29,667,000 and $28,396,000 in 1995,1994 and 1993. On May 31, 1995, the Company had 51 locations throughout the world. See Note J of the "Notes to Consolidated Financial Statements" of the Annual Report for details of the Company's international operations, including sales, operating income and identifiable assets. Manufacturing The Company distributes its manufactured products principally under the trade names "National", "Cetron" and "Amperex". Located in LaFox, Illinois, the Company's manufacturing operations, including value-added, accounted for approximately 6% of its product distribution requirements in fiscal 1995. Such manufacturing operations contributed sales of approximately $12 million in fiscal 1995, $30 million in fiscal 1994 and $33 million in fiscal 1993. The decrease in sales of manufactured products is a result of the transfer of ownership of the Brive, France manufacturing facility and the phase-down of manufacturing activity in LaFox, Illinois. (See Note B of the "Notes to Consolidated Financial Statements" of the Annual Report.) The products currently manufactured by the Company include thyratrons and rectifiers, power tubes, ignitrons, electronic display tubes, phototubes, SCR assemblies and spark gap tubes. The materials used in the manufacturing process are readily available and 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. Research and Development The objective of the Company's research and development is to increase the number of applications for its products and to develop existing technology with respect to advanced products. The Company emphasizes product development rather than basic research. The ability of the Company to compete is, in part, dependent upon its ability to anticipate changing market needs and to provide the required products. At present, a staff of 6 persons are involved, on a full- or part-time basis, in various phases of product development. The Company's expenditures in this area were $229,000, $358,000 and $584,000 in fiscal 1995, 1994 and 1993. Employees As of May 31, 1995, the Company employed 406 individuals on a full time basis at U.S. locations. Of these, 61 are employed in administrative and clerical positions, 250 are employed in sales and distribution, and 95 are employed in value-added and product manufacturing. The Company's foreign subsidiaries employ an additional 134 individuals engaged in administration, sales and distribution. All of the Company's employees are non-union. Competition Although the Company believes it is a significant distributor of electron tubes and semiconductors in the United States, it competes worldwide with other general line distributors and manufacturers and other distributors of electronic components (including original equipment manufacturers), many of which are substantially larger and have greater resources than the Company. The Company also competes against manufacturers of semiconductors, which have replaced electron tubes in many applications. Patents and Trademarks The Company acquired certain manufacturing patents and trademarks in connection with acquisitions, including the trademarks "National", "Cetron," and "Amperex." The Company believes that although the patents and trademarks it has obtained have value, they will not be determinative of the Company's success, which depends principally upon its marketing technical support, product delivery and the quality and economic value of its products. Item 2. Properties The Company owns facilities on approximately 300 acres in LaFox, Illinois, consisting of a modern, single and two-story concrete, brick and steel constructed building containing approximately 255,000 square feet of manufacturing, warehouse and office space. The Company also owns a four-story building containing approximately 45,000 square feet of warehouse space on 1.5 acres in Geneva, Illinois. The Company's United Kingdom subsidiary owns a 12,000 square foot single story brick building in Lincoln, England which it utilizes as a sales office and warehouse hub for European sales distribution. The Company's Spanish subsidiary owns 3,510 square feet of office and warehouse space in a 55,000 square foot industrial concrete building constructed in 1988 in Madrid, Spain. The Company's Italian subsidiary owns an office and warehouse facility located in Florence, Italy which consists of approximately 6,400 square feet of a brick and concrete industrial building. The Company also rents branch sales offices on a short-term basis in or near Boston, Los Angeles, Miami, New York, Orlando, and San Francisco; and in or near London, England; Mexico City, Mexico; Milan, Italy; Montreal, Canada; and Rome, Italy. Additional sales offices, which include warehouse space, leased on a short-term basis, are located in Houston and San Antonio; and in or near Amsterdam, The Netherlands; Munich, Germany; Paris, France; Sao Paulo, Brazil; Singapore; Taipei, Taiwan; Tokyo, Japan; and Toronto, Canada. Additional warehouse space in Geneva, Illinois is also rented on a short-term basis. The Company also leases a facility from a trust, of which Edward J. Richardson, Chairman of the Board of the Company, is the principal beneficiary. Such facility is used by SSD as its sales office and warehouse. Under the terms of this lease, the Company is obligated to make rental payments of $68,705 per year, expiring in 1996. In the opinion of management, the lease is on terms no less favorable to the Company than similar leases which would be available from unrelated third parties. Item 3. Legal Proceedings No material developments have occurred in the matter of Panache Broadcasting of Pennsylvania, Inc. v. Richardson Electronics, Ltd. and Varian Associates, Inc., pending in the United States District Court for the Northern District of Illinois, Eastern Division, docket no. 90 C 6400. The complaint alleges violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act As previously reported the matter remains primarily in the discovery stage and the Court has not determined whether the matter may be maintained as a class action. See Part I, Item 1, Business, Developments in the Past Fiscal Year, regarding the settlement of monetary claims of the United States in connection with a 1989 contract with the Department of Justice for night-vision tubes. The Government has not sought any administrative remedies in connection with such matter and the Company cannot predict whether or not further action will be taken or the financial impact, if any, of any such action. 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, 1995. PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters Incorporated herein by reference to pages 15 (for dividend payments), 20 (for dividend restriction) and 24 (for market data) of the Annual Report to Stockholders for the year ended May 31, 1995. Item 6. Selected Financial Data Incorporated herein by reference to page 10 of the Annual Report to Stockholders for the year ended May 31, 1995. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated herein by reference to pages 11 to 13 of the Annual Report to Stockholders for the year ended May 31, 1995. Item 8. Financial Statements and Supplementary Data Incorporated herein by reference to pages 14 through 24 of the Annual Report to Stockholders for the year ended May 31, 1995. 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 10, 1995, 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 is contained in the Company's Proxy Statement to be used in connection with its Annual Meeting of Stockholders scheduled to be held October 10, 1995, 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 10, 1995, 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 10, 1995, 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 14 through 24 of its Annual Report to Stockholders for the fiscal year ended May 31, 1995 are incorporated herein by reference: Filing Method Report of Independent Accountants E 1. FINANCIAL STATEMENTS: Consolidated Balance Sheets - May 31, 1995 and 1994 E Consolidated Statements of Operations - Years ended May 31, 1995, 1994 and 1993 E Consolidated Statements of Cash Flows - Years ended May 31, 1995, 1994 and 1993 E Consolidated Statements of Stockholders' Equity - Years ended May 31, 1995, 1994 and 1993 E Notes to Consolidated Financial Statements E The following consolidated financial information for the fiscal years 1995, 1994 and 1993 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. Form 8-K, dated May 31, 1995, reporting under Item 5 - Other Events a Settlement Agreement with the United States of America entered into on May 31, 1995. (c) EXHIBITS Filing Method 3(a) Restated Certificate of Incorporation of the Company, incor- porated 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 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, 1994. NA 4(a) Specimen forms of Common Stock and Class B Common Stock certifi- cates 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(b) Indenture between the Company and Continental Illinois National Bank and Trust Company of Chicago (including form of 7 1/4% Convertible Subordinated Debentures due December 15, 2006) incorporated by reference to Exhibit 4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1990. NA 10(a) $13,000,000 Senior Term Note dated March 28, 1994 delivered to American National Bank, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1994. NA 10(b) $8,000,000 Promissory note dated May 31, 1995 delivered to American National Bank. E 10(c) Industrial Building Lease, dated April 14, 1993 between the Company and the American National Bank & Trust, as trustee under Trust No. 56120 dated February 23, 1983, incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1993. NA 10(d) The Company's Employees Profit Sharing Plan and Trust Agreement, (as amended and restated effective June 1, 1989) dated July 14, 1994 incorporated by reference to Exhibit 10(c) to the Company's Annual Report on form 10-K for the fiscal year ended May 31, 1994. 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 incorpo- rated 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 incorpo- rated 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(f) The Company's Amended and Restated Employees Stock Purchase Plan, incorporated by reference to the Company's Proxy Statement used in connection with its Annual Meeting of Stockholders held October 2, 1985. NA 10(f)(1) First Amendment to Amended and Restated Employees Stock Purchase Plan, incorporated by reference to Appendix D to the Company's Proxy Statement/Prospectus dated November 13, 1986 included in its Registration Statement on Form S-4, Commission File No. 33-8696. NA 10(f)(2) Second Amendment to Amended and Restated Employees Stock Purchase Plan, incorporated by reference to Appendix E to the Company's Proxy Statement/Prospectus dated November 13, 1986 included in its Registration Statement on Form S-4, Commission File No. 33-8696. NA 10(f)(3) Third Amendment to Amended and Restated Employees Stock Purchase Plan incorporated by reference to Exhibit 10(m)(3) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1990. NA 10(f)(4) Fourth Amendment to Amended and Restated Employees Stock Purchase Plan incorporated by reference to Exhibit 10(m)(4) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991. NA 10(f)(5) Fifth Amendment to Amended and Restated Employees Stock Purchase Plan incorporated by reference to Exhibit 10(m)(5) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991. 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. E 10(h) 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(i) 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(i)(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(j) Richardson Electronics, Ltd. Employees' 1994 Incentive Compen- sation 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(k) 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(k)(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(k)(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(l) 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(l)(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(m) Letter dated November 27, 1992 between the Company and Ad Ketelaars setting forth the terms of Mr. Ketelaars' employment by the Company, incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended on May 31, 1994. NA 10(n) 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(o) 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(p) 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(q) Letter dated October 17, 1994 between the Company and Flint Cooper setting forth the terms of Mr. Cooper's employment by the Company, incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994. NA 10(r) 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(u) to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1991. NA 10(r)(1) The Company's Directors and Officers Liability Insurance Policy renewal issued by Chubb Group of Insurance Companies Policy Number 8125-64-60D. E 10(r)(2) The Company's Excess Directors and Officers Liability and Corporate Indemnification Policy issued St. Paul Mercury Insurance Company Policy Number 900DX0134. E 10(r)(3) The Company's Directors and Officers Liability Insurance Policy issued by CNA Insurance Companies Policy Number DOX600028634. E 10(s)(1) 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(s)(2) 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(s)(3) First Amendment to Distributor Agreement between Varian Associates, Inc. and the Company as of April 10, 1992, incorpo- rated 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(s)(4) Consent to Assignment and Assignment dated August 4, 1995 between Registrant and Varian Associates Inc. E 10(s)(5) 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(t) 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(u) Agreement among the City of Brive, Richardson Electronics, Ltd., Richardson Electronique S.A., Covelec S.A., and Messrs. Denis Dumont and Patrick Pertzborn, delivered February 23, 1995, translated from French, incorporated by reference to Exhibit 10(a) to the Company's Report on Form 8-K dated February 23, 1995. NA 10(v) Agreement among Richardson Electronics, Ltd., Richardson Electronique S.A., Covelec 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(w) 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 From 8-K dated May 31, 1995. NA 11 Statement re computation of net income per share. E 13 Annual Report to Stockholders for fiscal year ending May 31, 1995 (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 Schedules. 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, Chairman of the Board and President By: /s/ William J. Garry Vice President and Date: August 25, 1995 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/ /s/ Edward J. Richardson, Chairman Dennis R. Gandy, Director of the Board (principal executive August 25, 1995 officer), President and Director August 25, 1995 /s/ /s/ Joel Levine, Director Scott Hodes, Director August 15, 1995 August 25, 1995 /s/ /s/ William J. Garry, Vice President Samuel Rubinovitz, Director and Chief Financial Officer August 25, 1995 (principal financial and accounting officer) and Director August 25, 1995 /s/ /s/ Arnold R. Allen, Director Kenneth J. Douglas, Director August 14, 1995 August 14, 1995 /s/ /s/ Jacques Bouyer, Director Harold L. Purkey August 25, 1995 August 25, 1995 Richardson Electronics, Ltd. and Subsidiaries Schedule II - Valuation and Qualifying Accounts (in thousands)
COL. A COL. B COL. C COL. D COL. E ADDITIONS Balance at Balance at DESCRIPTION Beginning Charged to Charged to Deductions - End of of Period Expenses Other Accts Describe Period --------- --------- --------- --------- --------- Year ended May 31, 1995: Allowance for sales returns and doubtful accounts $ 1,405 $ 199 $ -- $ 219 $ 1,385 Assets held for disposition $ 15,832 $ -- $ -- $ 15,832 $ -- Liabilities related to disposition $ 5,568 $ -- $ -- $ 5,568 $ -- Accrual for phase-down of domestic manufacturing $ 2,598 $ -- $ -- $ 870 $ 1,728 Year ended May 31, 1994: Allowance for sales returns and doubtful accounts $ 1,456 $ 199 $ -- $ 250 $ 1,405 Assets held for disposition $ -- $ 15,832 $ -- $ -- $ 15,832 Liabilities related to disposition $ -- $ 5,568 $ -- $ -- $ 5,568 Accrual for phase-down of domestic manufacturing $ 2,954 $ 5,100 $ -- $ 5,456 $ 2,598 Year ended May 31, 1993: Allowance for sales returns and doubtful accounts $ 1,435 $ 328 $ -- $ 307 $ 1,456 Accrual for phase-down of domestic manufacturing $ 4,510 $ -- $ -- $ 1,556 $ 2,954 Uncollectible amounts written off, net of recoveries and foreign currency translation. Asset write offs and costs incurred for the divestiture of the Company's Brive, France, manufacturing operations. Costs incurred for the phase-down of domestic manufacturing and the disposition of manufactured inventory. Costs incurred for the phase-down of domestic manufacturing and the transfer of certain product lines to the Brive, France facility.
EX-10.B 2 EXHIBIT 10(b) PROMISSORY NOTE (UNSECURED) $8,000,000.00 Chicago. Illinois May 31, 1995 Due August 31, 1995 FOR VALUE RECEIVED, the undersigned (jointly and severally if more than one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in Chicago, Illinois or such other place as Bank may designate from time to time hereafter, the principal sum of Eight Million and no/100 Dollars, or such lesser principal sum as may then be owed by Borrower to Bank hereunder. Borrowers obligations and liabilities to Bank under this Note ("Borrowers Liabilities") shall be due and payable on August 31, 1995. The unpaid principal balance of Borrowers Liabilities due hereunder shall bear interest from the date hereof until paid, computed as follows (delete inapplicable provisions): (ii) at a daily rate equal to the daily rate equivalent of 0**% per annum (computed on the basis of a 360-day year and actual days elapsed) in excess of the rate of interest announced or published publicly from time to time by Bank as its prime or base rate of interest (the "Base Rate"); provided, however, that in the event that any of Borrower's Liabilities are not paid when due, the unpaid amount of Borrower's Liabilities shall bear interest after the due date until paid at a rate equal to the sum of (a) the rate in effect prior to the due date and (b) 3%. If the rate of interest to be charged by Bank to Borrower hereunder is that specified in clause (ii), such rate shall fluctuate hereafter from time to time concurrently with, and in an amount equal to, each increase or decrease in the Base Rate, whichever is applicable. Accrued interest shall be payable by Borrower to Bank with each principal installment of Borrowers Liabilities due hereunder, or as billed by Bank to Borrower, at Bank's principal place of business, or at such other place as Bank may designate from time to time hereafter. Borrower warrants and represents to Bank that Borrower shall use the proceeds represented by this Note solely for proper business purposes, and consistently with all applicable laws and statutes. The occurrence of any one of the following events shall constitute a default by the Borrower ("Event of Default") under this Note (a) if Borrower fails to pay any of Borrower's Liabilities when due and payable: (b) if Borrower fails to perform, keep or observe any term, provision, condition, covenant, warranty or representation contained in this Note which is required to be performed, kept, or observed by Borrower: (c) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered by or on behalf of Borrower to Bank; (d) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered to Bank by any guarantor or Borrowers Liabilities; (e) if any of Borrower's assets are attached, seized, subjected to a writ of distress warrant, or are levied upon or become subject to any lien or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors: (f) if Borrower or any guarantor of Borrower's Liabilities becomes insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due, if a petition under any section or chapter of the Bankruptcy Reform Act of 1978 or any similar law or regulation is filed by or against Borrower or any such guarantor, if Borrower or any such guarantor shall make an assignment for the benefit of creditors, if any case or proceeding is filed by or against Borrower or any such guarantor for its dissolution or liquidation, or upon the death or incompetency of Borrower or any such guarantor, or the appointment of a conservator for all or any portion of Borrower's assets; or (g) if a contribution failure occurs with respect to any pension plan maintained by Borrower or any corporation, trade or business that is, along with Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses (as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) sufficient to give rise to a lien under Section 302(f) of ERISA; or (h) if Bank is reasonably insecure. Upon the occurrence of an Event of Default, at Bank's option, without notice by Bank to or demand by Bank of Borrower, all of Borrowers Liabilities shall be due and payable forthwith. All of Bank's rights and remedies under this Note are cumulative and non-exclusive. The acceptance by Bank of any partial payment made hereunder after the time when any of Borrower's Liabilities become due and payable will not establish a custom, or waive any rights of Bank to enforce prompt payment hereof. Bank's failure to require strict performance by Borrower of any provision of this Note shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Any waiver of an Event of Default hereunder shall not suspend. waive or affect any other Event of Default hereunder. Borrower and every endorser waive presentment, demand and protest and notice of presentment. protest, default non-payment, maturity, release, compromise, settlement, extension or renewal of this Note, and hereby ratify and confirm whatever Bank may do in this regard. Borrower further waives any and all notice or demand to which Borrower might be entitled with respect to this Note by virtue of any applicable statute or law (to the extent permitted by law). Borrower agrees to pay, upon Bank's demand therefor, any and all costs, fees and expenses (including attorneys fees, costs and expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and (ii) in representing Bank in any litigation, contest, suit or dispute or to commence, defend or intervene or to take any action with respect to any litigation, contests suit or dispute (whether instituted by Bank, Borrower or any other person) in any way relating to this Note or Borrower's Liabilities, and to the extent not paid the same shall become part of Borrower's Liabilities hereunder. This Note shall be deemed to have been submitted by Borrower to Bank at Bank's principal place of business and shall be deemed to have been made thereat. This Note shall be governed and controlled by the laws of the State of Illinois as to interpretation, enforcement. validity, construction, effect, choice of law and in all other respects. TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER, IRREVOCABLY, AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH. BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR (ii) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. **BORROWER MAY SELECT LIBOR RATE OPTION (Plus Spread of 1.50). 40W267 Keslinger road RICHARDSON ELECTRONICS, LTD. LaFox, IL 60147 By: /s/ William J. Garry VP & CFO EX-10.G1 3 EXHIBIT 10(g)(1) Amendment No. 1 to Restated Richardson Electronics, Ltd. Employee Stock Ownership Plan Richardson Electronics, Ltd., a Delaware corporation, hereby amends the Richardson Electronics, Ltd. Employees Stock Ownership Plan, as amended and restated on July 14, 1994, effective June 1, 1989, by deleting Section 6.1(b) thereof in its entirety and by substituting in its place the following, effective June 1, 1989, to-wit: (b) The Participants who shall be eligible to receive an allocation under this Section 6.1 with respect to a Plan Year shall be limited to: (1) Participants who are Employees on the last work day of the immediately preceding Plan Year (including Participants who incurred a Termination of Employment on such date) and who are credited with a Year of service for such Plan Year, (2) Participants who retired on or after their Normal Retirement Date during such immediately preceding Plan Year; and (3) Participants who terminated employment during such immediately preceding Plan Year due to death, Permanent Disability or involuntary termination of Employment (other than Termination of Employment for cause). Effective as to Plan Year ending on or after May 29, 1993, the preceding sentence shall read as follows: "The Participants who shall be eligible to receive an allocation under this Section 6.1 with respect to a Plan Year shall be limited to (1) Participants who are Employees on the last work day of such Plan Year (including Participants who incurred a Termination of Employment on such date) and who are credited with a Year of Service for such Plan Year, (2) Participants who retired on or after their Normal Retirement Date during such Plan Year, and (3) Participants who terminated employment during such Plan Year due to death, Permanent Disability or involuntary Termination of Employment (other than Termination of Employment for cause)." In Witness Whereof, the undersigned has caused this instrument to be executed as of this 12th day of July, 1995. Richardson Electronics, Ltd. By /s/ Edward J. Richardson As Its Chairman and President EX-10.R1 4 EXHIBIT 10(r)(1) CHUBB Executive Protection Policy DECLARATIONS EXECUTIVE PROTECTION POLICY Policy Number 8125-64-60D Federal Insurance Company, a stock insurance company, incorporated under the laws of Indiana, herein called the Company. Item 1. Parent Organization: RICHARDSON ELECTRONICS, LTD. 40W267 KESLINGER ROAD LA FOX, ILLINOIS 60147 Item 2. Policy Period: From 12:01 A.M. on MAY 31, 1995 To 12:01 A.M. MAY 31, 1996 Local time at the address shown in Item 1. Item 3. Coverage Summary Description GENERAL TERMS AND CONDITIONS EXECUTIVE LIABILITY AND INDEMNIFICATION FIDUCIARY LIABILITY CRIME INSURANCE KIDNAP/RANSOM AND EXTORTION Item 4. Termination of Prior Policies: 8125-64-60C THE EXECUTIVE LIABILITY AND INDEMNIFICATION, FIDUCIARY LIABILITY, OUTSIDE DIRECTORSHIP LIABILITY AND EMPLOYMENT PRACTICES LIABILITY COVERAGE SECTIONS (WHICHEVER ARE APPLICABLE) ARE ALL WRITTEN ON A CLAIMS MADE BASIS. EXCEPT AS OTHERWISE PROVIDED, THESE COVERAGE SECTIONS COVER ONLY CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD. PLEASE READ CAREFULLY. In witness whereof, the Company issuing this policy has caused this policy to be signed by its authorized officers, but it shall not be valid unless also signed by a duly authorized representative of the Company. FEDERAL INSURANCE COMPANY Henry G. Gulick Dean R. O'Hare Secretary President May 24, 1995 John S. Bain Date Authorized Representative CHUBB Executive Protection Policy General Terms and Conditions Territory 1. Coverage shall extend anywhere in the world. Terms and Conditions 2. Except for the General Terms and Conditions or unless stated to the contrary in any coverage section, the terms and conditions of each coverage section of this policy apply only to that section and shall not be construed to apply to any other coverage section of this policy. Limits of Liability and Deductible Amounts 3. Unless stated to the contrary in any coverage section, the limits of liability and deductible amounts shown for each coverage section of this policy are separate limits of liability and separate deductible amounts pertaining to the coverage section for which they are shown; the application of a deductible amount to a loss under one coverage section of this policy shall not reduce the deductible amount under any other coverage section of this policy. Notice 4. Notice to the Company under this policy shall be given in writing addressed to: Notice of Claim: National Claims Department Chubb Group of Insurance Companies 15 Mountain View Road Warren, New Jersey 07059 All Other Notices: Executive Protection Department Chubb Group of Insurance Companies 15 Mountain View Road Warren, New Jersey 07059 Such notice shall be effective on the date of receipt by the Company at such address. Investigation and Settlement 5. The Company may make any investigation it deems necessary and may, with the written consent of the Insured, make any settlement of a claim it deems expedient. If the Insured withholds consent to such settlement, the Company's liability for all loss on account of such claim shall not exceed the amount for which the Company could have settled such claim plus costs, charges and expenses accrued as of the date such settlement was proposed in writing by the Company to the Insured. Valuation and Foreign Currency 6. All premiums, limits, retentions, loss and other amounts under this policy are expressed and payable in the currency of the United States of America. Except as otherwise provided in any coverage section, if judgment is rendered, settlement is denominated or another element of loss under this policy is stated in a currency other than United States of America dollars, payment under this policy shall be made in United States dollars at the rate of exchange published in the Wall Street Journal on the date the final judgment is reached, the amount of the settlement is agreed upon or the other element of loss is due, respectively. Subrogation 7. In the event of any payment under this policy, the Company shall be subrogated to the extent of such payment to all the Insured's rights of recovery, and the Insured shall execute all papers required and shall do everything necessary to secure and preserve such rights, including the execution of such documents necessary to enable the Company effectively to bring suit in the name of the Insured. Action Against the Company 8. No action shall lie against the Company unless, as a condition precedent thereto, there shall have been full compliance with all the terms of this policy. No person or organization shall have any right under this policy to join the Company as a party to any action against the Insured to determine the Insured's liability nor shall the Company be impleaded by the Insured or his legal representatives. Bankruptcy or insolvency of an Insured or of the estate of an Insured shall not relieve the Company of its obligations nor deprive the Company of its rights under this policy. Authorization Clause 9. By acceptance of this policy, the Parent Organization agrees to act on behalf of all Insureds with respect to the giving and receiving of notice of claim or termination, the payment of premiums and the receiving of any return premiums that may become due under this policy, the negotiation, agreement to and acceptance of endorsements, and the giving or receiving of any notice provided for in this policy (except the giving of notice to apply for the Extended Reporting Period), and the Insureds agree that the Parent Organization shall act on their behalf. Alteration and Assignment 10. No change in, modification of, or assignment of interest under this policy shall be effective except when made by a written endorsement to this policy which is signed by an authorized employee of Chubb & Son Inc. Termination of Policy or Coverage Section 11. This policy or any coverage section shall terminate at the earliest of the following times: (A) sixty days after the receipt by the Parent Organization of a written notice of termination from the Company, (B) upon the receipt by the Company of written notice of termination from the Parent Organization, (C) upon expiration of the Policy Period as set forth in Item 2 of the Declarations of this policy, or (D) at such other time as may be agreed upon by the Company and the Parent Organization. The Company shall refund the unearned premium computed at customary short rates if the policy or any coverage section is terminated by the Parent Organization. Under any other circumstances the refund shall be computed pro rata. Termination of Prior Bonds or Policies 12. Any bonds or policies issued by the Company or its affiliates and specified in Item 4 of the Declarations of this policy shall terminate, if not already terminated, as of the inception date of this policy. Such prior bonds or policies shall not cover any loss under the Crime or Kidnap/Ransom & Extortion coverage sections not discovered and notified to the Company prior to the inception date of this policy. Definitions 13. When used in this policy: Parent Organization means the organization designated in Item 1 of the Declarations of this policy. Policy Period means the period of time specified in Item 2 of the Declarations of this policy, subject to prior termination in accordance with Subsection 11 above. If this period is less than or greater than one year, then the Limits of Liability specified in the Declarations for each coverage section shall be the Company's maximum limit of liability under such coverage section for the entire period. CHUBB Executive Protection Policy ENDORSEMENT Coverage Section: GENERAL TERMS Company: FEDERAL INSURANCE COMPANY Endorsement No: 1 Effective date of this endorsement: MAY 31, 1995 To be attached to and form part of Policy No. 8125-64-60D Issued to: RICHARDSON ELECTRONICS, LTD. ILLINOIS AMENDATORY ENDORSEMENT It is agreed that: Subsection 11, "Termination of Policy or Coverage Section", of the General Terms and Conditions is amended by the following: CANCELLATION All notices of cancellation of insurance must be mailed at least 30 days prior to the effective date of cancellation during the first 60 days of coverage. After the policy or coverage section has been effective for 61 days or more, all notices must be mailed at least 60 days prior to the effective date of cancellation. All such notices shall include a specific explanation of the reason or reasons for cancellation and shall be mailed to the Parent Organization and mortgagee or lien holder, if known, at the last mailing address known to the company. However, where cancellation is for nonpayment of premium, at least 10 days notice of cancellation shall be given. No policy or coverage section which has been in effect for 60 days may be cancelled except for one of the following reasons: (a) Nonpayment of premium; (b) The policy or coverage section was obtained through a material misrepresentation; (c) Any insured violated any of the terms and conditions of the policy or coverage section; (d) The risk originally accepted has measurably increased; (e) Certification to the Director of the loss of reinsurance by the insurer which provided coverage to the insurer for all or a substantial part of the underlying risk insured; or, (f) A determination by the Director that the continuation of the policy or coverage section could place the insurer in violation of the insurance laws of this state. NONRENEWAL AND EXTENDED REPORTING PERIOD No company shall fail to renew any policy or coverage section of insurance unless it shall send by mail to the Parent Organization at least 60 days advance notice of its intention not to renew. The company shall maintain proof of the mailing of such notice on one of the following forms: a recognized U.S. Post Office form or a form acceptable to the U.S. Post Office or other commercial mail delivery service. An exact and unaltered copy of such notice shall also be sent to the Parent Organization's broker, if known, or the agent of record and to the mortgagee or lien holder at the last mailing address known by the company. However, where cancellation is for nonpayment of premium, at least 10 days notice of cancellation shall be given. Should a company fail to comply with the notice requirements, the policy or coverage section shall terminate only as provided in this Subsection. In the event notice is provided at least 31 days, but less than 60 days prior to expiration of the policy or coverage section, the policy or coverage section shall be extended for a period of 60 days or until the effective date of any similar insurance procured by the Insured, whichever is less, on the same terms and conditions as the policy or coverage section sought to be terminated. In the event notice is provided less than 31 days prior to the expiration of the policy or coverage section, the policy or coverage section shall be extended for a period of one year or until the effective date of any similar insurance procured by the insured, whichever is less, on the same terms and conditions as the policy or coverage section sought to be terminated unless the insurer has manifested its willingness to renew at a premium which represents an increase not exceeding 30%. The premium for coverage shall be prorated in accordance with the amount of the last year's premium, and the company shall be entitled to this premium for the extension of coverage and such extension may be contingent upon the payment of such premium. Renewal of a policy or coverage section does not constitute a waiver or estoppel with respect to grounds for cancellation which existed before the effective date of such renewal. In all notices of intention not to renew any policy or coverage section for insurance, the company shall provide a specific explanation of the reasons for nonrenewal. ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. John S. Bain Authorized Representative May 24, 1995 Date CHUBB 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 $ 500,000. 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. 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 CHUBB Executive Protection Policy Executive Liability and Indemnification Coverage Section In consideration of payment of the premium and subject to the Declarations, General Terms and Conditions, and the limitations, conditions, provisions and other terms of this coverage section, the Company agrees as follows: Insuring Clauses Executive Liability Coverage Insuring Clause 1 1. The Company shall pay on behalf of each of the Insured Persons all Loss for which the Insured Person is not indemnified by the Insured Organization and which the Insured Person becomes legally obligated to pay on account of any Claim first made against him, individually or otherwise, during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted by such Insured Person before or during the Policy Period. Executive Indemnification Coverage Insuring Clause 2 2. The Company shall pay on behalf of the Insured Organization all Loss for which the Insured Organization grants indemnification to each Insured Person, as permitted or required by law, which the Insured Person has become legally obligated to pay on account of any Claim first made against him, individually or otherwise, during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted by such Insured Person before or during the Policy Period. Estates and Legal Representatives 3. Subject otherwise to the General Terms and Conditions and the limitations, conditions, provisions and other terms of this coverage section, coverage shall extend to Claims for the Wrongful Acts of Insured Persons made against the estates, heirs, legal representatives or assigns of Insured Persons who are deceased or against the legal representatives or assigns of Insured Persons who are incompetent, insolvent or bankrupt. Extended Reporting Period 4. If the Company terminates or refuses to renew this coverage section other than for nonpayment of premium, 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 this coverage section for the period 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. If the Parent Organization terminates or declines to accept renewal, the Company may, if requested, at its sole option, grant an Extended Reporting Period. The offer of renewal terms and conditions or premiums different from those in effect prior to renewal shall not constitute refusal to renew. Exclusions Exclusions Applicable to Insuring Clauses 1 and 2 5. The Company shall not be liable for Loss on account of any Claim made against any Insured Person: (a) based upon, arising from, or in consequence of any circumstance if written notice of such circumstance has been given under any policy or coverage section of which this coverage section is a renewal or replacement and if such prior policy or coverage section affords coverage (or would afford such coverage except for the exhaustion of its limits of liability) for such Loss, in whole or in part, as a result of such notice; (b) based upon, arising from, or in consequence of any demand, suit or other proceeding pending, or order, decree or judgement entered against any Insured on or prior to the Pending or Prior Date set forth in Item 8 of the Declarations for this coverage section, or the same or any substantially similar fact, circumstance or situation underlying or alleged therein; (c) brought or maintained by or on behalf of any Insured except: (i) a Claim that is a derivative action brought or maintained on behalf of an Insured Organization by one or more persons who are not Insured Persons and who bring and maintain the Claim without the solicitation, assistance or participation of any Insured, (ii) a Claim brought or maintained by an Insured Person for the actual or alleged wrongful termination of the Insured Person, or (iii) a Claim brought or maintained by an Insured Person for contribution or indemnity, if the Claim directly results from another Claim covered under this coverage section; (d) for an actual or alleged violation of the responsibilities, obligations or duties imposed by the Employee Retirement Income Security Act of 1974 and amendments thereto or similar provisions of any federal, state or local statutory law or common law upon fiduciaries of any pension, profit sharing, health and welfare or other employee benefit plan or trust established or maintained for the purpose of providing benefits to employees of an Insured Organization; (e) for bodily injury, mental or emotional distress, sickness, disease or death of any person or damage to or destruction of any tangible property including loss of use thereof; or (f) based upon, arising from, or in consequence of (i) the actual, alleged or threatened discharge, release, escape or disposal of Pollutants into or on real or personal property, water or the atmosphere; or (ii) any direction or request that the Insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants, or any voluntary decision to do so; including but not limited to any Claim for financial loss to the Insured Organization, its security holders or its creditors based upon, arising from, or in consequence of the matters described in (i) or (ii) of this exclusion. Exclusions Applicable to Insuring Clause 1 Only 6. The Company shall not be liable under Insuring Clause 1 for Loss on account of any Claim made against any Insured Person: (a) for an accounting of profits made from the purchase or sale by such Insured Person of securities of the Insured Organization within the meaning of Section 16 (b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law or common law; (b) based upon, arising from, or in consequence of any deliberately fraudulent act or omission or any willful violation of any statute or regulation by such Insured Person, if a judgement or other final adjudication adverse to the Insured Person establishes such a deliberately fraudulent act or omission or willful violation; or (c) based upon, arising from, or in consequence of such Insured Person having gained in fact any personal profit, remuneration or advantage to which such Insured Person was not legally entitled. Severability of Exclusions 7. With respect to the Exclusions in Subsections 5 and 6 of this coverage section, no fact pertaining to or knowledge possessed by any Insured Person shall be imputed to any other Insured Person to determine if coverage is available. Limit of Liability, Deductible and Coinsurance 8. For the purposes of this coverage section, all Loss arising out of the same Wrongful Act and all Interrelated Wrongful Acts of any Insured Person shall be deemed one Loss, and such Loss shall be deemed to have originated in the earliest Policy Period in which a Claim is first made against any Insured Person alleging any such Wrongful Act or Interrelated Wrongful Acts. The Company's maximum liability for each Loss, whether covered under Insuring Clause 1 or Insuring Clause 2 or both, 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 Insuring Clause 1 or Insuring Clause 2 or both, 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 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. If a single Loss is covered in part under Insuring Clause 1 and in part under Insuring Clause 2, the Deductible Amount applicable to the Loss shall be the Insuring Clause 2 deductible set forth in Item 4 of the Declarations for this coverage section. With respect to all Loss (excess of the applicable Deductible Amount) originating in any one Policy Period, the Insureds shall bear uninsured and at their own risk that percent of all such Loss specified as the Coinsurance Percent in Item 3 of the Declarations for this coverage section, and the Company's liability hereunder shall apply only to the remaining percent of all such Loss. Any Loss covered in whole or in part by this coverage section and the Employment Practices Liability coverage section of this policy (if purchased) shall be subject to the limits of liability, deductible and coinsurance percent applicable to such other coverage section; provided, however, if any limit of liability applicable to such other coverage section is exhausted with respect to such Loss, any remaining portion of such Loss otherwise covered by this coverage section shall be subject to the Limits of Liability and Coinsurance Percent applicable to this coverage section, as reduced by the amount of such Loss otherwise covered by this coverage section which is paid by the Company pursuant to such other coverage section. For purposes of this Subsection 8 only, the Extended Reporting Period, if exercised, shall be part of and not in addition to the immediately preceding Policy Period. Presumptive Indemnification 9. If the Insured Organization. (a) fails or refuses, other than for reason of Financial Impairment, to indemnify the Insured Person for Loss; and (b) is permitted or required to indemnify the Insured Person for such Loss pursuant to: (i) the by-laws or certificate of incorporation of the Insured Organization in effect at the inception of this coverage section, or (ii) any subsequently amended or superseding by-laws or certificate of incorporation of the Insured Organization provided, however, that such amended or superseding by-laws or certificate of incorporation expand or broaden, and do not restrict or in any way limit, the Insured Organization's ability to indemnify the Insured Person; then, notwithstanding any other conditions, provisions or terms of this coverage section to the contrary, any payment by the Company of such Loss shall be subject to (i) the Insuring Clause 2 Deductible Amount set forth in Item 4 of the Declarations for this coverage section, and (ii) all of the Exclusions set forth in Subsections 5 and 6 of this coverage section. For purposes of this Subsection 9, the shareholder and board of director resolutions of the Insured Organization shall be deemed to provide indemnification for such Loss to the fullest extent permitted by such by-laws or certificate of incorporation. Reporting and Notice 10. The Insureds shall, as a condition precedent to exercising their rights under this coverage section, give to the Company written notice as soon as practicable of any Claim made against any of them for a Wrongful Act. If during the Policy Period or Extended Reporting Period (if exercised) an Insured becomes aware of circumstances which could give rise to a Claim and gives written notice of such circumstance(s) to the Company, then any Claims subsequently arising from such circumstances shall be considered to have been made during the Policy Period or the Extended Reporting Period in which the circumstances were first reported to the Company. The Insureds shall, as a condition precedent to exercising their rights under this coverage section, give to the Company such information and cooperation as it may reasonably require, including but not limited to a description of the Claim or circumstances, the nature of the alleged Wrongful Act, the nature of the alleged or potential damage, the names of actual or potential claimants, and the manner in which the Insured first became aware of the Claim or circumstances. Defense and Settlement 11. Subject to this Subsection, it shall be the duty of the Insured Persons and not the duty of the Company to defend Claims made against the Insured Persons. The Insureds agree not to settle any Claim, incur any Defense Costs or otherwise assume any contractual obligation or admit any liability with respect to any Claim without the Company's written consent, which shall not be unreasonably withheld. The Company shall not be liable for any settlement, Defense Costs, assumed obligation or admission to which it has not consented. The Company shall have the right and shall be given the opportunity to effectively associate with the Insureds in the investigation, defense and settlement, including but not limited to the negotiation of a settlement, of any Claim that appears reasonably likely to be covered in whole or in part by this coverage section. The Insureds agree to provide the Company with all information, assistance and cooperation which the Company reasonably requests and agree that in the event of a Claim the Insureds will do nothing that may prejudice the Company's position or its potential or actual rights of recovery. Defense Costs are part of and not in addition to the Limits of Liability set forth in Item 2 of the Declarations for this coverage section, and the payment by the Company of Defense Costs reduces such Limits of Liability. 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 the Insured Persons 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 use their best efforts to agree upon a fair and proper allocation of such amount between covered Loss and uncovered loss. If the Insureds and the Company agree on an allocation of Defense Costs, the Company shall advance on a current basis Defense Costs allocated to the covered Loss. If the Insureds and the Company cannot agree on an allocation: (a) no presumption as to allocation shall exist in any arbitration, suit or other proceeding; (b) the Company shall advance on a current basis Defense Costs which the Company believes to be covered under this coverage section until a different allocation is negotiated, arbitrated or judicially determined; and (c) the Company, if requested by the Insureds, shall submit the 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, and a third independent arbitrator selected by the first two arbitrators. Any negotiated, arbitrated or judicially determined allocation of Defense Costs on account of a Claim shall be applied retroactively to all Defense Costs on account of such Claim, notwithstanding any prior advancement to the contrary. Any allocation or advancement of Defense Costs on account of a Claim shall not apply to or create any presumption with respect to the allocation of other Loss on account of such Claim. Other Insurance 13. If any Loss arising from any Claim made against any Insured Persons is insured under any other valid policy(ies), prior or current, then this coverage section shall cover such Loss, subject to its limitations, conditions, provisions and other terms, only to the extent that the amount of such Loss is in excess of the amount of payment from such other insurance whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the Limits of Liability provided in this coverage section. Changes in Exposure Acquisition or Creation of Another Organization 14. If the Insured Organization (i) acquires securities or voting rights in another organization or creates another organization, which as a result of such acquisition or creation becomes a Subsidiary, or (ii) acquires any organization by merger into or consolidation with an Insured Organization, such organization and its Insured Persons shall be Insureds under this coverage section but only with respect to Wrongful Acts committed, attempted, or allegedly committed or attempted, after such acquisition or creation unless the Company agrees, after presentation of a complete application and all appropriate information, to provide coverage by endorsement for Wrongful Acts committed, attempted, or allegedly committed or attempted, by such Insured Persons prior to such acquisition or creation. If the fair value of all cash, securities, assumed indebtedness and other consideration paid by the Insured Organization for any such acquisition or creation exceeds 10% of the total assets of the Parent Organization as reflected in the Parent Organization's most recent audited consolidated financial statements, the Parent Organization shall give written notice of such acquisition or creation to the Company as soon as practicable together with such information as the Company may require and shall pay any reasonable additional premium required by the Company. Acquisition of Parent Organization by Another Organization 15. If (i) the Parent Organization merges into or consolidates with another organization, or (ii) another organization or person or group of organizations and/or persons acting in concert acquires securities or voting rights which result in ownership or voting control by the other organization(s) or person(s) of more than 50% of the outstanding securities representing the present right to vote for the election of directors of the Parent Organization, coverage under this coverage section shall continue until termination of this coverage section, but only with respect to Claims for Wrongful Acts committed, attempted, or allegedly committed or attempted, by Insured Persons prior to such merger, consolidation or acquisition. The Parent Organization shall give written notice of such merger, consolidation or acquisition to the Company as soon as practicable together with such information as the Company may require. Cessation of Subsidiaries 16. In the event an organization ceases to be a Subsidiary before or after the Inception Date of this coverage section, coverage with respect to such Subsidiary and its Insured Persons shall continue until termination of this coverage section but only with respect to Claims for Wrongful Acts committed, attempted or allegedly committed or attempted prior to the date such organization ceased to be a Subsidiary. Representations and Severability 17. In granting coverage to any one of the Insureds, the Company has relied upon the declarations and statements in the written application for this coverage section and upon any declarations and statements in the original written application submitted to another insurer in respect of the prior coverage incepting as of the Continuity Date set forth in Item 9 of the Declarations for this coverage section. All such declarations and statements are the basis of such coverage and shall be considered as incorporated in and constituting part of this coverage section. Such written application(s) for coverage shall be construed as a separate application for coverage by each of the Insured Persons. With respect to the declarations and statements contained in such written application(s) for coverage, no statement in the application or knowledge possessed by any Insured Person shall be imputed to any other Insured Person for the purpose of determining if coverage is available. Definitions 18. When used in this coverage section: Claim means: (i) a written demand for monetary damages, (ii) a civil proceeding commenced by the service of a complaint or similar pleading, (iii) a criminal proceeding commenced by a 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. 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) incurred in defending or investigating Claims and the premium for appeal, attachment or similar bonds. Financial Impairment means the status of the Insured Organization resulting from (i) the appointment by any state or federal official, agency or court of any receiver, conservator, liquidator, trustee, rehabilitator or similar official to take control of, supervise, manage or liquidate the Insured Organization, or (ii) the Insured Organization becoming a debtor in possession. Insured, either in the singular or plural, means the Insured Organization and any Insured Person. Insured Capacity means the position or capacity designated in Item 6 of the Declarations for this coverage section held by any Insured Person but shall not include any position or capacity in any organization other than the Insured Organization, even if the Insured Organization directed or requested the Insured Person to serve in such other position or capacity. Insured Organization means, collectively, those organizations designated in Item 5 of the Declarations for this coverage section. Insured Person, either in the singular or plural, means any one or more of those persons designated in Item 6 of the Declarations for this coverage section. Interrelated Wrongful Acts means all causally connected Wrongful Acts. Loss means the total amount which any Insured Person becomes legally obligated to pay on account of each Claim and for all Claims in each Policy Period and the Extended Reporting Period, if exercised, made against them for Wrongful Acts for which coverage applies, including, but not limited to, damages, judgements, settlements, costs and Defense Costs. Loss does not include (i) any amount not indemnified by the Insured Organization for which the Insured Person is absolved from payment by reason of any covenant, agreement or court order, (ii) any amount 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 Claim or potential Claim by or on behalf of the Insured Organization, (iii) fines or penalties imposed by law or the multiple portion of any multiplied damage award, or (iv) matters uninsurable under the law pursuant to which this coverage section is construed. Pollutants means any substance located anywhere in the world exhibiting any hazardous characteristics as defined by, or identified on a list of hazardous substances issued by, the United States Environmental Protection Agency or a state, county, municipality or locality counterpart thereof. Such substances shall include, without limitation, solids, liquids, gaseous or thermal irritants, contaminants or smoke, vapor, soot, fumes, acids, alkalis, chemicals or waste materials. Pollutants shall also mean any other air emission, odor, waste water, oil or oil products, infectious or medical waste, asbestos or asbestos products and any noise. Subsidiary, either in the singular or plural, means any organization in which more than 50% of the outstanding securities or voting rights representing the present right to vote for election of directors is owned or controlled, directly or indirectly, in any combination, by one or more Insured Organizations. Wrongful Act means any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted, by an Insured Person, individually or otherwise, in his Insured Capacity, or any matter claimed against him solely by reason of his serving in such Insured Capacity. CHUBB Executive Protection Policy ENDORSEMENT Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY Endorsement No: 1 Effective date of this endorsement: MAY 31, 1995 Issued to: RICHARDSON ELECTRONICS, LTD. To be attached to and form part of Policy No. 8125-64-60D 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. John S. Bain Authorized Representative May 24, 1995 Date CHUBB Executive Protection Policy ENDORSEMENT Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY Endorsement No: 2 Effective date of this endorsement: MAY 31, 1995 Issued to: RICHARDSON ELECTRONICS, LTD. To be attached to and form part of Policy No. 8125-64-60D It is agreed that Item 6 of the Declarations page, Insured Persons, is amended to include the following: Microwave Business Unit Manager Broadcast Business Unit Manager Export/Middle East/Africa/Reg. Sls. Mgr. Regional Sales Manager - REI/GEB Industrial Business Unit Manager General Manager - RESA Solid State Components Bus. Unit Manager Director General - REISA Regional Sales Manager - RESA Medical Business Unit Manager Canada Region Sales Manager Western Region Sales Manager Eastern Region Sales Manager Director Marketing Administration ROW Regional Sales Manager - GmbH ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. John S. Bain Authorized Representative May 24, 1995 Date CHUBB Executive Protection Policy ENDORSEMENT Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY Endorsement No: 3 Effective date of this endorsement: MAY 31, 1995 Issued to: RICHARDSON ELECTRONICS, LTD. To be attached to and form part of Policy No. 8125-64-60D 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 Insured 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 Insured and the Company shall use their best efforts to agree upon a fair and proper allocation of such amount between covered Loss and uncovered loss; and (ii) if the Insured 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 the Insured, 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, and a third independent arbitrator selected by the first two arbitrators. ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. John S. Bain Authorized Representative May 24, 1995 Date CHUBB Executive Protection Policy ENDORSEMENT Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY Endorsement No: 4 Effective date of this endorsement: MAY 31, 1995 Issued to: RICHARDSON ELECTRONICS, LTD. To be attached to and form part of Policy No. 8125-64-60D 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 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. John S. Bain Authorized Representative May 24, 1995 Date CHUBB Executive Protection Policy ENDORSEMENT Coverage Section: EXECUTIVE LIABILITY Company: FEDERAL INSURANCE COMPANY Endorsement No: 5 Effective date of this endorsement: MAY 31, 1995 Issued to: RICHARDSON ELECTRONICS, LTD. To be attached to and form part of Policy No. 8125-64-60D 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. John S. Bain Authorized Representative May 24, 1995 Date EX-10.R2 5 EXHIBIT 10(r)(2) IMPORTANT NOTE: THIS IS CLAIMS MADE COVERAGE. PLEASE READ THIS POLICY CAREFULLY. THIS POLICY, SUBJECT TO THE DECLARATIONS, INSURING AGREEMENTS, TERMS, CONDITIONS, LIMITATIONS AND AMENDMENTS, APPLIES ONLY TO CLAIM OR CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED(S) AND REPORTED TO THE INSURER DURING THE POLICY PERIOD OR DISCOVERY PERIOD (IF APPLICABLE). THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED AND MAY BE EXHAUSTED BY AMOUNTS INCURRED FOR DEFENSE COSTS, CHARGES AND EXPENSES. THE RETENTION(S) APPLY(IES) TO DEFENSE COSTS, CHARGES AND EXPENSES. ST. PAUL MERCURY INSURANCE COMPANY St. Paul, Minnesota 55102 A Capital Stock Company Herein Called the Insurer EXCESS DIRECTORS AND OFFICERS LIABILITY AND CORPORATE INDEMNIFICATION POLICY DECLARATIONS Item 1. Named Insured: The Directors and Officers of Richardson Electronics, Ltd. Item 2. Address (No., Street, City, State and Zip Code) 40W267 Keslinger Road LaFox, IL 60147 Item 3. Policy Period From 5/31/95 To 05-31-96 (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)) $1,000,000. Corporate Indemnification Each Loss $ 0 Each Insured Each Loss $ 0 Aggregate All Insureds Each Loss Item 6. Premium $ 77,500. Item 7. Schedule of Underlying Insurer(s) (A) 1. Underlying Insurer: Federal Insurance Company 2. Policy Number: 8125-64-60D 3. Policy Period: From: 05-31-95 To: 05-31-96 4. Limit of Liability: $15,000,000. 5. Retentions: $500,000 Corporate Indemnification Each Loss $ 0 Each Insured Each Loss $ 0 Aggregate All Insureds Each Loss (B) 1. Underlying Insurer: Not Applicable 2. Policy Number: 3. Policy Period: From: To: 4. Limit of Liability: $ (C) 1. Underlying Insurer: Not Applicable 2. Policy Number: 3. Policy Period: From: To: 4. Limit of Liability: $ (D) 1. Underlying Insurer: Not Applicable 2. Policy Number: 3. Policy Period: From: To: 4. Limit of Liability: $ (E) Total amount of Underlying Limit of Liability $15,000,000 and any retentions or deductibles as applicable under the policy(ies) as stated in this Item 7. Item 8. Subject to the Terms, Conditions and Limitations of this policy as hereinafter provided, this policy follows the form of: Insurer's Name: Federal Insurance Company Policy Number: 8125-64-60D Item 9. Forms Attached 1) St. Paul Mercury Insurance Company Policy, Form #50408. 2) Endorsements one through four. 3) St.Paul Mercury Insurance Company Application, Form # 50264, and its attachments. James C. Styer Authorized Representative July 20, 1995 Countersignature Date Highland Park, IL Countersigned At INSURING CLAUSE In consideration of the payment of the premium, in reliance upon the statements made to the Insurer by application including its attachments, a copy of which is attached to and forms a part of this policy, and any material submitted therewith (which shall be retained on file by the Insurer and be deemed attached hereto), and except as hereinafter otherwise provided or amended, this policy is subject to the same Insuring Agreement(s), Terms, Conditions and Limitations as provided by the policy stated in Item 8 of the Declarations and any amendments thereto, provided: A. 1. the Insurer has received prior written notice from the Insured(s) of any amendments to the policy stated in Item 8 of the Declarations, and 2. the Insurer has given to the Insured(s) its written consent to any amendments to the policy stated in Item 8 of the Declarations. and 3. the Insured has paid any required additional premium. B. This policy is not subject to the same premium or the amount and Limit of Liability of the policy stated in Item 8 of the Declarations. TERMS, CONDITIONS AND LIMITATIONS Section 1. UNDERLYING INSURANCE A. It is a condition precedent to the Insured(s) rights under this policy that the Insured(s) notify the Insurer, as soon as practicable in writing, of a failure to maintain in full force and effect, except as provided for under Section 2(B), and without alteration of any Terms, Conditions, Limit of Liability or Retentions, any of the underlying insurance policies as stated in Item 7 of the Declarations. B. Failure to maintain, as set forth above, any of the underlying insurance policies as stated in Item 7 of the Declarations, except as provided for under Section 2(B), shall not invalidate this policy, but the liability of the Insurer for loss under this policy shall apply only to the same extent it would have been liable had the underlying insurance policies been maintained as set forth above. In no event shall the Insurer be liable to pay loss under this policy until the total amount of the Underlying Limit of Liability, as stated in Item 7(E) of the Declarations, has been paid solely by reason of the payment of loss. Section 2. LIMIT OF LIABILITY A. The Insurer shall only be liable to make payment under this policy after the total amount of the Underlying Limit of Liability as stated in Item 7(E) of the Declarations has been paid solely by reason of the payment of loss. B. In the event of the reduction or exhaustion of the total amount of the Underlying Limit of Liability as stated in Item 7(E) of the Declarations solely by reason of the payment of loss, this policy shall: 1. in the event of such reduction pay excess of the reduced amount of the Underlying Limit of Liability but not to exceed the amount stated in Item 4 of the Declarations, or 2. in the event of exhaustion continue in force provided always that this policy shall only pay the excess over the Retention amount stated in Item 5 of the Declarations as respects each and every loss hereunder, but not to exceed the amount stated in Item 4 of the Declarations. C. The Insurers' liability for loss subject to paragraphs (A) and (B) above shall be the amount stated in Item 4 of the Declarations which shall be the maximum liability of the Insurer in the Policy Period stated in Item 3 of the Declarations. The Limit of Liability of the Insurer for the Discovery Period, if elected, shall be part of, and not in addition to, the Limit of Liability as stated in Item 4 of the Declarations. Section 3. LOSS PROVISIONS The Insured(s) shall as a condition precedent to the right to be indemnified under this policy give to the Insurer notice in writing, as soon as practicable and during the Policy Period or during the Discovery Period, if effective, of any claim made against the Insured(s). Section 4. NOTICE Notice hereunder shall be given to St. Paul Mercury Insurance Company, 385 Washington Street, St. Paul, MN 55102. Section 5. CANCELLATION This policy may be cancelled by the Corporation at any time by mailing written notice to the Insurer at the address shown in Section 4 stating when thereafter such cancellation shall be effective or by surrender of this policy to the Insurer or its authorized agent. This policy may also be cancelled by or on behalf of the Insurer by delivering to the Corporation or by mailing to the Corporation by registered, certified, or other first class mail, at the Corporation's address as shown in Item 2 of the Declarations, written notice stating when, not less than sixty (60) days thereafter, the cancellation shall be effective. The mailing of such notice as aforesaid shall be sufficient proof of notice. The Policy Period terminates at the date and hour specified in such notice, or at the date and time of surrender. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. Section 6. DISCOVERY PERIOD If the Insurer shall cancel or refuse to renew (refusal to renew is hereafter referred to as non-renewal) this policy, the Corporation or the Insureds shall have the right, upon payment of the additional premium of 75% of the premium hereunder, to an extension of the cover granted by this policy to report any claim or claims in accordance with Section 3, which claim or claims are made against the Insureds during the period of twelve (12) months after the effective date of cancellation or non-renewal, herein called the Discovery Period, but only for any Wrongful Act committed before the effective date of such cancellation or non-renewal and otherwise covered by this policy. This right shall terminate, however, unless the Corporation or the Insureds provide written notice of such election together with the payment of the additional premium due and this is received by the Insurer at the address shown in Section 4 within ten (10) days after the effective date of cancellation or non-renewal. Discovery Period wherever used in this policy shall also mean optional extension period or extended reporting period as defined by the policy stated in Item 8 of the Declarations. The offer by the Insurer of renewal terms, conditions, limits of liability and/or premiums different from those of the expiring policy shall not constitute non-renewal. The provisions of this Section 6 and the rights granted herein to the Corporation or the Insureds shall not apply to any cancellation resulting from non-payment of premium. Section 7. NUCLEAR ENERGY LIABILITY EXCLUSION It is agreed that: A. This policy does not apply: 1. Under any Liability Coverage, to bodily injury or property damage a. with respect to which an Insured under this policy is also an Insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an Insured under any such policy but for its termination upon exhaustion of its limit of liability; or b. resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the Insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or an agency thereof, under any agreement entered into by the United States of America, or any agency thereof with any person or organization. 2. Under any Medical Payments coverage, or under any Supplementary Payments provision relating to first aid, to expenses incurred with respects to bodily injury resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization. 3. Under any Liability Coverage, to bodily injury or property damage resulting from the hazardous properties of nuclear material, if a. the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of an Insured or (2) has been discharged or dispersed therefrom; b. the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an Insured, or c. the bodily injury or property damage arises out of the furnishing by an Insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories or possessions or Canada, this exclusion (c) applies only to property damage to such nuclear facility and any property thereat. B. As used in this exclusion: "hazardous properties" include radioactive, toxic or explosive properties; "nuclear material" means source material, special nuclear material or by-product material; "source material," "special nuclear material," and by-product material have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (1) containing by-product material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (1) or (2) thereof; "nuclear facility" means (1) any nuclear reactor, (2) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging waste, (3) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the Insured and the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235, (4) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, and operations conducted on such site and all premises used for such operations; "nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain critical mass of fissionable material, "property damage" includes all forms of radioactive contamination of property. Section 8. ACTION AGAINST THE INSURER No action shall lie against the Insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the Corporation's obligation to pay and/or the Insureds' obligation to pay have been finally determined either by judgment against the Insureds after actual trial or by written agreement of the Corporation and/or the Insureds, the claimant and the Insurer. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by this policy. No person or organization shall have any right under this policy to join the Insurer as a party to any action against the Corporation and/or Insureds to determine the Insureds' liability, nor shall the Insurer be impleaded by the Corporation and/or Insureds or their legal representatives. Bankruptcy or insolvency of the Corporation or the Corporation's estate, or bankruptcy or insolvency of the Insureds or the Insureds' estate shall not relieve the Insurer of any of its obligations hereunder. IN WITNESS WHEREOF, the Insurer designated on the Declarations page has caused this policy to be signed by its President and Secretary and countersigned on the Declarations page by a duly authorized representative of the Insurer. Secretary President 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. 900DX0134 ILLINOIS AMENDATORY ENDORSEMENT M1137 Ed. 6-90 In Consideration of the premium charged, it is hereby understood and agreed that: 1. The first paragraph under Section 5. CANCELLATION is hereby deleted in its entirety and substituted with the following: This policy may be cancelled by the Corporation at any time by mailing written notice to the Insurer at the address shown in Section 4 stating when thereafter such cancellation shall be effective or by surrender of this policy to the Insurer or its authorized agent. This policy may also be cancelled by or on behalf of the Insurer by mailing to the Corporation, by registered, certified or other first class mail, at the last mailing address known to the Insurer, written notice stating when, not less than sixty (60) days thereafter, the cancellation shall be effective. All such notices shall contain the specific reason(s) for cancellation. If this policy has been in effect for more than sixty (60) days, the cancellation must be for one of the following reasons: A. Nonpayment of premium; B. Misrepresentation or fraud made by or with the knowledge of the Corporation or the Insureds in obtaining the policy or in pursuing a claim under the policy; C. A violation by any Insured of any of the terms and conditions of the policy; D. A substantial increase in the risk originally assumed; E. Loss of reinsurance by the Insurer which provided coverage to the Insurer for a significant amount of the underlying risk insured. Certification of the loss of reinsurance must be given to the Director of Insurance. F. A determination by the Director of Insurance that the continuation of the policy would place the Insurer in violation of the insurance laws of the State of Illinois. It is further agreed that this policy may be non renewed by or on behalf of the Insurer by mailing written notice to the Corporation, by registered, certified, or other first class mail, at the last mailing address known to the Insurer. All such notices shall contain the specific reason(s) for non renewal. It is further agreed that non renewal of this policy will be effective sixty (60) days after receipt of the Insured of written notice from the Insurer of its desire to non renew this policy, or at the time and date set forth in the notice of non renewal, provided sixty (60) days notice has been given the Corporation prior to said date. 2. It is further understood and agreed that Section 6. DISCOVERY PERIOD is hereby deleted in its entirety and replaced with the following: If the Insurer or the Insured(s) shall cancel or refuse to renew (refusal to renew is hereafter referred to as non-renewal) this policy, the Corporation or the Insured(s) shall have the right, upon payment of the additional premium of seventy five percent (75%) of the expiring annual premium hereunder, to report any claim or claims in accordance with Section 3, which claim or claims are made against the Insured(s) during the period of twelve (12) months after the effective date of cancellation or non-renewal, herein called the Discovery Period, but only for any Wrongful Act committed before the effective date of such cancellation or non-renewal and otherwise covered by this policy. This right shall terminate, however, unless the Corporation or the Insured(s) provide written notice of such election together with the payment of the additional premium due and this is received by the Insurer at the address shown in Section 4 within thirty (30) days after the effective date of cancellation or non-renewal. The additional premium for the Discovery Period shall be fully earned at the inception of the Discovery Period. The Discovery Period is not cancelable. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof,the Company has caused this endorsement to be signed by a duly authorized representative of the Company. Authorized Representative ENDORSEMENT #2 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. 900DX0134 PRIOR AND PENDING LITIGATION EXCLUSION M1150 Ed. 3-90 In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for loss in connection with any claim or claims made against the Insured(s) arising from any prior or pending litigation as of 05-31-90, as well as all future claims or litigation based upon the pending or prior litigation or derived from the same or essentially the same facts (actual or alleged) that gave rise to the prior or pending litigation. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof,the Company has caused this endorsement to be signed by a duly authorized representative of the Company. Authorized Representative ENDORSEMENT #3 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. 900DX0134 In consideration of the premium charged, it is understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Insureds, based upon, arising out of, attributable to or in any way involving the following: 1. Panache Broadcasting of Pennsylvania, Inc. v. Richardson Electronics, Ltd.; Varian Associates, Inc.; and Varian Supply Company (Case No. 90 C 6400.); or 2. A contract to supply tubes to the United States Government which was completed in 1989 as described in Note K - Litigation on page 23 of the Richardson Electronics, Ltd. 1994 Annual Report; or 3. Arius, Inc. v. Richardson Electronics, Ltd., Flint Cooper, William Alexander, Kevin Dutton (case number CI. 95-202 in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida) Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof,the Company has caused this endorsement to be signed by a duly authorized representative of the Company. Authorized Representative ENDORSEMENT #4 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. 900DX0134 REPORTED INCIDENTS EXCLUSION M1117 Ed. 3-90 In consideration of the premium charged, it is hereby understood and agreed that under this policy the Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Insured(s) arising from any circumstances of which notice has been given under any insurance in force prior to the inception date of this policy including any applicable discovery period. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy, other than as above stated. In Witness Whereof,the Company has caused this endorsement to be signed by a duly authorized representative of the Company. Authorized Representative RENEWAL APPLICATION FOR DIRECTORS AND OFFICERS LIABILITY AND CORPORATE INDEMNIFICATION THIS IS A RENEWAL APPLICATION FOR A CLAIMS MADE POLICY This policy includes provisions that may reduce your limit of liability by defense costs. Defense costs are applied to the retention(s) and loss participation amounts. 1.(a) Name of Corporation (Organization) Richardson Electronics, Ltd. (b) Address 40W267 Keslinger road, LaFox, IL 60147 (c) State of Incorporation (or Charter) Delaware 2. Amount of insurance desired on renewal (Excess of primary $15,000,000) $15,000,000 3. Stock (This question does not apply to Non-Profit Organizations but must be answered for each for-profit subsidiary owned more than 50 percent by a non-profit organization.) (a) Total number of common shares outstanding Class B Common 8,196,386 3,247,159 (b) Total number of common stockholders 721 45 (c) Total number of common shares owned directly or beneficially by Officers 6,458,215 3,232,422 (d) Total number of common shares owned directly or beneficially by Directors, who are not Officers 516,045 247 (e) Attach a list of names and percentages of shareholders owning, directly or beneficially, five percent or more of the common shares or other class of stock. 4. Attach a list of all subsidiary corporations that are more than 50 percent owned for which coverage is requested and designate the percentage of ownership, nature of operations, date acquired or created and the Directors and Officers of each. 5. Unless such information is contained in the latest Annual Report of the Corporation, attach a list of (a) the names of all directors of the parent Corporation and (b) the names and official titles of all Officers of the parent Corporation. 6. (a) Does the corporation have under consideration at the present time or do they contemplate any acquisitions, tender offers or mergers? If yes, attach full details. NO (b) Have there been any offers (including tender offers) or negotiations to offer to purchase five percent or more of any class of voting stock of the corporation in the past three years or are any such offers expected in the future? If yes, attach full details. NO 7. Has the corporation or any subsidiary filed or contemplated filing any new public offering of securities either pursuant to the Securities Act of 1933 or exempt from registration under regulation A within the past 12 months or within the next 12 months? If yes, attach a statement of full details including the prospectus. YES 8. Attached and made a part of this application by reference are: (a) Copy of last Annual Report and latest interim report. (b) Copy of Provisions of the Charter or By-Laws drafted within the last year covering any measures which may be deemed to be "anti-takeover" in matter. If not applicable, so state. NA (c) Copy of Notice to Stockholders and the Proxy Statement for either the last or next Annual Meeting. (d) Copy of Form 10-K for latest fiscal year and latest 10-Q. (e) Copy of any article about the corporation which appeared in a business news publication within the past six months as well as a schedule of interviews granted to news media. (f) Copy of form 8K Reports and 13D filed within the last 12 months. (g) Copy of most recent Schedule of Insurance. (h) Operational brochures (not application if 10-K available). 9. It is agreed that this renewal application is a supplement to the applications previously submitted to the Insurer in conjunction with the underwriting and issuance of insurance policies for which this policy is a renewal or replacement or otherwise succeeds in time, and those applications together with this application shall constitute the complete application which shall be the basis of any quotation which may be made. 10. The undersigned authorized Officer of the Corporation (or Organization) declares, after inquiry, that the statements set forth herein are true. The undersigned authorized Officer agrees that if the information supplied on this application changes between the date of this application and the effective date of the insurance, the undersigned will immediately notify the Insurer of such changes, and that the Insurer may withdraw or modify any outstanding quotations and/or authorization or agreement to bind the insurance. Although the signing of this Application does not bind the undersigned on behalf of the Corporation (or Organization), to effect this insurance, the undersigned on behalf of the Corporation (or Organization), agrees that this form and the said statements shall be the basis of any insurance contract or agreement which may be made. The Insurer is hereby authorized to make any investigation and inquiry in connection with this application. KENTUCKY FRAUD WARNING: Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance containing any materially false information or conceals for the purpose of misleading information concerning any fact material thereto commits a fraudulent insurance act, which is a crime. NEW YORK FRAUD WARNING: Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information, or conceals for the purpose of misleading, information concerning any fact material thereto, commits a fraudulent insurance act, which is a crime, and shall also be subject to a civil penalty not to exceed five thousand dollars and the stated value of the claim for each such violation. OHIO FRAUD WARNING: Any person, who, with intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement is guilty of insurance fraud. OKLAHOMA FRAUD WARNING: Any person who knowingly, and with intent to injure, defraud or deceive any insurer, makes any claim for the proceeds of an insurance policy containing any false, incomplete or misleading information is guilty of a felony. PENNSYLVANIA FRAUD WARNING: Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. Any indication or offer to provide coverage may include terms and conditions which are materially different from expiring coverage. The company shall not be obligated to provide terms in accordance with requested coverage and terms and conditions may be offered which are materially different from those requested. If an order is received, the application will be attached to and form part of the policy. Broker or Agent Mesirow Insurance Services. Inc. City, State Highland Park, IL Date Submitted 05/10/95 Signed: Edward J. Richardson Title: Chairman & President Corporation (or Organization) Richardson Electronics, Ltd. Date: May 15, 1995 EX-10.R3 6 EXHIBIT 10(r)(3) CNA INSURANCE COMPANIES CNA Plaza. Chicago, IL 60685 DECLARATIONS EXCESS INSURANCE POLICY NOTICE THIS IS A "CLAIMS-MADE" POLICY AND, SUBJECT TO ITS PROVISIONS, APPLIES ONLY TO ANY CLAIM FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD. NO COVERAGE EXISTS FOR ANY CLAIM FIRST MADE AFTER THE END OF THE POLICY PERIOD UNLESS, AND TO THE EXTENT, THE EXTENDED REPORTING PERIOD APPLIES. THE LIMIT OF LIABILITY SHALL BE REDUCED BY AMOUNTS INCURRED AS DEFENSE COSTS. ACCOUNT NUMBER 45386 COVERAGE PROVIDED BY CONTINENTAL CASUALTY COMPANY POLICY NUMBER DOX 600028634 AGENCY 910 701425 NAMED ENTITY AND PRINCIPAL ADDRESS Item 1. RICHARDSON ELECTRONICS, LTD. 40W267 KESLINGER RD. LAFOX, IL 60147 Attn: LEONARD R. PRANGE AGENT NORTHBROOK RISK MANAGERS INC ROBINA K. FISHER 3100 DUNDEE RD. STE. 205 P.O. BOX 4410 NORTHBROOK, IL 62624 (708) 564-4350 Item 2. Policy Period: May 31, 1994 to May 31, 1995 12:01 a.m. Standard Time at the Principal Address stated in Item 1. Item 3. Limit of Liability (Inclusive of Defense Costs): $5,000,000 Maximum aggregate Limit of Liability for the Policy Period. Item 4. Schedule of Underlying Insurance: A. Primary Policy: Name of Carrier Federal Insurance Company Policy No. 8125-64-60C Limits $15,000,000 Deductible/Retention Amount 0/0/$1,000,000 B. Underlying Excess Policy(ies): Name of Carrier Federal Insurance Company Policy No. 443 01 66 Limits $15,000,000 Deductible/Retention Amount Item 5. Policy Premium: $26,300 Item 6. Forms and Endorsements forming a part of this policy at inception: G-15920-A12, G-39543-B, G-39543-B 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 Selwyn S. Marcus Date: 8-23-94 CANCELLATION/NON-RENEWAL PROVISIONS STATE OF ILLINOIS Any cancellation or non-renewal provisions contained in the policy to which this endorsement is attached are deleted and replaced by the following: I. Cancellation A. This policy can be cancelled by either the entity named in Item 1. of the Declarations or the Insurer. 1. The entity named in Item 1. of the Declarations can cancel this policy at any time by mailing advance written notice to the Insurer stating when the cancellation is to be effective. 2. The Insurer can cancel this policy by giving written notice to the entity named in Item 1. of the Declarations at least: a. 10 days before the effective date of cancellation if cancellation is for non-payment of premium. However, the entity named in Item 1. of the Declarations may continue the coverage by payment in full at any time prior to the effective date of cancellation; b. 30 days before the effective date of cancellation if cancellation is for any other reason provided that the policy has been in effect for 60 days or less; or c. 60 days before the effective date of cancellation if the policy has been in effect for more than 60 days and cancellation is for any other reason as set forth below. B. The Insurer will mail notice to the entity named in Item 1. of the Declarations at the last mailing address known to the Insurer, and a copy shall also be mailed to the agent of the entity named in Item 1. of the Declarations. C. Notice of cancellation will state the effective date of cancellation. The policy will end on that date. The specific reason for such cancellation shall also be stated. D. Proof of mailing will be sufficient proof of notice. E. If this policy is cancelled, the Insurer will send the entity named in Item 1. of the Declarations any premium refund due. If the Insurer cancels, the refund will be pro-rata. If the entity named in Item 1. of the Declarations cancels, the refund may be less than pro-rata. The cancellation will be effective even if the Insurer has not made or offered a refund. If this policy has been in effect for more than 60 days, the Insurer shall not cancel 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 entity named in Item 1. of the Declarations; 5. substantial loss of reinsurance by the Insurer affecting this particular type of insurance, certified to the insurance regulatory authority; 6. a determination by the insurance regulatory authority that continuation of the policy will place the Insurer in violation of the insurance laws of the state. II. Non-Renewal If the Insurer decides not to renew this policy, 60 days advance written notice shall be mailed to the entity named in Item 1. of the Declarations at 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 entity named in Item 1. of the Declarations of the terms at lest 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 Insurer 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 PRIOR OR PENDING LITIGATION 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 MADE AGAINST THE DIRECTORS OR OFFICERS BASED UPON OR ATTRIBUTABLE TO LITIGATION PRIOR TO OR PENDING AS OF 5/31/91 INVOLVING THE COMPANY NOTED IN ITEM A OF THE DECLARATIONS PAGE (HEREINAFTER CALLED THE COMPANY) AND/OR ITS SUBSIDIARY(IES) AND/OR DIRECTORS OR OFFICERS OF THE COMPANY AND/OR ITS SUBSIDIARY(IES) OR ARISING OUT OF THE FACTS OR CIRCUMSTANCES UNDERLYING OR ALLEGED IN ANY SUCH PRIOR OR PENDING LITIGATION. ALL OTHER PROVISIONS OF THE POLICY REMAIN UNCHANGED. This endorsement is a part of your policy and takes effect on the effective date of your policy, unless another effective date is shown below. Must Be Completed ENDT. NO 2 POLICY NO. 600028634 PRIOR NOTICE EXCLUSION ENDORSEMENT IT IS UNDERSTOOD AND AGREED THAT THE INSURER SHALL NOT BE LIABLE TO MAKE ANY PAYMENT FOR LOSS IN CONNECTION WITH ANY CLAIM MADE AGAINST THE DIRECTORS OR OFFICERS BASED UPON, ARISING OUT OF, RELATING TO, DIRECTLY OR INDIRECTLY RESULTING FROM OR IN CONSEQUENCE OF, OR IN ANY WAY INVOLVING: 1. ANY WRONGFUL ACT OR ANY MATTER, FACT, CIRCUMSTANCE, SITUATION, TRANSACTION, CASUALTY, OR EVENT WHICH HAS BEEN THE SUBJECT OF ANY NOTICE GIVEN PRIOR TO THE EFFECTIVE DATE OF THIS POLICY UNDER ANY OTHER POLICY, OR 2. ANY OTHER WRONGFUL ACT WHICH, TOGETHER WITH A WRONGFUL ACT WHICH HAS BEEN THE SUBJECT OF SUCH NOTICE DESCRIBED IN THE PRECEDING CLAUSE, WOULD CONSTITUTE INTERRELATED WRONGFUL ACTS. IT IS FURTHER UNDERSTOOD AND AGREED THAT THE TERM "INTERRELATED WRONGFUL ACTS" IS DEFINED AS FOLLOWS: WRONGFUL ACTS WHICH HAVE IN COMMON ANY MATTER, FACT, CIRCUMSTANCE, SITUATION, TRANSACTION, CASUALTY OR EVENT, OR ONE OR MORE SERIES THEREOF. ALL OTHER PROVISIONS OF THE POLICY REMAIN UNCHANGED. This endorsement is a part of your policy and takes effect on the effective date of your policy, unless another effective date is shown below. Must Be Completed ENDT. NO. 3 Policy No. 600028634 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 Policy expiration date and hour set forth in Item 2. of the Declarations, or its earlier cancellation date or termination date, if any. Primary Policy means the Policy scheduled in Item 4(a) of the Declarations. Underlying Insurance means all those Policies scheduled in Item 4 of the Declarations and any Policies replacing them. III. MAINTENANCE OF UNDERLYING INSURANCE All of the Underlying Insurance scheduled in Item 4 of the Declarations shall be maintained during the Policy Period in full effect, except for any reduction of the aggregate limit(s) of liability available under the Underlying Insurance solely by reason of payment of losses thereunder. Failure to comply with the foregoing shall not invalidate this Policy but the Insurer shall not be liable to a greater extent than if this condition had been complied with. To the extent that any Underlying Insurance is not maintained in full effect during the currency of this Policy Period, then the Insureds shall be deemed to have retained any loss for the amount of the limit of liability of any Underlying Insurance which is not maintained as set forth above. In the event of any actual or alleged (a) failure by the Insureds to give notice or to exercise any extensions under any Underlying Insurance or (b) misrepresentation or breach of warranties by any of the Insureds with respect to any Underlying Insurance, the Insurer shall not be liable hereunder to a greater extent than it would have been in the absence of such actual or alleged failure, misrepresentation or breach. It is further a condition of this Policy that the Insurer shall be notified in writing, as soon as practicable of cancellation and/or alteration of any provisions of any of the policies of Underlying Insurance. IV. LIMIT OF LIABILITY The amount set forth in Item 3 of the Declarations shall be the maximum aggregate Limit of Liability of the Insurer for the Policy Period. Costs of defense shall be part of and not in addition to the Limit of Liability in Item 3 of the Declarations, and such costs of defense shall reduce the Limit of Liability stated in Item 3 of the Declarations. V. DEPLETION OF UNDERLYING LIMIT(S) In the event of the depletion of the limit(s) of liability of the Underlying Insurance solely as the result of actual payment of losses thereunder by the applicable insurers, this Policy shall, subject to the Insurer's Limit of Liability and to the other terms of this Policy, continue to apply to losses as Excess Insurance over the amount of insurance remaining under such Underlying Insurance. In the event of the exhaustion of all of the limit(s) of liability of such Underlying Insurance solely as a result of payment of losses thereunder, the remaining limits available under this Policy shall, subject to the Insurer's Limit of Liability and to the other provisions of this Policy, continue for subsequent losses as primary insurance and any retention specified in the Primary Policy shall be imposed under this Policy as to each claim made; otherwise no retention shall be imposed under this Policy. This Policy only provides coverage excess of the Underlying Insurance. This Policy does not provide coverage for any loss not covered by the Underlying Insurance except and to the extent that such loss is not paid under the Underlying Insurance solely by reason of the reduction or exhaustion of the available Underlying Insurance through payments of loss thereunder. In the event the insurer of one or more of the Underlying Insurance policies fails to pay loss in connection with any claim covered under the Underlying Insurance as a result of the insolvency, bankruptcy, or liquidation of said insurer, then the Insureds hereunder shall be deemed to have retained any loss for the amount of the limit of liability of said insurer which is not paid as a result of such insolvency, bankruptcy or liquidation. If any Underlying Insurance bears an effective date which is prior to the effective date of this Policy and if any such insurance becomes exhausted or impaired by payment of loss with respect to any claim which, shall be deemed to be made prior to the effective date of this Policy, then with respect to any claim made after the effective date of this Policy, the Insureds shall be deemed to have retained any loss for the amount of any such Underlying Insurance which is exhausted or impaired by payment of loss with respect to such claim made prior to the effective date of this Policy. VI. CLAIM PARTICIPATION The Insured shall not admit liability, consent to any judgment against them, or agree to any settlement which is reasonably likely to involve the Limit of Liability of this Policy without the Insurer's consent, such consent not to be unreasonably withheld. The Insurer may, at its sole discretion, elect to participate in the investigation, settlement or defense of any claim against any of the Insureds for matters covered by this Policy even if the Underlying Insurance has not been exhausted. All provisions of the Underlying Insurance are considered as part of this Policy except that it shall be the duty of the Insureds and not the duty of the Insurer to defend any claims against any of the Insureds. VII. SUBROGATION - RECOVERIES In that this Policy is "Excess Coverage", the Insureds and the Insurer's right of recovery against any person or other entity may not be exclusively subrogated. Despite the foregoing, in the event of any payment under this Policy, the Insurer shall be subrogated to all the Insured's rights of recovery against any person or organization, and the Insureds shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Any amounts recovered after payment of loss hereunder shall be apportioned in the inverse order of payment to the extent of actual payment. The expenses of all such recovery proceedings shall be apportioned in the ratio of respective recoveries. VIII. NOTICE The Insurer shall be given notice in writing as soon as is practicable in the event of (a) the cancellation of any Underlying Insurance and (b) any additional or return premiums charged or allowed in connection with any Underlying Insurance. Notice regarding (a) and (b) above shall be given to Manager, Directors and Officers Liability Underwriting, CNA Insurance Companies, CNA Plaza, Chicago, Illinois 60685. The Insurer shall be given notice as soon as practicable of any notice of claim or any situation that could give rise to a claim under any Underlying Insurance. Notice of any claim to the Insurer shall be given in writing to Manager, Professional Liability Claims, CNA Insurance Companies, CNA Plaza, Chicago, Illinois 60685. IX. COMPANY AUTHORIZATION CLAUSE By acceptance of this Policy, the Named Entity named in Item 1 of the Declarations agrees to act on behalf of all the Insureds with respect to the giving and receiving of notice of claim or cancellations, the payment of premiums and the receiving of any return premiums that may become due under this Policy and the Insureds agree that the Named Entity shall in all cases be authorized to act on their behalf. X. ALTERATION No change in or modification of this Policy shall be effective except when made by endorsement signed by an authorized employee of the Insurer or any of its agents relating to this Policy. XI. POLICY CANCELLATION This Policy may be cancelled by the Named Entity at any time by written notice or by surrender of this Policy to the Insurer. This Policy may also be cancelled by or on behalf of the Insurer by delivery to the Named Entity or by mailing to the Named Entity, by registered, certified or other first class mail, at the address shown in Item 1 of the Declarations, written notice stating when, not less than thirty (30) days thereafter, the cancellation shall become effective. The mailing of such notice as aforesaid shall be sufficient proof of notice and this Policy shall cancel at the date and hour specified in such notice. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. The Insurer shall refund the unearned premium computed at less than pro-rata if the Policy is cancelled in its entirety by the Named Entity. Under any other circumstances the refund shall be computed pro rata. XII. EXCLUSIONS Notwithstanding any provisions of the Underlying Insurance, the Insurer shall not be liable to make payment for loss in connection with any claim based upon, arising out of, relating to, directly or indirectly resulting from, or in consequence of, or in any way involving: 1. nuclear reaction, radiation or contamination regardless of causes; 2. pollutants, including but not limited to loss arising out of any: a. request, demand or order that any of the Insureds or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants, or b. claim by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing or in any way responding to or assessing the effects of pollutants; Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed . XIII. CONDITIONS No action shall be taken against the Insurer unless, as a condition precedent, there shall have been full compliance with all the provisions of this Policy, nor until the amount of the Insureds obligation to pay shall have been finally determined either by final and nonappealable judgement against the Insureds after trial, or by written agreement of the Insureds, the claimant and the Insurer. RENEWAL APPLICATION FOR DIRECTORS AND OFFICERS LIABILITY INSURANCE NOTICE THIS IS AN APPLICATION FOR A CLAIMS-MADE POLICY WHICH, SUBJECT TO ITS PROVISIONS, APPLIES ONLY TO ANY CLAIM FIRST MADE AGAINST THE DIRECTORS AND OFFICERS DURING THE POLICY PERIOD. NO COVERAGE EXISTS FOR CLAIMS 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. DEFENSE COSTS SHALL BE SUBJECT TO THE RETENTION AMOUNTS. PLEASE REVIEW THE POLICY CAREFULLY AND DISCUSS THE COVERAGE WITH YOUR INSURANCE AGENT OR BROKER. INSTRUCTIONS FOR COMPLETING THIS APPLICATION Please read the instructions carefully, and complete and submit all requested Information and required attachments. Please note that terms appearing in bold face in the above Notice and in any Application Question below are defined in the Policy and shall have the same meaning in this Application as in the Policy. This Application and all materials submitted or required shall be held in confidence. Questions 3 and 4 need not be answered if the information requested is contained in any required attachments. REQUIRED ATTACHMENTS: 1. All proxy statements and Notices of Annual Meeting to Stockholders within the last twelve months 2. Audited financial statements for the most recent three fiscal years 3. The latest interim financial statements 4. The indemnification provisions of the charter and bylaws 5. Any filings made to the SEC within the last 12 months Please submit this Application to: CNA INSURANCE COMPANIES FINANCIAL INSURANCE DIVISION - 20 SOUTH CNA PLAZA CHICAGO, ILLINOIS 60685 (312) ANY PERSON WHO, WITH INTENT TO DEFRAUD OR KNOWING THAT (S)HE IS FACILITATING A FRAUD AGAINST AN INSURER, SUBMITS AN APPLICATION OR FILES A CLAIM CONTAINING A FALSE OR DECEPTIVE STATEMENT MAY BE GUILTY OF INSURANCE FRAUD. 1. Named Entity: Richardson Electronics, Ltd. Street Address: 40W267 Keslinger Road City: LaFox State: IL Zip Code: 60147 Telephone: (708) 208-2200 2. The Officer designated by the Entity to receive notices from the Insurer concerning this Insurance is: Leonard R. Prange, Vice President & CFO Questions 3 and 4 Need Not be Answered if the Information Requested is Contained in the Required Attachments 3. Has there been any material change in the nature of the operations within the last 12 months? No If "Yes", provide details; 4. Stock Ownership of Named Entity Class B Common a.Total number of common shares outstanding: 8,039,727 3,247,543 b.Total number of common shareholders: 732 47 c.Total number of common shares owned directly or beneficially by Directors: 6,556,591 3,273,877 d.Total number of common shares owned directly or beneficially by Officers who are not Directors 282,866 1,174 e.Does any shareholder own directly or beneficially five percent or more of the common shares? Yes If "Yes", designate name and percentage of holdings: See attached Include by attachment the information above (item.a-e) for any additional classes of voting stock. f.Are there any other securities convertible to voting stock? Yes If "Yes", provide details: 7-1/4% Convertible Subordinated Debentures due Dec. 15, 2006 convertible into 3,583,161 shares of common stock at a conversion price of $21.14 per share. 5. Have there been any changes in senior management (Board Chairman, President, Executive Vice President, etc.) in the last 12 months? No If "Yes", provide details: Attached is list of officers and directors 6. By attachment to this Application, provide the following information for any Subsidiary acquired or created after the effective date of the current Policy: a. Name d. Nature of business b. Date of acquisition e. Domestic or foreign c. Percent of ownership f. Name of parent entity See attached subsidiary list 7. During the last 12 months, has the Entity been involved in, or is it presently considering, any merger, consolidation, acquisition, tender offer, or divestment or sale of its stock in excess of 10% of the total stock outstanding? Yes If "Yes" provide details: See attached press releases 8. Has the Entity filed, or contemplated filing, a registration statement with the Securities and Exchange Commission: a. within the past 12 months? No b. within the next 12 months? No If "Yes", to either of the above, provide details and furnish a copy of such registration statement if available. 9.a. Within the last 12 months has the Named Entity or any Subsidiary made or joined in a Schedule 13-D filing with the Securities and Exchange Commission with respect to ownership of the securities of another corporation? Yes If "Yes", provide details. See Attached Schedule 13D b. Within the last 12 months, has the Named Entity or any Subsidiary become aware that any person, corporation or other entity has made a Schedule 13-D filing with respect to the ownership of the securities of the Named Entity or any Subsidiary? Yes If "Yes", provide details. See attached schedules 10. Please provide the following insurance information: Per your files. a. Pension/Fiduciary Liability Limit Carrier Expir Date b. Commercial Crime/Fidelity Limit Carrier Expir Date c. General Liability Limit Carrier Expir Date 11. During the last 12 months has the Entity or any of the Directors and Officers been involved in any of the following: a. any anti-trust, copyright or patent litigation? Yes b. any civil or criminal action or administrative proceeding charging a violation of any federal or state security law or regulation? No c. any representative actions, class actions or derivative suits? Yes d. other material litigation? No If "Yes", to any of the above, please attach full details. Per your files 12. The undersigned declares that to the best of his/her knowledge the statements set forth herein are true and correct and that reasonable efforts have been made to obtain sufficient information from all of the Directors and officers to facilitate the proper and accurate completion of this Application for the proposed Policy. Signing of this Application does not bind the undersigned to complete the insurance, but it is agreed that this Application shall be the basis of the contract should a Policy be issued, and this Application will be attached to and become part of such Policy. The undersigned agrees that if after the date of this Application and prior to the effective date of the Policy, any occurrence, event or other circumstance should render any of the information contained in this Application inaccurate or incomplete, then the undersigned shall notify the Insurer of such occurrence, event or circumstance and shall provide the Insurer with information that would complete, update or correct the information contained in this Application. Any outstanding quotations may be modified or withdrawn at the sole discretion of the Insurer. 13. It is agreed that this Renewal Application and all Application(s) for all policies issued by the Insurer of which the proposed Policy would be a direct or indirect renewal or replacement, copies of which will be attached to the proposed Policy, and any materials submitted or required (which shall be maintained on file by the Insurer and be deemed attached as if physically attached to the proposed Policy), are true and are the basis of the proposed Policy and are to be considered as incorporated into and constituting a part of the proposed Policy. 14. The information requested in this Application is for underwriting purposes only and does not constitute notice to the Insurer under any Policy of a Claim or potential claim. All such notices must be submitted to the Insurer pursuant to Section VII of the Policy. The undersigned acknowledges that he or she is aware that Defense Costs reduce and may exhaust the Limit of Liability. The Insurer is not liable for any Loss (which includes Defense Costs) in excess of the Limit of Liability. This Application must be signed by the Chairman of the Board or President. Signed Edward J. Richardson Title Chairman and President Corporation Richardson Electronics, Ltd. Date March 8, 1994 A POLICY CANNOT BE ISSUED UNLESS THE APPLICATION IS PROPERLY SIGNED AND DATED EX-10.S4 7 EXHIBIT 10(s)(4) CONSENT TO ASSIGNMENT AND ASSIGNMENT This Consent to Assignment and Assignment ("Consent and Assignment") is entered into by and between Varian Associates, Inc., a Delaware corporation ("Varian") and Richardson Electronics, Ltd., a Delaware corporation ("Richardson"). WHEREAS, Varian has entered into a stock sale agreement dated June 9, 1995 ("Stock Agreement") pursuant to which Varian will transfer substantially all of the assets of Varian's Electron Devices business, including those of Varian's Power Grid Tube Products business unit, to Communications & Power Industries, Inc., a Delaware corporation, a wholly-owned subsidiary ("Assignee"), and sell the stock of Assignee to CPII Acquisition Corp., a Delaware corporation ("Buyer"); and WHEREAS, Varian desires to assign to Buyer all of Varian's right title and interest in that certain Distributor Agreement executed by and between Varian and Richardson on August 9, 1991, and as subsequently amended ("Distributor Agreement"), and all purchase orders, purchase contracts and order releases thereunder ("Contracts"). NOW, THEREFORE, Richardson hereby consents to the assignment by Varian to Assignee of all of Varian's right title and interest in the Distributor Agreement and the Contracts, such assignment to become effective upon execution of this Consent and Assignment by the parties hereto, and consummation and closing of the transaction contemplated by the Stock Agreement. Nothing herein shall be held or construed to release Varian from any liability whatsoever under the Distributor Agreement or Contracts or from its covenants, agreements and obligations thereunder, but Richardson may have such remedies against Varian (including, without limitation, liquidated damages as provided in the Distributor Agreement) in the same manner as if the herein consented to assignment had not been made. It is further agreed that the taking by Richardson of any remedy against Assignee shall not preclude Richardson from the exercise of such remedy against Varian, but Richardson may have the same remedy against Varian and Assignee at the same or different times, but Richardson shall be limited to satisfaction in the aggregate only to the debts or obligations that may accrue under or by virtue of the Distributor Agreement or Contracts. IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto have executed this Consent and Assignment. VARIAN ASSOCIATES, INC. RICHARDSON ELECTRONICS, LTD. By: Joseph B. Phair By: Edward J. Richardson Title: Vice President, General Title: Chairman & President Counsel and Secretary Signature: /s/ Joseph B. Phair Signature:/s/Edward J Richardson Date: August 4, 1995 Date: July 27, 1995 EX-11 8 Exhibit 11 Richardson Electronics, Ltd. and Subsidiaries Computation of Net Income per Share Net income (loss) per share for 1995, 1994 and 1993 was computed by dividing net income (loss) by the weighted average number of common and common share equivalents outstanding. The treasury stock method was applied to those stock options that would have a dilutive effect on net income per share. The average market price of the Company's stock was used in determining primary income per share, while the year-end market price (if greater than the average market price) was used in determining fully diluted net income per share. The Company's 7 1/4% convertible debentures have not been included in the calculation of income per share because their effect would be anti-dilutive. Fully diluted income per share has not been presented on the face of the income statement because it does not differ significantly from primary income per share for each year. (Shares and amounts in thousands) 1995 1994 1993 -------- -------- -------- Primary net income (loss) per share: Weighted average shares outstanding 11,425 11,285 11,251 Effect of dilutive stock options 141 14 84 -------- -------- -------- Total 11,566 11,299 11,335 ======== ======== ======== Net income (loss) before extraordinary item $ 2,481 $(19,809) $ 2,802 Extraordinary gain on bond repurchase 527 -- -- -------- -------- -------- Net income (loss) $ 3,008 $(19,809) $ 2,802 ======== ======== ======== Per share amounts: Net income (loss) before extra- ordinary item $ .21 $ (1.75) $ .25 Extraordinary gain on bond repurchase .05 -- -- -------- -------- -------- Net income (loss) per share $ .26 $ (1.75) $ .25 ======== ======== ======== Fully diluted net income per share: Weighted average shares outstanding 11,425 11,285 11,251 Effect of dilutive stock options 174 14 98 -------- -------- -------- Total 11,599 11,299 11,349 ======== ======== ======== Net income (loss) before extra- ordinary item $ 2,481 $(19,809) $ 2,802 Extraordinary gain on bond repurchase 527 -- -- -------- -------- -------- Net income (loss) $ 3,008 $(19,809) $ 2,802 ======== ======== ======== Per share amounts: Net income (loss) before extra- ordinary item $ .21 $ (1.75) $ .25 Extraordinary gain on bond repurchase .05 -- -- -------- -------- -------- Net income (loss) per share $ .26 $ (1.75) $ .25 ======== ======== ======== EX-13 9 The following portions of the Company's Annual Report to Stockholders for the Year Ended May 31, 1995 are incorporated by reference. The page numbers as indicated are the same as the printed copy which was distributed to the shareholders. Five-Year Financial Review
Statement of Operations Data Year Ended May 31 (in thousands, except per share amounts) 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Net sales $208,118 $172,094 $159,215 $158,789 $161,146 Cost of products sold 148,085 124,703 111,620 109,600 115,401 Other charges -- 26,500 -- -- 20,000 Selling, general and administrative expenses 53,374 41,226 38,070 40,947 41,890 Other expense, net 4,028 5,874 5,023 5,385 8,397 -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item 2,631 (26,209) 4,502 2,857 (24,542) Income tax provision (benefit) 150 (6,400) 1,700 1,150 (8,329) -------- -------- -------- -------- -------- Income (loss) before extraordinary item 2,481 (19,809) 2,802 1,707 (16,213) Extraordinary gain on bond repurchase 527 -- -- 2,290 -------- -------- -------- -------- -------- Net income (loss) $ 3,008 $(19,809) $ 2,802 $ 1,707 $(13,923) ======== ======== ======== ======== ======== Net income (loss) per share: Before extraordinary item $ .21 $ (1.75) $ .25 $ .15 $ (1.46) Extraordinary gain on bond repurchase .05 -- -- .21 -------- -------- -------- -------- -------- Net income (loss) per share $ .26 $ (1.75) $ .25 $ .15 $ (1.25) ======== ======== ======== ======== ======== Dividends per common share $ .16 $ .16 $ .16 $ .16 $ .16 ======== ======== ======== ======== ======== Balance Sheet and Other Data May 31 (dollars in thousands) 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Receivables $ 42,768 $ 34,901 $ 30,267 $ 27,488 $ 26,711 Inventories 81,267 73,863 86,955 84,427 88,661 Working capital, net 106,235 96,494 103,987 103,165 97,332 Investments 7,070 17,836 29,080 28,785 31,056 Property, plant and equipment, net 16,388 16,932 36,242 39,328 42,013 Total assets 173,514 179,467 205,043 205,837 214,723 Long-term debt 79,647 86,421 98,855 101,456 103,163 Stockholders' equity 56,154 52,573 75,417 76,009 73,383 Employees at May 31 540 654 683 655 693 Stockholders 758 785 778 819 789 In 1995, the Company recorded a charge of $4,700,000 for the settlement of a U. S. Government claim related to a 1989 contract. In 1994, the Company established a $26,500,000 provision, including $21,400,000 for the estimated costs of a plan to dispose of its manufacturing operations in Brive, France, and $5,100,000 for incremental costs related to a provision established in 1991. The 1991 charge provided $20,000,000 for the estimated costs of the settlement of a Department of Justice investigation and related matters and the phase-down of domestic manufacturing operations.
Page 10 Management's Discussion and Analysis Results of Operations Sales and Gross Margin Analysis The Company is a value-added distributor of electronic components, considered to be one industry segment. The marketing and sales organization of the Company is divided into 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 1995 were a record $208.1 million. Sales and gross margin by SBU are presented in the following table. Gross margin for each SBU reflects the distribution product margin less overstock and other inventory reserves. Manufacturing variances and miscellaneous costs are included under the caption "other". Sales (in thousands) 1995 % 1994 % 1993 % -------- ----- -------- ----- -------- ----- EDG $105,454 50.7 $ 91,736 53.2 $ 97,846 61.4 SSC 52,409 25.2 42,274 24.6 31,619 19.9 DPG 36,502 17.5 27,150 15.8 19,076 12.0 SSD 13,753 6.6 10,934 6.4 10,674 6.7 -------- ----- -------- ----- -------- ----- Consolidated $208,118 100.0 $172,094 100.0 $159,215 100.0 ======== ===== ======== ===== ======== ===== Gross Margins (in thousands) 1995 % 1994 % 1993 % -------- ----- -------- ----- -------- ----- EDG $ 30,884 29.3 $ 27,897 30.4 $ 31,894 32.6 SSC 16,416 31.3 14,117 33.4 11,213 35.5 DPG 12,463 34.1 9,090 33.5 6,598 34.6 SSD 3,037 22.1 2,468 22.6 2,360 22.1 -------- -------- -------- Total 62,800 30.2 53,572 31.1 52,065 32.7 -------- -------- -------- Other (2,767) (6,181) (4,470) -------- -------- -------- Consolidated $ 60,033 28.8 $ 47,391 27.5 $ 47,595 29.9 ======== ========= ========= On a geographic basis, the Company categorizes its sales by destination: North America, Europe and Rest of World. Sales and product margin by geographic area were as follows (product margins exclude inventory and manufacturing provisions, which are not practical to identify by area): Sales (in thousands) 1995 % 1994 % 1993 % -------- ----- -------- ----- -------- ----- North America $123,508 59.4 $102,870 59.8 $ 93,724 58.8 Europe 46,071 22.1 37,699 21.9 35,942 22.6 Rest of World 38,539 18.5 31,525 18.3 29,549 18.6 -------- ----- -------- ----- -------- ----- Consolidated $208,118 100.0 $172,094 100.0 $159,215 100.0 ======== ===== ======== ===== ======== ===== Product Margins (in thousands) 1995 % 1994 % 1993 % -------- ----- -------- ----- -------- ----- North America $ 37,489 30.4 $ 32,845 31.9 $ 31,730 33.9 Europe 15,163 32.9 12,529 33.2 12,723 35.4 Rest of World 11,325 29.4 9,944 31.5 9,544 32.3 -------- -------- -------- Consolidated $ 63,977 30.7 $ 55,318 32.1 $ 53,997 33.9 ======== ======== ======== Sales growth in all three areas exceeded 20% in 1995, while product margins increased at a slightly slower pace. International sales were negatively im- pacted in 1993 and 1994 by economic conditions, particularly in Europe, and by changes in exchange rates as the U. S. dollar strengthened. Approximately 39% of the Company's sales are denominated in currencies other than the U. S. dollar. Foreign exchange rate changes increased these sales by an average of 5% in 1995 and reduced them by 9% in 1994. Sales and gross margin trends are analyzed for each strategic business unit in the following sections. Electron Device Group EDG realized sales gains of 15% in 1995, successfully reversing the previous trend. The vacuum tube industry, in which EDG operates, is characterized by mature products, the emergence of tube rebuilders, and vigorous price competition. Several initiatives contributed to provide new growth areas for EDG. A primary factor was greater emphasis on overseas markets, as international sales increased at a 19% rate, now accounting for 57% of EDG's sales. Additionally, the group expanded its sales force serving the medical electronics replacement market. Demand in the medical/replacement market for x- ray, computed tomography (CT), medical resonance imaging (MRI) and radiation therapy components is expected to continue to increase in response to the desire to control rising medical costs. Gross margins as a percent of sales for EDG were 29.3% in 1995, compared to 30.4% in 1994 and 32.6% in 1993, reflecting increased competition, changes in product mix and, in 1995, higher costs for products previously manufactured by the Company and now purchased from the Brive, France, management group. Solid State and Components This group operates in several markets, including the rapidly growing wireless and telecommunications markets. Sales increased 24% in 1995 to $52.4 million, following a 34% increase in 1994. The reorganization and expansion of the sales force on a specialty basis in 1992 was a major factor contributing to SSC's growth. A significant portion of the sales increase represents expansion of product lines and the addition of major manufacturers of RF and microwave components to support expanding technologies. International sales, growing at a slower pace than domestic sales, represented 36%, 37% and 40% of SSC's sales in 1995, 1994 and 1993, respectively. Gross margin gains, under competitive pressure, increased at a lesser rate than sales. Page 11 Display Products Group DPG sales increased 34% in 1995 to $36.5 million, following a 42% increase in 1994. Sales growth in North America benefited from the implementation of the specialty sales force and the addition of significant new customers for major original equipment manufacturer and multi-vendor repair programs. Sales growth is expected to continue in the replacement market for cathode ray tubes and related products. The product mix for DPG is shifting from monochrome CRTs to higher-priced color CRTs, which have increased from 9% of units sold in 1993 to 11% in 1994 and 16% in 1995. During 1995, DPG established a relationship with a supplier for additional products, including flybacks, complimentary to the group's line of CRT's. Sales growth benefited from the addition of these new products. International sales represented 35%, 33% and 30% of DPG's sales in 1995, 1994 and 1993, respectively. Security Systems Division SSD operates in the rapidly expanding closed-circuit television market. The Company made a substantial investment in SSD in 1995, doubling the size of its sales staff. This strategy contributed to the 26% sales growth in 1995, and is expected to accelerate growth in 1996. International sales, primarily in Canada, represented 40% of SSD's sales in 1995 and 1994, and 34% in 1993. Cost of Sales, Gross Margins and Other Charges The following table reconciles product margins on distribution activities to gross margins reported in the Statements of Operations: (% of sales) 1995 1994 1993 ------- ------- ------- Product margin on distribution 30.7 % 32.1 % 33.9 % Manufacturing variances and warranty costs (0.5) (2.9) (2.2) Overstock provisions (0.5) (0.9) (0.8) Other costs (0.9) (0.8) (1.0) ------- ------- ------- Gross margin 28.8 % 27.5 % 29.9 % ======= ======= ======= Fluctuations in distribution margins reflect the effects of higher product costs, foreign exchange rate variations, and changes in product mix. Average selling prices, excluding the effects of foreign currency changes, declined 1.1% in 1995 and increased 0.7% in 1994. For several years prior to 1995, gross margins were negatively impacted by underutilization of capacity, manufacturing inefficiencies and manufactured product warranties. As a result, management developed a plan to phase down its involvement in manufacturing. In 1994, the Company recorded a charge of $26.5 million to provide for this phase-down, including $21.4 million for asset write- downs and costs related to a plan to divest the Company's Brive, France, operations. The balance, $5.1 million, was for the phase-down of domestic manufacturing operations. Ownership of the Brive facility was transferred to local management in 1995 and the manufacturing phase-down was completed with no additional charges required in 1995. Details of management's plan and the related costs are presented in Note B to the accompanying consolidated financial statements. Gross margins increased to 28.8% of sales in 1995, primarily due to the elimination of manufacturing inefficiencies. In May 1995, under an agreement with the United States Department of Justice (DOJ), the Company paid $4.7 million in return for the release of monetary claims related to a 1989 contract for certain night-vision tubes. The original claim was in excess of $11 million. Selling, General and Administrative Expenses Selling, general and administrative expenses represented 23.4% of sales in 1995, 24.0% in 1994 and 23.9% in 1993. At $48.7 million, 1995 expenses increased $7.5 million over 1994, reflecting the expansion of the SSC, SSD and international sales forces, as well as translation of foreign denominated expenses into weaker U.S. dollars and incentive payments on increased gross margins. Other (Income) Expense Interest expense declined 15% in 1995 due to the elimination of the debt on the Company's facility in Brive, France. Title to this facility was transferred to the mortgage holder in exchange for cancellation of the debt. Investment income was $1.9 million in 1995, $2.4 million in 1994 and $3.2 million in 1993. Investment income declined in 1995 and 1994, reflecting lower investment levels and lower realized capital gains. The remaining other (income) expense is primarily the result of foreign exchange (gains) losses, which were $(0.3) million in 1995, $0.6 million in 1994 and $0.5 million in 1993. Income Tax Provision The effective tax rates were 6% in fiscal 1995, 24% in 1994 and 38% in 1993. The 1995 rate differs from the U. S. statutory rate of 34% as a result of the carryback of the $4.7 million DOJ settlement to prior years with a 46% statutory rate. The 1994 rate differs from the 34% U. S. statutory rate primarily as a result of the provision for the disposition of the Company's French manufacturing operations, which for financial reporting purposes resulted in a U. S. tax benefit at a lower rate (See Note F to the accompanying consoli- dated financial statements). The rate in 1993 was higher than the federal statutory rate due to state income taxes and foreign net operating losses for which no benefit was realized. Page 12 Net Income (Loss) and per Share Data Net income was $3.0 million or $.26 per share in 1995, including the effect of an extraordinary gain of $.5 million, net of tax, or $.05 per share on the repurchase of a portion of the Company's convertible debentures, and a charge of $2.3 million, net of tax, for the settlement of the DOJ claim. The net loss of $19.8 million or $1.75 per share in 1994 includes the provision for the phase- down of manufacturing operations, which had an after-tax effect of $19.5 million, or $1.73. Net income in 1993 was $2.8 million or $.25 per share. Financial Condition Liquidity Liquidity is provided by the operating activities of the Company, adjusted for non-cash items, and is reduced by working capital requirements, debt service, and capital equipment acquisitions. Cash provided by operations, exclusive of working capital requirements, was $7.9 million in fiscal 1995, $5.8 million in 1994 and $9.1 million in 1993. Higher working capital requirements of $14.6 million in 1995, $8.1 million in 1994 and $3.1 million in 1993 and debt service and dividend payments were met from cash generated by operations, liquidation of investments and additional borrowings. Working capital requirements included higher receivables and inventories to support rising sales. The Company's market niche as a distributor of electron tubes and semiconductors for replacement results in relatively high levels of inventory due to the nature of the product carried and the markets served. Many of these products represent trailing-edge technology which may not be available from other sources, and may not be currently manufactured. Also, in many cases, the products are components of production equipment for which immediate availability is critical to the customer. Working capital requirements in 1995 also included $6.3 million for severance and other costs related to the disposition of the Company's Brive manufacturing facility. Working capital requirements in 1994 included $2.0 million for the payment of an IRS tax settlement. The Company has proposed a plan to the Illinois Environmental Protection Agency to monitor and process groundwater contaminated by certain solvents as a result of handling practices previously employed at the LaFox facility. Costs of remediation are not presently determinable, but are not anticipated to be material. Financing In May 1995, the Company borrowed $8.0 million from its principal bank by issuing an unsecured promissory note due August 31, 1995. The proceeds were used to pay the $4.7 million DOJ settlement and to repurchase a portion of the Company's 7 1/4% convertible debentures. During 1996, the Company anticipates re-negotiating and consolidating its bank term loan and $8 million note under a new credit agreement. The indenture related to the Company's 7 1/4% convertible debentures, contain certain restrictions relating to the purchase of treasury stock and the payment of cash dividends. At May 31, 1995, $2.9 million was free of such restrictions. Payment of dividends will be considered quarterly. Investments At May 31, 1995, the Company's non-current investments were approximately $7.1 million. Management regularly monitors its investment portfolio per- formance, including its high-yield bonds. These funds are being maintained for corporate purposes, including short-term operating needs and strategic acquisitions of product lines or businesses. Currency Fluctuations The Company's foreign denominated assets and liabilities are cash, accounts receivable and accounts payable, primarily in member countries of the European community, and, to a lesser extent, in Canada, Singapore and Japan. The Company monitors its foreign exchange exposures and may enter into forward contracts to hedge significant transactions. Other tools which may be used to manage foreign exchange exposures include the use of currency clauses in sales contracts and the use of local debt to offset asset exposures. Page 13 Consolidated Balance Sheets May 31 (in thousands) 1995 1994 --------- --------- Assets Current assets Cash and equivalents $ 11,151 $ 9,739 Receivables, less allowance of $1,385 and $1,405 42,768 34,901 Inventories - Note A 81,267 73,863 Assets held for disposition, less valuation reserve of $ 15,832 - Note B -- 10,274 Other 8,762 8,190 -------- -------- Total current assets 143,948 136,967 Investments - Note D 7,070 17,836 Property, plant and equipment, net - Note A 16,388 16,932 Other assets - Note A 6,108 7,732 -------- -------- Total assets $173,514 $179,467 ======== ======== Liabilities and stockholders' equity Current liabilities Accounts payable $ 16,695 $ 10,925 Liabilities related to disposition - Note B -- 15,842 Accrued liabilities - Note G 11,161 11,839 Short-term debt and current maturities of long-term debt - Note E 9,857 1,867 -------- -------- Total current liabilities 37,713 40,473 Long-term debt, less current portion - Note E 79,647 86,421 -------- -------- Total liabilities 117,360 126,894 Stockholders' equity - Notes E and H Common Stock, $.05 par value 411 403 Class B Common Stock, convertible, $.05 par value 162 162 Preferred Stock, $1.00 par value -- -- Additional paid-in capital 49,989 49,352 Retained earnings 6,141 4,912 Foreign currency translation adjustment (686) (2,383) Market appreciation on investments, net of tax - Note D 137 127 -------- -------- Total stockholders' equity 56,154 52,573 -------- -------- Total liabilities and stockholders' equity $173,514 $179,467 ======== ======== See notes to consolidated financial statements. Page 14 Consolidated Statements of Operations Year Ended May 31 (in thousands, except per share amounts) 1995 1994 1993 -------- -------- -------- Net sales $208,118 $172,094 $159,215 Costs and expenses: Cost of products sold 148,085 124,703 111,620 Other charges - Note B -- 26,500 -- Selling, general and administrative expenses 53,374 41,226 38,070 -------- -------- -------- 201,459 192,429 149,690 -------- -------- -------- Operating income (loss) 6,659 (20,335) 9,525 Other (income) expense: Interest expense 6,473 7,631 7,676 Investment income - Note D (1,863) (2,442) (3,216) Other (582) 685 563 -------- -------- -------- 4,028 5,874 5,023 -------- -------- -------- Income (loss) before income taxes and extraordinary item 2,631 (26,209) 4,502 Income tax provision (benefit) - Note F 150 (6,400) 1,700 -------- -------- -------- Income (loss) before extraordinary item 2,481 (19,809) 2,802 Extraordinary gain on bond repurchase, net of income taxes of $337 - Note E 527 -- -- -------- -------- -------- Net income (loss) $ 3,008 $(19,809) $ 2,802 ======== ======== ======== Net income (loss) before extraordinary item $ .21 $ (1.75) $ .25 Extraordinary gain on bond repurchase .05 -- -- -------- -------- -------- Net income (loss) per share $ .26 $ (1.75) $ .25 ======== ======== ======== Average shares outstanding 11,566 11,299 11,335 ======== ======== ======== Dividends per common share $ .16 $ .16 $ .16 ======== ======== ======== See notes to consolidated financial statements. Page 15 Consolidated Statements of Cash Flows Year Ended May 31 (in thousands) 1995 1994 1993 -------- -------- -------- Operating Activities: Net income (loss) $ 3,008 $(19,809) $ 2,802 Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: Depreciation 2,669 4,753 5,150 Amortization of intangibles and financing costs 427 964 1,353 Deferred income taxes 1,310 (6,717) (309) Stock contribution to employee ownership plan 500 125 125 Phase-down of manufacturing operations - Note B -- 26,500 -- -------- -------- -------- Net adjustments 4,906 25,625 6,319 -------- -------- -------- Net income (loss) adjusted for non-cash items 7,914 5,816 9,121 Changes in working capital, net of effects of currency translation: Receivables (7,215) (5,132) (3,182) Inventories (5,600) 1,197 (3,574) Other current assets (429) (928) 1,105 Accounts payable 5,079 (770) 1,728 Accrued liabilities (6,437) (2,485) 812 -------- -------- -------- Net changes in working capital (14,602) (8,118) (3,111) -------- -------- -------- Net cash (used in) provided by operating activities (6,688) (2,302) 6,010 -------- -------- -------- Financing Activities: Proceeds from borrowings 8,000 13,770 6,390 Payments on debt (6,784) (16,641) (8,811) Proceeds from sale of common stock 145 71 118 Cash dividends (1,779) (1,754) (1,749) -------- -------- -------- Net cash used in financing activities (418) (4,554) (4,052) -------- -------- -------- Investing Activities: Sales of investments 22,118 29,796 23,243 Purchases of investments (11,335) (18,343) (23,538) Capital expenditures (2,703) (2,164) (2,313) Other 438 208 (325) -------- -------- -------- Net cash provided by (used in) investing activities 8,518 9,497 (2,933) -------- -------- -------- Increase (decrease) in cash and equivalents 1,412 2,641 (975) Cash and equivalents at beginning of year 9,739 7,098 8,073 -------- -------- -------- Cash and equivalents at end of year $ 11,151 $ 9,739 $ 7,098 ======== ======== ======== See notes to consolidated financial statements. Page 16 Consolidated Statements of Stockholders' Equity
Shares Issued -------------- Additional Market (shares and dollars Class B Par Paid-in Retained Foreign Appre- in thousands) Common Common Value Capital Earnings Currency ciation Total ------ ------ ------ ------- ------- ------- ------- ------- Balance June 1, 1992 7,987 3,248 $ 561 $48,917 $25,422 $ 1,109 $ -- $76,009 Shares contributed to ESOP - Note I 15 -- 1 124 -- -- -- 125 Shares issued under ESPP and stock option plan - Note H 17 -- 1 117 -- -- -- 118 Dividends -- -- -- -- (1,749) -- -- (1,749) Currency translation -- -- -- -- -- (1,888) -- (1,888) Net income -- -- -- -- 2,802 -- -- 2,802 ------ ------ ------ ------- ------- ------- ------- ------- Balance May 31, 1993 8,019 3,248 563 49,158 26,475 (779) -- 75,417 Shares contributed to ESOP - Note I 20 -- 1 124 -- -- -- 125 Shares issued under ESPP and stock option plan - Note H 17 -- 1 70 -- -- -- 71 Dividends -- -- -- -- (1,754) -- -- (1,754) Currency translation -- -- -- -- -- (1,604) -- (1,604) Cumulative effect of adoption of FASB statement 115 - Note D -- -- -- -- -- -- 127 127 Net loss -- -- -- -- (19,809) -- -- (19,809) ------ ------ ------ ------- ------- ------- ------- ------- Balance May 31, 1994 8,056 3,248 565 49,352 4,912 (2,383) 127 52,573 Shares contributed to ESOP - Note I 133 -- 7 493 -- -- -- 500 Shares issued under ESPP and stock option plan - Note H 35 -- 1 144 -- -- -- 145 Conversion of Class B shares to common shares 1 (1) -- -- -- -- -- -- Dividends -- -- -- -- (1,779) -- -- (1,779) Currency translation -- -- -- -- -- 1,697 -- 1,697 Market appreciation - Note D -- -- -- -- -- -- 10 10 Net loss -- -- -- -- 3,008 -- -- 3,008 ------ ------ ------ ------- ------- ------- ------- ------- Balance May 31, 1995 8,225 3,247 $ 573 $49,989 $ 6,141 $ (686) $ 137 $56,154 ====== ====== ====== ======= ======= ======= ======= =======
See notes to consolidated financial statements. Page 17 Notes to Consolidated Financial Statements 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. Cash Equivalents: The Company considers short-term investments that have a maturity of three months or less, when purchased, to be cash equivalents. The carrying amounts reported in the balance sheet for cash and equivalents approximate the fair market value of these assets. Inventories: Inventories are stated at the lower of cost or market. Inventory costs determined using the last-in, first-out (LIFO) method represent 84% and 78% of total inventories at May 31, 1995 and 1994, respectively. The remaining inventories are costed on the first-in, first-out (FIFO) method. If the FIFO method, which approximates current costs, had been used for all inventories, the total amount of inventories would have been increased by $5,742,000 and $5,653,000 at May 31, 1995 and 1994, respectively. Substantially all inventories represent finished goods held for sale. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Provisions for depreciation are computed principally using the straight- line method for financial reporting purposes and accelerated methods for income tax purposes. Property, plant and equipment consist of the following: May 31 (in thousands) 1995 1994 --------- --------- Land and improvements $ 2,741 $ 2,618 Buildings and improvements 18,068 18,508 Machinery and equipment 20,039 20,482 --------- --------- Property at cost 40,848 41,608 Accumulated depreciation (24,460) (24,676) --------- --------- Property, net $ 16,388 $ 16,932 ========= ========= Other assets: Goodwill and other deferred charges are amortized using the straight-line method over the expected economic life of the assets. Deferred financing costs are amortized over the term of the related indebtedness by the interest method. Deferred income taxes reverse as benefits are realized. Other assets consist of the following: May 31 (in thousands) 1995 1994 --------- --------- Deferred income taxes $ 2,137 $ 3,405 Deferred financing costs 2,634 2,634 Goodwill 3,740 3,651 Other deferred charges 1,604 1,609 --------- --------- Other assets at cost 10,115 11,299 Accumulated amortization (4,007) (3,567) --------- --------- Other assets, net $ 6,108 $ 7,732 ========= ========= Foreign Currency Translation: Foreign currency transactions and financial statements are translated into U. S. dollars at current rates, except that revenues, costs and expenses are translated at average rates during each reporting period. Gains and losses resulting from foreign currency transactions are included in income currently. Foreign currency transaction gains (losses) reflected in operations were $316,000, $(607,000), and $(480,000) in 1995, 1994, and 1993, respectively. Gains and losses resulting from translation of foreign financial statements are credited or charged directly to a separate component of shareholders' equity. Revenue Recognition: Revenues are recorded upon shipment. Income taxes: Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted marginal tax rates. Earnings per Share: Earnings per share are based on the weighted average number of Common and Class B Common shares outstanding and share equivalents that would arise from the exercise of stock options. The 7 1/4% Convertible Subordinated Debentures were not included as share equivalents because the effect of conversion would be anti-dilutive. Reclassifications: Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform to the 1995 presentation. Note B -- Other Charges In March, 1994, the Company announced that the U. S. Department of Justice of approximately $11 million under the False Claims Act and the Lanham Act in connection with a Department of Defense contract for night-vision tubes that was completed in 1989. In May, 1995 the Company reached an agreement with the DOJ and paid $4.7 million to the Government in return for a release of monetary claims in connection with the contract. In 1994, the Company recorded a charge of $26,500,000 to provide for the costs and asset write-downs from the phase-down of its involvement in manufacturing operations. Of the charge, $21,400,000 consisted of the write-down of assets to net realizable value and the accrual of severance and other costs associated with disposition of the Company's Brive, France facility. The balance of the charge, $5,100,000, related to the phase-down of domestic manufacturing operations. In 1995, the Company transferred ownership of the Brive operations to local management, and ownership of the Brive land and building was returned to the City of Brive, in exchange for release from the related mortgage obligation. The costs incurred were consistent with the provision made in 1994, and no further charges were recorded in 1995. Page 18 The assets, adjusted to net realizable value, and the liabilities of the French manufacturing operations were segregated and classified as current assets and liabilities in the consolidated balance sheet at May 31, 1994. The phase-down of domestic operations was substantially completed in 1995, except for the Panache litigation described in Note K and clean-up costs and environmental monitoring related to handling practices previously employed for certain solvents at the Company's LaFox, Illinois facility. The Company has proposed a plan to the Illinois Environmental Protection Agency to monitor and process groundwater at the LaFox facility. Costs of remediation are not presently determinable, but are not anticipated to be material. Note C -- Marketing Agreements The Company has entered into several marketing distribution agreements with various manufacturers in the electron tube and semiconductor businesses. The most significant is a distribution agreement with the Electron Device Group of Varian Associates, Inc. Product sales under this distribution agreement accounted for 17%, 18%, and 20%, of net sales of the Company in fiscal 1995, 1994, and 1993, respectively. Note D -- Investments In May 1993, the Financial Accounting Standards Board issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (the Statement). The Company adopted the provisions of the Statement for investments held as of May 31, 1994. The Statement requires investments to be classified as trading, available-for-sale or held-to-maturity. Management has determined the Company's investments are properly classified as available-for-sale. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect, at May 31, 1994, of adopting the Statement increased shareholders' equity by $127,000 (net of $82,000 in deferred income taxes) to reflect the net unrealized gains on securities classified as available-for-sale previously carried at cost. The investment portfolio at May 31, 1995 and 1994 is stated at fair value based on quoted market prices or dealers' quotes and consists of securities available-for-sale, as follows: Gross Gross Estimated Unrealized Unrealized Fair (in thousands) Cost Gains Losses Value -------- -------- -------- -------- At May 31, 1995: Corporate bonds $ 417 $ 5 $ -- $ 422 Convertible bonds 1,189 55 (113) 1,131 Other bonds 1,310 80 (36) 1,354 Equity securities 3,929 567 (333) 4,163 -------- -------- -------- -------- Total investments $ 6,845 $ 707 $ (482) $ 7,070 ======== ======== ======== ======== At May 31, 1994: Corporate bonds $ 8,357 $ 18 $ (35) $ 8,340 Convertible bonds 1,954 152 (39) 2,067 Other bonds 1,318 48 (27) 1,339 Equity securities 5,998 349 (257) 6,090 -------- -------- -------- -------- Total investments $ 17,627 $ 567 $ (358) $ 17,836 ======== ======== ======== ======== The maturity schedule for securities available-for-sale at May 31, 1995 is as follows: Estimated Fair (in thousands) Cost Value -------- -------- Due in one year or less $ 812 $ 812 Due after one year through five years 1,678 1,626 Due after five years through ten years 426 469 -------- -------- Total bonds 2,916 2,907 Equity securities 3,929 4,163 -------- -------- Total investments $ 6,845 $ 7,070 ======== ======== Interest and dividend income are accrued as earned. Gains and losses are recognized in income on the investment portfolio when securities are sold or to reflect a decline in market value estimated by management to be of a permanent nature. Investment income includes capital gains of $1,205,000 in 1995, $1,292,000 in 1994 and $1,526,000 in 1993. Of these amounts, sales of equity securities generated gains of $1,044,000, $739,000 and $1,301,000, respectively. Note E -- Debt Financing Long-term debt consists of the following: (in thousands) 1995 1994 -------- -------- 7 1/4% Convertible subordinated debentures due 2006 $ 70,825 $ 75,735 Floating-rate bank term loan due November, 1998 (7.69% at May 31, 1995) 10,679 12,536 Other -- 17 -------- -------- Total debt 81,504 88,288 Less current maturities 1,857 1,867 -------- -------- Long-term debt, net $ 79,647 $ 86,421 ======== ======== The 7 1/4% convertible subordinated debentures are unsecured and subordinated to other long-term debt. Each $1,000 debenture is convertible into the Company's Common Stock at any time prior to maturity at $21.14 per share and is redeemable by the Company at a premium through 1996. The Company is required Page 19 to make sinking fund payments on December 15 of each year from 1996 to 2005 in order to retire 75% of the original $83,000,000 issue prior to maturity, of which $12,175,000 has been repurchased and will be used to satisfy a portion of the sinking fund requirement. Sinking fund requirements for the next five years are $275,000 in fiscal 1998 and $6,225,000 in fiscal 1999 and 2000. The debenture agreement restricts the use of retained earnings for the payment of dividends or purchase of treasury stock. As of May 31, 1995, $2,921,000 was free of such restrictions. During fiscal 1995, the Company repurchased $4,910,000 at face value of its 7 1/4% convertible debentures for $3,956,000. Net of unamortized deferred financing costs of $90,000, and income taxes of $337,000, an extraordinary gain of $527,000 was recorded. In March 1994, the Company entered into a $13,000,000 term loan agreement. The proceeds of the loan were used to repay outstanding floating-rate term loans. The loan requires quarterly principal payments of $464,000 and a balloon payment at maturity in November, 1998. Financial covenants under the agreement set benchmark levels for tangible net worth, debt to tangible net worth ratio and annual debt service coverage. The Company is in compliance with such covenants at May 31, 1995. The loan bears interest at the bank's prime rate or the London Inter-Bank Offered Rate (LIBOR), adjusted based on the Company's financial performance. The Company borrowed an additional $8,000,000 in May 1995 from the same institution, due August 31, 1995 with interest at the bank's prime rate or LIBOR. During 1996, the Company anticipates renegotiating and consolidating these borrowings under a new credit arrangement. Aggregate maturities of debt during the next five years are as follows: $9,857,000 in 1996, $1,857,000 in 1997, $2,132,000 in 1998, $11,332,000 in 1999 and $6,225,000 in 2000. Cash payments for interest were $6,506,000, $7,710,000, and $7,801,000 in 1995, 1994, and 1993, respectively. In the following table, the fair value of the Company's 7 1/4% convertible debentures is based on quoted market prices. The fair value of floating-rate bank term loans is based on carrying value. (in thousands) 1995 1994 Carrying Fair Carrying Fair Value Value Value Value -------- -------- -------- -------- 7 1/4% Convertible debentures $ 70,825 $ 56,306 $ 75,735 $ 56,044 Bank term loans 18,679 18,679 12,536 12,536 Other loans -- -- 17 17 -------- -------- -------- -------- Total $ 89,504 $ 74,985 $ 88,288 $ 68,597 ======== ======== ======== ======== Note F -- Income Taxes The components of income (loss) before income taxes and extraordinary item are: (in thousands) 1995 1994 1993 -------- -------- -------- United States $ 781 $ (2,284) $ 4,282 Foreign 1,850 (23,925) 220 -------- -------- -------- Income (loss) before taxes $ 2,631 $(26,209) $ 4,502 ======== ======== ======== The differences between the provision (credit) for income taxes and income taxes computed at the federal statutory tax rate of 34% are as follows: (in thousands) 1995 1994 1993 -------- -------- -------- Federal income tax at statutory rate $ 895 $ (8,911) $ 1,531 Effect of: Claim settlement taxed at 46% carryback year statutory rate (600) -- -- Non-deductible foreign losses 180 9,036 233 Estimated U.S tax benefit on provision for disposition of French manufacturing -- (5,000) -- State income taxes, net of federal tax benefit (38) (1,203) 226 FSC benefit on export sales (273) (258) (247) Other (14) (64) (43) -------- -------- -------- Income tax provision (benefit) $ 150 $ (6,400) $ 1,700 ======== ======== ======== In 1995, due to the timing and nature of the claim settlement with the DOJ (see Note B), the Company utilized a ten year carryback provision permitted by the Internal Revenue Service (IRS). Tax benefits of $8,000,000 will be realized if the disposition of the Company's French operations is treated as an ordinary loss for federal tax purposes (see Note B). A tax benefit of $5,000,000 was recorded in 1994 based upon alternative tax strategies. In 1995, the Company submitted a request to the IRS for a private letter ruling, but was informed that the IRS has chosen not to rule on cases regarding this issue. Page 20 The provisions (credits) for income taxes before extraordinary item consist of the following: (in thousands) 1995 1994 1993 -------- -------- -------- Currently payable: Federal $ (1,930) $ 137 $ 937 State (150) -- 170 Foreign 1,250 196 885 -------- -------- -------- Total currently payable (830) 333 1,992 -------- -------- -------- Deferred: Federal 1,386 (4,455) 174 State 93 (1,822) 97 Foreign (499) (456) (563) -------- -------- -------- Total deferred 980 (6,733) (292) -------- -------- -------- Income tax provision (benefit) $ 150 $ (6,400) $ 1,700 ======== ======== ======== 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, 1995 and 1994 are as follows: Non- Current current (in thousands) Asset (1) Asset (2) -------- -------- At May 31, 1995: Deferred tax assets: Operating loss carryforward $ -- $ 4,933 Elimination of intercompany profit in inventory 1,619 -- Inventory valuation 2,557 -- Other, net 19 480 -------- -------- Deferred tax assets 4,195 5,413 Deferred tax liabilities: Accelerated depreciation -- (3,276) -------- -------- Net deferred tax $ 4,195 $ 2,137 ======== ======== At May 31, 1994: Deferred tax assets: Provision for phase-down of manufacturing operations $ -- $ 5,793 Elimination of intercompany profit in inventory 2,470 -- Inventory valuation 1,775 -- Other, net -- 625 -------- -------- Deferred tax assets 4,245 6,418 Deferred tax liabilities: Accelerated depreciation -- (3,013) -------- -------- Net deferred tax $ 4,245 $ 3,405 ======== ======== (1) Included in other current assets on the balance sheet (2) Included in other assets on the balance sheet Operating loss carryforwards primarily result from domestic losses expiring in 2009 and 2010. Net income taxes paid (refunds received) were $(361,000), $3,053,000, and $(1,792,000) in 1995, 1994, and 1993, respectively. The Company's United States federal tax returns have been audited through 1992. In June, 1996, the Company paid $1,100,000 to the IRS, including $520,000 for interest, in settlement of the 1992 tax audit. These costs had been provided for in prior years. Note G -- Accrued Liabilities Accrued liabilities consist of the following: May 31 (in thousands) 1995 1994 -------- -------- Compensation and payroll taxes $ 4,592 $ 4,178 Phase-down of manufacturing 1,212 2,598 Interest 2,511 2,544 Income taxes 530 386 Other 2,316 2,133 -------- -------- Accrued liabilities $ 11,161 $ 11,839 ======== ======== Note H -- Stockholders' Equity The Company has authorized 30,000,000 shares of Common Stock, 10,000,000 shares of Class B Common Stock, and 5,000,000 shares of Preferred Stock. The Class B Common Stock has ten votes per share and generally votes together with the Common Stock. The Class B Common Stock has transferability restrictions; however, it may be converted into Common Stock on a share-for-share basis at any time. With respect to dividends and distributions, shares of Common Stock and Class B Common Stock rank equally and have the same rights, except that Class B Common Stock is limited to 90% of the amount of cash dividends declared on Common Stock. Total Common Stock issued at May 31, 1995 was 8,224,704 shares. An additional 8,394,999 shares of Common Stock have been reserved for future issuance under the Employee Stock Purchase and Option Plans and potential conversion of the 7 1/4% 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 its fair market value. The plan has reserved 247,500 shares, of which 207,195 shares had been purchased by employees through May 31, 1995. On July 13, 1994, the Board of Directors approved the Employees 1994 Incentive Compensation Plan which authorizes the issuance of up to 500,000 shares as incentive stock options, non-qualified stock options, or stock awards. Under this plan 491,500 shares are reserved for future issuance. An additional 384,150 shares are reserved under a predecessor plan. 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. Page 21 Under a non-qualified stock option plan, 74,787 shares have been reserved for future issuance for options exercisable based on earnings performance. Additionally, 499,080 and 300,000 shares, respectively, have been reserved for future issuance to employees and directors of the Company relating to qualified 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 date of grant and expires ten years from the date of grant. The following table contains further information on the stock option plans: Incentive Stock Options 1995 1994 1993 -------- -------- -------- Outstanding, June 1 434,221 444,813 390,283 Granted 246,100 40,150 73,500 Exercised (9,000) -- -- Cancelled (50,571) (50,742) (18,970) -------- -------- -------- Outstanding, May 31 620,750 434,221 444,813 ======== ======== ======== Price range at May 31 $ 3.75 $ 6.00 $ 6.00 to to to $ 8.125 $ 8.125 $ 8.125 Exercisable at May 31 478,270 199,111 136,334 Available for grant at May 31 254,900 -- 40,907 Non-Qualified Stock Options 1995 1994 1993 -------- -------- -------- Outstanding, June 1 669,890 493,532 373,121 Granted 50,000 208,100 152,500 Cancelled (7,347) (31,742) (32,089) -------- -------- -------- Outstanding, May 31 712,543 669,890 493,532 ======== ======== ======== Price range at May 31 $ 3.75 $ 5.25 $ 7.25 to to to $ 12.95 $ 12.95 $ 12.95 Exercisable at May 31 577,229 345,026 304,823 Available for grant at May 31 161,324 204,477 380,805 Note I -- 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 3% of base pay. Charges to expense for discretionary and matching contributions to these plans were $745,000 in 1995, $740,000 in 1994 and $718,000 in 1993. Stock contributions to the ESOP were $500,000, $125,000 and $125,000 in 1995, 1994 and 1993, respectively, based on the stock price at the date contributed. Shares are included in the calculation of earnings per share, and didvends are paid to the ESOP from the date the shares are contributed. Foreign employees are covered by a variety of primarily government mandated programs. Note J -- Industry and Market Information The Company operates in one industry as a distributor of electronic components, including vacuum tubes and semiconductors. The Company invoices its customers and makes shipments from two primary geographic locations: North America (which services the U. S., Canada, Latin America, and the Far East) and Europe. (in thousands) 1995 1994 1993 -------- -------- -------- Sales: North America $186,103 $154,205 $142,197 Less intersegment transfers 15,316 13,691 12,762 -------- -------- -------- To unaffiliated customers 170,787 140,514 129,435 -------- -------- -------- Europe 49,244 40,367 36,048 Less intersegment transfers 11,913 8,787 6,268 -------- -------- -------- To unaffiliated customers 37,331 31,580 29,780 -------- -------- -------- Consolidated $208,118 $172,094 $159,215 ======== ======== ======== Operating income (loss): North America $ 6,187 $ 6,235 $ 10,700 Europe 1,984 (25,054) 399 Corporate expenses (1,512) (1,516) (1,574) -------- -------- -------- Consolidated $ 6,659 $(20,335) $ 9,525 ======== ======== ======== Identifiable assets: North America $142,031 $119,033 $120,721 Europe 21,653 35,310 48,564 Corporate assets 9,830 25,124 35,758 -------- -------- -------- Consolidated $173,514 $179,467 $205,043 ======== ======== ======== Intersegment transfers originate mainly from the United States or Europe and are accounted for on an "arm's length" basis with profits eliminated in consolidation. Export sales shipped directly from the United States were $38,653,000 in 1995, $29,667,000 in 1994, and $28,396,000 in 1993. Operating income was reduced by $4,700,000 in North America in 1995 for the payment of a claim settlement, and by $5,100,000 in North America and $21,400,000 in Europe in 1994 for the provision for phase-down of manufacturing operations, as described in Note B. Corporate assets consist primarily of cash and investments. Page 22 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. Credit losses are recorded in the financial statements based on periodic reviews of outstanding accounts and consistently have been within management's estimates. Sales by product line are summarized in Management's Discussion and Analysis. Note K -- Litigation On September 30, 1991, the Company reached a settlement with the U. S. Department of Justice (DOJ) which prohibits the Company from collecting tube carcasses otherwise available to tube rebuilders, provides certain restrictions on its dealings with Varian Associates, Inc. with respect to power grid tubes and requires the Company to obtain DOJ approval for the acquisition of any company (or its power grid tube assets) engaged in the rebuilding, manufacture, or distribution of power grid tubes, except under limited circumstances. On June 19, 1990, the Company was served with a complaint in Panache Broadcasting of Pennsylvania, Inc. v. Richardson Electronics, Ltd.; Varian Associates, Inc.; and Varian Supply Company (VASCO - a joint venture between the Company and Varian Associates, Inc.), in U. S. District Court for the Eastern Division of Pennsylvania alleging violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act. This action purports to be a class action on behalf of all persons and businesses in the U. S. "who purchased electron power tubes from one or more of the defendant corporations at any time" since the formation of VASCO. The suit seeks treble damages alleged to be in excess of $100,000, injunctive relief, and attorneys' fees. The litigation has been transferred to the U. S. District Court for the Northern District of Illinois, Eastern Division as cause No. 90C6400, and is in the discovery stage. The Court has not determined whether the action may be maintained on behalf of a class. The Company is vigorously defending itself and the VASCO joint venture against this action. While it is not possible at this time to predict the outcome of this legal action, in the opinion of management, the disposition of the lawsuit and other matters mentioned above will not have a material effect on financial position. Note L -- Selected Quarterly Financial Data (Unaudited) Summarized quarterly financial data for 1995 and 1994 follow. There were no material fourth quarter adjustments in 1995. Fourth quarter adjustments in 1994 include $675,000 in excess of original estimates for overstock inventory and $365,000 for a LIFO reserve requirement. See Note B regarding the 1995 claim settlement and the 1994 phase-down of manufacturing operations. (in thousands, except per share amounts) First Second Third Fourth -------- -------- -------- -------- 1995: Net sales $ 46,407 $ 51,008 $ 51,255 $ 59,448 Gross margin 13,503 14,570 14,673 17,287 Claim settlement -- -- -- (4,700) Income (loss) before extraordinary item 784 1,128 972 (403) Extraordinary gain on bond repurchase -- -- -- 527 Net income 784 1,128 972 124 Net income per share before extraordinary gain $ .07 $ .10 $ .08 $ (.04) Net income per share .07 .10 .08 .01 1994: Net sales $ 35,846 $ 44,200 $ 43,051 $ 48,997 Gross margin 9,963 12,027 12,099 13,302 Phase-down of manufacturing -- -- -- (26,500) Net income 60 597 258 (20,724) Net income per share $ .01 $ .05 $ .02 $ (1.83) Page 23 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, 1995 and 1994, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended May 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Richardson Electronics, Ltd. and subsidiaries at May 31, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the three years in the period ended May 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note D to the consolidated financial statements, at May 31, 1994 the Company changed its method of accounting for its investments. Ernst & Young LLP Chicago, Illinois, July 12, 1995 Stockholder Information Corporate Offices Richardson Electronics, Ltd. 40W267 Keslinger Road LaFox, Illinois 60147 Annual Meeting We encourage all stockholders to attend the annual meeting scheduled for Tuesday, October 10, 1995 at 3:15 p.m. at the Company's corporate offices. Further details are available in your proxy materials. Transfer Agent and Registrar Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 Auditors Ernst & Young LLP 233 S. Wacker Drive Chicago, Illinois 60606 Form 10K 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, LaFox, Illinois 60147. 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 Common Stock and Class B Common Stock at May 31, 1995 was 715 and 43, respectively. The quarterly market price ranges of the Company's common stock were as follows: 1995 1994 Fiscal Quarters High Low High Low -------- -------- -------- -------- First 5 1/2 3 3/4 7 3/4 6 Second 9 4 1/2 6 3/4 5 1/2 Third 8 1/2 6 5/8 6 3/4 5 3/4 Fourth 8 1/8 6 3/4 6 1/2 4 1/2 Page 24 EX-21 10 EXHIBIT 21 SUBSIDIARIES OF RICHARDSON ELECTRONICS, LTD. Name of Immediate Jurisdiction of Owner(s) and its/their Subsidiary Incorporation Percentage of Ownership Richardson Delaware Richardson International, Inc. Electronics, Ltd. 100% Richardson Virgin Islands Richardson Electronics Foreign International, Inc. Sales Corporation 100% Cetron Delaware Richardson International International, Inc. Sales Corporation 100% Richardson Canada Richardson Electronics Canada, International, Inc. Ltd. 100% Richardson United Kingdom Richardson Electronics (Europe) International, Inc. Ltd. 100% Richardson France REL Holdings, Inc. 99.3% Electronique SNC Richardson Electronics UK Ltd. .07% Richardson France France Richardson Electronique SNC S.A. 99% and Richardson International, Inc. 1% REL Holdings, Inc. Illinois Richardson International, Inc. 100% Richardson United Kingdom Richardson Electronics Electronics (Europe) Ltd. 100% UK Ltd. Richardson Italy Richardson International, Electronics Inc. 90% and Italy SRL Richardson Electronics, Ltd. 10% Richardson Spain Richardson International, Electronics Inc. 88% and Richardson Iberica, S.A. Electronics, Ltd., 12% Richardson Germany Richardson International Electronics GmbH Inc., 98% and Richardson Electronics, Ltd., 2% Richardson Japan Richardson International, Electronics Japan Inc. 100% K.K. Richardson Singapore Richardson International, Electronics Pte Ltd. Inc. 100% Richardson Mexico Richardson Electronics, Electronics S.A. Ltd. 100% de C.V. Richardson Netherlands Richardson International, Electronics Inc. 100% Benelux BV Richardson Brazil Richardson Electronics, Electronics Ltd. 100% do Brasil Ltda. Richardson Australia Richardson Electronics, Electronics Ltd. 50% PTY LTD Richardson International, Inc. 50% EX-23 11 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in Post Effective Amendment Number 1 to Registration Statement Number 2-89888 on Form S-8, Registration Statement Number 33-36475 on Form S-8 and Registration Statement Number 33-54745 on Form S-8 of our report dated July 12, 1995, with respect to the consolidated financial statements and schedules of Richardson Electronics, Ltd. included in the Annual Report on Form 10-K for the year ended May 31, 1995. Ernst & Young LLP Chicago, Illinois August 23, 1995 EX-27 12
5 1000 YEAR MAY-31-1995 MAY-31-1995 11,151 0 44,153 1,385 81,267 143,948 40,848 24,460 173,514 37,713 79,647 411 0 162 55,581 173,514 208,118 208,118 148,085 148,085 0 199 6,473 2,631 150 2,481 0 527 0 3,008 .26 .26
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