-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tgm3MEng4Pmf7nYPrljmvhlaTEoFou36Bhv6x2TM7yYAlpv5/RhBUjItcDVgiM// Q48r4pi6T1RoHdbXYW1f8w== 0000355948-97-000018.txt : 19970415 0000355948-97-000018.hdr.sgml : 19970415 ACCESSION NUMBER: 0000355948-97-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970414 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12906 FILM NUMBER: 97580042 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 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 and zip code) (630) 208-2200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 As of April 9, 1997, there were outstanding 8,687,427 shares of Common Stock, $.05 par value, and 3,243,081 shares of Class B Common Stock, $.05 par value, which are convertible into Common Stock on a share-for-share basis. This Quarterly Report on Form 10-Q contains 15 pages. An exhibit index is at page 14. (1) RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES FORM 10-Q For the Quarter Ended February 28, 1997 INDEX Page ---- PART I - FINANCIAL INFORMATION Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Operations 4 Consolidated Condensed Statements of Cash Flows 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 8 PART II - OTHER INFORMATION 12 (2) Part 1 - Financial Information Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) February 28 May 31 1997 1996 --------- --------- (Unaudited) (Audited) ASSETS ------- Current assets: Cash and equivalents $ 11,545 $ 6,784 Receivables, less allowance of $3,032 and $1,461 52,968 48,232 Inventories 93,924 94,327 Other 12,094 8,062 --------- --------- Total current assets 170,531 157,405 Investments 2,224 2,190 Property, plant and equipment, net 17,381 16,054 Other assets 6,126 4,509 --------- --------- Total assets $ 196,262 $ 180,158 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 16,488 $ 14,503 Accrued expenses 11,851 9,751 --------- --------- Total current liabilities 28,339 24,254 Long-term debt 108,820 92,025 Deferred income taxes 1,285 1,087 Stockholders' equity: Common stock, $.05 par value; issued 8,697 shares at February 28, 1997 and 8,562 at May 31, 1996 435 428 Class B common stock, convertible, $.05 par value; issued at 3,243 shares at February 28, 1997 and 3,244 at May 31, 1996 162 162 Additional paid-in capital 53,194 52,185 Retained earnings 7,725 12,430 Foreign currency translation adjustment (3,698) (2,413) --------- --------- Total stockholders' equity 57,818 62,792 --------- --------- Total liabilities and stockholders' equity $ 196,262 $ 180,158 ========= ========= See notes to consolidated condensed financial statements. (3) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Operations (in thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended February 28/29 February 28/29 -------------------- -------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (Unaudited) (Unaudited) Net sales $ 64,163 $ 56,367 $183,874 $175,237 Costs and expenses: Cost of products sold 52,992 39,551 137,182 123,349 Selling, general and administrative expenses 19,123 12,724 46,508 39,210 -------- -------- -------- -------- 72,115 52,275 183,690 162,559 -------- -------- -------- -------- Operating income (7,952) 4,092 184 12,678 Other (income) expense: Interest expense 1,869 1,726 5,588 4,969 Investment income (82) (158) (249) (1,045) Other, net 264 (197) 173 63 -------- -------- -------- -------- 2,051 1,371 5,512 3,987 -------- -------- -------- -------- Income before income taxes (10,003) 2,721 (5,328) 8,691 Income taxes (benefit) (3,950) 900 (2,500) 2,900 -------- -------- -------- -------- Net income (loss) before extraordinary item (6,053) 1,821 (2,828) 5,791 Extraordinary loss, net of income taxes of $312 (488) -- (488) -- -------- -------- -------- -------- Net income (loss) $ (6,541) $ 1,821 $ (3,316) $ 5,791 ======== ======== ======== ======== Income (loss) per share: Before extraordinary item $ (.50) $ .15 $ (.23) $ .49 Extraordinary loss, net of tax (.04) (.04) -------- -------- -------- -------- Net income (loss) per share $ (.54) $ .15 $ (.27) $ .49 ======== ======== ======== ======== Average shares outstanding 12,172 12,178 12,210 11,931 ======== ======== ======== ======== See notes to consolidated condensed financial statements. (4) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Cash Flows (in thousands)(unaudited) Nine Months Ended February 28/29 ----------------------- 1997 1996 -------- -------- Operating Activities: Net income $ (3,316) $ 5,791 Non-cash charges to income: Depreciation 1,973 1,965 Amortization of intangibles and financing costs 603 256 Deferred income taxes (3,338) 1,785 Contribution to employee stock ownership plan 800 500 Special charges 11,000 -- Extraordinary loss 800 -- -------- -------- Total non-cash charges 11,838 4,506 -------- -------- Changes in working capital, net of effects of currency translation: Accounts receivable (3,549) (1,596) Inventories (922) (12,738) Other current assets (845) 874 Accounts payable (974) (5,103) Other liabilities (600) (2,000) -------- -------- Net changes in working capital (6,890) (20,563) -------- -------- Net cash provided by (used in) operating activities 1,632 (10,266) -------- -------- Financing Activities: Proceeds from borrowings 56,918 1,000 Proceeds from stock options exercised 218 1,239 Payments on debt (40,123) (929) Cash dividends (1,389) (1,362) -------- -------- Net cash provided by (used in) financing activities 15,624 (52) -------- -------- Investing Activities: Sales of investments 3,141 8,893 Purchase of investments (3,181) (3,899) Capital expenditures (2,947) (1,823) Business acquisitions (9,409) -- Other (99) (218) -------- -------- Net cash provided by (used in) investing activities (12,495) 2,953 -------- -------- Increase (decrease) in cash and equivalents 4,761 (7,365) Cash and equivalents at beginning of year 6,784 11,151 -------- -------- Cash and equivalents at end of period $ 11,545 $ 3,786 ======== ======== See notes to consolidated condensed financial statements. (5) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three- and Nine-Month Periods Ended February 28, 1997 (in thousands)(unaudited) Note A -- Basis of Presentation The accompanying unaudited Consolidated Condensed Financial Statements (Statements) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods covered have been reflected in the Statements. Certain information and footnotes necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles have been omitted in accordance with the aforementioned instructions. It is suggested that the Statements be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 31, 1996. The marketing and sales operations of the Company are organized in four strategic business units (SBUs): Electronic Device Group (EDG), Solid State and Components (SSC), Display Products Group (DPG) and Security Systems Division (SSD). References hereinafter are to the acronyms noted parenthetically. Note B -- Income Taxes The income tax benefit on pre-tax losses for the nine-month period ended February 28, 1997 is based on the estimated effective tax rate of 47% for fiscal 1997 results. This rate exceeds the statutory rate of 34% due to state income tax benefits, the utilization of previously unrecognized foreign net operating loss carryforwards and U.S. foreign sales corporation tax benefits. The rate is higher than that used in the prior quarter because $11 million in special charges (see Management's Discussion and Analysis of Results of Operations) recorded in the third quarter generated a year-to-date pre-tax loss. Accordingly, tax preference items which reduced tax expense for the six months ended November 30, 1996 now increase the tax benefit to be realized on the year-to-date pre-tax loss, resulting in an effective rate exceeding the statutory rate. The income tax provision for the three- and nine-month periods ended February 29, 1996 was based on the estimated effective tax rate of 33% for fiscal 1996 income. The effect of expected state income taxes in 1996 was offset by U.S. foreign sales corporation tax benefits. (6) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three- and Nine-Month Periods Ended February 28, 1997 (in thousands)(unaudited) Note C - Burtek Acquisition Effective February 1, 1997 the Company acquired the assets and liabilities of Burtek Systems, Inc., a Canadian distributor of security systems with annual sales of $18.0 million (See Note D). The acquisition was accounted for by the purchase method, and accordingly, the results of operations of Burtek Systems, Inc. since February 1 have been included in the consolidated statement of operations. Note D - Long-Term Debt On February 15, 1997 the Company exchanged $40.0 million of new 8 1/4% convertible senior subordinated debentures for an equivalent face amount of its outstanding 7 1/4% convertible subordinated debentures. The new debentures are payable at maturity in June 2006, and are convertible to common stock at $18.00 per share. To complete the acquisition of Burtek Systems, Inc., a Canadian subsidiary of the Company entered into a revolving credit agreement and term loan aggregating up to $6.0 million with a Canadian affiliate of the Company's primary bank. The loan is guaranteed by the Company, bears interest at the Canadian prime rate and matures in November 1998. The February 28, 1997 balance sheet includes $5.2 million for the initial borrowing under this agreement at which date the interest rate was 4.5%. Note E - Special Charges and Extraordinary Item In the third quarter, the Company re-evaluated its reserve estimates for inventory and accounts receivable in light of changed market conditions and provided for severance and other costs associated with a Corporate reorganization. Inventory reserve adjustments of $7.2 million were included in cost of sales, and provisions for accounts receivable, severance and other costs of $3.8 million were included in selling, general and administrative expense. Collectively, these charges amounted to $11.0 million pre-tax or $6.7 million, net of tax, reducing earnings per share by $.55. Additionally, the Company recorded an $800,000 extraordinary charge for the write-off of unamortized debt issuance costs attributable to the 7 1/4% convertible debentures, which were exchanged for a new issue during the quarter. Net of tax, the charge was $488,000, or $.04 per share. (7) Management's Discussion and Analysis Of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1997 (in thousands)(unaudited) Results of Operations Net sales for the third quarter of fiscal 1997 were $64.2 million, up 14% from last year's third quarter of $56.4 million. Sales for the nine-month period were $183.9 million, a 5% increase from $175.2 million in the prior year. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by SBU are summarized in the following table. Gross margins for each SBU include provisions for returns and overstock. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands). Sales Gross Margin -------------------------- ---------------------------------- 1997 1996 % 1997 GM % 1996 GM % Change of Sales of Sales -------- -------- ---- ------- ----- ------- ----- EDG $ 28,467 $ 25,053 14% $ 5,998 21.1% $ 7,478 29.8% SSC 19,438 16,234 20% 3,405 17.5% 4,905 30.2% DPG 6,560 8,501 -23% 561 8.6% 3,194 37.6% SSD 9,698 6,579 47% 2,140 22.1% 1,405 21.4% Corporate -- -- (933) (166) -------- -------- ------- ------- Total $ 64,163 $ 56,367 14% $11,171 17.4% $16,816 29.8% ======== ======== ======= ======= EDG $ 84,647 $ 80,284 5% $22,585 26.7% $24,125 30.0% SSC 53,201 50,010 6% 13,835 26.0% 15,316 30.6% DPG 21,737 26,103 -17% 5,875 27.0% 9,634 36.9% SSD 24,289 18,840 29% 5,151 21.2% 3,980 21.1% Corporate -- -- (754) (1,167) -------- -------- ------- ------- Total $183,874 $175,237 5% $46,692 25.4% $51,888 29.6% ======== ======== ======= ======= The Company experienced sales growth in the third quarter in all of the Company's SBUs except DPG, whose sales continue to be affected by supply shortages for several types of color CRT's and the loss of a customer in Europe. SSD sales increased $3.1 million or 47% for the quarter, which included $1.3 million in sales resulting from the consolidation of Burtek Systems, Inc., effective February 1, 1997. SSC sales increased $3.2 million or 20% compared to last year, while EDG sales increased by 14% or $3.4 million for the quarter. Almost half of the EDG sales growth for the quarter was attributable to medical products, which increased 39%. Gross margins in the third quarter and nine-month period were affected by the special charge for overstock. The total charge included in cost of sales was $7.2 million, which reduced gross margin for EDG by $2.8 million, SSC by $2.4 million, DPG by $1.9 million and SSD by $.1 million. The impact on third (8) Management's Discussion and Analysis Of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1997 (in thousands)(unaudited) quarter gross margins as a percent of sales was 9.8% for EDG, 12.6% for SSC, 28.2% for DPG and 1.0% for SSD. On a year-to-date basis, SSD sales increased by nearly 30% compared to the prior year. SSC and EDG sales increased by 5% and 6%, respectfully, compared to the prior year, while DPG sales decreased by 17%. Nine-month sales for SSC were negatively impacted by the loss of a semiconductor franchise, which reduced first half sales by $5.5 million. As these sales have been replaced, SSC has resumed its prior growth trend. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by area of the world are summarized in the following table. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands). Sales Gross Margin -------------------------- ---------------------------------- 1997 1996 % 1997 GM % 1996 GM % Change of Sales of Sales -------- -------- ---- ------- ----- ------- ------ North America $ 39,546 $ 32,703 21% $ 7,462 18.9% $ 9,511 29.1% Europe 13,499 13,631 -1% 2,870 21.3% 4,629 34.0% Rest of World 11,118 10,033 11% 1,772 15.9% 2,842 28.3% Corporate -- -- (933) (166) -------- --------- ------- ------- Total $ 64,163 $ 56,367 14% $11,171 17.4% $16,816 29.8% ======== ======== ======= ======= North America $109,398 $101,895 7% $27,798 25.4% $29,998 29.4% Europe 40,929 42,434 -4% 11,568 28.3% 14,307 33.7% Rest of World 33,547 30,908 9% 8,080 24.1% 8,750 28.3% Corporate -- -- (754) (1,167) -------- -------- ------- ------- Total $183,874 $175,237 5% $46,692 25.4% $51,888 29.6% ======== ======== ======= ======= On a geographic basis, the Company achieved sales growth of 21% in North America and 11% in the Rest of World area during the third quarter. Sales declined 1% in Europe in the third quarter, reflecting the DPG supply shortages and lost customer described above. European sales were also affected by the strengthening of the U.S. dollar during the third quarter. The special charge for overstock reduced gross margin for North America by $4.1 million, Europe by $1.7 million, and Rest of World by $1.4 million. The impact on third quarter gross margins as a percent of sales was 10.2% for North America, 12.5% for Europe, and 13.1% for Rest of World. Selling, general and administrative expenses increased $6.4 million from the comparable prior-year quarter, including special charges of $3.8 million for accounts receivable provisions, severance and other costs associated with (9) Management's Discussion and Analysis Of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1997 (in thousands)(unaudited) a Corporate reorganization. The remainder of the increase resulted from investments in additional sales staff to capitalize on growth opportunities for SSC, SSD and the EDG medical market. Non-operating expenses increased by $.7 million primarily as a result of foreign exchange losses and higher interest expense. Higher net interest costs were attributable to additional borrowings needed to finance working capital growth and several business acquisitions. The net loss for the third quarter before extraordinary item was $6.1 million or $.50 per share, compared to income of $1.8 million or $.15 per share in the prior year. An extraordinary loss of $.5 million net of tax, or $.04 per share, resulted from the write-off of unamortized debt issuance costs. The net loss for the third quarter was $6.5 million or $.54 per share. For the nine- month period, the net loss before extraordinary item was $2.8 million or $.23 per share compared to the prior year net income of $5.8 million or $.49 per share. The net loss for the nine-month period after extraordinary item was $3.3 million or $.27 per share. Liquidity and Capital Resources Cash provided by operations was $1.6 million in the first nine months of fiscal 1997, compared to cash used by operations of $10.3 million for the first nine months last year. The improvement in cash from operations reflects reduced growth in the investment in working capital, particularly inventory investments, which were $.9 million in fiscal 1997 and $12.7 million in fiscal 1996. Due to increased sales, accounts receivable increased $3.5 million in fiscal 1997 compared to $1.6 million in fiscal 1996. Accounts payable increased $1.0 million in 1997 and $5.1 million in 1996, reflecting the timing of inventory purchases. Interest payments for the first nine months of fiscal 1997 were $6.4 million, compared to $6.8 million in 1996. Investment activity in the current year included the acquisition of Burtek Systems, Inc., a Canadian distributor of security systems devices, in the third quarter. Compucon Distributors, Inc., a distributor of interconnect devices in the Northeastern United States, and two smaller companies operating in the wireless communications and medical diagnostic imaging markets were acquired in the first half of fiscal 1997. In the first quarter the Company amended its $25 million senior revolving credit note agreement due November 30, 1998 to increase the credit line to $35 million. The loan bears interest at 100 basis points over LIBOR, which at (10) Management's Discussion and Analysis Of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1997 (in thousands)(unaudited) February 28, 1997 resulted in a weighted average rate of 6.5%. The Company borrowed $4.0 million for business acquisitions and working capital in the third quarter of fiscal 1997. An additional $2.2 million was available at February 28, 1997 under this agreement for future working capital or other corporate requirements. To complete the acquisition of Burtek Systems, Inc., a Canadian subsidiary of the Company entered into a revolving credit agreement and term loan aggregating $6.0 million with a Canadian affiliate of the Company's primary bank. The loan is guaranteed by the Company, bears interest at the Canadian prime rate and matures in November 1997. The February 28, 1997 balance sheet includes $5.2 million for the initial borrowing under this agreement at which date the interest rate was 4.5%. On February 15, 1997, the Company exchanged $40.0 million of new 8 1/4% convertible debentures for an equivalent face value of its outstanding 7 1/4% convertible debentures (see Note D). The principal purpose of the exchange was to improve the Company's future liquidity and capital position by refinancing a sufficient number of debentures to eliminate sinking fund requirements until December 15, 2004. The Company's loan agreements contain various financial and operating covenants which set benchmark levels for tangible net worth, debt / tangible net worth ratio and annual debt service coverage. The Company was in compliance with these covenants at February 28, 1997. In addition, certain of the current agreements contain restrictions relating to the purchase by the Company of treasury stock or the payment of cash dividends. At February 28, 1997, $16.3 million was available for such transactions. The policy regarding payment of dividends is reviewed periodically by the Board of Directors in light of the Company's operating needs and capital structure. Cash reserves, investments, funds from operations and credit lines are expected to be adequate to meet the operational needs and future dividends of the Company. (11) Part II - Other Information ITEM 1. LEGAL PROCEEDINGS No material developments have occurred in the matters reported under the category "Legal Proceedings" in the Registrant's Report on Form 10-K for the fiscal year ended May 31, 1996. ITEM 2. CHANGES IN SECURITIES On February 15, 1997 the Company accepted $40.0 million principal amount of its 7 1/4% Convertible Subordinated Debentures due December 15, 2006 ("Old Debentures") in exchange for a new issue of an equal principal amount of its 8 1/4% Convertible Senior Subordinated Debentures due June 15, 2006 ("New Debentures") pursuant to an offer to exchange ("Exchange Offer") as set forth in the Company's Schedule 13E-4 filed with the Securities and Exchange Commission on December 18, 1996 (the "Schedule 13E-4"). Such New Debentures are senior in right of payment to, and will mature prior to, the Old Debentures. Further, the Old Debentures obtained in exchange for the New Debentures will be utilized by the Company to satisfy sinking fund requirements on the Old Debentures until December 15, 2004. In connection with the Exchange Offer, the Company solicited and obtained consents from the holders of more than a majority of the outstanding principal amount of the Old Debentures to amend the Indenture under which the Company's Old Debentures are issued. Such amendment was effected on February 18, 1997. The amendment changes Section 4.02, Limitation on Dividends and Stock Purchases, of the Indenture the effect of which was to increase the amount available for such purposes as of August 31, 1996 from $13.1 million to $21.9 million. The Amendment also modifies events of default under the Indenture to provide for an increase of the amount of other indebtedness in default which would be an event of default under the Indenture from $1.0 million to $5.0 million. (12) Part II - Other Information For a further statement of the limitations and qualifications of the Company's Old Debentures as a result of the issuance of the New Debentures, reference is made to the Offering Circular and Consent Solicitation dated December 18, 1996 attached to the Schedule 13E-4 as Exhibit (a)(1) (the "Offering Circular"). Particularly see "Purpose and Effects of the Tender Portion of the Exchange Offer and the Proposed Amendments" on page 15, et. seq. of the Offering Circular and "Certain Considerations for Non-Exchanging Debentureholders" on page 13 of the Offering Circular, which information is specifically incorporated herein by reference. Exemption from registration of the New Debentures issued in the Exchange Offer was claimed under Section 3(a)(9) of the Securities Act of 1993 as amended, in reliance on the following facts. The New Debentures were exchanged with holders of the Company's presently issued and outstanding Old Debentures pursuant to the Exchange Offer in connection with which Company filed the Schedule 13E-4 with the Securities and Exchange Commission. There were not any sales of securities of the same class by the Company or by or through an underwriter at or about the same time as the transactions for which the exemption was claimed. No underwriters were involved in the Exchange Offer. For a statement as to any consideration which has been or is to be given, directly or indirectly, to any person in connection with the transaction and the nature of any services rendered or to be rendered, directly or indirectly, for such consideration see "The Exchange Offer - Exchange Agent - Financial Advisor - Payment of Expenses" on pages 24 and 25 of the Offering Circular, which information is specifically incorporated herein by reference thereto. No cash payment has been made by any holder of the Old Debentures. The New Debentures are convertible at any time after issuance into shares of Common Stock, $.05 par value, of the Company at $18 per share, subject to adjustments under certain conditions. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. (13) Part II - Other Information ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 4 (a) - First Amendment to the Indenture between the Company and First Trust of Illinois, a National Association, as successor to Continental Illinois National Bank and Trust Company of Chicago dated as of February 18, 1997. Exhibit 4(b) - Indenture between the Company and American National Bank and Trust Company, as Trustee, for 8% Convertible Senior Subordinated Debentures due June 15, 2006 (including form of 8% Convertible Senior Subordinated Debentures due June 13, 2006) incorporated by reference to Exhibit 10 of the Company's Schedule 13E-4, filed February 18, 1997. Exhibit 10 (a) - Revolving credit agreement and term loan dated February 18, 1997 between Richardson Electronics Acquisition Corporation and First Chicago NBD Bank, Canada, together with guarantee of the Company. Exhibit 10 (b) - Agreement dated January 16, 1997 between the Company and Dennis Gandy setting forth the terms of Mr. Gandy's employment by the Company. Exhibit 10 (c) - Agreement dated March 21, 1997 between the Company and David Gilden setting forth the terms of Mr. Gilden's employment by the Company. Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - None. (14) Part II - Other Information SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RICHARDSON ELECTRONICS, LTD. Date April 14, 1997 By \s\ William J. Garry Vice President and Chief Financial Officer (15) EX-4.A 2 EXHIBIT 4(a) FIRST AMENDMENT TO INDENTURE This First Amendment to Indenture (this "First Amendment") is entered into effective as of February 18, 1997 by and between Richardson Electronics, Ltd., a Delaware corporation (the "Company"), and First Trust National Association, as Trustee (the "Trustee"). RECITALS A. The Company and the Trustee (as successor trustee to Continental Illinois National Bank and Trust Company of Chicago) are parties to that certain Indenture dated as of December 15, 1986, pursuant to which the Trustee is acting as trustee in connection with the Company's 7-1/4% Convertible Subordinated Debentures due December 15, 2006 (the "Indenture"). B. The Company desires to modify and amend certain provisions of the Indenture, and the Trustee, having received the written consent to such modifications and amendments from the holders of a majority of the principal amount of the outstanding 7-1/4% Convertible Subordinated Debentures due December 15, 2006 of the Company, is willing to enter into such modifications and amendments, as set forth herein. AGREEMENT For and in consideration of the mutual benefits to be received and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the holders of the 7-1/4% Convertible Subordinated Debentures due December 15, 2006 of the Company: 1. Unless otherwise indicated herein, capitalized terms used in this First Amendment have the meaning set forth in the Indenture. 2. The Indenture is hereby amended as follows: 2.1 Section 4.02 is hereby deleted in its entirety and the following is inserted in lieu thereof: "SECTION 4.02. Limitation on Dividends and Stock Purchases. The Company may not declare or pay any dividend or make any distribution on its capital stock or to its shareholders (other than dividends or distributions payable in its capital stock) or purchase, redeem or otherwise acquire or retire for value, or permit any Subsidiary to purchase or otherwise acquire for value, any capital stock of the Company (i) if at the time of such action an Event of Default shall have occurred and be continuing, or occur as a consequence of any such action, or (ii) if, upon giving effect to such dividend, distribution, purchase, redemption, or other acquisition or retirement, the aggregate amount expended for all such purposes (the amount expended for such purposes, if other than in cash, to be determined by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Trustee) subsequent to May 31, 1996, shall exceed the sum of (a) the aggregate Consolidated Net Income (or, in case such aggregate Consolidated Net Income shall be a deficit, minus such deficit) of the Company earned on a cumulative basis subsequent to May 31, 1996, (b) the aggregate net proceeds, including the fair market value of property other than cash (as determined by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Trustee), received by the Company from the issue or sale, other than to a subsidiary, after May 31, 1996 of capital stock of the Company, (c) the aggregate net proceeds received by the Company from the issue or sale, other than to a subsidiary, of any indebtedness (including the Securities) of the Company issued subsequent to May 31, 1996 which has been converted into capital stock of the Company, plus (d) $20,000,000; provided, however, that such provisions will not prevent (i) the payment of any dividend within 60 days after the date of declaration if the payment complied with the foregoing provisions on the date of declaration, (ii) the retirement of any shares of the Company's capital stock by exchange for, or out of the proceeds of, the substantially concurrent sale of other shares of its capital stock, including without limitation, the conversion of the Company's Class B Common Stock, $.05 par value, ("Class B Common Stock"), or (iii) the call for redemption of any convertible preferred stock of the Company under an agreement with a responsible underwriter designed to insure that all such stock is converted rather than redeemed." 2.2 Section 6.01(4) is hereby deleted in its entirety and the following is inserted in lieu thereof: "(4) the happening of an event of default as defined in any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any Subsidiary, whether such Indebtedness now exists or shall hereafter be created, which event of default shall have caused in any one case or in the aggregate in excess of $5,000,000 aggregate principal amount of such Indebtedness to become due and payable prior to the date on which it would otherwise have become due and payable, without such acceleration being rescinded, annulled or otherwise cured within the period and after the notice specified below;" 3. Except as amended hereby, the Indenture is unchanged and remains in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed as of the day and year first above written. RICHARDSON ELECTRONICS, LTD., a Delaware corporation By: Edward J. Richardson Its: Chairman Attest William G. Seils, Secretary FIRST TRUST NATIONAL ASSOCIATION, as Trustee By: Its: Vice President Attest Assistant Secretary EX-10.A 3 EXHIBIT 10(a) CREDIT AGREEMENT Made as of February 18, 1997 Between RICHARDSON ELECTRONICS ACQUISITION CORP. as Borrower and FIRST CHICAGO NBD BANK, CANADA as Lender TABLE OF CONTENTS SECTION 1 - INTERPRETATION . . . . . . . . . . . . . . . . Page 1 1.1 Certain Defined Terms . . . . . . . . . . . . . . Page 1 1.2 Headings and Table of Contents. . . . . . . . . .Page 11 1.3 References. . . . . . . . . . . . . . . . . . . .Page 11 1.4 Number and Gender . . . . . . . . . . . . . . . .Page 11 1.5 Time of Day . . . . . . . . . . . . . . . . . . .Page 12 1.6 Governing Law . . . . . . . . . . . . . . . . . .Page 12 1.7 Entire Agreement. . . . . . . . . . . . . . . . .Page 12 1.8 Conflict. . . . . . . . . . . . . . . . . . . . .Page 12 1.9 Severability. . . . . . . . . . . . . . . . . . .Page 12 1.10 Currency. . . . . . . . . . . . . . . . . . . . .Page 12 1.11 Time. . . . . . . . . . . . . . . . . . . . . . .Page 12 1.12 GAAP. . . . . . . . . . . . . . . . . . . . . . .Page 12 1.13 Schedules . . . . . . . . . . . . . . . . . . . .Page 12 SECTION 2 - REPRESENTATIONS AND WARRANTIES . . . . . . . .Page 13 2.1 Representations and Warranties. . . . . . . . . .Page 13 2.2 Deemed Repetition . . . . . . . . . . . . . . . .Page 15 SECTION 3 - CREDIT FACILITIES. . . . . . . . . . . . . . .Page 15 3.1 Revolving Credit Facility . . . . . . . . . . . .Page 15 3.2 Term Credit Facility. . . . . . . . . . . . . . .Page 15 SECTION 4 - PROVISIONS APPLICABLE TO BORROWINGS. . . . . .Page 16 4.1 Notice of Borrowing . . . . . . . . . . . . . . .Page 16 4.2 Prime and US Prime Loans. . . . . . . . . . . . .Page 16 4.3 Cost of Funds Loans . . . . . . . . . . . . . . .Page 16 4.4 Libor Loans . . . . . . . . . . . . . . . . . . .Page 17 4.5 Substitute Basis of Borrowing . . . . . . . . . .Page 17 4.6 Bankers' Acceptances. . . . . . . . . . . . . . .Page 18 4.7 Letters of Credit . . . . . . . . . . . . . . . .Page 19 4.8 Conversion Option . . . . . . . . . . . . . . . .Page 20 4.9 Reliance on Oral Instructions . . . . . . . . . .Page 21 4.10 Evidence of Indebtedness. . . . . . . . . . . . .Page 21 SECTION 5 - INTEREST, FEES AND EXPENSES. . . . . . . . . .Page 21 5.1 Payment of Interest on Prime Loans. . . . . . . .Page 21 5.2 Payment of Interest on Cost of Funds Loans. . . .Page 22 5.3 Payment of Interest on US Prime Rate Loans. . . .Page 22 5.4 Letters of Credit Fee . . . . . . . . . . . . . .Page 22 5.5 Payment of Interest on Libor Loans. . . . . . . .Page 23 5.6 Interest on Overdue Amounts . . . . . . . . . . .Page 23 5.7 Interest Act. . . . . . . . . . . . . . . . . . .Page 23 5.8 Arrangement Fee . . . . . . . . . . . . . . . . .Page 23 5.9 Administration Fee. . . . . . . . . . . . . . . .Page 23 5.10 Commitment Fee. . . . . . . . . . . . . . . . . .Page 23 5.11 Limit on Rate of Interest . . . . . . . . . . . .Page 24 5.12 Change in Circumstances . . . . . . . . . . . . .Page 24 5.13 Payment of Portion. . . . . . . . . . . . . . . .Page 25 5.14 Illegality. . . . . . . . . . . . . . . . . . . .Page 26 5.15 Indemnity . . . . . . . . . . . . . . . . . . . .Page 26 5.16 Payment of Stamping Fee . . . . . . . . . . . . .Page 27 SECTION 6 - PAYMENTS AND REDUCTIONS OF COMMITMENTS . . . .Page 27 6.1 Payments Generally. . . . . . . . . . . . . . . .Page 27 6.2 No Set-Off. . . . . . . . . . . . . . . . . . . .Page 27 6.3 Application of Payments Before Exercise of RightsPage 27 6.4 Application of Payments After Exercise of Rights.Page 28 6.5 Reduction of Commitment . . . . . . . . . . . . .Page 28 SECTION 7 - COVENANTS. . . . . . . . . . . . . . . . . . .Page 29 7.1 Covenants of the Borrower . . . . . . . . . . . .Page 29 7.2 Accounting, Financial Statements and Other InformationPage 31 SECTION 8 - ENVIRONMENTAL MATTERS. . . . . . . . . . . . .Page 31 8.1 Representations and Warranties. . . . . . . . . .Page 31 8.2 Covenants . . . . . . . . . . . . . . . . . . . .Page 32 8.3 Indemnity . . . . . . . . . . . . . . . . . . . .Page 32 8.4 Scope of Indemnity. . . . . . . . . . . . . . . .Page 33 8.5 Interest. . . . . . . . . . . . . . . . . . . . .Page 34 SECTION 9 - DEFAULT AND ENFORCEMENT. . . . . . . . . . . .Page 34 9.1 Events of Default . . . . . . . . . . . . . . . .Page 34 9.2 Rights upon Default . . . . . . . . . . . . . . .Page 36 9.3 Waiver of Default . . . . . . . . . . . . . . . .Page 36 SECTION 10 - REMEDIES. . . . . . . . . . . . . . . . . . .Page 36 10.1 Remedies Cumulative . . . . . . . . . . . . . . .Page 36 10.2 Remedies Not Limited. . . . . . . . . . . . . . .Page 37 10.3 Set-Off, etc. . . . . . . . . . . . . . . . . . .Page 37 10.4 Lender May Perform Covenants. . . . . . . . . . .Page 37 SECTION 11 - MISCELLANEOUS . . . . . . . . . . . . . . . .Page 37 11.1 Amendments and Waivers. . . . . . . . . . . . . .Page 37 11.2 Notice. . . . . . . . . . . . . . . . . . . . . .Page 38 11.3 Judgment Currency . . . . . . . . . . . . . . . .Page 38 11.4 Further Assurances. . . . . . . . . . . . . . . .Page 38 11.5 Reimbursement of Expenses . . . . . . . . . . . .Page 38 11.6 Survival. . . . . . . . . . . . . . . . . . . . .Page 39 11.7 Attornment. . . . . . . . . . . . . . . . . . . .Page 39 11.8 Successors and Assigns. . . . . . . . . . . . . .Page 39 11.9 Counterparts. . . . . . . . . . . . . . . . . . .Page 40 CREDIT AGREEMENT This Agreement is made as of February 18, 1997 B E T W E E N: RICHARDSON ELECTRONICS ACQUISITION CORP. as Borrower and FIRST CHICAGO NBD BANK, CANADA as Lender WHEREAS: A. The Borrower has requested and the Lender has agreed to provide a revolving credit facility for an amount of up to but not exceeding CAD6,100,000 or the Equivalent Amount in US Dollars and a term loan credit facility for an amount up to but not exceeding CAD2,050,000 NOW THEREFORE, for value received the parties agree as follows: SECTION 1 - INTERPRETATION 1.1 Certain Defined Terms. The terms defined herein shall have, for all purposes of this Agreement, the following meanings unless the context expressly or by necessary implication otherwise requires: "Acceptance Date" means a Business Day on which a Borrowing is to be made by way of Bankers' Acceptances. "Acceptance Fee" means, with respect to a Bankers' Acceptance accepted by the Lender under this Agreement, a fee payable in Canadian Dollars by the Borrower to the Lender calculated on the face amount of the Bankers' Acceptance at the rate of 1.25% per annum, on the basis of the number of days in the Contract Period and a year of 365 days or 366 days as applicable. "Accounts" means the accounts and records established by the Lender to record the Borrower's liability to the Lender in respect of the Borrowings made available to the Borrower. "Additional Compensation" has the meaning ascribed to it in Section 5.11(c). "Administration Fee" has the meaning ascribed to in Section 5.8. "Affected Borrowing" has the meaning ascribed to it in Section 5.12. "Affiliate" has the meaning established in the Canada Business Corporations Act in effect on the date hereof. "Agreement" means this agreement, including the Schedules, as the same may be amended, varied, supplemented, restated, renewed or replaced at any time and from time to time. "Applicable Law" means, in respect of any Person, property, transaction or event, all present or future applicable laws, statutes, regulations, treaties, orders, judgments and decrees and all applicable official directives, rules, guidelines, orders and policies of any governmental bodies having authority over any of the foregoing. "Arrangement Fee" has the meaning ascribed to in Section 5.7. "Associate" has the meaning established in the Canada Business Corporations Act in effect on the date hereof. "Auditors" means Ernst & Young Inc. or such other major Canadian accountancy firm appointed by the Guarantor. "Available Asset Value" means the consolidated book value of the Borrower's assets determined in accordance with GAAP less the amount of all Indebtedness, other than Subordinate Claims, secured by Liens against such assets. "BA Rate" means, on any day, the annual rate of interest which is the rate determined as being the rate of First Chicago NBD Bank applicable to Canadian Dollar bankers' acceptances. "Bankers' Acceptance" means a bill of exchange substantially in the form of Schedule 1 (or such other form as may be acceptable to the Lender) denominated in Canadian Dollars, drawn by the Borrower and accepted by the Lender. "Banking Day" means a Business Day on which dealings in US Dollar deposits by and between banks in the London interbank market may be conducted. "Borrower" means Richardson Electronics Acquisition Corp. "Borrower's Account" means: (1) for all payments in Canadian Dollars, the following account maintained by the Borrower with the Lender at the Branch of Account to which payments and transfers are to be effected: First Chicago NBD Bank, Canada, transit #0012-270, account #100431-001, or such other account as the Borrower and the Lender may agree in writing, and (2) for all payments in US Dollars, the following account maintained by the Borrower with the Lender at the Branch of Account to which payments and transfers are to be effected: First Chicago NBD Bank, Canada, transit #0012-270, account #100431-010, or such other account as the Borrower and the Lender may agree in writing. "Borrowings" means an extension of credit hereunder by the Lender to the Borrower by way of advances of Loans, Letters of Credit Advances, and by the acceptance of Bankers' Acceptances. "Branch of Account" means, with respect to the Lender, its branch at BCE Place, 161 Bay Street, Suite 4240, Toronto, Ontario, M5J 2S1 or such other branch in Canada as the Lender and Borrower may agree in writing. "Burtek" means Burtek Systems Inc. "Business Day" means a day on which the Lender is open for money market dealings in Toronto, Ontario, but excludes Saturday, Sunday and any other day which is a statutory holiday in Toronto, Ontario and with respect to a Libor Loan, such a day is a Business Day only if it is also a Banking Day. "Canadian Dollars" and the symbols "CAD" and "$" each means lawful money of Canada. "Closing Date" means February 18, 1997 or such other date as the Borrower and the Lender may agree. "Commercial Letter of Credit" means a commercial letter of credit issued by the Lender to a beneficiary at the request of and for the account of the Borrower. "Commitment" means CAD8,150,000 or the Equivalent Amount in US Dollars, to the extent not cancelled, reduced or terminated hereunder. "Commitment Fee" has the meaning ascribed to in Section 5.9. "Contaminant" means any pollutants, hazardous materials or contaminants, dangerous, toxic or hazardous substances, waste of any description whatsoever except non-hazardous waste of the kind generated by the Borrower in the normal course of its operations, including any of the foregoing as defined in any Environmental Law. "Contract Period" means, with respect to a Bankers' Acceptance, the term of days of such Bankers' Acceptance as selected by the Borrower in accordance with Section 4.6(b), commencing on the Drawdown Date or Conversion Date, as applicable, of such Bankers' Acceptance and expiring on a Business Day, which term shall not be less than 30 days or more than 180 days thereafter, in each case subject to availability. "Conversion Date" means the date of which the Lender has been notified by the Borrower at the Branch of Account as being the date on which the Borrower has elected to convert a Borrowing or a portion of a Borrowing pursuant to Section 4.7. "Cost of Funds", for any Cost of Funds Interest Period, applicable to a Cost of Funds Loan, means an annual rate of interest equal to the sum of: (a) the interest rate estimated by the Lender for such Cost of Funds Interest Period as the rate which the Lender would have to pay on Canadian Dollar short term promissory notes issued by the Lender in the amount of the applicable Cost of Funds Loan for such period (whether or not any such promissory notes have in fact been issued by the Lender), plus (b) the cost of any reserves or fees or costs levied in lieu of reserves, plus (c) any brokerage or other funding fees normally expected to be incurred in such Cost of Funds Interest Period by the Lender upon the issue of such promissory notes. "Cost of Funds Interest Payment Date" means the last day of each Cost of Funds Interest Period. "Cost of Funds Interest Period" means a period of approximately 30, 60, 90 or 180 days determined in accordance with Section 4.3 of this Agreement. "Cost of Funds Loan" means a loan or advance under this Agreement which is denominated in Canadian or US Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.2. "Credit Facilities" means collectively, the Revolving Credit Facility and Term Credit Facility and individually, either one of them. "Default" means an event or circumstance or omission which constitutes an Event of Default or which, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Discount Proceeds" means, in respect of a Bankers' Acceptance accepted and purchased by the Lender under this Agreement, an amount (rounded to the nearest whole cent, and with one-half of one cent being rounded up) calculated on the applicable Drawdown Date or Conversion Date by multiplying: (a) the face amount of such Bankers' Acceptance divided by one hundred; by (b) the price, where the price is determined by dividing one hundred by the sum of one plus the product of: (i) the applicable Discount Rate (expressed as a decimal); and (ii) a fraction, the numerator of which is the Contract Period for such Bankers' Acceptance, and the denominator of which is three hundred sixty-five (365) or three hundred sixty-six (366) as the case may be; with the price as so determined being rounded up or down to the fifth decimal place and 0.000005 rounded up. "Discount Rate" applicable to a Bankers' Acceptance being issued on any Drawdown Date or Conversion Date, and purchased by the Lender, means the percentage discount rate (expressed in two decimal places) of the Lender which it would, in accordance with its normal practices, at or about 10:00 a.m. (Toronto time) on such Drawdown Date or Conversion Date, be prepared to purchase Bankers' Acceptances accepted by it and having a comparable issue and maturity date as the issue and maturity date of such Bankers' Acceptance. "Documents" means this Agreement and all certificates and other documents delivered or to be delivered to the Lender pursuant hereto or thereto and, when used in relation to any Person, the term "Documents" shall mean and refer to those Documents executed and delivered by such Person. "Drawdown Date" means a Business Day on which a Borrowing is to be made by way of Loan. "Environmental Activity" means any activity, event or circumstance in respect of a Contaminant, including, without limitation, its storage, use, holding, collection, purchase, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, disposition, handling or transportation or its Release into the natural environment including movement through or in the air, soil, subsoil, surface water or groundwater. "Environmental Laws" means any and all federal, provincial, municipal and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, grants, licences, agreements or other governmental restrictions of Canada, its provinces, and of all applicable municipalities thereof relating to the environment, health and safety, health protection or any Environmental Activity. "Equivalent Amount" of one currency means, on any date, the amount of a second currency into which the first currency may be converted at the spot rate at which the Lender would, on such date at or about 12:00 noon (Toronto time), be prepared to sell the same amount of such second currency in Toronto, and if such date is not a Business Day, on the immediately preceding Business Day, or at such other rate as may have been agreed by the Borrower and the Lender. "Event of Default" means any of the events or circumstances specified in Section 9.1; "Financial Assistance" by any Person means: (a) any loan, guarantee, sale with recourse, endorsement (other than for collection or deposit in the ordinary course of business) or other obligation (contingent or other) to pay, purchase, repurchase or otherwise acquire or become liable upon or in respect of any Indebtedness of another; and (b) without limiting the generality of the foregoing, any obligation (contingent or other) to make a payment on behalf of another for goods, property of services regardless of the non-delivery or nonfurnishing thereof, or to make an investment in another, or to maintain the capital, working capital, solvency or general financial condition of another (other than for the purchase of Marketable Securities), or to indemnify another Person against and hold such Person harmless from damage, loss or liability, all under circumstances intended to enable another to incur or pay any Indebtedness or to comply with agreement relating thereto or otherwise to assure or protect creditors against less in respect of Indebtedness. The amount of any Financial Assistance shall be the amount of all Indebtedness of the obligor to which the Financial Assistance relates, unless the Financial Assistance is limited to a determinable amount in which case the amount of such Financial Assistance shall be deemed to be such determinable amount. "Fiscal Year" means the fiscal year of the Borrower which currently runs from June 1 to May 31. "GAAP" means generally accepted accounting principles in effect from time to time in Canada applicable to the relevant Person, applied in a consistent manner from period to period. "Government Approvals" means, with respect to any Person, all material licences, permits, consents, authorizations and approvals from any and all Governmental Authorities required for the conduct of that Person's business as presently conducted. "Governmental Authority" means the government of any nation, state, province, municipality or other political subdivision thereof, and any entity exercising executive, legislative, regulatory or administrative functions, and any corporation or other entity owned or controlled in any manner by any of the foregoing. "Guarantor" means Richardson Electronics, Ltd. "Indebtedness" of a Person means: (a) any obligation, contingent and other, which should be classified upon such Person's balance sheet as a liability in accordance with GAAP, (b) any obligation secured by any Lien existing on property owned or acquired by such Person subject to such Lien whether or not the obligation secured thereby shall have been assumed, (c) any debt or liability of such Person representing the deferred acquisition cost of property or assets created or arising under any conditional sale agreement or other title retention agreement even though the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of property or assets covered thereby, (d) any liabilities under indemnities given in respect of any bankers' acceptance, letter of credit or letter of guarantee, and (e) any Financial Assistance by such Person, and, for greater certainty, does not include equity. "Interest Determination Date" means, with respect to a Libor Loan, the date which is 2 Banking Days prior to the first day of the Libor Interest Period applicable to such Libor Loan. "Interest Payment Date" means the last Business Day of each month. "Letter of Credit" means a Commercial Letter of Credit and a Standby Letter of Credit. "Letter of Credit Advances" means a Borrowing by way of its issuance of a Letter of Credit pursuant to this Agreement. "Letters of Credit Agreement" means the agreement entered into between the Borrower and the Lender whereby the Lender agrees to issue Letters of Credit upon the application of the Borrower, including any recitals and schedules to such agreement, as amended, supplemented or restated from time to time. "Libor" means with respect to each Libor Loan the annual rate of interest for a period approximately equal to the Libor Interest Period applicable to such Libor Loan displayed on page 3750 of the Telerate service as at approximately 11:00 a.m. (London time) on the Interest Determination Date; provided, however, if such rate does not appear on the Telerate screen page as contemplated, the Libor shall be such other rate or rates as the parties may agree. "Libor Interest Date" means the last day of each Libor Interest Period. "Libor Interest Period" means, with respect to a Libor Loan, the initial period (subject to availability) of approximately one month (or longer whole multiples of 30 days to and including 180 days as agreed from time to time) commencing with the date on which a Libor Loan is made and thereafter each successive period of 30 days (or longer whole multiples of one month to and including 180 days as agreed from time to time) commencing on the last day of the immediately prior Libor Interest Period. "Libor Loan" means a loan or advance under this Agreement which is denominated in US Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.4 "Lien" means any mortgage, charge, lien, hypothec, trust, encumbrance, charge, pledge, assignment, security interest, title retention, or any other security arrangement of whatsoever nature or kind. "Loan" means a Prime Loan, Cost of Funds Loan, US Prime Rate Loan or Libor Loan. "Material Adverse Effect" means, when used with reference to any event or circumstance and any Person, an event or circumstance which has or may have a material adverse effect on (1) the business, operations, property or financial or other condition of that Person, (2) the ability of that Person to perform and discharge its obligations under this Agreement or any of the other Documents, or (3) the Lender's ability to enforce its rights under this Agreement or any of the other Documents. "Maturity Date" means, (a) in respect of a Bankers' Acceptance, the final Business Day of the applicable Contract Period, and (b) in respect of Cost of Funds Loans, the earlier of (i) November 30, 1998 and (ii) the date the Lender demands payment of the Revolving Credit Facility. "Notice of Borrowing" has the meaning ascribed to it in Section 4.1. "Outstanding Borrowings" means, at any time, the aggregate of all accrued interest and unpaid fees payable hereunder which at such time are due and payable, the principal amount of all Loans and the aggregate amount payable by the Lender to the holder of all outstanding Bankers' Acceptances. "Permitted Liens" means, with respect to the Borrower or any of its subsidiaries, any: (a) Liens in connection with workers compensation, unemployment insurance or other social security obligations in respect of obligations which are not yet due or which are being contested in good faith; (b) Liens now or hereafter made or incurred in the ordinary course of business to secure the performance of bids, tenders, contracts (other than for the borrowing of money), leases, statutory obligations or surety and performance bonds; (c) mechanics', worker's, materialmen's or other like Liens, arising in connection with construction or in the ordinary course of business, in respect of obligations which are not due or which are being contested in good faith; (d) Liens for Taxes not due or being contested in good faith; (e) Liens in respect of judgments or awards against the Borrower with respect to which the Borrower at the time shall in good faith be processing an appeal or proceedings for review and with respect to which the Borrower shall have secured a stay of execution pending such appeal or review; (f) Liens now or hereafter created or assumed by the Borrower on existing assets as permitted or not prohibited under existing agreements with lenders or, in connection with the acquisition or construction subsequent to the date hereof of property, whether real or personal (other than current assets), purchase money pledges of or purchase money mortgages or Liens or security interests created upon such acquired property to the extent it secures Indebtedness in an amount up to 100% of the lesser of the cost and fair market value of the property; and extensions, renewals or replacements thereof upon such property if the amount of Indebtedness secured thereby is not increased; (g) minor imperfections of title and encumbrances, if any which are not substantial in amount, and do not materially detract from the value of the properties subject thereto or materially impair the Borrower's ability to carry on its business; (h) licences or leases of patents, trademarks or trade names made in the ordinary course of business; and (i) other existing and future Liens incidental to the conduct of its business or the ownership of its property and assets. "Person" means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted. "Prime Loan" means a loan or advance made under this Agreement which is denominated in Canadian Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.1. "Prime Rate" means the annual rate of interest in effect from time to time equal to the greater of (i) the annual rate of interest publicly announced from time to time by the Lender as being its reference rate then in effect for determining interest rates on Canadian Dollar denominated commercial loans made by the Lender in Canada; and (ii) the BA Rate plus 1.00%. Any change in the Prime Rate shall be effective on the date such change becomes effective generally. "Release" means, with respect to any Contaminant, the method by which such Contaminant comes to be in the environment at large and includes, without limitation, discharging, spraying, injection, abandonment, depositing, spilling, leaking, seeping, pouring, emission, emptying, throwing, dumping, placing and exhausting, and when used as a noun has a similar meaning. "Revolving Commitment" means CAD6,100,000 or the Equivalent Amount in US Dollars, to the extent not cancelled, reduced or terminated hereunder. "Revolving Credit Facility" means the revolving credit facility referred in Section 3.1. "Revolving Credit Facility Maturity Date" means November 30, 1998 or such other date as may be agreed upon between the Borrower and the Lender from time to time. "Rollover Date", for any Cost of Funds Interest Period, means the last day thereof, provided that if such day is not a Business Day, the Rollover Date for such period shall be the next Business Day. "Standby Letter of Credit" means a standby letter of credit issued by the Lender to a beneficiary at the request of and for the account of the Borrower. "Subsidiary" means a subsidiary of the Borrower as defined in the Canada Business Corporations Act. "Subordinate Claims" means, at any time and from time to time, all claims of any Person in respect of Indebtedness owing by the Borrower which rank subordinate to the claims of the Lender in respect of the Outstanding Borrowings and other Indebtedness of the Borrower to the Lender hereunder. "Tax" includes all present and future taxes, levies, imposts, stamp taxes, duties, charges to tax, fees, deductions, withholdings and any restrictions or conditions resulting in a charge to tax and all penalty, interest and other payments on or in respect thereof. "Term Commitment" means CAD2,050,000 to the extent not cancelled, reduced or terminated hereunder. "Term Credit Facility" means the non-revolving term credit facility referred in Section 3.2. "Term Credit Facility Maturity Date" means November 30, 1998 or such other date as may be agreed upon between the Borrower and the Lender from time to time. "US Prime Rate" means, with respect to a US Prime Rate Loan, the annual rate of interest in effect from time to time equal to the annual rate of interest publicly announced from time to time by the Lender as being its reference rate then in effect for determining rates on US Dollar denominated commercial loans made by the Lender in Canada. Any change in the US Prime Rate shall be effective on the date such change becomes effective generally. "US Prime Rate Loan" means a loan or advance made under this Agreement which is denominated in US Dollars and in respect of which the Borrower is obliged to pay interest in accordance with Section 5.3. "US Dollars" and the symbol "USD" each means the lawful money of the United States of America. "Written" or "in writing" includes printing, typewriting, or any electronic means of communication capable of being legibly reproduced at the point of reception. SECTION 1 - 1.1 1.2 Headings and Table of Contents. The insertion of headings and the provision of a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.3 References. Unless otherwise specified, all references to Sections and Schedules are to Sections of, and Schedules to this Agreement. The words "hereto", "herein", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other provision of this Agreement. 1.4 Number and Gender. Unless otherwise specified, words importing the singular include the plural and vice versa and words importing gender include all genders. 1.5 Time of Day. Unless otherwise specified, any reference to a time of day means local time in Toronto, Ontario. 1.6 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and of Canada applicable therein. 1.7 Entire Agreement. This Agreement, including all Schedules and all documents contemplated hereby, constitutes the entire agreement among the parties with respect to the subject matter and supersedes all prior negotiations, undertakings, representations and understandings including, without limitation, the letter agreement dated November 28, 1996 (the "Proposal Letter") between the Guarantor and the Lender and correspondence between the parties dated prior to the date hereof. 1.8 Conflict. If there is a conflict or inconsistency between the provisions of this Agreement and any other document including, without limitation, the Documents and the agreements and correspondence between the Lender and the Borrower referred to in Section 1.7, the provisions of this Agreement shall prevail. 1.9 Severability. Any provision of this Agreement which is illegal, invalid or unenforceable in any jurisdiction shall not affect the legality, validity or enforceability of the remaining provisions and any such illegality, invalidity or unenforceability in any jurisdiction shall not affect the legality, validity or enforceability of such provision in any other jurisdiction. 1.10 Currency. Unless otherwise specified, all amounts are stated in Canadian Dollars. 1.11 Time. Time shall be of the essence in all provisions of this Agreement. 1.12 GAAP. Unless otherwise provided, all accounting terms used in this Agreement shall be interpreted and all financial information prepared in accordance with GAAP, consistently applied. 1.13 Schedules. The following Schedules are attached to and form part of this Agreement: Schedule 1 - Form of Bankers' Acceptance Schedule 2.1(i) - Litigation Schedule 4.1 - Notice of Borrowing Schedule 4.4(b) - Notice of Rollover of Libor Loan Schedule 4.6(f) - Confirmation Schedule 4.7 - Notice of Conversion Schedule 7.1(h) 2 - Form of Promissory Notes Schedule 7.1(h) 4 - Form of Guaranty Schedule 7.1(h) 6 - Opinion of legal counsel to the Borrower Schedule 8.1(d) - Particulars of environmental inquiries SECTION 2 - REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties. The Borrower, represents and warrants to the Lender, all of which shall survive the execution and delivery of this Agreement, as follows: (a) Existence, Power and Conduct of Business. The Borrower is a corporation duly organized and validly existing under the laws of Canada, being its jurisdiction of incorporation, except as disclosed in writing to the Lender, is up to date in all material filings required under Applicable Laws of relevance to this transaction and the business conducted by it and the properties and assets owned or leased by it, has the requisite power and authority to own and lease its properties and assets and to conduct its businesses in which it is presently engaged and except in jurisdictions where failure to register does not materially affect it or its business or except as disclosed in writing to the Lender, is duly qualified to conduct its businesses in all jurisdictions where the nature of its assets or its businesses makes such qualification necessary. (b) Power and Authority. The execution, delivery and performance by the Borrower of this Agreement and all other Documents are within its powers, have been duly authorized by all necessary corporate action and do not conflict with, result in a breach or violation of, or constitute a material default under, its constating documents, any unanimous shareholders agreement, any Applicable Law or any agreement or other document to which it is a party or by which it is bound and do not result in the creation of any Lien upon any of its assets. (c) Execution and Delivery and Binding Effect. Each of this Agreement and all other Documents has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally, the fact that specific performance and injunctive relief may be given at the discretion of the courts, and the equitable or statutory powers of the courts to stay proceedings before them and to stay the execution of judgments. (d) No Approvals Required. No further registration, order, permit, filing, consent, licence, decree or approval of, from or with any Governmental Authority is necessary or advisable in order to ensure the legality, validity, binding effect and enforceability of this Agreement or any other Document as against the Borrower. (e) Financial Statements. Its most recent annual and quarterly financial statements, copies of which have been furnished to the Lender, have been prepared in accordance with GAAP, present fairly its financial position and the results of its operations as at the date of such financial statements. (f) Title to Assets and Liens. Except as disclosed in writing to the Lender, it has good and marketable title to all of its assets and properties free and clear of any Liens other than Permitted Liens. (g) No Default. There exists to its knowledge no Event of Default which has not been waived and no Default of which the Lender has not previously been notified in writing. (h) Compliance. The Borrower is in material compliance with its constating documents, its franchises and licences, and all Applicable Laws including, without limitation, health, safety and employment standards and labour codes and, to the best knowledge of the Borrower, with Environmental Laws of all applicable Governmental Authorities. (i) Litigation. Except as set out in Schedule 2.1 (i), to Borrower's knowledge, no material litigation (including, without limitation, derivative actions), arbitration proceedings, governmental proceedings or investigations or regulatory proceedings are pending or threatened against the Borrower (except as previously disclosed by notice to the Lender), which, if adversely determined, would have a Material Adverse Effect upon the Borrower, nor does the Borrower know of any basis for any of the foregoing. In addition, there are no inquiries, formal or informal, which might give rise to such actions, proceedings or investigations. (j) Full Disclosure. Neither the financial statements referred to in Section 2.1(e) nor any other statement furnished by it or on its behalf to the Lender in connection with the negotiation of this Agreement contain any untrue statement of a material fact, or omitted a material fact necessary to make such statements not misleading, and all such statements, taken as a whole, together with this Agreement, do not contain any untrue statement of a material fact or omit a material fact necessary to make such statements not misleading. All expressions of expectation, intention, belief and opinion were honestly made on reasonable grounds after due and careful inquiry by it and any other Person who furnished such material. There is no fact within the knowledge of the Borrower which has not been disclosed to the Lender in writing which has or which the Borrower could reasonably expect to have, a Material Adverse Effect. (k) Tax Returns. The Borrower has filed or caused to be filed all tax returns which, to its knowledge are required to have been filed, and has paid all Taxes shown to be due and payable on such returns or on any assessments made against it and all other Taxes, fees or other charges imposed on it by any Governmental Authority, other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves have been provided in its books. No Liens for Taxes have been filed and, to its knowledge, no claims are being asserted with respect to any such Taxes, fees or other charges. (l) Material Change. Save as disclosed to the Lender in writing, there has been no material adverse change in the financial condition of the Borrower or any material litigation since the date of the most recent audited or unaudited financial statements (as the case may be) of the Borrower delivered under this Agreement. (m) Liabilities. As of the date of the most recent financial statements delivered to the Lender under this Agreement, the Borrower has no debts, liabilities or obligations to any Person, whether direct or indirect, absolute or contingent, matured or not, or other obligations for the payment of money which, according to GAAP, are material and which are not disclosed (1) in its most recent financial statements delivered to the Lender under this Agreement and the notes to those financial statements or (2) in writing to the Lender. 2.2 Deemed Repetition. The representations and warranties made in Section 2.1 shall continue in effect until payment and performance of all debts, liabilities and obligations referred to in this Agreement and any Document and shall be deemed to be repeated on each Drawdown Date, Acceptance Date and Conversion Date as if made on each such date, in each case subject to minor changes which do not have a material effect. SECTION 3 - CREDIT FACILITIES 3.1 Revolving Credit Facility. (a) Establishment. Subject to this Agreement, the Lender hereby confirms its establishment in favour of the Borrower of a revolving credit facility in the principal amount of the Commitment (the "Revolving Credit Facility") available to the Borrower by way of advances of Loans, Letter of Credit Advances up to an aggregate amount not to exceed $700,000 and the acceptance of Bankers' Acceptances. (b) Revolving Nature of Revolving Credit Facility. Subject to this Agreement, the Borrower may, from time to time, increase or reduce the amount of its Borrowings under the Revolving Credit Facility by borrowing, repaying and reborrowing Prime Loans, Cost of Funds Loans, US Prime Rate Loans and Libor Loans and by the acceptance of Bankers' Acceptances. (c) Repayment. All Outstanding Borrowings under the Revolving Credit Facility shall be repayable by the Borrower upon the earlier of (i) Revolving Credit Facility Maturity Date and (ii) demand at any time by the Lender following the occurrence of an Event of Default. (d) Purpose. The proceeds of Borrowings under the Revolving Credit Facility shall be used to acquire shares in the capital stock of Burtek, to refinance the indebtedness of Burtek, for general corporate purposes and financing day to day working capital requirements, whether directly or indirectly through its subsidiary, Burtek. 3.2 Term Credit Facility. (a) Establishment. Subject to this Agreement, the Lender hereby confirms its establishment in favour of the Borrower of a term non-revolving credit facility in the principal amount of the Term Commitment (the "Term Credit Facility") available to the Borrower by way of a single advance of a Loan. (b) Non-Revolving Notice of Term Credit Facility. The Borrower is entitled to a single advance under Term Credit Facility by way of a Prime Loan and Cost of Funds Loan and by the acceptance of Bankers' Acceptances. (c) Repayment. All Outstanding Borrowings under the Term Credit Facility shall be repayable by the Borrower upon the earlier of (i) the Term Credit Facility Maturity Date; and (ii) demand at any time by the Lender following the occurrence of an Event of Default; provided that prior to any such demand, the Borrower shall repay the Outstanding Borrowings under the Term Credit Facility in 48 equal monthly payments of CAD42,708.33 each on account of principal commencing March 31, 1997 with the balance due or accruing on the Term Credit Facility Maturity Date. (d) Purpose. The proceeds of Borrowings under the Term Credit Facility shall be used to finance the acquisition of Burtek. SECTION 4 - PROVISIONS APPLICABLE TO BORROWINGS 4.1 Notice of Borrowing. Subject to the terms and conditions hereof, the Borrower may borrow by way of Loans and the acceptance of Bankers' Acceptances upon giving to the Lender at the Branch of Account: (1) in the case of Prime Loans and US Prime Rate Loans, irrevocable telephone notice by 11:00 a.m. one Business Day prior to the Drawdown Date, and (2) in the case of Cost of Funds Loans, Libor Loans and Bankers' Acceptances, irrevocable telephone notice by 11:00 a.m. two Business Days prior to the Drawdown Date, in each case followed by written confirmation on the same day substantially in the form of Schedule 4.1 (a "Notice of Borrowing"). 4.2 Prime and US Prime Loans. Amounts of Borrowing. Each Borrowing by way of a Prime Loan or a US Prime Loan shall be in increments of CAD or USD25,000. 4.3 Cost of Funds Loans. (a) Amounts of Borrowing. Each Borrowing by way of a Cost of Funds Loan shall be in the minimum amount of CAD or USD250,000 and thereafter in increments of CAD or USD100,000. (b) Selection of Interest Period. The Borrower may select the Cost of Funds Interest Period for each Cost of Funds Loan. No Cost of Funds Interest Period will be less than 30 days or greater than 180 days. (c) Availability. Cost of Funds Loans will not be available if the stated maturity or rollover date is after the Maturity Date. 4.4 Libor Loans. (a) Amounts of Borrowing. Each Borrowing by way of a Libor Loan shall be in the minimum amount of CAD or USD250,000 and thereafter in increments of CAD or USD100,000. (b) Rollover of Libor Loans. With respect to each Libor Loan which is an outstanding Borrowing, at or before 11:00 a.m. one Business Day before the applicable Interest Determination Date, the Borrower shall notify the Lender at the Branch of Account by irrevocable telephone notice followed by written confirmation on the same day in form and substance substantially as attached as Schedule 4.4(b) either of (1) the next Libor Interest Period which it has selected as applicable to the Libor Loan, which new Libor Interest Period shall commence on and include the last day of the prior Libor Interest Period, or (2) the intention of the Borrower to repay or convert such Libor Loan at the end of the relevant Libor Interest Period. If the Borrower fails to select and to notify the Lender at the Branch of Account of the Libor Interest Period applicable to the Libor Loan, or its intention to repay or convert the Borrower shall be deemed to have converted the Libor Loan into a US Prime Rate Loan as of the last day of the applicable Libor Interest Period. 4.5 Substitute Basis of Borrowing. If at any time during the term of this Agreement, the Lender determines in good faith (which determination shall be final, conclusive and binding upon the Borrower) that: (a) adequate and fair means do not exist for ascertaining the rate of interest on a Libor Loan, (b) Libor does not accurately reflect the effective cost to the Lender of making, funding or maintaining a Libor Loan and the costs to the Lender are increased or the income receivable by the Lender is reduced in respect of a Libor Loan, (c) the making or the continuance of a Libor Loan or a portion of a Libor Loan by the Lender has become impracticable by reason of circumstances which materially and adversely affect the London interbank market, or (d) deposits in US Dollars are not available to the Lender in the London interbank market in sufficient amounts in the ordinary course of business for the applicable Libor Interest Period to make, fund or maintain a Libor Loan during such Libor Interest Period, then the Lender shall promptly notify the Borrower in writing of such determination setting forth the basis of such determination and each outstanding Libor Loan will automatically be converted into a US Prime Rate Loan on the expiry of its then current Libor Interest Period. The Lender will not be obligated to make any further Libor Loans available pursuant to this Agreement, so long as the circumstances referred to in this Section 4.5 continue. 4.6 Bankers' Acceptances. (a) Amounts of Borrowing. Each Borrowing by way of Bankers' Acceptances shall be in the minimum amount of CAD1,000,000 and thereafter in increments of CAD100,000. (b) Contract Period. No Contract Period with respect to a Bankers' Acceptances will be less than 30 days or greater than 180 days. (c) Execution of Bankers' Acceptance. Drafts to be accepted as Bankers' Acceptances shall be signed by an officer or officers of the Borrower who are duly authorized by the Borrower to execute the Bankers' Acceptances on behalf of the Borrower. Notwithstanding that any person whose signature appears on any Bankers' Acceptance as one of such officers may no longer be an authorized signatory for the Borrower at the date of issuance of a Bankers' Acceptance, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in force at the time of such issuance and any such Bankers' Acceptance so signed shall be binding on the Borrower. (d) Bankers' Acceptances in Blank. To facilitate the acceptance of Bankers' Acceptances, the Borrower shall, upon execution of this Agreement and from time to time as required, provide the Lender drafts duly executed and endorsed in blank by the Borrower. Upon receipt of a Notice of Borrowing for a Bankers Acceptance or a confirmation as set out in Section 4.6 (f) from the Borrower, the Lender is hereby authorized to issue such Bankers' Acceptances endorsed in blank in such aggregate face amount as may be set out in the Notice of Borrowing or confirmation as applicable. The Lender shall not be responsible or liable for its failure to accept a Bankers' Acceptance as required hereunder if the cause of such failure is, in whole or in part, due to the failure of the Borrower to provide duly executed and endorsed drafts to the Lender on a timely basis nor shall the Lender be liable for any damage, loss or other claim arising by reason of any loss or improper use of any such instrument, it being understood and agreed that the Lender's responsibility is limited in exercising in regard to the drafts the same degree of care which it gives valuable property of the Lender at the Lender's office, branch or agency where the drafts are held. The Lender shall maintain a record with respect to Bankers' Acceptances (i) received by it from the Borrower in blank hereunder, (ii) voided by it for any reason, (iii) accepted and purchased by it hereunder, and (iv) cancelled at their respective maturities. The Lender further agrees to retain such records in the manner and for the statutory periods provided in the various provincial or federal statutes and regulations which apply to the Lender. (e) Purchase of Bankers' Acceptances. Upon acceptance of a Bankers' Acceptance of the Borrower by the Lender, the Borrower may offer to sell Bankers Acceptances to the Lender at the Discount Rate and, if purchased, the Lender shall credit the Discount Proceeds received to the Borrower's Account. The Acceptance Fee payable by the Borrower to the Lender in respect of each Bankers' Acceptance accepted and purchased by the Lender shall be set off against the Discount Proceeds payable by the Lender under this Section 4.6(e). (f) Rollover. With respect to each Borrowing which is outstanding hereunder by way of Bankers' Acceptances, at or before 11:00 a.m. one Business Day prior to the expiry of the Contract Period of such Bankers's Acceptances, the Borrower shall notify the Lender at the Branch of Account by irrevocable telephone notice followed by written confirmation on the same day in form and substance substantially as attached as Schedule 4.6(f) if the Borrower intends to issue Bankers' Acceptances on such Maturity Date to provide for the payment of such maturing Banker's Acceptances. If the Borrower fails to give such notice and fails to give notice of proposed conversion in accordance with Section 4.7, such maturing Bankers' Acceptances shall be deemed to have converted on their Maturity Date into a Prime Loan in an amount equal to the face amount of such Bankers' Acceptances. (g) Rollover not Repayment. A payment of and issue of Bankers' Acceptances having the same aggregate face amount under Section 4.6(f) shall be deemed not to constitute a repayment of any Borrowing or a new advance of funds. (h) Sale of Bankers' Acceptances. The Lender may at any time and from time to time hold, sell, rediscount or otherwise dispose of any or all Bankers' Acceptances accepted and purchased by it. 4.7 Letters of Credit. (a) Letter of Credit Period. Letters of Credit shall have terms of not greater than 365 days and shall mature on a Business Day. (b) Refusal to Issue. The Lender may refuse to issue Letters of Credit on the Borrower's behalf at any time in the Lender's sole discretion. (c) Letter of Credit Agreement. Each Letter of Credit shall be governed by the terms and conditions of the Letter of Credit Agreement or other specific agreement relative to such instruments between the Borrower and the Lender and each Letter of Credit shall be governed by the terms and conditions of the applicable Letter of Credit Agreement in the event of a conflict with this agreement. (d) Retirement of Letter of Credit. A Letter of Credit may only be retired on its maturity date (i) unless and to the extent it has been honoured or (ii) unless the written consent of the beneficiary of such instrument has been obtained and the original Letter of Credit has been returned to the Lender. (e) Charging of Letter of Credit. Each drawing under a Letter of Credit shall be charged to the Borrower's Accounts. 4.8 Conversion Option. (a) Notice for and Conditions of Conversion. Subject to this Agreement, the Borrower may, during the term of this Agreement, effective on any Business Day, convert, in whole or in part, Outstanding Borrowings into another basis of Borrowing permitted under the Credit Facilities, upon giving to the Lender at the Branch of Account prior irrevocable telephone notice of at least 2 Business Days, followed by written confirmation on the same day substantially in the form of Schedule 4.8, provided that: (i) no Default has occurred and is continuing, (ii) each conversion to a Borrowing by way of a Prime Loan or a US Prime Loan shall be for a minimum aggregate amount of CAD or USD25,000, (iii) each conversion to a Borrowing by way of Cost of Funds Loan, Bankers' Acceptance or Libor Loan shall be for a minimum aggregate amount of CAD1,000,000 or USD1,000,000, (iv) a conversion to a Borrowing by way of Libor Loans shall only be made to the extent that the conditions outlined in Section 4.5 shall not exist on the relevant Conversion Date, (v) each conversion of a Borrowing by way of a Libor Loan may be converted to another basis of Borrowing only on the last day of the relevant Libor Interest Period and, provided that, if less than all of such Libor Loan is converted, then after such conversion not less than USD1,000,000 (or increments of USD100,000 in excess thereof) shall remain as a Libor Loan, (vi) each conversion of a Borrowing by way of a Bankers' Acceptances may be converted to another basis of Borrowings only on the last day of the relevant Contract Period and provided that, if less than all Borrowings by way of Bankers' Acceptances is converted, then after such conversion not less than CAD1,000,000 (or increments of CAD100,000 in excess thereof) shall remain as Borrowings by way of Bankers' Acceptances, and (vii) each conversion of a Borrowing by way of a Cost of Funds Loan may be converted to another basis of Borrowings only on the last day of the relevant Cost of Funds Interest Period and provided that, if less than all Borrowings by way of Cost of Funds Loan is converted, then after such conversion not less than CAD1,000,000 (or increments of CAD100,000 in excess thereof) shall remain as Borrowings by way of a Cost of Funds Loan. (b) Mandatory Conversion. If an Event of Default, or an event or circumstance which with notice or lapse of time or both would constitute an Event of Default, has occurred and is continuing, the Borrower shall be required to convert (i) its Borrowings by way of Libor Loans to Borrowings by way of US Prime Rate Loans on the applicable Libor Interest Date, (ii) its Borrowings by way of Bankers' Acceptances to Borrowings by way of Prime Loans on the applicable Maturity Date of each Bankers' Acceptances and (iii) its Borrowings by way of Cost of Funds Loans to Borrowings on the last day of the relevant Cost of Funds Interest Period. (c) Conversion Not Repayment. The conversion of any Borrowing to another type of Borrowing in an equal amount, as provided in this Section 4.6, shall not be deemed to constitute a repayment of any Borrowing or a new advance of funds. (d) Determination Final. With respect to all matters referred to in this Section 4.8, the determination by the Lender shall, prima facie, be final and binding on the Borrower. 4.9 Reliance on Oral Instructions. The Lender shall be entitled to act upon the oral instructions of any Person who the Lender, acting reasonably, believes has been identified by the Borrower in written instructions to the Lender as someone authorized to give oral instructions regarding the drawdown or issuance of Borrowings, and the Lender shall not be responsible for any error or omission in such instructions or in the performance thereof except in the case of negligence or wilful misconduct by the Lender or its employees. Any such oral instructions so given shall be immediately confirmed in writing by the Borrower to the Lender. 4.10 Evidence of Indebtedness. The Lender shall open and maintain at the Branch of Account, accounts and records evidencing the liability of the Borrower to the Lender with respect to Borrowings and record therein by appropriate entries all amounts of Indebtedness of the Borrower to the Lender arising under or in connection with this Agreement and all payments on account thereof. Such accounts and records will constitute, prima facie, conclusive evidence of the Indebtedness of the Borrower to the Lender from time to time, the date each Borrowing was made and the amounts the Borrower has paid from time to time on account of such Indebtedness. SECTION 5 - INTEREST, FEES AND EXPENSES 5.1 Payment of Interest on Prime Loans. Rate. The Borrower shall pay interest on Prime Loans in Canadian Dollars at a rate per annum equal to the Prime Rate. Each change in the fluctuating interest rate for a Prime Loan will take place simultaneously with the corresponding change in the Prime Rate. Calculation. Interest on Prime Loans shall be payable monthly in arrears on each Interest Payment Date for the period up to but not including such Interest Payment Date and shall be calculated on a daily basis on the principal amount of the Prime Loans remaining unpaid from time to time and on the basis of the actual number of days elapsed and a year of 365 days or 366 days, as the case may be. 5.2 Payment of Interest on Cost of Funds Loans. Rate. The Borrower shall pay interest on each Cost of Funds Loan in US Dollars for the period commencing on and including the first day of the Cost of Funds Interest Period applicable to such Cost of Funds Loan up to but not including the Cost of Funds Interest Date, at the rate per annum determined by the Lender to be equal to the sum of Cost of Funds plus 1.25%. Each such determination of the rate of interest applicable to a Cost of Funds Interest Period shall, prima facie, be final, and binding upon the Borrower. Upon determination of the rate of interest applicable to a Cost of Funds Interest Period applicable to a Cost of Funds Loan, the Lender shall promptly notify the Borrower of such rate. Calculation. Interest on each Cost of Funds Loan shall be payable on each Cost of Funds Interest Date with respect to such Cost of Funds Loan and shall be calculated on a daily basis and on the basis of the actual number of days elapsed and a year of 360 days, provided however, that in the event that the relevant Cost of Funds Interest Period is greater than 90 days, interest shall be due and payable not less frequently than every 90 days. 5.3 Payment of Interest on US Prime Rate Loans. Rate. The Borrower shall pay interest on US Prime Rate Loans in US Dollars at a rate per annum equal to the US Prime Rate. Each change in the fluctuating interest rate for a US Prime Rate Loan will take place simultaneously with the corresponding change in the US Prime Rate. Calculation. Interest on US Prime Rate Loans shall be payable monthly in arrears on each Interest Payment Date for the period up to but not including such Interest Payment Date and shall be calculated on a daily basis on the principal amount of the US Prime Rate Loans remaining unpaid from time to time and on the basis of the actual number of days elapsed and a year of 365 days or 366 days, as the case may be. 5.4 Letters of Credit Fee. Fees. The Borrower shall pay to the Lender, at the time the Lender issues (or renews) a Commercial Letter of Credit an issuance fee, at the Lender's standard rates calculated on the maximum face amount of each such Commercial Letter of Credit. The Borrower shall pay to the Lender, at the time the Lender issues (or renews) a Standby Letter of Credit an issuance fee equal to the greater of (i) CAD$300 and (ii) an annual fee equal to 1.25% of the maximum face amount of such Standby Letter of Credit. The calculation of the amount of such annual fees shall be based on the term of such Letter of Credit (or the term of such renewal) and shall be based on a 365 or 366 day year, as the case may be. 5.5 Payment of Interest on Libor Loans. Rate. The Borrower shall pay interest on each Libor Loan in US Dollars for the period commencing on and including the first day of the Libor Interest Period applicable to such Libor Loan up to but not including the Libor Interest Date, at the rate per annum determined by the Lender to be equal to the sum of Libor plus 1.25%. Each such determination of the rate of interest applicable to a Libor Interest Period shall, prima facie, be final, and binding upon the Borrower. Upon determination of the rate of interest applicable to a Libor Interest Period applicable to a Libor Loan, the Lender shall promptly notify the Borrower of such rate. Calculation. Interest on each Libor Loan shall be payable on each Libor Interest Date with respect to such Libor Loan and shall be calculated on a daily basis and on the basis of the actual number of days elapsed and a year of 360 days; provided however, that in the event that a relevant Libor Interest Period is greater than 90 days, interest shall be due and payable not less frequently than every 90 days. 5.6 Interest on Overdue Amounts. Upon a default in the payment of principal, interest or other amounts due under this Agreement, the Borrower shall pay interest on such overdue amount both before and, where permitted by law, after judgment at a rate per annum equal to the rate of interest as is applicable to the relevant Borrowing prior to default (calculated on the same basis) plus 2.0% for so long as such amount remains overdue. Such interest shall be payable upon demand made by the Lender and shall be compounded on each Interest Payment Date, Cost of Funds Interest Date or Libor Interest Date, as applicable. 5.7 Interest Act. For the purposes of the Interest Act (Canada), where in this Agreement a rate of interest is to be calculated on the basis of a year of 360 or 365 days, as applicable (the "first rate"), the yearly rate of interest to which the first rate is equivalent is the first rate multiplied by the actual number of days in the year for which such calculation is made and divided by 360 or 365 (as applicable). 5.8 Arrangement Fee. The Borrower will pay the Lender an arrangement fee (the "Arrangement Fee") of CAD18,750 payable on the Borrowers' acceptance of the Proposal Letter, the receipt of which is hereby acknowledged by the Lender. 5.9 Administration Fee. The Borrower will pay the Lender an administration fee (the "Administration Fee") of CAD400 payable quarterly in arrears for the daily monitoring and administration of operating draws and pay downs. 5.10 Commitment Fee. The Borrower will pay the Lender a commitment fee (the "Commitment Fee") equal to 0.125% of the daily unused portion of the Credit Facilities payable quarterly in arrears. 5.11 Limit on Rate of Interest. (a) No Payment shall exceed Lawful Rate. Notwithstanding any other term of this Agreement, the Borrower shall not be obliged to pay any interest or other amounts under or in connection with this Agreement in excess of the amount or rate permitted under or consistent with Applicable Laws. In particular but without limiting the generality of the foregoing, the Borrower shall not be obliged to pay any interest or other amounts which would result in the receipt by the Lender of interest on credit advanced at a rate in excess of the rate permitted under the Criminal Code (Canada). For purposes of this Section, "interest" and "credit advanced" have the meanings ascribed in the Criminal Code (Canada), and the "effective annual rate of interest" shall be calculated in accordance with generally accepted actuarial principles and practices. (b) Payment at Highest Lawful Rate. If, as a result of Section 5.10 (a), the Borrower is not obliged to make a payment which it would otherwise be required to make, the Borrower shall make such payment to the maximum extent permitted by or consistent with Applicable Law. 5.12 Change in Circumstances. (a) Reduction in Rate of Return. If at any time the Lender determines, acting reasonably, that (1) any change in any Applicable Law or any interpretation thereof after the date of execution hereof, or (2) compliance by the Lender with any direction, requirement or request from any regulatory authority given after the date of execution hereof, whether or not having the force of law provided that if not having the force of law, the Lender's decision to comply therewith is reasonable, prudent and in good faith, has or would have, as a consequence of the Lender's obligation under this Agreement and taking into consideration the Lender's policies with respect to capital adequacy, the effect of reducing the rate of return on the Lender's capital to a level below that which the Lender could have achieved but for such change or compliance, then from time to time, upon demand of the Lender, the Borrower shall pay to the Lender such additional amounts as may be determined by the Lender as will compensate the Lender for such reduction provided that the Lender is similarly requiring payment of compensating amounts from other Borrowers whose credit facilities with the Lender are similarly effected. (b) Taxes, Reserves, Capital Adequacy, etc. If, after the date of execution hereof, any introduction of any Applicable Law or any change or introduction of a change in any Applicable Law (whether or not having the force of law) provided that if not having the force of law, the Lender's decision to comply therewith is reasonable, prudent and in good faith or in the interpretation or application thereof by any court or by any Governmental Authority, central bank or other authority or entity charged with the administration thereof or any change in the compliance of the Lender therewith now or hereafter: (i) subjects the Lender to, or causes the withdrawal or termination of a previously granted exemption with respect to, any Tax or changes the basis of taxation, or increases any existing Tax, on payments of principal, interest, fees or other amounts payable by the Borrower to the Lender under this Agreement (except for taxes on the overall net income of the Lender), (ii) imposes, modifies or deems applicable any reserve, special deposit, deposit insurance or similar requirement against assets held by, or deposits in or for the account of or loans by or any other acquisition of funds by, an office of the Lender, or (iii) imposes on the Lender or expects there to be maintained by the Lender any capital adequacy or additional capital requirement in respect of any Borrowing or any other condition with respect to this Agreement, and the result of any of the foregoing, in the sole determination of the Lender acting reasonably, shall be to increase the cost to, or reduce the amount received or receivable by, the Lender hereunder or its effective rate of return hereunder in respect of making, maintaining or funding a Borrowing hereunder, the Lender shall, acting reasonably, determine that amount of money which shall compensate the Lender for such increase in cost or reduction in income. The Lender shall make reasonable efforts to limit the incidence of any Additional Compensation, as defined below. (c) Payment of Additional Compensation. Upon the Lender having determined that it is entitled to compensation in accordance with the provisions of Sections 5.11(a) or 5.11 (b) (herein referred to as "Additional Compensation"), the Lender shall promptly so notify the Borrower and shall provide to the Borrower a photocopy of the relevant Applicable Law or direction, requirement or request, as applicable, and a certificate of a duly authorized officer of the Lender setting forth the Additional Compensation and the basis of calculation thereof, which shall be prima facie evidence of such Additional Compensation. The Borrower shall pay to the Lender within 30 Business Days of the giving of such notice the Additional Compensation calculated and accruing from the date of such notification. The Lender shall be entitled to be paid such Additional Compensation from time to time to the extent that the provisions of this Section 5.11 are then applicable notwithstanding that Lender has previously been paid any Additional Compensation. (d) Bank for International Settlements Capital Rules. For greater certainty, the term "Applicable Law" for the purposes of this Section 5.11 includes any law relating in any way to international convergence of capital measurement and capital standards developed by the Lender for International Settlements. 5.13 Payment of Portion. Notwithstanding any other term or condition of this Agreement, if the Lender gives the notice provided for in Section 5.11 with respect to any Borrowing (an "Affected Borrowing"), the Borrower may at its option, upon 10 Business Days notice to that effect given to the Lender (which notice shall be irrevocable) unless such prepayment causes an Event of Default hereunder, prepay in full without penalty such Affected Borrowing outstanding together with accrued and unpaid interest on the principal amount so prepaid up to the date of such prepayment and pay such Additional Compensation as may be applicable to the date of such payment and all costs, losses and expenses incurred by the Lender by reason of the liquidation or re-employment of deposits or other funds or for any other reason whatsoever resulting from the repayment of such Affected Borrowing or any part thereof. Upon its receipt of such prepayment, the Lender shall refund a proportionate share of the Arrangement Fee. 5.14 Illegality. If any Applicable Law, or any change therein or in the interpretation or application thereof by any court or by any Governmental Authority or central bank or comparable agency or any other entity charged with the interpretation or administration thereof or compliance by the Lender with any request or direction (whether or not having the force of law provided that if not having the force of law, the Lender's decision to comply therewith is reasonable, prudent and in good faith) of any such Governmental Authority, central bank or comparable agency or entity, now or hereafter makes it unlawful or impossible for the Lender to make, fund or maintain a Borrowing or to perform its obligations under this Agreement, the Lender may, by written notice thereof to the Borrower terminate its obligations to make further advances under this Agreement, and the Borrower, if required by the Lender, shall repay forthwith (or at the end of such longer period as the Lender at its discretion has agreed) the principal amount of such Borrowing together with accrued interest (without penalty or bonus), along with such Additional Compensation as may be applicable to the date of such payment and all costs, losses and expenses incurred by the Lender by reason of the liquidation or re-deployment of deposits or other funds or for any other reason whatsoever resulting from the repayment of such Borrowing or any part thereof. If any such change shall only affect a portion of the Lender's obligations under this Agreement which is, in the opinion of the Lender acting reasonably, severable from the remainder of this Agreement so that the remainder of this Agreement may be continued in full force and effect without otherwise affecting any of the obligations of the Lender or the Borrower hereunder, the Lender shall, after allowing the Borrower the option to convert its Loan, only declare its obligations under that portion so terminated. 5.15 Indemnity. (a) General. The Borrower shall indemnify the Lender against all losses, reasonable expenses and liabilities which the Lender may sustain or incur as a consequence of (1) any Default by the Borrower under this Agreement, (2) any material misrepresentation by the Borrower contained in any writing delivered to the Lender in connection with this Agreement, or (3) any material failure by the Borrower to comply with any Applicable Law. (b) Libor Loans. For greater certainty, but without limitation, if the Borrower repays, prepays or cancels a Libor Loan on a day other than a Libor Interest Date falling on the last day of a Libor Interest Period, the Borrower shall indemnify the Lender for any loss or expense suffered or incurred by the Lender including, without limitation, any loss or expenses which the Lender incurs by reason of the liquidation or re-deployment of deposits or other funds acquired by the Lender to maintain the Libor Loan and any interest or other charges payable to lenders of funds borrowed by the Lender in order to maintain the Libor Loan together with any other charges, costs or expenses incurred by such Lender relative thereto. (c) Telephone Instructions. The Borrower shall indemnify the Lender for any loss or expense suffered or incurred by the Lender as a consequence of the Lender acting in accordance with prudent banking standards upon instructions given or agreements made over the telephone or by electronic transmission of any type with Persons who the Lender, acting reasonably, believes to have been acting on the Borrower's behalf and who have been identified in writing by the Borrower as Persons authorized to give such instructions, provided this indemnity shall not apply to losses or expenses incurred or suffered by the Lender as a result of its own gross negligence or wilful misconduct. (d) Certificate. A certificate of the Lender setting out the basis for the determination of the amount necessary to indemnify the Lender pursuant to this Section 5.14 shall be, prima facie, conclusive evidence of the correctness of such determination. 5.16 Payment of Stamping Fee. The stamping fee applicable to Bankers' Acceptances is to be paid at the time of issuance, with the face value due at maturity. SECTION 6 - PAYMENTS AND REDUCTIONS OF COMMITMENTS 6.1 Payments Generally. Each payment to the Lender under this Agreement shall be paid in the currency in which the relevant Borrowing is outstanding and all other amounts owing hereunder shall be paid in Canadian Dollars except as otherwise herein required or contemplated. Each such payment shall be made for value at or before 1:00 p.m. on the day such payment is due, provided that, if any such day is not a Business Day, such payment shall be deemed for all purposes of this Agreement to be due on the Business Day next following such day (and any such extension shall be taken into account for purposes of the computation of interest and fees payable under this Agreement). 6.2 No Set-Off. All payments to be made by the Borrower shall be made without set-off or counterclaim and without any deduction of any kind. 6.3 Application of Payments Before Exercise of Rights. All payments made by or on behalf of the Borrower under this Agreement before the exercise by the Lender of any rights arising under Section 9.2 shall be applied in each instance in the following order: (a) firstly, in payment of any amounts due and payable as and by way of recoverable expenses hereunder; (b) secondly, in payment of any fees, interest, or default interest then due and payable on or in respect of the Borrowings; (c) thirdly, in repayment of any principal amounts outstanding on account of the Borrowings; and (d) fourthly, in payment of any other amounts then due and payable by the Borrower hereunder. 6.4 Application of Payments After Exercise of Rights. All payments made by or on behalf of the Borrower under this Agreement after the exercise by the Lender of any rights arising under Section 9.2 shall be applied in each instance in the following order, unless the Lender otherwise determines in its sole and absolute discretion: (a) firstly, in payment of the reasonable costs and expenses of any realization, including the out-of-pocket expenses of the Lender and the reasonable fees and out-of-pocket expenses of counsel employed in connection therewith, and to the payment of all reasonable funds made available by the Lender for the account of the Borrower in connection with such realization and the payment of all reasonable out-of-pocket costs and expenses incurred by the Lender in connection with the administration and enforcement of this Agreement or the other Documents, to the extent that such funds, costs and expenses shall not have been reimbursed to the Lender; (b) secondly, in payment of any unpaid fees payable hereunder to and including the date of such application; (c) thirdly, in payment of principal and then to the payment of any other Indebtedness (other than on account of interest) outstanding under this Agreement and under any other agreement applicable to the Outstanding Borrowings, and then to the payment of accrued and unpaid interest thereunder to and including the date of such application; and (d) fourthly, in payment of the balance, if any, of such proceeds to the Borrower or such other person or persons who may be entitled at law to such proceeds or, in each case, their respective successors or assigns, or as a court of competent jurisdiction may otherwise direct. 6.5 Reduction of Commitment. The Borrower may reduce or cancel the amount of the Commitment at any time upon not less than five Business Days prior irrevocable written notice to the Lender without bonus or penalty; provided that on or prior to the effective date of such reduction or cancellation all Outstanding Borrowings in excess of the Commitment, as reduced or cancelled, together with interest accrued thereon and fees outstanding in respect thereof is paid in full. SECTION 7 - COVENANTS 7.1 Covenants of the Borrower. While any amount owing hereunder remains unpaid or the Lender has any obligations hereunder, the Borrower covenants with the Lender, that it will: (a) Corporate Existence and Franchises. except as otherwise expressly permitted in this Agreement, maintain in full force and effect its separate existence and all rights, licenses, leases and franchises reasonably necessary to the conduct of its business. (b) Books, Records and Inspections. maintain complete and accurate books and records, permit the Lender to have reasonable access to the Borrower's books and records, and permit the Lender to inspect the Borrower's properties and operations at reasonable times. (c) Insurance. maintain insurance to such extent and against such hazards and liabilities as may be required by law and as is commonly maintained by companies similarly situated or as the Lender may reasonably request from time to time. (d) Taxes and Liabilities. promptly pay when due all taxes, duties, assessments and other liabilities, except such taxes, duties, assessments and other liabilities as the Borrower is diligently contesting in good faith and by appropriate proceedings or which the failure to pay would not have a Material Adverse Effect; provided that the Borrower has provided for and is maintaining adequate reserves with respect thereto in accordance with GAAP. (e) Liens. not create or permit to exist any Lien with respect to any of the properties or assets of the Borrower or any Subsidiary, whether nor owned or hereafter acquired, including, without limitation, accounts or inventory now owned or hereafter acquired, except the following Liens (a) Permitted Liens; (b) Liens which arise in the ordinary course of business for sums not due or sums which the Borrower is contesting in good faith and by appropriate proceedings and with respect to which the Borrower has provided for and is maintaining adequate reserves in accordance with GAAP, but which do not involve any deposits or advances or borrowed money or the deferred purchase price of property or services; and (c) any other Lien in respect of which the Lender has provided its prior written consent. (f) Other Agreements. not enter into any agreement which would have a Material Adverse Effect on the Borrower containing any provision which would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in connection herewith or which would violate or breach any provision hereof or of any such instrument or document. (g) Compliance with Applicable Laws. comply with the requirements of all Applicable Laws, rules, regulations, and orders of all Governmental Authorities (Federal, state, provincial, local or foreign, and including, without limitation, environmental laws, rules, regulations and orders), except for failures to comply with such statutes, rules and regulations which in the aggregate would not materially and adversely affect the Borrower's business, credit, operations, financial condition or prospects, except where the Borrower is contesting an alleged breach in good faith and by proper proceedings and for which the Borrower is maintaining adequate reserves in accordance with GAAP. (h) Delivery of Documents. on or before the Closing Date (except as otherwise noted), the Borrower shall execute, or cause to be executed, and delivered to the Lender, in form and substance satisfactory to it acting reasonably, the following: 1. a certificate of an officer on behalf of the Borrower dated as of the Closing Date certifying: (i) the names and specimen signatures of the Persons authorized to sign the Documents to be executed and delivered by the Borrower; (ii) that the constating documents and by-laws of the Borrower attached thereto are complete and correct copies, have not been amended, modified or supplemented except as described in the Certificate and are in full force and effect, except that, to the extent that the Borrower has provided the Lender within the previous 8 months with a copy of its constating documents or by-laws, instead of providing a new copy it may provide the Lender with a certificate of one of its officers to the effect that such documents are complete and correct copies of the originals thereof which originals have not been amended, modified or supplemented and are in full force and effect; (iii) that attached thereto is the resolution of the Borrower and all other authorizations necessary to authorize the execution and delivery and performance of the Documents executed and delivered by it; 2. promissory note(s) given by the Borrower in favour of the Lender evidencing the Outstanding Borrowings substantially in the form set out in Schedule 7.1(h) 2. 3. Letter of Credit Agreement given by the Borrower in favour of the Bank with respect to the issuance of Letters of Credit. 4. unlimited guarantee and postponement of claim given by the Guarantor in favour of the Lender with respect to the indebtedness of the Borrower to the Lender substantially in the form set out in Schedule 7.1(h) 4; 5. acknowledgements by the Guarantor and the domestic senior lenders of the Guarantor that the said guarantee shall be held by the Lender on a pari passu basis; 6. opinions of legal counsel to the Borrower and the Guarantor, addressed to the Lender substantially in the form set out in Schedule 7.1(h) 6; and 7. such other documents related to the foregoing as the Lender may reasonably request. 7.2 Accounting, Financial Statements and Other Information. General. The Borrower shall maintain a system of accounting established and administered in accordance with GAAP consistently applied and shall set aside on its books all proper reserves. Reports. The Borrower shall provide to the Lender each of the following: (a) Audit Report. on or before the 90th day after each of the Guarantor's fiscal years, a copy of an annual audit report of the Guarantor prepared in conformity with GAAP, duly certified by its Auditors, together with a certificate from such Auditors containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in this Agreement. (b) Interim Reports. on or before the 45th day after the end of each of the Borrower's fiscal quarters, a copy of unaudited financial statements of the Borrower prepared in a manner consistent with the financial statements referred to above, signed by a senior financial officer of the Borrower and consisting of, at least, balance sheets as at the close of such month and statements of earnings for such quarter and for the period from the beginning of such fiscal quarter to the close of such quarter. (c) Notice of Default and Litigation. forthwith upon learning of the occurrence of any of the following written notice thereof which describes the same and the steps being taken by the Borrower with respect thereto: (i) the occurrence of an Event of Default or Default, (ii) the institution of, or any adverse determination in, any litigation, arbitration proceedings or governmental proceeding in which any injunctive relief is sought or in which money damages in excess of $1,000,000.00 are sought. (d) Other Information. such other information concerning the Borrower as the Lender may reasonably request from time to time. SECTION 8 - ENVIRONMENTAL MATTERS 8.1 Representations and Warranties. The Borrower represents and warrants to the Lender, all of which shall survive the execution and delivery of this Agreement, as follows: (a) Compliance. Subject to Section 8.1(d) below, to the best knowledge of the Borrower, the property, assets, activities and operations of the Borrower and those of any prior owner, lessee, licensee or other occupant thereof comply in all material respects with all Environmental Laws and with any authorization, permit, grant, licence, consent, right, privilege, registration, filing, commitment, order, approval, judgment, direction, ordinance or decree issued or granted by law or by any Governmental Authority and are not subject to any judicial, governmental, regulatory or other investigations, proceedings, inquiries or notices; save and except to the extent disclosed in writing to the Lender and in respect of which, to the extent possible, adequate remedial action has been undertaken. To the best knowledge of the Borrower, none of the Borrower, and any present or prior owner, lessee, licensee or occupant or any Person having the charge, management or control of any of their respective properties has filed any notice or report under any Environmental Law with any Governmental Authority. (b) Presence of Contaminant. Subject to Section 8.1 (d) below, to the best knowledge of the Borrower, there neither is nor has been, any Environmental Activity at, upon, under, over, within or with respect to their properties with the exception of the handling, use or storage in accordance with Environmental Laws, of electrical and/or hydraulic equipment that may contain PCBs or related substances, which equipment is of a kind normally used in premises similar to the properties of the Borrower. (c) Liability. Subject to Section 8.1 (d) below, to the best knowledge of the Borrower, none of the Borrower and any present or prior owner, lessee, licensee or occupant of any of their respective properties has been, nor is it, involved in any operations at, or with respect to their properties which could lead to the imposition of liability on the Borrower or Person who has or will have the charge, management or control of any such property or the creation of a Lien thereon under any Environmental Law; save and except to the extent disclosed in writing to the Lender and in respect of which to the extent possible adequate remedial action has been undertaken. (d) Inquiry. The representations and warranties provided in Sections 8.1(a)(b) and (c) are given after limited inquiry by the Borrower, the details of which are provided in Schedule 8.1(d). 8.2 Covenants. While any amount owing hereunder remains unpaid or the Lender has any obligations hereunder, the Borrower covenants with the Lender as follows: (a) Compliance. It shall comply in all material respects with the requirements of any Environmental Law. (b) Notification. It shall notify the Lender within 10 days of becoming aware of any Release or within 15 days of any other discovery of any Contaminant at, upon, under, over, within or with respect to any of its property or any contiguous real or immovable property. It shall promptly thereafter forward to the Lender copies of all orders, notices, permits, applications or other communications and reports in connection with any Environmental Law affecting or relating to any of its property or its operations and activities. 8.3 Indemnity. The Borrower shall at all times indemnify and hold harmless the Lender from and against any and all claims, suits, actions, debts, damages, costs, losses, obligations, judgments, charges, and expenses, of any nature whatsoever (in this Section 8.3, a "Claim") suffered or incurred by the Lender, whether upon realization of any security, or as a lender to the Borrower, or as successor to or assignee of any right or interest of the Borrower or as a result of any order, investigation or action by any Governmental Authority relating to the Borrower, or the business or property of the Borrower as privileged or hypothecary creditor or mortgagee in possession of property or as successor or successor-in-interest as a result of any taking of possession of all or any property or by foreclosure deed or deed in lieu of foreclosure or by any other means relating to the Borrower, under or on account of any breach of Environmental Law (except as a result of the negligence or wilful misconduct of the Lender), or the assertion of any Lien thereunder, with respect to: (a) the Release of a Contaminant, the threat of the Release of any Contaminant, or the presence of any Contaminant affecting any of their respective properties, (b) the Release of a Contaminant owned by, or under the charge, management or control of, the Borrower, (c) any costs incurred by any Governmental Authority or any other Person or damages from injury to, destruction of, or loss of natural resources in relation to, any such property or personal property located thereon, including reasonable costs of assessing such injury, destruction or loss incurred pursuant to any Environmental Laws, (d) liability for personal injury or property damage arising by reason of any civil law offences or quasi-offences or under any statutory or common law tort or similar theory, including, without limitation, damages assessed for the maintenance of a public or private nuisance or for the carrying on of a dangerous activity at, or with respect to its property, and/or (e) any other environmental matter affecting any property or the operations and activities of the Borrower within the jurisdiction of any federal, provincial, municipal or local environmental agency. 8.4 Scope of Indemnity. The Borrower acknowledges that the Lender has agreed to make the Credit Facilities available in reliance upon the representations, warranties, and covenants in this Section 8.4. For this reason, it is the intention of the Borrower and the Lender that the provisions of this Section 8 shall supersede any other provisions in this Agreement or in any Document which in any way limit the liability of the Borrower and that the Borrower shall be liable for any obligations arising under this Section 8 even if the amount of the liability incurred exceeds the amount outstanding under this Agreement. The obligations arising under this Article are absolute and unconditional and shall not be affected by any act, omission or circumstance whatsoever, except in respect of negligence or wilful misconduct by the Lender. The obligations of the Borrower arising under this Section 8 shall survive the repayment of the Borrowings and shall survive the transfer of any or all right, title and interest in and to any property to any party, whether or not affiliated with the Borrower. 8.5 Interest. If the Lender incurs any obligations, costs or expenses under this Section 8 or in respect of any Environmental Activity covered by this Section 8, the Borrower shall pay the same to the Lender immediately on demand, and if such payment is not received within 10 days, such amount will be treated as a Prime Loan and the Borrower will pay interest thereon on demand, but otherwise calculated as set out in Section 5.1. SECTION 9 - DEFAULT AND ENFORCEMENT 9.1 Events of Default. Upon the occurrence of any one or more of the following events the Lender may, by written notice to the Borrower, declare an Event of Default: (a) Non-payment of Principal. The Borrower fails to make when due, whether by acceleration or otherwise, any payment of principal required to be made by the Borrower hereunder and such default continues for more than one (1) Business Day. (b) Non-payment of Interest, Fees and Other Amounts. The Borrower fails to make when due, whether by acceleration or otherwise, any payment of interest, fees or any other payment hereunder not referred to in Section 9.1(a) and such failure continues for 5 Days of such due date. (c) Covenants. The Borrower fails to perform or observe to any material extent any other term, condition, covenant or undertaking contained in any Document. Except as regards breaches of covenants contained in Sections 7.1(a) and 7.2(a) in respect of which the Lender may immediately declare an Event of Default, the Borrower shall have 30 days after the occurrence of such event to remedy such failure. Only if the Borrower does not remedy such failure within that time shall the Lender become entitled to declare an Event of Default on the basis of such failure. (d) Nonpayment of Other Indebtedness. The Borrower or the Guarantor defaults in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any other Indebtedness in the principal amount in excess of $500,000 of, or guaranteed by, the Borrower or the Guarantor or defaults in the performance or observance of any obligation or condition with respect to any such other Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity, and continuation thereof after the Lender gives notice to the Borrower or the Guarantor that such default is an Event of Default. (e) Representation and Warranties. Any material representation, warranty or statement which is made by the Borrower in any Document or which is contained in any certificate, written statement or written notice provided under or in connection with any Document is untrue or incorrect in any material adverse respect when made and such default continues for 30 days. (f) Execution. A distress or execution or any similar process is levied or enforced against any material property or assets of the Borrower or any of its Subsidiaries with an aggregate fair market value in excess of an amount equal to 3% of the Borrower's shareholders equity. (g) Invalidity and Contestation. This Agreement or any of the other Documents shall at any time after execution and delivery and for any reason (other than in accordance with its terms) cease to be in full force and effect or shall be declared to be null and void, or the legality, validity, binding nature or enforceability of this Agreement or any other Document or any term or provision thereof shall be contested by the Borrower or any other party thereto, or the Borrower or any other such party shall deny that it has any or further liabilities or obligations thereunder. (h) Government Approval. Any material Government Approval required to enable the Borrower or any of its Subsidiaries to conduct its business substantially as presently conducted or to perform its obligations under any Document is not obtained or is withdrawn or ceases to be in full force and effect and such required Government Approval cannot be acquired or reinstated within 60 days of the date on which the Borrower or such Subsidiary knew or ought to have known such Government Approval was required or withdrawn or, if capable of acquisition or reinstatement within such 60-day period, the Borrower or such Subsidiary has not proceeded diligently to obtain or reinstate such Government Approval within such 60-day period. (i) Voluntary Proceedings. The commencement by or acquiescence of the Borrower or any of its Subsidiaries of or to proceedings for substantive relief with respect to the Borrower or a Subsidiary in any bankruptcy, insolvency, debt restructuring, reorganization, readjustment of debt, dissolution, liquidation or other similar proceedings (including, without limitation, proceedings under the Bankruptcy and Insolvency Act (Canada), the Winding-up Act (Canada), the Companies' Creditors Arrangement Act (Canada), or similar legislation in the United States of America, the corporation statute under which any of them is organized or other similar legislation) including, without limitation, the filing of a proposal or plan of arrangement or a notice of intention to file same, or proceedings for the appointment of a trustee, interim receiver, receiver, receiver and manager, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official with respect to the Borrower or any of its Subsidiaries or all or any material part of their respective assets, or any similar relief; where such proceeding would result in a Material Adverse Effect on the Borrower or any of its Subsidiaries. (j) Involuntary Proceedings. If a petition or any other proceeding or case shall be filed, instituted or commenced with respect to the Borrower or any of its Subsidiaries under any bankruptcy, insolvency, debt restructuring, reorganization, incorporation, readjustment of debt, dissolution, liquidation, winding-up or similar law, now or hereafter in effect, seeking the bankruptcy, liquidation, reorganization, dissolution, winding-up, composition or readjustment of debts of the Borrower or any of its Subsidiaries, the appointment of a trustee, interim receiver, receiver, receiver and manager, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official for the Borrower or any of its Subsidiaries or all or any material part of their respective assets, or any similar relief; where such proceeding would result in a Material Adverse Effect on the Borrower or any of its Subsidiaries. (k) Receiver. Any Person including, without limitation, a receiver, receiver and manager, or other similar official whether appointed privately or judicially, is appointed for the Borrower or any of its Subsidiaries or takes possession of the properties or assets of the Borrower or any of its Subsidiaries with an aggregate fair market value in excess of an amount equal to 3% of the Borrower's shareholders equity. (l) Act of Bankruptcy. The Borrower or any of it Subsidiaries is unable to pay debts generally as such debts become due, is adjudged or declared to be bankrupt or commits an act of bankruptcy. 9.2 Rights upon Default. Upon the occurrence of an Event of Default, the Lender may, on written notice to the Borrower, declare that the entire principal amount of the Outstanding Borrowings, all unpaid accrued interest and all fees and other amounts required to be paid by the Borrower hereunder are immediately due and payable without the necessity of presentment for payment, notice of non-payment and of protest (all of which are hereby expressly waived to the fullest extent permitted by Applicable Law) and proceed to exercise any and all rights and remedies hereunder and under any other Document. From and after the issuance of any declaration referred to in this Section 9.2, the Lender shall not be required to honour any cheque or other instrument presented to it regardless of the date of issue or presentation. Immediately upon receipt of such declaration, the Borrower shall pay to the Lender all amounts referred to therein. 9.3 Waiver of Default. No express or implied waiver by the Lender of any Event of Default shall in any way be or be construed to be a waiver of any future or subsequent Event of Default. To the extent permitted by Applicable Law, the Borrower hereby waives any rights now or hereafter conferred by statute or otherwise which may limit or modify any of the Lender's rights or remedies under this Agreement. The Borrower acknowledges and agrees that the exercise by the Lender of any rights under any Document without having declared an acceleration shall not in any way alter, affect or prejudice the right of the Lender to make a declaration pursuant to the provisions of Section 9.2 at any time and, without limiting the foregoing, shall not be construed as or deemed to constitute a waiver of any rights under Section 9.3. SECTION 10 - REMEDIES 10.1 Remedies Cumulative. For greater certainty, the rights and remedies of the Lender under this Agreement are cumulative and are in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by the Lender, of any right or remedy for a default or breach of any term, covenant, condition or agreement herein contained shall not be deemed to be a waiver of or to alter, affect or prejudice any other right or remedy or other rights or remedies to which the Lender may be lawfully entitled for the same default or breach, and any waiver by the Lender of the strict observance, performance or compliance with any term, covenant, condition or agreement herein contained, and any indulgence granted thereby, shall be deemed not to be a waiver of any subsequent default. 10.2 Remedies Not Limited. The Lender may, to the extent permitted by Applicable Law, bring suit at law, in equity or otherwise for any available relief or purpose including but not limited to (a) the specific performance of any covenant or agreement contained in this Agreement or in any other Document, (b) an injunction against a violation of any of the terms of this Agreement or any other Document, (c) in aid of the exercise of any power granted by this Agreement or any other Document or by law, or (d) the recovery of any judgment for any and all amounts due in respect of the Borrowings or amounts otherwise due hereunder or under any Document. 10.3 Set-Off, etc. Upon and after the declaration of any Event of Default pursuant to Section 9.2, the Lender and each of its branches and offices are hereby authorized by the Borrower, at any time and from time to time, without notice, (a) to set off and apply any and all amounts owing by the Lender or any such branch or office to the Borrower (whether payable in Canadian Dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special, time or demand and however evidenced) against and on account of the obligations and liabilities of the Borrower due to the Lender under this Agreement or any other agreement delivered under or in connection with this Agreement including, without limitation, the Documents, (whether such obligations or liabilities are payable in Canadian Dollars or any other currency, and whether such obligations or liabilities are unmatured or contingent), (b) to hold any such amounts owing by the Lender as collateral to secure the obligations and liabilities of the Borrower under this Agreement to the extent such amounts may be required to satisfy any contingent or unmatured obligations or liabilities of the Borrower to the Lender hereunder, and (c) to return as unpaid for insufficient funds any and all cheques and other items drawn against any deposits so held as the Lender in its sole discretion may elect. 10.4 Lender May Perform Covenants. If the Borrower shall fail to perform any of its obligations under any covenant contained in this Agreement or any other Document, the Lender may (but has no obligation to), upon notice to the Borrower, if the Lender, acting reasonably, believes it necessary to do so to protect or preserve its rights and remedies hereunder perform any such covenant capable of being performed by it and, if any such covenant requires the payment or expenditure of money, it may make such payment or expenditure with its own funds. All amounts so paid by the Lender hereunder shall be repaid by the Borrower on demand therefor, and shall bear interest at the rate applicable to a Prime Loan from and including the date paid by the Lender hereunder to but excluding the date such amounts are irrevocably repaid in full by the Borrower. SECTION 11 - MISCELLANEOUS 11.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrower from any provision of this Agreement will in any event be effective unless it is in writing and then the amendment, modification, waiver or consent will be effective only in the specific instance, for the specific purpose and for the specific length of time for which it is given by the Lender. 11.2 Notice. Any notice, request or other communication to be given under this Agreement, except as otherwise specifically stated, shall be in writing and shall be either delivered personally or sent by telecopier or by prepaid mail to the mailing address, or telecopier number applicable, of a party stated beside the name of the party at the foot of this Agreement and to the attention of the Person or to such other mailing or telecopier number as the party may notify to the other from time to time under this provision. Any such notice, request or other communication if delivered or mailed, shall be deemed to have been given when received and, if telecopied before 4:30 p.m. on a Business Day, shall be deemed to have been received on that day, and if telecopied after 4:30 p.m. on a Business Day, shall be deemed to have been received on the Business Day next following the date of transmission. 11.3 Judgment Currency. If for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement, it becomes necessary to convert into the currency of such jurisdiction (herein called the "Judgment Currency") any amount due hereunder in the currency in which such amount is payable in accordance with this Agreement (the"Agreed Currency"), then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which judgment is given. For this purpose, "rate of exchange" means the spot rate at which the Lender would, on the relevant date at or about 12:00 noon (Toronto time), be prepared to purchase the Judgment Currency with the amount applicable in the Agreed Currency in Toronto, Ontario. In the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of payment of the amount due, the Borrower will, on the date of payment, pay such additional amounts (if any) or be entitled to receive reimbursement of such amount, if any, as may be necessary to ensure that the amount paid on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of payment is the amount then due under this Agreement in the Agreed Currency. Any additional amount due from the Borrower under this Section 11.3 will be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement. 11.4 Further Assurances. The Borrower shall from time to time promptly upon the reasonable request of the Lender take such action, and execute and deliver such further documents, as may be reasonably necessary or appropriate to fully give effect to the provisions and intent of this Agreement. 11.5 Reimbursement of Expenses. The Borrower shall, on demand, pay to the Lender all of the reasonable legal fees of the Lender, out-of-pocket documentation costs and other out-of-pocket expenses, all reasonably incurred: (a) in the negotiation, preparation and execution of this Agreement and the other Documents; and (b) in connection with the administration of this Agreement. In addition, the Borrower shall pay all reasonable legal fees, and other out-of-pocket expenses reasonably incurred by the Lender in connection with the determination or preservation of any rights, or the enforcement of or legal advice in respect of rights or responsibilities, of the Lender under this Agreement or the other Documents. 11.6 Survival. Without prejudice to the survival or termination of any other agreement of the Borrower under this Agreement, the obligations of the Borrower under Sections 5.14, 8.3 and 11.8 shall survive the repayment of all the Borrowings. 11.7 Attornment. Each of the parties irrevocably attorns to the non-exclusive jurisdiction of the courts of Ontario. 11.8 Successors and Assigns. (a) Enurement. This Agreement shall be binding upon and enure to the benefit of the Borrower, the Lender and their respective successors and assigns, except that the Borrower may not assign or transfer all or any part of its rights and obligations under this Agreement without the Lender's prior written consent. (b) Amalgamation. The Lender consents to the amalgamation of the Borrower with Burtek provided that the Lender receives, in form and substance satisfactory to it, acknowledgements and confirmations from the Guarantor and the amalgamated party as to the continued validity, effect and applicability of the Documents. (c) Assignment By Lender. The Lender may at any time assign all or any part of its rights or obligations hereunder to another Person with the Borrower's prior written consent, which consent not to be unreasonably withheld. The Lender will only assign the Documents to a Person to the extent the Lender's rights and obligations hereunder have been assigned to that Person; provided that any such assignment shall be to a financial institution which is a Canadian resident and the Borrower shall not be liable for, or obligated to pay any increased costs, fees, interest or other amounts as a result of any assignment. (d) Sub-Participations. The Lender may grant one or more sub-participations in its rights and obligations hereunder to another bank or financial institution with the Borrower's prior written consent, which consent not to be unreasonably withheld; provided that following any such sub-participation, the Borrower shall not be liable for, or obligated to pay any increased costs, fees, interest or other amounts as a result of any such sub-participation and the Borrower shall be entitled to continue to deal with Lender notwithstanding the sub-participation. (e) Disclosure to Assignee or Sub-Participant. The Lender may disclose to an assignee or sub-participant or proposed assignee or sub-participant information in the possession of the Lender relating to the Borrower or its Subsidiaries and furnished to it in connection herewith, provided that the Lender shall require such assignee, sub-participant, proposed assignee or proposed sub-participant to enter into an agreement in form satisfactory to the Borrower acting reasonably whereby it agrees to maintain such information confidential. 11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. THE BORROWER: RICHARDSON ELECTRONICS ACQUISITION CORP. Address: 40W267 Keslinger Rd. By: /s/ Edward J. Richardson La Fox, Illinois 60147 Name: Edward J. Richardson U.S.A. Title: President Fax: (630) 208-2950 By: /s/ William G. Seils Name: William G. Seils Phone: (630) 208-2200 Title: Secretary THE LENDER: FIRST CHICAGO NBD BANK, CANADA Address: First Chicago NBD Bank, Canada By: /s/ M.C. Bauer 161 Bay Street, Suite 4240 Name: M. C. Bauer Toronto, Ontario Title: V.P. M5J 2S1 By: /s/ C. H. Delaney Name: C. H. Delaney Title: A. V. P. Fax: (416) 363-7574 Phone: (416) 365-5259 EX-10.B 4 EXHIBIT 10(B) AGREEMENT RICHARDSON ELECTRONICS, LTD., whose principal office is located at 40W267 Keslinger Road, LaFox, Illinois 60147 (the "Company"), and DENNIS R. GANDY of 38 W 111 Hawkins Lane, St Charles IL 60175 (the "Employee"). WHEREAS, the Employee has been an executive officer of the Company for many years and the parties agree that Employee's employment with the Company as an executive officer, particularly as Executive Vice President, is to be terminated and the Employee will be continue to be employed as a non-officer employee of the Company for the period of time herein specified and that the payments provided herein shall be in lieu of any payments under any Company policy relating to termination of Employee's employment as an executive officer and eventually as an employee at the expiration of employment term provided herein and to resolve and settle all possible claims the Employee may have against or with respect to the Company; NOW, THEREFORE, IT IS AGREED AS FOLLOWS: 1. The Company and the Employee agree that the Employee's employment with the Company as an executive officer and any other officer position with the Company will cease and terminate on the close of business on February 28, 1997 (the "Termination Date") and Employee hereby resigns as a member of the Board of Directors and any committee thereof effective as of the Termination Date. 2. Employee shall be entitled to payment of his compensation and benefits, including bonus, as presently being paid through the Termination Date. 3. In consideration of Employee's service with the Company as an executive officer and his other promises and agreements made in this Agreement and in full settlement of any and all claims that the Employee may have against the Company, its successors, assigns, affiliates, or any of its officers, directors, shareholders, employees, agents or representatives, for compensation or otherwise in connection with his past employment or termination of his employment as an officer of the Company, the Company agrees to provide the Employee with the following in addition to the compensation referred to in paragraph 2. above: (a) Compensation of NINE THOUSAND FOUR HUNDRED AND NO/100THS Dollars ($9,400.00) per month, payable beginning on the 30th day after the Termination Date and continuing on the same date of each month thereafter for an additional 59 months, provided, however, that the Employee's right to receive and the Company's obligation to make such payment shall cease in the event of Employee's breach of paragraphs 5, 8, 9 or 10 below; (b) As of the Termination Date, forgive the then outstanding balance and interest, if any, on the personal loan made to Employee by the Company in connection with the auto previously belonging to the Company and used by Employee, title to which was transferred to him in December, 1996, which now has a principal balance of $2,000 and against which Employee agrees he will pay $1,000 in each of January and February 1997 by applying the $1,000 monthly car allowance to which he is entitled for those months; (c) Without charge, transfer to Employee ownership and title to the laptop personal computer belonging to the Company and now being used by the Employee, and, until the Company's obligation to make payments to Employee under subparagraph 4(a) cease, the right to continue to use (subject to the other provisions of this Agreement, including, without limitation, paragraphs 5, 8, 9, 10 and 11) software now installed on such computer, if any, belonging to the Company and now being used by the Employee and his now existing modem/network e-mail connection for connection to those outside the Company, provided, that, the Company may modify or terminate such connection service or software if the same is modified or terminated for its other employees generally now utilizing the same; and (d) Indemnification, including for related legal costs, as provided under the Company's by-laws for all action of Employee in any capacity during the course of his employment with the Company. 4. The parties agree that after the Termination Date, Employee will continue to be employed with the Company as a non-officer to work on such matters as may be directly requested by, and under the direct supervision of, Edward J. Richardson through the period from the Termination Date until February 28, 2002. Such requested work shall take into consideration the Employee's health, residence, and personal circumstances, including, without limitation, other employment in which he may be engaged. Employee's employment under this paragraph and his right to receive compensation as provided for in this paragraph 4 may not be terminated for reasons of the quality of his work. Employee shall not be required to report to any office to perform his work unless specifically requested by Edward J. Richardson and, except by mutual agreement, shall not be required to perform such work at a location that is beyond 80 miles of his then residence. Employee's unavailability for work as provided in this paragraph 2 due to health reasons shall not terminate the Company's obligation to make the payments provided for in subparagraph 2(a) below, but, in such event the Company may reduce the amount paid by any disability or other insurance payments to which the Employee is entitled or receives. In consideration for the promises made by the Employee in this paragraph 4 and subsequent paragraphs, the Company agrees to provide the Employee with the following in addition to the compensation referred to in paragraphs 2 and 3 above: (a) Compensation at the rate of TWO THOUSAND SIX HUNDRED AND NO/100THS Dollars ($2,600.00) per month beginning on the day following the Termination Date and continuing through February 28, 2002, or such earlier date as the obligation to make such payment shall cease, payable in such installments as the regular pay periods of the Company during such period, provided, however, that the Employee's right to receive and the Company's obligation to make such payment shall cease in the event of Employee's breach of paragraphs 5, 8, 9 or 10 below. Employee acknowledges and agrees that such aggregate amount as the Company is obligated to pay under this subparagraph (a) shall be full compensation for all services rendered to Company after the Termination Date through February 28, 2002 and shall be in lieu of any payments under any Company policy relating to termination of Employee's employment at the expiration of the employment term provided in this paragraph 4; (b) During the employment period provided in this paragraph 4, Employee shall be entitled to participate in the medical, dental, disability and life insurance and other benefits (notwithstanding the foregoing Employee shall not be entitled to participate in any bonus or incentive compensation plan) on the same or similar terms as such benefits are provided to Company's other regular employees during such period; provided, however, that such benefits shall cease to be made available to Employee if the Company's obligation to make payment under subparagraph (a) has ceased prior to February 28, 2002; and, further, if, at any time, Employee becomes engaged in employment with any entity or person that offers such types of benefits and Employee is entitled to participate therein, then Employee shall elect to participate in such benefits of the other employer and does hereby elect to terminate and cease to participate in the Company's benefits of such type as are available to him through his other employment; (c) Options previously granted to Employee under the Company's various stock option or incentive compensation plans shall continue to be exercisable or become exercisable in accordance with the terms thereof through termination of Employee's employment under this paragraph 4; and (d) Indemnification, including for related legal costs, as provided under the Company's by-laws for all action of Employee in any capacity during the course of his employment with the Company after the Termination Date. 5. The payments provided for in subparagraphs 4(a) above shall be payable if and when but not unless, the Employee shall without additional compensation, fee, or other payment by the Company; (a) Refrain (independently of and without reference to paragraph 10 hereof), after the expiration of a period of thirty (30) days from the mailing to him of written notice by the Secretary of the Company of a direction to do so, from engaging in the operation or management of a business, whether as owner, shareholder, partner, officer, employee or otherwise, which then shall be one in which the Employee could not engage without being in violation of his obligations not to compete as provided in paragraph 10 hereof; (b) Refrain (independently of and without reference to paragraph 9 hereof) from disclosing to unauthorized persons information relative to the business, properties, products, technology or other assets of the Company or any of its subsidiaries which he shall have reason to believe is confidential; and (c) Refrain (independently of and without reference to paragraph 8 hereof) from otherwise acting or conducting himself in a manner which he shall have reason to believe is inimical or contrary to the best interests of the Company. In the event that the Employee shall fail to comply with any provision of this paragraph 5, the Company's obligation to make any further payment provided for in subparagraph 4(a) above shall forthwith terminate and cease. 6. The consideration from the Company set forth in 4 above constitutes full settlement of any and all claims that the Employee may have against the Company, its successors, assigns, affiliates, or any of its officers, directors, shareholders, employees, agents or representatives, for compensation or otherwise in connection with termination of his employment after the Termination Date, except for any and all claims arising out of the performance by the Company of this Agreement, including, but not limited to, rights under the Company's profit sharing and employee stock ownership plans. 7. In further consideration for the promises made by the Company herein, the Employee, on behalf of himself, his agents, assignees, attorneys, heirs, executors, and administrators, fully releases the Company, and its successors, assigns, parents, subsidiaries, divisions, affiliates, officers, directors, shareholders, employees, agents and representatives, from any and all liability, claims, demands, actions, causes of action, suits, grievances, debts, sums of money, controversies, agreements, promises, damages, back and front pay, costs, expenses, attorneys' fees, and remedies of any type, by reason of any matter, act or omission arising out of or in connection with the Employee's employment with or termination by the Company, including but not limited to claims, demands or actions under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Civil Rights Act of 1986, the Illinois Human Rights Act, any other federal, state or local statute or regulation regarding employment, discrimination in employment, or the termination of employment, and the common law of any state relating to employment contracts, public policy torts, wrongful discharge, or any other matter, including, without limitation, claims, demands or actions under the False Claims Act or any qui tam rights, except, however, any and all claims arising out of the performance by the Company of this Agreement (the "Released Claims"). 8. Employee agrees that he will at no time engage in conduct which injures, harms, destroys, corrupts, demeans, defames, libels, slanders, destroys or diminishes in any way the reputation or goodwill of the Company, its subsidiaries, or their respective shareholders, directors, officers, employees, or agents or the products sold by the Company, or its other properties or assets. Nor will Employee cause any computer bugs to the Company's computer system, database or software. 9. The Employee shall not (except in the proper course of his duties to the Company) either during the period of his employment with the Company or thereafter make use of, disseminate or divulge to any person, firm, company, association or other entity, and shall use his best endeavors to prevent the use, dissemination, publication or disclosure of, any information, knowledge or data disclosed to Employee or known by Employee as a consequence of or through his employment or relationship with the Company or any of its predecessors or subsidiaries (including information, knowledge or data conceived, originated, discovered or developed by Employee) not generally known in the business of manufacturing or distributing electron tubes, closed circuit television products, semiconductors, or data display products, whether patentable or not, about the Company's or its predecessors' or subsidiaries' businesses, products, processes and services, including without limitation information relating to manufacturing matters, purchasing, sales, research, development, methods, policies, procedures, technology, techniques, processes, know-how, designs, drawings, specifications, systems, practices, merchandising, suppliers or customers, including, without limitation, customer lists, information or data. It is not intended to limit or restrict Employee's right to utilize information, ideas, concepts or structures of a general nature so long as they are not used in a business competitive with that of the Company. The failure to mark any of the information confidential or proprietary shall not affect its status as such under this Agreement. 10. It is agreed that: (a) Independent of any obligation under any other paragraph or subparagraph hereof or any other agreement, Employee agrees that during the term of his employment, including, without limitation, the period through February 28, 2002, he will not, except with the approval of the Chairman of the Board or President of the Company, directly or indirectly (whether or not for compensation or profit) through any other individual or entity whether as an officer, director, shareholder, creditor, partner, promoter, proprietor, associate, employee, owner, agent, representative or otherwise, become or be interested in, or associated with, any individual or entity, other than the Company, engaged in any business or enterprise the nature of which is competitive with that of the Company in the sale of electron tubes, CRTs, closed circuit television products, discrete RF semiconductors or DC power semiconductors in the territories served by the Company, provided, however, that, anything above to the contrary notwithstanding, Employee may, after the date of this Agreement, own as an inactive investor, securities of any corporation engaged in any prohibited business as described above which is publicly traded on a national securities exchange, so long as the holdings of the Employee, directly or indirectly, in the aggregate, constitute less than 1% of the outstanding voting securities of such corporation. (b) Independent of any obligation under any other paragraph or subparagraph hereof or any other agreement, Employee agrees that during the term of his employment, including, without limitation, the period through February 28, 2002, he will not, except with the approval of the Chairman of the Board or President of the Company, directly or indirectly (whether or not for compensation or profit) through any other individual or entity call upon, solicit, entice, persuade or induce any individual or entity which during Employee's term of employment with the Company was a customer or supplier, or proposed customer or supplier, of the Company upon whom Employee called or dealt with or whose account he supervised on behalf of the Company, to purchase (with respect to customers) or sell (with respect to suppliers) electron tubes, CRTs, closed circuit television products, discrete RF semiconductors or DC power semiconductors of the types or kind sold or purchased by the Company or which could be substituted for or which serve the same purpose or function as such products sold or purchased by the Company during Employee's employment, or request or advise any such customer or supplier to withdraw, curtail or cancel its business with the Company, and Employee shall not approach, respond to, or otherwise deal with any such customer or supplier for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity. (c) Independent of any obligation under any other paragraph or subparagraph hereof or any other agreement, Employee agrees that during the term of his employment, including, without limitation, the period through February 28, 2002, he will not, except with the approval of the Chairman of the Board or President of the Company, directly or indirectly (whether or not for compensation or profit) through any other individual or entity call upon, solicit, entice, persuade, induce or offer any individual which during Employee's term of employment with the Company was an employee of the Company, employment or with respect to employment by any one other than the Company, or request or advise any such employee to cease employment with the Company, and Employee shall not approach, respond to, or otherwise deal with any such employee for any such purpose, or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity. 11. All notes, data, reference materials, memoranda, files and records, including without limitation computer reports, products lists and information, process manuals and notes, drawings, and technology manuals and notes, customer or supplier lists, data or information, in any way relating to any of the Company's or its predecessors' or subsidiaries' businesses, operations or products shall belong exclusively to Company, and Employee agrees to turn over to Company all copies of such materials and all keys, equipment and other Company property in his possession or control at the request of Company or, in the absence of such a request, upon the termination of Employee's employment with Company. Upon the Termination Date, Employee shall immediately refrain from seeking access to or utilization of Company's (a) telephonic voice mail, E-mail or message system, (b) computerized order entry system, and (c) computer data bases and software, except to use the modem/network e-mail connection to those outside the Company as provided for in subparagraph 3(c) above or as specifically authorized by the Chairman of the Board of the Company. 12. In the event of a breach or threatened breach by the Employee of the provisions of paragraphs 8, 9, or 10, the Company shall be entitled to an injunction restraining the Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach. The parties hereto desire that paragraphs 8, 9, and 10 shall be fully enforceable in accordance with the terms thereof but if any portion is held unenforceable or void or against public policy by any court of competent jurisdiction, the remainder shall continue to be fully enforceable in accordance with its terms or as it may be modified by such court. The period of restriction specified in paragraphs 8, 9, or 10 shall abate during the time of any violation thereof and the remaining portion at the commencement of the violation shall not begin to run until the violation is cured. 13. Employee's death shall not terminate the Company's obligation to pay the amounts it would otherwise be obligated to pay Employee under subparagraphs 3(a) or 4(a). In the event of Employee's death prior to payment of all amounts due under subparagraphs 3(a) and 4(a), such amounts thereafter shall be paid to Employee's estate or, if Employee has provided Company with written direction prior to his death of an alternative beneficiary, to the beneficiary so designated by Employee in such written direction. Such payments shall be made on the dates and to the extent subparagraphs 3(a) or 4(a), as the case may be, would require them to be made to Employee if he were still alive. In the event the Company, at its expense, purchases reducing term life insurance for the Employee that would cover the amount of its obligation to continue payments in the event of Employee's death as provided above in this paragraph, then the Company shall not be obligated to continue payments in the event of Employee's death and all payments hereunder would cease upon Employee's death. 14. The Employee understands and agrees that the existence and terms of this Agreement are confidential and shall not be disclosed to any third party without the prior written consent of the Company, except as may be required by law and in response to a lawful subpoena in which event Employee shall provide prompt notice to the Company. 15. The existence and execution of this Agreement shall not be considered, and shall not be admissible in any proceeding, as an admission by the Employee or the Company, or any of its agents or employees, of any liability, error, violation or omission. 16. It is agreed that: (a) This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns and shall inure to their respective benefits. (b) This Agreement shall not be subject to change, modification, or discharge, in whole or in part, except by written instrument signed by the parties; provided, however, that if any of the terms, provisions or restrictions of paragraph 8, 9, or 10 are held to be in any respect unreasonable restrictions upon Employee, then the court so holding shall reduce the territory to which it pertains and/or the period of time in which it operates or effect any other change to the extent necessary to render any of said terms, provisions or restrictions enforceable. (c) The failure by the Company to insist upon strict compliance by the Employee with respect to any of the terms or conditions hereof shall not be deemed a waiver or relinquishment of any other terms or conditions nor shall any failure to exercise any right or power hereunder at one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (d) This Agreement shall be governed and construed in accordance with the laws of the State of Illinois. (e) All notices required to be given hereunder to the Company shall be addressed to its principal executive office at 40W267 Keslinger Road, LaFox, Illinois 60147; attention: William G. Seils, by certified or registered mail. All notices required or to be given hereunder to the Employee shall be addressed to the Employee at his residence as last reflected on the records of the Company, by certified or registered mail. Notice shall be deemed given if delivered in person to William G. Seils on behalf of the Company or to the Employee, or if mailed, when deposited in the United States Mail addressed as aforesaid. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year written below their respective signatures. EMPLOYEE RICHARDSON ELECTRONICS, LTD. By: Dennis R. Gandy Edward J. Richardson, Chairman of the Board Dated: 1/16/97 Dated: 1/16/97 Subscribed and sworn to before me this 16th day of January, 1997 ____________________________ Notary Public EX-10.C 5 EXHIBIT 10(c) AGREEMENT AND GENERAL RELEASE Agreement made as of this 21st day of March 1997, between RICHARDSON ELECTRONICS, LTD., whose principal office is located at 40W267 Keslinger Road, LaFox, Illinois 60147 (the "Company"), and DAVID GILDEN of 1326 Ginger Circle, Ft Lauderdale, FL 33326 (the "Employee"). WHEREAS, the Employee has been an officer of the Company and/or its subsidiaries for many years and the parties agree that Employee's employment with the Company and/or its subsidiaries as an officer is to be terminated and the Employee will continue to be employed as a non-officer employee of the Company for the period of time herein specified for limited services performed at mutually convenient times to both parties hereto and that the payments provided herein shall be in lieu of any payments under any Company or subsidiary policy relating to termination of Employee's employment as an officer and eventually as an employee at the expiration of employment term provided herein and to resolve and settle all possible claims the Employee may have against or with respect to the Company and/or its subsidiaries; and WHEREAS, the Company is in the business of distributing and manufacturing electron tubes, RF transistors, silicon controlled rectifiers ("SCR's") and RF power and microwave semiconductors, data display products and components, security systems and components, (hereinafter "The Business") and in the course of such activities the Company has acquired or developed certain Proprietary Information, as further defined herein, including, but not limited to, information not generally known in the others engaged in the same or similar business to The Business or otherwise or which could not be gathered or obtained without significant expenditure of time, effort and money, which Proprietary Information provides the Company with a competitive advantage in the marketplace in which it competes, and WHEREAS, Employee's employment with the Company has involved, and hereafter may involve, positions of trust and confidence; and WHEREAS, in the course of his employment with the Company Employee has received, and he hereafter may receive, (1) extensive training in (i) how to successfully purchase and sell products and (ii) operating policies and procedures, and (2) access to Proprietary Information, as further defined herein; and WHEREAS, in the course of his employment with the Company, or through his use of the facilities and resources of the Company, Employee may have developed or contributed to the development of, or may in the future develop or contribute to the development of, additional Proprietary Information, as further defined herein; and WHEREAS, in the course of his employment with the Company, Employee has had and may hereafter have primary contact with suppliers and customers of The Business and for this reason, the suppliers and customers who have been served and dealt with by Employee may have come or may come to associate the service and business they received with Employee rather than the Company itself; NOW, THEREFORE, IT IS AGREED AS FOLLOWS: 1. The Company and the Employee agree that the Employee's employment with the Company and/or its subsidiaries as an officer and any other position with the Company (except non-officer employee of Company as provided in this Agreement) and/or its subsidiaries will cease and terminate on the close of business on May 31, 1997 (the "Termination Date") and Employee hereby resigns as a member of any of the Boards of Directors of subsidiaries of the Company on which he may be serving and any committee thereof and from any officer position therein. 2. Employee shall be entitled to payment of his compensation and benefits, including bonus, as presently being paid through the Termination Date, and 136 hours of pay for earned but unused vacation pay. 3. In consideration of Employee's service with the Company and/or its subsidiaries as an officer and his other promises and agreements made in this Agreement and in full settlement of any and all claims that the Employee may have against the Company, its subsidiaries, their successors, assigns, affiliates, or any of their officers, directors, shareholders, employees, agents or representatives, for compensation or otherwise in connection with his past employment or termination of his employment as an officer of the Company and/or its subsidiaries, the Company agrees to provide the Employee with the following in addition to the compensation referred to in paragraph 2. above: (a) The sum of TWO THOUSAND TWO HUNDRED FIFTY DOLLARS ($2,250.00) per month, payable beginning on the 30th day after the Termination Date and continuing thereafter for an additional 55 months, provided, however, that the Employee's right to receive and the Company's obligation to make such payment shall cease in the event of Employee's breach of paragraphs 5, 9, 10 or 11 below; (b) As of the date hereof, to forgive the outstanding balance and interest, if any, on the personal loan made to Employee by the Company, which loan now has a principal balance of $18,306 and accrued interest through February 28, 1997 of $4,013; and (c) As of June 1, 1997, without charge, transfer to Employee ownership and title of Company's 1994 SAAB, Vehicle Identification # YS3AK75EXR7003061. 4. The parties agree that after the Termination Date, Employee will continue to be employed with the Company as a non- officer to work on such matters as may be directly requested by, and under the direct supervision of, Edward J. Richardson through the period from the Termination Date until May 31, 2002. Such requested work shall take into consideration the Employee's health, residence, and personal circumstances, including, without limitation, other employment in which he may be engaged which shall take priority over work to be performed for the Company hereunder, and shall be for limited services provided at mutually convenient times to both parties. Employee's employment under this paragraph and his right to receive compensation as provided for in this paragraph 4 may not be terminated for reasons of the quality of his work. Employee shall not be required to report to any office to perform his work unless specifically requested by Edward J. Richardson and agreed to by Employee, and, except by mutual agreement, shall not be required to perform such work at a location that is beyond 80 miles of his then residence. Employee's unavailability for work as provided in this paragraph 4 due to health reasons shall not terminate the Company's obligation to make the payments provided for in in paragraph 4(a) below, but, in such event the Company may reduce the amount paid by any disability or other insurance payments to which the Employee, directly or indirectly, is entitled or receives or the benefit of which he receives. In consideration for the promises made by the Employee in this paragraph 4 and subsequent paragraphs, the Company agrees to provide the Employee with the following in addition to the compensation referred to in paragraphs 2 and 3 above: (a) Compensation at the rate of FOUR THOUSAND AND NO/100THS DOLLARS ($4,000.00) per month beginning on the day following the Termination Date and continuing through February 15, 2002, payable in such installments as the regular pay periods of the Company during such period, provided, however, that the Employee's right to receive and the Company's obligation to make such payment shall cease in the event of Employee's breach of paragraphs 5, 9, 10 or 11 below. Employee acknowledges and agrees that such aggregate amount as the Company is obligated to pay under this subparagraph (a) shall be full compensation for all services rendered to Company after the Termination Date through May 31, 2002 and shall be in lieu of any payments under any Company policy relating to termination of Employee's employment at the expiration of the employment term provided in this paragraph 4; (b) During the employment period provided in this paragraph 4, Employee shall be entitled to participate in the medical, dental, disability and life insurance and other benefits (notwithstanding the foregoing Employee shall not be entitled to participate in any bonus or incentive compensation plan) on the same or similar terms as such benefits are provided to Company's other regular employees during such period; provided, however, that such benefits shall cease to be made available to Employee if the Company's obligation to make payment under subparagraph (a) has ceased prior to February 15, 2002; and, further, if, at any time, Employee becomes engaged in employment with any entity or person that offers such types of benefits and Employee is entitled to participate therein, then Employee shall elect to participate in such benefits of the other employer and elects to terminate and cease to participate in the Company's benefits of such type as are available to him through his other employment; and (c) Options previously granted to Employee under the Company's various stock option or incentive compensation plans shall continue to be exercisable or become exercisable in accordance with the terms thereof through termination of Employee's employment as a non- officer under this paragraph 4. 5. The payments provided for in subparagraphs 3(a) and 4(a) above shall be payable if and when but not unless, the Employee shall without additional compensation, fee, or other payment by the Company; (a) Refrain (independently of and without reference to paragraph 11 hereof), after the expiration of a period of thirty (30) days from the mailing to him of written notice by the Secretary of the Company of a direction to do so, from engaging in the operation or management of a business, whether as owner, shareholder, partner, officer, employee or otherwise, which then shall be one in which the Employee could not engage without being in violation of his obligations not to compete as provided in paragraph 11 hereof; (b) Refrain (independently of and without reference to paragraph 10 hereof) from disclosing to unauthorized persons information relative to the business, properties, products, technology or other assets of the Company or any of its subsidiaries which he shall have reason to believe is confidential; and (c) Refrain (independently of and without reference to paragraph 9 hereof) from acting or conducting himself in a manner which he shall have reason to believe is inimical or contrary to the best interests of the Company. In the event that the Employee shall fail to comply with any pro- vision of this paragraph 5, the Company's obligation to make any further payment provided for in subparagraph 4(a) above shall forthwith terminate and cease. 6. Employee acknowledges that the payments and other considerations to be made to him pursuant to the terms of this Agreement exceed those to which he would be entitled in connection with the termination of his employment under the normal operation of any benefit plan, policy or procedure of the Company or under any previous agreement (written or oral) between him and the Company. Employee further acknowledges that the Company's agreement to provide such additional payments and considerations beyond his entitlement is conditioned upon his release of all claims against the Company and his compliance with the terms and conditions of this Agreement. 7. The consideration from the Company set forth herein constitutes full settlement of any and all claims that the Employee may have against the Company and its subsidiaries, their respective successors, assigns, affiliates, or any of their officers, directors, shareholders, employees, agents or representatives, for compensation or otherwise in connection with or related to his employment or its termination, except for any and all claims arising out of the performance by the Company of this Agreement, including, but not limited to, rights under the Company's profit sharing and employee stock ownership plans. 8. In further consideration for the promises made by the Company herein, the Employee, on behalf of himself, his agents, assignees, attorneys, heirs, executors, and administrators, fully releases the Company and it subsidiaries, and each of their successors, assigns, parents, subsidiaries, divisions, affiliates, officers, directors, shareholders, employees, agents and representatives, from any and all liability, claims, demands, actions, causes of action, suits, grievances, debts, sums of money, controversies, agreements, promises, damages, back and front pay, costs, expenses, attorneys' fees, and remedies of any type, by reason of any matter, act or omission arising out of or in connection with the Employee's employment with the Company or any of its subsidiaries or termination thereof, including but not limited to claims, demands or actions under Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Civil Rights Act of 1986, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, as any of the foregoing are amended, any other federal, state or local statute or regulation regarding employment, discrimination in employment, or the termination of employment, and the common law of any state relating to employment contracts, public policy torts, wrongful discharge, or any other matter, including, without limitation, claims, demands or actions under the False Claims Act or any qui tam rights, and claims under any prior contract (written or oral) relating to Employee's employment, compensation, or termination of employment, except, however, any and all claims arising out of the performance by the Company of this Agreement (the "Released Claims"). 9. Company's Good Name. Employee agrees that Employee will at no time engage in conduct which injures, harms, corrupts, demeans, defames, libels, slanders, destroys or diminishes in any way the reputation or goodwill of the Company, its subsidiaries, or their respective shareholders, directors, officers, employees, or agents, or the products sold by the Company, or its other properties or assets, including, without limitation, its computer systems hardware and software and its data or the integrity and accuracy thereof. 10. Confidentiality. A. Definition of Proprietary Information. For purposes of this Agreement, the term "Proprietary Information" shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) to which Employee has received or may receive access or has developed or may develop, in whole or in part, as a direct or indirect result of his employment with the Company or any of its predecessors or subsidiaries, or in the course of his employment with the Company or any of its predecessors or subsidiaries, or through the use of any of the Company's or any of its predecessors or subsidiaries facilities or resources: (1) Customer lists, including, but not limited to, customer names, customer requirements, and customer data; supplier lists, including, but not limited to, supplier names, supplier capabilities, and supplier data; marketing techniques; practices; methods; plans; systems; processes; purchasing information; price lists; pricing policies; quoting procedures; product information; operating policies and procedures; financial information; and other materials or information relating to the manner in which the Company does business; (2) Discoveries, concepts and ideas, whether patentable or not, or copyrightable or not, including, but not limited to, the nature and results of research and development activities, processes, formulas, techniques, "know-how", designs, drawings and specifications; (3) Any other materials or information related to the business or activities of the Company (or by any of its predecessors in business) which are not generally known to others engaged in similar businesses or activities or which could not be gathered or obtained without significant expenditure of time, effort and money; and (4) All inventions and ideas which are derived from or relate to Employee's access to or knowledge of any of the above enumerated materials or information. The Proprietary Information shall not include any materials or information of the types specified above to the extent that such materials or information are publicly known or generally utilized by others engaged in the same business or activities in the course of which the Company utilized, developed or otherwise acquired such information or materials and which Employee has gathered or obtained from such other public sources by his own expenditure of significant time, effort and money. Failure to mark any of the Proprietary Information as confidential shall not affect its status as part of the Proprietary Information under the terms of this Agreement. B. Ownership of Proprietary Information. Employee agrees that the Proprietary Information is and at all times shall remain the sole and exclusive property of the Company. C. Non-Disclosure of Proprietary Information. Employee represents, warrants and agrees that he has not and will not (except in the proper course of his employment), either during or after the period of his employment with the Company, made or make use of, disseminated or disseminate, published or publish, or disclosed or disclose to any person, firm, company, association, or other entity, and shall use his best endeavors to prevent the use, dissemination, publication, or disclosure of, any Proprietary Information. 11. Non-Competition. A. Restrictions. Employee agrees that, during the period from the date this Agreement is signed through May 31, 2002, he will not, except with the approval of the Chairman of the Board of the Company, directly or indirectly (whether or not for compensation or profit): 1. Engage in any business or enterprise the nature of which is competitive with that of the Company as described in the Preamble to this Agreement as The Business in the territories served by the Company (a "Prohibited Business"); or 2. Participate as an officer, director, creditor, promoter, proprietor, associate, agent, employee, partner, consultant, sales representative or otherwise, or directly or indirectly own any interest in any person or entity involved in any Prohibited Business; or 3. Canvas, call upon, solicit, entice, persuade, or induce any individual or entity which, during Employee's term of employment with the Company, was or is a customer or supplier, or proposed customer or supplier, of the Company upon whom Employee called or whose account he supervised on behalf of the Company, for the following: (a) to purchase (with respect to customers) or sell (with respect to suppliers) products of the types or kinds sold by the Company or which could be substituted for (including, but not limited to, rebuilt products), or which serve the same purpose or function as, products sold by the Company (all of which products are herein sometimes referred to, jointly and severally as "Prohibited Products"), or (b) to request or advise any such customer or supplier to withdraw, curtail or cancel its business with the Company, and Employee shall not approach, respond to, or otherwise deal with any such customer or supplier for such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity; or 4. For himself or for or through any other individual or entity call upon, solicit, entice, persuade, induce or offer any individual who, during Employee's term of employment with the Company, was an employee of the Company, employment or with respect to employment by any one other than the Company, or request or advise any such employee to cease employment with the Company, and Employee shall not approach, respond to, or otherwise deal with any such employee for any such purpose, or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity. Each obligation of each subparagraph and provision of this paragraph A. shall be independent of any obligation under any other subparagraph or provision hereof. B. Permitted Activities. Anything above to the contrary notwithstanding: 1. Employee may, after the date of this Agreement, own as an inactive investor, securities of any corporation engaged in any Prohibited Business which is publicly traded on a national securities exchange or in the over-the-counter market, so long as the holdings of Employee, directly or indirectly, in the aggregate, constitute less than 1% of the outstanding voting securities of such corporation; 2. Employee may act as a representative for entities that are or have been customers or suppliers of the Company for the purpose of purchasing for, or selling to, such entities products other than Prohibited Products; and 3. Employee may purchase Prohibited Products which he resells to the Company. 12. Employee acknowledges and agrees to Employee's obligations of confidentiality, use of information and return of Company property as set forth in the Company's Corporate Code of Conduct and Employee Handbook and without limiting the foregoing or the following, the Employee further agrees that all notes, data, reference materials, memoranda, files and records, including without limitation computer reports, financial, accounting, employee, customer, vendor and product data, reports or records, lists and information, process manuals and notes, drawings, and technology manuals and notes, in any way relating to any of the Company's or its predecessors' or subsidiaries' businesses, operations or products shall belong exclusively to Company, and Employee agrees to turn over to Company all copies of such materials and all keys, equipment and other Company property in Employee's possession or control at the request of Company or, in the absence of such a request, upon the Termination Date. Employee shall immediately refrain from seeking access to or utilization of Company's (a) telephonic voice mail, E-mail or message system, (b) computer system, and (c) computer data bases and software. 13. Employee acknowledges that the restrictions contained in this Agreement will not prevent him from obtaining such other gainful employment he may desire to obtain or cause him any undue hardship and are reasonable and necessary in order to protect the legitimate interests of the Company and that violation thereof would result in irreparable injury to the Company. Employee therefor acknowledges and agrees that in the event of a breach or threatened breach by Employee of the provisions of paragraphs 9, 10, 11 or 12, the Company shall be entitled to an injunction restraining Employee from such breach or threatened breach and shall be entitled to terminate all payments otherwise to be made to or for the benefit of Employee under the provisions of this Agreement. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach. The parties hereto desire that this paragraph 13 and paragraphs 9, 10, 11 and 12 shall be fully enforceable in accordance with the terms hereof and thereof, but if any portion is held unenforceable or void or against public policy by any court of competent jurisdiction, the remainder shall continue to be fully enforceable in accordance with its terms or as it may be modified by such court. If, however, such provisions are not enforced in accordance with their terms there shall be a corresponding reduction in the consideration provided in this Agreement. The period of restriction specified in paragraph 11 shall abate during the time of any violation thereof, and the portion of such period remaining at the commencement of the violation shall not begin to run until the violation is cured. 14. The provisions of this paragraph 14 and of paragraphs 9, 10, 11, 12 and 13 shall survive the termination or expiration of this Agreement for any reason. 15. Employee's death shall not terminate the Company's obligation to pay the amounts it would otherwise be obligated to pay Employee under subparagraphs 3(a) or 4(a). In the event of Employee's death prior to payment of all amounts due under subparagraphs 3(a) and 4(a), such amounts thereafter shall be paid to Employee's estate or, if Employee has provided Company with written direction prior to his death of an alternative beneficiary, to the beneficiary so designated by Employee in such written direction; provided, however, that the amount of such payments shall be reduced by the amount, if any, of any payment under any life insurance paid or to be paid to Employee's estate or other beneficiary under any life insurance provide Employee as a benefit under this Agreement. Such payments shall be made on the dates and to the extent subparagraphs 3(a) or 4(a), as the case may be, would require them to be made to Employee if he were still alive. 16. The Employee understands and agrees that the existence and terms of this Agreement are confidential and shall not be disclosed to any third party except Employee's immediate family or Employee's counsel or accountant without the prior written consent of the Company, except as may be required by law and in response to a lawful subpoena in which event Employee shall provide prompt notice to the Company. 17. The existence and execution of this Agreement shall not be considered, and shall not be admissible in any proceeding, as an admission by the Employee or the Company, or any of its agents or employees, of any liability, error, violation or omission. 18. It is agreed that: (a) This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns and shall inure to their respective benefits. (b) This Agreement shall not be subject to change, modification, or discharge, in whole or in part, except by written instrument signed by the parties; provided, however, that if any of the terms, provisions or restrictions of paragraphs 9, 10, subparagraphs A.1, A.2, A.3, A.4, or B of paragraph 11, or paragraph 12 are held to be in any respect unreasonable restrictions upon Employee, then the court so holding shall reduce the territory to which it pertains and/or the period of time in which it operates or effect any other change to the extent necessary to render any of said terms, provisions or restrictions enforceable. (c) The failure by the Company to insist upon strict compliance by the Employee with respect to any of the terms or conditions hereof shall not be deemed a waiver or relinquishment of any other terms or conditions nor shall any failure to exercise any right or power hereunder at one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (d) This Agreement shall be governed and construed in accordance with the laws of the State of Illinois. (e) All notices required to be given hereunder to the Company shall be addressed to its principal executive office at 40W267 Keslinger Road, LaFox, Illinois 60147; attention: William G. Seils, by certified or registered mail. All notices required or to be given hereunder to the Employee shall be addressed to the Employee at his residence as last reflected on the records of the Company, by certified or registered mail. Notice shall be deemed given if delivered in person to William G. Seils on behalf of the Company or to the Employee, or if mailed, when deposited in the United States Mail addressed as aforesaid. 19. The Employee acknowledges that Employee had an adequate opportunity of at least 21 days to review this Agreement and General Release and consult with such persons, including legal counsel, as he saw fit, that Employee fully understands its terms, that Employee was not coerced into signing it, that Employee has signed it knowingly and voluntarily, and that he has not relied on any promise or representation (written or oral) other than those expressly set forth herein. 20. This Agreement and General Release shall take effect seven days after the Employee signs it. The Employee has the right to revoke this Agreement and General Release during that seven day period. In order to revoke the Agreement and General Release, the Employee must notify the undersigned representative of the Company, in writing, of his decision to revoke, and that notice must be received by the undersigned representative of the Company no later than seven days after the Employee signed the Agreement and General Release. If the Employee revokes this Agreement and General Release, he must promptly repay to the Company all consideration paid to the Employee under the provisions hereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year written below their respective signatures. EMPLOYEE RICHARDSON ELECTRONICS, LTD. ____________________________ By: ________________________________ David Gilden Edward J. Richardson, Chairman of the Board Dated:__________________ Dated:___________________ Subscribed and sworn to before me this _______ day of March, 1997 ____________________________ Notary Public EX-27 6
5 1,000 9-MOS MAY-31-1997 FEB-28-1997 11545 0 56000 3032 93924 170531 45373 27992 196262 28339 108820 0 162 435 57221 196262 183874 183874 137182 137182 0 1337 5588 (5328) (2500) (2828) 0 (488) 0 (3316) (.27) (.27)
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