RICHARDSON ELECTRONICS LTD/DE (Form: 10-K, Received: 07/31/2008 17:22:47)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

x	FOR ANNUAL REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2008

¨	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

LOGO

(Exact name of registrant as specified in its charter)


Delaware		36-2096643
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

40W267 Keslinger Road, P.O. Box 393,

LaFox, Illinois 60147-0393

(Address of principal executive offices)

Registrant’s telephone number, including area code:(630) 208-2200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange of which registered
Common stock, $0.05 Par Value		NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer ¨	Accelerated Filer x	Non-Accelerated Filer ¨	Smaller reporting company ¨
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of December 1, 2007, was approximately $92.7 million.

As of July 28, 2008, there were outstanding 14,864,561 shares of Common Stock, $.05 par value and 3,048,258 shares of Class B Common Stock, $.05 par value, which are convertible into Common Stock of the registrant on a one-for-one basis.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held October 7, 2008, which will be filed pursuant to Regulation 14A, are incorporated by reference in Part III of this report. Except as specifically incorporated herein by reference, the above mentioned Proxy Statement is not deemed filed as part of this report.

TABLE OF CONTENTS


		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	36
Item 9A.	Controls and Procedures	71

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	73
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73
Item 13.	Certain Relationships and Related Transactions, and Director Independence	73
Item 14.	Principal Accountant Fees and Services	73

Part IV
Item 15.	Exhibits and Financial Statement Schedules	74
Signatures		75
Exhibit Index		76

Forward Looking Statements

Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. The terms “may,” “should,” “could,” “anticipate,” “believe,” “continues,” “estimate,” “expect,” “intend,” “objective,” “plan,” “potential,” “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A of this Form 10-K. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.

PART I

Item 1. Business

General

Richardson Electronics, Ltd. (“we”, “us”, and “our”) was originally incorporated in the state of Illinois in 1947 and is currently incorporated in the state of Delaware. We are a global provider of engineered solutions and a global distributor of electronic components to the radio frequency (“RF”), wireless and power conversion, electron device, and display systems markets with total sales in fiscal 2008 of $568.4 million. Utilizing our core engineering and manufacturing capabilities, we are committed to a strategy of providing specialized technical expertise and value-added products, or “engineered solutions,” in response to our customers’ needs. These solutions include products which we manufacture or modify and products which are manufactured to our specifications by independent manufacturers under our own private labels. Additionally, we provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, and logistics for end products of our customers. Design-in support includes component modifications or the identification of lower-cost product alternatives or complementary products.

Our fiscal year 2008 began on June 3, 2007, and ended on May 31, 2008. Unless otherwise noted, all references in this document to a particular year shall mean our fiscal year.

Our products include RF and microwave components, power semiconductors, electron tubes, microwave generators, and data display monitors. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, and communication applications.

Our sales and marketing, product management, and purchasing functions are organized as follows:

RF, Wireless & Power Division (“RFPD”) serves the global RF and wireless communications market, including infrastructure, wireless networks, and the power conversion market.

Electron Device Group (“EDG”) provides engineered solutions and distributes electronic components to customers in diverse markets including the steel, automotive, textile, plastics, semiconductor manufacturing, and broadcast industries.

Display Systems Group (“DSG”) is a global provider of integrated display products, systems and digital signage solutions serving financial, corporate enterprise, healthcare, and industrial markets.

We currently have operations in the following major geographic regions:

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North America;

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Asia/Pacific;

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Europe; and

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Latin America.

On May 31, 2007, we completed the sale of the Security Systems Division/Burtek Systems (“SSD/Burtek”) to Honeywell International Incorporated (“Honeywell”). SSD/Burtek is presented as a discontinued operation in accordance with the criteria of Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), and prior period results and disclosures have been restated to reflect this reporting.

Selected financial data attributable to each segment and geographic region for fiscal 2008, 2007, and 2006 is set forth in Note 12 “Segment and Geographic Data” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

RF, Wireless & Power Division

Our RFPD serves the global RF and wireless communications market, including infrastructure and wireless networks and the power conversion markets. Our team of RF and wireless engineers assist customers in designing circuits, selecting cost-effective components, planning reliable and timely supply, prototype testing, and assembly. The team offers its customers and vendors a broad range of engineering and technical support including the design-in of RF, wireless and power components and the development of engineered solutions for their support system requirements. Our team of power conversion engineers design solutions for applications such as motor speed controls, industrial heating, laser technology, semiconductor manufacturing equipment, radar, and welding. The team builds on its expertise in power conversion technology to provide engineered solutions to its customers’ specifications using components from industry-leading vendors.

We expect continued growth in wireless applications. As demand for wireless communication increases worldwide, we believe the rising demand for high-speed data transmission will result in major investments in both system upgrades and new systems to handle broader bandwidth. We believe wireless and power conversion products for niche applications, which will require engineered solutions using the latest RF technology and electronic components, include:

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Wireless Networks—Wireless technologies used for short-range interconnection, both within the home or office or last mile solutions from a neighborhood to the home.

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Wireless Infrastructure—Equipment required to support the transmission of RF signals.

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Power Conversion—Alternative energy, high power applications such as power suppliers, welding, motor controls, and converting AC/DC and DC/AC.

Our growth is supported by our collaboration with leading manufacturers. A key factor in our ability to maintain a strong relationship with our vendors and to attract new vendors is our ability to supply them with worldwide demand forecasts for their existing products as well as products they have in development. We have developed internal systems to capture forecasted product demand by potential design opportunity based on dialogue between our sales team and our customers. We share this information with our suppliers to help them forecast near and long-term demand and product life cycles.

We have global distribution agreements with leading suppliers such as ANADIGICS, Advanced Power Technologies, Aavid, Anaren, ATC, Cornell-Dubilier, Freescale, HUBER+SUHNER, M/A-COM, Peregrine, Vishay, Wakefield, and WJ Communications. In addition, we have relationships with many niche RF, wireless, and power suppliers allowing us to serve as a comprehensive RF, wireless, and power resource.

We participate in most RF, wireless, and power applications and markets in the world by focusing on infrastructure applications rather than consumer-driven subscriber applications.

The following is a description of RFPD’s major product areas:

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RF and Microwave Active Devices —a wide variety of components, such as RF transistors, mixers, switches, amplifiers, oscillators, and RF diodes, which are used in infrastructure, wireless networking, and other related markets, such as broadcast, cable TV, cellular and personal communication services, telephony, satellite, wireless local area networks, and various other wireless applications.

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RF & Microwave Passive Devices —components used in the “transmit and receive” side of all types of electronic equipment including those employing RF technology.

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Digital Broadcast Systems —components and assemblies used in a broad range of applications in the digital broadcast market, including satellite, transmission, and communication.

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Power Conversion Products (Silicon Controlled Rectifiers, Heat Sink Assemblies and Power Semiconductor Modules) —components used in many industrial control applications because of their ability to switch large amounts of power at high speeds. These silicon power devices are capable of operating at up to 4,000 volts at 2,000 amperes.

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High Voltage and Power Capacitors —devices used in industrial, avionics, medical, and broadcast applications for filtering, high-current bypass, feed-through capacitance for harmonic attenuation, pulse shaping, grid and plate blocking, tuning and tank circuits, antenna coupling, and energy discharge.

Electron Device Group

Our EDG provides engineered solutions and distributes electronic components to customers in diverse markets including the steel, automotive, textile, plastics, semiconductor manufacturing, and broadcast industries. Our team of engineers design solutions for applications such as industrial heating, laser technology, semiconductor manufacturing equipment, radar, and welding. The group builds on our expertise in high power, high frequency vacuum devices to provide engineered solutions to fit our customers’ specifications using competitive components from industry-leading vendors.

We serve the industrial market’s need for both vacuum tube and semiconductor manufacturing equipment technologies. We provide replacement products for systems using electron tubes as well as design and assembly services for new systems employing semiconductor manufacturing equipment. Our customers’ demand for higher power and shorter processing time increases the need for tube-based systems.

We represent leading manufacturers of electron tubes and semiconductor manufacturing equipment used in industrial power applications. Among the suppliers we support are Amperex, CPI, Draloric, Eimac, General Electric, Hitachi, Jennings, Litton, L3, National, NJRC, and Thales.

The following is a description of EDG’s major product areas:

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Power Amplifier/Oscillator Tubes —vacuum or gas-filled tubes used in applications where current or voltage amplification and/or oscillation is required. Applications include induction heating, diathermy equipment, communications, broadcast, radar systems, and power supplies for voltage regulation or amplification.

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Magnetrons —microwave tubes used in industrial applications ranging from industrial scale food processing and plasma generation for semiconductor fabrication processes, to marine and avionics radar.

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Contract Manufacturing —specializing in projects requiring use of sophisticated processes, low to medium volume, and for industries insisting upon a high level of quality including “copy exact” discipline. The semiconductor equipment, medical equipment, and industrial equipment markets have been the primary market segments targeted to date.

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Microwave Generators —devices that incorporate magnetrons, which are high vacuum oscillator tubes used to generate energy at microwave frequencies. The pulsed magnetron is primarily used to generate high-energy microwave signals for radar applications. Magnetrons are also used in vulcanizing rubber, food processing, packaging, wood/glue drying, manufacturing of wafers for the semiconductor industry, and other industrial heating applications such as microwave ovens, and by the medical industry for sterilization and cancer therapy.

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Hydrogen Thyratrons —electron tubes capable of high speed and high voltage switching. Hydrogen thyratrons are used to control the power in laser and radar equipment and in linear accelerators for cancer treatment.

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Ignitrons —mercury pool tubes used to control the flow of large amounts of electrical current. Ignitrons primary applications are welding equipment, power conversion, fusion research, and power rectification equipment.

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Thyratrons and Rectifiers —vacuum or gas-filled tubes used to control the flow of electrical current. Thyratrons are used to control ignitrons, electric motor speed controls, theatrical lighting, and machinery such as printing presses and various types of medical equipment. Rectifiers are used to restrict electric current flow to one direction in power supply applications.

Display Systems Group

Our DSG is a leading global provider of integrated display products, workstations, and value-added services to the healthcare, industrial original equipment manufacturer (“OEM”), and digital signage markets. Our engineers manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer custom display solutions that include touch screens, protective panels, custom enclosures, specialized cabinet finishes, application specific software packages, and our own privately-branded display products. In addition, we partner with leading branded hardware vendors to offer the highest quality liquid crystal displays, mounting devices, and customized computing platforms.

Our medical imaging hardware partnership program allows us to deliver integrated hardware and software solutions for the growing medical imaging market in its transition from film-based technology to digital technology by combining our hardware expertise in medical imaging display solutions, workstations, peripherals, technical support and services with our software partners’ expertise in picture archiving and communications systems (“PACS”). Through such collaborative arrangements, we are able to provide integrated imaging workstation systems with technical support and services to the end user and resellers, as well as other medically approved display solutions for various other modalities in the hospital such as endoscopy and cardiology. We have also been successful in supporting the needs of the operating room by providing specialized large screen LCD displays.

The industrial OEM market offers a vast array of custom based project opportunities that complement our ability to provide value-added manufacturing capabilities. We continue to focus on specialty display applications by leveraging engineering resources and advanced technologies. We meet the needs of this complex market environment by providing programs and material management services.

The digital signage market is an area that represents a tremendous growth opportunity for us. We utilize a turn-key approach for growing sales and services revenue specific to signage applications, targeting (but not limited to) the enterprise, financial, and hospitality markets. We provide display hardware and associated products, computers, and software that are either branded or custom variations. We offer a suite of services and support including installation, maintenance, phone and internet support.

We have long-standing relationships with key component and finished goods manufacturers including 3M, AUO, CMO, Eizo, Fimi Philips, HP, IBM, Intel, LG, NEC Displays, Planar Systems, Sharp Electronics, Samsung, and WIDE Corporation. We believe our distributor relationships in conjunction with our OEM manufacturing capabilities and private label brands allow us to maintain a well-balanced and technologically advanced line of products.

The following is a description of DSG’s major product areas:

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Custom LCD Displays —flat panel display monitors which are usually integrated with touch screen technology or special mounting configurations based on the customer’s requirements.

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High Resolution Medical Displays —an integral component of picture archiving and communications systems. These displays are used in diagnostic and non-diagnostic imaging to show the digital image generated from computed tomography, magnetic resonance imaging, radiography, and other digital modalities.

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Surgical Displays —Large screen LCD displays for use in hospital operating rooms and video displays used in endoscopic procedures.

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Custom Workstations —Custom server platforms for the infrastructure of financial exchanges, small profile workstations for digital signage, flight information and kiosk applications, and imaging workstations for radiologists.

Products and Suppliers

We evaluate our customers’ needs and maintain sufficient inventories to ensure our position as a reliable source of supply. On average, we hold 90 days of inventory in the normal course of operations. This level of inventory reflects the fact that we sell a number of products representing trailing edge technology that are not as readily available from other sources. The market for these trailing edge technology products is declining. As manufacturers for these products exit the business, we, at times, purchase a substantial portion of their remaining inventory. Our inventory levels also reflect our commitment to maintain an inventory of a broad range of products for customers who are buying product for replacement of components used in critical production equipment. In certain segments of our business, such as RFPD and DSG, the market for our products is characterized by rapid change and obsolescence as a result of the introduction of new technologies.

We have distribution agreements with many of our suppliers; however, a number of these agreements provide for nonexclusive distribution rights and often include territorial restrictions that limit the countries in which we can distribute their products. The agreements are generally short-term, subject to periodic renewal, and some contain provisions permitting termination by either party, without cause, upon relatively short notice. Although some of these agreements allow us to return inventory periodically, others do not, in which case we may have obsolete inventory that we cannot return to the supplier.

Our suppliers generally warrant the products we distribute and allow return of defective products, including those returned to us by our customers. Except with respect to certain displays, we generally do not provide additional warranties on the products we sell. For information regarding the warranty reserves, see Note 1 “Significant Accounting Policies” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

In addition to third party products, we sell proprietary products principally under certain trade names we own including: Amperex ^® , Cetron ^® , Image Systems ^® , National ^® , and Pixelink ^® . Our proprietary products include RF amplifiers, transmitters and pallet assemblies, thyratrons and rectifiers, power tubes, ignitrons, magnetron tubes, phototubes, spark gap tubes, microwave generators, custom RF matching networks, heatsinks, silicon controlled rectifier assemblies, large screen display monitors, liquid crystal display monitors, and computer workstations. The materials used in the manufacturing process consist of glass bulbs and tubing, nickel, stainless

steel and other metals, plastic and metal bases, ceramics, and a wide variety of fabricated metal components. These materials are generally readily available, but some components may require long lead times for production, and some materials are subject to shortages or price fluctuations based on supply and demand.

Sales and Product Management

As of the end of fiscal 2008, we employed 505 sales and product management personnel worldwide. In addition, we have authorized representatives, who are not our employees, selling our products, primarily in regions where we do not have a direct sales presence. Many of our sales representatives focus on just one of our segments, while others focus on all of our segments within a particular geographic area.

We offer various credit terms to qualifying customers as well as prepayment, credit card, and cash on delivery terms. We establish credit limits prior to selling product to our customers and routinely review delinquent and aging accounts.

Distribution

We maintain more than 940,000 part numbers in our product inventory database and we estimate that more than 80% of orders received by 6:00 p.m. local time are shipped complete the same day. Customers can access our product inventory through electronic data interchange, either on our web site, www.rell.com , through our catalog, www.catalog.rell.com , or by telephone. Customer orders are processed by the regional sales offices and supported by one of our hub distribution facilities in LaFox, Illinois; Amsterdam, Netherlands; or Singapore, Republic of Singapore. We utilize a sophisticated data processing network that provides on-line, real-time interconnection of all sales offices and central distribution operations, 24 hours per day, seven days per week. Information on stock availability, cross-reference information, customers, and market analyses are obtainable throughout the entire distribution network.

International Sales

During fiscal 2008, approximately 61% of our sales and purchases of products were made outside the U.S. We will continue to pursue new international sales to expand our international reach.

Backlog

Our backlog of orders was approximately $149.2 million and $140.5 million as of May 31, 2008, and June 2, 2007, respectively. We expect to fill all backlog orders during fiscal 2009.

Employees

As of May 31, 2008, we employed 930 individuals, of which 911 were employed on a full-time basis and 19 were employed on a part-time basis. Of these, 514 were located in the United States and 416 were located internationally. The worldwide employee base included 505 in sales and product management, 84 in distribution support, 251 in administrative positions, and 90 in value-added and product manufacturing. All of our employees are non-union and we consider our relationships with our employees to be good.

Competition

We believe that engineering capabilities, exclusive vendor relationships, and breadth of product offerings create differentiation with our competitors. Key competitive factors in our markets include the ability to provide engineered solutions, reliable delivery at competitive prices, marketing technical support, and maintaining inventory availability and quality. We believe that, on a global basis, we are a significant provider of engineered solutions and products which utilize RF and power semiconductors and subassemblies, electron tubes, cathode ray tubes, and custom and medical monitors. In many ways, we compete with our customer base. Our customers’

decision includes the ability to make or buy from the OEM for replacement parts or to do a system upgrade to service existing installed equipment. In addition, we compete worldwide with other general line distributors and other distributors of electronic components.

Patents and Trademarks

We hold or license certain manufacturing patents and trademark rights. Although our patents and trademarks have value, they are not the primary reason for our success. Our success depends principally upon our ability to provide engineered solutions, reliable delivery at competitive prices, provide marketing technical support, and maintaining inventory availability and quality.

Seasonal Variations

We experience moderate seasonality in our business and typically realize higher sequential sales in our second and fourth fiscal quarters. This reflects increased transaction volume after the summer and holiday months which take place in our first and third fiscal quarters.

Website Access to SEC Reports

We maintain an Internet website at www.rell.com . Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically with the Securities and Exchange Commission. To access these reports, go to our website at www.rell.com . The foregoing information regarding our website is provided for convenience and the content of our website is not deemed to be incorporated by reference in this report filed with the Securities and Exchange Commission.

Item 1A. Risk Factors

Investors should consider carefully the following risk factors, in addition to the other information included and incorporated by reference in this Annual Report on Form 10-K. While we believe we have identified the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our results of operations.

These risks are not the only risks that we currently face. Our business operations and financial condition could also be materially adversely affected by risks and uncertainties that are not presently known or that we currently deem immaterial.

We have several years of historical losses and may have future losses.

We had a loss from continuing operations of $8.5 million during the fiscal year ended May 31, 2008. We also had losses from continuing operations of approximately $4.0 million and $18.8 million during fiscal 2006 and fiscal 2005, respectively. We may continue to incur losses in the future. As a result, we can give no assurance that we will be capable of sustaining profitable operations.

We must continue to reduce our costs in order to compete effectively.

We have taken, and continue to take, actions intended to reduce costs and increase productivity. Our ability to complete these actions and the impact of such actions on our business may be limited by a variety of factors. The cost-reduction actions, in turn, could have the effect of reducing our talent pool and available resources and, consequently, could have long-term effects on our business by affecting our ability to respond to customers and limiting our ability to hire and retain key personnel. These circumstances could negatively affect our financial performance and, as a result, adversely affect our stock price.

In fiscal 2006 through 2008, we implemented plans to centralize our inventory distribution in three hubs located in the United States, Europe and Asia/Pacific, restructure our Latin American operations, and reduce our total workforce. Total restructuring costs to implement these plans were approximately $4.9 million, of which $2.2 million of severance costs were recorded during fiscal 2007 and $2.7 million of severance costs were recorded during the fourth quarter of fiscal 2006.

During the third quarter of fiscal 2008, our Display Systems Group (“DSG”) began implementing a new business plan that included exiting unprofitable market segments, exiting distribution of low margin branded products, and an increased focus on digital signage. As a result of the shift in business focus, DSG eliminated more than 30 positions which we expect to result in more than $3.0 million of annualized cost savings.

The impact of the cost-reduction actions on our sales and profitability may be influenced by factors including, but not limited to: (i.) our ability to successfully complete these efforts; (ii.) our ability to generate the level of cost savings we need to effectively compete; (iii.) delays in implementation of anticipated workforce reductions in highly-regulated locations outside of the United States, particularly in Europe and Asia; (iv.) decreases in employee morale and the failure to meet operational targets due to the loss of employees; and (v.) our ability to retain or recruit key employees.

We have exposure to economic downturns and operate in cyclical markets.

As a supplier of electronic components and services to a variety of industries, we can be adversely affected by general economic downturns. Many of our customers delay capital projects during economic downturns. Accordingly, our operating results for any particular period are not necessarily indicative of the operating results for any future period. The markets served by our businesses have historically experienced downturns in demand that could harm our operating results. Future economic downturns could be triggered by such things as outbreaks of hostilities, terrorist actions, or epidemics in the United States or abroad.

We maintain a significant investment in inventory. We have also incurred significant charges for inventory obsolescence, and may incur similar charges in the future.

We maintain significant inventories in an effort to ensure that customers have a reliable source of supply. The market for many of our products is characterized by rapid change as a result of the development of new technologies, evolving industry standards, and frequent new product introductions by some of our customers. We do not have many long-term supply contracts with our customers. Generally, our product sales are made on a purchase order basis, which allows our customers to reduce or discontinue their purchases. If we fail to anticipate the changing needs of our customers and accurately forecast our customer demands, our customers may not continue to place orders with us, and we may accumulate significant inventories of products which we will be unable to sell or return to our vendors. This may result in a significant decline in the value of our inventory.

Because we derive a significant portion of our revenue by distributing products designed and manufactured by third parties, we may be unable to anticipate changes in the marketplace and, as a result, could lose market share.

Our business is driven primarily by customers’ needs and the demand for new products or products developed and manufactured by third parties. Because we distribute products developed and manufactured by third parties, our business would be adversely affected if our suppliers failed to anticipate which products or technologies will gain market acceptance or if we cannot sell these products at competitive prices. We cannot be certain that our suppliers will permit us to distribute their newly developed products, or that such products will meet our customers’ needs and demands. Additionally, because some of our principal competitors design and manufacture new technology, those competitors may have a competitive advantage. To successfully compete, we must maintain an efficient cost structure, an effective sales and marketing team, and offer additional services that distinguish us from our competitors. Failure to execute these strategies could harm our results of operations.

We face intense competition in the markets we serve and, if we do not compete effectively, we could significantly harm our operating results.

We face substantial competition in the markets we serve. Our competition includes hundreds of electronic component distributors of various sizes, locations, and market focuses as well as original equipment manufacturers. We also continue to face competition with various direct marketers. Some of our competitors have greater resources and broader name recognition than we do. As a result, these competitors may be able to better withstand changing conditions within our markets and throughout the economy as a whole.

Engineering capability, vendor representation, and product diversity create differentiation among distributors. Our ability to compete successfully will depend on our ability to provide engineered solutions, reliable delivery at competitive prices, technical support, and maintain inventory availability.

To the extent we do not keep pace with technological advances or fail to timely respond to changes in competitive factors in our industry, we could lose market share and experience a deterioration of our overall financial results.

Because we generally do not have long-term contracts with our vendors, we may experience shortages of products that could harm our business and customer relationships.

We generally do not have long-term contracts or arrangements with any of our vendors that guarantee product availability. We cannot ensure that our vendors will meet our future requirements for timely delivery of products of sufficient quality or quantity. Any difficulties in the delivery of products could harm our relationships with customers and cause us to lose orders that could result in a significant decrease in our revenues. We also compete against certain vendors and our relationship with those vendors could be harmed as a result of competition.

Our products may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against us, which may have a material adverse effect on us.

We sell many of our components at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. Since a defect or failure in a product could give rise to failures in the end products that incorporate them, we may face claims for damages that are disproportionate to the revenues and profits we receive from the products involved in the claims. While we typically have provisions in our supplier agreements that hold the supplier accountable for defective products, and we and our suppliers generally exclude consequential damages in our standard terms and conditions, our ability to avoid such liabilities may be limited as a result of differing factors, such as the inability to exclude such damages due to the laws of some of the countries where we do business. Our business could be materially adversely affected as a result of a significant quality or performance issue in the products sold by us, if we are required to pay for the damages that result. Although we have product liability insurance, such insurance is limited in coverage and amount.

Economic, political, and other risks associated with international sales and operations could adversely affect our results of operations.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenue from international operations will continue to represent a majority of our total revenue. In addition, many of our employees, suppliers, job functions and warehouse facilities are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

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interruption to transportation flows for delivery of products to us and to our customers;

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changes in foreign currency exchange rates;

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changes in a specific country’s or region’s political or economic conditions;

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trade protection measures and import or export licensing requirements;

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negative consequences from changes in tax laws;

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difficulty in staffing and managing widespread operations;

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differing labor regulations;

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difficulty collecting accounts receivable;

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unexpected changes in regulatory requirements; and

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geopolitical turmoil, including terrorism or war.

While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our operations and financial results in the future.

A single stockholder has voting control over us.

As of July 29, 2008, Edward J. Richardson, our Chairman, Chief Executive Officer and President, beneficially owned approximately 99% of the outstanding shares of our Class B common stock, representing approximately 67% of the voting power of the outstanding common stock. This share ownership permits Mr. Richardson to exert control over the outcome of most stockholder votes, including votes concerning the election of directors, by-law amendments, possible mergers, corporate control contests, and other significant corporate transactions.

We are exposed to foreign currency risk.

We expect that international sales will continue to represent a significant percentage of our total sales, which exposes us to currency exchange rate fluctuations. Since the revenues and expenses of our foreign operations are generally denominated in local currencies, exchange rate fluctuations between local currencies and the U.S. dollar subject us to currency exchange risks with respect to the results of our foreign operations to the extent we were unable to denominate our purchases or sales in U.S. dollars or otherwise shift the risk of currency exchange rate fluctuations to our customers and suppliers.

We currently do not engage in any currency hedging transactions. Fluctuations in exchange rates may affect the results of our international operations reported in U.S. dollars and the value of such operations’ net assets reported in U.S. dollars. Additionally, our competitive position may be affected by the relative strength of the currencies in countries where our products are sold. We cannot predict whether foreign currency exchange risks inherent in doing business in foreign countries will have a material adverse effect on our operations and financial results in the future.

Our credit agreement and the indentures for our outstanding notes impose restrictions with respect to various business matters.

Our credit agreement contains numerous restrictive covenants that limit the discretion of management with respect to certain business matters. These covenants place restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to pay dividends or make other payments with respect to our shares of common stock and Class B common stock, to engage in transactions with affiliates, to make certain payments and investments, to merge or consolidate with another entity, and to repay indebtedness junior to indebtedness under the credit agreement. Our credit agreement contains only one financial covenant related to the ratio of senior funded debt to cash flow. In addition, the indentures for our outstanding notes contain covenants that limit, among other things, our ability to incur additional indebtedness. If we fail to comply with the obligations in our credit agreement or indentures, it could result in an event of default under those agreements. If an event of default occurs and is not cured or waived, it could result in acceleration of the indebtedness under those agreements, any of which could significantly harm our business and financial condition.

If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to detect fraud or report our financial results accurately or timely, which could have a material adverse effect on our business.

An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our internal controls over financial reporting. Based on these evaluations, we may conclude that enhancements, modifications or changes to internal controls are necessary or desirable. While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks.

If we fail to maintain an effective system of internal controls, or if management or our independent registered public accounting firm discovers material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on our business. In addition, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NASD. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline or limit our access to capital.

Our business is dependent upon the availability of our information systems. The failure of our information systems for any extended period of time could adversely affect our business.

We rely on our information systems to process, analyze, and manage data to facilitate the purchase and distribution of our products. We also rely on our systems to receive, process, bill, and ship orders on a timely basis. If our information systems are interrupted, damaged, or fail for any extended period of time, it could have an adverse impact on our results of operations.

ITEM 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own three facilities and lease 61 facilities. We own our corporate facility and largest distribution center, which is located on approximately 96 acres in LaFox, Illinois and consists of approximately 242,000 square feet of manufacturing, warehouse, and office space. We maintain geographically diverse facilities because we believe this will limit market risk and exchange rate exposure. We consider our properties to be well maintained, in sound condition and repair, and adequate for our present needs. The extent of utilization varies from property to property and from time to time during the year.

Our principal facilities, their primary use, and segments served are as follows:


Location	Leased or Owned	Use	Segment
LaFox, Illinois*	Owned	Sales/Distribution/Manufacturing	RFPD, EDG, DSG
Sao Paulo, Brazil	Leased	Sales/Distribution	RFPD, EDG
Brampton, Canada	Leased	Sales	RFPD, EDG, DSG
Shanghai, China	Leased	Sales/Distribution	RFPD, EDG
Beijing, China	Leased	Sales	RFPD, EDG
Shenzhen, China	Leased	Sales/Distribution	RFPD, EDG
Colombes, France	Leased	Sales	RFPD, EDG, DSG
Puchheim, Germany	Leased	Sales	RFPD, EDG
Donaueschingen, Germany	Leased	Sales/Distribution/Manufacturing	DSG
Ra’anana, Israel	Leased	Sales	RFPD, EDG, DSG
Florence, Italy	Owned	Sales	RFPD, EDG
Tokyo, Japan	Leased	Sales	RFPD, EDG
Seoul, Korea	Leased	Sales	RFPD, EDG
Singapore, Singapore	Leased	Sales	RFPD, EDG
Madrid, Spain	Owned	Sales	RFPD, EDG
Jarfalla, Sweden	Leased	Sales	RFPD, EDG
Taipei, Taiwan	Leased	Sales	RFPD, EDG
Lincoln, United Kingdom	Leased	Sales	RFPD, EDG, DSG
Slough, United Kingdom	Leased	Sales	RFPD, EDG, DSG
San Jose, California	Leased	Sales	RFPD
Woodland Hills, California	Leased	Sales	RFPD, EDG
Marlborough, Massachusetts	Leased	Sales/Distribution/Manufacturing	DSG
Plymouth, Minnesota	Leased	Sales/Distribution	DSG
Ronkonkoma, New York	Leased	Sales	RFPD, EDG
Cedars, Pennsylvania	Leased	Sales	RFPD
Geneva, Illinois	Leased	Distribution	RFPD, EDG, DSG

*	LaFox, Illinois is also the location of our corporate headquarters.

Item 3. Legal Proceedings

We are involved in several pending judicial proceedings concerning matters arising in the ordinary course of business. While the outcome of litigation is subject to uncertainties, based on currently available information, we believe that, in the aggregate, the results of these proceedings will not have a material effect on our financial condition.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Sales of Unregistered Securities

None.

Dividends

Annual dividend payments for fiscal 2008 and fiscal 2007 were approximately $2.1 million and $2.8 million, respectively. All future payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions, and such other factors that the Board may deem relevant. In each quarter during fiscal 2007 and the first two quarters of fiscal 2008, our Board of Directors paid a quarterly dividend of $0.04 per common share and $0.036 per Class B common share. During the third quarter of fiscal 2008, the quarterly dividend was reduced to $0.02 per common share and $0.018 per Class B common share.

Common Stock Information

Our common stock is traded on The NASDAQ Global Market (“NASDAQ”) under the trading symbol (“RELL”). There is no established public trading market for our Class B common stock. As of July 28, 2008, there were approximately 912 stockholders of record for the common stock and approximately 18 stockholders of record for the Class B common stock. The following table sets forth, for the periods indicated, the high and low sales prices per share of RELL common stock as reported on The NASDAQ Global Market.


	2008				2007
Fiscal Quarters	High		Low		High		Low
First	$	9.90	$	6.82	$	8.68	$	6.58
Second	$	7.85	$	6.30	$	10.30	$	8.01
Third	$	7.35	$	3.66	$	10.09	$	8.37
Fourth	$	6.61	$	3.59	$	10.09	$	8.30

Performance Graph

The following graph compares the performance of our common stock for the periods indicated with the performance of the NASDAQ Composite Index, and NASDAQ Electronic Components Index. The graph assumes $100 invested on May 31, 2003, in our common stock, the NASDAQ Composite Index, and NASDAQ Electronic Components Index. Total return indices reflect reinvestment of dividends at the closing stock prices at the date of the dividend declaration.

LOGO


	5/31/2003	5/31/2004	5/31/2005	5/31/2006	5/31/2007	5/31/2008
RELL	$100	$134	$106	$ 86	$122	$ 72
NASDAQ	$100	$124	$130	$140	$165	$158
Elec Comp.	$100	$133	$119	$114	$131	$134

Item 6. Selected Financial Data

Five-Year Financial Review

This information should be read in conjunction with our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.


	Fiscal Year Ended ⁽¹⁾
	*(in thousands, except per share amounts)*
	May 31, 2008 ⁽²⁾			June 2, 2007 ⁽³⁾		June 3, 2006 ⁽⁴ ⁾			May 28, 2005 ⁽ ⁵ ⁾			May 29, 2004 ⁽ ⁶ ⁾
Statement of Operations Data:
Net sales	$	568,409		$	557,291	$	529,097		$	473,143		$	417,844
Income (loss) from continuing operations	$	(8,471	)	$	1,548	$	(4,010	)	$	(18,780	)	$	423
Net income (loss)	$	(8,426	)	$	40,679	$	(2,642	)	$	(16,017	)	$	5,532
Per Share Data:
Net income (loss) per common share—basic:
Income (loss) from continuing operations	$	(0.48	)	$	0.09	$	(0.23	)	$	(1.13	)	$	0.03
Net income (loss) per common share	$	(0.48	)	$	2.36	$	(0.15	)	$	(0.96	)	$	0.40
Net income (loss) per Class B common share—basic:
Income (loss) from continuing operations	$	(0.43	)	$	0.08	$	(0.21	)	$	(1.02	)	$	0.03
Net income (loss) per Class B common share	$	(0.43	)	$	2.12	$	(0.14	)	$	(0.87	)	$	0.36
Net income (loss) per common share—diluted:
Income (loss) from continuing operations	$	(0.48	)	$	0.09	$	(0.23	)	$	(1.13	)	$	0.03
Net income (loss) per common share	$	(0.48	)	$	2.30	$	(0.15	)	$	(0.96	)	$	0.38
Net income (loss) per Class B common share—diluted:
Income (loss) from continuing operations	$	(0.43	)	$	0.08	$	(0.21	)	$	(1.02	)	$	0.03
Net income (loss) per Class B common share	$	(0.43	)	$	2.11	$	(0.14	)	$	(0.87	)	$	0.36
Cash Dividend Data:
Dividends per common share	$	0.120		$	0.160	$	0.160		$	0.160		$	0.160
Dividends per Class B common share ⁽ ⁷ ⁾	$	0.108		$	0.144	$	0.144		$	0.144		$	0.144
Balance Sheet Data:
Total assets		286,235			349,071		309,299			283,940			281,035
Current maturities of long-term debt		—			65,711		14,016			22,305			4,027
Long-term debt		55,683			55,683		110,500			92,481			126,209
Stockholders’ equity		141,430			136,545		98,240			97,396			86,181

(1)

Our fiscal year ends on the Saturday nearest the end of May. Each of the fiscal years presented contains 52/53 weeks.

(2)

A goodwill impairment charge of $9.2 million, net of an income tax benefit of $2.3 million, was recorded during fiscal 2008. We recorded employee termination related charges of approximately $3.3 million during fiscal 2008, primarily relating to implementing a new business plan in our Display Systems Group (“DSG”). DSG and the RF, Wireless & Power Division incurred inventory obsolescence charges during fiscal 2008 of $1.9 million and $0.9 million, respectively.

(3)

In fiscal 2007, we recorded retirement of long-term debt expenses of $2.5 million in Other Expenses, net as we entered into two separate exchange agreements in August 2006 with certain holders of our 8% convertible senior subordinated notes (8% notes) to purchase $14.0 million of the 8% notes. During fiscal 2007, we sold two buildings and land resulting in a gain of approximately $4.0 million. During the fourth quarter of fiscal 2007, we completed the sale of the Security Systems Division/Burtek Systems (“SSD/Burtek”) strategic business unit to Honeywell International Inc. for $80 million. After transaction expenses paid through June 2, 2007, net cash proceeds from the sale were $78.1 million. The transaction resulted in an after-tax gain of $41.6 million after additional transaction costs of $2.5 million were accrued as of June 2, 2007. Loss from discontinued operations for fiscal 2007 was $2.4 million, net of tax. In addition, during fiscal 2007, we recorded $2.9 million of severance expense and other costs associated with the 2007 Restructuring Plan.

(4)

During fiscal 2006, we recorded employee severance costs of $2.7 million for certain employees. In addition, during fiscal 2006, we re-evaluated the realization of certain deferred tax assets, resulting in an additional valuation allowance of $2.2 million.

(5)

During fiscal 2005, we recorded a $2.2 million restructuring charge as we terminated over 60 employees. We recorded incremental tax provisions of $16.7 million in fiscal 2005 to increase the valuation allowance related to our deferred tax assets in the United States ($15.9 million) and outside the United States ($0.8 million). In addition, during fiscal 2005, we completed the sale of approximately 205 acres of undeveloped real estate resulting in a gain of $9.9 million before taxes.

(6)

During fiscal 2004, we recorded incremental tax provisions of $2.5 million to increase the valuation allowance related to our deferred tax assets outside the United States.

(7)

The dividend per Class B common share was 90% of the dividend per common share.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition, critical accounting policies and estimates, and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto appearing elsewhere herein. This section is organized as follows:

•

Business Overview

•

Results of Continuing Operations —an analysis and comparison of our consolidated results of operations for the fiscal years ended May 31, 2008, June 2, 2007, and June 3, 2006, as reflected in our consolidated statements of operations.

•

Liquidity, Financial Position, and Capital Resources —a discussion of our primary sources and uses of cash for the fiscal years ended May 31, 2008, and June 2, 2007, and a discussion of selected changes in our financial position.

Business Overview

Richardson Electronics, Ltd. (“we”, “us”, and “our”) is a global provider of engineered solutions and a global distributor of electronic components to the radio frequency (“RF”), wireless and power conversion, electron device, and display systems markets. Utilizing our core engineering and manufacturing capabilities, we are committed to a strategy of providing specialized technical expertise and value-added products, or “engineered solutions,” in response to our customers’ needs. These solutions include products which we manufacture or modify and products which are manufactured to our specifications by independent manufacturers under our own private labels. Additionally, we provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, and logistics for end products of our customers. Design-in support includes component modifications or the identification of lower-cost product alternatives or complementary products.

Our sales and marketing, product management, and purchasing functions are organized as follows:

RF, Wireless & Power Division (“RFPD”) serves the global RF and wireless communications market, including infrastructure, wireless networks, and the power conversion market.

We currently have operations in the following major geographic regions:

•

North America;

•

Asia/Pacific;

•

Europe; and

•

Latin America.

Results of Continuing Operations

Overview—Fiscal Year Ended May 31, 2008

•

Net sales for fiscal year 2008 were $568.4 million, up 2.0% compared to fiscal 2007. Sales for RFPD, EDG, and DSG increased 1.7%, 2.0%, and 3.1%, respectively, during fiscal 2008 compared to fiscal 2007.

•

Gross margin percentage for RFPD, EDG, and DSG decreased by 0.1%, 0.7%, and 2.2%, respectively, during fiscal 2008 compared to fiscal 2007.

•

A non-cash goodwill impairment charge of $11.5 million was recorded during fiscal 2008.

•

Operating loss during fiscal 2008 was $1.3 million, compared to operating income of $7.8 million generated during fiscal 2007.

•

Net loss during fiscal 2008 was $8.4 million compared to net income of $40.7 million generated during fiscal 2007.

•

Cash flows provided by operating activities were $27.9 million during fiscal 2008 while cash flows used in operating activities were $9.0 million during fiscal 2007.

Net Sales and Gross Profit Analysis

During fiscal 2008 consolidated net sales increased 2.0% reflecting sales growth in all three segments. Consolidated net sales during fiscal 2007 increased 5.3% due primarily to an increase in wireless, power, and electron device products partially offset by a decrease in sales of display systems products. Fiscal 2008 and 2007 contained 52 weeks as compared to 53 weeks in fiscal 2006.

Net sales by segment and percent change for fiscal 2008, 2007, and 2006, were as follows (in thousands):


	Fiscal Year 2008		Fiscal Year 2007		Fiscal Year 2006		FY08 vs FY07 % Change		FY07 vs FY06 % Change
Net Sales
RFPD	$	376,203	$	369,936	$	334,131	1.7	%	10.7	%
EDG		103,256		101,191		94,443	2.0	%	7.1	%
DSG		84,671		82,111		95,010	3.1	%	(13.6	%)
Corporate		4,279		4,053		5,513

Total	$	568,409	$	557,291	$	529,097	2.0	%	5.3	%

Consolidated gross profit was $135.6 million during fiscal 2008, compared to $132.4 million during fiscal 2007. Consolidated gross margin as a percentage of net sales increased to 23.9% during fiscal 2008, from 23.8% during fiscal 2007. DSG and RFPD incurred inventory obsolescence charges during fiscal 2008 of $1.9 million and $0.9 million, respectively. Consolidated gross profit increased $3.9 million to $132.4 million during fiscal 2007, from $128.5 million during fiscal 2006. Consolidated gross margin as a percentage of net sales declined to 23.8% during fiscal 2007 from 24.3% during fiscal 2006.

Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs, and other provisions. Corporate gross profit includes freight costs and other miscellaneous charges.

Gross profit (loss) by segment and percent of segment net sales for fiscal 2008, 2007, and 2006, were as follows (in thousands):


	Fiscal Year 2008					Fiscal Year 2007					Fiscal Year 2006
Gross Profit
RFPD	$	85,323		22.7	%	$	84,338		22.8	%	$	75,834		22.7	%
EDG		32,941		31.9	%		32,942		32.6	%		30,438		32.2	%
DSG		17,848		21.1	%		19,145		23.3	%		24,509		25.8	%

Subtotal		136,112		24.1	%		136,425		24.7	%		130,781		25.0	%
Corporate		(513	)				(4,022	)				(2,291	)

Total	$	135,599		23.9	%	$	132,403		23.8	%	$	128,490		24.3	%

RF, Wireless & Power Division

RFPD net sales were $376.2 million during fiscal 2008, a $6.3 million increase, or 1.7%, from $369.9 million during fiscal 2007. The net sales increase for fiscal 2008 was due primarily to an increase in sales of power conversion and passive/interconnect products, partially offset by a decrease in infrastructure products. Power conversion net sales increased 15.0% to $57.4 million during fiscal 2008 from $49.9 million during fiscal 2007. The growth in net sales of power conversion during fiscal 2008 was primarily in Asia/Pacific and Europe. Net sales of power conversion products in Asia/Pacific and Europe benefited from RFPD’s penetration of the welding and steel manufacturing market with induction heating and power supply applications. Alternative energy application growth in Asia/Pacific and Europe also contributed to the increase in power conversion net sales. Passive/interconnect net sales increased 7.1% to $63.2 million during fiscal 2008 from $59.0 million in fiscal 2007. The growth in net sales of passive/interconnect products during fiscal 2008 was primarily in Asia/Pacific and Europe. The net sales growth of passive/interconnect products in Asia/Pacific and Europe was due primarily to the expansion of a consumer wireless franchise. Net sales of infrastructure products declined 10.7% to $93.7 million during fiscal 2008 from $104.9 million in fiscal 2007. The decline in net sales of infrastructure products for fiscal 2008 was primarily in Asia/Pacific and North America. The decline in Asia/Pacific was due to the timing of the different phases of the Time Division-Synchronous Code Division Multiple Access (“TD-SCDMA”) project in China. The first phase of the TD-SCDMA project occurred during fiscal 2007, while phase two is scheduled to be deployed during the second and third quarters of fiscal 2009. Gross margin as a percent of net sales declined slightly to 22.7% during fiscal 2008 from 22.8% during fiscal 2007. The decline in gross margin as a percent of net sales was due primarily to $0.9 million of inventory obsolescence charges recorded during the third quarter of fiscal 2008.

RFPD net sales were $369.9 million during fiscal 2007, a $35.8 million increase, or 10.7%, from $334.1 million during fiscal 2006. The net sales increase for fiscal 2007 was due primarily to an increase in sales of power conversion, infrastructure, and passive/interconnect products, partially offset by lower sales of broadcast products. Power conversion sales increased 32.0% to $49.9 million during fiscal 2007 from $37.8 million in fiscal 2006. The increase in net sales of power conversion during fiscal 2007 was mainly due to growth in Asia/Pacific which benefited from RFPD’s penetration of the welding and steel manufacturing market with induction heating and power supply applications. Infrastructure net sales increased 30.3% to $104.9 million during fiscal 2007 from $80.5 million during fiscal 2006. Net sales for infrastructure in all geographic regions improved during fiscal 2007 as compared to fiscal 2006. Net sales of passive/interconnect products increased 6.1% to $59.0 million during fiscal 2007 from $55.6 million during fiscal 2006. The growth in net sales of passive/interconnect products was primarily in Europe and Asia/Pacific. Gross margin as a percentage of net sales increased slightly to 22.8% during fiscal 2007 as compared to 22.7% during fiscal 2006.

Electron Device Group

EDG net sales were $103.3 million during fiscal 2008, a $2.1 million increase, or 2.0%, from $101.2 million during fiscal 2007. The net sales increase for fiscal 2008 was due primarily to an increase in tube sales, partially offset by a decline in net sales of semiconductor fabrication equipment products. Net sales of tubes increased 4.5% to $72.7 million during fiscal 2008 from $69.6 million during fiscal 2007. The increase in net sales of tubes was primarily due to price increases. Semiconductor fabrication equipment net sales declined 6.3% to $20.9 million during fiscal 2008 from $22.3 million in fiscal 2007 as the overall semiconductor industry experienced a decline during fiscal 2008 as compared to fiscal 2007. Gross margin as a percent of net sales decreased to 31.9% during fiscal 2008 as compared to 32.6% during fiscal 2007. The decline in gross margin as a percentage of net sales during fiscal 2008 as compared to fiscal 2007 was due primarily to shifts in product mix.

EDG net sales were $101.2 million during fiscal 2007, a $6.7 million increase, or 7.1% from $94.4 million during fiscal 2006. The net sales growth for fiscal 2007 was due primarily to increased demand for semiconductor fabrication and tube products. Net sales to the semiconductor fabrication industry increased 29.7% to $22.3 million during fiscal 2007 from $17.2 million during fiscal 2006. The increase in net sales to the semiconductor fabrication equipment industry was due primarily to higher sales in North America, Asia/Pacific, and Europe. Tube sales increased 1.9% to $69.6 million during fiscal 2007 from $68.3 million during fiscal 2006. Gross margin as a percentage of net sales increased to 32.6% during fiscal 2007 from 32.2% during fiscal 2006. The increase in gross margin as a percentage of net sales during fiscal 2007 as compared to fiscal 2006 was due primarily to shifts in product mix.

Display Systems Group

DSG net sales were $84.7 million during fiscal 2008, a $2.6 million increase, or 3.1%, from $82.1 million during fiscal 2007. This increase was due primarily to an increase in digital signage and European healthcare products, partially offset by a decline in cathode ray tube products. Gross margin as a percent of net sales declined to 21.1% during fiscal 2008 as compared to 23.3% during fiscal 2007. The decline in gross margin as a percent of net sales during fiscal 2008 as compared to fiscal 2007 was due primarily to $1.9 million of inventory obsolescence charges recorded during the third quarter of fiscal 2008.

During the third quarter of fiscal 2008, DSG began implementing a new business plan that included exiting unprofitable market segments, exiting distribution of low margin branded products, and increased focus on digital signage. As a result of the shift in business focus, DSG eliminated more than 30 positions which is expected to result in more than $3.0 million of annualized cost savings.

DSG net sales were $82.1 million during fiscal 2007, a $12.9 million decline, or 13.6%, from $95.0 million in fiscal 2006. The decrease in net sales for DSG was due primarily to lower demand for medical monitors and custom displays. Net sales of medical monitors declined 37.3% to $21.7 million during fiscal 2007 from $34.6 million during fiscal 2006. Net sales of custom displays decreased 12.8% to $40.2 million during fiscal 2007 from $46.1 million during fiscal 2006. DSG has a project-based business and approximately 22% of the net sales decline for custom displays in fiscal 2007 was due primarily to the completion of a large project with the New York Stock Exchange during the first quarter of fiscal 2006. Gross margin declined to 23.3% during fiscal 2007 from 25.8% during fiscal 2006 due to shifts in product mix. In addition, during the second quarter of fiscal 2006, DSG recorded a reduction in warranty expense of $0.9 million due to favorable warranty experience.

Sales by Geographic Area

We currently have 18 facilities in North America, 28 in Asia/Pacific, 15 in Europe, and 3 in Latin America. On a geographic basis, we primarily categorize our sales by destination: North America; Europe; Asia/Pacific; Latin America; and Corporate.

Net sales by geographic area and percent change for fiscal 2008, 2007, and 2006, were as follows (in thousands):


	Fiscal Year 2008		Fiscal Year 2007		Fiscal Year 2006		FY08 vs FY07 % Change		FY07 vs FY06 % Change
Net Sales
North America	$	228,466	$	229,296	$	227,926	(0.4	%)	0.6	%
Asia/Pacific		167,943		165,230		147,993	1.6	%	11.6	%
Europe		151,685		143,823		129,212	5.5	%	11.3	%
Latin America		17,288		16,979		18,601	1.8	%	(8.7	%)
Corporate		3,027		1,963		5,365

Total	$	568,409	$	557,291	$	529,097	2.0	%	5.3	%

Gross profit by geographic area and percent of geographic net sales for fiscal 2008, 2007, and 2006, were as follows (in thousands):


	Fiscal Year 2008					Fiscal Year 2007					Fiscal Year 2006
Gross Profit
North America	$	56,832		24.9	%	$	61,849		27.0	%	$	59,059		25.9	%
Asia/Pacific		39,510		23.5	%		39,052		23.6	%		35,532		24.0	%
Europe		40,755		26.9	%		36,481		25.4	%		35,161		27.2	%
Latin America		5,240		30.3	%		4,845		28.5	%		5,411		29.1	%

Subtotal		142,337		25.2	%		142,227		25.6	%		135,163		25.8	%
Corporate		(6,738	)				(9,824	)				(6,673	)

Total	$	135,599		23.9	%	$	132,403		23.8	%	$	128,490		24.3	%

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased during fiscal 2008 to $125.3 million from $128.2 million during fiscal 2007. The decrease was due primarily to a decrease in audit and tax fees, severance expense, and travel. Included in SG&A is depreciation expense of $5.0 million and $5.2 million during fiscal year 2008 and 2007, respectively. SG&A as a percent of net sales decreased to 22.0% of net sales during fiscal 2008 as compared with 23.0% in fiscal 2007.

SG&A expenses increased to $128.2 million during fiscal 2007 from $120.2 million during fiscal 2006 due primarily to higher payroll costs, advertising, and travel expenses to support sales growth, higher healthcare expenses, an increase in distribution and logistics expenses related to the centralization of our distribution centers, additional stock compensation expense related to the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), Share-Based Payment, (“SFAS No. 123(R)”), and restatement related expenses. During fiscal 2007, severance expense and other costs related to the 2007 Restructuring Plan were $2.9 million. Included in SG&A is depreciation expense of $5.2 million and $5.6 million during fiscal year 2007 and 2006, respectively. SG&A as a percentage of sales increased to 23.0% of net sales during fiscal 2007 as compared with 22.7% in fiscal 2006.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over fair market value of identifiable net assets acquired through business purchases. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) goodwill and indefinite-lived intangible assets are reviewed for impairment on at least an annual basis by applying a fair-value based test. In evaluating the recoverability of the carrying value of goodwill, we must

make assumptions regarding the fair value of our reporting units, as defined under SFAS No. 142. If our fair value estimates or related assumptions change, we may be required to record impairment charges related to goodwill.

During the fourth quarter of each fiscal year, our goodwill balances are reviewed for impairment through the application of a fair-value based test, using the third quarter as the measurement date. In performing our annual review of goodwill balances for impairment, we estimate the fair value of each of our reporting units based primarily on projected future operating results, discounted cash flows, and other assumptions. Projected future operating results and cash flows used for valuation purposes may reflect considerable improvements relative to historical periods with respect to, among other things, revenue growth and operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically, projected operating results and cash flows have not always been achieved. The failure of one or more of our reporting units to achieve projected operating results and cash flows in the near term or long term could reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge.

During the third quarter of fiscal 2008, our DSG reporting unit began implementing a new business plan that included exiting unprofitable market segments, exiting distribution of low margin branded products, and increased focus on digital signage. Historically, DSG has not always achieved projected revenue and operating margins as expected. In estimating the fair value of DSG during the fourth quarter, we re-assessed the level of risk associated with DSG achieving future operating results and cash flows. The results of our goodwill impairment test as of March 1, 2008, indicated that the value of goodwill attributable to our DSG segment of $11.5 million was fully impaired. As a result, we recorded a pre-tax impairment of $11.5 million, during the fourth quarter of fiscal 2008. In addition, we recorded a $2.3 million tax benefit related to the impairment charge.

The results of our goodwill impairment tests as of March 1, 2008, for RFPD and EDG indicated no goodwill impairment as estimated fair value of each reporting unit exceeded the carrying value.

(Gain) Loss on Disposal of Assets

On February 1, 2008, we sold our building in Pianopoli, Italy, for $0.4 million. We recorded a gain of $0.1 million during the third quarter of fiscal 2008 with respect to the sale of this property.

On April 5, 2007, we sold real estate and a building located in the United Kingdom for $1.9 million. We recorded a pretax gain of $1.5 million during the fourth quarter of fiscal 2007 with respect to the sale of this property.

On December 29, 2006, we sold approximately 1.5 acres of real estate and a building located in Geneva, Illinois for $3.1 million. We recorded a pretax gain of $2.5 million during the third quarter of fiscal 2007 with respect to the sale of this property.

Other (Income) and Expense

Other (income) expense was an expense of $7.4 million during fiscal 2008 compared with an expense of $5.7 million during fiscal 2007. The increase in other expense during fiscal 2008 was due primarily to unfavorable changes in foreign currency exchange rates and an increase in interest expense, partially offset by costs incurred during the first quarter of fiscal 2007 associated with the retirement of long-term debt. Other (income) expense included a foreign exchange loss of $1.5 million during fiscal 2008 as compared to a foreign exchange gain of $1.1 million during fiscal 2007. The foreign exchange loss during fiscal 2008 includes a loss of approximately $0.9 million relating to cash received from the sale of our Security Systems Division/Burtek Systems (“SSD/Burtek”) business that was temporarily held in our European entities. Other (income) expense includes costs associated with the retirement of long-term debt of $2.5 million during the first quarter of fiscal

2007 due to entering into two separate agreements in August 2006 to purchase $14.0 million of our 8% convertible senior subordinated notes (“8% notes”). We incurred no such charges during fiscal 2008. Interest expense increased to $6.9 million during fiscal 2008 as compared to $5.3 million during fiscal 2007. See Note 8 “Debt” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional discussion on interest expense.

Other (income) expense was an expense of $5.7 million during fiscal 2007 compared with an expense of $6.9 million during fiscal 2006. The decrease in other expense during fiscal 2007 was due primarily to a decrease in interest expense and favorable foreign exchange rate changes, partially offset by costs associated with the retirement of long-term debt. Interest expense decreased to $5.3 million during fiscal 2007 from $6.3 million during fiscal 2006. See Note 8 “Debt” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional discussion on interest expense. Other (income) expense included a foreign exchange gain of $1.1 million during fiscal 2007 as compared with foreign exchange loss of $0.7 million during fiscal 2006. The foreign exchange variance during fiscal 2007 was due primarily to favorable foreign exchange rate changes. Fiscal 2007 included costs associated with the retirement of long-term debt of $2.5 million due to entering into two separate agreements with certain holders to purchase $14.0 million of the 8% notes.

Income Tax Provision

The effective income tax rates during fiscal 2008 and 2007 were (2.5%) and 29.1%, respectively. The difference between the effective tax rates as compared to the U.S. federal statutory rate of 34% primarily results from our geographical distribution of taxable income or losses, foreign income subject to U.S. tax and valuation allowances related to net operating losses.

At May 31, 2008, domestic federal net operating loss (“NOL”) carryforwards amount to approximately $44.0 million. These federal NOLs expire between 2024 and 2028. Domestic state NOL carryforwards amount to approximately $59.7 million. These state NOLs expire between 2012 and 2028. Foreign NOL carryforwards total approximately $11.6 million with various or indefinite expiration dates. We also have an alternative minimum tax credit carryforward at May 31, 2008, in the amount of $1.2 million that has an indefinite carryforward period.

Income taxes paid, including foreign estimated tax payments, were $6.1 million, $2.5 million, and $1.9 million during fiscal 2008, 2007, and 2006, respectively.

At May 31, 2008, all of the cumulative positive earnings of our foreign subsidiaries, which amounted to $120.6 million, are still considered permanently reinvested pursuant to APB No. 23, Accounting for Income Taxes-Special Areas . Due to various tax attributes that are continually changing, it is not possible to determine what, if any, tax liability might exist if such earnings were to be repatriated.

During fiscal 2005, the Canadian taxing authority proposed an income tax assessment for fiscal 1998 through fiscal 2002. We appealed the income tax assessment; however, we paid the entire tax liability in fiscal 2005 to the Canadian taxing authority to avoid additional interest and penalties if our appeal was denied. The payment was recorded as an increase to income tax provision in fiscal 2005. In May 2006, the appeal was settled in our favor. We recorded a reduction to income tax provision for approximately $1.0 million related to the appeal settlement and subsequently received the refund during fiscal 2007.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. We are no longer subject to either U.S. federal, state, or local tax examinations by taxing authorities for years prior to fiscal year 2004. With few exceptions, we are no longer subject to non-U.S. income tax examinations by tax authorities for years prior to fiscal year 2003. Our primary foreign tax jurisdictions are the United Kingdom, Germany, Singapore, and the Netherlands. We have tax years open in Germany, the Netherlands, and Singapore beginning in fiscal year 2003; and in the United Kingdom beginning in fiscal year 2006.

Effective June 3, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for Income Taxes, (“FIN 48”). The application of FIN 48 would have resulted in an increase in retained earnings of $1.6 million, except that the increase was fully offset by the application of a valuation allowance against net operating losses. In addition, we reclassified $7.0 million of income tax liabilities from current liabilities to non-current liabilities as we do not anticipate settling the liabilities within the next twelve months.

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):


Balance as of June 3, 2007	$	6,481
Increases due to currency translation		123
Decreases due to settlements		(218	)
Decreases related to the expiration of statute of limitations		(427	)

Balance as of May 31, 2008	$	5,959

At May 31, 2008, our worldwide liability for uncertain tax positions was $6.0 million, excluding interest and penalties. Unrecognized tax benefits of $3.0 million would affect our effective tax rate if recognized.

We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the consolidated statement of operations. As of May 31, 2008, we have recorded a liability for interest and potential penalties of $0.9 million.

It is reasonably possible that there will be a change in the unrecognized tax benefits in the range of $0 to approximately $1.3 million due to the expiration of various statutes of limitations within the next twelve months.

Discontinued Operations

On May 31, 2007, we completed the sale of the SSD/Burtek segment to Honeywell International Incorporated (“Honeywell”) for $80.0 million which resulted in an after tax gain of $41.6 million after transactions costs. Therefore, SSD/Burtek is presented as a discontinued operation in accordance with the criteria of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , (“SFAS No. 144”) and prior period results and disclosures have been restated to reflect this reporting.

The sale agreement of SSD/Burtek to Honeywell contemplated a post-closing working capital-based purchase price adjustment. During the second quarter of fiscal 2008, we received notification from Honeywell seeking a purchase price adjustment in the amount of $6.4 million. During the third and fourth quarters, we reviewed and responded to Honeywell’s notice, and we are in discussions with Honeywell to seek resolution of the open items. We believe this claim to be without merit and intend to vigorously defend our position with respect to this claim. Should we ultimately pay Honeywell all, or a significant portion, of the requested amount, it could have a material adverse impact on results of our discontinued operations and cash flows.

The following table summarizes results of discontinued operations, consisting of SSD/Burtek:


	Fiscal Year Ended
	May 31, 2008		June 2, 2007			June 3, 2006
Net sales	$	736	$	107,510		$	108,843
Gross profit		209		27,788			27,279
Interest expense		—		5,883			3,528
Income tax provision (benefit)		21		3,428			2,682
Income (loss), net of tax		45		(2,434	)		1,368

The net sales, gross profit, and income from discontinued operations during fiscal 2008 only represent the operations of our Colombia location which was included in the SSD/Burtek sale agreement with Honeywell, but were not transferred as part of the May 31, 2007, closing. During the first quarter of fiscal 2008, we mutually agreed with Honeywell that Honeywell would not purchase the SSD/Burtek Colombia business, and that we would wind down the SSD/Burtek Colombia business in exchange for a payment from Honeywell equal to a portion of the value of the SSD/Burtek business in Colombia on May 31, 2007, including reimbursement of related employee severance expenses. We ceased operations of the SSD/Burtek business in Colombia during the third quarter of fiscal 2008. The net sales, gross profit, and income from discontinued operations during fiscal 2007 and 2006 represent all locations included in the SSD/Burtek sale agreement with Honeywell for the entire fiscal year.

SSD/Burtek net sales decreased slightly during fiscal 2007 to $107.5 million, a 1.2% decline from $108.8 million in fiscal 2006, due primarily to a decline in demand for private label products. Gross profit remained relatively flat during fiscal 2007 at $27.8 million versus $27.3 million during fiscal 2006. Gross margin increased during fiscal 2007 to 25.8% from 25.1% during fiscal 2006 due primarily to lower inventory overstock and scrap expense.

In accordance with Emerging Issues Task Force Issue No. 87-24, Allocation of Interest to Discontinued Operations we allocated interest expense to discontinued operations (SSD/Burtek) due to the requirement under our existing multi-currency revolving credit agreement (“credit agreement”) to pay the proceeds from the sale of a business to the parties in the credit agreement. As such, interest expense related to the credit agreement of $5.9 million and $3.5 million during fiscal 2007 and 2006, respectively, has been included in discontinued operations.

Net Income and Per Share Data

During fiscal 2008, we reported a net loss of $8.4 million, or $0.48 per diluted common share and $0.43 per diluted class B common share. During fiscal 2007, we reported net income of $40.7 million, or $2.30 per diluted common share and $2.11 per diluted Class B common share. During fiscal 2006, we reported a net loss of $2.6 million, or $0.15 per diluted common share and $0.14 per diluted Class B common share.

LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

We finance our growth and cash needs largely through income from operations, borrowings under our revolving credit facilities, issuance of convertible senior subordinated notes, and sale of assets. Liquidity provided by operating activities is reduced by working capital requirements, debt service, capital expenditures, dividends, and business acquisitions. Liquidity provided by operating activities is increased by proceeds from borrowings and from the disposition of businesses and assets.

Cash and cash equivalents were $40.0 million at May 31, 2008, as compared to $17.4 million at June 2, 2007. Our debt less cash as of May 31, 2008, was $15.6 million, compared to $42.1 million as of June 2, 2007.

Cash Flows from Operating Activities

Cash provided by operating activities during fiscal 2008 was $27.9 million, due primarily to lower inventories and accounts receivable, and higher accounts payable balances, partially offset by lower accrued liabilities balances. The decline in inventory balances of $23.4 million during fiscal 2008, excluding the impact of foreign currency exchange rate changes of $7.0 million, was due primarily to the implementation of stricter purchasing disciplines. The decline in accounts receivable balances of $3.5 million during fiscal 2008, excluding the impact of foreign currency exchange rate changes of $6.7 million, was due primarily to improved cash collections. The increase in accounts payable balances of $2.3 million during fiscal 2008, excluding the impact of foreign currency exchange rate changes of $1.7 million, was due primarily to negotiating improved payment terms with many of our vendors. The decline in accrued liabilities balances of $6.9 million during fiscal 2008,

excluding the impact of foreign currency rate changes of $0.4 million, was due primarily to the decline in accrued payroll related expense as a result of a lower headcount in fiscal 2008 as compared to fiscal 2007. The decline was also due to declines in accrued income taxes and the payment of accrued transaction expenses related to the SSD/Burtek sale during fiscal 2008.

Cash used in operating activities during fiscal 2007 was $9.0 million, due primarily to an increase in inventories and receivables, partially offset by an increase in payables. The increase in inventory balances of $9.8 million during fiscal 2007, excluding the impact of foreign exchange rate changes of $1.4 million, was due primarily to higher inventory stocking levels to support anticipated sales growth. The increase in accounts receivable balances of $3.6 million during fiscal 2007, excluding the impact of foreign currency exchange rate changes of $3.1 million, was due primarily to increased sales levels. The increase in accounts payable of $4.9 million during fiscal 2007, excluding the impact of foreign currency exchange rate changes of $0.9 million, was due primarily to the increased levels of inventory.

Cash Flows from Investing Activities

Net cash used in investing activities of $3.2 million during fiscal 2008 was due primarily to capital expenditures of $4.5 million for information technology projects and building improvements, partially offset by proceeds from the sale of assets of $1.1 million.

Net cash provided by investing activities of $79.6 million during fiscal 2007 was due primarily to proceeds from the sale of SSD/Burtek of $78.1 million, proceeds from the sale of assets of $5.1 million, and the liquidation of $3.5 million of investments, partially offset by capital expenditures of $6.4 million which primarily related to information technology projects.

Cash Flows from Financing Activities

Net cash used in financing activities of $5.9 million and $71.2 million during fiscal 2008 and 2007, respectively, are summarized in the following table (in thousands):


	May 31, 2008			June 2, 2007
Net debt borrowings on new $40.0 million credit agreement	$	—		$	—
Net debt borrowings (payments) on credit agreement		(65,711	)		8,142
Restricted cash as a result of the SSD/Burtek sale		—			(61,899	)
Use of restricted cash to pay down credit agreement		61,899			—
Cash dividends paid		(2,107	)		(2,764	)
Payments on retirement of long-term debt		—			(15,915	)
Proceeds from the issuance of common stock		69			1,948
Other		(24	)		(674	)

Cash used in financing activities	$	(5,874	)	$	(71,162	)

As of May 31, 2008, we maintained $55.7 million in long-term debt in the form of two series of convertible notes. We entered into a new $40.0 million credit agreement (“new credit agreement”) on July 27, 2007, which included a Euro sub-facility of $15.0 million and a Singapore sub-facility of $5.0 million. Pursuant to an amendment to the new credit agreement entered into on February 29, 2008, the Euro sub-facility and Singapore sub-facility individual limits were increased to $20.0 million each; however, the total amount of the combined Euro sub-facility and Singapore sub-facility is limited to $25.0 million. The U.S. facility is reduced if amounts drawn on the Euro sub-facility and Singapore sub-facility exceed $20.0 million, maintaining a total capacity of $40.0 million on the new credit agreement. This new credit agreement expires in July 2010 and bears interest at applicable LIBOR, SIBOR, or prime rates plus a margin varying with certain quarterly borrowings under the new

credit agreement. This new credit agreement is secured by a lien on our U.S. assets and also contains a financial covenant requiring us to maintain a leverage ratio of less than 2.0 to 1.0. Pursuant to an amendment to the new credit agreement entered into on November 29, 2007, the leverage ratio was increased to 3.0 to 1.0 for the fiscal quarters ended December 1, 2007, and March 1, 2008. The commitment fee related to the new credit agreement is 0.25% per annum payable quarterly on the average daily unused portion of the aggregate commitment. As of May 31, 2008, there were no amounts outstanding under the new credit agreement. Outstanding letters of credit were approximately $0.1 million, and the unused line was $39.9 million. Based on our loan covenants, actual available credit as of May 31, 2008, was $40.0 million.

Pursuant to an amendment to the new credit agreement entered into on July 29, 2008, the definition of the leverage ratio has been modified to exclude the goodwill impairment charge in the calculation of adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”), for the fiscal year ended May 31, 2008. We were in compliance with our loan covenants as of May 31, 2008, without this amendment to our new credit agreement.

On November 21, 2005, we sold $25.0 million in aggregate principal amount of 8% notes due 2011 pursuant to an indenture dated November 21, 2005. The 8% notes bear interest at a rate of 8% per annum. Interest is due on June 15 and December 15 of each year. The 8% notes are convertible at the option of the holder, at any time on or prior to maturity, into shares of our common stock at a price equal to $10.31 per share, subject to adjustment in certain circumstances. In addition, we may elect to automatically convert the 8% notes into shares of common stock if the trading price of the common stock exceeds 150% of the conversion price of the 8% notes for at least 20 trading days during any 30 trading day period subject to a payment of three years of interest if we elect to convert the 8% notes prior to December 20, 2008.

The indenture provides that on or after December 20, 2008, we have the option of redeeming the 8% notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount of the 8% notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Holders may require us to repurchase all or a portion of their 8% notes for cash upon a change-of-control event, as described in the indenture, at a repurchase price equal to 100% of the principal amount of the 8% notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding the repurchase date. The 8% notes are unsecured and subordinate to our existing and future senior debt. The 8% notes rank on parity with the existing 7 ³ / 4 % convertible senior subordinated notes (7 ³ / 4 % notes) due December 2011.

On September 8, 2006, we purchased $6.0 million of the 8% notes, and on December 8, 2006, we purchased $8.0 million of the 8% notes, leaving a remaining balance of $11.0 million outstanding on the 8% notes. The purchases were financed through additional borrowings under our credit agreement. As the 8% notes are subordinate to the credit agreement, we received a waiver from our lending group to permit the purchases. We recorded costs associated with the retirement of long-term debt of $2.5 million in connection with the purchases, which includes the write-off of previously capitalized deferred financing costs of $0.6 million.

On December 23, 2005, we redeemed all of the outstanding 8 ¹ / 4 % convertible senior subordinated debentures (8 ¹ / 4 % debentures) in the amount of $17.5 million and on December 30, 2005, we redeemed all of the outstanding 7 ¹ / 4 % convertible senior subordinated debentures (7 ¹ / 4 % debentures) in the amount of $4.8 million by borrowing amounts under the credit agreement to affect these redemptions.

On February 14, 2005, we entered into separate exchange agreements pursuant to which a small number of holders of our existing 7 ¹ / 4 % debentures and 8 ¹ / 4 % debentures, agreed to exchange $22.2 million in aggregate principal amount of 7 ¹ / 4 % debentures and $22.5 million in aggregate principal amount of 8 ¹ / 4 % debentures for $44.7 million in aggregate principal amount of newly-issued 7 ³ / 4 % notes due December 2011.

of our common stock at a price equal to $18.00 per share, subject to adjustment in certain circumstances. On or after December 19, 2006, we may elect to automatically convert the 7 ³ / 4 % notes into shares of common stock if the trading price of the common stock exceeds 125% of the conversion price of the 7 ³ / 4 % notes for at least twenty trading days during any thirty trading day period ending within five trading days prior to the automatic conversion notice. The 7 ³ / 4 % notes are unsecured and subordinated to our existing and future senior debt. The 7 ³ / 4 % notes rank on parity with the 8% notes.

On March 3, 2007, we were not in compliance with our credit agreement covenants with respect to the leverage ratio. On April 5, 2007, we received a waiver from our lending group for the default.

On January 19, 2007, we executed an amendment to the credit agreement to facilitate the implementation of a European cash sweeping program. In addition, the amendment decreased our Canada Facility and increased our U.S. Facility by approximately $7.5 million.

See Part II, Item 7A “Risk Management and Market Sensitive Financial Instruments” of this Annual Report on Form 10-K for information regarding the effect on net income of market changes in interest rates.

Contractual Obligations

Contractual obligations by expiration period as of May 31, 2008 are presented in the table below (in thousands):


	Payments Due by Period
	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
Convertible notes ⁽¹⁾	$	55,683	$	—	$	—	$	55,683	$	—
Convertible notes—interest ⁽¹⁾		14,942		4,343		8,686		1,913		—
New credit agreement ⁽²⁾		—		—		—		—		—
Lease obligations ⁽³⁾		10,438		4,020		3,946		1,745		727
Purchase obligations ⁽⁴⁾		136,258		136,258		—		—		—
Other ⁽⁵⁾		1,405		1,149		256		—		—

Total	$	218,726	$	145,770	$	12,888	$	59,341	$	727

(1)

Convertible notes consist of the 7 ³ / 4 % notes, with principal of $44.7 million due December 2011, and the 8% notes, with principal of $11.0 million due June 2011.

(2)

The new credit agreement expires in July 2010 and bears interest at applicable LIBOR, SIBOR, or prime rates plus a margin varying with certain quarterly borrowings under the new credit agreement. As of May 31, 2008, we had no amounts outstanding on the new credit agreement and therefore no future amounts due as of May 31, 2008.

(3)

Lease obligations are related to certain warehouse and office facilities and office equipment under non-cancelable operating leases.

(4)

We have outstanding purchase obligations with vendors at the end of fiscal 2008 to meet operational requirements as part of the normal course of business.

(5)

Includes physical distribution agreements with third-party logistics providers and various other service related contracts.

We believe that the existing sources of liquidity, including cash provided by operating activities, supplemented as necessary with funds available under our revolving credit arrangements, will provide sufficient resources to meet known capital requirements and working capital needs for the fiscal year ending May 30, 2009.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowances for doubtful accounts, inventories, intangible assets, income taxes, contingencies, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The policies discussed below are considered by management to be critical to understanding our financial position and results of operations. Their application involves more significant judgments and estimates in preparation of our consolidated financial statements. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers’ financial conditions; aging of receivables, individually and in the aggregate; large number of customers which are widely dispersed across geographic areas; collectability and delinquency history by geographic area; and the fact that no single customer accounts for 10% or more of net sales. Significant changes in one or more of these considerations may require adjustments affecting net income and net carrying value of accounts receivable. The allowance for doubtful accounts was approximately $1.6 million as of May 31, 2008, and June 2, 2007.

Impairment of Investments

We hold a portfolio of investment securities and periodically assess its recoverability. In the event of a decline in fair value of an investment, judgment is made whether the decline is other-than-temporary. Management’s assessment as to the nature of a decline is largely based on the duration of that market decline, financial health of and specific prospects for the issuer, and our cash requirements and intent to hold the investment. If an investment is impaired and the decline in market value is considered to be other-than-temporary, an appropriate write-down is recorded. We recognized investment impairment charges of less than $0.1 million during fiscal 2007, and $0.1 million during fiscal 2006. We recognized no investment impairment charges during fiscal 2008.

Inventories

Our worldwide inventories are stated at the lower of cost or market, generally using a weighted-average cost method. Inventories include material, labor, and overhead associated with such inventories. Substantially all inventories represent finished goods held for sale.

Provisions for obsolete or slow moving inventories are recorded based upon regular analysis of stock rotation, obsolescence, and assumptions about future demand and market conditions. If future demands, change in the industry, or market conditions differ from management’s estimates, additional provisions may be necessary.

We recorded provisions to our inventory reserves of $4.0 million, $0.9 million, and $0.8 million during fiscal 2008, 2007, and 2006, respectively, which were included in cost of sales. The provisions were principally for obsolete and slow moving parts. The parts were written down to estimated realizable value.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over fair market value of identifiable net assets acquired through business purchases. In accordance with SFAS No. 142 goodwill and indefinite-lived intangible assets are reviewed for impairment on at least an annual basis by applying a fair-value based test. In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding the fair value of our reporting units, as defined under SFAS No. 142. If our fair value estimates or related assumptions change, we may be required to record impairment charges related to goodwill.

The results of our goodwill impairment tests as of March 1, 2008, for RFPD and EDG indicated no goodwill impairment as estimated fair value of each reporting unit exceeded the carrying value.

Long-Lived Assets

We periodically evaluate the recoverability of the carrying amounts of our long-lived assets, including software, property, plant and equipment. We assess in accordance with SFAS No. 144, the possibility of long-lived assets being impaired when events trigger the likelihood.

Impairment is assessed when the undiscounted expected cash flows to be derived from an asset are less than its carrying amount. If impairment exists, the carrying value of the impaired asset is reduced to its net realizable value. The impairment charge is recorded in operating results. The results of our impairment tests for fiscal 2008 and 2007 indicated no impairment of our long-lived assets.

Warranties

We offer warranties for specific products we manufacture. We also provide extended warranties for some products we sell that lengthen the period of coverage specified in the manufacturer’s original warranty. Warranty terms generally range from one to three years.

We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expense related to our warranty obligations as cost of sales in our consolidated statements of operations. Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. The estimates with respect to new products are based generally on knowledge of the products, the extended warranty period, and warranty experience.

Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. The warranty reserves are determined based on known product failures, historical experience, and other available evidence. See Note 1 “Significant Accounting Policies” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Stock Compensation

Effective June 4, 2006, we adopted SFAS No. 123(R) which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options. We estimate fair value using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life, and dividends. Compensation cost is recognized using a graded-vesting schedule over the applicable vesting period, or date on which retirement eligibility is achieved, if shorter (non-substantive vesting period approach.) See Note 1 “Significant Accounting Policies” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Income Taxes

We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on a number of factors, including both positive and negative evidence, in determining the need for a valuation allowance. Those factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. In circumstances where we or any of our affiliates have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed by us at a minimum to overcome that negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. In evaluating the positive evidence available, expectations as to future taxable income would rarely be sufficient to overcome the negative evidence of recent cumulative losses, even if supported by detailed forecasts and projections.

At May 31, 2008, and June 2, 2007, our deferred tax assets related to tax carryforwards were $21.4 million and $20.0 million, respectively. The tax carryforwards are comprised of net operating loss carryforwards and other tax credit carryovers. A majority of the net operating losses and other tax credits can be carried forward for 20 years.

We recorded valuation allowances for the majority of our federal deferred tax assets and loss carryforwards, and for tax loss carryforwards of certain non-U.S. subsidiaries. We believe that the deferred tax assets for the remaining tax carryforwards are considered more likely than not to be realizable based on estimates of future taxable income and the implementation of tax planning strategies.

Effective June 3, 2007, we adopted the provisions of FIN 48. The application of FIN 48 would have resulted in an increase in retained earnings of $1.6 million, except that the increase was fully offset by the application of a valuation allowance against net operating losses. In addition, we reclassified $7.0 million of income tax liabilities from current liabilities to non-current liabilities as we do not anticipate settling the liabilities within the next twelve months. See Note 10 “Income Taxes” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 157 will be effective beginning with our fiscal year 2009. We are currently in the process of assessing the impact of SFAS No. 157 but do not believe that the adoption of the standard will have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides guidance with respect to presentation and disclosure requirements for reporting financial assets and liabilities at fair value. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurement, as included in SFAS No. 157, and in SFAS No. 107, Disclosures about Fair Value of Financial Instruments . SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 159 will be effective beginning with our fiscal year 2009. We are currently in the process of assessing the impact of SFAS No. 159 but do not believe that the adoption of the standard will have a material impact on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141-R, Business Combinations (“SFAS No. 141-R”) which revises SFAS No. 141, Business Combinations (“SFAS No. 141”). Under SFAS No. 141, organizations utilized the announcement date as the measurement date for the purchase price of the acquired entity. SFAS No. 141-R requires the measurement at the date the acquirer obtains control of the acquiree, generally referred to as the acquisition date. SFAS No. 141-R will have a significant impact on the accounting of transaction costs, restructuring costs as well as the initial recognition of contingent assets and liabilities assumed during a business combination. Under SFAS No. 141-R, adjustments to the acquired entity’s deferred tax assets and uncertain tax position balances occurring outside the measurement period are recorded as a component of the income tax expense, rather than goodwill. SFAS No. 141-R will be effective beginning with our fiscal year 2010. As the provisions of SFAS No. 141-R are applied prospectively, the impact on our financial statements cannot be determined until the transactions occur.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 expands the disclosure requirements for derivative instruments and hedging activities. This Statement specifically requires entities to provide enhanced disclosures addressing the following: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 will be effective for our fiscal year 2010. We are currently evaluating the impact of SFAS 161, but do not believe that our adoption of the standard will have a material impact on our consolidated financial statements.

In May 2008, the FASB issued Staff Position (“FSP”) No. Accounting Principles Board Opinion (“APB”) 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements) (“FSP No. APB 14-1”), which will change the accounting treatment for convertible securities which the issuer may settle fully or partially in cash. Under FSP No. APB 14-1, cash settled convertible securities will be separated into their debt and equity components. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds for the convertible debt and the amount reflected as a debt liability will be recorded as additional paid-in-capital. As a result, the debt will be recorded at a discount reflecting its below market coupon interest rate. The debt will subsequently be accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected on the income statement. This change in methodology will affect the calculations of net income and earnings per share for many issuers of cash settled convertible securities. FSP No. APB 14-1 will become effective for our fiscal year beginning in 2010. We are currently evaluating the impact of the adoption of FSP No. APB 14-1 on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Risk Management and Market Sensitive Financial Instruments

Certain operations, assets, and liabilities of ours are denominated in foreign currencies subjecting us to foreign currency exchange risk. In addition, some of our debt financing varies with market rates exposing us to the market risk from changes in interest rates. In order to provide the user of these financial statements guidance regarding the magnitude of these risks, the Securities and Exchange Commission requires us to provide certain quantitative disclosures based upon hypothetical assumptions. These disclosures include the calculation of the effect of a hypothetical 10% increase in market interest rates and a hypothetical 10% unfavorable change in the U.S. dollar against foreign currencies on the reported net earnings and financial position.

Interest Expense Exposure

Our credit agreement’s interest rate varies based on market interest rates. Had interest rates increased 10%, additional interest expense would have increased our net loss in fiscal 2008 and our net income in fiscal 2007 by an immaterial amount.

Foreign Currency Exposure

Even though we take into account current foreign currency exchange rates at the time an order is taken, our foreign denominated financial statements are subject to foreign exchange rate fluctuations.

Our foreign denominated assets and liabilities are cash, accounts receivable, inventory, accounts payable, and intercompany receivables and payables, as we conduct business in countries of the European Union, Asia/Pacific and, to a lesser extent, Canada and Latin America. Tools that we could use to manage foreign exchange exposures include currency clauses in sales contracts, local debt to offset asset exposures and forward contracts to hedge significant transactions. We have not entered into any forward contracts in fiscal 2008 or 2007.

Had the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net sales would have been lower by an estimated $21.6 million during fiscal 2008 and an estimated $21.2 million during fiscal 2007. Total assets would have declined by an estimated $29.4 million as of the fiscal year ended May 31, 2008, and an estimated $17.9 million as of the fiscal year ended June 2, 2007, while the total liabilities would have decreased by an estimated $1.6 million as of the fiscal year ended May 31, 2008, and an estimated $3.8 million as of the fiscal year ended June 2, 2007.

The interpretation and analysis of these disclosures should not be considered in isolation since such variances in interest rates and exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations.

Item 8. Financial Statements and Supplementary Data

RICHARDSON ELECTRONICS, LTD.

Consolidated Balance Sheets

(in thousands, except per share amounts)


	May 31, 2008			June 2, 2007
Assets
Current assets:
Cash and cash equivalents	$	40,042		$	17,436
Restricted cash		—			61,899
Receivables, less allowance of $1,635 and $1,574		109,520			105,709
Inventories		93,858			110,174
Prepaid expenses		4,300			5,129
Deferred income taxes		2,121			2,131
Current assets of discontinued operations held for sale		—			242

Total current assets		249,841			302,720

Non-current assets:
Property, plant and equipment, net		28,635			29,278
Goodwill		1,483			11,611
Other intangible assets, net		758			1,581
Non-current deferred income taxes		3,875			389
Assets held for sale		105			1,429
Other non-current assets		1,538			2,058
Non-current assets of discontinued operations held for sale		—			5

Total non-current assets		36,394			46,351

Total assets	$	286,235		$	349,071

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	58,860		$	55,530
Accrued liabilities		21,818			31,330
Current portion of long-term debt		—			65,711
Current liabilities of discontinued operations held for sale		—			2,737

Total current liabilities		80,678			155,308

Non-current liabilities:
Long-term debt, less current portion		55,683			55,683
Long-term income tax liabilities		6,768			—
Other non-current liabilities		1,676			1,535

Total non-current liabilities		64,127			57,218

Total liabilities		144,805			212,526

Commitment and contingencies		—			—

Stockholders’ equity
Common stock, $0.05 par value; issued 15,929 shares at May 31, 2008, and 15,920 shares at June 2, 2007		797			796
Class B common stock, convertible, $0.05 par value; issued 3,048 shares at May 31, 2008, and 3,048 share at June 2, 2007		152			152
Preferred stock, $1.00 par value, no shares issued		—			—
Additional paid-in-capital		119,735			118,880
Common stock in treasury, at cost, 1,065 shares at May 31, 2008, and 1,179 shares at June 2, 2007		(6,310	)		(6,989	)
Retained earnings		11,098			21,631
Accumulated other comprehensive income		15,958			2,075

Total stockholders’ equity		141,430			136,545

Total liabilities and stockholders’ equity	$	286,235		$	349,071

See notes to consolidated financial statements.

RICHARDSON ELECTRONICS, LTD.

Consolidated Statements of Operations

(in thousands, except per share amounts)


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
Statements of Operations
Net sales	$	568,409		$	557,291		$	529,097
Cost of sales		432,810			424,888			400,607

Gross profit		135,599			132,403			128,490
Selling, general, and administrative expenses		125,330			128,175			120,233
Impairment of goodwill		11,506			—			—
(Gain) loss on disposal of assets		27			(3,616	)		(154	)

Operating income (loss)		(1,264	)		7,844			8,411

Other (income) expense:
Interest expense		6,854			5,292			6,281
Investment income		(928	)		(992	)		(411	)
Foreign exchange (gain) loss		1,485			(1,078	)		712
Retirement of long-term debt expenses		—			2,540			—
Other, net		14			(100	)		303

Total other expense		7,425			5,662			6,885

Income (loss) from continuing operations before income taxes		(8,689	)		2,182			1,526
Income tax provision (benefit)		(218	)		634			5,536

Income (loss) from continuing operations		(8,471	)		1,548			(4,010	)
Discontinued operations:
Income (loss) from discontinued operations, net of provision for income tax of $21, $3,428, and $2,682, respectively		45			(2,434	)		1,368
Gain on sale of discontinued operations, net of provision for income tax of $2,824		—			41,565			—

Income from discontinued operations		45			39,131			1,368

Net income (loss)	$	(8,426	)	$	40,679		$	(2,642	)

Net income (loss) per common share—basic:
Income (loss) from continuing operations	$	(0.48	)	$	0.09		$	(0.23	)
Income from discontinued operations		0.00			2.27			0.08

Net income (loss) per common share—basic	$	(0.48	)	$	2.36		$	(0.15	)

Net income (loss) per Class B common share—basic:
Income (loss) from continuing operations	$	(0.43	)	$	0.08		$	(0.21	)
Income from discontinued operations		0.00			2.04			0.07

Net income (loss) per Class B common share—basic	$	(0.43	)	$	2.12		$	(0.14	)

Net income (loss) per common share—diluted:
Income (loss) from continuing operations	$	(0.48	)	$	0.09		$	(0.23	)
Income from discontinued operations		0.00			2.21			0.08

Net income (loss) per common share—diluted	$	(0.48	)	$	2.30		$	(0.15	)

Net income (loss) per Class B common share—diluted:
Income (loss) from continuing operations	$	(0.43	)	$	0.08		$	(0.21	)
Income from discontinued operations		0.00			2.03			0.07

Net income (loss) per Class B common share—diluted	$	(0.43	)	$	2.11		$	(0.14	)

Weighted average number of shares:
Common shares—basic		14,794			14,517			14,315

Class B common shares—basic		3,048			3,048			3,093

Common shares—diluted		14,794			17,667			14,315

Class B common shares—diluted		3,048			3,048			3,093

Dividends per common share	$	0.120		$	0.160		$	0.160

Dividends per Class B common share	$	0.108		$	0.144		$	0.144

See notes to consolidated financial statements.

RICHARDSON ELECTRONICS, LTD.

Consolidated Statements of Cash Flows

(in thousands)


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
Operating activities:
Net income (loss)	$	(8,426	)	$	40,679		$	(2,642	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		5,257			6,126			6,240
Impairment of goodwill		11,506			—			—
Gain on disposition of segment of business		—			(41,565	)		—
(Gain) loss on disposal of assets		27			(3,582	)		3
Retirement of long-term debt expenses		—			2,540			—
Write-off of deferred financing costs		643			62			—
Stock compensation expense		687			953			—
Deferred income taxes		(3,026	)		309			1,462
Accounts receivable		3,535			(3,635	)		(5,417	)
Inventories		23,403			(9,836	)		(10,420	)
Accounts payable		2,344			4,871			8,294
Accrued liabilities		(6,928	)		(2,234	)		7,616
Other liabilities		91			371			(267	)
Other		(1,197	)		(4,019	)		746

Net cash provided by (used in) operating activities		27,916			(8,960	)		5,615

Investing activities:
Capital expenditures		(4,464	)		(6,401	)		(6,211	)
Proceeds from sale of assets		1,137			5,093			278
Proceeds from sale of segment of business, net of transaction expenses paid		—			78,114			—
Business acquisitions, net of cash acquired		—			—			(6,800	)
Contingent purchase price consideration		(256	)		—			—
Gain on sale of investments		(124	)		(709	)		(158	)
Proceeds from sales of available-for-sale securities		707			3,774			2,317
Purchases of available-for-sale securities		(196	)		(274	)		(2,317	)

Net cash provided by (used in) investing activities		(3,196	)		79,597			(12,891	)

Financing activities:
Proceeds from borrowings		197,700			258,561			252,997
Payments on debt		(263,340	)		(250,419	)		(249,853	)
Restricted cash		61,899			(61,899	)		—
Proceeds from issuance of common stock		69			1,948			710
Cash dividends		(2,107	)		(2,764	)		(2,736	)
Payments on retirement of long-term debt		—			(15,915	)		—
Other		(95	)		(674	)		(1,711	)

Net cash used in financing activities		(5,874	)		(71,162	)		(593	)

Effect of exchange rate changes on cash and cash equivalents		3,760			951			578

Increase (decrease) in cash and cash equivalents		22,606			426			(7,291	)
Cash and cash equivalents at beginning of period		17,436			17,010			24,301

Cash and cash equivalents at end of period	$	40,042		$	17,436		$	17,010

Supplemental Disclosure of Cash Flow Information:
Cash paid during the fiscal year for:
Interest	$	6,138		$	11,142		$	9,026
Income taxes	$	6,147		$	2,530		$	1,916

See notes to consolidated financial statements.

RICHARDSON ELECTRONICS, LTD.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)

(in thousands)


	Comprehensive Income (Loss)			Common	Class B Common		Par Value		Additional Paid In Capital			Treasury Stock			Retained Earnings/ (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Discontinued Accumulated Other Comprehensive Income (Loss)			Total
Balance May 28, 2005:				15,597	3,120		$	936	$	121,591		$	(7,894	)	$	(16,406	)	$	(2,195	)	$	1,364		$	97,396
Comprehensive income (loss):
Net loss	$	(2,642	)	—	—			—		—			—			(2,642	)		—			—			(2,642	)
Currency translation		5,289		—	—			—		—			—			—			2,876			2,413			5,289
Fair value adjustments on investments		216		—	—			—		—			—			—			216			—			216

Comprehensive income	$	2,863

Share-based compensation:
Nonvested restricted stock				—	—			—		7			—			—			—			—			7
Common stock issued				39	—			2		304			399			—			—			—			705
Restricted stock grants				—	—			—		(17	)		22			—			—			—			5
Conversion of Class B shares to common stock				27	(27	)		—		—			—			—			—			—			—
Dividends paid to:
Common ($0.160 per share)				—	—			—		(2,289	)		—			—			—			—			(2,289	)
Class B ($0.144 per share)				—	—			—		(447	)		—			—			—			—			(447	)

Balance June 3, 2006:				15,663	3,093			938		119,149			(7,473	)		(19,048	)		897			3,777			98,240
Comprehensive income:
Net income	$	40,679		—	—			—		—			—			40,679			—			—			40,679
Currency translation		2,566		—	—			—		—			—			—			1,459			1,107			2,566
Fair value adjustments on investments		(281	)	—	—			—		—			—			—			(281	)		—			(281	)

Comprehensive income	$	42,964

Share-based compensation:
Nonvested restricted stock				—	—			—		108			—			—			—			—			108
Stock options				—	—			—		777			—			—			—			—			777
Employee stock purchase plan				—	—			—		153			—			—			—			—			153
Common stock issued				212	—			10		1,522			415			—			—			—			1,947
Restricted stock grants				—	—			—		(65	)		69			—			—			—			4
Conversion of Class B shares to common stock				45	(45	)		—		—			—			—			—			—			—
Recognition of currency translation				—	—			—		—			—			—			—			(4,884	)		(4,884	)
Dividends paid to:
Common ($0.160 per share)				—	—			—		(2,323	)		—			—			—			—			(2,323	)
Class B ($0.0144 per share)				—	—			—		(441	)		—			—			—			—			(441	)

Balance June 2, 2007				15,920	3,048			948		118,880			(6,989	)		21,631			2,075			—			136,545

RICHARDSON ELECTRONICS, LTD.

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)—(Continued)

(in thousands)


	Comprehensive Income (Loss)			Common	Class B Common	Par Value		Additional Paid In Capital			Treasury Stock			Retained Earnings/ (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Discontinued Accumulated Other Comprehensive Income (Loss)		Total
Comprehensive income:
Net (loss)	$	(8,426	)	—	—		—		—			—			(8,426	)		—			—		(8,426	)
Currency translation		14,110		—	—		—		—			—			—			14,110			—		14,110
Fair value adjustments on investments		(227	)	—	—		—		—			—			—			(227	)		—		(227	)

Comprehensive income	$	5,457

Share-based compensation:
Nonvested restricted stock				—	—		—		22			—			—			—			—		22
Stock options				—	—		—		629			—			—			—			—		629
Employee stock purchase plan				—	—		—		36			—			—			—					36
Common stock issued				9	—		1		68			—			—			—			—		69
Restricted stock grants				—	—		—		(58	)		62			—			—			—		4
Employee stock option plan grant				—	—		—		213			335			—			—			—		548
Employee stock purchase plan issuance				—	—		—		(55	)		282			—			—			—		227
Conversion of Class B shares to common stock				—	—		—		—			—			—			—			—		—
Dividends paid to:
First Quarter Ended September 1, 2007
Common ($0.04 per share)				—	—		—		—			—			(592	)		—			—		(592	)
Class B ($0.036 per share)				—	—		—		—			—			(110	)		—			—		(110	)
Second Quarter Ended December 1, 2007
Common ($0.04 per share)				—	—		—		—			—			(593	)		—			—		(593	)
Class B ($0.036 per share)				—	—		—		—			—			(110	)		—			—		(110	)
Third Quarter Ended March 1, 2008
Common ($0.02 per share)				—	—		—		—			—			(296	)		—			—		(296	)
Class B ($0.018 per share)				—	—		—		—			—			(55	)		—			—		(55	)
Fourth Quarter Ended May 31, 2008
Common ($0.02 per share)				—	—		—		—			—			(296	)		—			—		(296	)
Class B ($0.018 per share)				—	—		—		—			—			(55	)		—			—		(55	)

Balance May 31, 2008				15,929	3,048	$	949	$	119,735		$	(6,310	)	$	11,098		$	15,958		$	—	$	141,430

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

(in thousands, except per share amounts)

1. SIGNIFICANT ACCOUNTING POLICIES

Description of the Company: Richardson Electronics, Ltd. (“we”, “us”, “our”) is a global provider of engineered solutions and a global distributor of electronic components to the radio frequency (“RF”), wireless and power conversion, electron device, and display systems markets. Utilizing our core engineering and manufacturing capabilities, we are committed to a strategy of providing specialized technical expertise and value-added products, or “engineered solutions,” in response to our customers’ needs. These solutions include products which we manufacture or modify and products which are manufactured to our specifications by independent manufacturers under our own private labels. Additionally, we provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, and logistics for end products of our customers. Design-in support includes component modifications or the identification of lower-cost product alternatives or complementary products.

Our products include RF and microwave components, power semiconductors, electron tubes, microwave generators, and data display monitors. These products are used to control, switch or amplify electrical power signals, or as display devices in a variety of industrial, commercial, and communication applications.

Principles of Consolidation: The consolidated financial statements include our wholly owned subsidiaries. All intercompany transactions and account balances have been eliminated in consolidation.

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts, inventory obsolescence, goodwill impairment testing, and taxes. Actual results could differ from those estimates.

Reclassifications: The June 2, 2007, consolidated balance sheet has been restated to reflect the decision we made during the second quarter of fiscal 2008 to sell our building in Pianopoli, Italy. The net book value of our building in Pianopoli, Italy is classified as assets held for sale on our consolidated balance sheet as of June 2, 2007. See Note 7 “Disposal of Assets” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of this matter.

The consolidated statements of cash flows for the fiscal years ended June 2, 2007, and June 3, 2006, have been restated to reflect the reclassification of the gain on sale of investments from operating activities to investing activities. The gain on sale of investments was $0.7 million in fiscal 2007 and $0.2 million in fiscal 2006.

Fair Values of Financial Instruments: The fair values of financial instruments are determined based on quoted market prices and market interest rates as of the end of the reporting period. Our financial instruments include accounts receivable, accounts payable, accrued liabilities, and long-term debt. The fair values of these financial instruments, with the exception of long-term debt as disclosed in Note 8 “Debt” of our consolidated financial statements, were not materially different from their carrying at May 31, 2008 and June 2, 2007.

Cash Equivalents and Restricted Cash: We consider short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, and that have maturity of three months or less, when purchased, to be cash equivalents. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate the fair market values of these assets.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

We maintained $61.9 million of restricted cash as of June 2, 2007, due to year-end cash balances resulting from proceeds from the sale of our Security Systems Division/Burtek Systems (“SSD/Burtek”) business unit, that are required by our multi-currency revolving credit agreement (“credit agreement”) to be used to pay down outstanding debt amounts under the credit agreement.

Allowance for Doubtful Accounts: Our allowance for doubtful accounts includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers’ financial conditions; aging of receivables, individually and in the aggregate; large number of customers which are widely dispersed across geographic areas; collectability and delinquency history by geographic area; and the fact that no single customer accounts for 10% or more of net sales. Significant changes in one or more of these considerations may require adjustments affecting net income and net carrying value of accounts receivable. The allowance for doubtful accounts was approximately $1.6 million as of May 31, 2008, and June 2, 2007.

Inventories: Our worldwide inventories are stated at the lower of cost or market, generally using a weighted-average cost method. Inventories include material, labor, and overhead associated with such inventories. Substantially all inventories represent finished goods held for sale.

Property, Plant and Equipment: Property, plant and equipment are stated at cost, net of accumulated depreciation. Improvements and replacements are capitalized while expenditures for maintenance and repairs are charged to expense as incurred. Provisions for depreciation are computed using the straight-line method over the estimated useful life of the asset. Depreciation expense was approximately $5.0 million, $5.2 million, and $5.6 million during fiscal 2008, 2007, and 2006, respectively. Property, plant and equipment consist of the following (in thousands):


	May 31, 2008			June 2, 2007
Land and improvements	$	1,278		$	1,274
Buildings and improvements		19,285			17,610
Computer and communications equipment		30,216			29,966
Machinery and other equipment		17,227			19,266

		68,006			68,116
Accumulated depreciation		(39,371	)		(38,838	)

Property, plant and equipment, net	$	28,635		$	29,278

Supplemental disclosure information of the estimated useful life of the asset:


Land and improvements		10 years
Buildings and improvements		10 – 30 years
Computer and communications equipment		3 – 10 years
Machinery and other equipment		3 – 10 years

We are in the development stage of implementing certain modules of enterprise resource management software (“PeopleSoft”). In accordance with Accounting Standards Executive Committee (“AcSEC”) Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, (“AcSEC 98-1”) we capitalize all direct costs associated with the application development of this software including software acquisition costs, licensing fees, and consulting costs. AcSEC 98-1 requires these costs to be depreciated once the application development stage is complete. The balance of these capitalized costs that have not yet been placed into service, which is included in our property, plant and equipment was $7.7 million and $8.0 million as of May 31, 2008, and June 2, 2007.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Other Non-Current Assets: Other non-current assets consist of the following (in thousands):


	May 31, 2008		June 2, 2007
Investments	$	397	$	1,001
Notes receivable		1,141		1,057

Other non-current assets	$	1,538	$	2,058

Our investments are primarily equity securities, all of which are classified as available-for-sale and are carried at their fair value based on quoted market prices. Proceeds from the sale of securities were $0.7 million, $3.8 million, and $2.3 million during fiscal 2008, 2007, and 2006, respectively. We retained $0.2 million and $0.4 million of the proceeds from the sale of securities during the third and fourth quarters of fiscal 2008, respectively. During the second quarter of fiscal 2007, we retained $3.5 million of the proceeds from the sale of securities. In all other periods, all the proceeds from the sale of securities were reinvested. The cost of the equity securities sold was based on a specific identification method. Gross realized gains on those sales were $0.3 million, $0.8 million, and $0.3 million during fiscal 2008, 2007, and 2006, respectively. Gross realized losses on those sales were $0.2 million, $0.1 million, and $0.1 million during fiscal 2008, 2007, and 2006, respectively. Net unrealized holding gains of $0.1 million, $0.4 million, and $0.2 million, have been included in accumulated comprehensive income (loss) during fiscal 2008, 2007, and 2006, respectively.

The following table presents the disclosure under Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities , for the investment in marketable equity securities with fair values less than cost basis (in thousands):


	Marketable Security Holding Length
	Less Than 12 Months				More Than 12 Months				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
May 31, 2008
Common Stock	$	25	$	3	$	46	$	5	$	71	$	8
June 2, 2007
Common Stock	$	65	$	4	$	—	$	—	$	65	$	4

Goodwill and Other Intangible Assets: Goodwill represents the excess of purchase price over fair market value of identifiable net assets acquired through business purchases. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) goodwill and indefinite-lived intangible assets are reviewed for impairment on at least an annual basis by applying a fair-value based test. In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding the fair value of our reporting units, as defined under SFAS No. 142. If our fair value estimates or related assumptions change, we may be required to record impairment charges related to goodwill.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

achieved. The failure of one or more of our reporting units to achieve projected operating results and cash flows in the near term or long term could reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge.

The results of our goodwill impairment tests as of March 1, 2008, for RFPD and EDG indicated no goodwill impairment as estimated fair value of each reporting unit exceeded the carrying value.

The application of SFAS No. 142 and the annual impairment test are discussed in Note 3 “Goodwill and Other Intangible Assets” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Accrued Liabilities: Accrued liabilities consist of the following (in thousands):


	May 31, 2008		June 2, 2007
Compensation and payroll taxes	$	10,214	$	11,041
Interest		1,990		1,990
Income taxes ⁽¹⁾		1,248		10,408
Professional fees		1,354		1,165
Other accrued expenses		7,012		6,726

Accrued liabilities	$	21,818	$	31,330

(1)

The decline in income taxes from June 2, 2007, to May 31, 2008, was due primarily to the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for Income Taxes, (“FIN 48”) during fiscal 2008, which resulted in a reclassification from current liabilities to long-term liabilities of approximately $7.0 during the first quarter of FY08. See Note 10 “Income Taxes” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Warranties: We offer warranties for specific products we manufacture. We also provide extended warranties for some products we sell that lengthen the period of coverage specified in the manufacturer’s original warranty. Warranty terms generally range from one to three years.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Changes in the warranty reserve during fiscal 2008 and 2007 were as follows (in thousands):


	Warranty Reserve
Balance at June 3, 2006	$	836
Accruals for products sold		629
Utilization		(594	)
Adjustment		(456	)

Balance at June 2, 2007	$	415
Accruals for products sold		593
Utilization		(517	)
Adjustment		(114	)

Balance at May 31, 2008	$	377

As a result of lower than anticipated failure rates and lower sales volume of products with this warranty feature, reserve adjustments of $0.1 million and $0.5 million were recorded during fiscal 2008 and 2007, respectively.

Other Non-Current Liabilities: Other non-current liabilities of $1.7 million at May 31, 2008, and 1.5 million at June 2, 2007, represent the pension obligations in various non-US locations.

Foreign Currency Translation: Balance sheet items for our foreign entities, included in our consolidated balance sheet are translated into U.S. dollars at end-of-period spot rates. Gains and losses resulting from translation of foreign subsidiary financial statements are credited or charged directly to accumulated other comprehensive income (loss), a component of stockholders’ equity. Revenues and expenses are translated at the current rate on the date of the transaction. Gains and losses resulting from foreign currency transactions are included in income. Foreign currency transactions reflected in our statements of operations was a loss of $1.5 million during fiscal 2008, a gain of $1.1 million during fiscal 2007, and a loss of $0.7 million during fiscal 2006.

Revenue Recognition: Our product sales are recognized as revenue upon shipment, when title passes to the customer, when delivery has occurred or services have been rendered, and when collectibility is reasonably assured. Our terms are generally FOB shipping point and sales are recorded net of discounts and returns based on our historical experience. Our products are often manufactured to meet the specific design needs of our customers’ applications. Our engineers work closely with customers to ensure that our products will meet their needs. Our customers are under no obligation to compensate us for designing the products we sell.

Shipping and Handling Fees and Costs: Shipping and handling costs billed to customers are reported as revenue and the related costs are reported as a component of cost of sales.

Income Taxes: We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on a number of factors, including both positive and negative evidence, in determining the need for a valuation allowance. Those factors include historical taxable

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. In circumstances where we or any of our affiliates have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed by us at a minimum to overcome that negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. In evaluating the positive evidence available, expectations as to future taxable income would rarely be sufficient to overcome the negative evidence of recent cumulative losses, even if supported by detailed forecasts and projections.

Discontinued Operations: In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS No. 144”) we reported the results of SSD/Burtek as a discontinued operation and have restated prior periods to reflect this presentation. The application of SFAS No. 144 is discussed in Note 2 “Discontinued Operations” of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Stock-Based Compensation: Prior to fiscal 2007, we accounted for our stock-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees , and related interpretations (“APB No. 25”), and adopted the disclosure-only provision of SFAS No. 123, Accounting for Stock-Based Compensation . Under APB No. 25, no stock-based compensation cost was reflected in net income.

Under APB No. 25, pro-forma expense for stock options was calculated using a graded-vesting schedule over the applicable vesting period, which generally ranges from two to four years. Upon adoption of SFAS No. 123 (Revised 2004), Share-Based Payment , (“SFAS No. 123(R)”) we record compensation expense using a graded-vesting schedule over the applicable vesting period, or to the date on which retirement eligibility is achieved, if shorter (non-substantive vesting period approach). Had we used the fair-value based accounting method for stock compensation expense prescribed by SFAS No. 123(R), our net income and earnings per share for fiscal 2006 would have been reduced to the pro-forma amount illustrated as follows (in thousands, except per share amounts):


	June 3, 2006
Net loss—as reported	$	(2,642	)
Add: Reported stock-based compensation expense, net of tax		7
Deduct: Fair valued based compensation expense, net of tax		(964	)

Pro-forma net loss	$	(3,599	)

Earnings per share, as reported:

Common stock—basic	$	(0.15	)

Class B common stock—basic	$	(0.14	)

Common stock—diluted	$	(0.15	)

Class B common stock—diluted	$	(0.14	)

Earnings per share, pro forma:

Common stock—basic	$	(0.21	)

Class B common stock—basic	$	(0.19	)

Common stock—diluted	$	(0.21	)

Class B common stock—diluted	$	(0.19	)

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

During the first quarter of fiscal 2007, we adopted SFAS No. 123(R) which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options. We estimate fair value using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life, and dividends. Compensation cost is recognized using a graded-vesting schedule over the applicable vesting period, or date on which retirement eligibility is achieved, if shorter (non-substantive vesting period approach). Share-based compensation totaled approximately $0.7 million and $1.0 million during fiscal 2008 and 2007, respectively.

Stock options granted to members of the Board of Directors generally vest immediately and stock options granted to employees generally vest over a period of five years and have contractual terms for exercise of ten years. A summary of stock option activity is as follows (in thousands, except option prices and years):


	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Options outstanding at May 28, 2005	1,701		$	9.46
Granted	436			8.14
Exercised	(41	)		7.22
Cancelled	(245	)		8.86

Options outstanding at June 3, 2006	1,851		$	9.26
Granted	319			8.70
Exercised	(212	)		7.18
Forfeited	(87	)		8.30
Cancelled	(170	)		9.88

Options outstanding at June 2, 2007	1,701		$	9.40
Granted	340			7.33
Exercised	(9	)		7.70
Forfeited	(80	)		8.68
Cancelled	(270	)		10.60

Options outstanding at May 31, 2008	1,682		$	8.84	5.91	$	7

Options exercisable at May 31, 2008	967		$	9.51	4.03	$	3

There were nine thousand stock options exercised during fiscal 2008, with cash received of $0.1 million. The total intrinsic value of options exercised totaled an immaterial amount during fiscal 2008, $0.5 million during fiscal 2007, and $0.1 million during fiscal 2006. The weighted average fair value of stock option grants was $2.99 during fiscal 2008, $3.94 during fiscal 2007, and $3.14 during fiscal 2006. As of May 31, 2008, total unrecognized compensation costs related to unvested stock options was approximately $1.6 million which is expected to be recognized over the remaining weighted average period of five years. The total grant date fair value of stock options vested during fiscal 2008 was $0.5 million.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Fiscal Year Ended
	May 31, 2008			June 2, 2007
Expected volatility		44.86	%		48.12	%
Risk-free interest rate		4.39	%		4.73	%
Expected lives		6.31			6.50
Annual cash dividend	$	0.08		$	0.16

The fiscal 2008 and 2007 expected volatility assumptions are based on historical experience. The fiscal 2008 and 2007 expected stock option life assumption is based on the Securities and Exchange Commission’s (“SEC”) guidance in Staff Accounting Bulletin (“SAB”) No. 107 (“SAB No. 107”). On December 21, 2007, the SEC issued SAB No. 110 stating that they will continue to accept SAB No. 107, past the original expiration date of December 31, 2007. The risk-free interest rate is based on the yield of a treasury note with a remaining term equal to the expected life of the stock option.

The following table summarizes information about stock options outstanding at May 31, 2008 (in thousands, except option prices and years):


	Outstanding						Exercisable
Exercise Price Range	Shares	Price		Life	Aggregate Intrinsic Value		Shares	Price		Life	Aggregate Intrinsic Value
$4.05 to $7.50	644	$	7.08	5.7	$	7	328	$	6.93	2.2	$	3
$7.75 to $9.00	642	$	8.30	7.2	$	—	272	$	8.23	6.5	$	—
$9.23 to $13.81	396	$	12.57	4.1	$	—	367	$	12.78	3.8	$	—

Total	1,682	$	8.84	5.9	$	7	967	$	9.51	4.0	$	3

A summary of restricted stock award transactions was as follows (in thousands):


	Shares
Unvested at May 28, 2005	13
Granted	3
Vested	(12	)
Cancelled	—

Unvested at June 3, 2006	4
Granted	11
Vested	(12	)
Cancelled	—

Unvested at June 2, 2007	3
Granted	10
Vested	(1	)
Cancelled	—

Unvested at May 31, 2008	12

Compensation effects arising from issuing stock awards have been charged against income and recorded as additional paid-in-capital in the consolidated statements of stockholders’ equity and comprehensive income (loss) and were immaterial during fiscal 2008 and 2006, and $0.1 million during fiscal 2007.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

The Employees’ 2001 Incentive Compensation Plan authorizes the issuance of up to 1,800,000 shares as incentive stock options, non-qualified stock options, or stock awards. Under this plan and predecessor plans, 1,301,423 shares are reserved for future issuance. The Plan authorizes the granting of incentive stock options at the fair market value at the date of grant. Generally, these options become exercisable over five years and expire up to ten years from the date of grant.

On June 16, 2005, our Board of Directors adopted the 2006 Stock Option Plan for Non-Employee Directors which authorizes the issuance of up to 400,000 shares as non-qualified stock options. Under this plan, 295,000 shares of common stock have been reserved for future issuances relating to stock options exercisable based on the passage of time. Each option is exercisable over a period of time from its date of grant at the market value on the grant date and expires after 10 years. This plan replaces the 1996 Stock Option Plan for Non-Employee Directors which was terminated on June 16, 2005.

Earnings per Share: We have authorized 30,000,000 shares of common stock, 10,000,000 shares of Class B common stock, and 5,000,000 shares of preferred stock. The Class B common stock has ten votes per share. The Class B common stock has transferability restrictions; however, it may be converted into common stock on a share-for-share basis at any time. With respect to dividends and distributions, shares of common stock and Class B common stock rank equally and have the same rights, except that Class B common stock cash dividends are limited to 90% of the amount of common stock cash dividends.

In accordance with Emerging Issues Task Force (“EITF”) Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 (“EITF No. 03-6”), our Class B common stock is considered a participating security requiring the use of the two-class method for the computation of basic and diluted earnings per share. The two-class computation method for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Basic and diluted earnings per share were computed using the two-class method as prescribed in EITF No. 03-6. The shares of Class B common stock are considered to be participating convertible securities since the shares of Class B common stock are convertible on a share-for-share basis into shares of common stock and may participate in dividends with common stock according to a predetermined formula which is 90% of the amount of common stock cash dividends.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Diluted earnings per share is calculated by dividing net income, adjusted for interest savings, net of tax, on assumed conversion of convertible debentures and notes, by the actual shares outstanding and share equivalents that would arise from the exercise of stock options, certain restricted stock awards, and the assumed conversion of convertible debentures and notes when dilutive. For fiscal 2008, 2007, and 2006, the assumed conversion and the effect of the interest savings of our 7 ³ / 4 % convertible senior subordinated notes (“7 ³ / 4 % notes”) and 8% convertible senior subordinated notes (“8% notes”) were excluded because their inclusion would have been anti-dilutive. The per share amounts presented in the consolidated statements of operations are based on the following amounts (in thousands, except per share amounts):


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
Numerator for basic and diluted EPS:
Income (loss) from continuing operations	$	(8,471	)	$	1,548		$	(4,010	)
Less dividends:
Common stock		1,777			2,323			2,289
Class B common stock		330			441			447

Undistributed losses	$	(10,578	)	$	(1,216	)	$	(6,746	)

Common stock undistributed losses	$	(8,923	)	$	(1,023	)	$	(5,648	)
Class B common stock undistributed losses—basic		(1,655	)		(193	)		(1,098	)

Total undistributed losses—common stock and Class B common stock—basic	$	(10,578	)	$	(1,216	)	$	(6,746	)

Common stock undistributed losses	$	(8,923	)	$	(1,024	)	$	(5,648	)
Class B common stock undistributed losses—diluted		(1,655	)		(192	)		(1,098	)

Total undistributed losses—Class B common stock—diluted	$	(10,578	)	$	(1,216	)	$	(6,746	)

Income from discontinued operations	$	45		$	39,131		$	1,368
Less dividends:
Common stock		1,777			2,323			2,289
Class B common stock		330			441			447

Undistributed earnings (losses)	$	(2,062	)	$	36,367		$	(1,368	)

Common stock undistributed earnings (losses)	$	(1,739	)	$	30,587		$	(1,145	)
Class B common stock undistributed earnings (losses)—basic		(323	)		5,780			(223	)

Total undistributed earnings (losses)—common stock and Class B common stock—basic	$	(2,062	)	$	36,367		$	(1,368	)

Common stock undistributed earnings (losses)	$	(1,739	)	$	30,621		$	(1,145	)
Class B common stock undistributed earnings (losses)—diluted		(323	)		5,746			(223	)

Total undistributed earnings (losses)—Class B common stock—diluted	$	(2,062	)	$	36,367		$	(1,368	)

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)


	Fiscal Year Ended
	May 31, 2008			June 2, 2007		June 3, 2006
Numerator for basic and diluted EPS continued:
Net income (loss)	$	(8,426	)	$	40,679	$	(2,642	)
Less dividends:
Common stock		1,777			2,323		2,289
Class B common stock		330			441		447

Undistributed earnings (losses)	$	(10,533	)	$	37,915	$	(5,378	)

Common stock undistributed earnings (losses)	$	(8,885	)	$	31,889	$	(4,502	)
Class B common stock undistributed earnings (losses)—basic		(1,648	)		6,026		(876	)

Total undistributed earnings (losses)—common stock and Class B common stock—basic	$	(10,533	)	$	37,915	$	(5,378	)

Common stock undistributed earnings (losses)	$	(8,885	)	$	31,924	$	(4,502	)
Class B common stock undistributed earnings (losses)—diluted		(1,648	)		5,991		(876	)

Total undistributed earnings (losses)—Class B common stock—diluted	$	(10,533	)	$	37,915	$	(5,378	)

Denominator for basic and diluted EPS:
Denominator for basic EPS:
Common stock weighted average shares		14,794			14,517		14,315
Class B common stock weighted average shares, and shares under if-converted method for diluted earnings per share		3,048			3,048		3,093
Effect of dilutive securities:
Unvested restricted stock awards		—			4		—
Dilutive stock options		—			98		—

Denominator for diluted EPS adjusted weighted average shares and assumed conversions		17,842			17,667		17,408

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)


	Fiscal Year Ended
	May 31, 2008			June 2, 2007		June 3, 2006
Income (loss) from continuing operations per share:
Common stock—basic	$	(0.48	)	$	0.09	$	(0.23	)

Class B common stock—basic	$	(0.43	)	$	0.08	$	(0.21	)

Common stock—diluted	$	(0.48	)	$	0.09	$	(0.23	)

Class B common stock—diluted	$	(0.43	)	$	0.08	$	(0.21	)

Income from discontinued operations per share:
Common stock—basic	$	0.00		$	2.27	$	0.08

Class B common stock—basic	$	0.00		$	2.04	$	0.07

Common stock—diluted	$	0.00		$	2.21	$	0.08

Class B common stock—diluted	$	0.00		$	2.03	$	0.07

Net income (loss) per share:
Common stock—basic	$	(0.48	)	$	2.36	$	(0.15	)

Class B common stock—basic	$	(0.43	)	$	2.12	$	(0.14	)

Common stock—diluted	$	(0.48	)	$	2.30	$	(0.15	)

Class B common stock—diluted	$	(0.43	)	$	2.11	$	(0.14	)

Common stock options that were anti-dilutive and not included in dilutive earnings per common share		1,682			1,603		1,852

New Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 157 will be effective beginning with our fiscal year 2009. We are currently in the process of assessing the impact of SFAS No. 157 but do not believe that the adoption of the standard will have a material impact on our consolidated financial statements.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements) (“FSP No. APB 14-1”), which will change the accounting treatment for convertible securities which the issuer may settle fully or partially in cash. Under FSP No. APB 14-1, cash settled convertible securities will be separated into their debt and equity components. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds for the convertible debt and the amount reflected as a debt liability will be recorded as additional paid-in-capital. As a result, the debt will be recorded at a discount reflecting its below market coupon interest rate. The debt will subsequently be accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected on the income statement. This change in methodology will affect the calculations of net income and earnings per share for many issuers of cash settled convertible securities. FSP No. APB 14-1 will become effective for our fiscal year beginning in 2010. We are currently evaluating the impact of the adoption of FSP No. APB 14-1 on our consolidated financial statements.

2. DISCONTINUED OPERATIONS

On May 31, 2007, we completed the sale of the SSD/Burtek to Honeywell International Incorporated (“Honeywell”). We present SSD/Burtek as a discontinued operation in accordance with the criteria of SFAS No. 144, and prior period results and disclosures have been restated to reflect this reporting.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Net sales, gross profit, interest expense, income tax provision, and income (loss) from discontinued operations during fiscal 2008, 2007, and 2006 are presented in the following table (in thousands):


	Fiscal Years
	2008		2007			2006
Net Sales	$	736	$	107,510		$	108,843
Gross profit		209		27,788			27,279
Interest expense		—		5,883			3,528
Income tax provision		21		3,428			2,682
Income (loss), net of tax		45		(2,434	)		1,368

The net sales, gross profit, and income from discontinued operations during fiscal 2008 represent the operations of our Colombia location which was included in the SSD/Burtek sale agreement with Honeywell, but were not transferred as part of the May 31, 2007, closing. During the first quarter of fiscal 2008, we mutually agreed with Honeywell that Honeywell would not purchase the SSD/Burtek Colombia business, and that we would wind down the SSD/Burtek Colombia business in exchange for a payment from Honeywell equal to a portion of the value of the SSD/Burtek business in Colombia on May 31, 2007, including reimbursement of related employee severance expenses. We ceased operations of the SSD/Burtek business in Colombia during the third quarter of fiscal 2008. Results of the operation of the SSD/Burtek business in Colombia are included in discontinued operations in accordance with SFAS No. 144.

In accordance with EITF Issue No. 87-24, Allocation of Interest to Discontinued Operations (“EITF 87-24”), we allocated interest expense of $5.9 million and $3.5 million to discontinued operations during fiscal 2007 and 2006, respectively, due to the requirement under our credit agreement to pay the proceeds from the sale of a business to the parties in the credit agreement. With respect to the sale of SSD/Burtek, we recognized a gain of $41.6 million during fiscal 2007, net of a provision for income tax of $2.8 million.

Net assets of discontinued operations are presented in the following table (in thousands):


	June 2, 2007
Accounts receivable	$	128
Inventories		114
Prepaid expenses		—

Current assets of discontinued operations held for sale		242

Property, plant, and equipment, net		5
Goodwill		—
Other intangible assets, net		—

Non-current assets of discontinued operations held for sale		5

Total assets of discontinued operations held for sale	$	247

Accounts payable	$	1,569
Accrued liabilities		1,168

Current liabilities of discontinued operations held for sale		2,737

Long-term debt
Non-current liabilities of discontinued operations held for sale		—

Total liabilities of discontinued operations held for sale		—

Accumulated other comprehensive income of discontinued operations held for sale		—

Total liabilities and stockholders’ equity of discontinued operations held for sale	$	2,737

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

The balance sheet amounts of June 2, 2007, for discontinued operations represent the net assets held at our Colombia location that were included in the SSD/Burtek sale agreement, but were not part of the transaction closing on May 31, 2007. As noted above, we ceased operations of the SSD/Burtek business in Colombia during the third quarter of fiscal 2008, and as such no amounts related to SSD/Burtek Colombia net assets remain in our balance sheet for discontinued operations as of May 31, 2008.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

The results of our goodwill impairment tests as of March 1, 2008, for RFPD and EDG indicated no goodwill impairment as estimated fair value of each reporting unit exceeded the carrying value.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

The table below provides changes in carrying value of goodwill by reportable segment which includes RFPD, EDG, and DSG (in thousands):


	Goodwill
	Reportable Segments
	RFPD		EDG		DSG			Total
Balance at June 3, 2006	$	252	$	893	$	10,111		$	11,256
Foreign currency translation		11		9		335			355

Balance at June 2, 2007		263		902		10,446			11,611
Continent purchase price consideration		256		—		—			256
Foreign currency translation		32		30		1,060			1,122
Impairment of goodwill		—		—		(11,506	)		(11,506	)

Balance at May 31, 2008	$	551	$	932	$	—		$	1,483

The following table provides changes in carrying value of other intangible assets not subject to amortization (in thousands):


	Other Intangible Assets Not Subject to Amortization
	Reportable Segments
	RFPD		EDG			DSG		Total
Balance at June 3, 2006	$	—	$	9		$	—	$	9
Reclassification		—		(9	)		—		(9	)

Balance at June 2, 2007	$	—	$	—		$	—	$	—

Note:

During the third quarter of fiscal 2007, EDG’s other intangible assets not subject to amortization were reclassified to SSD/Burtek, which is presented as a discontinued operation.

Intangible assets subject to amortization as well as amortization expense are as follows (in thousands):


	Intangible Assets Subject to Amortization as of
	May 31, 2008		June 2, 2007
Gross amounts:
Deferred financing costs	$	2,744	$	4,539
Patents and trademarks		478		478

Total gross amounts	$	3,222	$	5,017

Accumulated amortization:
Deferred financing costs	$	1,986	$	2,958
Patents and trademarks		478		478

Total accumulated amortization	$	2,464	$	3,436

Deferred financing costs decreased during fiscal 2008 due primarily to the write-off of deferred financing costs of $0.6 million related to the extinguishment of our prior credit agreement. We entered into a new $40.0 million credit agreement (“new credit agreement”) on July 27, 2007. The write-off of $0.6 million was recorded as interest expense during the first quarter of fiscal 2008. The remaining amounts of deferred financing costs as of May 31, 2008, are associated with our 7 ³ / 4 % notes and 8% notes.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Amortization expense during fiscal years 2008 and 2007 was as follows (in thousands):


	Amortization of Intangible Assets Subject to Amortization
	May 31, 2008		June 2, 2007
Deferred financing costs	$	275	$	488
Patents and trademarks		—		3

Total	$	275	$	491

The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table (in thousands):


Fiscal Year	Amortization Expense
Fiscal Year	Amortization Expense
2009	$	235
2010	$	235
2011	$	235
2012	$	53
2013	$	—
Thereafter	$	—

The weighted average number of years of amortization expense remaining is 3.23.

4. ASSETS HELD FOR SALE

As of May 31, 2008, we maintained a building in Mexico City, Mexico as an asset held for sale. We believe we will be able to sell the building within fiscal 2009, however, we cannot give any assurance as to the actual timing or successful completion of the sale.

5. RESTRUCTURING AND SEVERANCE CHARGES

We implemented a global restructuring plan during fiscal 2007 (“2007 Restructuring Plan”). The 2007 Restructuring Plan was designed to decrease the number of warehouses and streamline processes throughout the organization. During fiscal 2007, we centralized inventory distribution in Europe, restructured our Latin American operations, and reduced our total workforce, including the elimination of certain layers of management.

As a result of our 2007 Restructuring Plan, restructuring charges of $2.2 million were recorded in selling, general, and administrative expenses (“SG&A”) during fiscal 2007. During the first nine months of fiscal 2008, severance costs of $1.3 million were paid out, completing all the severance payments associated with the 2007 Restructuring Plan.

6. ACQUISITIONS

Fiscal 2008: We made no acquisitions during fiscal 2008.

Fiscal 2007: We made no acquisitions during fiscal 2007.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Fiscal 2006: In June 2005, we acquired Kern located in Germany, a leading display technology company in Europe. The cash outlay for Kern was $6.6 million, net of cash acquired. In addition, on October 1, 2005, we acquired certain assets of Image Systems Corporation (“Image Systems”), a subsidiary of CSI in Hector, Minnesota, which is a specialty supplier of displays, display controllers, and calibration software for the healthcare market. The initial cash outlay for Image Systems was $0.3 million. Both Kern and Image Systems were integrated into DSG. The acquisitions were not deemed material under SFAS No. 141, Business Combinations .

7. DISPOSAL OF ASSETS

During the first quarter of fiscal 2008, we received an offer to sell our interests in property located in Rio de Janeiro, Brazil for 2.0 million Brazilian Reais, which is equivalent to approximately $1.2 million, and received a security deposit of 0.6 million Brazilian Reais, which is equivalent to approximately $0.4 million. We closed on the sale during the third quarter of fiscal 2008 and received additional proceeds of 0.4 million Brazilian Reais, which is equivalent to approximately $0.2 million, in cash and a note receivable of 1.0 million Brazilian Reais. The note receivable of 1.0 million Brazilian Reais, which is equivalent to approximately $0.6 million, is payable in ten equal monthly installments. We recorded an immaterial gain during the third quarter of fiscal 2008 with respect to the sale of our interests in this property.

On February 1, 2008, we sold our building in Pianopoli, Italy, for $0.4 million. We recorded a pre tax gain of $0.1 million during the third quarter of fiscal 2008 with respect to the sale of this property.

On April 5, 2007, we sold real estate and a building located in the United Kingdom for $1.9 million. We recorded a pre tax gain on sale of $1.5 million during the fourth quarter of fiscal 2007 with respect to the sale of this property.

On December 29, 2006, we sold approximately 1.5 acres of real estate and a building located in Geneva, Illinois for $3.1 million. We recorded a gain of $2.5 million during the third quarter of fiscal 2007 with respect to the sale of this property.

8. DEBT FINANCING

Long-term debt consists of the following (in thousands):


	May 31, 2008		June 2, 2007
7 ³ / 4 % notes, due December 2011	$	44,683	$	44,683
8% notes, due June 2011		11,000		11,000
New credit agreement, due July 2010 (5.00% at May 31, 2008)		—		—
Credit agreement, due October 2009 (7.72% at June 2, 2007)		—		65,711

Total debt		55,683		121,394
Less: current portion		—		(65,711	)

Long-term debt	$	55,683	$	55,683

As of May 31, 2008, we maintained $55.7 million in long-term debt in the form of two series of convertible notes. We entered into a new credit agreement on July 27, 2007, which included a Euro sub-facility of $15.0 million and a Singapore sub-facility of $5.0 million. Pursuant to an amendment to the new credit agreement entered into on February 29, 2008, the Euro sub-facility and Singapore sub-facility individual limits were increased to $20.0 million each; however, the total amount of the combined Euro sub-facility and Singapore

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

sub-facility is limited to $25.0 million. The U.S. facility is reduced if amounts drawn on the Euro sub-facility and Singapore sub-facility exceed $20.0 million, maintaining a total capacity of $40.0 million on the new credit agreement. This new credit agreement expires in July 2010 and bears interest at applicable LIBOR, SIBOR, or prime rates plus a margin varying with certain quarterly borrowings under the new credit agreement. This new credit agreement is secured by a lien on our U.S. assets and also contains a financial covenant requiring us to maintain a leverage ratio of less than 2.0 to 1.0. Pursuant to an amendment to the new credit agreement entered into on November 29, 2007, the leverage ratio was increased to 3.0 to 1.0 for the fiscal quarters ended December 1, 2007, and March 1, 2008. The commitment fee related to the new credit agreement is 0.25% per annum payable quarterly on the average daily unused portion of the aggregate commitment. As of May 31, 2008, there were no amounts outstanding under the new credit agreement. Outstanding letters of credit were approximately $0.1 million, and the unused line was $39.9 million. Based on our loan covenants, actual available credit as of May 31, 2008, was $40.0 million.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

principal amount of 7 ¹ / 4 % debentures and $22.5 million in aggregate principal amount of 8 ¹ / 4 % debentures for $44.7 million in aggregate principal amount of newly-issued 7 ³ / 4 % notes due December 2011.

On February 15, 2005, we issued the 7 ³ / 4 % notes pursuant to an indenture dated February 14, 2005. The 7 ³ / 4 % notes bear interest at the rate of 7 ³ / 4 % per annum. Interest is due on June 15 and December 15 of each year. The 7 ³ / 4 % notes are convertible at the option of the holder, at any time on or prior to maturity, into shares of our common stock at a price equal to $18.00 per share, subject to adjustment in certain circumstances. On or after December 19, 2006, we may elect to automatically convert the 7 ³ / 4 % notes into shares of common stock if the trading price of the common stock exceeds 125% of the conversion price of the 7 ³ / 4 % notes for at least twenty trading days during any thirty trading day period ending within five trading days prior to the automatic conversion notice. The 7 ³ / 4 % notes are unsecured and subordinated to our existing and future senior debt. The 7 ³ / 4 % notes rank on parity with the 8% notes.

Interest expense was $6.9 million, $5.3 million, and $6.3 million during fiscal 2008, 2007, and 2006, respectively. The components of interest expense from continuing operations are shown in the following table (in thousands):


	FY 2008		FY 2007		FY 2006
7 ³ / 4 % notes interest expense	$	3,463	$	3,405	$	3,540
8% notes interest expense		880		1,312		1,083
7 ¹ / 4 % debentures interest expense		—		—		187
8 ¹ / 4 % debentures interest expense		—		—		797
Credit agreement interest expense		556		—		—
New credit agreement interest expense		955		—		—
Deferred financing costs amortization		275		488		361
Write-off of deferred financing costs		643		62		—
Other		82		25		313

Total interest expense	$	6,854	$	5,292	$	6,281

On March 3, 2007, we were not in compliance with our credit agreement covenants with respect to the leverage ratio. On April 5, 2007, we received a waiver from our lending group for the default.

In the following table, the estimated fair values of our 7 ³ / 4 % notes and 8% notes are based on quoted market prices at the end fiscal year 2008 and 2007. The fair values of the bank term loans are based on carrying value (in thousands).


	May 31, 2008				June 2, 2007
	Carrying Value		Fair Value		Carrying Value			Fair Value
7 ³ / 4 % notes	$	44,683	$	37,534	$	44,683		$	45,074
8% notes		11,000		10,283		11,000			12,024
Credit agreement		—		—		65,711			65,711
New credit agreement		—		—		—			—

Total		55,683		47,817		121,394			122,809
Less: current portion		—		—		(65,711	)		(65,711	)

Total	$	55,683	$	47,817	$	55,683		$	57,098

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Our ability to service our debt and meet our other obligations is dependent on our future financial and operating performance. This performance is subject to various factors, including factors beyond our control such as changes in global and regional economic conditions, changes in our industry or the end markets for our products, changes in interest or currency exchange rates, and inflation in costs.

Aggregate maturities of our debt during the next five years are as follows (in thousands):


Fiscal Year	Aggregate Debt Maturities
2009	$	—
2010	$	—
2011	$	—
2012	$	55,683
2013	$	—
Thereafter	$	—

Cash payments for interest were $6.1 million, $11.1 million, and $9.0 million, during fiscal 2008, 2007, and 2006, respectively.

9. LEASE OBLIGATIONS, OTHER COMMITMENTS, AND CONTINGENCIES

We lease certain warehouse and office facilities and office equipment under non-cancelable operating leases. Rent expense during fiscal 2008, 2007, and 2006 was $4.7 million, $4.2 million, and $4.0 million, respectively. Future lease commitments for minimum rentals, including common area maintenance charges and property taxes, during the next five years are as follows (in thousands):


Fiscal Year	Expense
2009	$	4,020
2010	$	2,500
2011	$	1,446
2012	$	1,082
2013	$	663
Thereafter	$	727

10. INCOME TAXES

The components of income (loss) before income taxes are (in thousands):


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
United States	$	(16,098	)	$	(14,242	)	$	(6,975	)
Foreign		7,409			16,424			8,501

Income (loss) before income taxes	$	(8,689)		$	2,182		$	1,526

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

The provision for income taxes differs from income taxes computed at the federal statutory tax rate of 34% during fiscal 2008, 2007, and 2006 as a result of the following items (in thousands):


	Fiscal Year Ended
	May 31, 2008		June 2, 2007		June 3, 2006
	May 31, 2008		June 2, 2007		June 3, 2006
Federal statutory rate	(34.0	%)	34.0	%	34.0	%
Effect of:
State income taxes, net of federal tax benefit	(5.7	)	(20.2	)	(16.0	)
Foreign income inclusion	50.0		108.8		—
U.S. income inclusion from foreign restructuring	—		68.2		—
Foreign taxes at other rates	(13.5	)	(97.9	)	(5.4	)
Tax refund from foreign tax appeal	—		—		(65.4	)
Net increase (decrease) in valuation allowance for deferred tax assets	(1.4	)	(64.9	)	415.6
Other	2.1		1.1		—

Effective tax rate	(2.5	%)	29.1	%	362.8	%

The provision for income taxes consists of the following (in thousands):


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
	May 31, 2008			June 2, 2007			June 3, 2006
Current:
Federal	$	—		$	—		$	—
State		—			—			—
Foreign		1,980			3,170			3,019

Total current		1,980			3,170			3,019

Deferred:
Federal		(492	)		(2,040	)		1,926
State		(45	)		(185	)		198
Foreign		(1,661	)		(311	)		393

Total deferred		(2,198	)		(2,536	)		2,517

Income tax provision (benefit)	$	(218)		$	634		$	5,536

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities at May 31, 2008, and June 2, 2007, are as follows (in thousands):


	May 31, 2008			June 2, 2007
Deferred tax assets:
Intercompany profit in inventory	$	—		$	—
NOL carryforwards—foreign and domestic		20,235			18,764
Inventory valuation		6,642			9,245
Goodwill—impaired assets		3,750			1,671
Alternative minimum tax credit carryforward		1,193			1,189
Severance reserve		438			656
Other		3,432			2,627

Subtotal		35,690			34,152
Valuation allowance—foreign and domestic		(26,112	)		(27,640	)

Net deferred tax assets after valuation allowance		9,578			6,512

Deferred tax liabilities:
Accelerated depreciation		(3,579	)		(3,358	)
Goodwill—non-impaired assets		—			(537	)
Other		(3	)		(97	)

Subtotal		(3,582	)		(3,992	)

Net deferred tax assets	$	5,996		$	2,520

Supplemental disclosure of deferred tax asset information:
Domestic	$	25,995		$	30,127
Foreign	$	6,110		$	4,025

Income taxes paid, including foreign estimated tax payments, were $6.1 million, $2.5 million, and $1.9 million during fiscal 2008, 2007, and 2006, respectively.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):


Balance as of June 3, 2007	$	6,481
Increases due to currency translation		123
Decreases due to settlements		(218	)
Decreases related to the expiration of statute of limitations		(427	)

Balance as of May 31, 2008	$	5,959

11. EMPLOYEE BENEFIT PLANS

Employee Stock Purchase Plan: The Employee Stock Purchase Plan (“ESPP”) provides substantially all employees an opportunity to purchase our common stock at 85% of the stock price at the end of the fiscal year. At May 31, 2008, the ESPP had 214,170 shares reserved for future issuance.

Employee Stock Ownership Plan: One of our US employee retirement plans is an Employee Stock Ownership Plan (“ESOP”). Annual contributions to this plan are at the discretion of our Board of Directors. During fiscal 2007, contributions in stock of $0.5 million were made to the ESOP, which is based on the stock price at the date contributed, or June 2, 2007. Shares are included in the calculation of earnings per share and dividends are paid to the ESOP from the date the shares are contributed.

Employee Profit Sharing Plan: The employee profit sharing plan is for US-employees, and is a defined contribution profit sharing plan. Annual contributions in cash are made at the discretion of the Board of Directors. The profit sharing plan has a 401(k) provision whereby we match 50% of employee contributions up to 4% of pay. Charges to expense for matching contributions to these plans were $0.6 million, $0.6 million, and $0.7 million during fiscal 2008, 2007, and 2006, respectively.

Foreign employees are covered by a variety of government mandated programs.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

12. SEGMENT AND GEOGRAPHIC INFORMATION

Based on our interpretation of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”), we have identified three reportable segments: the RF, Wireless & Power Division, the Electron Device Group, and the Display Systems Group.

RFPD serves the global RF and wireless communications market, including infrastructure, and wireless networks, and the power conversion market.

EDG provides engineered solutions and distributes electronic components to customers in diverse markets including the steel, automotive, textile, plastics, semiconductor manufacturing, and broadcast industries.

DSG is a global provider of integrated display products, systems and digital signage solutions serving financial, corporate enterprise, healthcare, and industrial markets.

Each segment is directed by a Vice President and General Manager who reports to the Chief Executive Officer (“CEO”) or the Executive Vice President of Business Development. The CEO evaluates performance and allocates resources, in part, based on the direct operating contribution of each segment. Direct operating contribution is defined as gross margin less direct selling, general and administrative expenses.

On May 31, 2007, we completed the sale of the SSD/Burtek segment to Honeywell. We present SSD/Burtek as a discontinued operation in accordance with the criteria of SFAS No. 144, and prior period results and disclosures have been restated to reflect this reporting.

Operating results and assets by segment are summarized in the following table (in thousands):


	Net Sales		Gross Profit ⁽¹⁾		Direct Operating Contribution (Loss) ⁽¹⁾⁽²⁾			Assets ⁽³⁾



Fiscal 2008
RFPD	$	376,203	$	85,323	$	42,569		$	129,424
EDG		103,256		32,941		17,947			44,343
DSG		84,671		17,848		(10,763	)		25,867

Total	$	564,130	$	136,112	$	49,753		$	199,634

Fiscal 2007
RFPD	$	369,936	$	84,338	$	48,650		$	124,594
EDG		101,191		32,942		20,948			47,229
DSG		82,111		19,145		1,194			37,116

Total	$	553,238	$	136,425	$	70,792		$	208,939

Fiscal 2006
RFPD	$	334,131	$	75,834	$	47,194		$	116,102
EDG		94,443		30,438		19,644			42,878
DSG		95,010		24,509		9,156			37,568

Total	$	523,584	$	130,781	$	75,994		$	196,548

(1)

Included in gross profit and direct operating contribution (loss) during fiscal 2008 are inventory obsolescence charges of $1.9 million in DSG and $0.9 million in RFPD.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

(2)

Included in direct operating contribution (loss) during fiscal 2008 is a goodwill impairment charge of $11.5 million in DSG.

(3)

Accounts receivable, inventory, and goodwill are identified by segment. Cash, net property plant and equipment, and other assets are not identifiable by segment.

A reconciliation of net sales, gross profit, operating income (loss), and assets to the relevant consolidated amounts is as follows (in thousands):


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
	May 31, 2008			June 2, 2007			June 3, 2006
Segment net sales	$	564,130		$	553,238		$	523,584
Corporate		4,279			4,053			5,513

Net sales	$	568,409		$	557,291		$	529,097

Segment gross profit	$	136,112		$	136,425		$	130,781
Manufacturing variances and other costs		(513	)		(4,022	)		(2,291	)

Gross profit	$	135,599		$	132,403		$	128,490

Segment direct operating contribution	$	49,753		$	70,792		$	75,994
Manufacturing variances and other costs		(513	)		(4,022	)		(2,291	)
Regional selling expenses		—			(11,633	)		(19,231	)
Administrative expenses ⁽¹⁾		(50,477	)		(50,909	)		(46,215	)
Gain (loss) on disposal of assets		(27	)		3,616			154

Operating income (loss)	$	(1,264)		$	7,844		$	8,411

Segment assets	$	199,634		$	208,939		$	196,548
Cash, cash equivalents, and restricted cash		40,042			79,335			17,010
Other current assets ⁽²⁾		11,648			25,815			18,868
Net property ⁽³⁾		28,635			29,278			29,651
Other assets ⁽³⁾⁽⁴⁾		6,276			5,457			8,634
Assets of discontinued operations held for sale		—			247			38,588

Total assets	$	286,235		$	349,071		$	309,299

(1)

Included in administrative expenses during fiscal 2008 is severance expense of $2.5 million, primarily relating to implementing a new business plan for DSG during the third quarter of fiscal 2008.

(2)

Other current assets include miscellaneous receivables, manufacturing inventories, prepaid expenses, and current deferred income taxes.

(3)

Net property and other assets as of June 2, 2007, and June 3, 2006, have been restated to reflect the decision we made during fiscal 2008 to sell our building in Pianopoli, Italy. The net book value of this building in Pianopoli, Italy is classified as assets held for sale for fiscal year 2007 and 2006.

(4)

Other assets include investments, assets held for sale, non-current deferred income taxes, and other assets.

Geographic net sales information is primarily grouped by customer destination into five areas: North America; Asia/Pacific; Europe; Latin America; and Corporate. Europe includes sales to the Middle East and Africa. Net sales to Mexico are included as part of Latin America.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

Net sales, gross profit (loss), operating income (loss), and long-lived assets are presented in the table below (in thousands):


	Fiscal Year Ended
	May 31, 2008			June 2, 2007			June 3, 2006
	May 31, 2008			June 2, 2007			June 3, 2006
Net Sales
North America	$	228,466		$	229,296		$	227,926
Asia/Pacific		167,943			165,230			147,993
Europe		151,685			143,823			129,212
Latin America		17,288			16,979			18,601
Corporate		3,027			1,963			5,365

Total	$	568,409		$	557,291		$	529,097

Gross Profit (Loss)
North America ⁽¹⁾	$	56,832		$	61,849		$	59,059
Asia/Pacific		39,510			39,052			35,532
Europe		40,755			36,481			35,161
Latin America		5,240			4,845			5,411
Corporate		(6,738	)		(9,824	)		(6,673	)

Total	$	135,599		$	132,403		$	128,490

Operating Income (Loss)
North America ⁽¹⁾⁽²⁾	$	18,209		$	26,965		$	32,156
Asia/Pacific		20,090			21,282			20,628
Europe ⁽²⁾		4,272			9,696			9,364
Latin America		442			820			95
Corporate		(44,277	)		(50,919	)		(53,832	)

Total	$	(1,264	)	$	7,844		$	8,411

Long-Lived Assets ⁽³⁾
North America	$	26,517		$	26,837		$	25,983
Asia/Pacific		807			1,092			1,468
Europe		2,212			2,642			2,592
Latin America		345			1,193			1,078

Total	$	29,881		$	31,764		$	31,121

(1)

Included in gross profit and operating income during fiscal 2008 are inventory obsolescence charges of $1.9 million in DSG and $0.9 million in RFPD.

(2)

Included in operating income (loss) during fiscal 2008 is a goodwill impairment charge of $3.5 million and $8.0 million in North America and Europe, respectively.

(3)

Long-lived assets include net property and other assets, excluding investments, other intangible assets, and non-current deferred income taxes.

Historically, we have not tracked capital expenditures and depreciation by segment as the majority of the spending relates to company-wide projects. During fiscal 2008, capital expenditures primarily related to the implementation of various modules and upgrades of PeopleSoft and facility improvements.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

13. LITIGATION

We are involved in several pending judicial proceedings concerning matters arising in the ordinary course of its business. While the outcome of litigation is subject to uncertainties, based on currently available information, we believe that, in the aggregate, the results of these proceedings will not have a material adverse effect on its financial condition.

14. VALUATION AND QUALIFYING ACCOUNTS

The following table presents the valuation and qualifying account activity for the fiscal years ended May 31, 2008, June 2, 2007, and June 3, 2006 (in thousands):


Description	Balance at beginning of period		Charged to expenses			Deductions			Balance at end of period
Year ended May 31, 2008:
Allowance for doubtful accounts	$	1,574	$	560	⁽¹⁾	$	499	⁽²⁾	$	1,635
Inventory overstock reserve	$	22,211	$	3,977	⁽³⁾	$	8,444	⁽⁴⁾	$	17,744
Deferred tax asset valuation	$	27,640	$	(1,528	) ⁽⁵⁾	$	—		$	26,112
Warranty reserves	$	415	$	593		$	631	⁽ ⁶ ⁾	$	377
Year ended June 2, 2007:
Allowance for doubtful accounts	$	1,965	$	1,165	⁽¹⁾	$	1,556	⁽ ² ⁾	$	1,574
Inventory overstock reserve	$	24,042	$	859	⁽ ³ ⁾	$	2,690	⁽⁴ ⁾	$	22,211
Deferred tax asset valuation	$	25,840	$	1,800		$	—		$	27,640
Warranty reserves	$	836	$	629		$	1,050	⁽⁶⁾	$	415
Year ended June 3, 2006:
Allowance for doubtful accounts	$	1,563	$	1,450	⁽¹⁾	$	1,048	⁽²⁾	$	1,965
Inventory overstock reserve	$	26,109	$	830	⁽³⁾	$	2,897	⁽⁴ ⁾	$	24,042
Deferred tax asset valuation	$	20,695	$	5,145		$	—		$	25,840
Warranty reserves	$	1,439	$	932		$	1,535	⁽⁶ ⁾	$	836

(1)

Charges to bad debt expense.

(2)

Uncollectible amounts written off, net of recoveries and foreign currency translation.

(3)

Charges to cost of sales. Included in the fiscal 2008 amount were inventory obsolescence charges of $2.8 million in RFPD and DSG.

(4)

Disposed of inventory.

(5)

Tax benefit of $1.5 million primarily relates to the goodwill impairment.

(6)

Reserve adjustments of $0.1 million, $0.5 million, and $0.9 million were recorded during fiscal 2008, 2007, and 2006, respectively.

Notes to Consolidated Financial Statements—(Continued)

(in thousands, except per share amounts)

15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)


Description	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Fiscal 2008 ⁽¹⁾⁽²⁾ :
Net sales	$	129,465		$	144,985		$	138,866		$	155,093
Gross profit		32,638			33,800			31,241			37,920
Loss from continuing operations		(391	)		(680	)		(2,166	)		(5,234	)
Income (loss) from discontinued operations		31			24			(10	)		—
Net loss		(360	)		(656	)		(2,176	)		(5,234	)

Loss from continuing operations:
Common stock—basic	$	(0.02	)	$	(0.04	)	$	(0.12	)	$	(0.30	)
Class B common stock—basic	$	(0.02	)	$	(0.03	)	$	(0.11	)	$	(0.27	)
Common stock—diluted	$	(0.02	)	$	(0.04	)	$	(0.12	)	$	(0.30	)
Class B common stock—diluted	$	(0.02	)	$	(0.03	)	$	(0.11	)	$	(0.27	)

Income (loss) from discontinued operations:
Common stock—basic	$	0.00		$	0.00		$	(0.00	)	$	0.00
Class B common stock—basic	$	0.00		$	0.00		$	(0.00	)	$	0.00
Common stock—diluted	$	0.00		$	0.00		$	(0.00	)	$	0.00
Class B common stock—diluted	$	0.00		$	0.00		$	(0.00	)	$	0.00

Net loss:
Common stock—basic	$	(0.02	)	$	(0.04	)	$	(0.12	)	$	(0.30	)
Class B common stock—basic	$	(0.02	)	$	(0.03	)	$	(0.11	)	$	(0.27	)
Common stock—diluted	$	(0.02	)	$	(0.04	)	$	(0.12	)	$	(0.30	)
Class B common stock—diluted	$	(0.02	)	$	(0.03	)	$	(0.11	)	$	(0.27	)

Fiscal 2007 ⁽¹⁾⁽ ³ ⁾ :
Net sales	$	139,437		$	137,714		$	133,894		$	146,246
Gross profit		34,352			33,034			32,114			32,903
Income (loss) from continuing operations		(808	)		1,330			1,524			(498	)
Income (loss) from discontinued operations		(291	)		(248	)		(487	)		40,157
Net income (loss)		(1,099	)		1,082			1,037			39,659

Income (loss) from continuing operations:
Common stock—basic	$	(0.05	)	$	0.08		$	0.09		$	(0.03	)
Class B common stock—basic	$	(0.04	)	$	0.07		$	0.08		$	(0.03	)
Common stock—diluted	$	(0.05	)	$	0.08		$	0.09		$	(0.03	)
Class B common stock—diluted	$	(0.04	)	$	0.07		$	0.08		$	(0.03	)

Income (loss) from discontinued operations:
Common stock—basic	$	(0.01	)	$	(0.02	)	$	(0.03	)	$	2.32
Class B common stock—basic	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	2.09
Common stock—diluted	$	(0.01	)	$	(0.02	)	$	(0.03	)	$	2.32
Class B common stock—diluted	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	2.09

Net income (loss):
Common stock—basic	$	(0.06	)	$	0.06		$	0.06		$	2.29
Class B common stock—basic	$	(0.06	)	$	0.06		$	0.05		$	2.06
Common stock—diluted	$	(0.06	)	$	0.06		$	0.06		$	2.29
Class B common stock—diluted	$	(0.06	)	$	0.06		$	0.05		$	2.06

(1)

SSD/Burtek is shown as a discontinued operation as defined under SFAS No. 144.

(2)

During the fourth quarter of fiscal 2008, we recorded a goodwill impairment charge of $9.2 million, net of a tax benefit of $2.3 million. During the third quarter of fiscal 2008, we recorded inventory obsolescence charges of $2.8 million.

(3)

During the third quarter of fiscal 2007, we sold approximately 1.5 acres of real estate and a building located in Geneva, Illinois, and recorded a pre-tax gain of $2.5 million with respect to the sale of this property. During the fourth quarter of fiscal 2007, we sold real estate and a building located in the United Kingdom, and recorded a pre-tax gain on sale of $1.5 million with respect to the sale of this property.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

of Richardson Electronics, Ltd.;

We have audited the accompanying consolidated balance sheets of Richardson Electronics, Ltd. as of May 31, 2008 and June 2, 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Richardson Electronics, Ltd. at May 31, 2008 and June 2, 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 10 to the consolidated financial statements, as of June 3, 2007, the Company changed its method of accounting for uncertain tax provisions to conform with Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. As discussed in Note 1 to the consolidated financial statements, as of June 4, 2006, the Company changed its method of accounting for share-based awards to conform with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Richardson Electronics, Ltd.’s internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 31, 2008, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP Signature

Chicago, Illinois

July 31, 2008

Item 9A. Controls and Procedures

(a)	Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of May 31, 2008. Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of May 31, 2008.

(b)	Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency in internal control over financial reporting that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Under the supervision of the Chief Executive Officer and Chief Financial Officer, management conducted an assessment of the effectiveness of our internal control over financial reporting as of May 31, 2008, based on the framework in the Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, management has concluded that the Company’s internal control over financial reporting was effective as of May 31, 2008.

Management’s assessment of the effectiveness of our internal control over financial reporting as of May 31, 2008, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein (Item 9A(d)).

(c)	Changes in Internal Control over Financial Reporting

Remediation of Certain Prior Year Material Weaknesses

In Item 9A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 3, 2006, management reported one material weakness in its internal control over financial reporting. During 2006, the Company did not effectively perform an evaluation of the reasonableness of assumptions with respect to the realizability of certain deferred tax assets. During fiscal 2007, the Company successfully remediated this material weakness by implementing appropriate procedures to evaluate the realizability of all deferred tax assets.

Other Changes in Internal Control

Other than the control improvements discussed above, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Richardson Electronics, Ltd.

We have audited Richardson Electronics Ltd.’s internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Richardson Electronics Ltd.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A (b)). Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Richardson Electronics, Ltd. maintained, in all material respects, effective internal control over financial reporting as of May 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Richardson Electronics, Ltd. as of May 31, 2008 and June 2, 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 2008 and our report dated July 31, 2008 expressed and unqualified opinion thereon.

/s/ Ernst & Young LLP Signature

Chicago, Illinois

July 31, 2008

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information concerning directors and executive officers of the registrant will be contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2008, and is incorporated herein by reference.

Item 11. Executive Compensation

Information concerning executive compensation is contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2008, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management is contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2008, and is incorporated herein by reference.

Equity Compensation Plan Information

The following table sets forth information as of May 31, 2008, with respect to compensation plans under which equity securities are authorized for issuance:


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Per Share Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)
Equity Compensation Plans Approved by Security Holders	1,658,917		$	8.78		957,396
Equity Compensation Plans Not Approved by Security Holders	23,564	⁽¹⁾	$	12.95	⁽¹⁾	3,470	⁽²⁾

Total	1,682,481		$	8.84		960,866

(1)

Options issued pursuant to a contract with Arnold Allen.

(2)

Restricted Stock granted, with a market value of $5,000, for The Florence Richardson Award whereby an employee is selected for outstanding achievements.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information concerning certain relationships and related transactions is contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2008, and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information concerning accountant fees and services is contained in our Proxy Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 7, 2008, and is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

Exhibit

See Exhibit Index.

(b)	Financial Statements and Financial Statement Schedules.

Our consolidated financial statements being filed as part of this Form 10-K are filed on Item 8 of this Form 10-K. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RICHARDSON ELECTRONICS, LTD.

Signature

Title

Date

By:

/s/ E DWARD J. R ICHARDSON

Edward J. Richardson

Chairman of the Board, Chief Executive Officer (Principal Executive Officer), President, and Director

July 31, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date
/s/ E DWARD J. R ICHARDSON Edward J. Richardson	Chairman of the Board, Chief Executive Officer (Principal Executive Officer), President, and Director	July 31, 2008

/s/ K ATHLEEN S. D VORAK Kathleen S. Dvorak	Chief Financial Officer (Principal Financial Officer)	July 31, 2008

/s/ J AMES M. D UDEK J R . James M. Dudek Jr.	Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)	July 31, 2008

/s/ A RNOLD R. A LLEN Arnold R. Allen	Director	July 31, 2008

/s/ S COTT H ODES Scott Hodes	Director	July 31, 2008

/s/ J OHN R. P ETERSON John R. Peterson	Director	July 31, 2008

/s/ S AMUEL R UBINOVITZ Samuel Rubinovitz	Director	July 31, 2008

/s/ J ACQUES B OUYER Jacques Bouyer	Director	July 31, 2008

/s/ A D K ETELAARS Ad Ketelaars	Director	July 31, 2008

/s/ H AROLD L. P URKEY Harold L. Purkey	Director	July 31, 2008

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)	List of Documents Filed as a Part of This Report:

(1)

Index to Consolidated Financial Statements:

Consolidated

Balance Sheets as of May 31, 2008 and June 2, 2007

Consolidated

Statements of Operations for each of the three years ended May 31, 2008, June 2, 2007, and June 3, 2006.

Consolidated

Statements of Cash Flows for each of the three years ended May 31, 2008, June 2, 2007, and June 3, 2006.

Consolidated

Statements of Stockholders’ Equity and Comprehensive Income for each of the three years ended May 31, 2008, June 2, 2007, and June 3, 2006.

Notes

to Consolidated Financial Statements

Report

of Ernst & Young LLP, Independent Registered Public Accounting Firm]

(2)

Index to Financial Statement Schedules:

All schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.

(3)

Index to Exhibits


Exhibit Number		Description
3(a)		Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-4, Registration No. 33-8696, dated November 13, 1986)

3(b)		Amended and Restated By-Laws of the Company (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 1, 2007)

4(a)		Indenture, dated February 14, 2005, between the Company and J.P. Morgan Trust Company, as trustee, including the form of 7 ³ / 4 % Convertible Senior Subordinated Debentures due December 15, 2011 attached as Exhibit A thereto (incorporated by reference to the Company’s Current Report on Form 8-K dated February 15, 2005)

4(b)		Indenture, dated November 21, 2005 between the Company and Law Debenture Trust Company of New York, as Trustee, and J.P. Morgan Trust Company, National Association, as Registrar, Paying Agent and Conversion Agent, including the form of 8% Convertible Senior Subordinated Notes due June 15, 2011 attached as Exhibit A thereto (incorporated by reference to the Company’s Current Report on Form 8-K dated November 22, 2005)

10(a)†		Richardson Electronics, Ltd. Employees Profit Sharing Plan and Trust Agreement, Fidelity Basic Plan Document No. 07, effective June 1, 1996 (incorporated by reference to Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1996)

10(a)(i)†		Amendment to Richardson Electronics, Ltd. Employees Profit Sharing Plan and Trust Agreement (incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003)

10(b)†		Richardson Electronics. Ltd. Employees Stock Ownership Plan, amended and restated effective as of June 1, 1997

10(b)(i)†		Amendment No. 1 to Richardson Electronics. Ltd. Employees Stock Ownership Plan, dated October 17, 2001



10(b)(ii)†		Amendment No. 2 to Richardson Electronics. Ltd. Employees Stock Ownership Plan, dated May 24, 2002

10(b)(iii)†		Amendment No. 3 to Richardson Electronics. Ltd. Employees Stock Ownership Plan, dated May 28, 2003

10(b)(iv)†		Amendment No. 4 to Richardson Electronics, Ltd. Employees Stock Ownership Plan, dated October 12, 2004 (incorporated by reference to Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on September 10, 2004)

10(b)(v)†		Amendment No. 5 to Richardson Electronics, Ltd. Employees Stock Ownership Plan, dated April 5, 2005 (incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 333-125254, filed with the Securities and Exchange Commission on May 26, 2005)

10(b)(vi)†		Amendment No. 6 to Richardson Electronics, Ltd. Employees Stock Ownership Plan, dated October 1, 2005 (incorporated by reference to the Company’s Annual Report on form 10-K for the fiscal year ended June 3, 2006)

10(c)†		Richardson Electronics, Ltd. Employees 1999 Stock Purchase Plan (incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1999)

10(c)(i)†		Amendment to the Richardson Electronics, Ltd. Employees 1999 Stock Purchase Plan (incorporated by reference to Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on September 4, 2001)

10(c)(ii)†		Amendment to the Richardson Electronics, Ltd. 1999 Stock Purchase Plan (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 4, 2003)

10(c)(iii)†		Amendment to the Richardson Electronics, Ltd. 1999 Stock Purchase Plan (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 7, 2004)

10(c)(iv)†		Amendment to the Richardson Electronics, Ltd. 1999 Stock Purchase Plan (incorporated by reference to Appendix C to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2007)

10(c)(v)†		Amendment to the Richardson Electronics, Ltd. 1999 Stock Purchase Plan (incorporated by reference to Appendix E to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2007)

10(d)†		Richardson Electronics, Ltd. Employees 1998 Incentive Compensation Plan (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 3, 1998)

10(e)†		Richardson Electronics, Ltd. Employees’ 2001 Incentive Compensation Plan (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 5, 2001)

10(e)(i)†		Richardson Electronics, Ltd. Employees’ 2001 Incentive Compensation Plan (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2007)

10(f)†		Edward J. Richardson Incentive Compensation Plan (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2007)



10(g)†		Richardson Electronics, Ltd. 2006 Stock Option Plan for Non-Employee Directors (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 12, 2005)

10(h)†		Letter dated April 1, 1993 between the Company and Arnold R. Allen regarding Mr. Allen’s engagement as consultant by the Company (incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1993)

10(i)†		Employment, Nondisclosure and Non-Compete Agreement, dated November 22, 1999, between the Company and Gregory Peloquin (incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2000)

10(j)†		Employment, Nondisclosure and Non-Compete Agreement, dated June 1, 2004, by and between the Company and Wendy Diddell (incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 333-113568, filed June 14, 2004)

10(j)(i)†		First Amendment to Employment, Nondisclosure and Non-Compete Agreement, dated May 31, 2007, by and between the Company and Wendy Diddell (incorporated by reference to the Company’s Current Report on Form 8-K dated May 31, 2007)

10(k)†		Employment, Nondisclosure and Non-Compete Agreement, dated November 2, 2006, between the Company and Bart Petrini (incorporated by reference to the Company’s Current Report of Form 8-K dated November 2, 2006)

10(l)†		Employment, Nondisclosure and Non-Compete Agreement, dated October 24, 2007, by and between the Company and Kathleen Dvorak (incorporated by reference to the Company’s Current Report on Form 8-K filed October 25, 2007)

10(m)†		Form of Incentive Stock Option issued under the Richardson Electronics, Ltd. Employees 1998 Incentive Compensation Plan (incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A dated May 18, 2005)

10(n)†		Form of Restricted Stock Award issued under the Richardson Electronics, Ltd. Employees 1998 Incentive Compensation Plan (incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A dated May 18, 2005)

10(o)†		Form of Non-Qualified Stock Option Agreement issued under the Richardson Electronics, Ltd. Employees’ 2001 Incentive Compensation Plan

10(p)†		Form of Restricted Stock Agreement issued under the Richardson Electronics, Ltd. Employees 2001 Incentive Compensation Plan

10(q)		Acquisition Agreement, dated April 6, 2007, by and among Honeywell International Inc., Richardson Electronics Ltd. and certain subsidiaries of Richardson Electronics, Ltd. (incorporated by reference to the Company’s Post-Effective Amendment No. 1 to Registration Statement on Form S-1, Registration No. 333-130219, filed with the Securities and Exchange Commission on April 18, 2007)

10(r)		Amendment and Waiver to Acquisition Agreement, dated May 31, 2007, by and among Honeywell International Inc., Richardson Electronics Ltd. and certain subsidiaries of Richardson Electronics, Ltd. (incorporated by reference to the Company’s Current Report on Form 8-K dated May 31, 2007)

10(s)		Revolving Credit Agreement, dated July 27, 2007, by and among the Company, Richardson Electronics Benelux B.V., Richardson Electronics Limited, Richardson Electronics Pte Ltd, the lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to the Company’s Current Report on Form 8-K dated July 27, 2007)



10(s)(i)		First Amendment to Revolving Credit Agreement, dated November 29, 2007, by and among Richardson Electronics, Ltd., Richardson Electronics Limited, Richardson Electronics Benelux B.V., Richardson Electronics Pte Ltd., Richardson Electronics Pty Limited, and JP Morgan Bank, N.A. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 1, 2007)

10(s)(ii)		Second Amendment to Revolving Credit Agreement, dated February 29, 2008, by and among Richardson Electronics, Ltd., Richardson Electronics Limited, Richardson Electronics Benelux B.V., Richardson Electronics Pte Ltd., Richardson Electronics Pty Limited, and JP Morgan Bank, N.A. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 1, 2008)

10(s)(iii)		Third Amendment to Revolving Credit Agreement, dated July 29, 2008, by and among Richardson Electronics, Ltd., Richardson Electronics Limited, Richardson Electronics Benelux B.V., Richardson Electronics Pte Ltd., Richardson Electronics Pty Limited, and JP Morgan Bank, N.A.

14		Corporate Code of Conduct (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 3, 2005)

21		Subsidiaries of the Company.

23.1		Consent of Independent Registered Public Accounting Firm – Ernst & Young LLP.

31.1		Certification of Edward J. Richardson pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Kathleen Dvorak pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32		Certifications pursuant to 18 U.S.C. Section 1350.

99.1		Press release, dated July 30, 2008, regarding the Company’s results for its fourth quarter and full year ended May 31, 2008.

†	Executive Compensation Plan or Agreement

Exhibit 10(b)

RICHARDSON ELECTRONICS, LTD.

EMPLOYEES STOCK OWNERSHIP PLAN

As Amended and Restated

Effective June 1, 1997

TABLE OF CONTENTS


PREAMBLE		1

ARTICLE I—TITLES AND PURPOSE		2

1.1	Titles	2
1.2	Purpose	2
1.3	Exclusive Benefit	2
1.4	Status of Plan	2

ARTICLE II—DEFINITIONS		3

2.1	Account	3
2.2	Account Balance	3
2.3	Administrator	3
2.4	Anniversary Date	3
2.5	Annual Addition	4
2.6	Beneficiary	4
2.7	Benefit Commencement Date	4
2.8	Break in Service	4
2.9	Code	5
2.10	Committee	5
2.11	Compensation	5
2.12	Computation Period	6
2.13	Effective Date	6
2.14	Employee	6
2.15	Employer	7
2.16	Entry Date	7
2.17	ERISA	7
2.18	Hour of Service	7
2.19	Key Employee	9
2.20	Leave of Absence	11
2.21	Limitation Year	11
2.22	Non-Key Employee	11
2.23	Normal Retirement Date	11
2.24	Participant	11
2.25	Permanent Disability	11
2.26	Plan	11
2.27	Plan Year	11
2.28	Qualified Domestic Relations Order	12
2.29	Related Employer	12
2.30	Richardson	12
2.31	Spouse	12
2.32	Stock	13


2.33	Termination of Employment	13
2.34	Top-Heavy Determination Date	13
2.35	Top-Heavy Year	14
2.36	Trust	15
2.37	Trust Agreement	15
2.38	Trustee or Trustees	15
2.39	Valuation Date	15
2.40	Vested Account Balance	16
2.41	Year of Service	16

ARTICLE III—PARTICIPATION		17

3.1	Eligibility to Participate	17
3.2	Duration of Participation; Re-Employment	17

ARTICLE IV—CONTRIBUTIONS BY EMPLOYER		19

4.1	Amount	19
4.2	Time for Payment	19

ARTICLE V—CONTRIBUTIONS BY PARTICIPANTS		20

5.1	Contributions by Participants	20

ARTICLE VI—ALLOCATION OF EMPLOYER CONTRIBUTIONS		21

6.1	Manner of Allocation	21
6.2	Allocations in Top-Heavy Years	22
6.3	Administrator to Notify Trustee	23

ARTICLE VII—ACCOUNTS OF PARTICIPANTS		24

7.1	Separate Accounts	24
7.2	Adjustments to Accounts	24
7.3	Crediting of Employer Contributions	25
7.4	Crediting of Forfeitures	25
7.5	Limitation on Allocations	25
7.6	Combined Plan Limitation	28
7.7	Correction of Error	29
7.8	Transfer Accounts	29

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ARTICLE VIII—VESTING OF INTEREST IN TRUST		31

8.1	Normal Retirement	31
8.2	Disability Retirement	31
8.3	Death	31
8.4	Other Termination of Employment	31
8.5	Treatment of Forfeited Amounts; Reinstatement	32
8.6	Computation of Years of Service	32
8.7	Vesting on Termination of Trust or Termination of Employer’s Agreement to Contribute	33
8.8	Vesting Following Plan Amendment	33
8.9	Vesting Following Partial Distribution	33

ARTICLE IX—PAYMENT OF VESTED ACCOUNT BALANCES		35

9.1	Benefit Commencement Date	35
9.2	Payment to Participants	36
9.3	Payment to Beneficiaries	37
9.4	Extent of Further Participation in Trust	39
9.5	Payment to Persons Under Legal Disability	39
9.6	Payment in Installments	39
9.7	Compliance with Regulations	42
9.8	Distributions of Stock and Dividends	42
9.9	Right of First Refusal and Options on Stock	42
9.10	Direct Rollovers	43
9.11	Withdrawals Due to Permanent Disability	44

ARTICLE X—DESIGNATION OF BENEFICIARIES		45

10.1	Participants to Name Beneficiaries	45
10.2	No Beneficiary Designated; Death of Beneficiary	45
10.3	No Liability for Payment to Beneficiaries	45
10.4	Qualified Domestic Relations Orders	46

ARTICLE XI—FIDUCIARY CAPACITY AND RESPONSIBILITY		47

11.1	General Fiduciary Standard of Conduct	47
11.2	Allocation of Responsibility Among Fiduciaries	47
11.3	Administrator	48
11.4	Powers and Duties of Administrator	48
11.5	Claims Procedure	49
11.6	Indemnification by Employer	50
11.7	Service in Multiple Capacities	50

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11.8	Voting of Stock by Participants and Beneficiaries	50

ARTICLE XII—THE COMMITTEE		52

12.1	Appointment and Membership	52
12.2	Compensation and Expenses	52
12.3	Committee Procedures and Actions	52
12.4	Resignation or Removal of Committee Member	53
12.5	Committee/Administrator Decisions Final	53

ARTICLE XIII—THE TRUST		54

13.1	Trust Agreement	54

ARTICLE XIV—LOANS TO PARTICIPANTS; LOANS TO ACQUIRE STOCK; DIVERSIFICATION ELECTIONS		55

14.1	Loans to Participants	55
14.2	Loans to Acquire Stock	56
14.3	Diversification Elections	57

ARTICLE XV—AMENDMENT		59

15.1	Right to Amend	59
15.2	Retroactivity of Amendments	59
15.3	Limitations on Right to Amend	59

ARTICLE XVI—ADOPTION, WITHDRAWAL AND TERMINATION		60

16.1	Adoption of Plan	60
16.2	Withdrawal from Plan	60
16.3	Termination	60

ARTICLE XVII—MISCELLANEOUS		61

17.1	No Reversion to Employer	61
17.2	Evidence of Action by Necessary Parties	62
17.3	Rights of Participants Limited	62
17.4	Assignment and Alienation	62
17.5	Missing Participants or Beneficiaries	64
17.6	Merger and Consolidation of Plan	65
17.7	Severability	65
17.8	Applicable Law	65

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17.9	Method of Accounting	65
17.10	Veterans’ Rights	66

ARTICLE XVIII—REVISED VESTING PROVISIONS		67

18.1	Scope and Effective Date	67
18.2	Definitions	67
18.3	General Vesting Rules	68
18.4	Transitional Rules	69

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PREAMBLE

THIS PLAN is executed at LaFox, Illinois, this 29th day of September, 2000 by RICHARDSON ELECTRONICS, LTD., a corporation organized and existing under the laws of the State of Delaware (“Richardson”).

W I T N E S S E T H :

WHEREAS, effective as of June 1, 1987, Richardson adopted the Richardson Electronics, Ltd. and Subsidiaries Employees Stock Ownership Plan and Trust (the “Plan”), a stock bonus plan qualified under Section 401(a) of the Internal Revenue Code of 1986 (the “Code”) and entitled to tax exemption under Section 501(a) of the Code and an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code, with William G. Seils and Scott Hodes, as Trustees; and

WHEREAS, Richardson has reserved the right to amend the Plan at any time and has amended the Plan on December 21, 1988, January 17, 1989 and May 30, 1990; and

WHEREAS, on February 23, 1990 Marine Midland Bank, N.A.(known as HSBC Bank USA, effective March 29, 1999) replaced Messrs. Hodes and Seils as Trustee of the trust forming a part of the Plan, pursuant to a Trust Agreement by and between said bank and Richardson and dated February 23, 1990; and

WHEREAS, on July 14, 1994, the Plan was amended and restated in order to comply with the applicable provisions of the Tax Reform Act of 1986, other applicable legislation and applicable regulations and rulings thereunder and was subsequently further amended.

WHEREAS, as Richardson now desires further to amend the Plan order to incorporate all amendments required in order to comply with the applicable provisions of the Uniformed Services Employment and Reemployment Rights Act of 1974, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997 and other applicable legislation and applicable regulations and rulings thereunder.

NOW, THEREFORE, the Plan is hereby restated effective June 1, 1997 (except as otherwise stated herein) to read as follows:

ARTICLE I

TITLES AND PURPOSE

1.1 Titles

The Plan shall continue to be known as the RICHARDSON ELECTRONICS, LTD. EMPLOYEES STOCK OWNERSHIP PLAN.

1.2 Purpose

The purpose of the Plan is to establish a retirement fund out of the profits of the Employer which will help to provide for the future security of the Participants.

1.3 Exclusive Benefit

The Trust shall be for the exclusive benefit of the Participants and their Beneficiaries. In no event shall the income or principal of the Trust be paid or revert to the Employer or any Related Employer, except as otherwise provided in Section 17.1.

1.4 Status of Plan

The Plan is intended to continue to be a stock bonus plan qualified under Section 401(a) of the Code which is an employee stock ownership plan within the meaning of Code Section 4975(e)(7). As such, the Plan shall invest primarily in qualifying employer securities [within the meaning of Section 4975(e)(8) of the Code].

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ARTICLE II

DEFINITIONS

When used herein, the following words and terms shall have the respective meanings hereinafter set forth, unless a different meaning is clearly required by the context. Whenever appropriate, words used in the singular shall be deemed to include the plural, and vice versa, and the masculine gender shall be deemed to include the feminine and neuter genders, unless a different meaning is clearly required by the context.

2.1 “ Account ”: Collectively, all of the following separate accounts maintained under the Plan for the benefit of a Participant, including all adjustments thereto under Article VII, unless a specific reference is made to one of such separate accounts:

(a)

The separate Employer Contribution Account maintained for each Participant for the purpose of recording his share of the contributions made by the Employer and forfeitures;

(b)

In the case of a Participant who is re-employed after incurring a Break in Service, the separate Pre-Break Account, if any, required to be maintained under Section 8.9(b); and

(c)

In the case of a Participant for whom a Transfer Account is being maintained under Section 7.8 for the purpose of recording his share of the assets transferred from the Richardson Electronics, Ltd. Employees Profit-Sharing Plan, such Transfer Account.

The term “Account” shall not, unless otherwise specifically provided herein, include the Excess Contribution Account, if any, or the Excess Forfeiture Account, if any, established pursuant to Section 7.5, or the Suspense Account, if any, established pursuant to Section 14.2(c). There shall also be maintained, in the case of a Participant who incurs a Break in Service, a Forfeiture Suspense Account in accordance with Section 18.3(d).

2.2 “ Account Balance ”: The total amount held for the benefit of a Participant in his Account (or in the specific separate account referred to), as determined on the immediately preceding Anniversary Date in accordance with the provisions of Article VII.

2.3 “ Administrator ”: The person administering the Plan pursuant to Section 11.3.

2.4 “ Anniversary Date ”: The last day of each Plan Year.

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2.5 “ Annual Addition ”: With respect to a Participant for any Limitation Year, the sum of (a) Employer contributions allocated on behalf of such Participant for such Limitation Year under the Plan and under any other qualified defined contribution plan maintained by the Employer; (b) forfeitures, if any, allocated on behalf of such Participant for such Limitation Year under any such qualified defined contribution plan; (c) such Participant’s voluntary non-deductible contributions under any qualified plan of the Employer for such Limitation Year; (d) amounts allocated on behalf of such Participant for such Limitation Year to an individual medical account, as defined in Section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by the Employer; and (e) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after said date, which are attributable to post-retirement medical benefits allocated for such Limitation Year to the separate account of such Participant under a welfare fund, as defined in Section 419(e) of the Code, maintained by the Employer, if he is a Key Employee for such year. For purposes of this Section 2.5, “Employer” shall include any Related Employer.

2.6 “ Beneficiary ”: Any person (natural or otherwise) entitled to receive any benefits which may become payable upon or after a Participant’s death.

2.7 “ Benefit Commencement Date ”: The date on which the payment of a Participant’s Vested Account Balance commences, as determined in accordance with the provisions of Section 9.1.

2.8 “ Break in Service ”:

(a) Except as otherwise provided under Section 2.8(b), the term “Break in Service” shall mean one or more consecutive Computation Periods during each of which an Employee has not completed more than 500 Hours of Service. For eligibility purposes, an Employee shall not incur a Break in Service solely because he fails to complete more than 500 Hours of Service during the Computation Period beginning on his hire date.

(b) Notwithstanding Section 2.8(a), a Computation Period beginning in 1985 or thereafter shall not be included in a Break in Service if the sum of the Employee’s Hours of Service completed during such Computation Period plus the Employee’s “Childbirth Leave Hours” (as hereafter defined) attributable to such Computation Period exceeds 500. For purposes of this Section 2.8(b), an Employee’s Childbirth Leave Hours shall be the number of Hours of Service (but not in excess of 501 for any one continuous period of absence) which the Employee would have completed but for the fact that the Employee is absent from the employment of the Employer and all Related Employers for a period commencing on or after the first day of the Computation Period beginning in 1985 (1) by reason of the pregnancy of the Employee, (2) by reason of the birth of a child of the Employee, (3) by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee or (4) for purposes of caring for such child for the period beginning immediately following such birth or placement; provided, however, that in the case of any Employee with respect to whom it is not possible to determine the number

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of Hours of Service which such Employee would have completed but for such absence, such Employee shall be credited with 8 Childbirth Leave Hours for each work day of such absence; and provided further, that an hour which is considered an Hour of Service under Section 2.18(b) shall not also be considered a Childbirth Leave Hour. All Childbirth Leave Hours for any period of absence shall be attributed to the Computation Period during which such period of absence begins if the result of such attribution is to prevent such Computation Period from being considered a Break in Service; otherwise, all Childbirth Leave Hours shall be attributed to the immediately following Computation Period. The Administrator shall adopt regulations under which an Employee may be required to furnish reasonable information on a timely basis establishing the number of Childbirth Leave Hours to which such Employee is entitled with respect to any period of absence from employment, and any Employee who fails to furnish such information with respect to any period of absence shall not be credited with any Childbirth Leave Hours for such period of absence.

(c) Notwithstanding Section 2.8(a), a Computation Period shall not be included in a Break in Service if the Employee would have completed at least 500 Hours of Service but for a period of absence due to layoff (for not more than 6 months), jury duty or Leave of Absence, other than a period of absence described in Section 2.8(b).

2.9 “ Code ”: The Internal Revenue Code of 1986, as now in effect or as hereafter amended, and any regulation issued pursuant thereto by the Internal Revenue Service. Whenever any provision of the Code is renumbered or otherwise amended, this Plan shall, to the extent possible, be construed by reference to the successor to such provision.

2.10 “ Committee ”: The committee established pursuant to the provisions of Article XII to assist the Administrator in the administration of the Plan.

2.11 “ Compensation ”:

(a) Except as otherwise provided in this Section 2.11, the term “Compensation” shall mean wages, within the meaning of Section 3401(a) of the Code, and all other payments of compensation paid to a Participant by the Employer (during the course of the Employer’s trade or business) during a Plan Year for services rendered by him as an Employee for which the Employer is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code, determined without regard to any rules under Section 3401(a) which limit the remuneration included in wages based upon the nature or location of the employment or the services performed [such as the exception for agricultural labor in Section 3401(a)(2)]. Except as provided in Section 6.1(e), in the case of an individual who was a Participant for a period consisting of less than the entire Plan Year, his Compensation shall be deemed to include only the taxable remuneration paid to him for the period while he was a Participant. The Compensation of each Participant taken into account for any Plan Year shall not exceed $160,000 (subject to cost-of-living adjustments prescribed by the Secretary of the Treasury).

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(b) Except for purposes of Sections 7.5 and 7.6, notwithstanding the provisions of Section 2.1 l(a), there shall be included in Compensation any amount contributed by the Employer or a Related Employer pursuant to a salary reduction agreement with the Employee and excluded from his gross income under Sections 125, 402(e)(3), 402(h) or 403(b) of the Code. This Section 2.11(b) shall not apply for Plan Years and Limitation Years beginning after May 31, 1998.

(c) Notwithstanding Sections 2.11(a) and 2.11(b), the term “Compensation” shall be defined as follows effective for Plan Years and Limitation Years beginning after May 31, 1998:

The term “Compensation” shall mean wages, within the meaning of Section 3401(a) of the Code, and all other payments of compensation paid to a Participant by the Employer (during the course of the Employer’s trade or business) during a Plan Year for services rendered by him as an Employee for which the Employer is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code, determined without regard to any rules under Section 3401(a) which limit the remuneration included in wages based upon the nature or location of the employment or the services performed [such as the exception for agricultural labor in Section 3401(a)(2)], together (i) any elective deferral [as defined in Section 402(g)(3) of the Code] on behalf of such Participant and (ii) any amount which is contributed or deferred by the Employer at the election of such Participant and which is not includable in the gross income of such Participant by reason of Sections 125 or 457 of the Code. Except as provided in Section 6.1(e), in the case of an individual who was a Participant for a period consisting of less than the entire Plan Year, his Compensation shall be deemed to include only the taxable remuneration paid to him for the period while he was a Participant. The Compensation of each Participant taken into account for any Plan Year shall not exceed $160,000 (subject to cost-of-living adjustments prescribed by the Secretary of the Treasury).

2.12 “ Computation Period ”: For eligibility purposes, the Computation Period is the 12-month period beginning on an Employee’s employment date or re-employment date, subject to Sections 2.40 and 3.2(b) and (c). For all other purposes under the Plan, including without limitation vesting, the Computation Period is the Plan Year.

2.13 “ Effective Date ”: June 1, 1997 (except as otherwise set forth herein).

2.14 “ Employee ”: Any person employed by and receiving Compensation from the Employer or any Related Employer (or who would be receiving such remuneration except for a Leave of Absence). The term “Employee” shall not include any person who is a “leased employee” within the meaning of Code Section 414(n)(2). For purposes of the preceding sentence, the term “leased employee” means any person (other than an employee of the recipient) who

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pursuant to an agreement between the recipient and any other person has performed services for the recipient [or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code] on a substantially full-time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient.

2.15 “ Employer ”: Richardson and any successor to it. The term “Employer” shall also include any corporation or other unincorporated business organization which adopts the Plan for the exclusive benefit of its Employees pursuant to the provisions of Section 16.1. Anything to the contrary notwithstanding, a mere change in the identity, form or organization of the Employer shall not affect its status under the Plan or the Trust in any manner.

2.16 “ Entry Date ”: November 30 of each Plan Year and the last day of each Plan Year.

2.17 “ ERISA ”: The Employee Retirement Income Security Act of 1974, as now in effect or as hereafter amended, and any regulation issued pursuant thereto by the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation. Whenever any provision of ERISA is renumbered or otherwise amended, this Plan shall, to the extent possible, be construed by reference to the successor to such provision.

2.18 “ Hour of Service ”:

(a) Each Employee shall be credited with an Hour of Service for:

(1)

Each hour for which he is directly or indirectly paid or entitled to payment by the Employer or any Related Employer for the performance of duties. Service rendered at overtime or other premium rates shall be credited at the rate of one Hour of Service for each hour worked, regardless of the rate of compensation in effect. These hours shall be credited to the Employee for the Computation Period(s) during which the duties are performed. An Employee who is not compensated on an hourly basis, or for whom information regarding the number of hours worked is not readily available, shall be credited with the following number of Hours of Service for each payroll period during which he completes at least one Hour of Service:

(i)

45 Hours of Service for each weekly payroll period;

(ii)

90 Hours of Service for each bi-weekly payroll period;

(iii)

95 Hours of Service for each semi-monthly payroll period; or

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(iv)

190 Hours of Service for each monthly payroll period.

Hours of Service credited to a payroll period which includes an Anniversary Date shall be credited entirely to the Plan Year commencing on the date following such Anniversary Date. An Employee who is not compensated on the basis of a regular payroll period shall be credited with 10 Hours of Service for each day on which he completes at least one Hour of Service.

(2)

Each hour (up to a maximum of 501 hours in any one continuous period) for which he is directly or indirectly paid or entitled to payment by the Employer or any Related Employer on account of a period during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), lay-off, jury duty, military duty or leave of absence. In the case of payments which are computed on the basis of specific periods of time during which no duties are performed, the Employee shall receive credit for Hours of Service as if he had actually worked during such periods of time, computed and credited as provided in Section 2.19(a)(l). In the case of all other payments, the Employee’s Hours of Service shall be computed and credited in the manner prescribed in 29 C.F.R Sections 2530.200b-2(b) and (c), which are hereby incorporated herein by reference.

(3)

Each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer or any Related Employer. These hours shall be credited to the Employee for the computation period (or periods) to which the award, agreement or payment pertains rather than the computation period (or periods) during which the award, agreement or payment was made.

(b) Notwithstanding the foregoing, no credit shall be granted for any period with respect to which an Employee receives payment or is entitled to payment under a plan maintained solely for the purpose of complying with applicable worker’s compensation or disability insurance laws; or for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

(c) Service by an individual on behalf of any of the following entities before he became an Employee shall be considered service on behalf of the Employer for purposes of this Section 2.18, to-wit: Amperex Division of North American Phillips Corp.; B-Scan, Inc.; Calvert Electronics, Inc.; Calvert Holding Co., Inc.; Calvert Semi-Conductor, Inc.; Ceco

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Communications, Inc.; Cetron Electronic Corporation; National Electronics Division of Varian Associates, Inc.; TubeMaster, Inc.; Compucon Distributors, Inc.; Burtek Systems (USA), Inc.; AFP Imaging Corporation; Eternal Graphics, Inc., (effective June 1, 1998 and including service prior to that date); TRL Technologies, Inc. (effective June 23, 1998 and including service prior to that date); Adler Video Systems, Inc. (effective November 28, 1998 and including service prior to that date); Pixielink Corporation (effective March 8, 1999 and including service prior to that date); and Broadcast Richmond, Inc. (effective May 31, 2000 and including service prior to that date).

2.19 “ Key Employee ”:

(a) Except as otherwise provided in this Section 2.19, an Employee shall be considered a “Key Employee” for any Plan Year if, at any time during the Key Employee Test Period [as defined in Section 2.19(f)], he is or was:

(1)

An officer of the Employer or any Related Employer whose Compensation [as modified for all purposes of this Section 2.19 in accordance with Section 2.19(g)] exceeds 50% of the annual dollar limitation set forth in Section 415(b)(l)(A) of the Code;

(2)

A shareholder of the Employer who owns at least .5% of the stock of the Employer or any Related Employer and whose Compensation exceeds the annual defined contribution dollar limitation set forth in Section 415(c)(l)(A) of the Code, unless at least 10 other Employees whose Compensation exceeds the annual defined contribution dollar limitation set forth in Section 415(c)(l)(A) of the Code own or owned during any Plan Year in the Key Employee Test Period a percentage share of the stock of the Employer which is greater than such shareholder’s percentage share;

(3)

A shareholder who owns more than 5% of the stock of the Employer; or

(4)

A shareholder who owns more than 1% of the stock of the Employer and whose Compensation for any Plan Year in which he owns such percentage exceeds $150,000.

(b) The number of Employees classified as Key Employees solely because they are described in Section 2.19(a)(l) shall not exceed the greater of (1) 3 or (2) 10% of the largest number of Employees during any of the Plan Years in the Key Employee Test Period; provided, however, that in no event shall such number exceed 50. If more than such number of Employees would otherwise be classified as Key Employees by reason of being described in Section 2.19(a)(l), the Employees classified as Key Employees by reason of being described in

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Section 2.19(a)(l) shall be those described in Section 2.19(a)(l) who had the highest Compensation during any of the Plan Years in the Key Employee Test Period during which they were described in Section 2.19(a)(l).

(c) For purposes of Section 2.19(a)(2), in the event that 2 or more Employees own the same percentage share of the Employer, the Employee who had the highest Compensation of such Employees for the Plan Year during the Key Employee Test Period in which his Compensation was the highest and in which he owned such interest in the Employer for part of the Plan Year shall be treated as owning the largest percentage share of the stock of the Employer. If an Employee’s percentage interest in the stock of the Employer changes during a Plan Year, his interest for such Plan Year shall be the highest percentage he held at any time during such Plan Year.

(d) For purposes of this Section 2.19, an Employee shall be considered to own any stock of the Employer or Related Employer which would be attributed to him under Section 318 of the Code [as modified by substituting “5%” for “50%” in Section 318(a)(2) of the Code]. In the case of an Employer or Related Employer which has issued more than one class of stock, the applicable test shall be satisfied if the Employee’s stock ownership meets the test on the basis of either the value or the voting power of the stock. In the case of an Employer or Related Employer which is not a corporation, such tests shall be applied in accordance with regulations promulgated under Section 416(i)(l)(B)(iii)(II) of the Code.

(e) Any Employee who meets any of the 4 tests set forth in Section 2.19(a) as of any Top-Heavy Determination Date shall continue to be a Key Employee for the remainder of the Key Employee Test Period, commencing with the Plan Year which includes such Top-Heavy Determination Date, whether or not he remains an Employee, and, if such Employee dies during such Key Employee Test Period his Beneficiaries shall be classified as Key Employees for the balance of such Key Employee Test Period, unless such Employee is a Key Employee solely by reason of Section 2.19(a)(l) and is subsequently excluded from the group of officers having the highest Compensation by reason of the limitation set forth in Section 2.19(b) in subsequent Plan Years or solely by reason of Section 2.19(a)(2) and is subsequently excluded from the group of the 10 Employees owning the largest percentage shares of the stock of the Employer in subsequent Plan Years.

(f) The term “Key Employee Test Period” for any Plan Year shall mean the period consisting of 5 Plan Years (or, if fewer, the total number of Plan Years during which the Plan and all other employee plans qualified under Section 401(a) of the Code maintained by the Employer or any Related Employer have been in effect) ending with the Plan Year which includes the Top-Heavy Determination Date for such Plan Year.

(g) The purpose of this Section 2.19 is to conform to the definition of “key employee” set forth in Section 416(i)(l) of the Code, which is incorporated herein by reference, and to the extent that this Section 2.19 shall be inconsistent with Section 416(i)(l) of the Code,

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either by excluding Employees who would be classified as “key employees” thereunder or by including Employees who would not be so classified, the provisions of Section 416(i) (1) of the Code shall govern and control.

2.20 “ Leave of Absence ”: Authorized leave of absence, sick or disability leave, service in the Armed Forces of the United States (provided that the absence is caused by war or other emergency or provided that the Employee is required to serve under the laws of conscription in time of peace) or any absence with the advance approval of the Employer or any Related Employer; provided, however, that the Employee retires or returns to work for the Employer or any Related Employer within the time specified in his Leave of Absence (or, in the case of a military absence, within the period provided by law). In granting such leaves, the Employer and any Related Employer shall treat all Employees under similar circumstances alike under rules uniformly and consistently applied.

2.21 “ Limitation Year ”: The period coinciding with the Plan Year.

2.22 “ Non-Key Employee ”: Any Employee who for any Plan Year is not a Key Employee.

2.23 “ Normal Retirement Date ”: The date a Participant attains age 65.

2.24 “ Participant ”: Any Employee who participates in the Plan as provided in Article III.

2.25 “ Permanent Disability ”: The inability of a Participant to perform a substantial portion of his duties by reason of any medically determinable physical or mental impairment which can be expected to be of long-continued and indefinite duration. Permanent Disability shall be determined solely by the Administrator upon medical evidence from a physician selected by the Administrator. A determination of Permanent Disability pursuant to the provisions of the Plan shall not be construed to be an admission of disability by the Employer in regard to any other claim of disability brought by the Participant against the Employer. A Participant who is receiving disability benefits under the Social Security Act shall be presumed to be Permanently Disabled.

2.26 “ Plan ”: The Richardson Electronics, Ltd. Employee Stock Ownership Plan, as amended and restated herein.

2.27 “ Plan Year ”: The fiscal year adopted by the Employer for Federal income tax purposes.

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2.28 “ Qualified Domestic Relations Order ”:

(a) Except as provided in Section 2.28(b), the term “Qualified Domestic Relations Order” shall mean any order (including a judgment, a decree or an approval of a property settlement agreement entered by any court) which the Administrator determines (1) is made pursuant to any state domestic relations law (including a community property law), (2) relates to the provision of child support, alimony payments or marital property rights of a spouse, former spouse, child or other dependent of a Participant (an “Alternate Payee”) and (3) clearly specifies (i) the name and last known mailing address (if any) of the Participant and the name and mailing address of each Alternate Payee covered by the order, (ii) the amount or percentage of the Participant’s benefits to be paid by the Plan to each Alternate Payee, or the manner in which such amount or percentage is to be determined, (iii) the number of payments or period to which such order applies and (iv) the employee benefit plan to which such order applies.

(b) An order shall in no event be considered a Qualified Domestic Relations Order if the Administrator determines that such order (1) requires the Plan to provide benefits to Alternate Payees, the actuarial present value of which in the aggregate is greater than the benefits which would otherwise have been provided to the Participant, (2) requires the Plan to pay benefits to an Alternate Payee, which benefits are required to be paid to a different Alternate Payee under another order previously determined to be a Qualified Domestic Relations Order or (3) requires the Plan to provide any type or form of benefit, or any option, not otherwise provided under the Plan, except that a Qualified Domestic Relations Order may require the Trustee to distribute a portion of the Participant’s Vested Account Balance prior to the time the Participant has incurred a Termination of Employment but after the Participant has attained the age of 50. Notwithstanding the preceding sentence, effective May 31, 1998 a Qualified Domestic Relations Order may require the Trustee to distribute all or a portion of the Participant’s Vested Account Balance prior to the time the Participant has incurred a Termination of Employment and without regard to the Participant’s age.

2.29 “ Related Employer ”: Any trade or business (whether or not incorporated) that is, along with the Employer, a member of a controlled group of related entities [as defined in Sections 414(b) and (c) of the Code, as modified for purposes of Sections 7.5 and 7.6 by Section 415(h) of the Code] or a member of an affiliated service group [as defined in Section 414(m) of the Code]. Anything to the contrary notwithstanding, a mere change in the identity, form or organization of a Related Employer shall not affect its status under the Plan or the Trust in any manner and, if the corporate name of a Related Employer is hereafter changed, all references herein to such Related Employer shall be deemed to refer to such Related Employer as it is then known.

2.30 “ Richardson ”: Richardson Electronics, Ltd., a Delaware corporation.

2.31 “ Spouse ”: The person who is married to the Participant at the time relevant to such determination except to the extent that a Qualified Domestic Relations Order

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provides that a former spouse is to be treated as the Participant’s Spouse; provided, however, that, solely for purposes of Section 9.3(c), the person to whom a Participant is married at the time of his death shall be considered his Spouse only if they had been married at least one year prior to his death.

2.32 “ Stock ”: Capital stock issued by the Employer [or by a corporation which is a member of the same “controlled group” (as defined in Section 409(l)(4) of the Code) of the Employer] and which is either:

(a)

Common stock which is readily tradable on an established securities market; or

(b)

If no such corporation has common stock outstanding which is readily tradable on an established securities market, common stock which has a combination of voting power and dividend rights equal to or in excess of that class of common stock of any such corporation which has the greatest voting power and that class of common stock of any such corporation which has the greatest dividend rights; or

(c)

Preferred stock which is noncallable and which is convertible at any time into common stock described in either Sections 2.32(a) or (b) at a conversion price which is reasonable (at the time such stock is acquired by the Trust). To the extent provided in regulations issued under Section 409(l)(3) of the Code, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for such a conversion.

2.33 “ Termination of Employment ”: An Employee shall be deemed to have incurred a “Termination of Employment” as a result of:

(a)

A retirement, a resignation or a dismissal for any reason;

(b)

A failure to return to work promptly upon the request of the Employer or Related Employer at the end of a layoff; or

(c)

A failure to retire or return to work at the end of a Leave of Absence.

A transfer of employment between the Employer and any Related Employer, or between Related Employers, or a transfer from a job category eligible to participate in the Plan to one not so eligible or vice versa, shall not be considered to be a Termination of Employment.

2.34 “ Top-Heavy Determination Date ”: For any Plan Year, the Anniversary Date of the immediately preceding Plan Year.

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2.35 “ Top-Heavy Year ”:

(a) Except as otherwise provided in Section 2.35(b) below, the term “Top-Heavy Year” shall be any Plan Year if, as of the Top-Heavy Determination Date for such Plan Year, the aggregate Account Balances of all Key Employees under the Plan exceed 60% of the aggregate Account Balances of all Participants under the Plan.

(b) Notwithstanding Section 2.35(a), if during any Plan Year (1) at least one Participant is a Key Employee, (2) as of the Top-Heavy Determination Date for such Plan Year the Employer or any Related Employer has adopted any other employee plan qualified under Section 401(a) of the Code and (3) either (i) a Key Employee participates in such other plan or (ii) the Plan or such other plan has satisfied the requirements of Section 401(a)(4) or Section 410 of the Code only by treating the Plan and such other plan as a single plan, then such Plan Year shall be considered a Top-Heavy Year if and only if the Account Balances of all Key Employees under the Plan and the aggregate balances in the accounts of all Key Employees under all such other plans exceed 60% of the aggregate balances in the accounts of all Participants under the Plan and all such other plans.

(c) Notwithstanding Sections 2.35(a) and (b), if as of any Top-Heavy Determination Date the Employer or any Related Employer has adopted any other employee plan qualified under Section 401(a) of the Code which is not a plan described in Section 2.35(b), but which plan may be considered as a single plan with the Plan and all plans described in Section 2.35(b) without causing any of such plans to violate the requirements of either Section 401(a)(4) or Section 410 of the Code, the Plan Year shall not be considered a Top-Heavy Year if the Account Balances of all Key Employees under the Plan and the aggregate balances in the accounts of all Key Employees under all plans described in Section 2.32(b) and all plans described in this Section 2.35(c) do not exceed 60% of the aggregate balances in the accounts of all Participants under all such plans.

(d) If any of the plans described in either Sections 2.35(b) or (c) are defined benefit plans, then the tests set forth in said sections shall be applied by using the present value of all benefits accrued under such plans (as determined by the Administrator, using actuarial assumptions which are uniform for all such plans and are reasonable in the aggregate) in lieu of the account balances in such plans. The accrued benefits of the Non-Key Employees under such plans shall be determined in accordance with Section 416(g)(4)(F) of the Code. If any of such plans have a “determination date” [as defined in Section 416(g)(4)(C) of the Code] for purposes of determining top-heavy status which is different from the Top-Heavy Determination Date, the account balances (or the present value of the accrued benefits, in the case of a defined benefit plan) in such plan shall be determined as of the determination date for such plan which occurs in the same Plan Year as the Top-Heavy Determination Date.

(e) For purposes of this Section 2.35, account balances shall include (1) all contributions which the Employer or any Related Employer has paid or is legally obligated to pay

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to any employee plan as of the Top-Heavy Determination Date (including contributions made thereafter if they are allocated as of the Top-Heavy Determination Date) and all forfeitures allocated as of the Top-Heavy Determination Date and (2) all distributions made to a Participant or his Beneficiary during the Key Employee Test Period (or, in the case of a defined benefit plan, the actuarial present value as of the Top-Heavy Determination Date of such distributions). If any plan that was terminated within the Key Employee Test Period would, if it had not been terminated, be a plan described in Section 2.35(b), distributions made under such plan shall also be taken into account. For purposes of this Section 2.32, account balances shall also include amounts which are attributable to contributions made by the Participants (other than deductible voluntary contributions under Section 219 of the Code) but shall not include any rollover [as defined in Section 402(a) (5) of the Code] or a direct transfer from the trust of any employee plan qualified under Section 401(a) of the Code if such plan is not maintained by the Employer or any Related Employer and such rollover or transfer is made at the request of the Participant after December 31, 1983.

(f) Anything to the contrary notwithstanding, if an Employee has not performed any services for the Employer or any Related Employer at any time during the Key Employee Test Period, his account balance (in the case of a defined contribution plan) or his accrued benefit (in the case of a defined benefit plan) shall not be taken into consideration in the determination of whether the Plan Year is a Top-Heavy Year.

(g) The purpose of this Section 2.35 is to conform to the definition of “top-heavy plan” set forth in Section 416(g) of the Code, which is incorporated herein by reference, and to the extent that this Section 2.35 shall be inconsistent with Section 416(g) of the Code, either by causing any Plan Year during which the Plan would be classified as a “top-heavy plan” not to be a Top-Heavy Year or by causing any Plan Year during which it would not be classified as a “top-heavy plan” to be a Top-Heavy Year, the provisions of Section 416(g) of the Code shall govern and control.

2.36 “ Trust ”: The trust forming a part of the Plan and known as the Richardson Electronics, Ltd. Employees Stock Ownership Trust.

2.37 “ Trust Agreement ”: The agreement dated February 23, 1990 by and between Richardson and Marine Midland Bank, N.A. (known as HSBC Bank USA, effective March 29, 1999).

2.38 “ Trustee” or “Trustees ”: The person or persons who shall from time to time be acting as the Trustee under the Trust Agreement and their duly appointed successors.

2.39 “ Valuation Date ”: The Anniversary Date and each other date during the Plan Year specified by the Administrator [in a manner which does not discriminate in favor of Participants who are “highly compensated employees,” as defined in Section 414(q) of the Code] as to which Accounts are adjusted pursuant to Article VII.

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2.40 “ Vested Account Balance ”: At any date, the portion of a Participant’s Account Balance which would be nonforfeitable if the Participant incurred a Termination of Employment on such date, as determined under Article VIII.

2.41 “ Year of Service ”: Any Computation Period during which an Employee has completed at least 1,000 Hours of Service. For purposes of Article III, as soon as an Employee completes at least 1,000 Hours of Service during the initial Computation Period specified in Section 2.12, he shall be credited with a Year of Service even if fewer than 12 consecutive calendar months have passed. If such Employee fails to complete at least 1,000 Hours of Service during the initial 12-month Computation Period specified in Section 2.12, the second 12-month Computation Period shall consist of the Plan Year which includes the first anniversary of his employment or re-employment commencement date, and the succeeding 12-month Computation Periods shall also be based on the Plan Year.

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ARTICLE III

PARTICIPATION

3.1 Eligibility to Participate

(a) Each Employee shall be eligible to participate in the Plan, provided that he (1) has completed at least one Year of Service and (2) is not a member of a collective bargaining unit in which retirement benefits were the subject of good faith bargaining between the Employer or any Related Employer and one or more employee representatives, (3) is not a nonresident alien described in Code Section 410(b)(3)(C), and (4) is not a United States citizen employed by the Employer in a nation other than the United States (the “Foreign Country”) who would be subject to tax under the laws of such Foreign Country upon receiving an allocation to his Account pursuant to Section 6.1.

(b) Each Employee who participated in the Plan in accordance with its terms prior to the Effective Date shall continue as a Participant. Each other Employee who satisfies the eligibility requirements of Section 3.1(a) shall become a Participant on the later of the Effective Date or the Entry Date coincident with or immediately following the date on which he satisfies such eligibility requirements, provided that he is still employed by the Employer on such date.

3.2 Duration of Participation; Re-Employment

(a) Subject to the provisions of Sections 3.2(b) and (c), an Employee shall cease to be a Participant for purposes of Section 6.1 upon ceasing to be employed by the Employer, but shall remain a Participant for all other purposes hereunder until such time as his Vested Account Balance is paid to him (or his Beneficiaries) in full in accordance with Article IX, at which time his participation in the Plan shall cease.

(b) Each Participant who incurs a Termination of Employment and is re-employed after incurring a Break in Service shall again become a Participant as of his re-employment date for all purposes under the Plan except Sections 4.1(a) and 7.4, and shall again become a Participant for purposes of Sections 4.1(a) and 7.4 on the Entry Date coincident with or immediately following the date on which he completes one Year of Service following such re-employment; provided, however, that if either (1) such Participant had a vested right to any portion of his Account Balance when he incurred his Termination of Employment, (2) the number of Computation Periods in such Break in Service is fewer than the number of Years of Service completed by the Participant prior to such Break in Service or (3) the number of Computation Periods such Break in Service is fewer than 5, then his participation for all purposes under the Plan shall be retroactive to his date of re-employment.

(c) Each Employee or each Participant who incurs a Termination of Employment and is re-employed prior to incurring a Break in Service shall be treated, for purposes of eligibility to participate in the Plan, as though he never incurred a Termination of Employment.

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(d) An Employee’s participation in the Plan shall not be affected by the fact that he continues to be employed after his Normal Retirement Date.

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ARTICLE IV

CONTRIBUTIONS BY EMPLOYER

4.1 Amount

(a) The Board of Directors of the Administrator shall determine the aggregate amount to be contributed by all Employers for each Plan Year. Such aggregate amount shall not, however, be less than the amount required to permit the Trust to make all payments then due under any debt incurred by the Trust pursuant to Section 14.2. Subject to Section 4.1(d), each Employer hereby agrees to contribute to the Trust for a Plan Year its share of the aggregate amount, in the proportion that the total Compensation paid or accrued by such Employer to all Participants for such Plan Year bears to the total Compensation paid or accrued to all Participants by all Employers for such Plan Year; provided, however, that he contribution made by any Employer for any Plan Year shall not exceed the maximum amount deductible by such Employer for that Plan Year under the provisions of Section 404 of the Code.

(b) If any Employer is unable to make its full contribution for any Plan Year, the remaining Employers may (but shall not be obligated to) make all or a portion of such Employer’s contribution on its be behalf, subject to the foregoing limitations.

(c) The Employer’s contribution shall be in the form of cash or stock at its fair market value, or a combination thereof; provided that at all times at least 51% of the total balance in all Employer Contribution Accounts and the Suspense Account (excluding amounts held to make current debt payments and dividends held pending distribution pursuant to Section 9.6) shall be in the form of Stock or other stock of the Employer.

(d) The Employer shall be required to contribute [in the same proportion as provided in Section 4.1(a)] the amount of any previously forfeited amounts which are require to be restored to any re-employed Participant’s Employer Contribution Account during such Plan Year pursuant to Section 8.5(b), reduced by any forfeitures for such Plan Year and by any excess Employer contributions and any excess forfeitures allocated pursuant to Sections 7.5(c), (d) and (e).

(e) The determination of the Administrator as to the amount to be contributed by each Employer hereunder shall in all respects be final, binding and conclusive upon all persons or parties claiming any rights either under the Plan or the Trust.

4.2 Time for Payment

All contributions by the Employer shall be delivered to the Trustee not later than the date fixed by law for the filing of the Employer’s Federal income tax return for the Plan Year which includes the Anniversary Date as of which such contribution is to be allocated (including any extensions of time granted by the Internal Revenue Service for the filing of such return).

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ARTICLE V

CONTRIBUTIONS BY PARTICIPANTS

5.1 Contributions by Participants

Participants shall not be required or permitted to make any contributions to the Plan.

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ARTICLE VI

ALLOCATION OF EMPLOYER CONTRIBUTIONS

6.1 Manner of Allocation

(a) All contributions made by any Employer under Section 4. l(a) for a Plan Year, and all stock released from the Suspense Account for such Plan Year under Section 14.2, shall be allocated among the Employer Contribution Accounts of the eligible Participants [as defined in Section 6.1(b)] in the proportion that the Compensation paid or accrued to each Participant during such Plan Year bears to the total Compensation paid or accrued to all such Participants during such Plan Year. To the extent that such contributions are used to repay debt incurred under Section 14.2, the payment shall be charged to the Participants’ Employer Contribution Accounts in the same proportion.

(b) The Participants who shall be eligible to receive an allocation under this Section 6.1 with respect to a Plan Year shall be limited to: (1) Participants who are Employees on the last work day of such Plan Year (including Participants who incurred a Termination of Employment on such date) and who are credited with a Year of Service for such Plan Year, (2) Participants who retired on or after their Normal Retirement Date during such Plan Year, and (3) Participants who terminated employment during such Plan Year due to death, Permanent Disability or involuntary Termination of Employment (other than Termination of Employment for cause).

(c) Anything to the contrary notwithstanding, the allocation of the Employer’s contributions shall subject to the limitations set forth in Sections 7.5 and 7.6, and, in any Top-Heavy Year, the limitations of Section 6.2.

(d) Contributions required by Section 4.1(d) shall be restored to the Employer Contribution Account of the re-employed Participant.

(e) For purposes of Sections 6.1(a) and 7.4, there shall be included in the Compensation of a Participant who commenced participation in the Plan during a Plan Year the portion of his Compensation paid or accrued prior to the Entry Date on which he became a Participant.

(f) For purposes of this Section 6.1, as well as Section 6.2, with respect to the Plan Year ending in 1997, remuneration paid during such Plan Year to a Participant while employed by Compucon Distributors, Inc. prior to September 30, 1996 shall not be taken into account as Compensation. For purposes of this Section 6.1, as well as Section 6.2, with respect to the Plan Year ending in 1997, remuneration paid during such Plan Year to a Participant while employed by Burtek Systems (USA), Inc. prior to February 1, 1997 shall not be taken into account as Compensation. For purposes of this Section 6.1, as well as Section 6.2 with respect to the Plan Year ending in 1997, remuneration paid during such Plan Year to a Participant while employed

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by AFP Imaging Corporation prior to August 6, 1996, shall not be taken into account as Compensation. For purposes of this Section 6.1, as well as Section 6.2,with respect to the Plan Year ending in 1997, remuneration paid during such Plan Year to a Participant while employed by TRL Technologies, Inc. prior to June 23, 1998 shall not be taken into account as Compensation.

6.2 Allocations in Top-Heavy Years

(a) Notwithstanding any herein to the contrary, for any Plan Year which is a Top-Heavy Year, the aggregate allocation of the Employer’s contribution to the Employer Contribution Account of each Non-Key Employee who is a Participant (including those who are employed by the Employer on the last work day of such Plan Year but who are not credited with a Year of Service for such Plan Year) shall not be less than 3% of such Non-Key Employee’s Compensation for such Plan Year.

(b) If, in any Top-Heavy Year, the Key Employee Percentage (as hereinafter defined) for each Key Employee who is a Participant is less than 3%, the highest Key Employee Percentage shall be substituted for 3% in Section 6.2(a) unless a defined benefit plan [as defined in Section 414(j) of the Code] which is described in Section 2.35(d) must be combined with the Plan in order to satisfy the requirements of Section 401(a) or Section 410 of the Code. For purposes of this Section 6.2, the “Key Employee Percentage” for each Key Employee shall be the aggregate amount of the Employer’s contribution allocated to such Key Employee’s Employer Contribution Account for such Plan Year (taking into account adjustments pursuant to this Section 6.2) as a percentage of such Key Employee’s Compensation.

(c) In the event that the allocation of the Employer’s contribution to any Non-Key Employee under Section 6.1 in a Top-Heavy Year would otherwise violate the provisions of this Section 6.2, the aggregate amount allocated to the Employer Contribution Accounts of the Key Employees shall be reallocated (in proportion to the amount otherwise allocated to each Key Employee) to the Company Contribution Accounts of the Non-Key Employees (in proportion to the difference between the amount otherwise allocated to each Non-Key Employee and the amount required to be allocated under this Section 6.2) until the requirements of this Section 6.2 are satisfied.

(d) In the event that a Non-Key Employee is a participant in any other defined contribution plan [as defined in Section 414(i) of the Code] maintained by the Employer or any Related Employer, the amount required to be allocated to such Non-Key Employee under this Section 6.2 shall be reduced by the aggregate amount allocated to the Non-Key Employee’s accounts under all such other plans.

(e) In the event that a Non-Key Employee is a participant in any defined benefit plan [as defined in Section 414(j) of the Code] maintained by the Employer or any Related Employer which is a “top-heavy plan” [as defined in Section 4l6(g) of the Code], then, if the

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accrued benefit of such plan satisfies the requirements of Section 416(c)(l) of the Code [taking into account the modifications required by Section 416(h)(2)(A)(ii) of the Code if Section 6.2(e) applies], then Section 6.2(a) shall not apply to such Non-Key Employee. If such accrued benefit does not satisfy such requirements, then “5%” shall be substituted for “3%” in Section 6.2(a) with respect to such Non-Key Employee, and Section 6.2(b) shall not apply to such Non-Key Employee.

(f) If Section 7.6(c) applies for any Plan Year, then “4%” shall be substituted for “3%” in Section 6.2(a), and “7.5%” shall be substituted for “5%” in Section 6.2(e).

(g) For purposes of this Section 6.2, contributions by the Employer shall include forfeiture allocations.

6.3 Administrator to Notify Trustee

As soon as practicable after the close of each Plan Year, the Administrator shall furnish the Trustee with a statement showing the Compensation paid to each Participant for such Plan Year.

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ARTICLE VII

ACCOUNTS OF PARTICIPANTS

7.1 Separate Accounts

The Administrator shall create and maintain adequate records to disclose the interest in the Trust of each Participant (or Beneficiary of a deceased Participant). For accounting purposes, a separate Account shall be maintained for each Participant, reflecting his proportionate share of all contributions, forfeitures, net increases or decreases in the value of the Trust assets and distributions to the Participant (or his Beneficiary). Credits and charges shall be made to such Accounts in the manner described herein. The maintenance of such separate Accounts shall not require the segregation of any assets from any other assets held in the Trust.

7.2 Adjustments to Accounts

(a) As of each Valuation Date, the Administrator shall:

(1)

First, charge to the proper Accounts all payments or distributions made from the Accounts since the immediately preceding Valuation Date.

(2)

Second, adjust the Account Balances upward or downward, on a proportional basis, according to the net gain or loss of the Trust assets from investments (as reflected by interest payments, dividends, realized and unrealized gains and losses on securities and other investment transactions) and from the payment of expenses, so that the aggregate Account Balances equal the fair market value, as determined by the Trustee, of the Trust assets on such Valuation Date. For purposes of this Section 7.2(a)(2), Account Balances shall not include (i) any Account which has been segregated for the payment of installments pursuant to Section 9.4(b) or (ii) any asset of an Account the gain or loss from which is, pursuant to Article XIV, allocated to a specific Participant’s Account. All gain or loss (whether realized or unrealized) attributable to an Account described in the preceding sentence shall be allocated directly to such Account, and the fair market value of the balance in all such Accounts, after such allocation (or, in the case of an asset allocated to a specific Participant’s Account, the fair market value of such asset) shall be subtracted from the fair market value of the Trust’s assets (and, if applicable, from the Account Balance to which such asset is allocated), prior to the adjustment set forth herein.

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(3)

Third, if such Valuation Date is an Anniversary Date, allocate and credit the balances, if any, in the Excess Contribution Account and the Excess Forfeiture Account in accordance with Sections 7.5(d) and (e).

(4)

Fourth, if such Valuation Date is an Anniversary Date, allocate and credit the Employer contributions and Stock released from the Suspense Account in accordance with Section 7.3 and forfeitures, if any, in accordance with Section 7.4, in either case except to the extent modified by Sections 7.5, 7.6 and 7.7.

(b) Every adjustment made pursuant to this Section 7.2 shall be considered as having been made as of the Anniversary Date of the applicable Plan Year regardless of the dates of actual entries or receipt by the Trustee of the contribution made by the Employer for such Plan Year; provided, however, that Employer contributions pursuant to Section 4.1(a) for the Plan Years ending in 1988 through 1992, inclusive, as well as the Employer contribution made in 1992 for the Plan Year ended May 29, 1993, shall be considered as having been made as of the first day of the applicable Plan Year regardless of the dates of actual entries or receipt by the Trustee of such contributions.

(c) The determination as to the value of the assets of the Trust and the charges or credits to the Accounts of the Participants shall be conclusive and binding on all persons.

7.3 Crediting of Employer Contributions

Each Participant’s Employer Contribution Account shall be credited with that portion of the Employer’s contribution for the current Year and Stock released from the Suspense Account for the current year to which such Participant is entitled, as provided in Section 6.1.

7.4 Crediting of Forfeitures

Forfeitures, if any, occurring during the Plan Year pursuant to Section 18.3(d) and allocated from the Forfeiture Suspense Accounts shall be allocated among the Employer Contribution Accounts of all Participants eligible to receive an allocation of the Employer’s contribution under Section 6.1(a) in the proportion that the Compensation paid or accrued to each such Participant during such Plan Year bears to the Compensation paid or accrued to all such Participants during such Plan Year.

7.5 Limitation on Allocations

(a) Notwithstanding any other provisions of the Plan, the Annual Additions with respect to a Participant for any Limitation Year shall not exceed the lesser of (1) $30,000, or such higher amount as may be permitted at the relevant time under applicable law, or (2) 25%

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of the Compensation paid to the Participant by the Employer (or any Related Employers) during such year. The limitations in the preceding sentence shall not apply to amounts credited to a Participant’s Employer Contribution Account pursuant to Section 8.5(b). An amount credited to a Participant’s Account in order to correct an error made in a previous Limitation Year shall be treated for purposes of this Section 7.5(a) as having been credited to such Account in the Limitation Year to which the error relates.

(b) If the allocation of the Employer’s contribution to a Participant’s Employer Contribution Account in a particular Limitation Year would cause the limitations of Section 7.5(a) to be exceeded with respect to such Participant, the excess contribution shall, subject to the limitations of Section 7.5(a), be reallocated among the Employer Contribution Accounts of all other Participants eligible to share in the Employer’s contribution for the Plan Year ending in or coinciding with such Limitation Year, in proportion to their Compensation for such Plan Year. If, following such reallocation, there remains an excess portion of the Employer’s contribution which cannot be allocated to the Employer Contribution Account of any eligible Participant without exceeding the limitations of Section 7.6(a), such excess portion shall be placed in a suspense account, designated the “Excess Contribution Account.”

(c) If, following the allocation of the Employer’s contribution for a particular Plan Year [including all reallocations required pursuant to Section 7.5(b)], the allocation of forfeitures to a Participant’s Employer Contribution Account would cause the limitations of Section 7.5(a) to be exceeded with respect to such Participant, the excess forfeiture shall, subject to the limitations of Section 7.5(a), be reallocated among the Employer Contribution Accounts of all other Participants eligible to share in forfeitures for such Plan Year, in accordance with Section 7.4. If, following such reallocation, there remains an excess portion of the forfeitures which cannot be allocated to the Employer Contribution Account of any eligible Participant without exceeding the limitations of Section 7.5(a), such excess portion shall be placed in a suspense account, designated the “Excess Forfeiture Account.”

(d) As of the Anniversary Date for a Plan Year, the balance in the Excess Contribution Account shall first be applied to reduce the Employer’s contribution under Section 4.1(b). The balance, if any, remaining in the Excess Contribution Account shall be included in the Employer’s contribution for such Plan Year for purposes of Section 6.1. Section 7.5(b) shall apply to any amount which cannot be allocated pursuant to the preceding sentences.

(e) As of the Anniversary Date for a Plan Year, the balance in the Excess Forfeiture Account shall first be applied to reduce the Employer’s contribution under Section 4.1(b) after the application of Section 7.5(d). Any remaining balance in such Excess Forfeiture Account shall be allocated as a forfeiture under Section 7.4. Section 7.5(c) shall apply to any amount which cannot be allocated pursuant to the preceding sentences.

(f) For purposes of Section 7.5(a)(2) and Section 7.6, “Compensation” shall have the meaning set forth in Section 2.11; provided, however, that notwithstanding any provision

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of Section 2.11, for purposes of Section 7.5(a)(2) Compensation shall not include: any contributions made by the Employer or any Related Employer to this Plan or any other plan qualified under Section 401(a) of the Code to the extent excludable from the Employee’s income, or any distributions from this Plan or any such qualified plan; contributions made to any simplified employee pension plan described in Section 408(k) of the Code, to the extent deductible by the Employee; amounts included in the Employee’s income under Section 83 of the Code [other than by reason of an election under Section 83(b)]; amounts realized from the sale, exchange or other disposition of stock acquired upon exercise of a qualified stock option; or other amounts which receive special tax benefits under the Code, such as contributions to a health or accident plan which are excludable from the Employee’s income or contributions towards the purchase of an annuity contract described in Section 403(b) of the Code (whether or not excludable from the Employee’s income). Notwithstanding the foregoing, Compensation shall include any amounts deferred under a nonqualified, unfunded plan of deferred compensation in the Plan Year received by the Employee. If so elected by the Administrator pursuant to Treasury Regulations 1.415-2(d)(5), items of compensation shall be included in Compensation for purposes of this Section 7.5 and Section 7.6 in the Limitation Year in which they are accrued by the Employer or a Related Employer rather than the Limitation Year in which they are received by or made available to the Participant, provided that the making or revocation of such an election shall not have the effect of causing any such item to be included in Compensation for more than one Limitation Year.

(g) The Administrator of this Plan shall co-ordinate the application of this Section 7.5 with the application of the corresponding provisions of the instrument establishing Richardson Electronics, Ltd. Employees Profit-Sharing Plan (the “Profit-Sharing Plan”) by the administrator of Profit-Sharing Plan in circumstances where the limitations under Section 7.5(a) and the corresponding provisions of the instrument establishing the Profit-Sharing Plan would be exceeded, so as to determine under which of the 2 plans (or both plans, if such administrators so determine) the adjustments required by Sections 7.5(b) and (c) and the corresponding provisions of the instrument establishing the Profit-Sharing Plan shall be made.

(f) If, in any Limitation Year, not more than ¹ / 3 of the total amount allocated under Section 6.1(b) which are deductible under Section 404(a) of the Code is allocated to the Employer Contribution Accounts of Participants who are “highly compensated employees,” as defined in Section 414(q) of the Code, the following allocations to a Participant’s Account shall be disregarded in applying Section 7.5(a):

(1)

Any forfeitures of Stock which was acquired by a loan under Section 14.2; or

(2)

Any Employer contributions to the Plan which are deductible under Code Section 404(a)(9)(B) and charged against such Participant’s Account.

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7.6 Combined Plan Limitation

(a) Anything to the contrary notwithstanding, if during any Limitation Year a Participant also participates in a “defined benefit plan” [as defined in Section 414(j) of the Code] maintained by the Employer or any Related Employer, the otherwise permissible Annual Addition on behalf of any Participant under the Plan may be further reduced to the extent necessary, as determined by the Administrator in its sole discretion, to comply with the additional limitations set forth in Sections 7.6(b) and (c).

(b) In the event that a Participant also participates in a defined benefit plan as described in Section 7.6(a), the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction (as hereafter defined) for any Limitation Year shall not exceed 1.0. For purposes of this Section 7.6, the “Defined Benefit Plan Fraction” for any Limitation Year is a fraction, the numerator of which is the Participant’s projected annual benefit under the defined benefit plan (determined as of the close of its plan year) and the denominator of which is the lesser of: (1) the product of 1.25 multiplied by the maximum dollar limitation in effect under Section 415(b)(l)(A) of the Code for such Limitation Year, or (2) the product of 1.4 multiplied by the amount which may be taken into account under Section 415(b)(l)(B) of the Code for such Limitation Year. The “Defined Contribution Plan Fraction” for any Limitation Year is a fraction, the numerator of which is the sum of the annual additions to the Participant’s Account (as determined under Section 7.5) as of the close of the Limitation Year and the denominator of which is the sum of the lesser of the following amounts determined for such Limitation Year and each prior Year of Service [assuming, for this purpose, that Section 415(c) of the Code had been in effect during such prior Years of Service]: (1) the product of 1.25 multiplied by the maximum dollar limitation in effect under Section 415(c)(l)(A) of the Code for such Year (determined without regard to Section 415(c)(6) of the Code), or (2) the product of 1.4 multiplied by the maximum amount which may be taken into account under Section 415(c)(l)(B) of the Code for such Limitation Year.

(c) Notwithstanding the foregoing, “1.0” shall be substituted for “1.25” wherever it appears in Section 7.6(b) for any Plan Year in or coinciding with a Limitation Year which is a Top-Heavy Year, except as hereinafter provided. If as a result of such substitution the amount credited to any Employee’s Account would exceed the limitations of this Section 7.6, then such substitution shall not be made and the allocations to Non-Key Employees shall be revised in accordance with Section 6.2(f), unless such Plan Year would still be a Top-Heavy Year if “90%” were substituted for “60%” in all provisions of Section 2.35.

(d) For purposes of this Section 7.6, all defined benefit plans of the Employer or any Related Employer, whether or not terminated, are to be treated as one defined benefit plan, and all defined contribution plans of the Employer or any Related Employer, whether or not terminated, are to be treated as one defined contribution plan. The extent to which the annual allocations made under this Plan shall be reduced as compared with the extent to which the annual benefit under a defined benefit plan shall be reduced in order to achieve compliance with the

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limitations of Sections 415 and 416 of the Code shall be determined by the Administrator in such a manner so as to maximize the aggregate benefits payable to such Participant. If such reduction is under this Plan the Administrator shall advise affected Participants of any additional limitation on their annual allocations required by this Section 7.6(d).

(e) The provisions of this Section 7.6 are intended to comply with the provisions of Section 415 of the Code, as modified by Section 416 of the Code, so that the maximum benefits provided by the Employer or any Related Employer shall be exactly equal to the maximum amounts allowed under the Code. If there is any inconsistency between this Section 7.6 and the provisions of Section 415 of the Code, as modified by Section 416 of the Code, such inconsistency shall be resolved in such a way so as to give full effect to the provisions of the Code.

(f) This Section 7.6 shall not apply with respect to Limitation Years beginning after May 27, 2000.

7.7 Correction of Error

In the event of an error in the adjustment of a Participant’s Account, the Administrator, in its sole discretion, may correct such error either by crediting or charging the adjustment required to make such correction to or against the income and expenses of the Trust for the Plan Year in which the correction is made or the Employer may make an additional contribution to permit the correction of the error. Except as provided in this Section 7.7, the Accounts of other Participants shall not be readjusted on account of such error.

7.8 Transfer Accounts

(a) The Plan shall accept from the Trustees of the Richardson Electronics, Ltd., Employees Profit-Sharing Trust (the “Profit-Sharing Trust”) all of the Stock held by the Profit-Sharing Trust (the “Transfer Stock”) as of the Transfer Date. For purposes of this Section 7.8, the term “Transfer Date” shall mean a date selected by Richardson, as Administrator of both this Plan and of the Richardson Electronics, Ltd. Profit-Sharing Plan (the “Profit-Sharing Plan”), in its sole and absolute discretion; provided, however, in no event shall the Transfer Date be any earlier than 30 days after the date on which the notice required by Code Section 6058(b) has been filed with the Internal Revenue Service nor any later than December 31, 1989.

(b) The Transfer Stock shall be credited among the Transfer Accounts created and maintained under this Plan for the purpose of recording each Participant’s share, if any, of such Transfer Stock. The Transfer Account of each Employee who participated in the Profit-Sharing Plan on the Transfer Date shall initially be credited with that number of shares of Transfer Stock which is identical to the number of shares of Transfer Stock credited to his account in the Profit-Sharing Plan as of the Transfer Date. Separate sub-accounts shall be established with respect to those shares of Transfer Stock acquired with Employer contributions to the Profit-Sharing Trust and those shares of Transfer Stock acquired with Participants’ after-tax contributions

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to said trust. Thereafter, each such sub-account shall be credited with all dividends on the Transfer Stock allocated to such sub-account and all net increases or decreases in the value of such Transfer Stock and shall be debited with all distributions to the Participant (or his Beneficiary) on whose behalf such sub-account was established. A Participant shall always be 100% vested in that sub-account of his Transfer Account which is attributable to Transfer Stock acquired with his after-tax contributions to the Profit-Sharing Trust.

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ARTICLE VIII

VESTING OF INTEREST IN TRUST

8.1 Normal Retirement

The Vested Account Balance of a Participant who attains his Normal Retirement Date while an Employee shall be 100% of his Account Balance.

8.2 Disability Retirement

The Vested Account Balance of a Participant who retires prior to his Normal Retirement Date because of a Permanent Disability shall be 100% of his Account Balance.

8.3 Death

The Vested Account Balance of a Participant who dies prior to incurring a Termination of Employment shall be 100% of his Account Balance.

8.4 Other Termination of Employment .

Except when Sections 8.1, 8.2 or 8.3 apply, a Participant’s Vested Account Balance shall be the sum of:

(a)

100% of his Pre-Break Account Balance; plus

(b)

100% of the balance in the sub-account of his Transfer Account which is described in the last sentence of Section 7.8(b); plus

(c)

A percentage of his Employer Contribution Account Balance, and that portion of his Transfer Account Balance other than the sub-account balance referred to in the last sentence of Section 7.8(b), based upon the number of completed Years of Service according to the following schedule:


Completed Years of Service	Vested Percentage
Less than 2 years	0	%
2 years but less than 3 years	20	%
3 years but less than 4 years	40	%
4 years but less than 5 years	60	%
5 years but less than 6 years	80	%
6 years or more	100	%

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8.5 Treatment of Forfeited Amounts; Reinstatement

(a) The excess of a Participant’s Account Balance over his Vested Account Balance shall be forfeited as of the date of the Participant’s Termination of Employment. The forfeited amount shall be allocated as provided in Section 7.4 as of the Anniversary Date coincident with or immediately following the date the Participant incurs such a Termination of Employment (or, if later, the date the Participant fails to return to work following a layoff or a Leave of Absence as provided in Section 2.20).

(b) If a Participant returns to the employment of the Employer or any Related Employer before incurring a Break in Service consisting of at least 5 Years, any amount forfeited upon such Participant’s Termination of Employment shall be reinstated by using forfeitures in accordance with Section 7.4 and thereafter, to the extent necessary, by an additional Employer contribution allocated to the Participant’s Employer Contribution Account.

8.6 Computation of Years of Service

All Years of Service with the Employer or any Related Employer (including the Plan Year in which a Termination of Employment occurs, if the Participant completes 1,000 Hours of Service in such Plan Year) shall be taken into account in computing Years of Service for purposes of this Article VIII, except that:

(a)

If an Employee incurs a Break in Service, Years of Service before such Break in Service shall be disregarded until he has completed one Year of Service after his re-employment by the Employer or any Related Employer.

(b)

If a Participant who does not have a nonforfeitable right to any portion of his Employer Contribution Account Balance incurs a Break in Service consisting of at least 5 Computation Periods, Years of Service before such Break in Service shall be disregarded if the number of Computation Periods in such Break in Service equals or exceeds the aggregate number of Years of Service completed prior to such Break in Service.

(c)

In any Plan Year during which a Participant completes more than 500 Hours of Service but less than 1,000 Hours of Service, the Participant shall not receive credit for a Year of Service for such Plan Year, but shall continue to be a Participant, shall be credited with earnings of the Trust and shall remain in his present position on the vesting schedule in Section 8.4 without advancement.

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8.7 Vesting on Termination of Trust or Termination of Employer’s Agreement to Contribute

The Vested Account Balance of each Participant shall be 100% of such Participant’s Account Balance in the event that (a) the Plan is terminated or partially terminated, (b) the Employer shall permanently discontinue contributions to the Trust or (c) the Employer’s agreement to make contributions to the Trust shall be permanently or partially terminated, whether by withdrawal from the Plan, by amendment to the Plan or by bankruptcy, liquidation or discontinuance of the business of such Employer, or by merger, consolidation or reorganization of such Employer without the adoption of this Plan within 180 thereafter by such merged, consolidated or reorganized corporation, or by operation of law or otherwise. If the Plan is partially terminated, the provisions of this Section 8.7 shall apply only to Participants affected by the partial termination.

8.8 Vesting Following Plan Amendment

In the event that any amendment is adopted to the Plan which affects, directly or indirectly, the computation of the Participants’ Vested Account Balances:

(a)

The Vested Account Balance of each Participant shall not, as a result of such amendment, be less than it would have been had the Participant incurred a Termination of Employment on the day immediately preceding the day such amendment was adopted; and

(b)

The Vested Account Balance of a Participant who, on the day the amendment is adopted, had completed at least 3 Years of Service shall thereafter be equal to the greater of the amount determined under the Plan as so amended or the amount determined under the Plan without regard to such amendment.

8.9 Vesting Following Partial Distributions

(a) If a Participant receives a distribution of all or a portion of his Employer Contribution Account Balance at a time when it is possible for him to increase the vested percentage of his Employer Contribution Account (including a Participant who received a distribution upon incurring a Termination of Employment, who returns to the employment of the Employer or any Related Employer before incurring a Break in Service consisting of at least 5) Computation Periods, then such Participant’s Vested Account Balance at any time after he is re-employed shall be determined by (1) increasing the Participant’s Employer Contribution Account Balance at such time by the Adjusted Distribution (as hereafter defined), (2) then multiplying the Employer Contribution Account Balance (as so increased) by the relevant vesting percentage under Section 8.4, and (3) then subtracting the Adjusted Distribution from the product obtained. For purposes of this Section 8.9(a), the “Adjusted Distribution” shall be equal to the amount of the distribution

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multiplied by a fraction, the numerator of which is the Participant’s Account Balance at the time the formula is applied and the denominator of which is the Account Balance immediately following the distribution (without regard to forfeitures).

(b) If a Participant returns to the employment of the Employer or any Related Employer after incurring a Break in Service consisting of at least 5 Computation Periods, and such Participant did not receive payment of the full amount of his Vested Account Balance, his Vested Account Balance remaining unpaid shall be placed in a separate Pre-Break Account for the Participant. The Pre-Break Account shall be treated in the same manner as the Employer Contribution Account of the Participant, except that it shall not be credited with the Employer’s contributions and the Participant shall be 100% vested in such Pre-Break Account.

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ARTICLE IX

PAYMENT OF VESTED ACCOUNT BALANCES

9.1 Benefit Commencement Date

(a) Subject to the remaining provisions of this Section 9.1, the Benefit Commencement Date for each Participant shall be as soon as practicable after the Participant has incurred both a Termination of Employment and a Break in Service consisting of at least 5 years.

(b) Unless the Participant requests, in writing, a later commencement date, the Benefit Commencement Date shall not be later than one Plan Year after the close of the Plan Year in which the latest of the following events occurs:

(1)

Termination of Employment due to having retired upon reaching the Participant’s Normal Retirement Date, disability, or death; or

(2)

The Participant’s Termination of Employment for any other reason (provided the Participant has not been re-employed by the Employer or any Related Employer prior to that time); or

(3)

To the extent that a Participant’s Account Balance consists of Stock which was acquired with the proceeds of a loan incurred pursuant to Section 14.2, the Plan Year in which such loan is fully repaid.

(c) Except as provided in Section 9.8, a Participant’ s Benefit Commencement Date shall not be later than the April 1 of the calendar year following the calendar year determined below:

(1)

In the case of a Participant not described in any other clause of this Section 9. l(b), the calendar year in which he attains the age of 70- ¹ / 2 .

(2)

In the case of a Participant who attained the age of 70- ¹ / 2 prior to January 1, 1988, and who was not described in Section 2.19(a)(3) during the Plan Year which included the last day of the calendar year in which he attained the age of 66- ¹ / 2 or any subsequent Plan Year, the later of (i) the calendar year in which he attains the age of 70- ¹ / 2 or (ii) the calendar year in which he retires.

(3)

In the case of a Participant who attained the age of 70- ¹ / 2 prior to January 1, 1988, and who was described in Section 2.19(a)(3) during the Plan Year which included the last day of the calendar

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year in which he attained the age of 66- ¹ / 2 or a subsequent Plan Year, the later of (i) the calendar year in which he attains the age of 70- ¹ / 2 or (ii) the earlier of the calendar year in which he retires or the calendar year which includes the last day of the Plan Year in which he was first described in Section 2.19(a)(3).

(4)

In the case of a Participant who attained the age of 70- ¹ / 2 during the calendar year 1988, who was not described in Section 2.19(a)(3) during the Plan Year which includes the last day of the calendar year in which he attained the age of 66- ¹ / 2 or any subsequent Plan Year, and who is still alive on January 1, 1989, the calendar year 1989.

The provisions of this Section 9. l(b) shall apply to all Participants whose Account Balances were not completely distributed prior to January 1, 1985, subject, however, to the transitional rules set forth in Proposed Treasury Regulations Section 1.401(a)(9)-l, Part I, which are hereby incorporated herein.

(d) The Benefit Commencement Date of a Participant whose Vested Account Balance does not exceeds $3,500 shall be as soon as practicable after his Termination of Employment and payment therefor shall be in a lump sum. The Benefit Commencement Date of a Participant whose Vested Account Balance exceeds $3,500 shall not be earlier than his Normal Retirement Date unless the Participant consents in writing to an earlier date. A Participant who requests, in writing, the distribution of his Vested Account Balance prior to his Normal Retirement Date shall be considered to have consented to such distributions. If the value of a Participant’s Vested Account Balance, determined at the time of a distribution to him, exceeds $3,500, then such value at any subsequent time shall be deemed to exceed $3,500. Effective June 1, 1998, “$5,000” shall be substituted for “$3,500” in the preceding sentences of this Section 9.1(d).

(e) The date upon which the payment of a deceased Participant’s Vested Account Balance to his Beneficiary commences shall be determined under Section 9.3.

9.2 Payment to Participants

(a) Each Participant who does not elect to receive installment payments under Section 9.2(b) shall receive a single lump sum payment on his Benefit Commencement Date equal to his Vested Account Balance on such date.

(b) Any Participant whose Vested Account Balance on his Benefit Commencement Date exceeds $3,500 may elect to receive his Vested Account Balance in a series of not more than 10 annual installments determined in accordance with Section 9.6 commencing with his Benefit Commencement Date; provided, however, that the number of installments shall not be more than the number of years of the Participant’s remaining life expectancy (or the

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remaining joint and last survivor life expectancy of the Participant and his designated Beneficiary) as of the Benefit Commencement Date; and provided further, that except as otherwise provided in Section 9.6 the amount of any installment shall not be less than the Participant’s remaining Vested Account Balance as of the date on which such installment is paid, divided by the remaining life expectancy of the Participant (or by the remaining joint and last survivor life expectancy of the Participant and his designated Beneficiary), determined as of the first day of the calendar year in which such installment payment is made. For purposes of this Section 9.2(b), life expectancy shall be determined by the Administrator in accordance with the regulations promulgated under Section 72 of the Code. The first such installment shall be paid for the calendar year which is not later than the calendar year specified in the applicable clause of Section 9.1(b). An election pursuant to this Section 9.2(b) may be made or revoked at any time prior to the Benefit Commencement Date in accordance with rules established by the Administrator. After installment payments have commenced, a Participant may revoke his election, in which event his full remaining Vested Account Balance shall be distributed to him in a single lump sum as soon as practicable, but in no event later than the date upon which the next installment payment would have been required to have been made. Effective June 1, 1998, “$5,000” shall be substituted for “$3,500” in the first sentence of this Section 9.2(b).

9.3 Payment to Beneficiaries

(a) If a Participant dies after his Benefit Commencement Date but before his Vested Account Balance has been distributed in full, all remaining payments which would have been made to the Participant shall be made instead at the same time and in the same amounts to his Beneficiaries; provided, however, that either the Participant prior to his death, or all Beneficiaries following his death, may elect to have the remaining Vested Account Balance distributed in a single lump sum payment, subject to the provisions of Section 9.3(c).

(b) If a Participant dies prior to his Benefit Commencement Date (whether or not still employed by the Employer), then his Vested Account Balance shall be paid to his Beneficiaries as follows:

(1)

If neither the Participant nor his Beneficiaries elect installment payments under Section 9.3(b)(2), then the Participant’s Vested Account Balance shall be distributed to his Beneficiaries in a single lump sum payment as soon as practicable, but in no event later than 5 years after the Participant’s death.

(2)

If either the Participant prior to his death, or his Beneficiaries following his death, so elect in accordance with the provisions of Section 9.3(c), then each Beneficiary’s share of such Vested Account Balance shall be distributed in a series of annual installment payments which meet either of the following requirements:

(i)

The Beneficiary’s entire share of such Vested Account Balance shall be distributed within 5 years after the Participant’s death; or

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(ii)

The first installment payment shall be made to the Beneficiary within one year after the Participant’s death, and each installment payment made to such Beneficiary shall be at least equal to such Beneficiary’s share of the Participant’s remaining Vested Account Balance divided by such Beneficiary’s remaining life expectancy as of the first day of the calendar year in which such payment is made (determined in accordance with regulations promulgated under Section 72 of the Code).

In the case of a Beneficiary who is the surviving Spouse of the Participant, the first payment made under Section 9.3(b)(2)(ii) may be made not later than the day on which the Participant would have attained age 70- ¹ / 2 , and if such surviving Spouse dies before such date, such surviving Spouse’s share of the Participant’s Vested Account Balance shall be distributed in accordance with the provisions of this Section 9.3(b) as though such surviving Spouse were the Participant. For purposes of the preceding sentence, the Administrator may, to the extent of regulations promulgated under Section 401(a)(9)(F) of the Code, treat amounts payable to a child of the Participant as made to his surviving Spouse if such amounts will become payable to such Spouse upon such child reaching the age of majority or upon such other event occurring as may be specified in such regulations.

(c) Any election and any revocation of any election made under this Section 9.3 shall be in accordance with rules established by, and shall be subject to the approval of, the Administrator; provided that any election which has the effect of causing any portion of the Vested Account Balance to be paid to any Beneficiary other than the surviving Spouse of the Participant, shall be effective only if (1) such election identifies the designated Beneficiary, and is consented to, in writing, by the Spouse and the Spouse’s signature is witnessed either by a representative designated by the Administrator or by a notary public, or (2) it is established, to the satisfaction of the Administrator, that the Participant had no surviving Spouse, or that the consent of the Spouse cannot be obtained because the Spouse cannot be located or because of such other circumstances as may be specified in regulations promulgated under Section 417(a)(2)(B) of the Code. The Spouse’s consent, if given, shall be irrevocable, but shall not be binding upon any future Spouse. Such election may be revoked by the Participant at any time prior to his Benefit Commencement Date without the Spouse’s consent, but any change in such election (including any change in the Beneficiary specified therein) shall require the Spouse’s consent as set forth above.

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(d) Anything else in this Section 9.3 to the contrary notwithstanding, if a Participant’s Beneficiary is his estate pursuant to Section 10.2, his Vested Account Balance shall be paid to his estate in a single lump sum.

9.4 Extent of Further Participation in Trust

(a) Upon the distribution of the full amount of a Participant’s Vested Account Balance in a lump sum pursuant to the provisions of Sections 9.2(a) or 9.3(b)(l), such Participant (and his Beneficiaries) shall cease to have any interest in the Trust and all obligations hereunder of the Trustee and the Employer or any Related Employer to them shall cease.

(b) In the event that the distribution of a Participant’s Vested Account Balance is made in installments pursuant to the provisions of Sections 9.2(b) or 9.3(b)(2), such Participant’s Vested Account Balance remaining payable from time to time shall constitute a liability of the Trust and at the election of the Participant or his Beneficiary, as the case may be, shall either (1) continue to share in the gains and losses of the Trust pursuant to Section 7.2 until it is completely distributed or (2) shall be segregated and placed in an account at a national bank or other comparable financial institution insured by the Federal Deposit Insurance Corporation and shall be credited with any interest earned on such account. Such Participant’s Vested Account Balance remaining payable from time to time, after it is segregated, shall not participate in gains or losses of the Trust or in the Employer’s contributions thereto. The Administrator shall adopt such rules as it deems necessary or advisable to permit Participants to make elections and, if it so determines, to revoke or to modify such elections under this Section 9.4(b).

(c) Each Account of a Participant who dies or incurs a Termination of Employment shall continue to share in all allocations of gains and losses of the Trust pursuant to Section 7.2 until it is completely distributed or segregated pursuant to Sections 9.4(a) or (b), as the case may be.

9.5 Payment to Persons Under Legal Disability

In the event that any amount hereunder shall become payable to a minor or to a person under legal or other disability who, in the opinion of the Administrator, is unable to administer such distribution, such amount may be paid to any person(s) the Administrator deems best for the maintenance, care, support and education of such minor or disabled person. Any such payment in accordance with the provisions of this Section 9.5 shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan.

9.6 Payment in Installments

(a) If a Participant or Beneficiary elects to have an Account distributed in annual installments pursuant to Section 9.2(b) or 9.3(b)(2), the installment for each calendar year shall be paid not later than December 31 of such calendar year. Notwithstanding the foregoing,

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if the first calendar year for which an installment payment is to be made pursuant to Section 9.2(b) is the calendar year specified under the applicable clause of Section 9.1(c), payment of such installment may be deferred until not later than the date set forth in Section 9.1(c), but such deferral shall not affect the date by which the installment for the next succeeding year must be paid.

(b) The amount of the installment payment for any calendar year shall be equal to the Vested Account Balance as of the Anniversary Date which occurs in the immediately preceding calendar year, divided by the divisor determined under Section 9.6(c). For purposes of determining the amount of the installment payment, the Vested Account Balance shall include all income, expenses, gains, losses, contributions and forfeitures allocated as of such Anniversary Date, and shall be reduced by distributions made after the Anniversary Date only (1) if the Anniversary Date is other than a December 31 and such distributions are made on or before December 31 of the calendar year in which the Anniversary Date occurs, or (2) to the extent that, as permitted by the second sentence of Section 9.6(a), a portion of the first installment payment required under Section 9.2(b) is paid after the end of the calendar year for which such installment is required. To the extent that any amount is distributed for any calendar year in excess of the installment payment required for such calendar year, such excess shall not reduce the amount of the installment payment required for any subsequent year.

(1)

Unless the person making the election elects to redetermine life expectancies each year in accordance with Section 9.6(c)(2), the divisor for the first year for which an installment payment is to be made (hereinafter the “initial divisor”) shall be a number specified by the person making the election, and the divisor for each succeeding year shall be equal to the divisor for the immediately preceding year reduced by one. If the first year for which an installment payment will be made is the latest calendar year for which installment payments are allowed to commence pursuant to Section 9.2(b) or Section 9.2(c)(2), the initial divisor shall not be greater than, in the case of installments payable under Section 9.2(b), the life expectancy of the Participant (or, if applicable, the joint and last survivor life expectancy of the Participant and Beneficiary) or, in the case of installments payable under Section 9.3(b)(2), the life expectancy of the Beneficiary, determined as of the Participant’s and/or Beneficiary’s birthday which occurs in such calendar year. If installments commence in a calendar year earlier than the latest calendar year for which they are required to begin, the initial divisor shall not be greater than the maximum initial divisor as set forth in the preceding sentence, increased by one for

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each calendar year prior to the latest year for which installments are required to begin. If the person making the election fails to specify the initial divisor, or specifies an improper initial divisor, the initial divisor shall be the largest initial divisor that the person making the election could have specified.

(2)

If the person electing to receive installments is either the Participant or the Participant’s Spouse, such person may also elect to redetermine the life expectancy of the Participant, the Participant’s Spouse, or both, on an annual basis. Such election may be made or revoked, in writing, at any time prior to the time at which the first installment is required to be paid pursuant to Section 9.2(b) or Section 9.3(b)(2). Thereafter, such election or failure to elect shall be irrevocable. If such election is made, then the divisor for each year for installments payable pursuant to Section 9.2(b) shall be the remaining life expectancy of the Participant (or, if applicable, the remaining joint and last survivor life expectancy of the Participant and his Beneficiary) determined as of their respective birthdays attained in such year; provided, however, that if the Participant’s Beneficiary is other than the Participant’s Spouse, or if the Participant has not elected to redetermine his Spouse’s life expectancy, then the divisor shall be determined in accordance with Proposed Treasury Regulations Section 1.401(a)(9)-l, Q & A-E-8(b). The divisor for each year for installments payable to the Participant’s surviving Spouse under Section 9.3(b)(2) shall be the remaining life expectancy of the surviving Spouse as of his birthday attained in such year.

(3)

For all purposes of this Section 9.6, life expectancies shall be determined in accordance with the expected return multiplies set forth in Tables V and VI of Treasury Regulations Section 1.72-9 as in effect at the time the life expectancy is being determined.

(4)

Anything else contained herein to the contrary notwithstanding, the divisor for any year shall not be less than the divisor required by the minimum distribution incidental benefit requirement as set forth in Proposed Treasury Regulations Section 1.401(a)(9)-2, Q & A-4.

(d) Installments may be paid at regular intervals of less than a year, provided that the total amount paid in any year shall not be less than the annual installment required for such year pursuant to this Section 9.6.

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9.7 Compliance with Regulations

The provisions of this Article IX are intended to comply with the minimum distribution requirements of Section 401(a)(9) of the Code and of Proposed Treasury Regulations Section 1.401(a)(9)-l promulgated thereunder, including the incidental death benefit requirement as set forth in Proposed Treasury Regulations Section 1.401(a)(9)-2. Anything else contained in this Plan to the contrary notwithstanding, all distributions shall be made in accordance with Section 401(a)(9) and said Regulations, which shall override any provisions of this Plan which are inconsistent therewith. Upon the promulgation of final Treasury Regulations replacing Proposed Treasury Regulations Section 1.401(a)(9)-l and -2, the provisions of this Article IX shall be construed by reference to such final Treasury Regulations and shall be implemented accordingly.

9.8 Distributions of Stock and Dividends

(a) Anything else in this Article IX to the contrary notwithstanding, any Stock held in the Account of a Participant as of his Benefit Commencement Date or the date of his death shall be distributed to such Participant or his Beneficiaries in kind, unless such Participant or his Beneficiaries affirmatively elect, in writing, to receive a distribution of the value of such Stock in cash; provided, however, that the value of any fractional share of Stock shall be distributed in cash. To the extent the value of such Stock is distributed in cash, such Stock shall be reallocated among the Employer Contribution Accounts of the remaining Participants, and the amount of such cash distribution shall be charged against such Employer Contribution Accounts, in proportion to the balances therein.

(b) If any dividend is paid on Stock held by the Trust, the Administrator may, in its discretion, direct the Trustee to distribute such dividend among the Participants in proportion to the Stock allocated to their Accounts as of the end of the Plan Year in which such dividend is paid, not later than 90 days after the end of such Plan Year.

9.9 Right of First Refusal and Options on Stock

(a) Subject to Section 9.9(c), all shares of such distributed to any Participant or Beneficiary may, as determined by the issuer of the Stock or the Administrator, be subject to a right of first refusal. Such right shall provide that prior to any subsequent transfer, the Stock must first be offered by written offer to the Trust, and then, if refused by the Trust, to the issuer. In the event that the proposed transfer constitutes a gift or other transfer at less than fair market value, the price per share shall be determined by an independent appraiser (appointed by the Administrator) as of the Anniversary Date coinciding with or immediately preceding the date of exercise. In the event of a proposed purchase by a prospective bona fide purchaser, the price shall be the greater of the fair market value, as so determined, or the price offered by the prospective bona fide purchaser. Valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. The Trust may accept the offer at any time during a period not exceeding seven days after receipt of such offer. In the event the Trust does not

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accept such offer, the issuer may accept such offer at any time during a period not exceeding seven days thereafter. Payment for Stock purchased pursuant to a right of first refusal with respect to a proposed gift shall be either in cash, not later than 30 days after the right is exercised, or in not more than five annual installments, the first to be paid within 30 days of exercise, and the remaining four to bear interest at the rate designated under Section 483(c)(l)(B) of the Code from time to time. In the case of a proposed sale, payment shall be made in accordance with the payment terms offered by the proposed purchaser.

(b) Any Participant (or Beneficiary) to whom Stock is distributed shall have the right to require the issuer of such Stock to purchase such Stock, by written notice delivered to such issuer, either within 60 days after such distribution is received or within the first 60 days of the next succeeding Plan Year. The purchase price in either case shall be the fair market value [determined as provided in Section 9.9(a)] as of the Anniversary Date preceding the exercise of the option. The purchase price shall be paid either in cash within 30 days of exercise or in not more than 5 annual installments, the first to be paid within 30 days of exercise, and the remaining 4 to bear interest at the rate designated under Section 483(c)(l)(B) of the Code from time to time. If any Participant notifies such issuer that he is exercising his option, such issuer shall notify the Trustee, which shall have the right to assume the rights and obligations of such issuer under this Section 9.9(b).

(d) Except as otherwise provided in this Section 9.7, no Stock shall be subject to any option, right of first refusal, buy-sell agreement, or similar restriction. No amendment shall be adopted to the Plan which shall cause any Stock to be subject to any such restriction, whether or not the Plan continues to be an employee stock ownership plan as defined in Code Section 4975(a).

9.10 Direct Rollovers

(a) Notwithstanding any other provision of the Plan to the contrary which would otherwise limit the election of a Distributee (as hereinafter defined) under this Section 9.10, a Distributee may elect, at the time and in the manner permitted by the Administrator, to have any portion of an Eligible Rollover Distribution (as hereinafter defined) paid directly to an Eligible Retirement Plan (as hereinafter defined) specified by the Distributee in a Direct Rollover (as hereinafter defined).

(b) For purposes of this Section 9.10, the following terms shall have the meanings indicated:

(1)

“ Direct Rollover ”: A payment by the Plan to the Eligible Retirement Plan specified by a Distributee.

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(2)

“ Distributee ”: A Participant who is an Employee or former Employee. In addition, (i) such a Participant’s spouse or former spouse who is the alternate payee under a “qualified domestic relations order,” as defined in section 414(p) of the Code, and (ii) the surviving spouse of a deceased Participant who was an Employee or former Employee, are Distributees with regard to the interest of such spouse or former spouse in the Plan.

(3)

(4)

“ Eligible Rollover Distribution ”: Any distribution of all or any portion of the balance to the credit of the Distributee under the Plan, except that an Eligible Rollover Distribution shall not include: (i) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of 10 years or more; (ii) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (iii) the portion of any distribution which is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). The enumeration in the preceding sentence of any form of payment shall not imply that any person has the right to receive benefits under the Plan in such form unless otherwise specifically provided under the Plan.

9.11 Withdrawals Due to Permanent Disability

In the event a Participant becomes Permanently Disabled, but has not yet incurred a Termination of Employment, he or his legal representative may withdraw all or a portion of his Vested Account Balance. The form of any such withdrawal shall be determined pursuant to Section 9.2.

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ARTICLE X

DESIGNATION OF BENEFICIARIES

10.1 Participants to Name Beneficiaries

Each Participant may file with the Administrator, in such form as the Administrator shall from time-to-time require, a written designation of a Beneficiary or Beneficiaries (including contingent or successive Beneficiaries) who shall be entitled to receive any benefits which may become payable upon the Participant’s death. If more than one Beneficiary is designated, such designation shall also specify the manner in which payments are to be divided. In the absence of such designation, all payments shall be divided per capita, or, if the Beneficiaries are the Participant’s descendants, per stirpes. The Beneficiaries may be changed at any time or times by the filing of a new designation with the Administrator, without the necessity of obtaining the written consent of any Beneficiary, subject to the rights of the Participant’s spouse under Section 9.3(c). No designation of a Beneficiary or change thereof shall be effective until it has been received by the Administrator. The Administrator shall be entitled to rely upon the last designation filed by the Participant prior to his death.

10.2 No Beneficiary Designated; Death of Beneficiary

If a Participant dies without having a Beneficiary designation in force, or if at the time of the Participant’s death (or the date on which a subsequent installment payment is due) all designated Beneficiaries have died or are no longer in existence (in the case of Beneficiaries who are not individuals), payment shall be made to the deceased Participant’s surviving Spouse; or if there is no surviving Spouse (or if the surviving Spouse dies before a subsequent installment payment is due), to the deceased Participant’s descendants (including adopted descendants), per stirpes; or if there are no living descendants, to the deceased Participant’s estate.

10.3 No Liability for Payment to Beneficiaries

The Administrator shall determine the identity of Beneficiaries, and in so doing, may act upon such information as, on reasonable inquiry, it may deem reliable with respect to heirship, relationship, survivorship, or any other fact relative to the distributes; and the Trustee and Administrator shall be indemnified and saved harmless by the Employer with respect to all payments required to be made hereunder, if made in good faith and without actual notice or knowledge of the changed condition or status of any person receiving payments. The Administrator may rely on any list or notice furnished by the Employer or any Related Employer as to the facts, the occurrence of any events, or the existence of any situation, and shall not be bound to inquire as to the basis of any such decision, list, or notice, and shall be indemnified and saved harmless by the Employer for any action taken or suffered to be taken by him in reliance thereon. In the event any question or dispute shall arise as to the proper person or persons to whom any payment shall be made, the Trustee may withhold such payment until a determination

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of such question or dispute shall have been made, or until the Trustee shall have been adequately indemnified against loss to his satisfaction. In consideration of being permitted to designate his Beneficiaries, the Participant hereby waives, for himself and all persons claiming by or through him, any claim against the Administrator, the Committee, the Trustee and the Employer or any Related Employer as a result of any determination made in good faith as to the persons entitled to receive any distribution of the Participant’s Vested Account Balance.

10.4 Qualified Domestic Relations Orders

To the extent provided in any Qualified Domestic Relations Order, and subject to the provisions of Section 17.4(b) the person or persons named therein shall be considered the Participant’s Beneficiary.

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ARTICLE XI

FIDUCIARY CAPACITY AND RESPONSIBILITY

11.1 General Fiduciary Standard of Conduct

Each fiduciary under the Plan shall discharge his duties hereunder solely in the interest of the Participants and their Beneficiaries and for the exclusive purpose of providing benefits to the Participants and their Beneficiaries and defraying the reasonable expenses of administering the Plan and the Trust. Each fiduciary shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims, in accordance with the documents and instruments governing the Plan and the Trust, insofar as such documents and instruments are consistent with this standard.

11.2 Allocation of Responsibility Among Fiduciaries

(a) The fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given to them under this Plan. The Employer shall have the sole responsibility for making the contributions provided for under Article IV, and to amend or terminate, in whole or in part, the Plan and the Trust. The Committee shall have the sole responsibility for assisting the Administrator in the administration of the Plan, which responsibility is specifically described in the Plan. The Trustee shall have the sole responsibility for the administration of the Trust and the management of the assets held under the Trust (unless otherwise managed by an investment manager), all as specifically provided in the Trust. Each fiduciary warrants that any directions given, information furnished or action taken by him shall be in accordance with the provisions of the Plan or the Trust authorizing or providing for such direction, information or action. Each fiduciary may rely upon any such direction, information or action of another fiduciary as being proper under the Plan and the Trust, and is not required to inquire into the propriety of any such direction, information or action. No fiduciary guarantees the Trust in any manner against investment loss or depreciation in asset value. The Administrator, the members of the Committee, the Trustee and any investment manager shall each be a “named fiduciary” as defined in Section 402(a)(2) of ERISA. The Administrator may appoint such other named fiduciaries as it may determine are necessary or appropriate for the administration of the Plan.

(b) A fiduciary shall not be liable for the acts or omissions of another fiduciary unless (1) the fiduciary knowingly participates in, or knowingly attempts to conceal the act or omission of, another fiduciary and knows the act or omission is a breach of a fiduciary responsibility by the other fiduciary; or (2) the fiduciary has knowledge of a breach by the other fiduciary and shall not make reasonable efforts to remedy the breach; or (3) the fiduciary’s breach of his own fiduciary responsibility permits the other fiduciary to commit a breach.

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11.3 Administrator

(a) Richardson, or such person as the Employer shall designate pursuant to paragraph (b), shall serve as the Administrator of the Plan. The Administrator shall be the “plan administrator” as defined in Section 414(g) of the Code, and the “administrator” as defined in Section 3(16)(A) of ERISA. The Administrator shall have the duty to file such plan descriptions and annual reports as may be required by ERISA or similar legislation and shall be designated to accept service of legal process and any other notices for the Plan. The Administrator shall also furnish each Participant with a summary plan description and provide each Participant with a statement of his Account Balance and his Vested Account Balance as of each Anniversary Date. The Administrator shall provide the notice required by Section 402(f) of the Code, with each distribution made after December 31, 1984, which constitutes a qualifying rollover distribution as defined by Section 402(a)(5)(E) of the Code.

(b) The Employer shall have the authority to appoint another corporation or one or more persons to serve as the Administrator hereunder, in which event such corporation or person (or persons) shall exercise all of the powers, duties, responsibilities and obligations of the Administrator hereunder.

11.4 Powers and Duties of Administrator

The Administrator shall have all necessary power to accomplish its duties under the Plan in its discretion, including without limitation the power to:

(a)

Construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder (which determinations shall, in the absence of abuse of discretion, be binding upon all parties);

(b)

Prescribe procedures to be followed by Participants or Beneficiaries filing applications for benefits;

(c)

Assist any Participant regarding any rights, benefits or elections available under the Plan;

(d)

Adopt reasonable procedures for determining whether any order, judgment or decree constitutes a Qualified Domestic Relations Order, and notify the Participant and all alternate payees affected or their designated representatives as to the results of its determinations;

(e)

Determine whether to permit assets of the Trust to be used for loans to Participants pursuant to Section 14.1 and, if such use is to be permitted, adopt reasonable procedures to implement such determination and give all instructions to the Trustee relating thereto;

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(f)

Direct the Trustee with respect to the amount and type of benefits to which any Participant or Beneficiary shall be entitled hereunder and with respect to other disbursements from the Trust;

(g)

Receive from the Employer and from Participants such information as shall be necessary for the proper administration of the Plan;

(h)

Maintain all the necessary records for the administration of the Plan;

(i)

Receive, review and keep on file (as it deems convenient and proper) reports of benefit payments made by the Trustee and reports of disbursements for expenses directed by it;

(j)

Make, or instruct the Trustee to make, equitable adjustments for any mistakes or errors made in the administration of the Plan; and

(k)

Do all other acts which the Administrator deems necessary or proper to accomplish and implement its responsibilities under the Plan.

11.5 Claims Procedure

(a) A Participant or Beneficiary, or an authorized representative acting on his behalf (hereinafter called the “Claimant”), may notify the Administrator of a claim for benefits under the Plan. Such notice shall be in writing and may be in any form provided by or acceptable to the Administrator and shall set forth the basis of such claim and shall authorize the Administrator to conduct such examinations as may be necessary to determine the validity of the claim and to take such steps as may be necessary to facilitate the payment of any benefits to which the claimant may be entitled under the terms of the Plan. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits prior to his filing a claim for benefits and exhausting his rights to review under this Section 11.5.

(b) When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Claimant shall be notified of the approval or the denial within 90 days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period which shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than 180 days after the date on which the claim was filed). A Claimant shall be given a written notice in which the Claimant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in

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whole or in part, the Claimant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent plan provisions upon which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary and (4) the Claimant’s rights to seek review of the denial.

(c) If a claim is denied, in whole or in part, the Claimant shall have the right to request that the Administrator review the denial, provided that the Claimant files a written request for review with the Administrator within 60 days after the date on which the Claimant received written notification of the denial. A Claimant (or his duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Administrator. Within 60 days after a request for review is received, the review shall be made and the Claimant shall be advised in writing of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall be given a written notification within such initial 60-day period specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within 120 days after the date on which the request for review was filed). The decision on review shall be forwarded to the Claimant in writing and shall include specific reasons for the decision and references to plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes. If a Claimant shall fail to file a request for review in accordance with the procedures described in this Section 11.5, such Claimant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes.

11.6 Indemnification by Employer

The Employer shall indemnify the members of the Committee, the Administrator and each Trustee for, and hold them harmless from and against, any and all liabilities, losses, costs or expenses (including reasonable attorneys fees) of whatsoever kind and nature which may be imposed on, incurred by or asserted against them at any time by reason of their service under the Plan or the Trust as long as they did not act dishonestly or engage in willful misconduct or gross negligence in their official capacities hereunder.

11.7 Service in Multiple Capacities

Any person may serve in more than one fiduciary capacity hereunder, including but not limited to service both as a member of the Committee and as a Trustee.

11.8 Voting of Stock by Participants and Beneficiaries

With respect to any Stock which is entitled to vote and which is a “registration-type class of securities,” within the meaning of Code Section 409(e)(4), each Participant or Beneficiary to whose Account shares of such Stock have been allocated shall be entitled to direct the Trustee

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as to the manner in which such shares are to be voted. With respect to any Stock not described in the preceding sentence, each Participant or Beneficiary to whose Account shares of such Stock have been allocated shall be entitled to direct the Trustee as to the manner in which the voting rights with respect to such Stock are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all of the assets of a trade or business or such similar transaction as the Secretary of the Treasury may prescribe in regulations.

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ARTICLE XII

THE COMMITTEE

12.1 Appointment and Membership

The Administrator shall appoint a Committee to assist it in its administration of the Plan. The Committee shall consist of such number of members as the Administrator shall determine, who shall be appointed by and serve at the pleasure of the Administrator. The Administrator may delegate to the Committee any of its specific duties, rights and authorities under the Plan, or may delegate the Committee general authority to administer the Plan, in which event this Plan shall be construed as though the term “Committee” were substituted for “Administrator” wherever the latter appears other than in this Article XII; provided that neither the Committee nor any member of the Committee shall be deemed to be the Administrator pursuant to Section 11.3(a) unless the Committee or such member is specifically so designated.

12.2 Compensation and Expenses

The members of the Committee shall serve without compensation for their services hereunder. All expenses of the Committee, including expenses incurred in the hiring of consultants, advisors, investment managers, attorneys and accountants, shall be paid by the Employer to the extent that such expenses are not paid out of the Trust.

12.3 Committee Procedures and Actions

(a) The Committee shall act by a majority of its members at the time in office and such action may be taken either by vote at a meeting or in writing without a meeting.

(b) The Committee may adopt such by-laws, rules and regulations as it deems necessary, desirable or appropriate for the conduct of its affairs. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants and Beneficiaries in similar circumstances. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or Beneficiary, the Employer or any Related Employer, the Administrator or the Trustee, and shall have no duty or responsibility to verify such information.

(d) The Committee shall periodically (but no less frequently than annually) consult with the Trustee (or any investment manager) with regard to the investment policy of the Plan and the methods to be used to carry out the Plan’s objectives.

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12.4 Resignation or Removal of Committee Member

(a) Any member of the Committee may resign from office at any time by notifying the Administrator, the other members of the Committee and the Trustee in writing, at least 10 days in advance, of such resignation; provided, however, that such notice may, at the option of the parties, be waived.

(b) Any member of the Committee may be removed from office by the Administrator at any time, with or without cause. Such removal shall be effectuated by the tendering to such member, the other members of the Committee and the Trustee of a written notice of removal, to take effect on the date specified therein; provided, however, that such notice may, at the option of the parties, be waived. A member of the Committee who is a Participant shall automatically be removed from the Committee upon his retirement, Permanent Disability or Termination of Employment.

(c) Upon such resignation or removal of a member of the Committee, or upon his death, the Administrator shall promptly appoint a successor member of the Committee, who may be any individual, whether or not a Participant, and shall give prompt written notice thereof to the other members of the Committee and the Trustee. In the event of the failure of the Administrator to appoint such successor by the effective date of such resignation or removal, or within 10 days after such death, the remaining members of the Committee may appoint such successor.

(d) Each successor member of the Committee shall have all the powers, duties, responsibilities and obligations conferred by the Plan as if originally named to the Committee. No successor member of the Committee shall be personally liable for any act or failure to act of his predecessor or have any duty to review the actions of his predecessor.

12.5 Committee/Administrator Decisions Final

The Committee and the Administrator have discretionary authority to determine matters within their jurisdiction and the decisions of the Committee and of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Employer and the Trustee and upon each Employee, Participant, former Participant, Beneficiary and every other person or party interested or concerned.

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ARTICLE XIII

THE TRUST

13.1 Trust Agreement

All matters relating to the establishment of the Trust, the investment of the Trust assets and the appointment, resignation or removal, compensation, powers and duties of the Trustees are set forth in the Trust Agreement, except to the extent Article XIV applies.

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ARTICLE XIV

LOANS TO PARTICIPANTS;

LOANS TO ACQUIRE STOCK; DIVERSIFICATION ELECTIONS

14.1 Loans to Participants

(a) If the Administrator determines, in its sole discretion, to permit loans to Participants, it shall specify a form of loan application. After receiving and reviewing a Participant’s application for a loan and such other material as may reasonably be required, the Administrator may, in its sole discretion, direct the Trustee to make a loan to a Participant. Any borrowing by a Participant shall not affect his participation in the Plan. Loans shall be made available to all Participants on a reasonably equivalent basis, and shall not be made available to Highly Compensated Employees [as defined in Section 414(q) of the Code] in an amount greater than that which is made available to other Participants.

(b) Each Participant may borrow not more than the lesser of (1) $50,000 reduced by the excess, if any, of (i) the highest outstanding balance of loans made to the Participant from the Plan during the one year period ending on the day before the date on which such loan was made, over (ii) the outstanding balance of loans made to the Participant from the Plan on the date on which such loan was made, or (2) 50% of his Vested Account Balance. In determining if these limitations have been exceeded, all loans previously made to a Participant from the Plan [or from any other employee plan qualified under Section 401(a) of the Code maintained by the Employer or any Related Employer] shall be taken into consideration, to the extent of the highest outstanding balances of such loans during the one year period ending on the date on which the loan from this Plan is made.

(c) Anything to the contrary notwithstanding, all loans from the Plan shall be deemed to be a directed investment of the Participant’s Account. For purposes of determining the annual value of the assets of the Trust, the amount of any loan to a Participant shall be valued separately from the other assets of the Trust as provided in Section 7.2(a)(2), although any loan shall be considered at all times to be part of a Participant’s Account for all other purposes of the Plan.

(d) All loans from the Plan shall be at a reasonable rate of interest as determined from time to time by the Administrator. All interest paid by a Participant on a loan shall be credited directly to his Account.

(e) All loans shall be evidenced by a written promissory note executed by the Participant which shall contain the terms of repayment. As security for a loan, the Participant shall execute an irrevocable pledge and assignment to the Trustee of his entire right, title and interest in and to his Account.

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(f) All loans shall be repaid by the Participant in such manner and upon such terms as shall be elected by the Participant and approved by the Administrator in accordance with guidelines established from time to time by the Administrator; provided, however, that any repayment terms shall be subject to the following guidelines:

(1)

Any loan [other than a loan described in Section 14.1(f)(2)] shall be required, by its terms, to be repaid by the Participant within 5 years.

(2)

Any loan which is used by the Participant to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the Participant shall be required, by its terms, to be repaid by the Participant within a period of time as determined by the Administrator.

(3)

Any loan shall be required, by its terms, to be amortized in level payments, made not less frequently than quarterly, over the term of the loan. Such amortization may be made by level payments of combined interest and principal, or by equal payments of principal with interest actually earned.

(g) The Administrator shall have the authority to adopt such rules and procedures as may be necessary in its sole discretion to implement the provisions contained in this Section 14.1, provided that such rules and procedures are not inconsistent with the provisions of ERISA.

14.2 Loans to Acquire Stock

(a) The Administrator may at any time direct the Trustee to cause the Trust to borrow money from a “disqualified person” (as defined in Section 4975 of the Code), or to incur a debt guaranteed by a disqualified person if the entire proceeds of such loan are used in a reasonable time to either purchase Stock, or to repay a loan previously incurred under this Section 14.2 and the loan otherwise meets the requirements of this Section 14.2.

(b) Any debt incurred pursuant to Section 14.2(a) must:

(1)

Be for the primary benefit of Participants;

(2)

Be on terms such that the repayment will not cause other assets of the Trust to be depleted;

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(3)

If the lender is not an independent party, be on terms at least as favorable to the Trust as the terms of a comparable loan from an independent party;

(4)

Provide that, on default, the value of trust assets transferred in satisfaction of the loan do not exceed the amount of the default; and, if the lender is a disqualified person, must provide that a default consists only of failure to make payments when due and is limited to the amount of such payments;

(5)

Be at a reasonable rate of interest; and

(6)

Comply with all other regulations and rulings applicable to a loan described in Section 4975(d)(3) of the Code.

(c) All Stock acquired with the proceeds of a loan described in Section 14.2(a), whether or not pledged or otherwise encumbered, shall be credited to a Suspense Account. Each Plan Year, there shall be released from the Suspense Account, and allocated in accordance with Section 6.1(b), a number of shares of stock equal to the total number of shares held in the Suspense Account immediately prior to such release multiplied by a fraction, the numerator of which is the principal and interest paid on such loan during the Plan Year and the denominator of which is the sum of the numerator and all principal and interest payments remaining unpaid at the end of the Plan Year; without regard to possible renewals or extensions. If the interest rate on the loan is variable, such fraction shall be computed by assuming that the interest rate in effect at the end of the Plan Year shall remain in effect for the remaining term of the loan. The terms of any loan made pursuant to Section 14.2(a) must provide for a definitely ascertainable number and amount of payments, and the terms of any pledge or other encumbrance of the Stock which secures such loan must permit the release of a sufficient number of shares of stock to satisfy this Section 14.2(c).

14.3 Diversification Elections

(a) Each Qualified Participant may make an election (the “Election”) within 90 days after each Anniversary Date during the Qualified Election Period to direct the Plan to distribute to him, or on his behalf, a portion of his Account Balance equal to his Diversification Amount. An Election shall be made in, in writing, on a form to be supplied by the Administrator for such purpose. A Participant shall become a “Qualified Participant” on the first day on or after which he has both attained age 55 and completed 10 years of participation in the Plan. The “Qualified Election Period” shall be the 6-year period commencing with the Plan Year in which the Participant first becomes a Qualified Participant. During any one of the first 5 Plan Years of the Qualified Election Period, the “Diversification Amount” shall be an amount equal to the excess, if any, of 25% of:

(1)

The number of shares of Stock credited to the Qualified Participant’s Account on or before the last Anniversary Date preceding the Plan Year for which such Election is made, less

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(2)

The number of shares of Stock previously distributed to such Qualified Participant (or, where he had requested a distribution in cash, the number of shares of Stock in connection with such a cash distribution to him).

In the last Plan Year of the Qualified Election Period, the preceding sentence shall be applied by substituting “50%” for “25%.” In applying either such percentage, any resultant fractional share under .5 shall be disregarded and any resultant fractional share of .5 or more shall be considered as an additional full share.

(b) Not later than 90 days after the close of each 90-day period described in Section 14.3(a), the Administrator shall implement such Qualified Participant’s Election by distributing to him Stock equal to the Diversification Amount, or, if so directed by him, the Administrator shall cause such Stock to be sold on the open market and the net proceeds distributed to him, or on his behalf, subject to Section 9.10.

(c) The Administrator shall have the sole responsibility for and complete discretion in establishing and, if it deems it necessary, amending the rules and procedures governing the time and manner in which Qualified Participants may make, modify or revoke any Election pursuant to this Section 14.3. The discretion of the Administrator in this regard shall only be limited by the general requirement that such discretion be exercised in a non-discriminatory manner and in compliance with the requirements of Code Section 401(a)(28) and any regulations promulgated thereunder.

(d) The purpose of this Section 14.3 is to conform to the requirements of Code Section 401(a)(28). To the extent that this Section 14.3 is inconsistent with Section 401(a)(28), the provisions of Section 401(a)(28) shall control.

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ARTICLE XV

AMENDMENT

15.1 Right to Amend

Richardson shall have the right at any time or times to amend this Plan, in whole or in part.

15.2 Retroactivity of Amendments

No amendment to this Plan may be made effective retroactively to a date prior to the beginning of the Plan Year in which it is adopted, except amendments which are necessary to establish or maintain, without interruption, the qualification of the Plan for tax exemption under the provisions of the Code.

15.3 Limitations on Right to Amend

No amendment shall be made to this Plan which shall:

(a)

Directly or indirectly operate to give the Employer or any Related Employer any interest in the Trust or to deprive any Participant or Beneficiary of his interest in the Trust, or cause any part of the income or corpus of the Trust to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries, except as provided in Section 17.1.

(b)

Impose any duties, responsibilities or obligations on the Trustee without its written consent; or

(c)

Eliminate an optional form of benefit or eliminate or reduce an “early retirement benefit” or a “retirement-type subsidy” [as defined in Section 411(d)(6)(B) of the Code].

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ARTICLE XVI

ADOPTION, WITHDRAWAL AND TERMINATION

16.1 Adoption of Plan

(a) With the written consent of the Administrator, any other corporation, including a Related Employer, may adopt this Plan for the exclusive benefit of its eligible employees by appropriate resolution, which shall specify the effective date of such adoption and which may contain such changes and variations in the Plan and Trust as the Administrator shall approve, and by agreeing to be bound by the terms of this Plan.

(b) Each participating Employer shall pay a proportionate part of the expenses incurred in the administration of the Plan and the Trust to the extent that such expenses are not paid directly out of the Trust.

16.2 Withdrawal from Plan

A participating Employer may withdraw from the Plan by giving written notice to the Administrator and the Trustee, which notice shall specify the effective date of the withdrawal, which, unless such requirement is waived by the Administrator, shall not be less than 30 days after such notice is given. If the date of withdrawal is not an Anniversary Date, the Trustee shall value all Trust assets as of the effective date of the withdrawal in the manner provided in Section 7.2 as if such date were an Anniversary Date, but shall not allocate the participating Employers’ contribution. The withdrawal by an Employer shall be treated as a termination of the Plan with respect to Participants employed by the withdrawing Employer, and such Participants shall be 100% vested in their Account Balance as of the date of withdrawal, and such Account Balance shall be distributed as provided in Article IX.

16.3 Termination

(a) The Agreement may be terminated at any time by Richardson.

(b) Upon termination of the Plan and Trust, the Administrator shall direct the Trustee to value the Trust in accordance with Section 7.2 and to distribute in accordance with the terms of the Plan all assets remaining in the Trust (after payment or reserving funds for payment of any fees, taxes and expenses properly chargeable against the Trust) to the Participants in accordance with the value of the credits standing to each Participant’s Accounts as of the date of such termination, in cash or in kind valued at fair market at the date of distribution, in such manner as the Trustee shall determine.

(c) In the event of the sale by an Employer of substantially all of its assets and business, the successor to the Employer shall be substituted for and shall exercise and have all the rights and obligations of the Employer hereunder upon the filing, in writing, of its election to do so with the Trustee.

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ARTICLE XVII

MISCELLANEOUS

17.1 No Reversion to Employer

No part of the corpus or income of the Trust shall revert to the Employer or any Related Employer or be used for, or diverted to, purposes other than for the exclusive benefit of the Participants and their Beneficiaries; provided, however, that:

(a) Any balance remaining in the Excess Contribution Account or the Excess Forfeiture Account at the time the Plan is terminated, and which cannot be allocated in the final Plan Year of the Plan without violating the limitations of Section 7.6, shall be returned to the Employer (and, in the event that there is more than one participating Employer, such reversion shall be in the proportion that the aggregate contributions made by each such Employer in all Plan Years with respect to which amounts were credited to either of such accounts bears to the aggregate contributions made by all participating Employers in all such Plan Years).

(b) In the event that any portion of a contribution is made by the Employer to the Plan because of either a good faith mistake of fact or a good faith mistake in determining that such contribution is deductible under Section 401 of the Code, the Trustee shall return to the Employer, upon written notice thereof, an amount equal to the portion of such contribution which would not have been made but for such mistake of fact, or which is determined to be non-deductible, as the case may be, subject to the following conditions and limitations. No amount shall be returned to the Employer pursuant to this Section 17.l(b) unless such amount is returned not later than one year after the date on which the contribution was made in the case of a contribution based on a mistake of fact was made, or the date on which the deduction is disallowed in case of a contribution mistakenly believed to be deductible. For purposes of the preceding sentence, a deduction shall be considered to be disallowed on either (1) the day on which the Employer voluntarily files an amended federal income tax return correcting the error; (2) the day on which the Internal Revenue Service issues a statutory notice of deficiency, notice of final partnership or S corporation administrative adjustment, or other determination from which no further administrative appeal is possible, which notice is based in whole or part upon disallowance of such deduction, provided that, if applicable, no person files a timely petition for judicial review of such determination; or (3) if such a petition for judicial review is filed, the day on which a final judgment is entered dismissing such petition or upholding the disallowance of such deduction from which judgment no further appeal is possible, or as to which the time for filing an appeal expires. The amount returned to the Employer shall not include any earnings attributable to the erroneous contribution, but shall be reduced by any losses attributable thereto. Notwithstanding the provisions of Article VIII, an erroneous contribution may be returned in accordance with this Section 17.l(b) after such contribution has been allocated and credited to the Participants’ Accounts, in which event the amount so returned shall be charged to the Accounts in the same proportion that the contribution was originally allocated; provided, however, that in no event shall

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the Account Balance of any Participant be reduced as a result of the return of an erroneous contribution to less than it would have been had the erroneous contribution not been made, and the amount returned to the Employer shall be reduced to the extent necessary to avoid such a reduction.

17.2 Evidence of Action by Necessary Parties

(a) Any action by the Employer pursuant to the provisions of this Plan shall be evidenced by a resolution of its Board of Directors, or by written instrument executed by any person authorized by its Board of Directors to take such action.

(b) Necessary parties to any accounting, litigation or other proceedings shall include only the Trustee and the Employer, and the settlement or judgment in any such case in which the Employer is duly served or cited shall be binding upon all persons entitled to benefits under the Plan, the estate of any such person, and upon all persons claiming by, through or under them.

17.3 Rights of Participants Limited

Neither the adoption of the Plan nor anything contained in the Plan or the Trust shall be construed as giving any Participant, Beneficiary or Employee any equity or other interest in the assets, business or affairs of the Employer or any Related Employer, or the right to complain about any action taken by the officers, directors or stockholders of, or about any policy adopted or pursued by, the Employer or any Related Employer, or the right to examine the books and records of the Employer or any Related Employer, or as giving any Employee the right to be retained in the service of the Employer or any Related Employer, and all Employees shall remain subject to discharge to the same extent as if the Plan and the Trust had never been executed. Prior to the time that distributions are made in conformity with the provisions of the Plan, neither the Participants, nor their spouses, Beneficiaries, heirs-at-law, or legal representatives shall receive cash or any other thing of current exchangeable value from the Employer or any Related Employer or the Trustee as a result of the Trust.

17.4 Assignment and Alienation

(a) No payment to any person under any of the provisions of the Plan or the Trust, nor the right to receive such payment or payments, nor any interest in the Trust, shall be subject to assignment, alienation, transfer or anticipation, either by the voluntary or involuntary act of any Participant or Beneficiary or by operation of law, nor, except for the repayment of loans to Participants authorized under Section 14.1 and payments pursuant to a Qualified Domestic Relations Order in accordance with Section 17.4(b), shall such payment or right or interest be subject to the demands or claims of any creditor of such person, nor be liable in any way for such person’s debts, obligations or liabilities.

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(b) Upon receiving any order, judgment or decree which may be a Qualified Domestic Relations Order, the Administrator shall promptly notify the Participant involved and any Alternate Payee [as defined in Section 2.28(a)] who may be affected by such order of the receipt of the order and of the Plan’s procedure for determining whether the order is a Qualified Domestic Relations Order, and shall proceed to determine whether the order is a Qualified Domestic Relations Order. During the period during which it is being determined whether such order is a Qualified Domestic Relations Order, any payments which would, under such order, be payable to an Alternate Payee, shall be placed in a separate account in the Trust. If, within 18 months after receipt of such order, the Administrator determines that such order is a Qualified Domestic Relations Order, the amount of such separate account, with any earnings thereon, shall be paid to the Alternate Payees as provided in such order. If the status of such order has not been established within such 18-month period, or if it is determined that the order is not a Qualified Domestic Relations Order, the amount of such separate account shall be paid to the Participant, or, if it would not otherwise have been payable currently, shall be restored to the Participant’s Account. Any determination made more than 18 months after the receipt of such order that such order is a Qualified Domestic Relations Order shall be applied prospectively only.

(c) In the event that any Participant’s benefits are garnished or attached by order of any court, the Trustee may bring an action for a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid by the Trust. During the pendency of said action, any benefits that become payable shall be paid into the court as they become payable, to be distributed by the court to the recipient it deems proper at the close of said action.

(d) Section 17.4(a) shall not apply to any offset of a Participant’s benefits provided under the Plan against an amount that he is ordered or required to pay to the Plan if:

(1)

The order or requirement to pay arises (i) under a judgment of conviction for a crime involving the Plan; (ii) under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA; or (iii) pursuant to a settlement agreement between the Secretary of Labor and such Participant, or a settlement agreement between the Pension Benefit Guaranty Corporation and such Participant, in connection with a violation (or alleged violation) of Part 4 of such subtitle by a fiduciary or any other person;

(2)

Such judgment, order, decree, or settlement agreement expressly provides for the offset of all or part of the amount ordered or required to be paid to the Plan against such Participant’s benefits provided under the Plan; and

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(3)

In a case in which the survivor annuity requirements of Section 401(a)(11) of the Code apply with respect to distributions from the Plan to such Participant, if such Participant has a spouse at the time at which such offset is to be made, (i) either such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the Plan [or it is established to the satisfaction of a Plan representative that such consent may not be obtained by reason of circumstances described in Section 417(a)(2)(B) of the Code], or an election to waive the right of such spouse to either a “qualified joint and survivor annuity” [within the meaning of Section 417(b) of the Code] or a “qualified preretirement survivor annuity” [within the meaning of section 417(c) of the Code] is in effect in accordance with the requirements of Section 417(a) of the Code; (ii) such spouse is ordered or required in such judgment, order, decree or settlement to pay an amount to the Plan in connection with a violation of Part 4 of such subtitle; or (iii) in such judgment, order, decree, or settlement, such spouse retains the right to receive the survivor annuity under such a qualified joint and survivor annuity provided pursuant to Section 401(a)(11)(A)(i) of the Code and under such a qualified preretirement survivor annuity provided pursuant to Section 401(a)(11)(A)(ii) of the Code, determined in accordance with Section 401(a)(13)(D) of the Code.

This Section 17.4(d) shall apply to judgments, orders and decrees issued, and settlement agreements entered into, on or after August 5, 1997.

17.5 Missing Participants or Beneficiaries

(a) Each Participant shall file with the Employer, in writing, his post office address, the post office address of each of his Beneficiaries, and each change of post office address. Any communication, statement or notice addressed to Participant or Beneficiary with postage prepaid at his last post office address filed with the Employer, or if no address is filed with the Employer, then at his last post office address as shown on the Employer’s records, will be binding on the Participant and his Beneficiary for all purposes of the Plan. Neither the Trustee nor the Administrator is required to search for or locate Participant or Beneficiary.

(b) If the Administrator or Trustee shall send by registered or certified mail, postage prepaid, to the last known address of a Participant or Beneficiary, a notification that he is entitled to a distribution hereunder and if either (1) such notification is returned because the addressee cannot be located at such address and neither the Employer nor the Trustee shall have any knowledge of such Participant’s or Beneficiary’s whereabouts within 3 years from the date such notification was mailed, or (2) within 3 years after such notification was mailed to such

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Participant or Beneficiary, he does not respond thereto by informing the Trustee of his whereabouts, then, upon the Anniversary Date coincident with or immediately following the third anniversary of the mailing of said notification, the then undistributed Account Balance of such Participant or Beneficiary shall be paid to the person or persons who would have been entitled to take in the event of the death of the Participant or Beneficiary whose whereabouts is unknown, assuming that such death had occurred on the Anniversary Date immediately succeeding the third anniversary of the mailing of said notification.

(c) If any check in payment of a benefit hereunder which has been mailed by regular United States mail to the last address of the payee furnished the Trustee by the Administrator is returned unclaimed, the Trustee shall notify the Administrator and shall discontinue further payments to such payee until it receives the further instructions of the Administrator.

17.6 Merger and Consolidation of Plan

In the case of any merger or consolidation with, or transfer of assets and liabilities to, any other employee plan qualified under Section 401(a) of the Code, provisions shall be made so that each Participant in the Plan on the date thereof would receive a benefit immediately after the merger, consolidation or transfer (if the other employee plan terminated on that date) which is equal to or greater than the benefit he would have been entitled to receive immediately prior to the merger, consolidation or transfer (if the Plan had then terminated).

17.7 Severability

In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions, but shall be fully severable and this Agreement shall be construed and enforced as if said illegal or invalid provision had never been inserted herein.

17.8 Applicable Law

This Plan shall be construed and enforced and the Trust shall be administered in accordance with the laws of the State of Illinois, to the extent that such laws are not preempted by the laws of the United States of America.

17.9 Method of Accounting

The Plan shall use the accrual method of accounting.

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17.10 Veterans’ Rights

Effective December 12, 1994 and notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

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ARTICLE XVIII

REVISED VESTING PROVISIONS

18.1 Scope and Effective Date

As to each Employee who is actively employed by the Employer on or after June 1, 1996, the vested interest of such Employee in his Account shall be determined in accordance with this Article XVIII notwithstanding any other provision of the Plan to the contrary; provided, however, Sections 8.1, 8.2, 8.3, 8.4, 8.7 and 8.8 of the Plan shall continue to apply.

18.2 Definitions

For purposes of this Article XVIII, the following terms shall have the meanings set forth, notwithstanding any definition of any such term elsewhere in the Plan:

(a)

“ Break in Service ” A Period of Severance of at least 12 consecutive months. In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a Break in Service. An “absence from work for maternity or paternity reasons” shall mean an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement.

(b)

“ Hour of Service ”: Each hour for which an Employee is paid or entitled to payment for the performance of duties for the Employer or a Related Employer.

(c)

“ Period of Service ”: An Employee’s period of service commencing on the date he first completes an Hour of Service, and ending on the date a Break in Service begins; provided, however, that for purposes of Section 18.2(c), any Employee to whom Section 18.4 applies shall be deemed to have a hire date of May 31, 1997.

(d)

“ Period of Severance ”: A continuous period of time during which an Employee is not employed by the Employer. Such period begins on the date such Employee retires, quits or is discharged, or if earlier, the 12-month anniversary of the date on which such Employee was otherwise first absent from service.

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(e)

“ Years of Service ”: The number of whole years of an Employee’s Period of Service with the Employer or a Related Employer.

For purposes of this Article XVIII, service by an individual on behalf of any of the following entities before he became an Employee shall be considered service on behalf of the Employer, to-wit: Amperex Division of North American Phillips Corp.; B-Scan, Inc.; Calvert Electronics, Inc.; Calvert Holding Co., Inc.; Calvert Semi-Conductor, Inc.; Ceco Communications, Inc.; Cetron Electronic Corporation; National Electronics Division of Varian Associates, Inc.; TubeMaster, Inc.; Compucon Distributors, Inc.; AFP Imaging Corporation; Burtek Systems (USA), Inc.; AFP Imaging Corporation; Eternal Graphics, Inc., (effective June 1, 1998 and including service prior to that date); TRL Technologies, Inc. (effective June 23, 1998 and including service prior to that date); Adler Video Systems, Inc. (effective November 28, 1998 and including service prior to that date); and Pixielink Corporation (effective March 8, 1999 and including service prior to that date); and Broadcast Richmond, Inc. (effective May 31, 2000 and including service prior to that date).

18.3 General Vesting Rules

(a) For purposes of determining his Years of Service, an Employee shall receive credit for any Period of Severance of less than 12 consecutive months. Nonconsecutive Periods of Service shall be aggregated. Additionally, fractional periods of a year shall be expressed in terms of days, and less-than-whole-year Periods of Service shall be aggregated on the basis that 365 days of service shall equal a whole Year of Service.

(b) In the case of a Participant who has 5 consecutive Breaks in Service, all Years of Service after such Breaks in Service shall be disregarded for the purpose of determining his vesting in his Account balance which accrued before such breaks, but both pre-break and post-break service shall count for the purposes of vesting the Employer-derived Account balance that accrues after such breaks. Both such balances shall share in the earnings and losses of the Trust.

(c) In the case of a Participant who does not have 5 consecutive Breaks in Service, both the pre-break and post-break service shall count in vesting both the pre-break and post-break Employer-derived Account balances.

(d) The excess of a Participant’s Account Balance over his Vested Account Balance shall be transferred from such Participant’s Employer Contribution Account to his Forfeiture Suspense Account as of the date on which such Participant incurs a Break in Service, and shall be forfeited on the date on which such Participant incurs 5 consecutive Breaks in Service. If such a Participant returns to the employment of the Employer or any Related Employer before incurring 5 consecutive Breaks in Service, any amount transferred to his Forfeiture Suspense Account from his Employer Contribution Account pursuant to the preceding sentence shall be restored to his Employer Contribution Account.

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(e) If a Participant receives a distribution of all or a portion of his Employer Contribution Account Balance at a time when it is possible for him to increase the vested percentage of his Employer Contribution Account (including a Participant who received a distribution upon incurring a Termination of Employment and who returns to the employment of the Employer or any Related Employer before incurring at least 5 consecutive Breaks in Service), then such Participant’s Vested Account Balance at any time after he is re-employed shall be determined by (1) increasing the Participant’s Employer Contribution Account Balance at such time by the Adjusted Distribution (as hereafter defined), (2) then multiplying the Employer Contribution Account Balance (as so increased) by the relevant vesting percentage under Section 8.4, and (3) then subtracting the Adjusted Distribution from the product obtained. The “Adjusted Distribution” shall be equal to the amount of the distribution multiplied by a fraction, the numerator of which is the Participant’s Account Balance at the time the formula is applied and the denominator of which is the Account Balance immediately following the distribution (without regard to forfeitures).

(f) If a Participant returns to the employment of the Employer or any Related Employer after incurring at least 5 Breaks in Service, and such Participant did not receive payment of the full amount of his Vested Account Balance, his Vested Account Balance remaining unpaid shall be placed in a separate Pre-Break Account for the Participant. The Pre-Break Account shall be treated in the same manner as the Employer Contribution Account of the Participant, except that it shall not be credited with the Employer’s contributions and the Participant shall be 100% vested in such Pre-Break Account.

18.4 Transitional Rules

Each Employee described in Section 18.1 who was actively employed by the Employer on May 31, 1996 shall receive credit for a Period of Service equal to the sum of:

(a)

A number of years equal to the number of Years of Service credited to him under the Plan (determined without regard to this Article XVIII) as of the Computation Period ended May 31, 1996; and

(b)

The greater of (1) the Period of Service which would be credited to him under this Article XVIII during the Computation Period ending May 30, 1997 or (2) the service which would be taken into account under the Plan (determined without regard to this Article XVIII) during the Computation Period ended May 30, 1997.

In addition, each such Employee shall receive credit for service determined under this Article XVIII commencing on May 31, 1997.

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IN WITNESS WHEREOF, Richardson has caused this Plan to be executed as of the date and year first written above.


RICHARDSON ELECTRONICS, LTD.

By:		/s/ William G. Seils
		William G. Seils
		Senior Vice President,
		General Counsel and Secretary

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Exhibit 10(b)(i)

AMENDMENT No. 1 TO

RICHARDSON ELECTRONICS, LTD. EMPLOYEES STOCK OWNERSHIP PLAN

(As Amended and Restated Effective June 1, 1997)

RICHARDSON ELECTRONICS, LTD., a Delaware corporation, hereby amends the Richardson Electronics, Ltd. Employees Stock Ownership Plan, as previously amended and restated effective June 1, 1997 (the “Plan”), as follows:

1. The second sentence of Section 2.l8(a)(2) of the Plan is deleted and the following sentence is substituted in its place effective June 1, 1997:

In the case of payments which are computed on the basis of specific periods of time during which no duties are performed, the Employee shall receive credit for Hours of Service as if he had actually worked during such periods of time, computed and credited as provided in Section 2.18(a)(l).

2. The following sentence is added to Section 2.18(c) of the Plan, effective May 8, 2001:

Service by an individual on behalf of Baron Electronic Sales Co., Inc. before he became an Employee shall be considered service on behalf of the Employer for purposes of this Section 2.18, effective May 8, 2001, and including service prior to that date.

3. Section 9. l(f) is added to the Plan to read as follows, effective June 1, 1997:

(f) Notwithstanding any other provision of the Plan, but subject to Section 9.1(c), unless a Participant otherwise elects, the payment of benefits under the Plan to him shall begin not later than the 60th day after the close of the Plan Year in which (1) occurs the date on which he attains his Normal Retirement Date, (2) occurs the 10th anniversary of the year in which he commenced participation in the Plan or (3) he terminates his service with the Employer.

4. The following sentence is added to Section 9.10(b)(4) of the Plan after the first sentence thereof, effective December 31, 1998:

The term “eligible rollover distribution” shall also not include any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code received after December 31, 1998.

5. Section 17.11 is added to the Plan to read as follows effective June 1, 1997:

17.11 Valuation of Stock Not Readily Tradable on an Established Market

All valuations of Stock which is not readily tradable on an established securities market with respect to activities carried on by the Plan shall be by an independent appraiser. The term “independent appraiser” shall mean any appraiser meeting requirements similar to the requirements of the regulations promulgated under Section 170(a)(l) of the Code.

Dated this 17 ^th day of Oct., 2001.


RICHARDSON ELECTRONICS, LTD.

By		/s/ William G. Seils
		William G. Seils
		Senior Vice President,
		General Counsel and Secretary

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Exhibit 10(b)(ii)

AMENDMENT No. 2 TO

RICHARDSON ELECTRONICS, LTD. EMPLOYEES STOCK OWNERSHIP PLAN

(As Amended and Restated Effective June 1, 1997)

1. The following sentence is added to Section 2.1l(c) of the Plan effective for Plan Years and Limitation Years beginning after May 31, 1998:

In addition to the foregoing, “Compensation” shall include any amount which is contributed or deferred by the Employer at the election of such Participant and which is not includable in the gross income of such Participant by reason of Section 132(f)(4) of the Code.

2. The following sentence is added to Section 6.1(b) of the Plan effective June 2, 2002:

Effective for Plan Years beginning on or after June 2, 2002, the preceding sentence shall read as follows: “The Participants who shall be eligible to receive an allocation under this Section 6.1 with respect to a Plan Year shall be limited to Participants who are Employees on the last work day of such Plan Year (including Participants who incurred a Termination of Employment on such date) and who are credited with a Year of Service for such Plan Year.”

3. Section 7.4 of the Plan is deleted and the following is substituted in its place effective June 1, 2002:

7.4 Crediting of Forfeitures

(a) Forfeitures, if any, occurring during the Plan Year pursuant to Section 18.3(d) and allocated from the Forfeiture Suspense Accounts shall be allocated among the Employer Contribution Accounts of all Participants eligible to receive an allocation of the Employer’s contribution under Section 6.1(a) in the proportion that the Compensation paid or accrued to each such Participant during such Plan Year bears to the Compensation paid or accrued to all such Participants during such Plan Year. Forfeitures to be allocated with respect to the Plan Year ending June 1, 2002 shall include the amounts treated as forfeitures pursuant to Section 18.3(g). This Section 7.4(a) shall not apply to Plan Years beginning on or after June 2, 2002.

(b) Forfeitures occurring in Plan Years beginning on or after June 2, 2002 shall be used to pay the expenses of administering the Plan (including

reimbursing the Employer for such expenses paid by it) and to restore the Accounts of Participants in accordance with Section 18.3(i). Any forfeitures arising during such a Plan Year but not utilized pursuant to the preceding sentence shall be allocated among the Employer Contribution Accounts of all Participants eligible to receive an allocation of the Employer’s contribution under Section 6.1(a) in the proportion that the Compensation paid or accrued to each such Participant during such Plan Year bears to the Compensation paid or accrued to all such Participants during such Plan Year.

4. Effective for distributions on or after October 17, 2000, the fourth sentence of Section 9.1(d) is deleted.

5. The following sentence is added to Section 9.8(b) of the Trust effective June 1, 2002:

This Section 9.8(b) shall not apply to dividends on Stock paid to the Trust in Plan Years beginning on or after June 2, 2002.

6. Section 9.8(c) is added to the Plan to read as follows, effective with respect to dividends on Stock paid to the Trust in Plan Years beginning on or after June 2, 2002:

(c) Effective with respect to dividends on Stock paid to the Trust in Plan Years beginning on or after June 2, 2002, the following procedures shall govern the distribution and reinvestment of dividends paid on Stock:

(1)

All dividends on Stock received by the Trust during a Plan Year shall be held by the Trustee in a short-term interest-bearing bank account or in a money market mutual fund (the “Dividend Fund”) pending disposition in accordance with this Section 9.8(c). Expenses of administering the Plan may be charged against the Dividend Fund, to the extent forfeitures available pursuant to Section 7.4(b) are insufficient for this purpose. Any administration expense paid from the Dividend Fund shall first be charged against the earnings received from said bank account or mutual fund and the remainder shall be charged against dividends on Stock paid to said bank account or mutual fund.

(2)

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Account balances (determined without regard to the Dividend Fund) as of such day of Participants who are not 100% vested in such balances as of such day and whose denominator is the total value of the Employer Contribution Account balances (determined without regard to the Dividend Fund) as of such day of all Participants. Part II shall consist of the remainder of the balance in the Dividend Fund as of such day. The term “Part I Participant” as used herein shall mean, with respect to a Plan Year, a Participant whose Employer Contribution Account was used in the numerator of the fraction used to determine Part I of the Dividend Fund for such Plan Year. The term “Part II Participant” as used herein shall mean, with respect to a Plan Year, a Participant whose Employer Contribution Account was used in the denominator of the fraction used to determine Part I of the Dividend Fund for such Plan Year and who is not a Part I Participant.

(3)

As of the last day of each Plan Year, there shall be allocated to the Employer Contribution Account of each Part I Participant and each Part II Participant for such Plan Year their respective shares of the balance of the Dividend Fund on that day. Each such Participant’s share shall be determined by multiplying such balance by a fraction whose numerator is the value of his Employer Contribution Account balance (determined without regard to the Dividend Fund) as of such day and whose denominator is the total value of the Employer Contribution Account balances (determined without regard to the Dividend Fund) as of such day of all such Participants.

(4)

No later than the last day of the 90-day period following the end of each Plan Year, Part I of the Dividend Fund shall be used to purchase additional shares of Stock. Notwithstanding the preceding sentence, there shall be subtracted from Part I any expenses incurred by the Plan in connection with purchasing Stock. The shares so purchased shall be allocated pro rata among the Employer Contribution Accounts of each Part I Participant at the end of such Plan Year according to their respective shares of the balance of the Dividend Fund, determined in accordance with Section 9.8(c)(3).

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(5)

No later than the last day of the 90-day period following the end of each Plan Year, that portion of Part II of the Dividend Fund not consisting of dividends on Stock shall be used to purchase additional shares of Stock. Notwithstanding the preceding sentence, there shall be subtracted from such portion of Part II any expenses incurred by the Plan in connection with purchasing Stock. The shares so purchased shall be allocated pro rata among the Employer Contribution Accounts of each Part II Participant at the end of such Plan Year according to their respective shares of the balance of the Dividend Fund, determined in accordance with Section 9.8(c)(3).

(6)

As soon as practicable following the last day of each Plan Year, the Administrator shall notify each Part II Participant of his share of the balance of the Dividend Fund as of such day, other than that portion of such share which is to be reinvested in Stock pursuant to Section 9.8(c)(5). The notification shall advise such Participant that he may irrevocably elect in writing what whole-number percentage of the amount indicated in such notification should be distributed to him in cash and what whole-number percentage should be invested by the Plan in Stock (net of any expenses incurred by the Plan in connection with such distribution or investment) and that in the event he does not return to the Administrator his written election within a reasonable period (as specified by the Administrator in such notification), the entire amount indicated in such notification shall be invested by the Plan in Stock. No later than the last day of the 90-day period following the end of such Plan Year, that portion of Part II for a Plan Year which is subject to such elections:

(i)

Shall be (A) distributed to Part II Participants in cash, (B) used to purchase shares of Stock on behalf of Part II Participants or (C) some combination of Clauses (A) and (B), in accordance which such elections; and

(ii)

Shall be used to purchase additional Stock in the case of any such Participant not returning an election for such Plan Year to the Administrator in a timely fashion.

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Notwithstanding the preceding sentence, there shall be subtracted from the amount distributed and the amount used to purchase additional Stock any expenses incurred by the Plan in connection with making cash distributions or purchasing Stock, as the case may be. Stock which is purchased shall be allocated to the Employer Contribution Accounts of the Part II Participants for whose benefit such Stock was purchased.

(7)

Stock allocated to the Employer Contribution Accounts of Part I Participants pursuant to Section 9.8(c)(4) shall be subject to the vesting provisions of Section 8.4(c) and shall not be Annual Additions. Stock allocated to the Employer Contribution Accounts of Part II Participants pursuant to Section 9.8(c)(5) shall be 100% vested and shall not be Annual Additions. Cash distributions to Part II Participants pursuant to Section 9.8(c)(5) shall not be Eligible Rollover Distributions [within the meaning of Section 9.10(b)(4)] and shall not be subject to the requirements of Section 9.1(d).

7. Sections 18.3(g) through 18.3(j) are added to the Plan to read as follows effective June 1, 2002:

(g) Section 18.3(d) shall not apply to Participants who terminate employment on or after June 2, 2002. Notwithstanding Section 18.3(d), the balances in all Forfeiture Suspense Accounts at June 1, 2002 shall be treated as forfeitures and shall be allocated in accordance with Section 7.4(a) for the Plan Year ending on said date as if all Participants as to whom such Forfeiture Suspense Accounts had been established had incurred 5 consecutive Breaks in Service on said date. In the event any Participant described in the preceding sentence returns to the employment of the Employer or any Related Employer on or after June 2, 2002 and before incurring 5 consecutive Breaks in Service, there shall be credited to his Employer Contribution Account (by using accumulated forfeitures for this purpose and thereafter, to the extent necessary, by means of a special contribution from Employer for this purpose) the amount which had been transferred to his Forfeiture Suspense Account.

(h) If a Participant terminates his employment on or after June 2, 2002, any portion of his Account (including any amounts credited after his

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termination of employment) not payable to him under Section 9.1 shall be forfeited by him upon the complete distribution to him of the vested portion of his Account, if any, subject to the possibility of reinstatement as described in Section 18.3(i). For purposes of this Section 18.3(h), if the value of a Participant’s Vested Account Balance is zero, he shall be deemed to have received a distribution of his vested interest immediately following termination of employment. All amounts so forfeited shall be held in a short-term interest-bearing bank account or in a money market mutual fund pending disposition in accordance with Section 7.4(b).

(i) If a Participant forfeits any portion of his Account under Section 18.3(h) but again becomes an Employee after such date, the amount so forfeited shall be re-credited to his Account, but only if he repays to the Plan (without interest) the amount previously distributed to him under Section 9.1, before the earlier of:

(1) 5 years after the date of his re-employment; or

(2) The date he incurs 5 consecutive Breaks in Service following the date of the distribution.

If a Participant is deemed to have received a distribution pursuant to Section 18.3(h) and resumes employment before 5 consecutive Breaks in Service, he shall be deemed to have repaid such distribution on the date of his re-employment. Upon such an actual or deemed repayment, the provisions of the Plan shall thereafter apply as if no forfeiture had occurred. The amount to be re-credited pursuant to this Section 18.3(i) shall be derived first from the forfeitures, if any, which as of the date of re-crediting have yet to be applied as provided in Section 7.4(b) and, to the extent such forfeitures are insufficient, from a special contribution to be made by the Employer for this purpose.

(j) If a Participant elects not to receive the vested portion of his Account following his termination of employment, the non-vested portion of his Account shall be forfeited after the Participant has incurred 5 consecutive Breaks in Service. The amount so forfeited shall be held in a short-term interest-bearing bank account or in a money market mutual fund pending disposition in accordance with Section 7.4(b).

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Dated this 24 ^TH day of May, 2002.


RICHARDSON ELECTRONICS, LTD.

By		/s/ William G. Seils
		William G. Seils
		Senior Vice President, General Counsel and Secretary

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Exhibit 10(b)(iii)

AMENDMENT No. 3 TO

RICHARDSON ELECTRONICS, LTD. EMPLOYEES STOCK OWNERSHIP PLAN

(As Amended and Restated Effective June 1, 1997)

RICHARDSON ELECTRONICS, LTD., a Delaware corporation, hereby further amends the Richardson Electronics, Ltd. Employees Stock Ownership Plan, as previously amended and restated effective June 1, 1997 and as thereafter further amended (the “Plan”), as follows:

1. Section 2.11(d) is added to the Plan effective June 2, 2002, as to Plan Years beginning on or after that date:

Notwithstanding the preceding provisions of this Section 2.8, effective for Plan Years beginning after December 31, 2001 the Compensation of each Participant taken into account for any Plan Year shall not exceed $200,000 [subject to cost-of-living adjustments pursuant to Section 401(a)(17)(B) of the Code].

2. Section 2.19 of the Plan is deleted and the following is substituted in its place effective June 2, 2002, as to Plan Years beginning on or after that date:

2.19

“ Key Employee ”:

(1)

An officer of the Employer having an annual Compensation greater than $130,000 [subject to cost-of-living adjustments pursuant to Code Section 416(i)(l)(A)];

(2)

A person who owns [or is considered as owning within the meaning of Code Section 318, as modified by Code Section 416(i)(l)(B)(iii)] more than 5% of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of all stock of the Employer; or

(3)

A person whose annual Compensation from the Employer is more than $150,000 and who owns (or is considered as owning within the meaning of said Section 318, as so modified) more than 1% of

the outstanding stock of the Employer or more than 1% of the total combined voting power of all stock of the Employer.

If a Participant is a Key Employee, his Beneficiary, if any, shall also be deemed a Key Employee.

(c) The term “Key Employee Test Period” for any Plan Year shall mean the period consisting of the Plan Year containing the Determination Date for such Plan Year.

(d) The purpose of this Section 2.19 is to conform to the definition of “key employee” set forth in Section 416(i)(l) of the Code, which is incorporated herein by reference, and to the extent that this Section 2.19 shall be inconsistent with Section 416(i)(l) of the Code, either by excluding Employees who would be classified as “key employees” thereunder or by including Employees who would not be so classified, the provisions of Section 416(i)(l) of the Code shall govern and control.

3. Sections 2.35(e) and 2.35(f) of the Plan are deleted and the following are substituted in their place effective June 2, 2002, as to Plan Years beginning on or after that date:

(e) For purposes of this Section 2.35, account balances shall include (1) all contributions which the Employer or any Related Employer has paid or is legally obligated to pay to any employee plan as of the Top-Heavy Determination Date (including contributions made thereafter if they are allocated as of the Top-Heavy Determination Date) and all forfeitures allocated as of the Top-Heavy Determination Date and (2) all distributions made to a Participant or

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his Beneficiary during the one-year period ending on the Determination Date. If any plan that was terminated within the Key Employee Test Period would, if it had not been terminated, be a plan described in Section 2.35(b), distributions made under such plan shall also be taken into account. In the case of any distribution made for a reason other than severance from employment, death or disability, the second preceding sentence shall be applied by substituting “five-year period” for “one-year period.” For purposes of this Section 2.32, account balances shall also include amounts which are attributable to contributions made by the Participants (other than deductible voluntary contributions under Section 219 of the Code) but shall not include any rollover [as defined in Section 402(a) (5) of the Code] or a direct transfer from the trust of any employee plan qualified under Section 401(a) of the Code if such plan is not maintained by the Employer or any Related Employer and such rollover or transfer is made at the request of the Participant after December 31, 1983.

(f) Anything to the contrary notwithstanding, if an Employee has not performed any services for the Employer or any Related Employer at any time during the one-year period ending on the Determination Date, his account balance (in the case of a defined contribution plan) or his accrued benefit (in the case of a defined benefit plan) shall not be taken into account.

4. Section 3.2 of the Plan is deleted and the following is substituted in its place effective June 2, 2002, as to Plan Years beginning on or after that date:

3.2

Duration of Participation; Re-Employment

(a) An Employee shall cease to be a Participant for purposes of Section 6.1 upon ceasing to be employed by the Employer, but shall remain a Participant for all other purposes hereunder until such time as his Vested Account Balance is paid to him (or his Beneficiaries) in full in accordance with Article IX, at which time his participation in the Plan shall cease.

(b) Each Participant who incurs a Termination of Employment and is re-employed after incurring a Break in Service shall again become a Participant as of the day he first completes an Hour of Service following his re-employment.

(c) An Employee’s participation in the Plan shall not be affected by the fact that he continues to be employed after his Normal Retirement Date.

5. Section 6.1(b) of the Plan is deleted and the following is substituted in its place effective June 2, 2002, as to Plan Years beginning on or after that date:

(b) The Participants who shall be eligible to receive an allocation under this Section 6.1 with respect to a Plan Year shall be limited to Participants who are Employees on the last work day of such Plan Year (including Participants who incurred a Termination of Employment on such date) and who are credited with at least 1,000 Hours of Service for such Plan Year.

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6. The first sentence of Section 7.5(a) of the Plan is deleted and the following is substituted in its place effective June 2, 2002, as to Limitation Years beginning on or after that date:

Notwithstanding any other provisions of the Plan, the Annual Additions with respect to a Participant for any Limitation Year shall not exceed the lesser of (1) $40,000, or such higher amount as may be permitted at the relevant time under applicable law, or (2) 100% of the Compensation paid to the Participant by the Employer (or any Related Employers) during such year.

7. Section 9.3(b) of the Plan is deleted and the following is substituted in its place effective January 1, 2003:

(b) If a Participant dies prior to his Benefit Commencement Date (whether or not still employed by the Employer), then his Vested Account Balance shall be paid to his Beneficiaries as follows:

(1)

(2)

8. Section 9.6(c) of the Plan is deleted and the following is substituted in its place effective January 1, 2003:

(c) The divisor used to determine the amount of each installment payment shall be determined in accordance with Article XIX.

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9. Section 9.8(c) of the Plan is deleted and the following is substituted in its place effective June 2, 2002, as to Plan Years beginning on or after that date:

(1)

(2)

As of the last day of each Plan Year, the balance in the Dividend Fund (including earnings thereon) shall be divided into “Part I” and “Part II.” Part I shall consist of that portion of such balance multiplied by a fraction whose numerator is the total shares of Stock held in the Employer Contribution Accounts as of such day of Participants who are not 100% vested in such accounts as of such day and whose denominator is the total shares of Stock held in the Employer Contribution Accounts as of such day of all Participants. For this purpose, shares of Stock held in Employer Contribution Accounts as of such day shall be determined without regard to any Employer contributions or forfeiture allocations for the Plan Year ending on such day and without regard to the Dividend Fund. Part II shall consist of the remainder of the balance in the Dividend Fund as of such day. The term “Part I Participant” as used herein shall mean, with respect to a Plan Year, a Participant whose Employer Contribution Account was used in the numerator of the fraction used to determine Part I of the Dividend Fund for such Plan Year. The term “Part II Participant” as used herein shall mean, with respect to a Plan Year, a Participant whose Employer Contribution Account was used in the denominator of the fraction used to determine Part I of the Dividend Fund for such Plan Year and who is not a Part I Participant.

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(3)

As of the last day of each Plan Year, there shall be allocated to the Employer Contribution Account of each Part I Participant and each Part II Participant for such Plan Year their respective portions of the balance of the Dividend Fund on that day. Each such Participant’s portion shall be determined by multiplying such balance by a fraction whose numerator is the number of shares of Stock held in his Employer Contribution Account as of such day and whose denominator is the total number of shares of Stock held in the Employer Contribution Accounts as of such day of all such Participants. For this purpose, shares of Stock held in Employer Contribution Accounts as of such day shall be determined without regard to any Employer contributions or forfeiture allocations for the Plan Year ending on such day and without regard to the Dividend Fund.

(4)

No later than the last day of the 90-day period following the end of each Plan Year, Part I of the Dividend Fund shall be used to purchase additional shares of Stock. Notwithstanding the preceding sentence, there shall be subtracted from Part I any expenses incurred by the Plan in connection with purchasing Stock. The shares so purchased shall be allocated pro rata among the Employer Contribution Accounts of each Part I Participant according to such Participants’ respective portions of the balance of the Dividend Fund, determined in accordance with Section 9.8(c)(3).

(5)

No later than the last day of the 90-day period following the end of each Plan Year, that portion of Part II of the Dividend Fund not consisting of dividends on Stock shall be used to purchase additional shares of Stock. Notwithstanding the preceding sentence, there shall be subtracted from such portion of Part II any expenses incurred by the Plan in connection with purchasing Stock. The shares so purchased shall be allocated pro rata among the Employer Contribution Accounts of each Part II Participant according to such Participants’ respective portions of the balance of the Dividend Fund, determined in accordance with Section 9.8(c)(3).

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(6)

(i)

(ii)

Shall be used to purchase additional Stock in the case of any such Participant not returning an election for such Plan Year to the Administrator in a timely fashion.

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(7)

Stock allocated to the Employer Contribution Accounts of Part I Participants pursuant to Section 9.8(c)(4) shall be subject to the vesting provisions of Section 8.4(c) and shall not be Annual Additions. Stock allocated to the Employer Contribution Accounts of Part II Participants pursuant to Section 9.8(c)(5) shall be 100% vested and shall not be Annual Additions. Cash distributions to Part II Participants pursuant to Section 9.8(c)(6) shall not be Eligible Rollover Distributions [within the meaning of Section 9.10(b)(4)] and shall not be subject to the requirements of Section 9.l(d).

10. Sections 9.10(b)(3) and 9.10(b)(4) of the Plan are deleted and the following is substituted in its place effective January 1, 2002, as distributions made after December 31, 2001:

(3)

“ Eligible Retirement Plan ”: An individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, which accepts a Distributee’s Eligible Rollover Distribution. The term “Eligible Retirement Plan” shall also include (i) an annuity contract described in Section 403(b) of the Code and (ii) an eligible plan which is maintained under Section 457(b) of the Code and which is maintained by a state or political subdivision of a state or instrumentality of a state and which agrees to separately account for amounts transferred to such plan from this Plan. The definition of “Eligible Retirement Plan” shall apply in the case of a distribution to a surviving spouse of a Participant or to a spouse or former spouse of a Participant who is an alternate payee under a Qualified Domestic Relations Order.

(4)

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and the Distributee’s designated beneficiary, or for a specified period of 10 years or more; (ii) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (iii) the portion of any distribution which is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). The enumeration in the preceding sentence of any form of payment shall not imply that any person has the right to receive benefits under the Plan in such form unless otherwise specifically provided under the Plan.

11. Article XIX, in the form attached hereto as Exhibit A, is added to the Plan, effective for calendar years beginning after December 31, 2002.

Dated May 28, 2003.


RICHARDSON ELECTRONICS, LTD.

By		/s/ William G. Seils
		William G. Seils
		Senior Vice President, General Counsel and Secretary

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EXHIBIT A

ARTICLE XIX

REQUIRED MINIMUM DISTRIBUTIONS

19.1

Applicability and Effective Date

The provisions of this Article XIX shall apply in lieu of Sections 9.1(c) and 9.7 and notwithstanding any other provision of the Plan (except as indicated in this Article XIX) for purposes of determining required minimum distributions from the Plan for calendar years beginning after December 31, 2002.

19.2

Requirements of Treasury Regulations Incorporated

All distributions required under this Article XIX shall be determined and made in accordance with the Treasury regulations under Code Section 401(a)(9).

19.3

Time and Manner of Distribution

(a) A Participant’s entire vested interest in the Plan shall be distributed, or begin to be distributed, to him no later than his Required Beginning Date.

(b) If a Participant dies before his Required Beginning Date, his entire vested interest in the Plan shall be distributed, or begin to be distributed, no later than as follows:

(1)

If such Participant’s surviving spouse is his sole Designated Beneficiary, then distributions to such surviving spouse shall begin by December 31 of the calendar year immediately following the calendar year in which such Participant died, or by December 31 of the calendar year in which such Participant would have attained age 70- ¹ / 2 , if later.

(2)

If such Participant’s surviving spouse is not his sole Designated Beneficiary, then distributions to his Designated Beneficiary shall begin by December 31 of the calendar year immediately following the calendar year in which such Participant died.

(3)

If there is no Designated Beneficiary as of September 30 of the year following the year of such Participant’s death, such Participant’s entire vested interest in the Plan shall be distributed by December 31 of the calendar year containing the fifth anniversary of such Participant’s death.

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(4)

If such Participant’s surviving spouse is his sole Designated Beneficiary and his surviving spouse dies after him but before distributions to such surviving spouse begin, this Section 19.3(b), other than Section 19.3(b)(l), shall apply as if such surviving spouse were such Participant.

For purposes of this Section 19.3(b) and Section 19.6, unless Section 19.3(b)(4) applies, distributions are considered to begin on a Participant’s Required Beginning Date. If Section 19.3(b)(4) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse of a Participant under Section 19.3(b)(l).

(c) The required minimum distribution for a Participant’s first Distribution Calendar Year shall be made on or before his Required Beginning Date. The required minimum distribution for any Distribution Calendar Year, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, shall be made on or before December 31 of such Distribution Calendar Year.

19.4

Forms of Distribution

Unless a Participant’s vested interest in the Plan is distributed in a single sum on or before his Required Beginning Date, as of the first Distribution Calendar Year distributions shall be made in accordance with Sections 19.5 and 19.6 of this Article XIX.

19.5

Required Minimum Distributions during Participant’s Lifetime

(a) During the lifetime of a Participant, the minimum amount that shall be distributed for each Distribution Calendar Year is the lesser of:

(1)

The quotient obtained by dividing the vested balance in such Participant’s Accounts by the distribution period in the Uniform Lifetime Table set forth in Treasury Regulation Section 1.401(a)(9)-9, using his age as of his birthday in such Distribution Calendar Year; or

(2)

If such Participant’s sole Designated Beneficiary for the Distribution Calendar Year is his spouse, the quotient obtained by dividing the vested balance in such Participant’s Accounts by the number in the Joint and Last Survivor Table set forth in Treasury Regulation Section 1.401(a)(9)-9, using his and spouse’s attained ages as of their respective birthdays in such Distribution Calendar Year.

(b) Required minimum distributions as to a Participant shall be determined under this Section 19.5 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes such Participant’s date of death.

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19.6

Required Minimum Distributions after Participant’s Death

(a) If a Participant dies on or after his Required Beginning Date and there is a Designated Beneficiary as of September 30 of the year after the year of his death, the minimum amount which shall be distributed for each Distribution Calendar Year after the year of his death is the quotient obtained by dividing the vested balance in the Participant’s Accounts by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of his Designated Beneficiary, determined as follows:

(1)

Such Participant’s remaining life expectancy is calculated using his age in the year of death, reduced by one for each subsequent year.

(2)

If such Participant’s surviving spouse is his sole Designated Beneficiary, the remaining life expectancy of such surviving spouse shall be calculated for each Distribution Calendar Year after the year of his death using the surviving spouse’s age as of such surviving spouse’s birthday in such year. For Distribution Calendar Years after the year of such surviving spouse’s death, the remaining life expectancy of such surviving spouse is calculated using the age of such surviving spouse as of such surviving spouse’s birthday in the calendar year of such surviving spouse’s death, reduced by one for each subsequent calendar year.

(3)

If such Participant’s surviving spouse is not his sole Designated Beneficiary, the Designated Beneficiary’s remaining life expectancy shall be calculated using the age of such Designated Beneficiary in the year following the year of such Participant’s death, reduced by one for each subsequent year.

(b) If a Participant dies on or after his Required Beginning Date and there is no Designated Beneficiary as of September 30 of the year after the year of his death, the minimum amount which shall be distributed for each Distribution Calendar Year after the year of his death shall be the quotient obtained by dividing the vested balance in his Accounts by his remaining life expectancy calculated using his age in the year of death, reduced by one for each subsequent year.

(c) If a Participant dies before his Required Beginning Date and there is a Designated Beneficiary as of September 30 of the year after the year of his death, the minimum amount which shall be distributed for each Distribution Calendar Year after the year of his death shall be the quotient obtained by dividing the vested balance in his Accounts by the remaining life expectancy of his Designated Beneficiary, determined as provided in Section 19.6(a).

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(d) If a Participant dies before his Required Beginning Date and there is no Designated Beneficiary as of September 30 of the year after the year of his death, distribution of such Participant’s entire vested interest in the Plan shall be completed by December 31 of the calendar year containing the fifth anniversary of his death.

(e) If (1) a Participant dies before his Required Beginning Date, (2) his surviving spouse is his sole Designated Beneficiary and (3) such surviving spouse dies before distributions are required to begin to such surviving spouse under Section 19.3(b)(l), Sections 19.6(c) and 19.6(d) shall apply as if such surviving spouse were such Participant.

19.7

Miscellaneous

(a) Life expectancy shall be computed by use of the Single Life Table in Treasury Regulation Section 1.401(a)(9)-9.

(b) For purposes of a Distribution Calendar Year, the balance in a Participant’s Accounts shall be determined as the balance as of the last Valuation Date in the Valuation Calendar Year with respect to such Distribution Calendar Year, increased by the amount of any contributions made and allocated or forfeitures allocated to such balance as of dates in such Valuation Calendar Year after such Valuation Date and decreased by distributions made in such Valuation Calendar Year after such Valuation Date. An Account balance for a Valuation Calendar Year with respect to a Distribution Calendar Year shall include any amounts rolled over or transferred to the Plan either in such Valuation Calendar Year or in such Distribution Calendar Year if distributed or transferred in such Valuation Calendar Year.

19.8

Definitions

For purposes of this Article XIX, the following terms shall have the meanings indicated:

(a)

“ Designated Beneficiary ”: Collectively, the individual or individuals who are designated as the Beneficiary under Section 2.6 and who are the “designated beneficiary” under Code Section 401 (a)(9) and Treasury Regulation Section 1.401(a)(9)-l, Q&A-4.

(b)

“ Distribution Calendar Year ”: A calendar year for which a minimum distribution is required under this Article XIX. For distributions beginning before a Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains his Required Beginning Date. For distributions beginning after a Participant’s death (where he dies prior to his Required Beginning Date), the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 19.3(b).

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(c)

“ Required Beginning Date ”: With respect to a Participant, April 1 of the calendar year following the calendar year determined below:

(1)

In the case of a Participant not described in any other clause of this Section 19.8(c), the calendar year in which he attains the age of 70- ¹ / 2 .

(2)

(3)

In the case of a Participant who attained the age of 70- ¹ / 2 prior to January 1, 1988, and who was described in Section 2.19(a)(3) during the Plan Year which included the last day of the calendar year in which he attained the age of 66- ¹ / 2 or a subsequent Plan Year, the later of (i) the calendar year in which he attains the age of 70- ¹ / 2 or (ii) the earlier of the calendar year in which he retires or the calendar year which includes the last day of the Plan Year in which he was first described in Section 2.19(a)(3).

(4)

(d)

“ Valuation Calendar Year ”: With respect to a Distribution Calendar Year, the calendar year immediately preceding such Distribution Calendar Year.

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Exhibit 10(o)

RICHARDSON ELECTRONICS, LTD.

EMPLOYEES’ 2001 INCENTIVE COMPENSATION PLAN

NON-QUALIFIED STOCK OPTION

Agreement Number: -

THIS OPTION AGREEMENT, made and entered into as of the th day of , , (the “Grant Date”) by and between Richardson Electronics, Ltd., a Delaware corporation (the “Company”), and (the “Grantee”), under and pursuant to the Richardson Electronics, Ltd. Employees 2001 Incentive Compensation Plan (the “Plan”).

Except where the context otherwise requires, all capitalized terms which are not defined herein shall have the meaning set forth in the Plan.

Grant of Option .

The Company hereby grants to the Grantee an Option to purchase a total of shares of the common stock, $.05 per share par value, of the Company (the “Option Shares”), at a purchase price of $ per share, upon and subject to the terms and conditions set forth herein (the “Option”). This Option shall not be treated as an Incentive Stock Option within the meaning of Internal Revenue Code Section 422A.

Acknowledgment by Grantee .

The Grantee hereby acknowledges:

(a) that he or she has had an opportunity to review a copy of the Plan and has received and has had the opportunity to review a copy of the Company’s “Summary of the Richardson Electronics, Ltd. Employees’ 2001 Incentive Compensation Plan,” and copies of any 10-K’s and 8-K’s of the Company filed subsequent to the date of the Summary of the Plan, and Annual Reports, Proxy Statements and other communications distributed to stockholders of the Company subsequent to the date of the Summary of the Plan; and

(b) that any questions pertaining to the Plan, the Option and to the Option Shares have been answered by the Company to his or her satisfaction; and

(c) that he or she understands that the Plan is incorporated herein by reference and is made a part of this Agreement as if fully set forth herein; and

(d) that the Plan shall control in the event that there is any conflict between the Plan and this Agreement, and on such matters as are not contained in this Agreement; and

(e) that the Option granted to the Grantee hereunder is intended by the Company to qualify as a non-qualified stock option.

Time of Exercise .

(a) Subject to the provisions of this Section 3, the Option only may be exercised, in whole or in part, and the Option Shares may be purchased only by the Grantee (or, in the event of the Grantee’s incompetency, by the Grantee’s guardian or legal representative or, in the event of the Grantee’s death, by Grantee’s designated Beneficiary or, in the absence of such designation, by Grantee’s legal representative or other successor in interest) in accordance with the provisions of Section 4 below, at any time or times after the Grant Date; provided, however, that, except as otherwise provided in paragraph (b) below, the Option may not be exercised after the earliest to occur of the following dates: (i) the date which is ten (10) years from the Grant Date, (ii) the date which is three months after the Grantee’s death, (iii) the date which is three months after the Grantee’s employment with the Company (or its Subsidiaries) is terminated due to his or her retirement or for any other reason with the consent of the Company (or twelve months if the Grantee’s employment terminates as a result of being disabled within the meaning of Section 105(d)(4) of the Code), or (iv) the date that the Grantee’s employment with the Company (or its Subsidiaries) is terminated for any other reason.

(b) In the event that the Grantee dies within three months after the Grantee’s employment with the Company (or its Subsidiaries) is terminated due to retirement or for any other reason with the consent of the Company (or within twelve months if the Grantee’s employment terminates as a result of being disabled within the meaning of Section 105(d)(4) of the Code), the Option may be exercised and the Option Shares may be purchased until the earliest to occur of the following dates: (i) the date which is ten (10) years from the Grant Date, or (ii) the date which is three months after the Grantee’s death.

(c) Anything to the contrary notwithstanding, the Grantee may not exercise the Option, in whole or in part, unless and until the Grantee has either (i) prior to the Grantee’s leaving the employ of the Company (or its subsidiaries) received a written notice from the Company’s President that the option (or a stated portion thereof) is immediately exercisable, or (ii) completed the periods of continuous employment with the Company (or its subsidiaries) after the Grant Date as set forth below, in which event the Grantee shall be entitled to purchase the aggregate number of Option Shares as set forth below:


Periods of Continuous Employment Until		Aggregate Number of Option shares Eligible for Purchase
_______________		________
_______________		________
_______________		________
_______________		________
_______________		________

The right to purchase Option Shares under this Option shall be cumulative. Notwithstanding the foregoing vesting schedule, in the event that the Grantee’s employment with

the Company terminates as a result of his or her death or disability, the Option shall immediately vest and become fully exercisable as to all Option Shares still subject to the Option and unpurchased (whether vested or not pursuant to the schedule set forth above). Further, upon termination of Grantee’s employment with the Company for any reason other than death or disability, without the Company giving notice to the Grantee that the Option (or a stated portion thereof) is exercisable, the Option with respect to all unexercised Option Shares shall be forfeited and the Grantee’s right to purchase such Option Shares shall terminate. For purposes hereof, a transfer of employment between the Company and any Subsidiary or among Subsidiaries, shall not be deemed a termination of employment.

(d) Anything to the contrary notwithstanding, the Committee shall have the right, in its sole discretion, to terminate the Grantee’s right to purchase all or any portion of the non-vested Option Shares (as determined pursuant to the schedule set forth in paragraph (c) above) if it determines that the Grantee is not satisfactorily performing the duties which were assigned to the Grantee on the Grant Date or duties of at least equal responsibility. In the event that the Committee makes such determination, a written notice of termination, which shall specify the reason for terminating the Option granted hereunder to the extent that it is not vested, shall be sent to the Grantee at the Grantee’s most recent place of residence as indicated in the Company’s personnel records.

Manner of Exercise .

The Option may be exercised only by the delivery of a written notice in person or sent by registered or certified mail, return receipt requested, postage prepaid, to the Company at its principal offices at 40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois 60147-0393, Attn: Stock Option Committee/Legal Department. Each such notice of exercise shall state the number

of Option Shares with respect to which the Option is being exercised and shall either be signed by the Grantee or, in the event that the Option is being exercised by the guardian or legal representative of the Grantee or the Grantee’s designated Beneficiary, by such guardian, legal representative or Beneficiary and shall be accompanied by a copy of the Grantee’s death certificate and such other proof, satisfactory to counsel for the Company, of the right of such person to exercise the Option. Notices sent by registered or certified mail shall be effective only when received by the Company. Each such notice shall be accompanied by (a) the original executed copy of this Agreement and (b) a certified or cashier’s check in payment of the full aggregate purchase price of the Option Shares purchased; provided, however, the purchase price may be paid in such other manner or form as the Committee may approve, including, without limitation, by delivery of a certificate or certificates for shares of Common Stock owned by the Grantee having a Fair Market Value at the date of exercise equal to the purchase price for such Option Shares or any combination of the foregoing. Any stock certificate or certificates delivered to the Company must be endorsed, or accompanied by an appropriate stock power, to the order of the Company, with the signature guaranteed by a bank or trust company or member firm of the New York Stock Exchange. No Option Shares shall be issued in connection with an exercise of the Option until payment for such shares has been made.

Delivery of Certificates .

The Company shall not be required to issue or deliver any certificate for the Option Shares upon the exercise of the Option prior to compliance with any requirements of the then current federal and state or other applicable laws or of any stock exchange or national market system on which the Company’s Common Stock may at that time be listed or quoted, as the case may be, including, without limitation, the requirement that a registration statement under the

Securities Act of 1933, as amended, covering the Option Shares shall have been declared effective by the Securities and Exchange Commission and shall be in effect. The Grantee (or the guardian or legal representative of the Grantee or the Grantee’s Beneficiary) shall have no interest in the Option Shares unless and until certificates for such Option Shares are issued.

Effect of Certain Changes .

In the event that the number of outstanding shares of the Common Stock of the Company shall be changed through the declaration of stock dividends or through a recapitalization which results in stock splits or reverse stock splits, the number of Option Shares and the purchase price per Option Share shall be appropriately adjusted, as determined by the Committee, to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated to give proper effect to such changes.

Mergers, Recapitalization, Etc.

In the event that the Company enters into an agreement or plan to merge or consolidate with any other corporation, to reclassify, reorganize or otherwise substantially alter its capital or business structure, to sell all or a substantial part of its business or assets, or to dissolve, the Committee may make such changes in the terms of this Option, if outstanding, as may be equitable and appropriate in the context of such transaction, including without limitation substituting for the Option Shares equity interests in any entity which will succeed to the business of the Company pursuant to such transaction and providing that outstanding Option will lapse if not exercised during a reasonable period prior to such transaction.

Options are Non-Transferable .

The Option may not be assigned, transferred, pledged, or hypothecated in any way whether by operation of law or otherwise (except for the laws of descent and distribution). The Option may be exercised (to the extent vested) only by the Grantee (or in the event of the Grantee’s incompetency by the Grantee’s guardian or legal representative) during the Grantee’s lifetime and, after the Grantee’s death, may be exercised only by the Grantee’s designated Beneficiary or, in the absence of such designation, by the Grantee’s legal representative or other successor in interest.

No Guarantee of Employment .

Nothing in this Agreement shall be deemed or construed in any manner to constitute a contract of employment between the Company and the Grantee and shall not affect the right of the Company to terminate the employment of the Grantee.

10.

Withholding .

The Company shall have the right to require the Grantee to remit to the Company or to withhold from other amounts due the Grantee as compensation or otherwise (including any Cash Bonus granted as part of the Option or Option Shares) an amount sufficient to satisfy all applicable withholding taxes.

11.

Beneficiaries .

The Grantee may designate the person or persons (collectively the “Beneficiary”) who, in the event of the death of the Grantee, may exercise the Option held by the Grantee at the time of his or her death. All Beneficiary designations shall be in writing, shall be signed by the Grantee, and shall be effective only when filed with the Committee. In the event that the Grantee fails to designate a Beneficiary or that none of his or her Beneficiaries survive the Grantee, the legal representative or other successor in interest of the Grantee may exercise the Grantee’s vested

Options to the same extent as a Beneficiary. A Beneficiary designation may be changed at any time and from time to time by the Grantee; provided, however, that any such change shall become effective only when filed with the Committee.

12.

Miscellaneous .

(a) The Option may not be exercised with respect to a fraction of any Option Share.

(b) This Agreement contains all of the undertakings and understandings between the Company and the Grantee regarding the subject matter of the Option. No oral or unwritten undertaking or understandings exist with regard to this Option and if claimed or believed by any person to exist shall be disregarded and shall not be relied upon for any purpose. No modification or amendment of any of the terms of this Agreement shall be valid unless in writing and no such writing shall be binding on the Company unless it is signed by its Chairman, President or one of its Vice Presidents and attested by its Secretary or Assistant Secretary.

(c) Anything to the contrary notwithstanding, the provisions of the Plan shall be incorporated herein and made a part hereof and shall govern and control to the extent of any inconsistency between the Plan and this Agreement and on such matters as are not contained in this Agreement.

(d) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized corporate officers, and the Grantee has hereunto set his or her hand and seal, all as of the date and year first above written.


	RICHARDSON ELECTRONICS, LTD.

	By:
		Chairman
ATTEST:


Secretary
	Grantee:

Exhibit 10(p)

RICHARDSON ELECTRONICS, LTD.

EMPLOYEES’ INCENTIVE COMPENSATION PLAN AGREEMENT

RESTRICTED STOCK AWARD

AGREEMENT NO. RSA- -

THIS RESTRICTED STOCK AWARD AGREEMENT (the “Agreement” or the “Stock Award”) made and entered into as of the th day of , (the “Grant Date”), by and between Richardson Electronics, Ltd., a Delaware corporation (the “Company”), and (the “Grantee”) under and pursuant to the Employees’ Incentive Compensation Plan (the “Plan”).

Except where the context otherwise requires, all capitalized terms which are not defined herein shall have the meaning set forth in the Plan.

The parties agree as follows:

1. Grant of Stock Award . In consideration of the services to be rendered to the Company (or its Subsidiaries) by the Grantee and upon the determination made by the Stock Option Committee of the Board of Directors of the Company that the Grantee is a key employee, the Company hereby grants to the Grantee shares of the Common Stock, $.05 par value, of the Company (the “Shares”), upon and subject to the terms and conditions set forth herein, including, without limitation, the vesting schedule set forth in Section 3 below.

2. Acknowledgment by Grantee . The Grantee hereby acknowledges:

(a) that he has had an opportunity to review a copy of the Plan and has received and has had the opportunity to review a copy of the Company’s “Employees’ Incentive Compensation Plan” and copies of any 10-K’s and 8-K’s of the Company filed subsequent to the date of the Summary of the Plan and, Annual Reports, Proxy Statements and other communications distributed to stockholders of the Company subsequent to the date of the Summary of the Plan; and

(b) that any questions pertaining to the Plan and to the Shares have been answered by the Company to his or her satisfaction; and

(c) that he understands that the Plan is incorporated herein by reference and is made a part of this Agreement as if fully set forth herein; and

(d) that the Plan shall control in the event that there is any conflict between the Plan and this Agreement, and on such matters as are not contained in this Agreement.

3. Vesting of Stock Awards .

(a) This Stock Award shall vest:

(b) Notwithstanding the foregoing vesting schedule, in the event that the Grantee’s employment with the Company terminates as a result of his (a) death, (b) disability, (c) retirement after both attaining the age of 65 years and having been employed by the Company for 15 years or more. Further, upon termination of Grantee’s employment with the Company in any other event, without the Company giving notice to the Grantee that the Award and all Shares still subject to the Award and unvested pursuant to the schedule set forth above are vested, the Grantee’s Stock Award with respect to all unvested Shares shall be forfeited and the Grantee shall have no rights with respect to such Award or Shares. For purposes of this Agreement a transfer of employment between the Company and any Subsidiary or among Subsidiaries, shall not be deemed a termination of employment.

(c) Anything to the contrary notwithstanding, the Compensation/Stock Option Committee of the Board of Directors of the Company shall have the right, in its sole discretion, to forfeit the Grantee’s right to all or any portion of the non-vested Shares (as determined pursuant to the schedule set forth in paragraph (a) above) if it determines that the Grantee is not satisfactorily performing the duties which were assigned to the Grantee on the Grant Date or duties of at least equal responsibility. In the event that the Stock Option Committee makes such determination, a written notice of forfeiture, which shall specify the reason for forfeiting the Stock Award granted hereunder to the extent that it is not vested, shall be sent to the Grantee at the Grantee’s most recent place of residence as indicated in the Company’s personnel records.

4. Stock Certificates .

(a) Upon grant of a Stock Award, the Company will cause a certificate or certificates representing the Shares to be registered in the name of the Grantee. Such certificate(s) shall bear the following legend:

“The shares represented by this certificate have been issued pursuant to the terms of a Restricted Stock Award made under the Employees’ Incentive Compensation Plan and may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of until such time as is set forth in that certain Restricted Stock Agreement between Richardson Electronics, Ltd. and the shareholder.”

(b) Immediately upon receipt of the certificate or certificates representing the Shares, the Grantee hereby agrees to deposit such certificates, together with stock powers and other instruments of transfer, appropriately endorsed in blank, with the Company or an escrow agent designated by the Company under an escrow agreement in such form as shall be determined by the Stock Option Committee. If such certificates are deposited with the Company, the Company may transfer such certificates to an escrow agent at any time in its sole discretion.

(c) At such time as any number of the Shares are no longer subject to the restrictions, terms, and conditions of this Agreement (the “Unrestricted Shares”), the Compensation/Stock Option Committee shall cause a new certificate to be delivered to the Grantee, without the legend set forth above, for the Unrestricted Shares. The Shares remaining subject to this Agreement shall either be canceled or, if appropriate, shall continue to be held by the Company or held in escrow subject to the restrictions, terms, and conditions of this Agreement.

(d) In the event that a Grantee becomes entitled to receive any new, additional, or different securities by virtue of a stock dividend, stock split, recapitalization, reorganization, merger, consolidation, split-up, or any similar change affecting the Shares (“Other Securities”), such Other Securities shall be subject to the restrictions, terms and conditions of this Agreement as if they were Shares, including, without limit, deposit with the Company or in escrow.

5. Stockholder Rights . During the term of this Agreement, the Grantee shall be entitled to receive all dividends paid on the Shares, to vote all Shares, and to enjoy all other stockholder rights, except that

the Grantee shall neither (i) be entitled to the delivery of any certificate evidencing Shares and/or Other Securities except as provided in Section 4 above nor (ii) be able to sell, assign, transfer, pledge, hypothecate or otherwise dispose of the Shares and/or Other Securities until such time as he or she has received a certificate evidencing such shares.

6. Effect of Certain Changes . In the event that the number of outstanding shares of the Common Stock of the Company shall be changed through the declaration of stock dividends or through a recapitalization which results in stock splits or reverse stock splits, the number of Shares available for issuance under the Plan shall be appropriately adjusted, as determined by the Company, to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated to give proper effect to such changes.

7. Awards are Non-Transferable . This Stock Award may not be assigned, transferred, pledged, or hypothecated in any way whether by operation of law or otherwise (except for the laws of descent and distribution). The Shares may be received (to the extent vested) only by the Grantee (or in the event of the Grantee’s incompetency by the Grantee’s legal representative) during the Grantee’s lifetime. After the Grantee’s death, any Shares (to the extent vested) which have not been previously delivered to the Grantee shall be distributed to his or her designated Beneficiary or, in the absence of such designation, to the Grantee’s legal representative.

8. No Guarantee of Employment . Nothing in this Agreement shall be deemed or construed in any manner to constitute a contract of employment between the Company and the Grantee and shall not affect the right of the Company to terminate the employment of the Grantee.

9. Withholding . The Company shall have the right to require the Grantee to remit to the Company or to withhold from other amounts due the Grantee as compensation or otherwise, including any Cash Bonus granted as part of this Stock Award, in an amount sufficient to satisfy all applicable withholding taxes.

10. Beneficiaries . The Grantee may designate the person or persons (collectively the “Beneficiary”) who, in the event of the death of the Grantee, may receive the Shares (to the extent vested) held by the Grantee at the time of his or her death. All Beneficiary designations shall be in writing, shall be signed by the Grantee, and shall be effective only when filed with the Stock Option Committee. In the event that the Grantee fails to designate a Beneficiary or that none of his or her Beneficiaries survive the Grantee, the legal representative of the Grantee may receive the Grantee’s vested Shares to the same extent as a Beneficiary. A Beneficiary designation may be changed at any time and from time to time by the Grantee; provided, however, that any such change shall become effective only when filed with the Stock Option Committee.

11. Miscellaneous .

(a) This Agreement contains all of the undertakings and understandings between the Company and the Grantee regarding the subject matter of the Stock Award. No oral or unwritten undertaking or understandings exist with regard to this Option and if claimed or believed by any person to exist shall be disregarded and shall not be relied upon for any purpose. No modification or amendment of any of the terms of this Agreement shall be valid unless in writing and no such writing shall be binding on the Company unless it is signed by its Chairman, President or one of its Vice Presidents and attested by its Secretary or Assistant Secretary. Subject to the limitations set forth in the Plan, the Board of Directors, unilaterally, may amend this Agreement as it may from time to time determine (such as to accelerate the vesting of Shares) provided that such amendment does not impair or adversely alter the rights of the Grantee.

(b) Anything to the contrary notwithstanding, the provisions of the Plan shall be incorporated herein and made a part hereof and shall govern and control to the extent of any inconsistency between the Plan and this Agreement and on such matters as are not contained in this Agreement.


	RICHARDSON ELECTRONICS, LTD.

	By:
	Its:	Chairman
ATTEST:


Secretary
	Grantee:

Exhibit 10(s)(iii)

Execution

THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT

This Third Amendment to Revolving Credit Agreement (this “ Amendment ”) is entered into as of July 29, 2008 (the “ Effective Date ”) by and among Richardson Electronics, Ltd., a Delaware corporation, Richardson Electronics Limited, an English limited liability company, Richardson Electronics Benelux B.V., a Dutch private limited liability company, Richardson Electronics Pte Ltd, a company organized under the laws of Singapore, Richardson Electronics Pty Limited, a company organized under the laws of New South Wales, Australia, the lenders party hereto (each, a “ Lender ” and collectively, the “ Lenders ”) and JP Morgan Bank, N.A., a national banking association as administrative agent (in such capacity, the “ Administrative Agent ”).

RECITALS

WHEREAS, the Borrowers, the Lenders and the Agent are parties to that certain Revolving Credit Agreement dated as of July 27, 2007 (as amended or modified from time to time, the foregoing being referred to as the “ Agreement ”);

WHEREAS, the Borrowers, the Lenders and the Agent desire to amend the Agreement in certain respects on terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:

1. Defined Terms . Capitalized terms used herein but not defined herein shall have the meanings ascribed thereto in the Agreement.

2. Amendments to the Agreement . The Agreement is hereby amended as follows:

(a) Section 1.1 of the Agreement is hereby amended to add a new definition of “Goodwill Impairment Charge” as follows and to delete in its entirety the definition of “Leverage Ratio” contained therein and to replace said definitions as follows:

“‘ Goodwill Impairment Charge ’” means a non-cash charge for the reduction in goodwill (within the meaning of Agreement Accounting Principles) of the US-Borrower presented in a certificate provided to the Administrative Agent by the Chief Financial Officer of the US-Borrower recognized solely in respect of the US-Borrower’s fiscal period ended May 31, 2008 and in an amount not in excess of $11,500,000.”

“‘ Leverage Ratio ’ means, as of any date of calculation, the quotient of (i) Senior Funded Debt outstanding on such date, over (ii) Adjusted EBITDA calculated for the US-Borrower and its consolidated Subsidiaries for the period of the trailing four consecutive fiscal quarters ending on or most recently ended prior to such date of determination; provided, that

with respect to the fiscal quarter ended June 2, 2007, December 1, 2007, March 1, 2008 and May 31, 2008, there shall be added to Adjusted EBITDA the sum of relevant Identified Charges and any Goodwill Impairment Charge, which Goodwill Impairment Charge shall be recognized solely in respect of the US-Borrower’s fiscal period ended May 31, 2008.”

3. Effectiveness . This Amendment shall become effective when the Administrative Agent has received all of the following acknowledged to be satisfactory by the Administrative Agent:

(a) This Amendment, executed by the requisite signatories;

(b) A certificate, signed by the chief executive officer of Richardson Electronics, Ltd. substantially in the form of Exhibit I attached hereto and made a part hereof, stating that on the Effective Date (after giving effect to this Amendment) no Default or Unmatured Default has occurred and is continuing and further certifying that the representations and warranties contained in Article 5 of the Agreement are true and correct on and as of the Effective Date, together with a certification of the validity and accuracy of the Goodwill Impairment Charge;

(c) The representations and warranties contained in Section 4 of this Amendment shall be true and correct in all material respects; and

(d) Such other documents, instruments or approvals (and, if requested by the Administrative Agent, certified duplicates of executed copies thereof) as the Administrative Agent may reasonably request.

4. Representations and Warranties . Each Borrower represents and warrants to the Lenders and the Administrative Agent (which representations and warranties shall become part of the representations and warranties made by such Borrower under the Agreement) that:

(a) The execution, delivery and performance of this Amendment has been duly authorized by all necessary action and will not require any consent or approval of any person or entity, violate in any material respect any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower is a party or by which it or its properties may be bound or affected;

(b) No consent, approval or authorization of or declaration or filing with any governmental authority or any non-governmental person or entity, including without limitation, any creditor or partner of any Borrower is required on the part of such Borrower in connection with the execution, delivery and performance of this Amendment or the transactions contemplated thereby and the execution, delivery and performance of this Amendment and the transactions contemplated hereby will not violate the terms of any contract or agreement to which such Borrower is a party;

(c) The Agreement, as amended hereby, is the legal, valid and binding obligation of each Borrower, enforceable against it in accordance with the terms thereof;

- 2 -

(d) The most recent financial statements of each Borrower delivered to the Lenders are complete and accurate in all material respects and present fairly the financial condition of such Borrowers as of such date in accordance with generally accepted accounting principles. There has been no adverse material change in the condition of the business, properties, operations or condition, financial or otherwise, of any Borrower since the date of such financial statements which has or could reasonably be expected to have a Material Adverse Effect in respect of the US-Borrower or its Subsidiaries; and

(e) After giving effect to this Amendment and the transactions contemplated hereby, no Default or Event of Default has occurred or exists under the Agreement as of the Effective Date hereof.

5. Acknowledgement and Reaffirmation; No Waiver . Each Borrower hereby ratifies and affirms all of the obligations and undertakings contained in the Agreement and the Agreement remains in full force and effect in accordance with its terms. Each Borrower and each Guarantor hereby acknowledges, agrees and affirms that each document and instrument securing or supporting the obligations and indebtedness owing to the Lenders and Administrative Agent prior to the date of this Amendment remains in full force and effect in accordance with its terms, and that such security and support remains in full force effect as to all obligations under the Agreement.

6. Expenses . The Borrowers jointly and severally agree to pay and save the Lenders and Administrative Agent harmless from liability for the payment of all costs and expenses arising in connection with this Amendment, including the reasonable fees and expenses of Baker & McKenzie LLP, counsel to the Administrative Agent and certain of the Lenders, in connection with the preparation and review of this Amendment and any related documents.

7. Governing Law . This Amendment shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of Illinois.

8. Counterparts; Facsimile . This Amendment may be executed in one or more counterparts, each of which together shall constitute the same agreement. One or more counterparts of this Amendment may be delivered by facsimile, with the intention that such delivery shall have the same effect as delivery of an original counterpart thereof.

[The remainder of this page has been left blank intentionally]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.


BORROWERS :

RICHARDSON ELECTRONICS, LTD.

/s/ Edward J. Richardson
By:		Edward J. Richardson
Title:		Chairman, CEO and President

RICHARDSON ELECTRONICS LIMITED

/s/ Thomas Harbrecht
By:		Thomas Harbrecht
Title:		Director

RICHARDSON ELECTRONICS BENELUX B.V.

/s/ Thomas Harbrecht
By:		Thomas Harbrecht
Title:		Managing Director A

RICHARDSON ELECTRONICS PTE LTD

/s/ Thomas Harbrecht
By:		Thomas Harbrecht
Title:		Director

RICHARDSON ELECTRONICS PTY LIMITED

/s/ Thomas Harbrecht
By:		Thomas Harbrecht
Title:		Director

40 W267 Keslinger Road
P.O. Box 393
LaFox, Illinois 60147-0393
Attention: Michelle Perricone
Tel: 630-208-2200
Fax: 630-208-2950

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GUARANTOR

THE UNDERSIGNED, EACH A GUARANTOR OF THE OBLIGATIONS UNDER THE AGREEMENT, BEING FAMILIAR WITH THE TERMS OF THE FOREGOING AMENDMENT, HEREBY RATIFIES AND REAFFIRMS ALL SUCH OBLIGATIONS, IN EACH CASE AS SET FORTH IN THOSE CERTAIN GUARANTIES, DATED JULY 27, 2007

RICHARDSON ELECTRONICS, LTD.

/s/ Edward J. Richardson
By:		Edward J. Richardson
Title:		Chairman, CEO and President

RICHARDSON INTERNATIONAL, INC.

/s/ Edward J. Richardson
By:		Edward J. Richardson
Title:		President

- 5 -


ADMINISTRATIVE AGENT :

JPMORGAN CHASE BANK, N.A.,

/s/ Michelle Otten
By:		Michelle Otten
Title:		Assistant Vice President

- 6 -


LENDERS :

JPMORGAN CHASE BANK, N.A.,

/s/ Michelle Otten
By:		Michelle Otten
Title:		Assistant Vice President

JP MORGAN EUROPE LIMITED

/s/ M J Hereidge
By:		M J Hereidge
Title:		Vice President

JP MORGAN CHASE BANK, N.A. London Branch, as Overdraft Lender

/s/ M J Hereidge
By:		M J Hereidge
Title:		Vice President

JPMORGAN CHASE BANK, N.A., through its Singapore Branch

/s/ Ruth Lee
By:		Ruth Lee
Title:		Vice President

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EXHIBIT I

OFFICER’S CERTIFICATE

This Certificate is delivered to JPMorgan Chase Bank, N.A., as Administrative Agent by Richardson Electronics, Ltd., pursuant to that certain Revolving Credit Agreement, dated as of July 27, 2007 among the Borrowers named therein, the Lenders set forth on the signature pages thereto and the Administrative Agent identified therein (as amended or modified from time to time, the “ Credit Agreement ”). All capitalized terms used herein but not defined shall have the respective meanings ascribed thereto in the Credit Agreement. The undersigned, the duly appointed Chief Financial Officer of Richardson Electronics, Ltd., hereby certifies to the Administrative Agent and the Lenders that on the date hereof (i) no Default or Unmatured Default has occurred and is continuing, (ii) that all the representations and warranties contained in Article V of the Credit Agreement are true and correct on and as of the date hereof, and (iii) the Goodwill Impairment Charge shall be recognized as a non-cash charge in accordance with Agreement Accounting Principles and shall be recognized solely in respect of the US-Borrower’s fiscal period ended May 31, 2008.

This Certificate is delivered as of July 29, 2008.


/s/ Kathleen Dvorak
By:		Kathleen Dvorak

Exhibit 21

SUBSIDIARIES OF THE COMPANY


Richardson Electronics Pty Limited		Australia
Richardson Electronics do Brasil Ltda.		Brazil
REL Holdings II B.V.		Netherlands
Richardson Electronics Canada, Ltd.		Canada
Richardson Electronics Trading (Shanghai) Co., Ltd.		China
Richardson Electronics Colombia S.A.		Colombia
Sangus Richardson OY		Finland
RESA SAS		France
Richardson Electronique SAS		France
Richardson Electronics GmbH		Germany
Richardson Electronics Hong Kong Limited		Hong Kong
Aviv-Richardson Ltd.		Israel
RES S.r.L.		Italy
Richardson Electronics S.R.L.		Italy
Richardson Electronics K.K.		Japan
Richardson Electronics Korea Limited		Korea
Richardson Electronics S.A. de C.V.		Mexico
Richardson Electronics Benelux B.V.		Netherlands
REL Holdings B.V.		Netherlands
REL Holdings III, BV		Netherlands
Richardson Electronics Global Holdings BV		Netherlands
Richardson Electronics Pte. Ltd.		Singapore
Richardson Electronics Iberica S.A.		Spain
Richardson Electronics Nordic AB		Sweden
Richardson Electronics (Thailand) Limited		Thailand
Richardson Electronics Limited		United Kingdom
Richardson International, Inc.		United States

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Post Effective Amendment Number 1 to Registration Statement Number 2-89888 on Form S-8, Registration Statement Number 33-36475 on Form S-8, Registration Statement Number 33-54745 on Form S-8, Registration Statement Number 333-02865 on Form S-8, Registration Statement Number 333-03965 on Form S-8, Registration Statement Number 333-04071 on Form S-8, Registration Statement Number 333-04457 on Form S-8, Registration Statement Number 333-04767 on Form S-8, Registration Statement Number 333-49005 on Form S-2, Registration Statement Number 333-51513 on Form S-2, Registration Statement Number 333-66215 on Form S-8, Registration Number 333-76897 on Form S-8, Registration Statement Number 333-70914 on Form S-8, Registration Number 333-115955 on Form S-8, Registration Number 333-120032 on Form S-8, Registration Number 333-129828 on Form S-8, Registration Statement Number 333-60092 on Form S-8, Registration Statement Number 333-146878 on Form S-8, and Registration Statement Number 333-146879 on form S-8 of our reports dated July 31, 2008, with respect to the consolidated financial statements of Richardson Electronics, Ltd. and the effectiveness of internal control over financial reporting of Richardson Electronics, Ltd. included in this Annual Report (Form 10-K) for the year ended May 31, 2008.

/s/ Ernst & Young LLP

Chicago, Illinois

July 31, 2008

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Edward J. Richardson, certify that:

1.	I have reviewed this annual report on Form 10-K of Richardson Electronics, Ltd. for the fiscal year ended May 31, 2008;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2008



Signature:		/s/ E DWARD J. R ICHARDSON
		Edward J. Richardson Chairman of the Board and Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Kathleen S. Dvorak, certify that:

1.	I have reviewed this annual report on Form 10-K of Richardson Electronics, Ltd. for the fiscal year ended May 31, 2008;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2008



Signature:		/s/ K ATHLEEN S. D VORAK
		Kathleen S. Dvorak Chief Financial Officer

Exhibit 32

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-K for the fiscal year ending May 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Richardson, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ E DWARD J. R ICHARDSON

Edward J. Richardson

Chairman of the Board and Chief Executive Officer

July 31, 2008

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-K for the fiscal year ending May 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathleen S. Dvorak, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ K ATHLEEN S. D VORAK

Kathleen S. Dvorak

Chief Financial Officer

July 31, 2008

Exhibit 99.1

LOGO


			Corporate Headquarters 40W267 Keslinger Road PO Box 393
*For Immediate Release*
For Details Contact:
Edward J. Richardson		Kathleen S. Dvorak	LaFox, IL 60147-0393
Chairman and CEO		EVP & CFO	USA
Phone:	(630) 208-2340	(630) 208-2208	Phone:	(630) 208-2200
E-mail:	info@rell.com		Fax:	(630) 208-2550

RICHARDSON ELECTRONICS

REPORTS FISCAL 2008 RESULTS

LaFox, IL, July 30, 2008: Richardson Electronics, Ltd. (NASDAQ: RELL) today reported its results for the fourth quarter and full year ended May 31, 2008.

Net sales during fiscal 2008 were $568.4 million, up 2%, from net sales during fiscal 2007. Operating loss during fiscal 2008 was $1.3 million, compared to operating income of $7.8 million last year. Operating loss during fiscal 2008 includes a non-cash goodwill impairment charge of $11.5 million. Net loss from continuing operations for fiscal 2008, which includes the impairment charge, was $8.5 million, compared to net income from continuing operations during fiscal 2007 of $1.5 million. Net loss from continuing operations for fiscal 2008 includes a $2.3 million tax benefit related to the impairment charge.

Excluding the impairment charge, on a non-GAAP basis, operating income for fiscal 2008 was $10.2 million and net income from continuing operations was $0.8 million.

IMPROVED FOURTH QUARTER OPERATING PERFORMANCE

Net sales during the fourth quarter of fiscal 2008 were $155.1 million, compared to $146.2 million during fiscal 2007. Gross margin improved 190 basis points, from 22.5% during fiscal 2007, to 24.4% during fiscal 2008. Selling, general, and administrative expenses as a percent of net sales were 20.6%, compared to 24.9% last year. Operating loss during the fourth quarter of fiscal 2008, which includes the goodwill impairment charge, was $5.7 million, compared to an operating loss of $2.0 million last year. Excluding the impairment charge, operating income for the fourth quarter was $5.8 million and net income from continuing operations was $4.0 million.

“I am pleased with our sales growth and operating performance during the fourth quarter. Our sales growth of 6.0% includes growth in our RFPD and DSG businesses, while EDG remained relatively flat. In addition, I am encouraged by the improvements we are seeing in our underlying operating performance as well as the progress we have made with our company-wide initiatives.” said Edward J. Richardson, Chairman, Chief Executive Officer and President of Richardson Electronics, Ltd.

“During the fourth quarter, our cash generated from operating activities was $19.7 million, compared to cash used in operating activities of $0.2 million last year. This reflects the improved working capital discipline implemented during fiscal 2008. We ended fiscal 2008 with total debt less cash of $15.6 million,” said Kathleen S. Dvorak, Executive Vice President and Chief Financial Officer.

“Our efforts are resulting in improvements in many of our key financial metrics. Excluding the goodwill impairment charge, our fourth quarter financial results demonstrate the capabilities of our business model to deliver sustainable, long-term growth and value for our shareholders,” added Mr. Richardson.

GOODWILL IMPAIRMENT

During the fourth quarter of every fiscal year, the Company reviews goodwill for impairment by applying a fair-value based test. The test for impairment indicated that the fair value of the Company’s Display Systems Group was less than its carrying value as of the March 1, 2008, measurement date. As a result, during the fourth quarter, the Company recorded an impairment charge of $11.5 million as a non-cash charge to operating expenses. The Company also recorded a $2.3 million tax benefit as a result of the impairment charge.

FINANCIAL HIGHLIGHTS — TWELVE MONTHS ENDED MAY 31, 2008

•

Cash flows provided by operating activities were $27.9 million during fiscal 2008 while cash flows used in operating activities were $9.0 million during fiscal 2007.

•

Net sales for the RF, Wireless & Power Division, the Electron Device Group, and the Display Systems Group increased 1.7%, 2.0%, and 3.1%, respectively, during fiscal 2008 compared to fiscal 2007.

•

Gross margin percentage for the RF, Wireless & Power Division, the Electron Device Group, and the Display Systems Group decreased by 0.1%, 0.7%, and 2.2%, respectively, during fiscal 2008 compared to fiscal 2007.

•

Excluding certain items as noted in the “Non-GAAP Financial Information” section of this press release, gross margin was $138.4 million during fiscal 2008, an increase of $6.0 million, compared to gross profit of $132.4 million during fiscal 2007. Gross margin percentage was 24.4% during fiscal 2008, a 60 basis point improvement, from 23.8% during fiscal 2007.

•

Operating loss during fiscal 2008 was $1.3 million, compared to operating income of $7.8 million during fiscal 2007. Excluding the items noted in the “Non-GAAP Financial Information” section of this press release, operating income during fiscal 2008 was $16.3 million, a 101% increase, compared to operating income of $8.1 million during fiscal 2007.

•

Net loss from continuing operations during fiscal 2008 was $8.5 million compared to net income from continuing operations of $1.5 million during fiscal 2007. Excluding the goodwill impairment charge of $11.5 million ($9.2 million, net of tax benefit of $2.3 million) net income from continuing operations during fiscal 2008 was $0.8 million.

IMPROVED WORKING CAPITAL MANAGEMENT AND CASH FLOWS

Cash and cash equivalents were $40.0 million at May 31, 2008, as compared to $17.4 million as of June 2, 2007. The increase in overall cash and cash equivalents during fiscal 2008 reflects $29.3 million of cash provided by improved working capital management. This is a $37.9 million improvement compared to cash used to support an increase in working capital of $8.6 million during fiscal 2007.

Total debt less cash as of May 31, 2008, was $15.6 million, compared to $42.1 million as of June 2, 2007.

NON-GAAP FINANCIAL INFORMATION

Richardson Electronics, Ltd.

Gross Profit and Operating Income / (Loss) Reconciliations

(in millions)


	Twelve Months Ended May 31, 2008					Twelve Months Ended June 2, 2007
	Amount			Percent of Net Sales		Amount			Percent of Net Sales
GAAP Gross Profit, as reported	$	135.6		23.9	%	$	132.4		23.8	%
Adjustments:
Inventory write-downs		2.8		0.5	%		—		—

Adjusted Gross Profit	$	138.4		24.4	%	$	132.4		23.8	%

GAAP Operating Income/(Loss), as reported	$	(1.3	)	(0.2	)%	$	7.8		1.4	%
Adjustments:
Impairment of goodwill		11.5		2.0	%
Inventory write-downs		2.8		0.5	%		—		—
Employee termination related expenses		3.3		0.6	%		3.9		0.7	%
Less gain on disposal of assets		—		—			(3.6	)	(0.6	)%

Adjusted Operating Income	$	16.3		2.9	%	$	8.1		1.5	%

In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company adjusts for certain charges that it believes impacts the comparability of the results of operations.

The Company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the Company’s operating performance and the underlying trends in the Company’s business.

OUTLOOK

“We believe that our cost reduction initiatives and our disciplined focus on working capital management will result in continued improvement in our cash flows and overall financial performance during fiscal 2009. I am encouraged by the progress we have made in a relatively short period of time and remain optimistic about our long-term prospects,” added Mr. Richardson.

CONFERENCE CALL INFORMATION

On Thursday, July 31, 2008, at 9:00 a.m. CT, Edward J. Richardson, Chairman and Chief Executive Officer, and Kathleen S. Dvorak, Chief Financial Officer, will host a conference call to discuss the Company’s fourth quarter and fiscal 2008 results. A question and answer session will be included as part of the call’s agenda. To listen to the call, please dial 888-482-0024 and enter passcode 46231055 approximately five minutes prior to the start of the call. A replay of the call will be available beginning at 11:00 a.m. CT on July 31, 2008, for seven days. The telephone numbers for the replay are (USA) 888-286-8010 and (International) 617-801-6888; access code 77481736.

FORWARD-LOOKING STATEMENTS

This release includes certain “forward-looking” statements as defined by the Securities and Exchange Commission. Statements in this press release regarding the Company’s business which are not historical facts represent “forward-looking” statements that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the most recently ended fiscal year. The Company assumes no responsibility to update the forward-looking statements in this release as a result of new information, future events, or otherwise.

ABOUT RICHARDSON ELECTRONICS, LTD.

Richardson Electronics, Ltd. is a global provider of “Engineered Solutions,” serving the RF, Wireless & Power Conversion; Electron Device; and Display Systems markets. The Company delivers engineered solutions for its customers’ needs through product manufacturing, systems integration, prototype design and manufacture, testing and logistics. Press announcements and other information about Richardson are available at www.rell.com.

Richardson Electronics common stock trades on the NASDAQ Global Market under the ticker symbol RELL.

Richardson Electronics, Ltd.

Consolidated Statements of Operations

(in thousands, except per share amounts)


	Three Months Ended						Twelve Months Ended
	May 31, 2008			June 2, 2007			May 31, 2008			June 2, 2007
Statements of Operations
Net sales	$	155,093		$	146,246		$	568,409		$	557,291
Cost of sales		117,173			113,343			432,810			424,888

Gross profit		37,920			32,903			135,599			132,403
Selling, general, and administrative expenses		32,018			36,428			125,330			128,175
Impairment of goodwill		11,506			—			11,506			—
(Gain) loss on disposal of assets		97			(1,518	)		27			(3,616	)

Operating income (loss)		(5,701	)		(2,007	)		(1,264	)		7,844

Other (income) expense:
Interest expense		1,239			1,081			6,854			5,292
Investment income		(357	)		(107	)		(928	)		(992	)
Foreign exchange (gain) loss		(67	)		(1,359	)		1,485			(1,078	)
Retirement of long-term debt expenses		—			—			—			2,540
Other, net		(19	)		(102	)		14			(100	)

Total other (income) expense		796			(487	)		7,425			5,662

Income (loss) from continuing operations before income taxes		(6,497	)		(1,520	)		(8,689	)		2,182
Income tax provision (benefit)		(1,263	)		(1,022	)		(218	)		634

Income (loss) from continuing operations		(5,234	)		(498	)		(8,471	)		1,548
Income from discontinued operations, net of tax		—			40,157			45			39,131

Net income (loss)	$	(5,234	)	$	39,659		$	(8,426	)	$	40,679

Net income (loss) per common share – basic :
Income (loss) from continuing operations	$	(0.30	)	$	(0.03	)	$	(0.48	)	$	0.09
Income from discontinued operations		0.00			2.32			0.00			2.27

Net income (loss) per common share – basic	$	(0.30	)	$	2.29		$	(0.48	)	$	2.36

Net income (loss) per common share – diluted:
Income (loss) from continuing operations	$	(0.30	)	$	(0.03	)	$	(0.48	)	$	0.09
Income from discontinued operations		0.00			2.32			0.00			2.21

Net income (loss) per common share – diluted	$	(0.30	)	$	2.29		$	(0.48	)	$	2.30

Weighted average number of shares:
Common shares – basic		14,806			14,588			14,794			14,517

Class B common shares – basic		3,048			3,048			3,048			3,048

Common shares – diluted (1)		14,806			14,588			14,794			17,667

Class B common shares – diluted		3,048			3,048			3,048			3,048

Dividends per common share	$	0.020		$	0.040		$	0.120		$	0.160

Dividends per Class B common share	$	0.018		$	0.036		$	0.108		$	0.144

(1)	Total common stock equivalents and Class B common stock for the three and twelve months ended May 31, 2008, are excluded from the diluted earnings per share calculation because their impact would be anti-dilutive.

Richardson Electronics, Ltd.

Consolidated Balance Sheets

(in thousands, except per share amounts)


	May 31, 2008			June 2, 2007
Assets
Current assets:
Cash and cash equivalents	$	40,042		$	17,436
Restricted cash		—			61,899
Receivables, less allowance of $1,635 and $1,574		109,520			105,709
Inventories		93,858			110,174
Prepaid expenses		4,300			5,129
Deferred income taxes		2,121			2,131
Current assets of discontinued operations held for sale		—			242

Total current assets		249,841			302,720

Non-current assets:
Property, plant and equipment, net		28,635			29,278
Goodwill		1,483			11,611
Other intangible assets, net		758			1,581
Non-current deferred income taxes		3,875			389
Assets held for sale		105			1,429
Other non-current assets		1,538			2,058
Non-current assets of discontinued operations held for sale		—			5

Total non-current assets		36,394			46,351

Total assets	$	286,235		$	349,071


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	58,860		$	55,530
Accrued liabilities		21,818			31,330
Current portion of long-term debt		—			65,711
Current liabilities of discontinued operations held for sale		—			2,737

Total current liabilities		80,678			155,308

Non-current liabilities:
Long-term debt, less current portion		55,683			55,683
Long-term income tax liabilities		6,768			—
Other non-current liabilities		1,676			1,535

Total non-current liabilities		64,127			57,218

Total liabilities		144,805			212,526

Commitment and contingencies		—			—
Stockholders’ equity
Common stock, $0.05 par value; issued 15,929 shares at May 31, 2008, and 15,920 shares at June 2, 2007		797			796
Class B common stock, convertible, $0.05 par value; issued 3,048 shares at May 31, 2008, and 3,048 share at June 2, 2007		152			152
Preferred stock, $1.00 par value, no shares issued		—			—
Additional paid-in-capital		119,735			118,880
Common stock in treasury, at cost, 1,065 shares at May 31, 2008, and 1,179 shares at June 2, 2007		(6,310	)		(6,989	)
Retained earnings		11,098			21,631
Accumulated other comprehensive income		15,958			2,075

Total stockholders’ equity		141,430			136,545

Total liabilities and stockholders’ equity	$	286,235		$	349,071

Richardson Electronics, Ltd.

Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended						Twelve Months Ended
	May 31, 2008			June 2, 2007			May 31, 2008			June 2, 2007
Operating activities:
Net income (loss)	$	(5,234	)	$	39,659		$	(8,426	)	$	40,679
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization		1,317			1,471			5,257			6,126
Impairment of goodwill		11,506			—			11,506			—
Gain on disposal of segment of business		—			(41,565	)		—			(41,565	)
(Gain) loss on disposal of assets		97			(1,484	)		27			(3,582	)
Retirement of long-term debt expenses		—			—			—			2,540
Write-off of deferred financing costs		—			—			643			62
Stock compensation expense		164			179			687			953
Deferred income taxes		(2,096	)		(108	)		(3,026	)		309
Accounts receivable		(4,266	)		(8,651	)		3,535			(3,635	)
Inventories		14,717			4,961			23,403			(9,836	)
Accounts payable		663			4,330			2,344			4,871
Accrued liabilities		1,662			4,824			(6,928	)		(2,234	)
Other liabilities		221			(235	)		91			371
Other		907			(3,552	)		(1,197	)		(4,019	)

Net cash provided by (used in) operating activities		19,658			(171	)		27,916			(8,960	)

Investing activities:
Capital expenditures		(271	)		(1,685	)		(4,464	)		(6,401	)
Proceeds from sale of assets		130			1,984			1,137			5,093
Contingent purchase price consideration		(96	)		—			(256	)		—
Proceeds from sale of segment of business, net of transaction expenses paid					78,114						78,114
Gain on sale of investments		(253	)		(39	)		(124	)		(709	)
Proceeds from sales of available-for-sale securities		362			92			707			3,774
Purchases of available-for-sale securities		(8	)		(92	)		(196	)		(274	)

Net cash provided by (used in) investing activities		(136	)		78,374			(3,196	)		79,597

Financing activities:
Proceeds from borrowings		34,500			56,550			197,700			258,561
Payments on debt		(44,500	)		(68,769	)		(263,340	)		(250,419	)
Restricted cash		—			(61,899	)		61,899			(61,899	)
Proceeds from issuance of common stock		—			1,193			69			1,948
Cash dividends		(351	)		(693	)		(2,107	)		(2,764	)
Payments on retirement of long-term debt		—			—			—			(15,915	)
Other		—			—			(95	)		(674	)

Net cash used in financing activities		(10,351	)		(73,618	)		(5,874	)		(71,162	)

Effect of exchange rate changes on cash and cash equivalents		329			488			3,760			951

Increase in cash and cash equivalents		9,500			5,073			22,606			426
Cash and cash equivalents at beginning of period		30,542			12,363			17,436			17,010

Cash and cash equivalents at end of period	$	40,042		$	17,436		$	40,042		$	17,436

Richardson Electronics, Ltd.

Net Sales and Gross Profit

For the Fourth Quarter and Twelve Months of Fiscal 2008 and 2007

(in thousands)

By Business Unit:


	Net Sales						Gross Profit (1)
Fourth Quarter	FY 2008		FY 2007		% Change		FY 2008			GP% of Sales		FY 2007			GP% of Sales
RF, Wireless & Power Division	$	102,996	$	99,369	3.7	%	$	22,866		22.2	%	$	21,907		22.0	%
Electron Device Group		26,482		26,639	(0.6	)%		8,470		32.0	%		8,970		33.7	%
Display Systems Group		24,800		19,310	28.4	%		6,214		25.1	%		4,275		22.1	%
Corporate		815		928				370					(2,249	)

Total	$	155,093	$	146,246	6.0	%	$	37,920		24.4	%	$	32,903		22.5	%


Twelve Months	FY 2008		FY 2007		% Change		FY 2008			GP% of Sales		FY 2007			GP% of Sales
RF, Wireless & Power Division	$	376,203	$	369,936	1.7	%	$	85,323		22.7	%	$	84,338		22.8	%
Electron Device Group		103,256		101,191	2.0	%		32,941		31.9	%		32,942		32.6	%
Display Systems Group		84,671		82,111	3.1	%		17,848		21.1	%		19,145		23.3	%
Corporate		4,279		4,053				(513	)				(4,022	)

Total	$	568,409	$	557,291	2.0	%	$	135,599		23.9	%	$	132,403		23.8	%

Note:

Corporate consists of freight and other non-specific net sales.

(1)	Included in Gross Profit for fiscal 2008 are inventory write-downs of $0.9 million in the RF, Wireless & Power Division and $1.9 million in the Display Systems Group.