[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended ..........................................................................................................................................June 30, 2001
[ ] 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 0-5896
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1978958
(State or other jurisdiction of incorporation or organization) ( I.R.S. Employer Identification No.)
145 Oser Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (631) 273-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 per shareIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes: X No: ______Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants 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.
The aggregate market value of Common Stock held by non-affiliates of the Company, computed by reference to the closing price on Septermber 24 , 2001 was $17,556,293.
Number of shares outstanding of each class of Common Stock, as of September 24, 2001: 5,707,459 shares.
DOCUMENTS INCORPORATED BY REFERENCE:Part | III: Definitive Proxy Statement to be filed on or before October 29, 2001, under Regulation 14A, in connection with the Companys 2001 Annual Meeting of Shareholders. |
This report contains forward-looking statements with respect to the financial condition, results of operations and business of Jaco Electronics, Inc. You can find many of these statements by looking for words like believes, expects, anticipates, estimates or similar expressions in this document or in documents incorporated by reference.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following:
o Dependence on a limited number of suppliers for products which generate a significant portion of our sales. o Absence of long-term contracts. o Strikes or delays in air or sea transportation and possible future United States legislation with respect to pricing and/or import quotas on products imported from foreign countries. o Recent terroists attacks may create instability and uncertainty in the electronic components industry. o General economic downturns in the electronic components industry which may have an adverse economic effect upon manufacturers, end-users of electronic components and electronic components distributors. o Volatile pricing of electronic components. o Competitive pressures in the industry may increase significantly through industry consolidation and entry of new competitors. o Costs or difficulties related to the integration of newly-acquired businesses may be greater than expected. o Limited allocation of products by suppliers may reduce availability of certain products. o Adverse changes may occur in the securities markets.
Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by them. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this Report.
We do not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.
Jaco Electronics, Inc. was organized in the State of New York in 1961. Our principal executive offices are located at 145 Oser Avenue, Hauppauge, New York 11788, and our telephone number is (631) 273-5500.
We are a leading distributor of electronic components to industrial OEMs and contract manufacturers throughout North America. We also provide contract manufacturing services to our industrial OEM customers. We distribute products such as semiconductors, capacitors, resistors, electromechanical devices, flat panel displays and monitors and power supplies, which are used in the manufacture and assembly of electronic products, including:
o telecommunications equipment o computers and office equipment o medical devices and instrumentation o industrial equipment and controls o military/aerospace systems o automotive and consumer electronics
We have two distribution centers and 20 strategically located sales offices throughout the United States. We distribute more than 35,000 products from over 75 vendors, including such market leaders as Kemet Electronics Corporation, Vishay Intertechnology, Inc., and Samsung Semiconductor, Inc., to a base of over 6,000 customers through a dedicated and highly motivated sales force. To enhance our ability to distribute electronic components, we provide a variety of value-added services including automated inventory management services, assembling stock items for our customers into pre-packaged kits, integrating and assembling various custom components with flat panel displays to customer specifications and providing contract manufacturing services. Our core customer base consists primarily of small and medium-sized manufacturers that produce electronic equipment used in a wide variety of industries.
In June 2000, we acquired Interface Electronics Corp.("Interface"). We paid $15.4 million in cash and assumed $3.3 million in bank debt and are obligated to make deferred payments of up to approximately $6.6 million during the two year period following June 2000 if certain minimum sales levels are achieved. For the period ended June 7, 2001, Interface met certain minimum sales levels, and we paid an amount equal to $3.76 million Interface is a distributor of electronic components, primarily in the Northeast and Southeast United States. As a result of the Interface acquisition, we have acquired distribution rights for certain significant vendor lines in the United States.
The electronic components distribution industry has become an increasingly important sales channel for component manufacturers. Electronic components distributors relieve component manufacturers of a portion of the costs and personnel needed to warehouse and sell their products. Distributors market manufacturers products to a broader range of OEMs than such manufacturers could economically serve with their direct sales forces. Today, distributors have become an integral part of their customers purchasing and inventory process. Distributors offer their customers the ability to outsource their purchasing and warehousing responsibilities. Electronic Data Interchange (EDI) permits distributors to receive timely scheduling of component requirements from customers enabling them to provide these value-added services. Distributors also work with their suppliers to ensure that manufacturers components are integrated into the design of new products.
We currently distribute over 35,000 stock items. Our management believes that it is necessary for us to carry a wide variety of items in order to fully service our customers requirements. Our products fall into two broad categories: active and passive components. Historically, active components and passive components each represented approximately 50% of our net distribution sales. With the additional suppliers added as a result of the azquistion of Interface, active components represented approximately 60% of our net distribution sales and passive components represented 40% during the current fiscal year.
Active components principally include semiconductors. Semiconductors consist of such items as integrated circuits, microprocessors, transistors, diodes, dynamic random access memory (RAM), static RAMs, video RAMs and metal oxide field effect transistors. Computer subsystems are an integral part of personal computers and computer workstations and incorporate such items as flat panels and flat panel monitors, touchscreens and controllers. Passive components consist primarily of capacitors, electromechanical devices, and resistors.
We also provide a number of value-added services which are intended to attract new customers, to maintain and increase sales to existing customers and, in the case of flat panel system integration and contract manufacturing, to generate revenues from new customers. Value-added services include:
o Automated Inventory Management Services. We offer comprehensive, state-of-the-art solutions that effectively manage our customers' inventory reordering, stocking and administration functions. These services reduce paperwork, inventory, cycle time, and the overall cost of doing business for our customers. o Kitting. Kitting consists of assembling to a customer's specifications two or more of our 35,000 stock items into pre-packaged kits ready for use in the customer's assembly line. Kitting services allow us to provide a partial or complete fill of a customer's order and enable the customer to more efficiently manage its inventory. o Flat Panel System Integration. We provide customized hardware and software solutions to meet specific flat panel display requirements. We can assemble, integrate, test and deliver complete flat panel display products. o Contract Manufacturing. We also provide contract manufacturing services to our OEM customers which include procurement of customer specified components and raw materials from our network of suppliers and other suppliers, assembly of components on printed circuit boards ("PCBs"), and post assembly testing. Our manufacturing process consists of both advanced surface mount technology ("SMT") as well as conventional pin-through-hole ("PTH") interconnection technologies. The SMT process allows for more miniaturization, cost savings and shorter lead paths between components (which results in greater signal speed).
We believe we have developed valuable long-term customer relationships and an in-depth understanding of our customers needs and purchasing patterns. Our sales personnel are trained to identify our customers requirements and to actively market our entire product line to satisfy those needs. We serve a broad range of customers in the computer, computer-related, telecommunications, data transmission, defense, aerospace, medical equipment and other industries. None of our customers individually represented more than seven percent of net sales in any of the fiscal years ended June 30, 2001, 2000 and 1999.
As an authorized distributor for key vendors, we are able to offer our customers engineering support as well as warranty protection from the product manufacturers which enhances our ability to attract new customers and close sales. We provide additional customer support through communication with customers from computer to computer or through EDI, and through technically competent product managers and Field Application Engineers (FAEs). Our FAEs provide design support and technical assistance to our customers with detailed data solutions employing the latest technologies.
Sales are made throughout North America from the sales departments maintained at our two distribution facilities located on the East and West Coasts of the United States in California and New York and from 20 strategically located sales offices. Sales are made primarily through personal visits by our employees and by a staff of trained telephone sales personnel who answer inquiries and receive and process orders from customers. In addition, we utilize the services of independent sales representatives whose territories include parts of North America and several foreign countries. These independent sales representatives operate under agreements which are terminable by either party upon 30 days notice and prohibit them from representing competing product lines. Independent sales representatives are authorized to solicit sales of all of our product lines.
Manufacturers of electronic components increasingly rely on the marketing, customer service and other resources of distributors who market their product lines to customers not normally served by the manufacturer, and to supplement the manufacturers direct sales efforts in other accounts often by providing value-added services not offered by the manufacturer. Manufacturers seek distributors who have strong relationships with desirable customers, are financially strong, have the infrastructure to handle large volumes of products and can assist customers in the design and use of the manufacturers products. Currently, we have non-exclusive distribution agreements with many manufacturers, including California Micro Devices Corporation, Dallas Semiconductor Corporation, Epson Electronics America, Inc., Hynix Semiconductor America, Inc., Johanson Dielectrics, Inc., Kemet Electronics Corporation, North American Capacitor Company, Samsung Semiconductor, Inc., TDK Corporation of America, and Vishay Intertechnology, Inc. We continuously seek to identify potential new suppliers and obtain additional distributorships for new lines of products. We believe that such expansion and diversification will increase our sales and market share.
We generally purchase products from manufacturers pursuant to non-exclusive distributor agreements. As an authorized distributor, we are able to offer our suppliers marketing support.
Most of our distributor agreements are cancelable by either party, typically upon 30 to 90 days notice. These agreements typically provide for price protection, stock rotation privileges and the right to return inventory. Price protection is typically in the form of a credit to us for any inventory in our possession for which the manufacturer reduces its prices. Stock rotation privileges typically allow us to exchange inventory in an amount up to five percent of a prior periods purchases. Upon termination of a distributor agreement, the right of return typically requires the manufacturer to repurchase our inventory at our adjusted purchase price. We believe that the above-described provisions of our distributorship agreements generally have served to reduce our exposure to loss from unsold inventory. Because price protection, stock rotation privileges and the right to return inventory are limited in scope, there can be no assurances that we will not experience significant losses from unsold inventory in the future.
Component Distribution. Inventory management is critical to a distributors business. We constantly focus on a high number of resales or turns of existing inventory to reduce exposure to product obsolescence and changing customer demand.
Our central computer system facilitates the control of purchasing and inventory, accounts payable, shipping and receiving, and invoicing and collection information of our distribution business. Our distribution software system includes financial systems, EDI, customer order entry, purchase order entry to manufacturers, warehousing and inventory control. Each of our sales departments and offices is electronically linked to our central computer systems which provides fully integrated on-line real-time data with respect to our inventory levels. Our inventory management system was developed internally and is considered proprietary. We track inventory turns by vendor and by product, and our inventory management system provides immediate information to assist in making purchasing decisions and decisions as to which inventory to exchange with suppliers under stock rotation programs. Our inventory management system also uses bar-code technology along with scanning devices, which we supply to certain customers, and is networked to the facilities of such customers. In some cases, customers use computers that interface directly with our computers to identify available inventory and rapidly process orders. We also monitor supplier stock rotation programs, inventory price protection, rejected material and other factors related to inventory quality and quantity. This system enables us to more effectively manage our inventory and to respond more quickly to customer requirements for timely and reliable delivery of components. Our inventory turnover was approximately 4.9 times for the fiscal year ended June 30, 2001.
Contract Manufacturing. We conduct our contract manufacturing operations through our wholly owned subsidiary Nexus Custom Electronics, Inc., at two locations. The first location is an approximately 32,000 square foot facility located in Brandon, Vermont. The second location is an approximately 30,000 square foot facility located in Woburn, Massachusetts. Nexus provides contract manufacturing services to our OEM customers, which includes procurement of customer specified components and raw materials from our network of suppliers and other suppliers, assembly of components on PCBs and post-assembly testing. OEMs then incorporate the PCBs into finished products. In assembling PCBs, Nexus is capable of employing both PTH and SMT. PTH is a method of assembling PCBs in which component leads are inserted and soldered into plated holes in the board. SMT is a method of assembling PCBs in which components are fixed directly to the surface of the board, rather than being inserted into holes.
Nexus Vermont manufacturing facility has earned ISO 9002 certification by the Geneva-based organization dedicated to the development of worldwide standards for quality management guidelines and quality assurance. Management believes sophisticated customers increasingly are requiring their manufacturers to be ISO 9002-certified for purposes of quality assurance.
The electronic components distribution industry is highly competitive, primarily with respect to price and product availability. We believe that the breadth of our customer base, services and product lines, our level of technical expertise and the quality of our services generally are also particularly important. We compete with large national distributors such as Arrow Electronics, Inc. and Avnet, Inc., as well as regional and specialty distributors, such as All American Semiconductor, Inc. and Reptron Electronics, Inc., many of whom distribute the same or competitive products. Many of our competitors have significantly greater name recognition and greater financial and other resources than we do.
The electronics contract manufacturing industry is highly fragmented and is characterized by relatively high levels of volatility, competition and pricing and margin pressure. Many large contract manufacturers operate high-volume facilities and primarily focus on high-volume product runs. In contrast, certain contract manufacturers, such as Nexus, focus on low-to-medium volume and service-intensive products.
As the trend toward outsourcing increases, customers have been entering into just-in-time contracts with distributors, instead of placing orders with long lead times. Orders constituting our backlog are subject to delivery rescheduling, price negotiations and cancellations by the customer, sometimes without penalty or notice. Therefore, our backlog is not necessarily indicative of future sales for any particular period.
At June 30, 2001, we had a total of 475 employees, of which 157 were employed by Nexus. Of our total employees, 12 were engaged in administration, 56 were managerial and supervisory employees, 199 were in sales and 208 performed warehouse, manufacturing and clerical functions. Of these employees, Nexus employed two in administration, 16 in management and supervisory positions, two in sales and 137 in warehouse, manufacturing and clerical functions. There are no collective bargaining contracts covering any of our employees. We believe our relationship with our employees is satisfactory.
Item 2. Properties.All of our facilities are leased except for the Brandon, Vermont property which is owned by Nexus. We currently lease 24 facilities strategically located throughout the United States, two of which are multipurpose facilities used principally as administrative, sales, and purchasing offices, as well as warehouses, one of which is used for contract manufacturing and the remainder of which are used principally by us as sales offices. Our satellite sales offices range in size from approximately 500 square feet to approximately 4,000 square feet. Base rents for such properties range from approximately $1,000 per month to approximately $9,800 per month. Depending on the terms of each particular lease, in addition to base rent, we may also be responsible for portions of real estate taxes, utilities and operating costs, or increases in such costs over certain base levels. The lease terms range from one year to as long as five years. All facilities are linked by computer terminals to our Hauppauge, New York headquarters. The following table sets forth certain information regarding our four principal leased facilities:
Base Rent Expiration --------- ---------- Location Per Month Square Feet Use Date -------- --------- ----------- --- ---- Hauppauge, NY (1) ............ $53,600 72,000 Administrative, 12/31/03 Sales and Warehouse Franklin, MA ................. $18,100 11,700 Sales 3/31/05 Woburn, MA ................... $14,300 30,000 Manufacturing 7/31/05 Westlake Village,CA ........... $10,000 11,000 Administrative, 4/30/03 Sales and Warehouse
(1) | Leased from a partnership owned by Joel H. Girsky and Charles B. Girsky at a current monthly rent which the Company believes represents the fair market value for such space. |
Nexus owns and occupies an approximately 32,000 square foot facility located in Brandon, Vermont, that is used for manufacturing, storage and office space.
We believe that our present facilities will be adequate to meet our needs for the foreseeable future.
Item 3. Legal Proceedings.We are a party to legal matters arising in the general conduct of business. The ultimate outcome of such matters is not expected to have a material adverse effect on our results of operations or financial position.
Item 4. Submission of Matters to a Vote of Security Holders.No response to this Item is required.
(a) Our common stock is traded on the Nasdaq National Market under the symbol JACO. The stock prices listed below represent the high and low sale prices of the common stock, as reported by the Nasdaq National Market, for each fiscal quarter beginning with the first fiscal quarter of the fiscal year ended June 30, 2000. Stock prices prior to July 25, 2000 have been adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. |
High Low ---- --- Fiscal Year 2000: First quarter ended September 30, 1999 ............. $ 4.38 $ 1.67 Second quarter ended December 31, 1999 ............. 4.00 2.00 Third quarter ended March 31, 2000 ................. 9.83 3.21 Fourth quarter ended June 30, 2000 ................. 18.67 5.33 Fiscal Year 2001: First quarter ended September 30, 2000 ............. $ 19.67 $ 10.75 Second quarter ended December 31, 2000 ............. 16.88 6.13 Third quarter ended March 31, 2001 ................. 10.75 5.69 Fourth quarter ended June 30, 2001 ................. 8.09 4.66 Fiscal Year 2002: (through September 24, 2001) ....................... $ 6.39 $3.25
(b) On September 24, 2001, the last reported sale price of our common stock on the Nasdaq National Market was $3.85 per share (which gives effect to the 3-for-2 stock split which was effective on July 24, 2000). As of August 30, 2001, there were approximately 139 holders of record of our common stock. We believe our stock is held by more than 1,800 beneficial owners. |
(c) We have never declared or paid any cash dividends on our common stock. We intend for the foreseeable future to retain future earnings for use in our business. The amount of dividends we pay in the future, if any, will be at the discretion of our Board of Directors and will depend upon our financial condition, operating results and other factors as the Board of Directors, in its discretion, deems relevant. In addition, our credit facility prohibits us from paying cash dividends on our common stock. |
The selected consolidated financial data set forth below contains only a portion of our financial statements and should be read in conjunction with the consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Report. The historical results are not necessarily indicative of results to be expected for any future period. The share and per share data have been adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000.
Year Ended June 30 ---------------------------------------------- ---------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (in thousands, except per share data) Consolidated Statement Of Operations Data: Net sales ............................................. $350,222 $209,325 $140,711 $153,674 $155,098 Cost of goods sold .................................... 283,382 162,443 113,335 121,796 122,993 -------- -------- -------- -------- -------- Gross profit .......................................... 66,840 46,882 27,376 31,878 32,105 Selling, general and administrative expenses .......... 46,098 34,523 27,642 28,707 27,640 -------- -------- -------- -------- Operating profit (loss) ............................. 20,742 12,359 (266) 3,171 4,465 Interest expense ...................................... 4,120 1,559 1,309 1,140 971 -------- -------- -------- -------- -------- Earnings (loss) before income taxes ................. 16,622 10,801 (1,575) 2,031 3,494 Income tax expense (benefit) .......................... 6,772 4,425 (418) 847 1,415 -------- -------- -------- -------- -------- Net earnings (loss) ................................... $ 9,850 $ 6,376 $ (1,157) $ 1,184 $ 2,079 ======== ======== ======== ======== ======== Net earnings (loss) per common share ............. Basic ................................................. $ 1.74 $ 1.16 $ (0.21) $ 0.21 $ 0.36 ======== ======== ======== ======== ======== Diluted .............................................. $ 1.59 $ 1.11 $ (0.21) $ 0.20 $ 0.35 ======== ======== ======== ======== ======== Weighted average number of common and common equivalent shares outstanding .................................... 5,670 5,498 5,547 5,755 5,849 Basic Diluted ............................................. 6,179 5,766 5,547 5,882 5,922
At June 30 ------------------------------------------------ 2001 2000 1999 1998 1997 ------- ------- ------ ------ ------ Consolidated Balance Sheet Data: (in thousands) Working capital .................$ 78,308 $58,384 $41,998 $42,481 $41,146 Total assets .................... 136,315 126,329 72,931 73,419 69,996 Short-term debt ................. 1,082 807 792 663 599 Long-term debt .................. 56,128 40,941 18,886 17,037 15,553 Shareholders' equity ............ 53,251 42,790 34,868 36,625 35,892Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following table sets forth certain items in our statement of operations as a percentage of net sales for the periods shown:
Year Ended June 30, -------------------------------- 2001 2000 1999 ------ ------ ------ Net sales ................................. 100.0% 100.0% 100.0% ------ ------ ------ Cost of goods sold ........................ 80.9 77.6 80.5 ------ ------ ------ Gross profit .............................. 19.1 22.4 19.5 Selling, general and administrative ....... 13.2 16.5 19.7 ------ ------ ------ expenses Operating profit (loss) ................... 5.9 5.9 (0.2) Interest expense .......................... 1.2 0.8 0.9 ------ ------ ------ Earnings (loss) before income taxes ....... 4.7 5.1 (1.1) Income tax provision (benefit) ............ 1.9 2.1 (0.3) ------ ------ ------ Net earnings (loss) ....................... 2.8% 3.0% (0.8)% ====== ====== ======
Net sales for Fiscal 2001 were $350.2 million, an increase of 67.3%, as compared to $209.3 million for Fiscal 2000. Our net sales benefited from both a strong demand for components throughout the electronics industry for the first six months and additional sales generated from the acquisition of Interface Electronics Corp.(Interface). Interface brought a new customer base as well as additional suppliers to sell to our existing customers. During the last two quarters of Fiscal 2001, the demand for components was greatly reduced. As a result, we experienced a decrease in sales sequentially. We believe net sales will continue to be impacted for the foreseeable future until such time that the excess inventory at our customers have been used.
Gross Profit was $66.8 million in Fiscal 2001, an increase of $19.9 million, or 42.6%, compared to Fiscal 2000. Gross profit margins as a percentage of net sales were 19.1% during Fiscal 2001 compared to 22.4% during Fiscal 2000. The decrease in gross profit margins was as a result of the weakening in demand for electronic components toward the end of Fiscal 2001 and an increase in semiconductor sales due to the new suppliers that were added by the acquisition of Interface.
Selling, general and administrative (SG&A) expenses were $46.1 million in Fiscal 2001, an increase of $11.6 million, or 33.5%, compared to $34.5 million in Fiscal 2000. As a percentage of net sales, SG&A expenses decreased in Fiscal 2001 to 13.2% compared to 16.5% in Fiscal 2000. The increase in spending is attributable to higher staffing levels that was required to support the increase in net sales, an increase in variable costs such as commissions paid to sales personnel, and the additional costs associated with the acquisition of Interface. The decrease in SG&A expenses as a percentage of net sales reflects operating efficiencies realized by higher sales.
Interest expense increased to $4.1 million in Fiscal 2001, as compared to $1.6 million in Fiscal 2000. The increase was primarily attributable to the additional borrowings needed for the acquisition of Interface, and capital required due to the increase in accounts receivable and inventory that were necessary to support the growth in sales.
Net earnings for Fiscal 2001 were $9.9 million, or $1.59 per share diluted compared to net earnings for Fiscal 2000 of $6.4 million, or $1.11 per share diluted. The increase in net earnings was attributable to the increase in net sales, the operating efficiencies realized by the increase in net sales, and the successful integration of Interface during the fiscal year.
Net sales for Fiscal 2000 were $209.3 million, an increase of $68.6 million, or 48.8%, as compared to $140.7 million reported for Fiscal 1999. Our net sales benefited from strong demand for components throughout the electronics industry. In addition, we have continued to experience strong demand for flat panels and flat panel monitors. We have also made significant investments in sales personnel and infrastructure, which has contributed to our sales growth. We continue to enhance our sales by providing value-added services related to assisting customers in procurement and inventory management.
Gross profit was $46.9 million in Fiscal 2000, an increase of $19.5 million or 71.2%, compared to $27.4 million in Fiscal 1999. Gross profit margins as a percentage of net sales were 22.4% during Fiscal 2000 compared to 19.5% during Fiscal 1999. The strong demand for electronic components is primarily responsible for the increase in gross profit margins during Fiscal 2000.
Selling, general and administrative (SG&A) expenses were $34.5 million in Fiscal 2000, an increase of $6.9 million, or 24.9%, compared to $27.6 million in Fiscal 1999. As a percentage of net sales, SG&A expenses decreased in Fiscal 2000 to 16.5% compared to 19.7% in Fiscal 1999. The increase in spending is primarily attributable to expenses necessary to support the growth in sales. These expenses include additional sales and marketing personnel, investments in our infrastructure, and the additional costs associated with the acquisition of substantially all the assets of PGI Industries Inc. ("PGI")and the acquisition of Interface. The decrease as a percentage of net sales reflects operating efficiencies realized by us with higher revenue levels.
Operating profit (loss) for Fiscal 2000 was $12.4 million as compared to $(0.3) million for Fiscal 1999. As a percentage of net sales, operating profit (loss) increased in Fiscal 2000 to 5.9% as compared to (0.2)% in Fiscal 1999.
Interest expense increased to $1.6 million in Fiscal 2000, as compared to $1.3 million in Fiscal 1999. The 19.1% increase was primarily due to the additional net borrowings of approximately $15 million to acquire Interface during the fourth quarter of Fiscal 2000. We will continue to see increased interest expense to the extent of higher borrowing levels.
Net earnings for Fiscal 2000 were $6.4 million, or $1.11 per share diluted compared to a net loss for Fiscal 1999 of $1.2 million, or $.21 per share diluted. Diluted earnings per share includes the dilutive effect of outstanding stock options. The increase in net earnings was attributable to the increase in net sales, the increase in gross profit margins, the reduction in SG&A expenses and the acquisition of Interface.
Our agreement with our banks, as amended, which expires on September 14, 2002, provides us with a $80 million revolving line of credit facility through September 30, 2001, at which point it will revert back to $70 million. The credit facility is based principally on eligible accounts receivable and inventories as defined in the agreement. The interest rate of the credit facility was based on the average 30-day LIBOR rate plus 1.75% through the quarter ended September 30, 2000 and since October 1, 2000, the rate converted to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and is adjusted quarterly. The interest rate on the credit facility for the quarter ended June 30, 2001 was the 30-day LIBOR rate plus 1.5%. The outstanding balance on the revolving line of credit facility was $54,6 million at June 30, 2001. Borrowings under this facility are collateralized by substantially all of our assets. The agreement contains provisions for maintenance of certain financial ratios, all of which we were in compliance with at June 30, 2001, and prohibits the payment of cash dividends.
For Fiscal 2001, our net cash used in operating activities was approximately $8.8 million, as compared to net cash used in operating activities of $7.0 million for Fiscal 2000. The increase in net cash used is primarily attributable to a decrease in accounts payable during the fiscal year, partially offset by a decrease in accounts receivable for Fiscal 2001. Net cash used in investing activities decreased to $6.2 million for Fiscal 2001 as compared to $13.4 million for Fiscal 2000. The decrease is primarily attributable to the acquisition of the operating assets of PGI and the purchase of Interface during Fiscal 2000.
Our cash expenditures may vary significantly from current levels, based on a number of factors, including, but not limited to, future acquisitions, if any.
For Fiscal 2001 and Fiscal 2000, our inventory turnover was 4.9x and 3.7x, respectively. The average days outstanding of our accounts receivable at June 30, 2001 was 42 days, as compared to 57 days at June 30, 2000.
We believe that cash flow from operations and funds available under our credit facility will be sufficient to fund our capital needs for at least the next twelve months.
Inflation has not had a significant impact on our operations during the last three fiscal years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.We are exposed to interest rate changes with respect to our credit facility which bears interest at the higher of the prime rate or the federal funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. At June 30, 2001, $54.6 million was outstanding under the credit facility. Changes in the LIBOR interest rate during Fiscal 2001 will have a positive or negative effect on our interest expense. Each 1.0% fluctuation in the LIBOR interest rate will increase or decrease interest expense for us by approximately $0.5 million based on outstanding borrowings at June 30, 2001.
The impact of interest rate fluctuations on other floating rate debt is not material.
Item 8. Financial Statements and Supplementary Data.For an index to the financial statements and supplementary data, see Item 14(a).
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. No response to this Item is required.Incorporated herein by reference is the information to appear under the caption Election of Directors in the Companys definitive proxy statement for its Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than October 29, 2001.
Item 11. Executive Compensation.Incorporated herein by reference is the information to appear under the caption Executive Compensation in the Companys definitive proxy statement for its Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than October 29, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management.Incorporated herein by reference is the information to appear under the caption Principal Shareholders; Shares Held by Management in the Companys definitive proxy statement for its Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than October 29, 2001.
Item 13. Certain Relationships and Related Transactions.Incorporated herein by reference is the information to appear under the caption Certain Transactions in the Companys definitive proxy statement for its Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than October 29, 2001.
PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. Page ---- (a) (1)Financial Statements included in Part II, Item 8, of this Report: Index to Consolidated Financial Statements and Schedule F-1 Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets F-3- F-4 Consolidated Statements of Operations F-5 Consolidated Statement of Changes in Shareholders' Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8- F-30 (2) Financial Statement Schedule included in Part IV of this Report: Report of Independent Certified Public Accountants on Schedule F-31 Schedule II - Valuation and Qualifying Accounts F-32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets F-3 - F-4 Consolidated Statements of Operations F-5 Consolidated Statement of Changes in Shareholders' Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 - F-31 Report of Independent Certified Public Accountants on Schedule F-32 Schedule II - Valuation and Qualifying Accounts F-33
We have audited the accompanying consolidated balance sheets of Jaco Electronics, Inc. and Subsidiaries (the Company) as of June 30, 2001 and 2000 and the related consolidated statements of operations, changes in shareholders equity, and cash flows for each of the three years in the period ended June 30, 2001. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Jaco Electronics, Inc. and Subsidiaries as of June 30, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLPJaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, ASSETS 2001 2000 CURRENT ASSETS Cash ............................................. $89,523 $617,603 Marketable securities ............................ 771,406 880,954 Accounts receivable, less allowance for doubtful accounts of $1,695,000 in 2001 and $1,111,000 in 2000 ........................................ 37,820,946 42,179,468 Inventories ...................................... 62,212,121 53,415,793 Prepaid expenses and other ....................... 824,121 887,804 Prepaid and refundable income taxes .............. 486,325 Deferred income taxes ............................ 2,190,000 1,975,000 Total current assets .......................... 104,394,442 99,956,622 PROPERTY, PLANT AND EQUIPMENT - AT COST, NET ........ 8,389,651 6,926,734 DEFERRED INCOME TAXES ............................... 436,000 GOODWILL, less accumulated amortization of $2,121,000 in 2001 and $1,141,000 in 2000 ................... 20,095,844 16,600,432 OTHER ASSETS ........................................ 2,998,902 2,845,305 ----------- ----------- $136,314,839 $126,329,093 =========== ===========
The accompanying notes are an integral part of these statements.
Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (continued) June 30, LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000 CURRENT LIABILITIES Accounts payable $ 21,035,641 $ 35,346,299 Current maturities of long-term debt and capitalized lease obligations 1,081,905 807,444 Accrued compensation 2,335,614 2,191,693 Accrued expenses 1,632,803 1,652,019 Income taxes payable 1,575,319 ---------- --------- Total current liabilities 26,085,963 41,572,774 LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS 56,128,243 40,940,877 DEFERRED INCOME TAXES 225,000 DEFERRED COMPENSATION 850,000 800,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized, 20,000,000 and 10,000,000 shares, respectively, $.10 par value; issued, 6,315,759 and 6,252,259 shares, respectively, and 5,697,459 and 5,633,959 shares outstanding, respectively 631,576 625,226 Additional paid-in capital, net 24,615,866 23,906,301 Retained earnings 30,146,599 20,296,761 Accumulated other comprehensive income 61,107 166,669 Treasury stock - 618,300 shares at cost (2,204,515) (2,204,515) ----------- ----------- 53,250,633 42,790,442 ----------- ----------- $136,314,839 $126,329,093 =========== =========== The accompanying notes are an integral part of these statements.
Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended June 30, 2001 2000 1999 Net sales ................................... $350,222,202 $209,325,180 $140,710,825 Cost of goods sold .......................... 283,382,288 162,443,001 113,334,627 ----------- ----------- ----------- Gross profit ........................... 66,839,914 46,882,179 27,376,198 Selling, general and administrative expenses 46,098,155 34,522,667 27,642,724 ----------- ----------- ----------- Operating profit (loss) ................ 20,741,759 12,359,512 (266,526) Interest expense ............................ 4,119,362 1,558,558 1,308,624 --------- --------- ---------- Earnings (loss) before income taxes .... 16,622,397 10,800,954 (1,575,150) Income tax provision (benefit) 6,772,000 4,425,000 (418,000) --------- --------- ---------- NET EARNINGS (LOSS) .................... $ 9,850,397 $ 6,375,954 $(1,157,150) ========= ========= ========== Net earnings (loss) per common share: Basic .................................... $ 1.74 $ 1.16 $ (0.21) Diluted .................................. $ 1.59 $ 1.11 $ (0.21) Weighted-average common shares and common equivalent shares outstanding: Basic ................................... 5,669,560 5,497,866 5,547,405 Diluted ................................. 6,178,653 5,766,086 5,547,405 The accompanying notes are an integral part of these statements.
Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2001, 2000 and 1999 Accumulated Additional other Deferred Total Common stock paid-in Retained comprehensive Treasury compen- shareholders' Shares Amount capital earnings income stock sation equity Balance at July 1, 1998 ..... 4,065,721 $ 406,572 $22,801,295 $15,077,957 $ 164,385 $(1,419,962) $(405,000) $36,625,247 Net loss .................... (1,157,150) (1,157,150) Unrealized gain on marketable securities - net of ....... deferred taxes ............ 49,322 49,322 Deferred compensation expense 135,000 135,000 Purchase of treasury stock (784,553) (784,553) Balance at June 30, 1999 4,065,721 406,572 22,801,295 13,920,807 213,707 (2,204,515) (270,000) 34,867,866 Net earnings ................ 6,375,954 6,375,954 Unrealized loss on marketable securities - net of ....... deferred taxes ............ (47,038) (47,038) Exercise of stock options ... 102,482 10,248 860,760 871,008 Stock options income tax .... benefits 431,840 431,840 Restricted stock plan income tax benefits 155,812 155,812 Effect of 3-for-2 stock split 2,084,056 208,406 (208,406) Deferred compensation expense 135,000 135,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at June 30, 2000 .... 6,252,259 625,226 24,041,301 20,296,761 166,669 (2,204,515) (135,000) 42,790,442 Net earnings ................ 9,850,397 9,850,397 Unrealized loss on marketable securities - net of ....... deferred taxes (105,562) (105,562) Exercise of stock options ... 63,500 6,350 430,275 436,625 Stock options income tax .... benefits 111,890 111,890 Restricted stock plan income tax benefits 32,400 32,400 Payment of fractional shares (559) (559) Deferred compensation expense 135,000 135,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at June 30, 2001 .... 6,315,759 $ 631,576 $ 24,615,866 $ 30,146,599 $ 61,107 $(2,204,51) $ 53,250,633 ========== ========== ========== ========== ========= ========== ========== ============ The accompanying notes are an integral part of this statement.
Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30, 2001 2000 1999 Cash flows from operating activities Net earnings (loss) .......................................... $ 9,850,397 $ 6,375,954 $ (1,157,150) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization ............................. 3,223,205 1,868,420 1,587,766 Deferred compensation ..................................... 185,000 185,000 185,000 Deferred income tax (benefit) expense ..................... (803,402) (996,963) 351,000 Gain on sale of equipment ................................. (918) Provision for doubtful accounts ........................... 1,397,601 597,694 981,622 Changes in operating assets and liabilities, net of effects of acquisitions Decrease (increase) in accounts receivable.............. 2,736,517 (14,659,938) (2,502,904) (Increase) decrease in inventories ..................... (8,951,107) (15,356,153) 2,512,569 (Increase) decrease in prepaid expenses and other....... (9,558) (57,057) 542,416 (Increase) decrease in prepaid and refundable income taxes..... (486,325) (Decrease) increase in accounts payable................. (14,310,658) 10,630,824 (710,232) Increase (decrease) in accrued compensation............. 143,921 1,299,706 (61,188) (Decrease) increase in accrued expenses................. (244,216) 540,639 12,488 (Decrease) increase in income taxes payable............. (1,575,319) 2,566,174 (380,723) ---------- ---------- ---------- Net cash (used in) provided by operating activities......... (8,843,944) (7,005,700) 1,359,746 ---------- ---------- ---------- Cash flows from investing activities Purchase of marketable securities ............................ (56,692) (73,407) (39,139) Capital expenditures ......................................... (1,997,194) (892,149) (1,603,361) Proceeds from the sale of equipment .......................... 128,892 9,689 Business acquisitions, net of cash acquired .................. (14,877,230) Business acquisitions - deferred payments .................... (3,810,000) (Increase) decrease in other assets .......................... (327,264) 2,342,542 (7,834) ---------- ---------- ---------- Net cash used in investing activities ..................... (6,191,150) (13,371,352) (1,640,645) ---------- ---------- ---------- Cash flows from financing activities Borrowings from line of credit ............................... 324,090,871 95,831,956 53,507,313 Borrowings under term loan for equipment ..................... 575,000 Payments of line of credit ................................... (309,269,516) (76,391,130) (51,851,995) Principal payments under equipment financing.................. (733,983) (612,792) (590,889) Payments under term loan ..................................... (160,714) (214,286) (214,286) Purchase of treasury stock ................................... (784,553) Payment of fractional shares ................................. (559) Proceeds from exercise of stock options ...................... 436,625 871,008 Stock options income tax benefits ............................ 111,890 431,840 Restricted stock plan income tax benefits .................... 32,400 155,812 ---------- ---------- ----------- Net cash provided by financing activities.................. 14,507,014 20,072,408 640,590 ---------- ---------- ----------- NET (DECREASE) INCREASE IN CASH ........................... (528,080) (304,644) 359,691 Cash at beginning of year ...................................... 617,603 922,247 562,556 ---------- ---------- ----------- Cash at end of year ............................................ $ 89,523 $ 617,603 $ 922,247 ========== ============ ========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest .................................................... $ 4,120,000 $ 1,559,000 $ 1,310,000 Income taxes ................................................ 9,493,000 2,267,000 22,000 Supplemental schedule of non-cash financing and investing activities: Accrued acquisition costs ................................ 225,000 Equipment under capital leases and note payable 1,535,169 126,229 552,544 The accompanying notes are an integral part of these statements.
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily engaged in the distribution of semiconductors, capacitors, resistors, electromechanical devices, flat panel displays and monitors and power supplies, which are used in the manufacture and assembly of electronic products. In addition, the Company provides contract manufacturing services.
Electronics parts distribution sales include exports made principally to customers located in Western Europe, Canada, Mexico, and the Far East. For the years ended June 30, 2001, 2000 and 1999, export sales amounted to approximately $52,358,000, $8,170,000 and $4,810,000, respectively.
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:
1. Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of Jaco Electronics, Inc. and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated.
2. Revenue RecognitionThe Company recognizes revenue as products are shipped and title passes to customers.
3. Investments in Marketable SecuritiesInvestments in marketable securities consist of investments in mutual funds. Such investments have been classified as "available-for-sale securities" and are reported at fair market value, which is inclusive of unrealized gains of $95,139 and $261,379 in 2001 and 2000, respectively. Changes in the fair value of available-for-sale securities are included in accumulated other comprehensive income, net of the related deferred tax effects.
4. InventoriesInventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out and average cost methods.
Property, plant and equipment are stated at cost. Depreciation is provided for using the straight-line method over the estimated useful life of the assets.
The Company capitalizes costs incurred for internally developed software where economic and technological feasibility has been established. These capitalized software costs are being amortized on a straight-line basis over the estimated useful life of seven years.
6. Goodwill And Other Intangible AssetsGoodwill and other intangible assets represent the excess of the aggregate price paid by the Company over the fair market value of the tangible assets acquired in business acquisitions accounted for as a purchase. Goodwill and other identifiable intangible assets have been amortized on a straight-line basis from five to forty years.
The Company has reviewed long-lived assets and certain identifiable intangibles (including goodwill, property and equipment) for impairment whenever events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable. An impairment loss would have been recognized when estimated future discounted cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company has not identified such impairment losses.
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business Combinations, and Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets. SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. However, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS No. 142. The new standards require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value-based test.
The Company has adopted, as of July 1, 2001, the provisions of SFAS Nos. 141 and 142. Therefore, annual and quarterly amortization of goodwill of approximately $1,120,000 and $280,000, respectively, will no longer be recognized. By December 31, 2001, the Company will have completed a transitional fair value-based impairment test of goodwill to determine if the fair value is less than the recorded value at July 1, 2001. Impairment losses, if any, resulting from the transitional testing will be recognized in the quarter ended December 31, 2001 as a cumulative effect of a change in accounting principle.
7. Income TaxesDeferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and net operating loss carryforwards for which income tax expenses or benefits are expected to be realized in future years. A valuation allowance had been established to reduce deferred tax assets attributable to a subsidiary of the Company. During fiscal 2001, the Company utilized a significant portion of the net operating loss carryforwards and thus eliminated the valuation allowance.
Earnings per share have been restated for all periods presented to give effect to a 3-for-2 stock split announced on June 26, 2000.
Basic earnings per share are determined by dividing the Company's net earnings by the weighted average shares outstanding. Diluted earnings per share include the dilutive effects of outstanding stock options.
9. Financial Instruments and Business ConcentrationsFinancial instruments, which potentially subject the Company to concentration of credit risk, consist principally of accounts receivable. Concentration of credit risk with respect to accounts receivable is generally mitigated due to the large number of entities comprising the Company's customer base, their dispersion across geographic areas and industries, along with the Company's policy of maintaining credit insurance. The Company routinely addresses the financial strength of its customers and, historically, its accounts receivable credit risk exposure is limited. However, during the fourth quarter of fiscal 1999 the Company recorded approximately $630,000 of additional bad debt expense, relating to the bankruptcy of a customer.
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"), "Fair Value of Financial Instruments," requires disclosure of the estimated fair value of an entity's financial instrument assets and liabilities. The Company's principal financial instrument consists of a revolving credit facility, expiring on September 14, 2002, with two participating banks. The Company believes that the carrying amount of such debt approximates the fair value as the variable interest rate approximates the current prevailing interest rate.
The Company generally purchases products from manufacturers pursuant to nonexclusive distributor agreements. During the year ended June 30, 2001, products purchased from three suppliers accounted for 14%, 12% and 10%, respectively, of net sales. As is common in the electronics distribution industry, from time to time the Company has experienced terminations of relationships with suppliers. There can be no assurance that, in the event a supplier cancelled its distributor agreement with the Company, the Company will be able to replace the sales with sales of other products.
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required 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, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
11. Comprehensive IncomeIn fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No. 130 established rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on the Company's earnings or shareholders' equity. SFAS No. 130 requires unrealized holding gains or losses on debt and equity securities available for sale, which prior to adoption were only reported separately in shareholders' equity to be included in comprehensive income and accumulated other comprehensive income.
12. Segment ReportingIn fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 requires that the Company disclose certain information about its operating segments defined as "components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance." Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments.
13. AdvertisingAdvertising costs are expensed as incurred and totaled $175,954, $109,308 and $250,198 for the years ended June 30, 2001, 2000 and 1999, respectively.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE B - INVENTORY Inventories consist of the following: June 30, 2001 2000 Finished goods and goods held for resale $52,841,604 $48,609,676 Work-in-process 1,401,102 885,688 Raw materials 7,969,415 3,920,429 ---------- --------- $62,212,121 $53,415,793 =========== =========== NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of: Useful life June 30, in years 2001 2000 Land, building and improvements 10 to 30 $1,482,419 $ 1,482,419 Machinery and equipment 3 to 7 11,573,339 8,928,252 Internally developed software costs 7 1,952,319 1,831,851 Transportation equipment 3 to 5 162,707 88,105 Leasehold improvements 5 to 10 1,293,424 601,218 --------- ----------- 16,464,208 12,931,845 ========== ========== Less accumulated depreciation and amortization (including $1,378,070 in 2001 and $950,604 in 2000 of capitalized lease amortization) 8,074,557 6,005,111 --------- --------- $ 8,389,651 $ 6,926,734 ========= =========
Included in machinery and equipment are assets recorded under capitalized leases at June 30, 2001 and 2000 for $3,967,825 and $2,468,686, respectively. Accumulated amortization of internally developed software costs at June 30, 2001 and 2000 aggregated $654,010 and $383,713, respectively.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE D - INCOME TAXES The components of the Company's provision (benefit) for income taxes are as follows: June 30, 2001 2000 1999 Federal Current $5,853,000 $3,448,000 $(887,000) Deferred (803,000) (67,000) 351,000 --------- --------- -------- 5,050,000 3,381,000 (536,000) State 1,722,000 1,044,000 118,000 --------- --------- -------- $6,772,000 $4,425,000 $(418,000) ========= ========= ======== The Company's effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following: June 30, 2001 2000 1999 Statutory Federal tax rate 34.0% 34.0% (34.0)% State income taxes, net of Federal tax benefit 6.7 5.5 5.0 Sales expense for which no tax benefit arises 1.0 .9 2.4 Other (1.0) .6 .1 ----- ----- ------ Effective tax rate 40.7% 41.0% (26.5)% ===== ===== ======
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE D - INCOME TAXES (continued) Deferred income tax assets and liabilities resulting from differences between accounting for financial statement purposes and tax purposes are summarized as follows: 2001 2000 Deferred tax assets Net operating loss carryforwards $ 187,000 $ 430,000 Allowance for bad debts 619,000 384,000 Inventory valuation 1,820,000 1,421,000 Deferred compensation 310,000 292,000 Other deferred tax assets 364,000 352,000 3,300,000 2,879,000 Deferred tax liabilities Depreciation (594,000) (618,000) Unrealized gain on marketable securities available for sale (34,000) (99,000) Other (46,000) (87,000) 2,626,000 2,075,000 Valuation allowance (325,000) Net deferred tax asset $2,626,000 $1,750,000
At June 30, 2001, the Company, through an acquisition, has available a Federal net operating loss carryforward of approximately $413,000. Such net operating loss is subject to certain limitations and expires in varying amounts during the fiscal years 2007 through 2010. Further, the Company had established a valuation allowance with respect to the net deferred tax assets attributable to this acquired subsidiary, which was eliminated during fiscal 2001.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE E - EARNINGS (LOSS) PER COMMON SHARE For the year ended June 30, 2001 2000 1999 Income Shares Per Income Shares Per Loss Shares Per (numer- (denomi- share (numer- (denomi- share (numer- (denomi- share ator) nator) amount ator) nator) amount ator) nator) amount Basic earnings (loss) per share; income available to common shareholders $9,850,397 5,669,560 $1.74 $6,375,954 5,497,866 $1.16 $(1,157,150) 5,547,405 $(0.21) Effect of dilutive securities Stock options 509,093 268,220 Diluted earnings (loss) per share; income available to common shareholders plus assumed conversions $9,850,397 6,178,653 $1.59 $6,375,954 5,766,086 $1.11 $(1,157,150) 5,547,405 $(0.21) Excluded from the calculation of earnings (loss) per share are options and warrants to purchase 90,688,45,000 and 832,943 shares in fiscal 2001, 2000 and 1999, respectively, as their inclusion would have been antidilutive.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS Debt and capitalized lease obligations are as follows: June 30, 2001 2000 Term loan and revolving line of credit (a) $54,556,622 $39,895,981 Other term loans (b) 324,689 469,535 Equipment note 30,634 Capitalized lease obligations (c) 2,561,909 1,533,389 57,473,854 41,898,905 Less amounts representing interest on capitalized lease obligations 263,706 150,584 57,210,148 41,748,321 Less current maturities 1,081,905 807,444 $56,128,243 $40,940,877(a) Term Loan and Revolving Line of Credit Facility
The Companys agreement with its banks, as amended, provides the Company with a $80,000,000 revolving line of credit facility through September 30, 2001, at which point it will revert back to $70,000,000. The credit facility is based principally on eligible accounts receivable and inventories of the Company as defined in the agreement. The agreement was amended during fiscal 2001 to (i) increase the amount available under the revolving line of credit, and (ii) extend the maturity date to September 14, 2002. The interest rate is based on the average 30-day LIBOR plus 1% to 2-1/4% depending on the Companys performance for the immediately preceding four fiscal quarters measured by a certain financial ratio. The applicable interest rate may be adjusted quarterly and borrowings under this facility are collateralized by substantially all of the assets of the Company. The outstanding balance on the revolving line of credit facility was $54,556,622 at June 30, 2001, with an associated interest rate of 5.43%. The agreement contains provisions for maintenance of certain financial ratios, all of which the Company is in compliance with, and prohibits the payment of cash dividends.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued) (b) Other Term Loans Other term loans as of June 30, 2001 are as follows: Monthly Date of loan Balance Term payment March 16, 1995 $ 24,019 84 months $2,730 January 14, 1999 300,670 60 months 9,829 -------- $324,689
The above loans are collateralized by the related equipment acquired, having a carrying value of approximately $398,000 at June 30, 2001 and $586,000 at June 30, 2000. The agreements contain, among other things, restrictive covenants on one of the Companys subsidiaries, which place limitations on: (i) consolidations, mergers and acquisitions, (ii) additional indebtedness, encumbrances and guarantees, (iii) loans to shareholders, officers or directors, (iv) dividends and stock redemptions, and (v) transactions with affiliates, all as defined in the agreements. The loans bear interest payable monthly, at 5.5% and 1% per annum, respectively.
(c) Capitalized Lease ObligationsThe Company leases certain equipment under agreements accounted for as capital leases. The aggregate obligations for the equipment require the Company to make monthly payments through March 2005, with implicit interest rates from 7.0% to 8.5%.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued) The following is a summary of the aggregate annual maturities of debt and capitalized lease obligations as of June 30, 2001: Capitalized Debt leases Year ending June 30, 2002 $ 145,933 $ 980,122 2003 54,680,336 788,395 2004 76,363 469,864 2005 8,562 323,528 2006 751 ---------- ---------- $54,911,945 $2,561,909 ========== =========NOTE G - COMMITMENTS AND CONTINGENCIES 1. Leases
The Company leases certain office and warehouse facilities under noncancellable operating leases. The leases also provide for the payment of real estate taxes and other operating expenses of the buildings. The minimum annual lease payments under such leases are as follows:
Year ending June 30, 2002 $1,986,932 2003 1,795,106 2004 1,119,499 2005 563,636 2006 86,548 ---------- $5,551,721 =========In addition, the Company leases office and warehouse facilities from a partnership owned by two officers and directors of the Company. The lease expires in December 2003 and requires minimum annual lease payments as follows:
Year ending June 30, 2002 $ 659,327 2003 692,293 2004 354,589 $1,706,209The Companys rent expense was approximately $602,000 for each of the years ended June 30, 2001, 2000 and 1999, respectively, in connection with the above lease.
Rent expense on office and warehouse facilities leases for the years ended June 30, 2001, 2000 and 1999 was approximately $1,826,000, $1,235,000 and $1,131,000, respectively, net of sublease income of approximately $115,000, $127,000 and $110,000, respectively.
2. Other LeasesThe Company also leases various office equipment and automobiles under noncancellable operating leases expiring through June 2005. The minimum rental commitments required under these leases at June 30, 2001 are as follows:
Year ending June 30, 2002 $350,387 2003 160,299 2004 30,762 2005 3,482 $544,930The Company has entered into employment agreements with three executive officers which provide for annual base salaries aggregating $785,000 through June 30, 2004 and contain provisions for severance payments in the event of change of control as defined in the agreements. The Companys agreements with its Chairman and Executive Vice President provides for cash bonuses equal to 4% and 2%, respectively, of the Companys earnings before income taxes for each fiscal year in which such earnings are in excess of $1,000,000 or 6% and 3%, respectively, of the Companys earnings before income taxes if such earnings are in excess of $2,500,000 up to a maximum annual cash bonus of $720,000 and $360,000, respectively. In addition, the Companys agreement with its Chairman provides for a deferred compensation which accrues at a rate of $50,000 per year and becomes payable in its entirety no later than January 15th of the year next following his cessation of employment for any reason. Effective July 1, 2001, the Company is obligated to provide health insurance to the Chairman, Executive Vice President, and their respective spouses commencing upon their termination of employment with Jaco and ending on the later to occur of (i) their death or (ii) the death of their respective spouses.
On June 6, 2000, the Company entered into an employment agreement with an Executive Vice President which provides for an annual base of $300,000 through May 30, 2003. The employment agreement also provides for an annual cash bonus equal to 2% of certain gross profit dollars, as defined.
4.Other MattersThe Company is a party to legal matters arising in the general conduct of business. The ultimate outcome of such matters is not expected to have a material adverse effect on the Companys results of operations or financial position. However, the ultimate outcome of these matters cannot be determined at this time, and accordingly, no amounts have been provided for in the accompanying consolidated financial statements.
NOTE H - RETIREMENT PLANThe Company maintains a 401(k) Plan that is available to all employees, to which the Company contributes up to a maximum of 1% of each employees salary. For the years ended June 30, 2001, 2000 and 1999, the Company contributed to this plan approximately $175,000, $116,000 and $96,000, respectively.
On June 26, 2000, the Company announced a 3-for-2 stock split which was in the form of a 50% common stock dividend payable on July 24, 2000 to shareholders of record on July 10, 2000. All references to the number of weighted average common shares outstanding and earnings per share have been restated to reflect the 3-for-2 stock split.
In December 1992, the Board of Directors approved the adoption of a nonqualified stock option plan, known as the 1993 Non-Qualified Stock Option Plan, hereinafter referred to as the 1993 Plan. The Board of Directors or Plan Committee is responsible for the granting and pricing of these options. Such price shall be equal to the fair market value of the common stock subject to such option at the time of grant. The options expire five years from the date of grant and are exercisable over the period stated in each option. In December 1997, the shareholders of the Company approved an increase in the amount of shares reserved for the 1993 plan to 900,000 from 440,000, of which 676,223 are outstanding at June 30, 2001.
In October 1993, the Board of Directors approved the adoption of a stock option plan for outside directors, known as the 1993 Stock Option Plan for Outside Directors, hereinafter referred to as the Outside Directors Plan. Each outside director who was serving as of December 31, 1993 was granted a nonqualified stock option to purchase 22,000 shares of the Companys common stock at the fair market value on the date of grant. Each outside director who was serving on December 31 of each calendar year subsequent to 1993 was granted options to purchase 4,399 shares of the Companys common stock annually. The Outside Directors Plan expired on January 1, 1998, with a total of 13,197 options outstanding at June 30, 2001. Granted options shall expire upon the earlier of five years after the date of grant or one year following the date on which the outside director ceases to serve in such capacity.
In June 1997, the Company appointed an additional outside director to the Board of Directors who received 15,000 options to purchase the Companys common stock at the fair market value on the date of grant. In September 1998, two outside directors were each granted 11,250 options to purchase the Companys common stock at the fair market value on the date of grant. These 37,500 options were not granted pursuant to any of the Companys existing stock option plans.
In October 2000, the Board of Directors approved the adoption of the 2000 Stock Option Plan, hereinafter referred to as the 2000 Plan. The 2000 Plan provides for the grant of incentive stock options (ISOs) and non-qualified stock options (NQSOs) to employees, officers, directors, consultants and advisers of the Company. The Board of Directors or Plan Committee is responsible for the granting and pricing of these options. Such price shall be equal to the fair market value of the common stock subject to such option at the time of grant. In the case of ISOs granted to shareholders owning more than 10% of the Companys voting securities, the exercise price shall be no less than 110% of the fair market value of the Companys common stock on the date of grant. All options shall expire ten years from the date of grant of such option (five years in the case of an ISO granted to a 10% shareholder) or on such earlier date as may be prescribed by the Committee and set forth in the option agreement, and are exercisable over the period stated in each option. The 2000 plan reserves 600,000 shares of the Companys common stock, of which 238,250 are outstanding at June 30, 2001.
Outstanding options granted to employees, directors and officers for the last three fiscal years are summarized as follows:
Weighted - Nonqualified average stock options exercise Price range Shares price Outstanding at July 1, 1998 $3.18 - $8.50 534,845 $4.91 Granted $1.79 - $2.75 397,500 2.23 Expired $3.18 - $8.50 (204,402) 3.19 Outstanding at June 30, 1999 $1.79 - $8.50 727,943 3.79 Granted $2.50 - $13.71 258,000 4.70 Exercised $1.79 - $8.50 (153,723) 5.67 Expired $2.50 - $4.67 (41,800) 3.44 Outstanding at June 30, 2000 $1.79 - $13.71 790,420 3.74 Granted $6.01 - $8.00 238,250 7.91 Exercised $2.50 - $8.50 (63,500) 6.88 Outstanding at June 30, 2001 $1.79 - $13.71 965,170 4.56 Amounts exercisable at June 30, 2001 $1.79 - $13.71 726,920 3.46
The following table summarizes information concerning currently outstanding and exercisable nonqualified stock options:
Options outstanding Options exercisable Weighted- Weighted- average average remaining Weighted- remainin Weighted- contractual average contractual average Range of exercise Number life exercise Number life exercise prices outstanding (months) price exercisable (months) price $1.79 - $4.67 677,521 30 $2.77 677,521 30 $2.77 $5.67 - $8.00 242,649 111 $7.87 4,399 6 $5.67 $13.71 - 45,000 47 $13.71 45,000 47 $13.71
The weighted-average option fair value on the grant date was $4.82, $4.97 and $.92 for options issued during the years ended June 30, 2001, 2000 and 1999, respectively.
The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation; it applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for the Plan and does not recognize compensation expense for such Plan. If the Company had elected to recognize compensation expense based upon the fair value at the grant dates for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Companys reported net earnings and earnings per share would be reduced to the pro forma amount indicated below for the years ended June 30:
2001 2000 1999 Net earnings (loss) As reported $9,850,397 $6,375,954 $(1,157,150) Pro forma 8,732,958 6,098,272 (1,523,550) Net earnings (loss) per common share - basic As reported $1.74 $1.16 $(0.21) Pro forma 1.54 1.11 (0.27) Net earnings (loss) per common share - diluted As reported $1.59 $1.11 $(0.21) Pro forma 1.41 1.06 (0.27)
These pro forma amounts may not be representative of future disclosures because they do not take into account pro forma compensation expense related to grants made before fiscal 1996. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the fiscal years ended June 30, 2001, 2000 and 1999, respectively; expected volatility of 93%, 109% and 55%; risk-free interest rates of 5.33%, 6.25% and 5.08%; and expected term of 3 years for all years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the use of highly subjective assumptions including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The Board of Directors of the Company had authorized the purchase of up to 375,000 shares of its common stock under a stock repurchase program. In fiscal 1998, the Board of Directors authorized the repurchase of up to an additional 600,000 shares of the Companys common stock. The purchases were made by the Company from time to time on the open market at the Companys discretion and were dependent on market conditions. The Company had made purchases of 618,300 shares of its common stock from July 31, 1996 through September 13, 2000 for aggregate consideration of $2,204,515. On September 14, 2000, the Board of Directors passed a resolution to terminate the stock repurchase program.
In June 1997, the Companys Board of Directors approved the adoption of a restricted stock plan, which was subsequently ratified by shareholders during the Companys December 1997 annual meeting. The plan enables the Board of Directors or Plan Committee to have sole discretion and authority to determine who may purchase restricted stock, the number of shares, the price to be paid and the restrictions placed upon the stock. Pursuant to this plan, the Company issued 135,000 shares of common stock to certain employees at a purchase price of $.67 per share. Shares purchased are subject to a four-year vesting period and the Company recognized $135,000 of compensation expense during fiscal 2001, 2000 and 1999 in connection with this plan.
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE J - COMPREHENSIVE INCOME (LOSS) Total comprehensive income and its components for the years ended June30, 2001, 2000 and 1999 are as follows: 2001 2000 1999 Net income (loss) $9,850,397 $6,375,954 $(1,157,150) Unrealized (loss) gain on marketable securities (166,240) (74,076) 77,673 Deferred tax benefit (expense) 60,678 27,038 (28,351) Comprehensive income (loss) $9,744,835 $6,328,916 $(1,107,828)Accumulated other comprehensive income is comprised of unrealized gains and losses on marketable securities, net of the related tax effect. note K - ACQUISITIONS
On June 6, 2000, the Company acquired all of the issued and outstanding shares of common stock, no par value, of Interface Electronics Corp. ("Interface"), a distributor of electronic parts, components and equipment, located in Massachusetts. The purchase price was $15,400,000 payable in cash, plus a deferred payment of $3,960,000, provided that certain conditions, as defined in the purchase agreement, were met. As of June 30, 2001, $3,760,000 of the deferred payment has been paid. The remaining $200,000 has been provided for in the accompanying balance sheet. An additional $25,000 has been provided for in the accompanying balance sheet due to a purchase price adjustment. On the second anniversary of the closing date a deferred payment of up to $2,640,000 shall be paid provided that certain conditions, as defined in the purchase agreement, are met. When the remaining contingency is resolved, the Company shall record the current fair value of the consideration paid as additional goodwill which will be amortized over the remaining life of the asset.
The acquisition has been accounted for as a purchase and the operations of Interface have been included in the Company's Statement of Earnings since the date of acquisition. Included in other assets are the costs of the identifiable intangible assets acquired, principally an employment agreement and a
franchise agreement which are being amortized on a straight-line basis over five and fifteen years, respectively. The excess of the purchase price and related expenses over the net tangible and identifiable intangible assets acquired amounted to approximately $17,486,000 and is being amortized on a straight line basis over twenty years. A summary of the allocation of the assets and liabilities acquired follows:
Operating assets acquired $ 13,306,956 Employment agreement 685,000 Franchise agreement 550,000 14,541,956 Liabilities assumed (12,414,389) Transaction costs (228,241) (12,642,630) Goodwill 17,485,674 Total purchase price $ 19,385,000
Summarized below are the unaudited pro forma results of operations of the Company as if Interface has been acquired at the beginning of the fiscal periods presented:
Pro forma years ended June 30, 2000 1999 Net sales $252,756,821 $172,131,191 Net income (loss) 3,993,635 (3,531,947) Net income (loss) per share Basic $0.73 $(0.64) Diluted 0.69 (0.64)
The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of the periods presented or of future operating results of the combined companies.
On February 25, 2000, the Company purchased the operating assets of PGI, Industries, Inc., (PGI) an exporter of electronic components, located in Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus a deferred payment of $100,000 payable over the next two years based on certain conditions, as defined in the purchase agreement. As of June 30, 2001, $50,000 of the deferred payment has been paid. When the remaining contingency is resolved, the Company shall record the current fair value of the consideration issued as additional costs of the acquired enterprise. These additional costs shall be amortized over the remaining life of the asset. The acquisition has been accounted for as a purchase and the operations of PGI have been included in the Companys Statement of Earnings since the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, approximately $260,000, is being amortized on a straight-line basis over twenty years. Proforma results of operations are not material.
NOTE L - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATIONThe Company has two reportable segments: electronics parts distribution and contract manufacturing. The Companys primary business activity is conducted with small and medium size manufacturers, located in North America, that produce electronic equipment used in a variety of industries. Information pertaining to the Companys operations in different geographic areas for fiscal years 2001, 2000 and 1999, is not considered material to the financial statements.
The Companys chief operating decision maker utilizes net sales and net earnings (loss) information in assessing performance and making overall operating decisions and resource allocations. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices. Information about the Companys segments is as follows:
Year ended June 30, 2001 2000 1999 --------------------------------- (in thousands) Net sales from external customers Electronics components distribution .... $321,124 $ 193,111 $ 127,401 Contract manufacturing ................. 29,098 16,214 13,310 $350,222 $ 209,325 $ 140,711 Intersegment net sales Electronics components distribution .... $ 992 $ 324 $ 336 Contract manufacturing ................. 111 $ 992 $ 324 $ 447 Operating profit (loss) Electronics components distribution .... $ 19,167 $ 12,012 $ (868) Contract manufacturing ................. 1,575 348 602 $ 20,742 $ 12,360 $ (266) Interest expense Electronics components distribution .... $ 3,457 $ 1,053 $ 768 Contract manufacturing ................. 662 506 541 $ 4,119 $ 1,559 $ 1,309 Income tax provision (benefit) Electronics components distribution .... $ 6,400 $ 4,489 $ (374) Contract manufacturing ................. 372 (64) (44) $ 6,772 $ 4,425 $ (418)
Year ended June 30, 2001 2000 1999 (in thousands) Identifiable assets Electronics components distribution $117,069 $115,109 $ 62,259 Contract manufacturing 19,246 10,995 10,672 $136,315 $126,104 $ 72,931 Capital expenditures Electronics components distribution $ 1,238 $ 612 $ 396 Contract manufacturing 759 280 1,207 $ 1,997 $ 892 $ 1,603 Depreciation and amortization Electronics components distribution $ 2,297 $ 1,209 $ 1,049 Contract manufacturing 926 659 539 $ 3,223 $ 1,868 $ 1,588
Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2001, 2000 and 1999 NOTE M - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Quarter ended June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2001 2001 2000 2000 2000 2000 1999 1999 Net sales $72,146,768 $83,680,954 $100,235,652 $94,158,828 $70,513,859 $51,693,699 $45,100,259 $42,017,363 Gross profit 10,777,533 15,367,532 20,077,191 20,617,658 17,065,608 12,012,855 9,868,111 7,935,605 Net (loss) earnings (437,625) 1,585,493 4,044,662 4,657,867 3,512,177 1,766,228 883,474 214,075 Net (loss) earnings per common share (a) Basic $(0.08) $0.28 $0.72 $0.83 $0.63 $0.32 $0.16 $0.04 Diluted (0.08) 0.26 0.65 0.75 0.58 0.30 0.16 0.04
(a) As adjusted to reflect a 3-for-2 stock split effective July 24, 2000.
In connection with our audits of the consolidated financial statements of Jaco Electronics, Inc. and Subsidiaries for the years ended June 30, 2001 and 2000 referred to in our report dated August 16, 2001, which is included in this annual report on Form 10-K, we have also audited Schedule II for each of the three years in the period ended June 30, 2001. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON LLP Melville, New York August 16, 2001Jaco Electronics, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended June 30, 2001, 2000 and 1999 Column A Column B Column C Column D Column E Additions (1) (2) Charged to Balance at Charged to other Balance beginning costs and accounts - Deductions- at end of Description of period expenses describe describe period Allowance for doubtful accounts Year ended June 30, 2001 $1,111,000 $1,398,000 $ 25,000(a) $ 839,000(b) $1,695,000 Year ended June 30, 2000 $ 440,000 $ 598,000 $178,000(a)(c) $ 105,000(b) $1,111,000 Year ended June 30, 1999 $1,268,000 $ 982,000(d) $ 12,000(a) $1,822,000(b) $ 440,000(a) Recoveries of accounts. (b) Represents write-offs of uncollectible accounts. (c) Includes balance attributable to acquired subsidiary. (d) Includes expense of $630,000 that was recorded in the 4th quarter of 1999 relating to the bankruptcy of a customer.
Exhibit No. Exhibit ----------- ------- 3.1 Restated Certificate of Incorporation adopted November, 1987, incorporated by reference to the Company's definitive proxy statement distributed in connection with the Company's annual meeting of shareholders held in November, 1987, filed with the SEC on November 3, 1986, as set forth in Appendix A to the aforesaid proxy statement. 3.1.1 Certificate of Amendment of the Certificate of Incorporation, adopted December, 1995, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1996 ("the Company's 1996 10-K"), Exhibit 3.1.1. 3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1987 ("the Company's 1987 10-K"), Exhibit 3.2. 4.1 Form of Common Stock Certificate, incorporated by reference to the Company's Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9, 1984, Exhibit 4.1. 10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech Realty Company), incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1983, Exhibit 10(1), pages 48-312. 10.2 Amendment No. 1 to Lease between the Company and Bemar Realty Company (as assignee of Hi-Tech Realty Company), incorporated by reference to the Company's Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2. 10.2.2 Lease between the Company and Bemar Realty Company, dated January 1, 1996, incorporated by reference to the Company's 1996 10-K, Exhibit 10.2.2. 10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to the Company's 1993 10-K, Exhibit 10.6. 10.6.1 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit A to the Company's Definitive Proxy Statement, dated November 3, 1997 for the Annual Meeting of Shareholders held on December 9, 1997. 10.6.2 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit A to the Company's Definitive Proxy Statement, dated November 2, 1998 for the Annual Meeting of Shareholders held on December 7, 1998. 10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and among the Company and Reilrop, B.V. and Guaranteed by Cray Electronics Holdings PLC, incorporated by reference to the Company's Current Report on Form 8-K, dated March 11, 1994. 10.8 1993 Stock Option Plan for Outside Directors, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit 10.8. 10.10 Authorized Electronic Industrial Distributor Agreement, dated as of August 24, 1970 by and between AVX and the Company, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, Exhibit 10.10. 10.11 Electronics Corporation Distributor Agreement, dated November 15, 1974, by and between KEMET and the Company, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, Exhibit 10.11. 10.12 Restricted Stock Plan (filed as Exhibit B to the Company's Definitive Proxy Statement, dated November 3, 1997 for the Annual Meeting of Shareholders held on December 9, 1997). 10.12.1 Form of Escrow Agreement under the Restricted Stock Plan, incorporated by reference to the Company's Registration Statement on Form S-8/S-3, Commission File No. 333 -49877, filed April 10, 1998 Exhibit 4.2. 10.12.2 Form of Stock Purchase Agreement under the Restricted Stock Plan, incorporated by reference to the Company's Registration Statement on Form S-8/S-3, Commission File No. 333 - 49877, filed April 10, 1998 Exhibit 4.3. 10.12.3 Form of Stock Option Agreement, incorporated by reference to the Company's Registration Statement on Form S-8/S-3, Commission File No. 333 -49877, filed April 10, 1998 Exhibit 4.4. 10.12.4 Restricted Stock Plan (filed as Exhibit B to the Company's Definitive Proxy Statement, dated November 2, 1998 for the Annual Meeting of Shareholders held on December 7, 1998). 10.13 Employment agreement between Joel Girsky and the Company, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.13. 10.13.1 Amendment No. 1 to Employment Agreement between Joel Girsky and the Company. 10.14 Employment agreement between Charles Girsky and the Company, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.14. 10.15 Employment agreement between Jeffrey D. Gash and the Company, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.15. 10.15.1 Amendment No. 1 to employment agreement between Jeffrey D. Gash and the Company. 10.16 Employment Agreement, dated June 6, 2000, between the Company and Joseph Oliveri, incorporated by reference to the Company's Current Report on Form 8-K, filed June 12, 2000, Exhibit 10.16. 10.16.1 Amendment No. 1 to employment agreement between Joseph Oliveri and the Company. 10.17 Stock Purchase Agreement by and among Jaco Electronics, Inc. and all of the Stockholders of Interface Electronics Corporation as of May 4, 2000, incorporated by reference to the Company's Current Report on Form 8-K, filed May 15, 2000, Exhibit 2.1. 10.17.1 Amendment No. 1 to the Stock Purchase Agreement by and among Jaco Electronics, Inc. and all of the Stockholders of Interface Electronics Corp. as of May 4, 2000, dated June 6, 2000, incorporated by reference to the Company's Current Report on Form 8-K, filed June 12, 2000, Exhibit 2.2. 10.18 Agreement between the Company and Gary Giordano. 10.19 Employment Agreement between Joel H. Girsky and the Company. 10.20 Employment Agreement between Charles Girsky and the Company. 21.1 Subsidiaries of the Company. 23.1 Consent of Grant Thornton LLP. 99.1 General Loan and Security Agreement dated January 20, 1989, between the Company as borrower and The Bank of New York Commercial Corporation ("BNYCC") as secured party, incorporated by reference to the Company's Current Report on Form 8-K, filed January 31, 1989, Exhibit 28(1). 99.2 Loan and Security Agreement - Accounts Receivable and Inventory, dated January 20, 1989, between the Company and BNYCC, incorporated by reference to the Company's Current Report on Form 8-K filed January 31, 1989, Exhibit 28(2). 99.3 Letter of Credit and Security Agreement, dated January 20, 1989, between the Company and BNYCC, incorporated by reference to the Company's Current Report on Form 8-K filed January 31, 1989, Exhibit 28(3). 99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the Company in favor of BNYCC dated January 13, 1992, together with Letters from R.C. Components, Inc., Quality Components, Inc., Micatron, Inc. and Distel, Inc., each a subsidiary of the Company and a guarantor of the obligations evidenced by the Term Notes, to BNYCC acknowledging the amendment to the Term Notes for the extension of the maturity date of each such note, incorporated by reference to the Company's 1992 10-K, Exhibit 28.4. 99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between the Company and BNYCC, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994. Exhibit 99.5. 99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor of BNYCC, dated March 11, 1994, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit 99.5. 99.7 Restated and Amended Loan and Security Agreement, dated April 25, 1995, among the Company, Nexus and BNYCC, together with an Amendment to Term Loan Note executed by the Company in favor of BNYCC and Letter executed by R.C. Components, Inc., Quality Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas, Inc., incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, Exhibit 99.7. 99.8 Second Restated and Amended Loan and Security Agreement dated September 13, 1995 among the Company, Nexus Custom Electronics, Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended Loan and Security Agreement"), incorporated by reference to the Company's Registration Statement on Form S-2, Commission File No. 33-62559, filed October 13, 1995, Exhibit 99.8. 99.8.1 Amendment to the Second Restated and Amended Loan and Security Agreement, dated as of April 10, 1996, incorporated by reference to the Company's 1996 10-K, Exhibit 99.8.1. 99.8.2 Amendment to the Second Restated and Amended Loan and Security Agreement, dated as of August 1, 1997, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, Exhibit 99.8.2 99.8.3 Amendment to Second Restated and Amended Loan and Security Agreement dated July 1, 1998, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 99.8.3. 99.8.4 Amendment to Second Restated and Amended Loan and Security Agreement dated September 21, 1998 incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 99.8.4. 99.8.5 Amendment to Second Restated and Amended Loan and Security Agreement dated October 26, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, Exhibit 99.8.5. 99.8.6 Amendment to Second Restated and Amended Loan and Security Agreement dated December 31, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, Exhibit 99.8.6. 99.8.7 Amendment to Second Restated and Amended Loan and Security Agreement dated June 6, 2000, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, Exhibit 99.8.7. 99.8.8 Amendment to Second Restated and Amended Loan and Security Agreement dated September 28, 2000 incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 Exhibit 99.8.8. 99.8.9 Amendment to Second Restated and Amended Loan and Security Agreement dated January 29, 2001 incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000 Exhibit 99.8.9 99.8.10 Amendment to Second Restated and Amended Loan and Security Agreement dated June 12, 2001 99.8.11 Amendment to Second Restated and Amended Loan and Security Agreement dated July 1, 2001.
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.
JACO ELECTRONICS, INC.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.
Name Title Date ---- ----- ---- /s/ Joel H. Girsky ________________________ Chairman of the Board, September 28, 2001 Joel H. Girsky President and Treasurer (Principal Executive Officer) /s/ Jeffrey D. Gash ________________________ Executive Vice President September 28, 2001 Jeffrey D. Gash - Finance and Secretary (Principal Financial and Accounting Officer) /s/ Joseph F. Oliveri ________________________ Vice Chairman of the September 28, 2001 Joseph F. Oliveri Board and Executive Vice President /s/ Charles B. Girsky _______________________ Executive Vice President September 28, 2001 Charles B. Girsky and Director /s/ Stephen A. Cohen ________________________ Director September 28, 2001 Stephen A. Cohen /s/ Edward M. Frankel ________________________ Director September 28, 2001 Edward M. Frankel /s/ Joseph F. Hickey, Jr. ________________________ Director September 28, 2001 Joseph F. Hickey, Jr.
AMENDMENT NO. 1, effective as of July 1, 2001 (Amendment), to that certain Employment Agreement, dated as of June 6, 2000 (the Employment Agreement), between Interface Electronics Corp. a Massachusetts corporation (Interface), and Joseph F. Oliveri (hereinafter referred to as Executive), pursuant to which Executive has been employed as President of Interface. Terms not defined in this Amendment shall have such meanings otherwise ascribed to them in the Employment Agreement.
WHEREBY, Interface and Executive desire to amend the Employment Agreement to properly reflect the intention of the parties.
NOW, THEREFORE, in consideration of the premises hereinafter set forth, the parties, intending to be legally bound, agree as follows:
1. Section 3.5.1 of the Employment Agreement entitled, "Event", is hereby deleted and replaced in its entirety by the following: "In the event a Change of Control (as defined in the Purchase Agreement) shall occur at any time during the Initial Term, there shall be paid to Executive, in lieu of any other amounts payable hereunder, an amount equal to (i) three (3) times Executive's Base Salary and Bonus earned during the 12 months immediately preceding the date of the Change of Control, if such Change of Control occurs on or prior to May 30, 2001, or (ii) two (2) times Executive's Base Salary and Bonus earned during the 12 months immediately preceding the date of the Change of Control if such Change of Control occurs on or after June 1, 2001 and on or prior to May 30, 2003."2. Notwithstanding the foregoing restatement of Section 3.5.1 of the Employment Agreement, all other provisions of the Employment Agreement shall continue in full force and effect.
EMPLOYMENT AGREEMENT, effective as of July 1, 2001, by and between Jaco Electronics, Inc., a New York corporation having offices at 145 Oser Avenue, Hauppauge, New York 11788 ("Jaco"), and Charles Girsky, residing at 3455 Twin Lake Ridge, Westlake Village, California 91361 ("Girsky").
WHEREAS, Girsky is an Executive Vice President of Jaco;
WHEREAS, Girsky's last written employment agreement with Jaco was effective July 1, 1998;
WHEREAS, Jaco and Girsky have agreed to amend the employment agreement consistent with the terms hereof (the employment agreement as amended and restated is hereinafter referred to as the "Employment Agreement"); and
WHEREAS, Jaco desires to have the continued services of Girsky, and Girsky desires to continue to be employed by Jaco, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties agree as follows:
1.1 Jaco hereby employs Girsky as Executive Vice President of Jaco, and Girsky hereby agrees to serve Jaco in such capacity and to perform such duties consistent therewith as Jacos Board of Directors and/or the President from time to time shall determine for period commencing on July 1, 1997 (the Effective Date) and ending on the fourth (4th) anniversary of the Effective Date (the Initial Term), provided, however, the term of this Employment Agreement shall be automatically extended after each anniversary date of the Effective Date for an additional one year period following the Initial Term, unless either Jaco or Girsky shall provide a notice of non-renewal to the other party (the Notice of Non-Renewal), which notice shall be in writing and shall be delivered not less than 90 days prior to an anniversary date after the Effective Date (the Employment Period). In the event that a Notice of Non-Renewal is delivered by either party, this Employment Agreement shall continue for a period of three (3) years following the anniversary date which follows immediately after the date that a valid and effective Notice of Non-Renewal is delivered. By way of example, if the Notice of Non-Renewal is delivered after the third anniversary date and not less than 90 days prior to the fourth anniversary date of the Effective Date, this Employment Agreement shall continue until the seventh anniversary date of the Effective Date.
Notwithstanding anything contained herein to the contrary, in the event that a Notice of Non-Renewal is delivered by either party at such time as Girsky is at least 70 years of age, then this Employment Agreement shall continue for a period of only one (1) year following the anniversary date which follows immediately after the date that a valid and effective Notice of Non-Renewal is delivered.
2.1 For all services rendered pursuant to the terms hereof, Girsky shall receive a base salary of $225,000 for each of the 12 month periods (a Contract Year) ending on or before June 30, 2001, and effective July 1, 2001, Girsky shall receive a base salary of $250,000 for each Contract Year ending June 30, 2002, and each June 30, thereafter (Base Salary), which Base Salary shall be paid to Girsky in equal periodic installments not less frequently than monthly. In addition and not in lieu thereof, Girsky shall be entitled to receive such fringe benefits and to participate in such benefit plans and programs as are generally made available by Jaco to other senior executive employees, including, but not limited to, health insurance.
2.2 Girsky shall receive a cash bonus (the Cash Bonus) for each Contract Year equal to (i) two percent (2%) of Jacos annual earnings before income taxes for the corresponding fiscal year if such earnings before income taxes are in excess of $1,000,000, and not more than $2,500,000 or (ii) three percent (3%) of Jacos earnings before income taxes for the corresponding fiscal year if such earnings before income taxes are in excess of $2,500,000 up to a maximum annual Cash Bonus of $360,000. If Jacos earnings before income taxes are in excess of $12,000,000 for any such fiscal year, in addition to the Cash Bonus of $360,000, Girsky shall receive such number of common stock options of Jaco as shall be negotiated between Girsky and Jaco at such time (the Option Bonus and, together with the Cash Bonus, the Performance Bonus). As used herein, the term earnings before income taxes shall mean the income of Jaco before extraordinary items and before payment of income taxes as shown on Jacos consolidated financial statements prepared in accordance with generally accepted accounting principles. The Performance Bonus shall be payable every year on November 1 for the preceding fiscal year.
2.3 Upon Girskys death during the term hereof, his legal representative(s) shall be paid the sum of $250,000 (the Death Benefit), payable in twelve (12) equal monthly installments, commencing within thirty (30) days after Girskys death. In addition, upon Girskys death during the term hereof and to the extent that Girsky was eligible, his legal representative(s) shall be entitled to receive any other death benefits as are generally made available by Jaco to other senior executive employees, including, but not limited to, group term life insurance.
2.4 The obligations of Jaco to Girsky hereunder are general unsecured obligations of Jaco to Girsky, and Girsky shall have no security interest or other interest of any nature whatsoever in any other assets of Jaco. Jaco, in its absolute discretion, may establish any reserves or special accounts or segregate assets to fund such obligation. Girsky shall not sell, transfer, assign, pledge, encumber, hypothecate or otherwise alienate any right or entitlement of his hereunder. No such purported sale, transfer, assignment, pledge, encumbrance, hypothecation or other alienation shall have any force or effect or in any way be binding upon or be enforceable against Jaco. Except as otherwise provided by law, no such right or entitlement shall be subject to attachment or garnishment.
3.1 Girsky shall devote his best efforts and substantially all of his working time to the business of Jaco.
3.2 Girsky shall perform all duties, obligations, and responsibilities assigned to him by the Board of Directors and/or the President and ordinarily performed by a person employed as a senior executive officer, and shall devote his full attention to the performance of the duties assigned to him.
3.3 If duly elected, Girsky shall also serve as a director of Jaco and as officer and/or director of any of its subsidiaries, whether now existing or hereafter established or acquired, and he shall perform such duties as are assigned to him, from time to time, by the Board of Directors and/or the President of Jaco or any of its subsidiaries.
4.1 During the Employment Period, Girskys employment may be terminated by the Board of Directors of Jaco on the occurrence of any one or more of the following events:
(a) The death of Girsky;Jaco shall reimburse Girsky for all reasonable expenses incurred in connection with the promotion of the business of Jaco, including expenses for travel, entertainment and similar expenses incurred by Girsky on Jacos behalf. No such reimbursement shall be made except upon the presentation by Girsky of an itemized account of such expenses or other evidence thereof for which reimbursement then is being sought, all in form reasonably satisfactory to Jaco.
6. Indemnity. Jaco, to the maximum extent it may provide indemnification to an officer or director under applicable law, shall indemnify Girsky and hold him harmless from any and all liability arising out of any act or failure to act undertaken by him in good faith while performing services for Jaco, and shall use its best efforts to obtain coverage for him under any insurance policy now in force or hereafter obtained during the Employment Period covering officers and directors of Jaco against claims made against them or any of them for any act or failure to act in such capacities. Jaco shall pay all expenses, including reasonable attorneys fees, actually or necessarily incurred by Girsky in connection with the defense of any action, suit, or proceeding arising out of any such claim and in connection with any appeal arising therefrom.
7. Disclosure of Information. All memoranda, notes, records, or other documents made or compiled by Girsky or made available to him during the course of his employment with Jaco concerning the business of Jaco shall be Jacos property and shall be delivered to Jaco by Girsky on the termination of Girskys employment. Unless authorized by Jaco, Girsky shall not use for himself or others or divulge to others, any proprietary or confidential information of Jaco obtained by him as a result of his employment. For purposes of this Section 7, the term proprietary or confidential information shall mean all information which (i) is known only to Girsky or to Girsky and employees, former employees, consultants of Jaco, or others in a confidential relationship with Jaco, (ii) relates to specific matters such as trade secrets, customers, potential customers, vendor lists, pricing and credit techniques, research and development activities, books and records, and commission schedules, as they may exist from time to time, which Girsky may have acquired or obtained by virtue of work heretofore or hereafter performed for or on behalf of Jaco or which he may acquire or may have acquired knowledge of during the performance of such work, and (iii) is not readily available to others. In the event of a breach or a threatened breach by Girsky of the provisions of this Section 7, Jaco shall be entitled to an injunction restraining Girsky from disclosing, in whole or in part, the aforementioned proprietary or confidential information of Jaco, or from rendering any services to any person, firm, corporation, association, or other entity to whom or to which such proprietary or confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing contained herein shall be construed as prohibiting Jaco from pursuing any other remedies available to Jaco for such breach or threatened breach, including the recovery of damages from Girsky.
8. Restrictive Covenants.8.1 Girsky hereby acknowledges and recognizes the highly competitive nature of Jacos business and, accordingly, in consideration of the premises contained herein, agrees that during the Employment Period and thereafter until the Designated Date (as hereinafter defined) he will not: (i) directly or indirectly engage in any Competitive Activity (as hereinafter defined), whether such engagement shall be as an officer, director, employee, consultant, agent, lender, stockholder, or other participant; or (ii) assist others in engaging in any Competitive Activity. The term Competitive Activity shall mean and shall include soliciting, raiding, enticing, or inducing, individually or in concert with others, (i) any person or entity to be a customer for the same or similar services for which that person or entity engaged Jaco, if such person or entity (a) was a customer of Jacos during the Employment Period or at any time thereafter prior to the Designated Date, or (b) was solicited by Jaco to be a customer during the one-year period prior to the termination of this Employment Agreement; (ii) any manufacturer or supplier whose products are distributed by Jaco at the time this Employment Agreement is terminated to act as a manufacturer or supplier for any other party of the same or similar goods that it supplies to Jaco; or (iii) any employee of Jaco to leave Jaco or to do business with any enterprise or business which competes with Jaco.
8.2 As used in this Section 8, the Designated Date shall mean any of the following dates:
(a) in the event Girsky willfully terminates his employment with Jaco in violation of this Employment Agreement prior to the expiration of the Employment Period, the term Designated Date shall mean the first anniversary of the date of such termination;
(b) in the event Jaco terminates the employment of Girsky under this Employment Agreement for Cause, the term Designated Date shall mean the first anniversary of the date of such termination; or
(c) in the event Jaco terminates the employment of Girsky without cause, the term Designated Date shall mean the date of such termination.
8.3 It is the desire and intent of the parties that the provisions of this Section 8 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any provision of this Section 8 shall be adjudicated to be invalid or unenforceable in any such jurisdiction, such provision of this Section 8 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision of this Section 8 in the particular jurisdiction in which such adjudication is made. In addition, if the scope of any restriction contained in this Section 8 is adjudicated to be too broad to permit enforcement thereof to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law, and Girsky hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.
8.4 In the event of a breach or threatened breach by Girsky of the provisions of this Section 8, Jaco shall be entitled to an injunction restraining him from such breach. Nothing contained herein shall be construed as prohibiting Jaco from pursuing any other remedies available to it for such breach or threatened breach or any other breach of this Employment Agreement.
9. Consolidation; Merger; Change of Control.9.1 In the event of any consolidation or merger of Jaco into or with another corporation during the Employment Period, and Jaco is not the surviving entity, or the sale of all or substantially all of the assets of Jaco to another corporation during the Employment Period, or in the event that fifty (50%) percent or more of the voting common stock of Jaco shall be owned by one or more individuals or entities, who are acting in concert or as part of an affiliated group (other than a group one of the members of which is Girsky) at any time during the Employment Period, (the occurrence of any of the foregoing, a Change of Control), then (i) within thirty (30) days of the occurrence of such event, Jaco shall pay or cause to be paid to Girsky a certified or cashiers check in an amount equal to two hundred and fifty percent (250%) of the average of Girskys Base Salary plus Cash Bonus for the previous five (5) years; and (ii) this Employment Agreement may be assigned by Jaco or any such successor or surviving corporation with the prior written consent of Girsky.
9.2 Notwithstanding the provisions of Section 9.1 above, any such payments shall be made only in an amount which, when taken together with the present value of all other payments to Girsky that are contingent on a Change of Control of Jaco, computed in accordance with the provisions of Section 280G(d)(4) of the Internal Revenue Code of 1986 (the Code), does not equal or exceed three times Girskys Base Amount, as computed in accordance with Code Section 280G(b)(3).
10. Continuing Health Benefits. Commencing upon the termination of Girskys employment with Jaco, and ending on the later to occur of (i) Girskys death, or (ii) the death of his spouse, Jaco shall permit Girsky, and to the extent eligible, his spouse, to participate in the regular health and medical benefit program provided by Jaco to the senior executive officers of Jaco as same may be amended from time to time, which health and medical benefits shall be paid for by Jaco, it being understood that Girsky and/or his spouse shall be covered under any prevailing health and medical program for which he/she/they is or are medically qualified at the same level as such benefits are provided to other senior executive officers.
11. Notices. Any notices required or permitted to be given under the provisions of this Employment Agreement shall be in writing and delivered personally, sent by recognized overnight courier or mailed by certified or registered mail, return receipt requested, postage prepaid to the persons and at the addresses first set forth above, or to such other person at such other address as any party may request by notice in writing to the other party to this Employment Agreement. Notices which are hand delivered or delivered by recognized overnight courier shall be effective on delivery. Notices which are mailed shall be effective on the third day after mailing.
12. Construction, This Employment Agreement shall be construed in accordance with, and be governed by, the laws of the State of New York for contracts entered into and to be performed in New York.
13. Successors and Assigns. This Employment Agreement shall be binding on the successors and assigns of Jaco and shall inure to the benefit and be enforceable by and against its successors and assigns. This Employment Agreement is personal in nature and may not be assigned or transferred by Girsky without the prior written consent of Jaco.
14. Entire Agreement. This Employment Agreement contains the entire understanding and agreement between the parties relating to the subject matter hereof, and neither this Employment Agreement nor any provision hereof may be waived, modified, amended, changed, discharged, or terminated, except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge, or termination is sought.
15. Counterparts. This Employment Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, and all of which counterparts shall together constitute a single agreement.
16. Illegality. In case any one or more of the provisions of this Employment Agreement shall be invalid, illegal, or unenforceable in any respect, the validity, the legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.
17. Captions. The captions of the sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the terms or provisions of this Employment Agreement.
EMPLOYMENT AGREEMENT, effective as of July 1, 2001 by and between Jaco Electronics, Inc., a New York corporation having offices at 145 Oser Avenue, Hauppauge, New York 11788 (Jaco), and Joel H. Girsky, residing at 29 Winter Lane, Dix Hills, New York 11746 (Girsky).
WHEREAS, Girsky is Chairman of the Board of Directors ("Chairman"), President, and Treasurer of Jaco;WHEREAS, Girskys last written employment agreement with Jaco was effective as of July 1, 1997 and was amended effective as of April 1, 2000;
WHEREAS, Jaco and Girsky have agreed to further amend the employment agreement consistent with the terms hereof (the employment agreement as amended and restated is hereinafter referred to as the Employment Agreement); and
WHEREAS, Jaco desires to have the continued services of Girsky, and Girsky desires to continue to be employed by Jaco, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties agree as follows:
1. Term of Employment; Duties.1.1 Jaco hereby employs Girsky as Chairman and President of Jaco, and Girsky hereby agrees to serve Jaco in such capacities and to perform such duties consistent therewith as Jacos Board of Directors from time to time shall determine for a period commencing on July 1, 1997 (the Effective Date) and ending on the fourth (4th) anniversary of the Effective Date (the Initial Term), provided, however, the term of this Employment Agreement shall be automatically extended after each anniversary date of the Effective Date for an additional one year period following the Initial Term, unless either Jaco or Girsky shall provide a notice of non-renewal to the other party (the Notice of Non-Renewal), which notice shall be in writing and shall be delivered not less than 90 days prior to an anniversary date after the Effective Date (the Employment Period). In the event that a Notice of Non-Renewal is delivered by either party, this Employment Agreement shall continue for a period of three (3) years following the anniversary date which follows immediately after the date that a valid and effective Notice of Non-Renewal is delivered. By way of example, if the Notice of Non-Renewal is delivered after the third anniversary date and not less than 90 days prior to the fourth anniversary date of the Effective Date, this Employment Agreement shall continue until the seventh anniversary date of the Effective Date.
Notwithstanding anything contained herein to the contrary, in the event that a Notice of Non-Renewal is delivered by either party at such time as Girsky is at least 70 years of age, then this Employment Agreement shall continue for a period of only one (1) year following the anniversary date which follows immediately after the date that a valid and effective Notice of Non-Renewal is delivered.
2. Compensation.2.1 For all services rendered pursuant to the terms hereof, Girsky shall receive a base salary of $325,000 for each of the 12 month periods (a Contract Year) ending on or before June 30, 2001, and effective July 1, 2001, Girsky shall receive a base salary of $375,000 for each Contract Year ending June 30, 2002, and each June 30, thereafter (Base Salary), which Base Salary shall be paid to Girsky in equal periodic installments not less frequently than monthly. In addition and not in lieu thereof, Girsky shall be entitled to receive such fringe benefits and to participate in such benefit plans and programs as are generally made available by Jaco to other senior executive employees, including, but not limited to, health insurance.
2.2 Girsky shall receive a cash bonus (the Cash Bonus) for each Contract Year equal to (i) four percent (4%) of Jacos annual earnings before income taxes for the corresponding fiscal year if such earnings before income taxes are in excess of $1,000,000, and not more than $2,500,000 or (ii) six percent (6%) of Jacos earnings before income taxes for the corresponding fiscal year if such earnings before income taxes are in excess of $2,500,000 up to a maximum annual Cash Bonus of $720,000. If Jacos earnings before income taxes are in excess of $12,000,000 for any such fiscal year, in addition to the Cash Bonus of $720,000, Girsky shall receive such number of common stock options of Jaco as shall be negotiated between Girsky and Jaco at such time (the Option Bonus and, together with the Cash Bonus, the Performance Bonus). As used herein, the term earnings before income taxes shall mean the income of Jaco before extraordinary items and before payment of income taxes as shown on Jacos consolidated financial statements prepared in accordance with generally accepted accounting principles. The Performance Bonus shall be payable every year on November 1 for the preceding fiscal year.
2.3 In addition to the Base Salary and Performance Bonus and not in lieu thereof, in accordance with Section 2.4 hereof, Girsky shall receive as additional compensation the product of $50,000, multiplied by the number of years which shall have passed since July 1, 1984 and until the end of the last day on which Girsky shall be employed hereunder (Deferred Compensation). Jaco may, but shall not be obligated to, set aside funds with which to pay the Deferred Compensation, it being understood and agreed that such funds are and shall be the sole and exclusive property of Jaco, free from any lien or claim of Girsky. Should Girsky so request, Jaco, in its sole and absolute discretion, may, but shall not be obligated to, invest such funds in one or more nationally recognized, institutionally managed mutual funds which invest in publicly traded equity or debt securities. Should Girsky make any such request and should Jaco make any such investment in accordance with such request, the Deferred Compensation shall be increased by an amount equal to any after tax gain or after tax income realized therefrom or reduced by an amount equal to any loss realized therefrom, as the case may be. For purposes of calculating after tax gain, income or loss for purposes of this Section 2.3, it shall be assumed that Jaco is taxable on its income at the highest applicable marginal rates.
2.4 The Deferred Compensation shall become payable to Girsky in its entirety not later than January 15th of the year next following Girskys cessation of employment hereunder for any reason; provided, however, if Girsky continues to be employed by Jaco after the expiration of this Employment Agreement in a substantially similar executive position to that provided for hereunder, the Deferred Compensation shall not become payable to him until cessation of such employment, whether or not such employment is pursuant to a written agreement.
2.5 (a) Upon Girskys death during the term hereof, his legal representative(s) shall be paid the sum of $375,000 (the Death Benefit), payable in twelve (12) equal monthly installments, commencing within thirty (30) days after Girskys death. In addition, upon Girskys death during the term hereof and to the extent that Girsky was eligible, his legal representative(s) shall be entitled to receive any other death benefits as are generally made available by Jaco to other senior executive employees, including, but not limited to, group term life insurance.
(b) Upon Girsky's retirement on account of permanent disability (as that term is defined in Section 4.2 below) during the term hereof, he shall be paid the sum of $500,000 (the "Disability Benefit") in twelve (12) equal monthly installments, commencing with the month in which Jaco receives the proceeds of the annuity or other endowment policy purchased for Girsky's benefit pursuant to the provisions of Section 2.6 below. If, for any reason, at the time of Girsky's retirement on account of permanent disability, Jaco does not have in force an annuity or other endowment policy for the benefit of Girsky, then, notwithstanding anything in this Employment Agreement to the contrary, Jaco shall commence monthly payments of the Disability Benefit in the month next succeeding the month of Girsky's retirement on account of permanent disability.2.6 Jaco shall use its best efforts to purchase insurance against Girsky becoming disabled (collectively, Policies), in sufficient amounts fully to fund its obligations to Girsky under Section 2.5(b) above. All such Policies shall be and shall remain the property of Jaco. Girsky shall cooperate fully with Jaco to enable Jaco to obtain such Policies.
2.7 The obligations of Jaco to Girsky hereunder are general unsecured obligations of Jaco to Girsky, and Girsky shall have no security interest or other interest of any nature whatsoever in the Policies or the proceeds thereof (except as provided in Section 2.8 below), or in any other assets of Jaco. Jaco, in its absolute discretion, may establish any reserves or special accounts or segregate assets to fund such obligations. Girsky shall not sell, transfer, assign, pledge, encumber, hypothecate or otherwise alienate any right or entitlement of his hereunder. No such purported sale, transfer, assignment, pledge, encumbrance, hypothecation or other alienation shall have any force or effect or in any way be binding upon or be enforceable against Jaco. Except as otherwise provided by law, no such right or entitlement shall be subject to attachment or garnishment.
2.8 If, at any time, Girsky ceases to be an employee of Jaco other than on account of death or retirement on account of permanent disability, Jaco, at Girskys option, shall transfer and assign to Girsky all its right, title and interest in the Policies and Jaco shall cause the premiums on the Policies to be fully paid up to the date of Girskys termination. Girsky shall refund to Jaco the pro rata portion (determined by the straight-line method) of premiums on the Policies, if any, paid by Jaco for any period beyond the termination date. Upon such termination of Girskys employment and upon complete assignment of all of the Policies to Girsky, Jaco shall have no further liability to Girsky for payment of premiums under the Policies or otherwise in respect of its obligations under Sections 2.5 and 2.6 hereof.
3. Services to be Provided.3.1 Girsky shall devote his best efforts and substantially all of his working time to the business of Jaco.
3.2 Girsky shall perform all duties, obligations, and responsibilities assigned to him by the Board of Directors and ordinarily performed by a person employed as a senior executive officer, and shall devote his full attention to the performance of the duties assigned to him.
3.3 If duly elected, Girsky shall also serve as a director of Jaco and as an officer and/or director of any of its subsidiaries, whether now existing or hereafter established or acquired, and he shall perform such duties as are assigned to him, from time to time, by the Board of Directors of Jaco or any of its subsidiaries.
4. Termination of Employment.4.1 During the Employment Period, Girskys employment may be terminated by the Board of Directors of Jaco on the occurrence of any one or more of the following events:
(a) The death of Girsky; (b) Subject to the provisions of Section 4.2 below, the disability of Girsky; or (c) For "Cause", which shall mean (i) the willful failure by Girsky substantially to perform his duties hereunder for reasons other than death or disability; (ii) the willful engaging by Girsky in misconduct materially injurious to Jaco; or (iii) the commission by Girsky of an act constituting common law fraud or a felony.4.2 If Girsky becomes mentally or physically disabled for a period of six (6) consecutive months so that he is not able to perform his duties substantially as contemplated herein (Disability), Jacos obligations to pay the Base Salary and the Performance Bonus shall cease from and after the last day of such six (6) month period and shall not be resumed unless and until Girsky shall have returned to his duties on a full time basis for a period of two (2) consecutive months. During such two (2) month period, Girsky shall be paid at the rates of Base Salary and Performance Bonus which would then have been prevailing hereunder had he not become so disabled. If Girskys Disability becomes permanent, Jaco, at its option, may terminate Girskys employment with Jaco and its obligation hereunder to pay the Base Salary and the Performance Bonus. Girskys Disability shall be deemed to have become permanent when, as a result of the injury or sickness, Girsky becomes wholly and continuously disabled and is thus prevented from performing the material and substantial duties of his employment as set forth in Section 1.1 above and while under the care of a physician.
5. Reimbursement of Expenses. Jaco shall reimburse Girsky for all reasonable expenses incurred in connection with the promotion of the business of Jaco, including expenses for travel, entertainment and similar expenses incurred by Girsky on Jacos behalf. No such reimbursement shall be made except upon the presentation by Girsky of an itemized account of such expenses or other evidence thereof for which reimbursement then is being sought, all in form reasonably satisfactory to Jaco.
6. Indemnity. Jaco, to the maximum extent it may provide indemnification to an officer or director under applicable law, shall indemnify Girsky and hold him harmless from any and all liability arising out of any act or failure to act undertaken by him in good faith while performing services for Jaco, and shall use its best efforts to obtain coverage for him under any insurance policy now in force or hereafter obtained during the Employment Period covering officers and directors of Jaco against claims made against them or any of them for any act or failure to act in such capacities. Jaco shall pay all expenses, including reasonable attorneys fees, actually or necessarily incurred by Girsky in connection with the defense of any action, suit, or proceeding arising out of any such claim and in connection with any appeal arising therefrom.
7. Disclosure of Information. All memoranda, notes, records, or other documents made or compiled by Girsky or made available to him during the course of his employment with Jaco concerning the business of Jaco shall be Jacos property and shall be delivered to Jaco by Girsky on the termination of Girskys employment. Unless authorized by Jaco, Girsky shall not use for himself or others or divulge to others, any proprietary or confidential information of Jaco obtained by him as a result of his employment. For purposes of this Section 7, the term proprietary or confidential information shall mean all information which (i) is known only to Girsky or to Girsky and employees, former employees, consultants of Jaco, or others in a confidential relationship with Jaco, (ii) relates to specific matters such as trade secrets, customers, potential customers, vendor lists, pricing and credit techniques, research and development activities, books and records, and commission schedules, as they may exist from time to time, which Girsky may have acquired or obtained by virtue of work heretofore or hereafter performed for or on behalf of Jaco or which he may acquire or may have acquired knowledge of during the performance of such work, and (iii) is not readily available to others. In the event of a breach or a threatened breach by Girsky of the provisions of this Section 7, Jaco shall be entitled to an injunction restraining Girsky from disclosing, in whole or in part, the aforementioned proprietary or confidential information of Jaco, or from rendering any services to any person, firm, corporation, association, or other entity to whom or to which such proprietary or confidential information, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing contained herein shall be construed as prohibiting Jaco from pursuing any other remedies available to Jaco for such breach or threatened breach, including the recovery of damages from Girsky.
8. Restrictive Covenants.8.1 Girsky hereby acknowledges and recognizes the highly competitive nature of Jacos business and, accordingly, in consideration of the premises contained herein, agrees that during the Employment Period and thereafter until the Designated Date (as hereinafter defined) he will not: (i) directly or indirectly engage in any Competitive Activity (as hereinafter defined), whether such engagement shall be as an officer, director, employee, consultant, agent, lender, stockholder, or other participant; or (ii) assist others in engaging in any Competitive Activity. The term Competitive Activity shall mean and shall include soliciting, raiding, enticing, or inducing, individually or in concert with others, (i) any person or entity to be a customer for the same or similar services for which that person or entity engaged Jaco, if such person or entity
(a) was a customer of Jacos during the Employment Period or at any time thereafter prior to the Designated Date, or (b) was solicited by Jaco to be a customer during the one-year period prior to the termination of this Employment Agreement; (ii) any manufacturer or supplier whose products are distributed by Jaco at the time this Employment Agreement is terminated to act as a manufacturer or supplier for any other party of the same or similar goods that it supplies to Jaco; or (iii) any employee of Jaco to leave Jaco or to do business with any enterprise or business which competes with Jaco.
8.2 As used in this Section 8, the Designated Date shall mean any of the following dates:
8.3 It is the desire and intent of the parties that the provisions of this Section 8 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any provision of this Section 8 shall be adjudicated to be invalid or unenforceable in any such jurisdiction, such provision of this Section 8 shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision of this Section 8 in the particular jurisdiction in which such adjudication is made. In addition, if the scope of any restriction contained in this Section 8 is adjudicated to be too broad to permit enforcement thereof to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law, and Girsky hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.
8.4 In the event of a breach or threatened breach by Girsky of the provisions of this Section 8, Jaco shall be entitled to an injunction restraining him from such breach. Nothing contained herein shall be construed as prohibiting Jaco from pursuing any other remedies available to it for such breach or threatened breach or any other breach of this Employment Agreement.
9. Consolidation; Merger; Change of Control.9.1 In the event of any consolidation or merger of Jaco into or with another corporation during the Employment Period, and Jaco is not the surviving entity, or the sale of all or substantially all of the assets of Jaco to another corporation during the Employment Period, or in the event that fifty (50%) percent or more of the voting common stock of Jaco shall be owned by one or more individuals or entities, who are acting in concert or as part of an affiliated group (other than a group one of the members of which is Girsky) at any time during the Employment Period, (the occurrence of any of the foregoing, a Change of Control), then (i) within thirty (30) days of the occurrence of such event, Jaco shall pay or cause to be paid to Girsky a certified or cashiers check in an amount equal to two hundred and ninety-nine percent (299%) of the average of Girskys Base Amount as computed in accordance with the Internal Revenue Code of 1986 (the Code) Section 280G(b)(3),and (ii) this Employment Agreement may be assigned by Jaco or any such successor or surviving corporation with the prior written consent of Girsky.
9.2 Notwithstanding the provisions of Section 9.1 above, any such payments shall be made only in an amount which, when taken together with the present value of all other payments to Girsky that are contingent on a Change of Control of Jaco, computed in accordance with the provisions of Section 280G(d)(4) of the Code, does not equal or exceed three times Girsky's "Base Amount", as computed in accordance with Code Section 280G(b)(3).10. Continuing Health Benefits. Commencing upon the termination of Girskys employment with Jaco, and ending on the later to occur of (i) Girskys death, or (ii) the death of his spouse, Jaco shall permit Girsky, and to the extent eligible, his spouse, to participate in the regular health and medical benefit program provided by Jaco to the senior executive officers of Jaco as same may be amended from time to time, which health and medical benefits shall be paid for by Jaco, it being understood that Girsky and/or his spouse shall be covered under any prevailing health and medical program for which he/she/they is or are medically qualified at the same level as such benefits are provided to other senior executive officers.
11. Notices. Any notices required or permitted to be given under the provisions of this Employment Agreement shall be in writing and delivered personally, sent by recognized overnight courier or mailed by certified or registered mail, return receipt requested, postage prepaid to the persons and at the addresses first set forth above, or to such other person at such other address as any party may request by notice in writing to the other party to this Employment Agreement. Notices which are hand delivered or delivered by recognized overnight courier shall be effective on delivery. Notices which are mailed shall be effective on the third day after mailing.
12. Construction.13. Successors and Assigns. This Employment Agreement shall be binding on the successors and assigns of Jaco and shall inure to the benefit and be enforceable by and against its successors and assigns. This Employment Agreement is personal in nature and may not be assigned or transferred by Girsky without the prior written consent of Jaco.
14. Entire Agreement. This Employment Agreement contains the entire understanding and agreement between the parties relating to the subject matter hereof, and neither this Employment Agreement nor any provision hereof may be waived, modified, amended, changed, discharged, or terminated, except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge, or termination is sought.
15. Counterparts.IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
JACO ELECTRONICS, INC.AMENDMENT NO. 1, effective as of July 1, 2001 (Amendment), to that certain Employment Agreement, dated effective as of July 1, 1998 (the Employment Agreement), between Jaco Electronics, Inc., a New York corporation (Jaco), and Jeffrey D. Gash (hereinafter referred to as Gash), pursuant to which Gash has been employed as Vice President of Finance of Jaco. Terms not defined in this Amendment shall have such meanings otherwise ascribed to them in the Employment Agreement.
WHEREBY, Jaco and Gash desire to amend the Employment Agreement to properly reflect the intention of the parties.
NOW, THEREFORE, in consideration of the premises hereinafter set forth, the parties, intending to be legally bound, agree as follows:
1. Section 9 of the Employment Agreement entitled, Consolidation; Merger; Change of Control, is hereby deleted and replaced in its entirety by the following:
9.1 In the event of any consolidation or merger of Jaco into or with another corporation during the Employment Period, and Jaco is not the surviving entity, or the sale of all or substantially all of the assets of Jaco to another corporation during the Employment Period, or in the event that fifty (50%) percent or more of the voting common stock of Jaco shall be owned by one or more individuals or entities, who are acting in concert or as part of an affiliated group (other than a group one of the members of which is Gash) at any time during the Employment Period, (the occurrence of any of the foregoing, a "Change of Control"), then (i) within thirty (30) days of the occurrence of such event, Jaco shall pay or cause to be paid to Gash a certified or cashier's check in an amount equal to two hundred percent (200%) of the average of Gash's Base Salary plus Cash Bonus for the previous five (5) years, and (ii) this Employment Agreement may be assigned by Jaco or any such successor or surviving corporation with the prior written consent of Gash.
9.2 Notwithstanding the provisions of Section 9.1 above, any such payments shall be made only in an amount which, when taken together with the present value of all other payments to Gash that are contingent on a Change of Control of Jaco, computed in accordance with the provisions of Section 280G(d)(4) of the Internal Revenue Code of 1986 (the "Code"), does not equal or exceed three times Gash's "Base Amount", as computed in accordance with Code Section 280G(b)(3)."
2. Notwithstanding the foregoing restatement of Section 9 of the Employment Agreement, all other provisions of the Employment Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have each caused this Amendment to be executed by its duly authorized representative, effective as of the date first written above.
Exhibit 21.1 State or Jurisdiction Name of Subsidiary of Incorporation -------------------------- ------------------------- Distel, Inc. California RC Components, Inc. Massachusetts Quality Components, Inc. Texas Jaco Overseas, Inc. Virgin Islands Nexus Custom Electronics, Inc. New Jersey Jaco Electronics Canada, Inc. Canada Corona Electronics, Inc. California Interface Electronics Corp. Massachusetts
Reference is made to the Second Restated and Amended Loan and Security Agreement in effect between us as successor by merger to BNY Financial Corporation which was merged into GMAC Commercial Credit LLC ("GMAC"), as Agent and Lender, and Fleet Bank, N.A., f/k/a Natwest Bank, N.A ("Fleet") as Lender, dated September 13, 1995, as supplemented and amended from time to time, (the "Agreement"). Both GMAC and Fleet may hereinafter be referred to jointly as the "Lenders", and individually, as a "Lender". Initially capitalized terms not defined herein shall have the meanings ascribed to such terms in the Agreement.
WHEREAS, you have requested that we amend the Agreement so as to increase the Maximum Loan Amount for each Lender from $35,000,000 to $40,000,000, for a total amount of $80,000,000 for the period commencing with the date of this letter and terminating on September 30, 2001 (the Temporary Increase Period); and. |
WHEREAS, you have requested that we amend the Agreement so as to increase the amount of the inventory sub-limit from $30,000,000 to $40,000,000 during the Temporary Increase Period; and |
WHEREAS, the Lenders are willing to agree to such an increase in the Maximum Loan Amount for each Lender, subject to the terms and conditions hereof, and |
1. Effective as of the date hereof, and only for the Temporary Increase Period, the Agreement shall be amended by replacing the phrase $35,000,000 appearing next to the phrase Maximum Loan Amount underneath the signature of each Lender, with the phrase $40,000,000", and the phrase $30,000,000 as appearing on the amended eighth line of Section 4(a) of the Agreement shall be temporarily replaced with the phrase $40,000,000 for the temporary increase period. At the end of the Temporary Increase Period, the Debtor shall repay all excess amounts outstanding so that the amended figures described above revert to the original amounts as in effect before the commencement of the Temporary Increase Period.
2. | By their signatures below, Jaco, Nexus and Interface hereby ratify the Agreement and agree to be jointly and severally liable for all Obligations under the Agreement and agree that all of the outstanding amounts of the Loans under the Agreement, as of the date hereof, shall be valid and binding Obligations of each of them, and shall be deemed Obligations outstanding under the Agreement, and hereby agree and promise to repay to the Agent, for the benefit of the Lenders, such Obligations (including but not limited to all applicable interest) in accordance with the terms of the Agreement, but in no event, later than the Termination Date (for purposes hereof, Termination Date shall mean September 14, 2002, or any extended termination date, or any earlier termination date, whether by acceleration or otherwise). |
3. | By their signatures below, Jaco, Nexus and Interface hereby ratify and affirm to the Agent that as of the date hereof, they are in full compliance with all covenants under the Agreement and certify that all representations and warranties of the Agreement are true and accurate as of the date hereof, with the same effect as if they had been made as of the date hereof. |
4. | In consideration of the above amendment, Jaco, Nexus and Interface hereby jointly and severally agree to pay to the Agent for the pro rata benefit of the Lenders, an amendment fee in an amount of $20,000.00 as of the date hereof. Jaco, Nexus and Interface hereby authorize the Agent to automatically charge the Debtors account with the amount of such fee on the date of execution of this Letter Agreement. |
Reference is made to the Second Restated and Amended Loan and Security Agreement in effect between us as successor by merger to BNY Financial Corporation which was merged into GMAC Commercial Credit LLC (GMAC), as Agent and Lender, and Fleet Bank, N.A., f/k/a Natwest Bank, N.A (Fleet) as Lender, dated September 13, 1995, as supplemented and amended from time to time, (the Agreement). Both GMAC and Fleet may hereinafter be referred to jointly as the Lenders, and individually, as a Lender. Initially capitalized terms not defined herein shall have the meanings ascribed to such terms in the Agreement.
It is hereby agreed by and between us that effective as of the date hereof, the Agreement is hereby amended as follows:The figure of $30,000,000 appearing on the eighth line of Section 4(a) of the Agreement (which has presently been increased to $40,000,000 pursuant to an amendment dated June 12, 2001 ((the Amendment)) for the Temporary Increase Period ((as such term is defined in the Amendment)) shall be deemed to read $45,000,000" for the period commencing on the date hereof and ending on August 31, 2001. |
Except as herein specifically amended, the Agreement shall remain in full force and effect in accordance with its original terms, except as previously amended.