-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NVP0YPl9mT1IwR40qLQLH3LVMcc/ZzBHJTh0F3DMorCNHgmzKbdbsNrBYkT7BjCN QAWmNb22apBCOQnciSm5/A== /in/edgar/work/20000920/0000950123-00-008718/0000950123-00-008718.txt : 20000924 0000950123-00-008718.hdr.sgml : 20000924 ACCESSION NUMBER: 0000950123-00-008718 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACO ELECTRONICS INC CENTRAL INDEX KEY: 0000052971 STANDARD INDUSTRIAL CLASSIFICATION: [5065 ] IRS NUMBER: 111978958 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-05896 FILM NUMBER: 725962 BUSINESS ADDRESS: STREET 1: 145 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162735500 MAIL ADDRESS: STREET 1: 145 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-K405 1 y40380e10-k405.txt JACO ELECTRONICS INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ....................................... June 30, 2000 [ ] 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 share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Common Stock held by non-affiliates of the Company, computed by reference to the closing price on September 14, 2000 was $76,942,664. Number of shares outstanding of each class of Common Stock, as of September 14, 2000: 5,633,959 shares. DOCUMENTS INCORPORATED BY REFERENCE: None 2 FORWARD-LOOKING STATEMENTS 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: - Dependence on a limited number of suppliers for products which generate a significant portion of our sales. - Absence of long-term contracts. - 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. - Supply shortages in the electronic components industry. - 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. - Volatile pricing of electronic components. - Competitive pressures in the industry may increase significantly through industry consolidation and entry of new competitors. - Costs or difficulties related to the integration of newly-acquired businesses may be greater than expected. - Limited allocation of products by suppliers may reduce availability of certain products. - 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. 3 PART I ITEM 1. BUSINESS. 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. OUR COMPANY 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: - - telecommunications equipment - - medical devices and instrumentation - - military/aerospace systems - - computers and office equipment - - industrial equipment and controls - - automotive and consumer electronics We have two distribution centers and 19 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 (box build) 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. RECENT DEVELOPMENTS In June 2000, we acquired Interface Electronics Corp. 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 next two years if certain "minimum sales" levels are achieved. 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 Interface transaction affords us the opportunity to leverage a national sales presence with our warehouses, thereby providing timely and efficient product distribution to our customers located anywhere in the United States. 3 4 In February 2000, we acquired the operating assets of PGI Industries, Inc., an exporter of electronic components for approximately $1.2 million in cash. OUR INDUSTRY The electronic components distribution industry has become an increasingly important sales channel for component manufacturers. 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. 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. Active components and passive components each represented approximately 50% of our net distribution sales in each of our last three fiscal years. Active components include semiconductors and computer subsystems. 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 disk drives, tape drives, flat panels and flat panel monitors, touchscreens and controllers. Passive components consist primarily of capacitors, electromechanical devices, and resistors. VALUE-ADDED SERVICES 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 box build and contract manufacturing, to generate revenues from new customers. Value-added services include: - 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. - 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 4 5 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. - Box Build. We assemble various custom components with flat panel displays to a customer's specifications in order to provide an assembled product. - 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). SALES AND MARKETING 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 five percent of net sales in any of the fiscal years ended June 30, 2000, 1999 and 1998. 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 19 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. 5 6 SUPPLIERS Manufacturers of electronic components are increasingly relying 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 manufacturer's 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, International Resistive Company, Inc., Johanson Dielectrics, Inc., Kemet Electronics Corporation, Rohm Electronics U.S.A., LLC, Samsung Semiconductor, Inc., Saronix Corp., TDK Corporation of America, Vishay Intertechnology, Inc. and ZeTeX, 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 period's 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. OPERATIONS Component Distribution. Inventory management is critical to a distributor's 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 6 7 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 3.7 times for the fiscal year ended June 30, 2000. 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 that recently commenced operations. 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. COMPETITION 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. 7 8 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. BACKLOG 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. EMPLOYEES At June 30, 2000, we had a total of 471 employees, of which 143 were employed by Nexus. Of our total employees, twelve were engaged in administration, 55 were managerial and supervisory employees, 194 were in sales and 210 performed warehouse, manufacturing and clerical functions. Of these employees, Nexus employed two in administration, 17 in management and supervisory positions, one in sales and 123 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 22 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 exclusively by us as sales offices. Our satellite sales offices range in size from approximately 500 square feet to approximately 4,300 square feet. Base rents for such properties range from approximately $500 per month to approximately $5,000 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 five principal leased facilities: 8 9
LEASE BASE RENT EXPIRATION LOCATION PER MONTH SQUARE FEET USE DATE Hauppauge, NY(1) $51,000 72,000 Administrative, 12/31/03 Sales and Warehouse Franklin, MA $18,000 11,700 Sales 3/31/05 Woburn, MA $14,300 30,000 Manufacturing 7/31/05 Westlake Village, CA $10,550 10,000 Administrative, 4/30/03 Sales and Warehouse San Jose, CA $ 9,400 3,800 Sales 4/30/03
- ----------------- (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. We sublease a portion of this space to an unaffiliated third party. 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. 9 10 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. (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, 1999. 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 1999: First quarter ended September 30, 1998........................... $ 4.25 $ 1.50 Second quarter ended December 31, 1998........................... 5.00 2.08 Third quarter ended March 31, 1999............................... 3.46 1.67 Fourth quarter ended June 30, 1999............................... 3.08 1.67 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: (through September 14, 2000)..................................... 20.83 10.00
(b) On September 14, 2000, the last reported sale price of our common stock on the Nasdaq National Market was $17.06 per share (which gives effect to the 3-for-2 stock split which was effective on July 24, 2000). As of September 14, 2000, there were 134 holders of record of our common stock. We believe our stock is held by more than 1,100 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. 10 11 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. 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 "Management's 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, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ......................................... $ 209,325 $ 140,711 $ 153,674 $ 155,098 $ 167,149 Cost of goods sold ................................ 162,443 113,335 121,796 122,993 133,105 --------- --------- --------- --------- --------- Gross profit ...................................... 46,882 27,376 31,878 32,105 34,044 Selling, general and administrative expenses ...... 34,522 27,642 28,707 27,640 26,247 --------- --------- --------- --------- --------- Operating profit (loss) ......................... 12,360 (266) 3,171 4,465 7,797 Interest expense .................................. 1,559 1,309 1,140 971 1,347 --------- --------- --------- --------- --------- Earnings (Loss) before income taxes ............. 10,801 (1,575) 2,031 3,494 6,450 Income tax provision (benefit) .................... 4,425 (418) 847 1,415 2,600 --------- --------- --------- --------- --------- Net earnings (loss) ............................... $ 6,376 $ (1,157) $ 1,184 $ 2,079 $ 3,850 ========= ========= ========= ========= ========= Net earnings (loss) per common share Basic ............................................ $ 1.16 $ (0.21) $ 0.21 $ 0.36 $ 0.74 ========= ========= ========= ========= ========= Diluted .......................................... $ 1.11 $ (0.21) $ 0.20 $ 0.35 $ 0.72 ========= ========= ========= ========= ========= Weighted average number of common and common equivalent shares outstanding Basic ........................................... 5,498 5,547 5,755 5,849 5,220 Diluted ......................................... 5,766 5,547 5,882 5,922 5,331
AT JUNE 30, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS) Working capital ................ $ 58,384 $ 41,998 $ 42,481 $ 41,146 $ 36,964 Total assets ................... 126,329 72,931 73,419 69,996 61,143 Short-term debt ................ 807 792 663 599 474 Long-term debt ................. 40,941 18,886 17,037 15,553 8,791 Shareholders' equity ........... 42,790 34,868 36,625 35,892 34,304
11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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, 2000 1999 1998 ---- ---- ---- Net sales................................................. 100.0% 100.0% 100.0% Cost of goods sold........................................ 77.6 80.5 79.3 ---- ---- ---- Gross profit.............................................. 22.4 19.5 20.7 Selling, general and administrative expenses.............. 16.5 19.7 18.7 ---- ---- ---- Operating profit (loss)................................... 5.9 (0.2) 2.0 Interest expense.......................................... 0.8 0.9 0.7 --- --- --- Earnings (Loss) before income taxes....................... 5.1 (1.1) 1.3 Income tax provision (benefit)............................ 2.1 (0.3) 0.5 --- ----- --- Net earnings (loss)....................................... 3.0% (0.8)% 0.8% === ===== ===
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2000 ("FISCAL 2000") WITH FISCAL YEAR ENDED JUNE 30, 1999 ("FISCAL 1999") 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 benefitted 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 PGI 12 13 and 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 the 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. COMPARISON OF FISCAL 1999 WITH FISCAL YEAR ENDED JUNE 30, 1998 ("FISCAL 1998") Net sales for Fiscal 1999 were $140.7 million, a decrease of $13 million, or 8.4%, as compared to $153.7 million reported for Fiscal 1998. Our net sales were impacted throughout the fiscal year by continued industry wide pricing pressures, compounded by weak demand for components which had impacted the electronic components industry for over three years. Toward the end of Fiscal 1999, we experienced an increase in activity in many product sectors. Gross profit was $27.4 million in Fiscal 1999, a decrease of $4.5 million, or 14.1%, compared to $31.9 million in Fiscal 1998. Gross profit margins as a percentage of net sales were 19.5% in Fiscal 1999 compared to 20.7% in Fiscal 1998. The decrease was attributable to industry wide pressures and a shift in product mix toward a greater amount of active components, including flat panel devices, which historically, have a lower gross profit margin compared to passive components. SG&A expenses were $27.6 million in Fiscal 1999, a decrease of $1.1 million, or 3.7%, compared to $28.7 million in Fiscal 1998. Due to the weakness in the electronic components distribution industry during Fiscal 1999, we had implemented cost containment measures. Additionally, SG&A expenses decreased due to a reduction in variable costs such as commissions paid to sales personnel. The decreases were partially offset by a bad debt of approximately $630,000 during the fourth quarter of Fiscal 1999 and additional staffing of sales and marketing personnel toward the end of Fiscal 1999 in anticipation of an improvement in demand for electronic components. Operating profit (loss) for Fiscal 1999 was $(0.3) million as compared to $3.1 million for Fiscal 1998. As a percentage of net sales, operating profit (loss) decreased in Fiscal 1999 to (0.2)% as compared to 2.0% in Fiscal 1998. 13 14 Interest expense increased to approximately $1.3 million in Fiscal 1999, as compared to $1.1 million in Fiscal 1998. The 14.8% increase in interest expense was primarily attributable to increased net borrowings due to our purchases of common stock under our stock repurchase program, fixed asset additions primarily for contract manufacturing, operational expenditures made to upgrade our core financial and reporting software, and an increase in borrowing rates. Net loss for Fiscal 1999 was $(1.2) million, or $(.21) per share diluted, as compared to net earnings for Fiscal 1998 of $1.2 million, or $.20 per share diluted. During Fiscal 1999, the decrease in net earnings was primarily attributable to the decrease in net sales and decrease in gross profit dollars attributable to overall industry weakness as it related to electronic components. LIQUIDITY AND CAPITAL RESOURCES Our agreement with our banks, as amended, which expires on September 13, 2001, provides us with a $50 million term loan and revolving line of credit facility based principally on eligible accounts receivable and inventories as defined in the agreement expiring September 13, 2001. The interest rate of the credit facility is based on the average 30-day LIBOR rate plus 1.75% through the quarter ending September 30, 2000. At such time, the rate converts 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. The outstanding balance on the revolving line of credit facility was $39.9 million at June 30, 2000. 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, 2000, and prohibits the payment of cash dividends. For Fiscal 2000, our net cash used in operating activities was approximately $7.0 million, as compared to net cash provided by operating activities of $1.4 million for Fiscal 1999. The increase in net cash used is primarily attributable to an increase in inventory and accounts receivable as a result of the increase in net sales during the fiscal year, partially offset by an increase in accounts payable and accrued expenses and net earnings for Fiscal 2000. Net cash used in investing activities increased to $13.4 million for Fiscal 2000 as compared to $1.6 million for Fiscal 1999. The increase is primarily attributable to the acquisition of the operating assets of PGI and the purchase of Interface, representing a net cash outlay of $14.9 million. 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 2000 and Fiscal 1999, our inventory turnover was 3.7x and 3.3x, respectively. The average days outstanding of our accounts receivable at June 30, 2000 was 57 days, as compared to 59 days at June 30, 1999. 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. 14 15 INFLATION 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, 2000, $39.9 million was outstanding under the credit facility. Changes in the LIBOR interest rate during Fiscal 2000 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 $0.4 million based on outstanding borrowings at June 30, 2000. 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. 15 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following are our directors and executive officers:
NAME AGE POSITION Joel H. Girsky .......................... 61 Chairman of the Board, President and Treasurer Joseph F. Oliveri........................ 51 Vice Chairman of the Board and Executive Vice President Charles B. Girsky........................ 66 Executive Vice President and Director Jeffrey D. Gash.......................... 47 Vice President, Finance and Secretary Gary Giordano............................ 43 Executive Vice President Stephen A. Cohen......................... 63 Director Edward M. Frankel........................ 62 Director Joseph F. Hickey, Jr..................... 42 Director
Joel H. Girsky has been a Director and executive officer of Jaco since it was founded in 1961. He also is a director of Nastech Pharmaceutical Company, Inc. of Hauppauge, New York, and Frequency Electronics, Inc. of Uniondale, New York. Messrs. Joel H. Girsky and Charles B. Girsky are brothers. Joseph F. Oliveri became Vice Chairman of the Board of Directors and an Executive Vice President in June 2000. From March 1983 to June 2000 he was President and Chief Executive Officer of Interface. We acquired Interface in June 2000. Mr. Oliveri is also a director of EMC Corporation, a designer and manufacturer of hardware and software products and a provider of services for the storage, management, protection and sharing of electronic information. Charles B. Girsky was a founder, Director, and our President from 1961 through January 1983. He became an executive officer again in August 1985 and has been an Executive Vice President since January 1988. He has been a Director since 1986. Messrs. Charles B. Girsky and Joel H. Girsky are brothers. Jeffrey D. Gash became Vice President of Finance in January 1989, and was our Controller for more than five years prior thereto. In September 1999, he became our Secretary. He has also served in similar capacities with our subsidiaries. 16 17 Gary Giordano became Executive Vice President in June 2000. From February 1992 to June 2000 he was a Vice President of Sales and Marketing. Stephen A. Cohen has been a Director since 1970. Since August 1989, he has practiced law as a member of Morrison Cohen Singer & Weinstein, LLP, Jaco's general counsel. Edward M. Frankel became a Director in May 1984. For more than five years he has been President of Vitaquest International, Inc., a distributor of vitamins and health and beauty products, and its predecessor entities. Joseph F. Hickey, Jr. became a Director in May 1997. Since February 1991, he has been employed by Tucker Anthony Capital Markets, a national investment banking firm. He is a managing director in Tucker Anthony's investment banking department. BOARD COMMITTEES We have standing Audit and Compensation Committees. The Audit Committee reviews the work and reports of Jaco's independent accountants. The Audit Committee is comprised of Stephen A. Cohen, Edward M. Frankel and Joseph F. Hickey, Jr. The Compensation Committee makes recommendations to the Board of Directors concerning compensation arrangements for directors, executive officers, and senior management of Jaco. The Compensation Committee is comprised of Mr. Frankel and Mr. Hickey. The entire Board of Directors administers our 1993 Non-Qualified Stock Option Plan and our Restricted Stock Plan. DIRECTOR COMPENSATION Pursuant to our 1993 Stock Option Plan for Outside Directors, the then outside directors (directors who are not employees) were each granted options on December 31, 1993 to purchase 22,000 shares of common stock. In addition, the Outside Directors' Plan provided that each outside director shall also be granted on each December 31 subsequent to December 31, 1993 stock options to purchase 4,399 shares of common stock. All options granted under the Outside Directors' Plan are immediately exercisable, and the exercise price per share of each option is equal to the fair market value of the shares of common stock on the date of grant. No option may be granted after January 1, 1998 under the Outside Directors' Plan. On September 16, 1998, each of Messrs. Cohen and Frankel was granted options to purchase 11,250 shares of common stock. The options became exercisable one year from the date of grant and expire on September 15, 2003. The per share exercise price of each option is equal to the closing price of the common stock on the date of grant, or $2.75 per share. On September 15, 1999, we granted each of Mr. Stephen A. Cohen, Mr. Edward M. Frankel and Mr. Joseph F. Hickey, Jr., five year options to purchase 11,250 shares of common stock at an exercise price of $2.50 per share. The per share exercise price of each option is equal to the closing price of the common stock on the date of grant. The options vest on the one-year anniversary date of the date of grant and were issued pursuant to our 1993 Non-Qualified Stock Option Plan. 17 18 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Joseph F. Hickey, Jr., a Director and member of the Compensation Committee is a managing director of Tucker Anthony Capital Markets which is an underwriter of our proposed public offering of common stock. COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than ten percent of our common stock to file with the Securities and Exchange Commission initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership on Form 4 or Form 5. Executive officers, directors, and ten percent shareholders are required to furnish us with copies of such forms. Based solely on a review of such forms furnished to us and written representations from certain reporting persons, we believe that during Fiscal 2000, our executive officers, directors, and ten percent shareholders complied with all applicable Section 16(a) filing requirements. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth the information for Fiscal 2000, 1999 and 1998 as to the compensation paid by us to our Chief Executive Officer for services rendered and our four other most highly compensated executive officers, whose total salary and bonus exceeded $100,000 during such years. 18 19 SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Long-Term Awards Compensation Payouts Other Restricted Name and Annual Stock Options/ LTIP All Other Principal Position Year Salary($) Bonus($) Compensation($)(1) Awards ($)(2) SARs(#)(3) Payouts($) Compensation($)(4) ------------------ ---- --------- -------- ------------------ ------------- ---------- ---------- ------------------ Joel H. Girsky 2000 325,000 648,100 - - 60,000 -- 66,709 Chairman of the Board 1999 325,000 -- - - 300,000 -- 58,556 President, and Treasurer 1998 325,000 81,100 - - -- -- 57,949 Joseph F. Oliveri (5) 2000 20,770 15,700 - - 30,000 -- -- Vice Chairman and Executive Vice President Charles B. Girsky 2000 225,000 324,000 - - 15,000 -- 6,831 Executive Vice President 1999 225,000 -- - - 37,500 -- 3,144 1998 225,000 41,000 - - -- -- 3,145 Jeffrey D. Gash 2000 136,000 60,800 - - 15,000 -- 4,953 Vice President, Finance 1999 125,000 25,800 - - 15,000 -- 2,217 and Secretary 1998 125,000 28,100 - - -- -- 1,895 Gary Giordano(6) 2000 158,000 40,000 - - 15,000 -- 1,971 Executive Vice President
(1) The costs of certain benefits are not included because they did not exceed, in the case of each named executive officer, the lesser of $50,000 or ten percent of the total annual salary and bonus reported in the above table. (2) On June 9, 1997, the Board of Directors awarded an aggregate of 97,500 shares of common stock under our Restricted Stock Plan to our executive officers as follows: 37,500 shares of common stock to Mr. Joel Girsky, 37,500 shares of common stock to Mr. Charles Girsky, 15,000 shares of common stock to Mr. Jeffrey Gash and 7,500 shares of common stock to Mr. Gary Giordano. These grants were subject to the approval of our shareholders, which approval was received on December 9, 1997. The awards vest in one-quarter increments annually. Accordingly, as of June 30, 2000, the following portions of the aforementioned awards were vested: 28,125 shares of common stock awarded to each of Mr. Joel Girsky and Mr. Charles Girsky, 11,250 shares of common stock awarded to Mr. Jeffrey Gash and 5,625 shares of common stock awarded to Mr. Gary Giordano. The value of the aggregate restricted stock holdings of these individuals at June 30, 2000 was as follows: $525,000 for Mr. Joel Girsky, $525,000 for Mr. Charles Girsky, $210,000 for Mr. Jeffrey Gash and $105,000 for Mr. Gary Giordano. These figures are based upon the fair market value per share of our common stock at June 30, 2000, minus the purchase price of such awards. The closing sale price for our common stock as of June 30, 2000 on the Nasdaq National Market was $14.67. (3) Adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. 19 20 (4) Includes 401(k) matching contributions, premiums paid on group term life insurance and, in the case of Mr. Joel Girsky, the taxable portion of split dollar life insurance policies and deferred compensation accrued in connection with his employment agreement with us. 401(k) matching contributions for Fiscal 2000 for the Named Executives were as follows: Mr. Joel Girsky -- $1,125, Mr. Oliveri -- $0, Mr. Charles Girsky -- $3,786, Mr. Gash -- $4,431 and Mr. Giordano -- $1,665. Premiums paid on group term life insurance for Fiscal 2000 for the Named Executives were as follows: Mr. Joel Girsky -- $8,584, Mr. Oliveri -- $0, Mr. Charles Girsky -- $3,045, Mr. Gash -- $522 and Mr. Giordano -- $306. The taxable portion of split dollar life insurance policies for Mr. Joel Girsky was $7,000 for Fiscal 2000. $50,000 deferred compensation was accrued in Fiscal 2000 in connection with Mr. Joel Girsky's employment agreement with us. (5) Mr. Oliveri became an Executive Vice President of Jaco on June 6, 2000. (6) Mr. Giordano became an Executive Vice President of Jaco on June 22, 2000. EMPLOYMENT AGREEMENTS We entered into a four-year employment agreement with Joel Girsky, effective as of July 1, 1997, to serve as our Chairman and President. The employment agreement, as amended, will automatically renew for additional one-year periods on each anniversary date, unless notice is given 90 days prior to an anniversary date. In the event that a notice of non-renewal is delivered by either party, Mr. Girsky's employment agreement shall continue for a period of three years following the anniversary date which follows immediately after the date that such notice is delivered. Mr. Joel Girsky received a base salary of $325,000 for Fiscal 2000 and shall receive a base salary of $325,000 for each fiscal year ending June 30, thereafter. In addition, he is entitled to receive a cash bonus equal to four percent of our earnings before income taxes for each fiscal year in which such earnings are between $1.0 million and $2.5 million, or six percent of our earnings before income taxes for such fiscal year if such earnings are in excess of $2.5 million up to a maximum annual cash bonus of $720,000. If our earnings before income taxes are in excess of $12.0 million for any such fiscal year, Mr. Girsky may also receive stock options. Mr. Girsky or his estate, as the case may be, is entitled to receive a payment of $1.5 million if he dies or becomes permanently disabled during the term of the employment agreement. Mr. Girsky shall also receive deferred compensation which accrues at the rate of $50,000 per year, and becomes payable in a lump sum at the later of (i) Mr. Girsky's attainment of age 60 (which event occurred in Fiscal 1999), or (ii) his cessation of employment, with or without cause, at any time. In the event of a change in control, Mr. Girsky will receive 299% of the average of his base salary plus cash bonus for the previous five years, to the extent that such payment does not equal or exceed three times Mr. Girsky's base amount, as computed in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. We entered into a three-year employment agreement with Joseph F. Oliveri, effective as of June 6, 2000. The employment agreement will automatically renew for additional one-year periods unless notice is given 90 days prior to an anniversary date. Mr. Oliveri receives a base salary at an annual rate of $300,000. In addition, he is entitled to receive a cash bonus equal to two percent of Interface's gross profit from certain customers for each twelve month period beginning June 1, 2000, 20 21 June 2, 2001 and June 1, 2002. In the event of a change in control, Mr. Oliveri will receive 300% of his base salary plus cash bonus earned during the twelve months prior to the change of control, if the change of control occurs before May 30, 2001. If the change of control occurs on or after June 1, 2001 and on or prior to May 30, 2002, Mr. Oliveri will receive 200% of his base salary plus cash bonus earned during the twelve months prior to the change of control. Finally, if the change of control occurs on or after June 1, 2002 and on or prior to May 30, 2003, Mr. Oliveri will receive 100% of his base salary plus cash bonus earned during the twelve months prior to the change of control. We entered into a four-year employment agreement with Charles Girsky, effective as of July 1, 1998, to serve as our Executive Vice President. The employment agreement will automatically renew for additional one-year periods on each anniversary date, unless notice is given 90 days prior to an anniversary date. In the event that a notice of non-renewal is delivered by either party, Mr. Girsky's employment agreement shall continue for a period of three years following the anniversary date which follows immediately after the date that such notice is delivered. Mr. Girsky received a base salary of $225,000 for Fiscal 2000, and shall receive a base salary of $225,000 for each fiscal year ending June 30, thereafter. In addition, he is entitled to receive a cash bonus equal to two percent of our earnings before income taxes for each fiscal year in which such earnings are between $1.0 million and $2.5 million or three percent of our earnings before income taxes for such fiscal year if such earnings are in excess of $2.5 million up to a maximum annual cash bonus of $360,000. If our earnings before income taxes are in excess of $12.0 million for any such fiscal year, Mr. Girsky may receive stock options. Mr. Girsky or his estate, as the case may be, is entitled to receive a payment of $1.0 million if he dies during the term of the employment agreement. In the event of a change in control, Mr. Girsky will receive 250% of the average of his base salary plus cash bonus for the previous five years, to the extent that such payment does not equal or exceed three times Mr. Girsky's base amount, as computed in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. Additionally, upon a change of control, Mr. Girsky's employment agreement may be assigned by us or any such successor or surviving corporation upon sixty days prior written notice to Mr. Girsky. We entered into a four-year employment agreement with Jeffrey Gash, effective as of July 1, 1998, to serve as our Vice President of Finance. The employment agreement will automatically renew for additional one-year periods on each anniversary date, unless notice is given 90 days prior to an anniversary date. In the event that a notice of non-renewal is delivered by either party, Mr. Gash's employment agreement shall continue for a period of three years following the anniversary date which follows immediately after the date that such notice is delivered. Pursuant to the agreement, Mr. Gash received a base salary of $125,000 for Fiscal 2000, and shall receive a base salary of $125,000 for each fiscal year ending June 30, thereafter. In addition, he is entitled to receive a cash bonus as determined by our Board of Directors and our President. Mr. Gash or his estate, as the case may be, is entitled to receive a payment of $750,000 if he dies during the term of the employment agreement. The death benefit may be funded by a life insurance policy maintained by us. In the event of Mr. Gash's cessation of employment with us, upon his request, we are obligated to transfer such policy to Mr. Gash. Thereafter, we would have no further liability for the payment of such benefit or the premiums on such policy. In the event of a change in control, Mr. Gash will receive 200% of the average of his base salary plus cash bonus for the previous five years, to the extent that such payment does not equal or exceed three times Mr Gash's base amount, as computed in 21 22 accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. Additionally, upon a change of control, Mr. Gash's employment agreement may be assigned by us or any such successor or surviving corporation upon sixty days prior written notice to Mr. Gash. We entered into an agreement with Gary Giordano dated as of July 20, 1998, which provides a lump sum payment to him in the event of a change in control. If Mr. Giordano's employment with Jaco or a successor or surviving corporation is terminated other than for cause (commission by Mr. Giordano of an act constituting common law fraud or a felony), for a period of up to two years after the change in control event, he will receive up to 200% of the average of his base salary plus cash bonus for the previous three years based upon a formula. The payment will be made to Mr. Giordano to the extent such payment does not exceed Mr. Giordano's base amount as computed in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. The agreement also requires Mr. Giordano to refrain from disclosing proprietary or confidential information obtained by him. The agreement does not obligate Jaco to retain the services of Mr. Giordano. OPTION GRANTS OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following tables set forth information concerning the grant of stock options during Fiscal 2000 to each of the persons described in the Summary Compensation Table and the number and value of unexercised options held by them at the fiscal year-end. OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants
Potential Realizable Value Number of Percent of At Assumed Annual Rates Securities Total Options/ of Stock Price Appreciation Underlying SARs Granted Exercise or for Option Term (2) Options/SARs to Employees Base Price Name Granted (#) (1) in Fiscal Year ($/Sh)(1) Expiration Date ---- --------------- -------------- ---------- --------------- 5%($) 10%($) ----- ------ Joel H. Girsky 60,000(3) 30% $ 3.25 December 7, 2004 $ 53,900 $119,000 Joseph F. Oliveri 30,000(4) 15 13.70 June 5, 2005 113,600 250,900 Charles B. Girsky 15,000(5) 7 2.50 September 14, 2004 10,400 22,900 Jeffrey D. Gash 15,000(5) 7 2.50 September 14, 2004 10,400 22,900 Gary Giordano 15,000(5) 7 2.50 September 14, 2004 10,400 22,900
(1) Adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. (2) The potential realizable value assumes that the stock price increases from the date of grant until the end of the option term (5 years) at the annual rate of five percent and ten percent. The assumed annual rates of appreciation are computed in accordance with the rules and regulations of the Securities and Exchange Commission. No assurance can be given that the 22 23 annual rates of appreciation assumed for the purposes of the table will be achieved, and actual results may be lower or higher. (3) The options in the table were granted on December 8, 1999 under our 1993 Non-Qualified Stock Option Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. The options become exercisable one year from the date of grant. (4) The options in the table were granted on June 6, 2000 under our 1993 Non-Qualified Stock Option Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. The options become exercisable one year from the date of grant. (5) The options in the table were granted on September 15, 1999 under our 1993 Non-Qualified Stock Option Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. The options become exercisable one year from the date of grant. AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Value of Unexercised Number of Unexercised In-the-Money Option/SARs at Shares Acquired Value Option/SARs at FY-End (#)(1) FY-End ($)(2) Name on Exercise (#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable ---- ------------------ ----------- ------------ -------------- ------------ ------------- Joel H. Girsky - - 323,098 60,000 $3,949,800 $685,000 Joseph F. Oliveri - - - 30,000 - 29,500 Charles B. Girsky - - 97,500 15,000 996,600 182,500 Jeffrey D. Gash 15,000 $233,600 15,000 15,000 193,100 182,500 Gary Giordano 20,000 229,000 - 15,000 - 182,500
(1) Adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. (2) Based on the fair market value per share of our common stock at year end, minus the exercise or base price on "in-the-money" options. The closing sale price for our common stock as of June 30, 2000 on the Nasdaq National Market was $14.67. 23 24 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information concerning the beneficial ownership of the shares of our common stock as of September 14, 2000 for: - each person we know to be the beneficial owner of five percent or more of the outstanding shares of common stock; - each executive officer listed in the summary compensation table above; - each of our directors; and - all executive officers and directors as a group. AGGREGATE NUMBER OF SHARES NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF SHARES BENEFICIAL OWNER(1) OWNED BENEFICIALLY OWNED(2) --------------------- --------------- --------------------- Joel H. Girsky (3) 1,020,140 17.1% Joseph F. Oliveri - - Charles B. Girsky (4) 505,815 8.8 Stephen A. Cohen (5) 29,683 * Edward M. Frankel (6) 31,299 * Joseph F. Hickey, Jr. (7) 32,149 * Jeffrey D. Gash (8) 47,298 * Gary Giordano (9) 22,500 * Dimensional Fund (10) 410,074 7.3 Advisors 1299 Ocean Avenue 11th Floor Santa Monica, CA 90401 All directors and 1,688,884 27.2 executive officers as a group (eight persons) (11) - -------------- * Less than one percent. (1) Unless otherwise indicated, the address of each person listed is 145 Oser Avenue, Hauppauge, New York, 11788. 24 25 (2) Assumes a base of 5,633,959 shares of common stock outstanding, before any consideration is given to outstanding options. (3) Includes 323,098 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and 37,500 shares of common stock awarded under our Restricted Stock Plan. (4) Includes (i) 343,261 shares of common stock owned by the Girsky Family Trust, (ii) 112,500 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and (iii) 37,500 shares of common stock awarded under our Restricted Stock Plan. (5) Includes 11,250 shares of common stock acquirable pursuant to non-qualified stock options exercisable within 60 days granted to Mr. Cohen by the Company and 11,250 shares of common stock acquirable pursuant to the exercise of options granted under our 1993 Non-Qualified Stock Option Plan. (6) Includes (i) 8,799 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our Outside Directors' Plan, (ii) 11,250 shares of common stock acquirable pursuant to non-qualified stock options exercisable within 60 days granted to Mr. Frankel by Jaco and (iii) 11,250 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan. (7) Includes (i) 4,399 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our Outside Directors' Plan, (ii) 15,000 shares of common stock acquirable pursuant to non-qualified stock options exercisable within 60 days granted to Mr. Hickey by Jaco and (iii) 11,250 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan. (8) Includes 30,000 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and 15,000 shares of common stock awarded under our Restricted Stock Plan. (9) Includes 15,000 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and 7,500 shares of common stock awarded under our Restricted Stock Plan. (10) These securities are held in investment advisory accounts of Dimensional Fund Advisors, Inc. This information is based upon a Schedule 13G dated February 4, 2000, and information made available to Jaco. (11) Includes 565,046 shares of common stock acquirable pursuant to options exercisable within 60 days and 97,500 shares of common stock awarded under our Restricted Stock Plan. 25 26 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During Fiscal 2000, we incurred approximately $612,000 of rental expenses in connection with our main headquarters and centralized inventory distribution facility, located in Hauppauge, New York, which was paid to Bemar Realty Company, the owner of such premises. Bemar is a partnership consisting of Messrs. Joel Girsky and Charles Girsky, both of whom are officers, directors and principal shareholders. The lease on the property, which is net of all expenses, including taxes, utilities, insurance, maintenance and repairs was renewed on January 1, 1996 and expires on December 31, 2003. We believe the current rental rate is at its fair market value. Joseph F. Oliveri, our Vice Chairman of the Board and an Executive Vice President, has been a director of EMC Corporation, a public company, since March 1993. Mr. Oliveri was also the President and Chief Executive Officer of Interface from March 1983 until June 2000, when we acquired Interface. Interface sells components to contract manufacturers which incorporate such components into products sold to EMC. Mr. Oliveri was a 40% stockholder of Interface, and therefore, upon the acquisition of Interface, Mr. Oliveri received his proportionate share of the $15.4 million purchase price paid by Jaco at the closing and is entitled to receive his proportionate share of up to approximately $6.6 million of deferred payments. Joseph E. Hickey, Jr., a Director, is also a managing director of Tucker Anthony Capital Markets. Tucker Anthony Capital Markets is an underwriter of our proposed public offering of common stock. 26 27 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 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 (2) Financial Statement Schedule included in Part IV of this Report: Report of Independent Certified Public Accountant on Schedule F-30 Schedule II - Valuation and Qualifying Accounts F-31
27 28 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 10.2.2. 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. 28 29 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. 29 30 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. 10.17 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. 21.1 Subsidiaries of the Company. 23.1 Consent of Grant Thornton LLP. 27 Financial Data Schedule. 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. 30 31 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 99.6. 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. 31 32 (b) Reports on Form 8-K During the fourth quarter of Fiscal 2000, we filed a Current Report on Form 8-K, dated May 15, 2000, in which it was reported, pursuant to Item 5 of Form 8-K, that we executed a Stock Purchase Agreement with all of the stockholders of Interface Electronics Corporation, to acquire Interface. During the fourth quarter of Fiscal 2000, we filed a Current Report on Form 8-K, dated June 12, 2000, in which it was reported, pursuant to Item 2 of Form 8-K, that we acquired all of the capital stock of Interface. On August 18, 2000, a Current Report on Form 8-K, Amendment No. 1, was filed to include certain financial statements pursuant to Item 7 of Form 8-K. 32 33 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page ---- Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets F-3 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-29 Report of Independent Certified Public Accountants on Schedule F-30 Schedule II - Valuation and Qualifying Accounts F-31
F-1 34 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders JACO ELECTRONICS, INC. We have audited the accompanying consolidated balance sheets of Jaco Electronics, Inc. and Subsidiaries (the "Company") as of June 30, 2000 and 1999 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, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting principles generally accepted in the United States of America. GRANT THORNTON LLP Melville, New York August 15, 2000 F-2 35 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30,
ASSETS 2000 1999 ------------ ------------ CURRENT ASSETS Cash $ 617,603 $ 922,247 Marketable securities 880,954 881,622 Accounts receivable, less allowance for doubtful accounts of $1,111,000 in 2000 and $440,000 in 1999 42,179,468 23,408,900 Inventories 53,415,793 33,224,719 Prepaid expenses and other 887,804 660,782 Prepaid and refundable income taxes 990,855 Deferred income taxes 1,975,000 336,000 ------------ ------------ Total current assets 99,956,622 60,425,125 PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 6,926,734 6,983,761 DEFERRED INCOME TAXES 390,000 GOODWILL, less accumulated amortization of $1,141,000 in 2000 and $895,000 in 1999 16,600,432 3,588,449 OTHER ASSETS 2,845,305 1,543,328 ------------ ------------ $126,329,093 $ 72,930,663 ============ ============
The accompanying notes are an integral part of these statements. F-3 36 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (CONTINUED) June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 ------------- ------------- CURRENT LIABILITIES Accounts payable $ 35,346,299 $ 15,923,157 Current maturities of long-term debt and capitalized lease obligations 807,444 791,814 Accrued compensation 2,191,693 891,987 Accrued expenses 1,652,019 820,175 Income taxes payable 1,575,319 ------------- ------------- Total current liabilities 41,572,774 18,427,133 LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS 40,940,877 18,885,664 DEFERRED INCOME TAXES 225,000 DEFERRED COMPENSATION 800,000 750,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized, 10,000,000 shares, $.10 par value; issued, 6,252,259 and 4,065,721 shares, respectively, and 5,633,959 and 3,653,521 shares outstanding, respectively 625,226 406,572 Additional paid-in capital, net 23,906,301 22,531,295 Retained earnings 20,296,761 13,920,807 Accumulated other comprehensive income 166,669 213,707 Treasury stock - 618,300 and 412,200 shares, respectively, at cost (2,204,515) (2,204,515) ------------- ------------- 42,790,442 34,867,866 ------------- ------------- $ 126,329,093 $ 72,930,663 ============= =============
The accompanying notes are an integral part of these statements. F-4 37 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended June 30,
2000 1999 1998 ------------- ------------- ------------- Net sales $ 209,325,180 $ 140,710,825 $ 153,674,226 Cost of goods sold 162,443,001 113,334,627 121,796,083 ------------- ------------- ------------- Gross profit 46,882,179 27,376,198 31,878,143 Selling, general and administrative expenses 34,522,667 27,642,724 28,706,520 ------------- ------------- ------------- Operating profit (loss) 12,359,512 (266,526) 3,171,623 Interest expense 1,558,558 1,308,624 1,140,362 ------------- ------------- ------------- Earnings (Loss) before income taxes 10,800,954 (1,575,150) 2,031,261 Income tax provision (benefit) 4,425,000 (418,000) 847,000 ------------- ------------- ------------- NET EARNINGS (LOSS) $ 6,375,954 $ (1,157,150) $ 1,184,261 ============= ============= ============= Net earnings (loss) per common share: Basic $ 1.16 $ (0.21) $ 0.21 ===== ====== ===== Diluted $ 1.11 $ (0.21) $ 0.20 ===== ====== ===== Weighted-average common shares and common equivalent shares outstanding: Basic 5,497,866 5,547,405 5,755,050 ============= ============= ============= Diluted 5,766,086 5,547,405 5,882,277 ============= ============= =============
The accompanying notes are an integral part of these statements. F-5 38 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2000, 1999 and 1998
Additional paid-in Retained Shares Amount capital earnings ------------ ---------- ------------ ----------- Balance at July 1, 1997 3,975,721 $397,572 $22,180,295 $13,893,696 Net earnings 1,184,261 Unrealized gain on marketable securities - net Comprehensive income Issuance of restricted stock 90,000 9,000 621,000 Deferred compensation expense Purchase of treasury stock --------- ------- ---------- ---------- Balance at June 30, 1998 4,065,721 406,572 22,801,295 15,077,957 Net loss (1,157,150) Unrealized gain on marketable securities - net Comprehensive loss Deferred compensation expense Purchase of treasury stock --------- ------- ---------- ---------- Balance at June 30, 1999 4,065,721 406,572 22,801,295 13,920,807 Net earnings 6,375,954 Unrealized loss on marketable securities - net Comprehensive income Exercise of stock options 102,482 10,248 860,760 Stock options income tax benefits 431,840 Restricted stock plan income tax benefits 155,812 Effect of 3-for-2 stock split 2,084,056 208,406 (208,406) Deferred compensation expense --------- ------- ---------- ---------- BALANCE AT JUNE 30, 2000 6,252,259 $625,226 $24,041,301 $20,296,761 ========= ======= ========== ==========
Accumulated other Deferred Total comprehensive Treasury compen- shareholders' income stock sation equity ------------- ------------- ---------- ------------- Balance at July 1, 1997 $120,200 $ (700,000) $35,891,763 ---------- Net earnings 1,184,261 Unrealized gain on marketable securities - net 44,185 44,185 ---------- Comprehensive income 1,228,446 ---------- Issuance of restricted stock $(540,000) 90,000 Deferred compensation expense 135,000 135,000 Purchase of treasury stock (719,962) (719,962) ------- ---------- -------- ---------- Balance at June 30, 1998 164,385 (1,419,962) (405,000) 36,625,247 ---------- Net loss (1,157,150) Unrealized gain on marketable securities - net 49,322 49,322 ---------- Comprehensive loss (1,107,828) ---------- Deferred compensation expense 135,000 135,000 Purchase of treasury stock (784,553) (784,553) ------- ---------- -------- ---------- Balance at June 30, 1999 213,707 (2,204,515) (270,000) 34,867,866 ---------- Net earnings 6,375,954 Unrealized loss on marketable securities - net (47,038) (47,038) ---------- Comprehensive income 6,328,916 ---------- Exercise of stock options 871,008 Stock options income tax benefits 431,840 Restricted stock plan income tax benefits 155,812 Effect of 3-for-2 stock split Deferred compensation expense 135,000 135,000 ------- ---------- -------- ---------- BALANCE AT JUNE 30, 2000 $166,669 $(2,204,515) $(135,000) $42,790,442 ======= ========== ======== ==========
The accompanying notes are an integral part of this statement. F-6 39 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30,
2000 1999 1998 ------------- ------------- ------------- Cash flows from operating activities Net earnings (loss) $ 6,375,954 $ (1,157,150) $ 1,184,261 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization 1,868,420 1,587,766 1,356,457 Deferred compensation 185,000 185,000 185,000 Deferred income tax (benefit) expense (996,963) 351,000 33,000 (Gain) loss on sale of equipment (918) 2,717 Provision for doubtful accounts 597,694 981,622 475,816 Changes in operating assets and liabilities, net of effects of acquisitions Increase in accounts receivable (14,659,938) (2,502,904) (355,660) (Increase) decrease in inventories (15,356,153) 2,512,569 (2,426,087) (Increase) decrease in prepaid expenses and other (57,057) 542,416 156,419 Increase (decrease) in accounts payable 10,630,824 (710,232) 800,191 Increase (decrease) in accrued compensation 1,299,706 (61,188) 65,244 Increase in accrued expenses 540,639 12,488 226,689 Increase (decrease) in income taxes payable 2,566,174 (380,723) (81,889) ------------- ------------- ------------- Net cash (used in) provided by operating activities (7,005,700) 1,359,746 1,622,158 ------------- ------------- ------------- Cash flows from investing activities Purchase of marketable securities (73,407) (39,139) (68,049) Capital expenditures (892,149) (1,603,361) (1,068,775) Proceeds from the sale of equipment 128,892 9,689 120,515 Business acquisitions, net of cash acquired (14,877,230) Decrease (increase) in other assets 2,342,542 (7,834) (258,905) ------------- ------------- ------------- Net cash used in investing activities (13,371,352) (1,640,645) (1,275,214) ------------- ------------- ------------- Cash flows from financing activities Borrowings from line of credit 95,831,956 53,507,313 152,258,926 Borrowings under term loan for equipment 575,000 Payments of line of credit (76,391,130) (51,851,995) (151,076,073) Principal payments under equipment financing (612,792) (590,889) (586,345) Payments under term loan (214,286) (214,286) (214,286) Purchase of treasury stock (784,553) (719,962) Proceeds from issuance of restricted stock 90,000 Proceeds from exercise of stock options 871,008 Stock options income tax benefits 431,840 Restricted stock plan income tax benefits 155,812 ------------- ------------- ------------- Net cash provided by (used in) financing activities 20,072,408 640,590 (247,740) ------------- ------------- ------------- NET (DECREASE) INCREASE IN CASH (304,644) 359,691 99,204 Cash at beginning of year 922,247 562,556 463,352 ------------- ------------- ------------- Cash at end of year $ 617,603 $ 922,247 $ 562,556 ============= ============= ============= Supplemental disclosures of cash flow information: Cash paid during the year for Interest $ 1,559,000 $ 1,310,000 $ 1,301,000 Income taxes 2,267,000 22,000 929,000 Supplemental schedule of noncash financing and investing activities: Equipment under capital leases $ 126,229 $ 552,544 $ 1,165,781
The accompanying notes are an integral part of these statements. F-7 40 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000, 1999 and 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, 2000, 1999 and 1998, export sales amounted to approximately $8,170,000, $4,810,000 and $4,537,000, respectively. A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows: 1. Principles of Consolidation The 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 Recognition The Company recognizes revenue as products are shipped and title passes to customers. 3. Investments in Marketable Securities Investments 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 $261,379 and $335,455 in 2000 and 1999, 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. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out and average cost methods. F-8 41 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 5. Property, Plant and Equipment 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 Assets Goodwill 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 are amortized on a straight-line basis from five to forty years. The Company reviews for the impairment of long-lived assets and certain identifiable intangibles (including goodwill, property and equipment) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future 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. 7. Income Taxes Deferred 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 has been established to reduce deferred tax assets attributable to a subsidiary of the Company, as it is more likely than not that all, or some portion, of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. F-9 42 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 8. Earnings (Loss) Per Common Share 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 Concentrations Financial 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 13, 2001, 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, 2000, purchases from three suppliers accounted for 18%, 15% 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. F-10 43 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 10. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, 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 Income In 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. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. 12. Segment Reporting In 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. Advertising Advertising costs are expensed as incurred and totaled $109,308, $250,198 and $257,281 for the years ended June 30, 2000, 1999 and 1998 respectively. F-11 44 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE B - INVENTORY Inventories consist of the following:
June 30, ----------------------------- 2000 1999 ----------- ----------- Finished goods and goods held for resale $48,609,676 $29,048,654 Work-in-process 885,688 686,180 Raw materials 3,920,429 3,489,885 ----------- ----------- $53,415,793 $33,224,719 =========== ===========
NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of:
Useful June 30, life ------------------------------ in years 2000 1999 ------------ ----------- ----------- Land, building and improvements 10 to 30 $ 1,482,419 $ 1,468,708 Machinery and equipment 3 to 7 8,928,252 7,488,477 Internally developed software costs 7 1,831,851 1,769,857 Transportation equipment 3 to 5 88,105 64,109 Leasehold improvements 5 to 10 601,218 601,218 ----------- ----------- 12,931,845 11,392,369 Less accumulated depreciation and amortization (including $950,604 in 2000 and $635,195 in 1999, of capitalized lease amortization) 6,005,111 4,408,608 ----------- ----------- $ 6,926,734 $ 6,983,761 =========== ===========
Included in machinery and equipment are assets recorded under capitalized leases at June 30, 2000 and 1999 for $2,468,686 and $2,342,457, respectively. F-12 45 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE D - INCOME TAXES The components of the Company's provision for income taxes are as follows:
June 30, ------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Federal Current $ 3,448,000 $ (887,000) $ 663,000 Deferred (67,000) 351,000 33,000 ----------- ----------- ----------- 3,381,000 (536,000) 696,000 State 1,044,000 118,000 151,000 ----------- ----------- ----------- $ 4,425,000 $ (418,000) $ 847,000 =========== =========== ===========
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, ---------------------------------------------- 2000 1999 1998 ----- ------ ------ Statutory Federal tax rate 34.0% (34.0)% 34.0% State income taxes, net of Federal tax benefit 5.5 5.0 5.0 Sales expense for which no tax benefit arises .9 2.4 2.4 Other .6 .1 .3 ----- ------ ------ Effective tax rate 41.0% (26.5)% 41.7% ===== ====== ======
F-13 46 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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:
2000 1999 ----------- ----------- Deferred tax assets Net operating loss carryforwards $ 430,000 $ 389,000 Allowance for bad debts 384,000 161,000 Inventory valuation 1,421,000 869,000 Deferred compensation 292,000 274,000 Other deferred tax assets 352,000 243,000 ----------- ----------- 2,879,000 1,936,000 Deferred tax liabilities Depreciation (618,000) (683,000) Unrealized gain on marketable securities available for sale (99,000) (122,000) Other (87,000) (80,000) ----------- ----------- 2,075,000 1,051,000 Valuation allowance (325,000) (325,000) ----------- ----------- Net deferred tax asset $ 1,750,000 $ 726,000 =========== ===========
At June 30, 2000, the Company, through an acquisition, has available a Federal net operating loss carryforward of approximately $1,179,000. Such net operating loss is subject to certain limitations and expires in varying amounts during the fiscal years 2007 through 2010. Further, the Company has established a valuation allowance with respect to the net deferred tax assets attributable to this acquired subsidiary. F-14 47 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE E - EARNINGS PER COMMON SHARE
For the year ended June 30, ---------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------- ------------------------------------------- INCOME SHARES PER INCOME SHARES PER (NUMER- (DENOMI- SHARE (NUMER- (DENOMI- SHARE ATOR) NATOR) AMOUNT ATOR) NATOR) AMOUNT ----------- ---------- -------- ------------ -------------- ---------- Basic earnings per share; income available to common shareholders $6,375,954 5,497,866 $1.16 $(1,157,150) 5,547,405 $(0.21) Effect of dilutive securities Stock options 268,220 --------- --------- ---------- --------- Diluted earnings per share; income available to common shareholders plus assumed conversions $6,375,954 5,766,086 $1.11 $(1,157,150) 5,547,405 $(0.21) ========= ========= ========== =========
For the year ended June 30, ------------------------------------ 1998 ------------------------------------ INCOME SHARES PER (NUMER- (DENOMI- SHARE ATOR) NATOR) AMOUNT ------------ ---------- -------- Basic earnings per share; income available to common shareholders $1,184,261 5,755,050 $0.21 Effect of dilutive securities Stock options 127,227 --------- --------- Diluted earnings per share; income available to common shareholders plus assumed conversions $1,184,261 5,882,277 $0.20 ========= =========
Excluded from the calculation of earnings per share are options and warrants to purchase 45,000, 832,943 and 431,447 shares in fiscal 2000, 1999 and 1998, respectively, as their inclusion would have been antidilutive. F-15 48 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS Debt and capitalized lease obligations are as follows:
June 30, ------------------------------------------- 2000 1999 ---------------- --------------- Term loan and revolving line of credit (a) $39,895,981 $17,338,575 Other term loans (b) 469,535 621,797 Equipment note 5,251 Capitalized lease obligations (c) 1,533,389 1,966,520 ---------- ---------- 41,898,905 19,932,143 Less amounts representing interest on capitalized lease obligations 150,584 254,665 ---------- ---------- 41,748,321 19,677,478 Less current maturities 807,444 791,814 ---------- ---------- $40,940,877 $18,885,664 ========== ==========
(a) Term Loan and Revolving Line of Credit Facility The Company's agreement with its banks, as amended, provides the Company with a $50,000,000 term loan and revolving line of credit facility based principally on eligible accounts receivable and inventories of the Company as defined in the agreement. The agreement was amended to (i) increase the amount available under the revolving line of credit (ii) extend the maturity date to September 13, 2001, (iii) change the interest rate to a rate based on the average 30-day LIBOR plus 1-3/4% through the quarter ending September 30, 2000 and at that point the rate converts to 30-day LIBOR plus 1% to 2-1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and (iv) change the requirements of certain financial covenants. 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 $39,735,267 at June 30, 2000, with an associated interest rate of 8.40%. Pursuant to the same agreement, at June 30, 2000, a term loan with a remaining balance of $160,714 requires monthly principal payments of $17,857, together with interest through March 1, 2001. 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. F-16 49 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) (b) Other Term Loans Other term loans as of June 30, 2000 are as follows:
Monthly Date of loan Balance Term payment - ------------ ------------ ------------- ---------- March 16, 1995 $54,544 84 months $2,730 January 14, 1999 414,991 60 months 9,829 ------- $469,535 =======
The above loans are collateralized by the related equipment acquired, having a carrying value of approximately $586,000 at June 30, 2000 and $770,000 at June 30, 1999. The agreements contain, among other things, restrictive covenants on one of the Company's 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 Obligations The Company leases certain equipment under agreements accounted for as capital leases. During fiscal 2000, the Company acquired approximately $126,000 of equipment through a capital lease. The obligations for the equipment require the Company to make monthly payments through September 2003, with implicit interest rates from 7.0% to 8.5%. F-17 50 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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, 2000:
Capitalized Debt leases -------- ------------- Year ending June 30, 2001 $305,560 $589,115 2002 39,874,753 548,753 2003 116,628 357,026 2004 68,575 38,495 ---------- --------- $40,365,516 $1,533,389 ========== =========
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, 2001 $1,724,456 2002 1,664,052 2003 1,518,177 2004 931,634 2005 479,968 2006 14,331 --------- $6,332,618 =========
F-18 51 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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, 2001 $627,900 2002 659,327 2003 692,293 2004 354,589 --------- $2,334,109 =========
The Company's rent expense was approximately $602,000 for each of the years ended June 30, 2000, 1999 and 1998, respectively, in connection with the above lease. Rent expense on office and warehouse facilities leases for the years ended June 30, 2000, 1999 and 1998 was approximately $1,235,000, $1,131,000 and $1,033,000, respectively, net of sublease income of approximately $127,000, $110,000 and $115,000, respectively. 2. Other Leases The 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, 2000 are as follows:
Year ending June 30, 2001 $329,486 2002 310,681 2003 123,905 2004 19,628 2005 2,750 ------- $786,450 =======
F-19 52 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED) 3. Employment Agreements The Company has entered into employment agreements with three executive officers which provide for annual base salary aggregating $675,000 through June 30, 2003 and contain provisions for severance payments in the event of change of control as defined in the agreements. The Company's agreements with its Chairman and Executive Vice President provides for cash bonuses equal to 4% and 2%, respectively, of the Company's 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 Company's 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 Company's agreement with its Chairman provides for a deferred compensation which accrues at a rate of $50,000 per year and becomes payable in a lump sum at the later of (i) the Chairman's attainment of age 60 (which has occurred), or (ii) his cessation of employment, with or without cause, at any time. 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 Matters The 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 Company's results of operations or financial position. NOTE H - RETIREMENT PLAN The 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 employee's salary. For the years ended June 30, 2000, 1999 and 1998, the Company contributed to this plan approximately $116,000, $96,000 and $132,000, respectively. F-20 53 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY 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 connection with the Company's 1995 public offering, the Company also issued stock warrants, to the representative underwriters, to purchase up to 105,000 shares of common stock at an exercise price per share equal to 180% of the, $8.50 per share, public offering price, which expired on October 20, 1999. 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 739,723 are outstanding at June 30, 2000. 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 Company's 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 Company's common stock annually. The Outside Directors Plan expired on January 1, 1998, with a total of 13,197 options outstanding at June 30, 2000. 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 Company's 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 Company's common stock at the fair market value on the date of grant. These 37,500 options were not granted pursuant to any of the Company's existing stock option plans. F-21 54 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY (CONTINUED) 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 Price range Shares ---------- --------------- ---------- Outstanding at July 1, 1997 $3.18 - $8.50 525,398 $4.96 Granted $4.17 13,197 4.17 Expired $8.50 (3,750) 8.50 ------ Outstanding at June 30, 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 ======= AMOUNTS EXERCISABLE AT JUNE 30, 2000 $1.79 - $8.50 554,170 3.25 =======
The following table summarizes information concerning currently outstanding and exercisable nonqualified stock options:
Options outstanding Options exercisable ---------------------------------------------- -------------------------------------------- Weighted- Weighted- average Weighted- average Weighted- remaining average remaining average Number contractual exercise Number contractual exercise Range of exercise prices outstanding life(months) price exercisable life(months) price - ------------------------ ----------- ------------ ----- ----------- ------------ ----- $1.79 - $5.00 682,521 42 $ 2.77 491,271 38 $2.76 $5.01 - $9.00 62,899 9 $ 7.14 62,899 9 $7.14 $9.01 - $13.71 45,000 59 $13.71 - - -
F-22 55 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY (CONTINUED) The weighted-average option fair value on the grant date was $4.97, $.92 and $1.25 for options issued during the years ended June 30, 2000, 1999 and 1998, 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 Company's reported net earnings and earnings per share would be reduced to the pro forma amount indicated below for the years ended June 30:
2000 1999 1998 ---------------- --------------- -------------- Net earnings (loss) As reported $6,375,954 $(1,157,150) $1,184,261 Pro forma 6,098,272 (1,523,550) 1,167,761 Net earnings (loss) per common share - basic As reported $1.16 $(0.21) $0.21 Pro forma 1.11 (0.27) 0.20 Net earnings (loss) per common share - diluted As reported $1.11 $(0.21) $0.20 Pro forma 1.06 (0.27) 0.20
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, 2000, 1999 and 1998, respectively; expected volatility of 109%, 55% and 35%; risk-free interest rates of 6.25%, 5.08% and 5.42%; 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 Company's 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 management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-23 56 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY (CONTINUED) The Board of Directors of the Company has 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 Company's common stock. The purchases may be made by the Company from time to time on the open market at the Company's discretion and will be dependent on market conditions. To date, the Company has purchased 618,300 shares of its common stock for aggregate consideration of $2,204,515 under this program. In June 1997, the Company's Board of Directors approved the adoption of a restricted stock plan, which was subsequently ratified by shareholders during the Company's 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 2000, 1999 and 1998 in connection with this plan. NOTE J - 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 at the closing, (June 6, 2000), plus a deferred payment of up to $3,960,000, payable approximately one year from the anniversary of the closing. This payment will be made provided that certain conditions, as defined in the purchase agreement, are met. 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 this 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, June 6, 2000. Included in other assets are the costs of the identifiable intangible assets acquired, principally an employment F-24 57 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE J - ACQUISITIONS (CONTINUED) 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 $13,048,000 and is being amortized on a straight line basis over twenty years. A summary of the preliminary allocation of the assets and liabilities acquired follows: Operating assets acquired $13,736,139 Employment agreement 685,000 Franchise agreement 550,000 ----------- 14,971,139 Liabilities assumed (12,414,389) Estimated transaction costs (205,000) ----------- (12,619,389) Goodwill 13,048,250 ----------- Total purchase price $15,400,000 ===========
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. F-25 58 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE J - ACQUISITIONS (CONTINUED) 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. When this 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 Company's Statement of Earnings since the date of acquisition, February 25, 2000. The excess of the purchase price over the fair value of the assets acquired, approximately $210,000, is being amortized on a straight-line basis over twenty years. Proforma results of operations are not material. NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION The Company has two reportable segments: electronics parts distribution and contract manufacturing. The Company's 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 Company's operations in different geographic areas for fiscal years 2000, 1999 and 1998, is not considered material to the financial statements. F-26 59 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED) The Company's 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. Information about the Company's segments is as follows:
Year ended June 30, ---------------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ ----------------------(in thousands)-------------------- Net sales from external customers Electronics components distribution $193,111 $127,401 $137,297 Contract manufacturing 16,214 13,310 16,377 ------- ------- ------- $209,325 $140,711 $153,674 ======= ======= ======= Intersegment net sales Electronics components distribution $324 $336 $593 Contract manufacturing 111 382 ------- ------- ------- $324 $447 $975 ======= ======= ======= Operating profit (loss) Electronics components distribution $12,012 $(868) $2,251 Contract manufacturing 348 602 921 ------- ------- ------- $12,360 $(266) $3,172 ======= ======= ======= Interest expense Electronics components distribution $1,053 $768 $662 Contract manufacturing 506 541 478 ------- ------- ------- $1,559 $1,309 $1,140 ======= ======= ======= Income tax provision (benefit) Electronics components distribution $4,489 $(374) $662 Contract manufacturing (64) (44) 185 ------- ------- ------- $4,425 $(418) $847 ======= ======= =======
F-27 60 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
Year ended June 30, ---------------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ -----------------------(in thousands)--------------------- Identifiable assets Electronics components distribution $115,109 $62,259 $60,929 Contract manufacturing 10,995 10,672 12,490 ------- ------ ------ $126,104 $72,931 $73,419 ======= ====== ====== Capital expenditures Electronics components distribution $ 612 $ 396 $ 1,002 Contract manufacturing 280 1,207 67 ------- ------ ------ $ 892 $ 1,603 $ 1,069 ======= ====== ====== Depreciation and amortization Electronics components distribution $ 1,209 $ 1,049 $ 913 Contract manufacturing 659 539 443 ------- ------ ------ $ 1,868 $ 1,588 $ 1,356 ======= ====== ======
F-28 61 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE L - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter ended ----------------------------------------------------------------------- June 30, March 31, December 31, September 30, 2000 2000 1999 1999 ------------- ------------- ------------- ------------- Net sales $70,513,859 $51,693,699 $45,100,259 $42,017,363 Gross profit 17,065,608 12,012,855 9,868,111 7,935,605 Net earnings (loss) 3,512,177 1,766,228 883,474 214,075 Net earnings (loss) per common share (a) Basic $0.63 $0.32 $0.16 $0.04 Diluted 0.58 0.30 0.16 0.04 Quarter ended ------------------------------------------------------------------------ June 30, March 31, December 31, September 30, 1999 1999 1998 1998 ------------- ------------- ------------- ------------- Net sales $36,300,595 $36,187,676 $34,966,098 $33,256,456 Gross profit 6,985,022 6,993,692 6,695,096 6,702,388 Net earnings (loss) (918,629) 71,377 (67,792) (242,106) Net earnings (loss) per common share (a) Basic $(0.17) $0.01 $(0.01) $(0.04) Diluted (0.17) 0.01 (0.01) (0.04)
(a) As adjusted to reflect a 3-for-2 stock split effective July 24, 2000. F-29 62 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE Board of Directors and Shareholders JACO ELECTRONICS, INC. In connection with our audits of the consolidated financial statements of Jaco Electronics, Inc. and Subsidiaries for the years ended June 30, 2000 and 1999 referred to in our report dated August 15, 2000, 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, 2000. 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 15, 2000 F-30 63 Jaco Electronics, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended June 30, 2000, 1999 and 1998
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, 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 ========= ======= ======= ========= ========= Year ended June 30, 1998 $ 846,000 $476,000 $226,000 (a) $ 280,000 (b) $1,268,000 ========= ======= ======= ========= =========
(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. F-31 64 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACO ELECTRONICS, INC. By: /s/ Joel H. Girsky ----------------------------- Joel H. Girsky, Chairman of the Board, President and Treasurer 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 18, 2000 - ------------------------- President and Treasurer Joel H. Girsky (Principal Executive Officer) /s/ Jeffrey D. Gash Vice President - Finance and September 18, 2000 - ------------------------- Secretary (Principal Financial Jeffrey D. Gash and Accounting Officer) /s/ Joseph F. Oliveri Vice Chairman of the Board September 18, 2000 - ------------------------- and Executive Vice President Joseph F. Oliveri /s/ Charles B. Girsky Executive Vice President and September 18, 2000 - ------------------------- Director Charles B. Girsky /s/ Stephen A. Cohen Director September 18, 2000 - ------------------------- Stephen A. Cohen /s/ Edward M. Frankel Director September 18, 2000 - ------------------------- Edward M. Frankel /s/ Joseph F. Hickey, Jr. Director September 18, 2000 - ------------------------- Joseph F. Hickey, Jr.
EX-10.13.1 2 y40380ex10-13_1.txt AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.13.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT OF JOEL GIRSKY AMENDMENT NO. 1, effective as of April 1, 2000 ("Amendment"), to that certain Employment Agreement, dated as of July 1, 1997 (the "Employment Agreement"), between Jaco Electronics, Inc., a New York corporation ("Jaco"), and Joel H. Girsky (hereinafter referred to as "Girsky"), pursuant to which Girsky had been employed as Chairman of the Board, President and Treasurer of Jaco. Terms not defined in this Amendment shall have such meanings otherwise ascribed to them in the Employment Agreement. WHEREBY, Jaco and Girsky desire to amend the Employment Agreement to correct a typographical error 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 1.1 of the Employment Agreement entitled, "Term of Employment; Duties," is hereby deleted and replaced in its entirety by the following: "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 Jaco's Board of Directors from time to time shall determine for a period commencing on 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 second anniversary date and not less than 90 days prior to the third anniversary date of the Effective Date, this Employment Agreement shall continue until the sixth anniversary date of the Effective Date. 2 2. Notwithstanding the foregoing restatement of Section 1.1 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. JACO ELECTRONICS, INC. By: /s/ Jeffrey Gash ------------------------------ Name: Jeffrey Gash Title: Vice President, Finance /s/ Joel H. Girsky ----------------------------- Joel H. Girsky 2 EX-10.18 3 y40380ex10-18.txt AGREEMENT BETWEEN COMPANY AND GARY GIORDANO 1 EXHIBIT 10.18 AGREEMENT AGREEMENT, made effective as of the 20th day of July 1998 (the "Effective Date"), by and between Jaco Electronics, Inc., a New York corporation having offices at 145 Oser Avenue, Hauppauge, New York 11788 ("Jaco"), and Gary Giordano, residing at 29 Village View, Westford, Massachusetts, 01886 (the "Employee"). WHEREAS, the Employee performs certain services for Jaco; WHEREAS, Jaco desires to increase the incentive of the Employee to exert his utmost efforts to perform such services and to improve the business of Jaco. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, including the non-disclosure covenant of the Employee, the parties agree as follows: 1. SERVICE TO BE PROVIDED. The Employee is currently the Vice President of Jaco. The foregoing sentence notwithstanding, the Employee shall serve at the discretion of the President of Jaco and shall perform all duties, obligations and responsibilities as shall be assigned to him by the President of Jaco, and shall devote his full attention to the performance of the duties, obligations and responsibilities assigned to him. The Employee is an employee at will, and nothing herein shall be deemed to ensure the continued employment of the Employee during the term of this Agreement or otherwise. Nothing contained in this Agreement shall give the Employee the right to be retained in the employ of Jaco or affect the right of Jaco to dismiss the Employee. 2 2. DISCLOSURE OF INFORMATION. All memoranda, notes, records, or other documents made or compiled by the Employee or made available to him during the course of his employment with Jaco concerning the business of Jaco shall be Jaco's property and shall be delivered to Jaco by the Employee on the termination of the Employee's employment. Unless authorized by Jaco, the Employee 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 2, the term "proprietary or confidential information" shall mean all information which (i) is known only to the Employee or to the Employee and other 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 the Employee 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 the Employee of the provisions of this Section 2, Jaco shall be entitled to an injunction restraining the Employee 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 the Employee. 2 3 3. CONSOLIDATION; MERGER CHANGE OF CONTROL. (a) In the event of any consolidation or merger of Jaco into or with another corporation during the period that the Employee is employed by Jaco (the "Employment Period"), 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 includes the Employee) at any time during the Employment Period, (the occurrence of any of the foregoing, a "Change of Control") then Jaco or such successor or surviving corporation, may provide written notice to the Employee accompanied by a certified or cashier's check in an amount equal to two hundred percent (200%) of the average of the Employee's base salary plus cash bonus for the previous three (3) years. (b) Notwithstanding the provisions of Section 3(a) above, any such payments shall be made only in an amount which, when taken together with the present value of all other payments to the Employee that are contingent on a Change in 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 the Employee's "Base Amount", as computed in accordance with Code Section 280G(b)(3). 4. NOTICES. Any notices required or permitted to be given under the provisions of this 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 Agreement. Notices which are hand delivered 3 4 or delivered by recognized overnight courier shall be effective on delivery. Notices which are mailed shall be effective on the third day after mailing. 5. CONSTRUCTION. This 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. 6. SUCCESSORS AND ASSIGNS. This 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 Agreement is personal in nature and may not be assigned or transferred by the Employee without the prior written consent of Jaco. 7. ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties relating to the subject matter hereof, and neither this 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. 8. COUNTERPARTS. This 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. 9. ILLEGALITY. In case any one or more of the provisions of this 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. 10. 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 Agreement. 4 5 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the 20th day of July, 1998. JACO ELECTRONICS, INC. By: /s/ Jeffrey D. Gash --------------------- Jeffrey D. Gash Vice President EMPLOYEE /s/ Gary Giordano ------------------------ Gary Giordano 5 EX-21.1 4 y40380ex21-1.txt SUBSIDIARIES OF THE COMPANY 1 Exhibit 21.1
State or Jurisdiction of Name of Subsidiary 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
EX-23.1 5 y40380ex23-1.txt CONSENT OF GRANT THORNTON LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated August 15, 2000 accompanying the consolidated financial statements and schedule of Jaco Electronics, Inc. as of June 30, 2000 and 1999 and for each of the three years in the period ended June 30, 2000 contained in this annual report of Jaco Electronics, Inc. on Form 10-K for the year ended June 30, 1999. We hereby consent to the incorporation by reference of the aforementioned reports in the Registration Statement of Jaco Electronics, Inc. on Form S-8/S-3 (File No. 33-89994, effective March 3, 1995), as amended by Post-Effective Amendment No. 1 to the Registration Statement of Jaco Electronics, Inc. on Form S-8/S-3 (File No. 33-49873, effective April 10, 1998), and the Registration Statement of Jaco Electronics, Inc. on Form S-8/S-3 (File No. 333-49877, effective April 10, 1998). /s/ GRANT THORNTON LLP GRANT THORNTON LLP Melville, New York September 18, 2000 EX-27 6 y40380ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 AND THE AUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JUN-30-2000 JUL-01-1999 JUN-30-2000 617,603 880,954 43,290,661 1,111,193 53,415,793 99,956,622 12,931,845 6,005,111 126,329,093 41,572,774 41,965,877 0 0 625,226 42,165,216 126,329,093 209,325,180 209,325,180 162,443,001 162,443,001 34,522,667 0 1,558,558 10,800,954 4,425,000 6,375,954 0 0 0 6,375,954 1.16 1.11
EX-99.8.1 7 y40380ex99-8_1.txt AMENDMENT #1 TO AMENDED SECURITY AGREEMENT 1 EXHIBIT 99.8.7 ASSUMPTION AGREEMENT WHEREAS, GMAC Commercial Credit LLC, (as "Agent" and "Lender"), as successor-by-merger to BNY Financial Corporation which was the successor in interest to The Bank of New York Commercial Corporation and Fleet Bank, N.A. (as "Lender"), presently provide financing to Jaco Electronics, Inc. ("Jaco") and Nexus Custom Electronics, Inc. ("Nexus"), (jointly and severally the "Debtor") pursuant to a Second Restated and Amended Loan and Security Agreement dated September 13, 1995, as supplemented and amended from time to time (the "Agreement"). Initially capitalized terms not otherwise defined herein shall have such meaning ascribed to such terms under the Agreement; and WHEREAS, Interface Electronics Corp. ("Interface") is a newly acquired subsidiary of Jaco; and WHEREAS, the Debtor is desirous of having Interface become an additional borrower under the terms of the Agreement, and become a party, jointly and severally, of the defined term "Debtor" under the Agreement; NOW, THEREFORE, for good and valuable consideration the receipt whereof is hereby acknowledged, it is hereby agreed by and between the undersigned as follows: 1. Interface shall become a borrower under the Agreement and be included in the term "Debtor", and thereby become, jointly and severally liable for all Obligations, including all Loans under the Agreement, and a party to the Agreement and all of the ancillary agreements relating to the Agreement and executed by Jaco and Nexus which are still in effect, as they may apply to Interface as an integrated party into the term "Debtor", in the same manner and effect, and to the same extent as if Interface was an original signatory as Debtor under the Agreement. Any references to "Debtor" under the Agreement shall henceforth be deemed to include Jaco, Nexus and Interface upon the effective date of this Assumption Agreement. 2. By execution of this Agreement each of Jaco, Nexus and Interface hereby ratify, and assume, jointly and severally, each and every Obligation (as that term is defined in the Agreement, including but not limited to, all Loans and extensions of credit made to the Debtor under the Agreement), to the same extent as if they were all original signatories thereof. By their signatures below, Jaco, Nexus and Interface agree that all outstanding Obligations under the Agreement are their valid and binding obligations and that they are jointly and severally liable for any such outstanding Obligations and thereby promise to pay all such Obligations together with applicable interest to the Lenders in accordance with the terms of the Agreement. 2 3. Interface hereby irrevocably authorizes Jaco to act as its agent in connection with any and all requests for Loans, receipt of advances and any other communications between Debtor and Lender under the Agreement in the same manner and to the same extent as if Interface had made any such requests or received any such advances. 4. Jaco and Interface represent and warrant to the Lender that as of the time of execution of this Assumption Agreement, Interface has become a wholly owned subsidiary of Jaco. IN WITNESS WHEREOF, the parties hereto have executed this Assumption Agreement on June 6, 2000. JACO ELECTRONICS, INC. By: /s/ Joel Girsky ---------------------------- Title: President NEXUS CUSTOM ELECTRONICS, INC. By: /s/ Joel Girsky ---------------------------- Title: President INTERFACE ELECTRONICS CORP. By: /s/ Joel Girsky ---------------------------- Title: President ACCEPTED AND AGREED: GMAC COMMERCIAL CREDIT LLC (as Agent and Lender) By: /s/ Daniel J. Murray ----------------------------- Title: Senior Vice President FLEET BANK, N.A. (as Lender) By: /s/ Alice Adelberg ----------------------------- Title: Vice President 2 3 CONSENT AND RATIFICATION OF GUARANTEES AND INCLUSIONS OF INTERFACE ELECTRONICS CORP. INTO THE SECOND RESTATED AND AMENDED LOAN AND SECURITY AGREEMENT DATED SEPTEMBER 13, 1995, AS SUPPLEMENTED AND AMENDED FROM TIME TO TIME (THE "AGREEMENT") The undersigned, in order to induce the Lender to accept Interface Electronics Corp. ("Interface") as an additional borrower, to be integrated in the definition as "Debtor" under the Agreement, and to extend Loans and other credit facilities to Interface, all as more fully described in the Assumption Agreement, stated immediately hereinabove, hereby ratify each of the "Guaranties" presently existing and previously ratified under a certain Letter Agreement dated September 6, 1995, executed by each of the undersigned and addressed to The Bank of New York Commercial Corporation, predecessor in interest to BNY Financial Corporation, which was incorporated by merger into GMAC Commercial Credit LLC ("GMAC"). The undersigned hereby further state that such Guaranties shall remain in full force and effect, guaranteeing all Obligations (including, but not limited to all Loans and other extensions of credit under the Agreement), of the Debtor to the Lenders, including but not limited to, all Obligations of Interface by reason of its assumption of Obligations under and inclusion into the Agreement as Debtor, and the terms of each of the Guaranties are hereby amended to include, without limitation, the unconditional guaranty of the due payment of all indebtedness, liabilities and Obligations, whether now existing, or hereafter arising of Jaco Electronics, Inc., Nexus Custom Electronics, Inc. and Interface Electronics Corp. to GMAC as Agent and Lender, and Fleet Bank, N.A. as Lender, and except as hereby modified or previously modified, the Guaranties shall remain in full force and effect in accordance with their terms. DISTEL, INC. QUALITY COMPONENTS, INC. By: /s/ Joel Girsky By: /s/ Joel Girsky -------------------------------- -------------------------- Title: President Title: President JACO OVERSEAS, INC. R.C. COMPONENTS, INC. By: /s/ Joel Girsky By: /s/ Joel Girsky -------------------------------- ------------------------- Title: President Title: President MICATRON, INC. NEXUS CUSTOM ELECTRONICS, INC. By: /s/ Joel Girsky By: /s/ Joel Girsky ------------------------------ -------------------------- Title: President Title: President ACCEPTED AND AGREED TO: GMAC COMMERCIAL CREDIT LLC FLEET BANK, N.A. (as Agent and Lender) (as Lender) By: /s/ Daniel J. Murray By: /s/ Alice Adelberg ------------------------------ -------------------------- Title: Senior Vice President Title: Vice President 3 4 GMAC COMMERCIAL CREDIT LLC GENERAL SECURITY AGREEMENT In consideration of loans, credit or other financial accommodation extended or continued from time to time to, or on the guaranty, endorsement or other assurance of, the undersigned ("Obligor") by GMAC Commercial Credit LLC ("GMAC"), Obligor hereby agrees as follows: 1. SECURITY INTEREST. a. To secure the payment and performance of all of the Obligations, Obligor hereby grants to GMAC a continuing security interest in, and assigns and pledges to GMAC, the Collateral. b. (i) "Collateral" shall mean and include (A) all property listed in Schedule A hereto, (B) if such property includes any instruments, all Instrument Collateral, (C) the proceeds, products and accessions thereof and thereto and (D) all replacements and substitutions therefor. (ii) "Obligations" shall mean and include all indebtedness, liabilities, obligations, covenants and duties of Obligor and of Jaco Electronics, Inc. and Nexus Custom Electronics, Inc. to GMAC as Agent and any other Lender (as such terms are defined in a Second Restated Loan and Security Agreement dated September 13, 1995, as amended, modified and supplemented from time to time, hereinafter referred to as the "Agreement") party to the Agreement, or any Affiliate of GMAC (including those which GMAC or such Affiliate may have acquired from others) of every kind, nature and description, direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, now existing or hereafter arising, and whether or not evidenced by any note or other instrument or agreement and whether or not for the payment of money, including, but not limited to, indebtedness, obligations, (including but not limited to all Obligations under the Agreement), and liabilities to GMAC or such Affiliate of Obligor as a member of any partnership, syndicate, association or other group, or as a guarantor of the Obligations of any other entity to GMAC or such affiliate. (iii) Affiliate, Instrument Collateral and certain other terms used herein are defined in Section 13 hereof. 2. RANK AND PERFECTION OF SECURITY INTEREST. a. Obligor will not grant or permit to exist, nor shall there exist, any security interest in, lien, attachment, levy or encumbrance upon, or assignment or pledge as security of, any of the Collateral, except the security interest of and assignment and pledge to GMAC hereunder and Permitted Liens. b. (i) Obligor will take all action requested by GMAC, or which may be necessary or desirable, to perfect, continue, evidence, preserve, protect or validate the security interest of and assignment and pledge to GMAC hereunder or to enable GMAC to exercise and enforce its rights hereunder, including, but not limited to, (A) executing and delivering one or more notices, statements, agreements or other writings, and (B) delivering to GMAC, and stamping or otherwise marking, in such manner as GMAC may specify, any and all chattel paper, instruments, letters and advices of credit and documents constituting part of the Collateral, in each case endorsed or accompanied by such instruments of assignment as GMAC may specify. (ii) Obligor hereby authorizes GMAC, at its option but without any obligation so to do, to file financing and continuation statements and amendments to financing statements, naming Obligor as debtor, with respect to any of the Collateral without the signature of Obligor, and agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 3. COVENANTS RELATING TO COLLATERAL. Obligor covenants that: 5 a. It shall at all times: (i) be the sole owner of each and every item of Collateral, (ii) defend the Collateral against the claims and demands of all persons and (iii) in the case of tangible property constituting part of the collateral, (A) properly maintain and keep in good order and repair such property and (B) keep such property fully insured with responsible companies acceptable to GMAC against such risks as such Collateral may be subject to, or as GMAC may request, under policies containing loss payable clauses naming GMAC as loss payee as its interests may appear and otherwise in form and substance satisfactory to GMAC, and providing that: (1) all proceeds thereof shall be payable to GMAC; (2) such insurance shall not be affected by any act or neglect of Obligor or other owner of the property described in such policy; and (3) such policy and loss payable clause may not be canceled or amended except upon ten days' prior written notice to GMAC; b. It will comply with the requirements of all leases, mortgages and other instruments relating to premises where any Collateral is located; c. It will not sell or otherwise dispose of any of the Collateral, except that, if the same constitute Collateral, (i) accounts may be collected in the ordinary course of business and (ii) inventory or farm products may be sold in the ordinary course of business. d. It will give GMAC prompt notice of (i) any change in (A) its name, identity or corporate structure, (B) the location of its chief executive office or any other place of business, or (C) the location of any of the Collateral or its books and records concerning any accounts, (ii) the location of each new place of business opened by Obligor, (iii) each new location of any Collateral, and (iv) any substantial loss or depreciation in the value of any of the Collateral, and will provide GMAC with such other information as to the Collateral as GMAC may request. e. It will (i) whether or not GMAC shall have exercised its rights under Section 4(b) (iii) hereof, receive and hold all Distributions (other than Ordinary Distributions GMAC has released pursuant to the provisions of Section 4(c) hereof) and other Instrument Collateral in trust for GMAC, and not commingle the same with any of its other funds or property and immediately deliver the same to GMAC in the identical form received and (ii) give GMAC copies of all notices and other communications received by Obligor with respect to any instruments registered in the name of Obligor constituting part of the Collateral. 4. PRE-EVENT OF DEFAULT RIGHTS. a. At any time and from time to time: (i) GMAC may and is hereby authorized to transfer into or register in the name of itself or its nominee any instruments or documents constituting a part of the Collateral without notice to Obligor; (ii) with respect to instruments, if any, constituting part of the Collateral that are registered in the name of GMAC, GMAC may receive and retain all Distributions, other than Ordinary Distributions that GMAC has released pursuant to Section 4(c); and (iii) Obligor will: (A) permit representatives of GMAC during normal business hours to inspect its premises and books and records pertaining to the Collateral and make extracts from such books and records; and (B) upon request, enter into warehousing, lockbox or other custodial arrangements satisfactory to GMAC. b. Should GMAC at any time and for any reason deem itself to be insecure or the risk of non-payment or non-performance of any of the obligations increased: (i) with respect to instruments, if any, constituting part of the Collateral, GMAC may, by notice to Obligor, terminate Obligor's rights under Section 4(c) hereof (in which case GMAC's release pursuant to such Section of any and all Ordinary Distributions shall thereupon be automatically revoked) and, in its own or Obligors name, exercise any and all powers with respect to such instruments with the same force and effect as could Obligor; (ii) GMAC may, without notice to Obligor: (A) if the Collateral consists in whole or in part of accounts of or other claims or rights of Obligor (including accounts, claims and rights which are Collateral by reason of their constituting proceeds), notify the account debtors with respect to such accounts, and all other persons against whom Obligor has such claims or rights, of GMAC's rights hereunder, collect 2 6 all amounts payable with respect to such accounts, claims and rights directly and apply such collections to the repayment of the Obligations in such order as it may elect; (B) in its own or Obligors name, demand, sue for, collect or receive any money or property payable or receivable on account of or in exchange for, make any compromise or settlement with respect to, or modify any of the terms of any of, the Collateral as GMAC may in its sole discretion elect; (C) if the Collateral includes any of Obligors accounts, receive and open mail addressed to Obligor and change the address for delivery of Obligor's mail to an address designated by GMAC and notify the postal authorities of any such change; (D) in the name and on behalf of Obligor, endorse instruments and other evidences of payment collected or received by GMAC on account of the Collateral; and (E) appropriate and hold, or apply (directly or by way of set-off) to the payment of the Obligations (whether or not then due), all money of Obligor then or thereafter in possession of GMAC, all amounts representing Distributions then or thereafter in the possession of GMAC, the balance of every deposit account (demand or time, matured or unmatured) of Obligor then or thereafter with GMAC and every other claim of Obligor then or thereafter against GMAC; and (iii) Obligor will, upon request of GMAC: (A) receive and hold all proceeds of Collateral in trust for GMAC and not commingle any collections with any of its other funds; (B) immediately deliver such collections to GMAC in the identical form received; and (C) deliver to GMAC additional property as security for, or make one or more payments on account of, the Obligations in an amount satisfactory to GMAC. c. Unless and until GMAC exercises its rights under Section 4(b)(i), Obligor may, with respect to any instruments constituting part of the Collateral, (i) collect and receive for its own use all Ordinary Distributions (and for such purpose and to that extent, GMAC hereby releases each such Distribution from the Collateral, such release to be effective in the case of each Ordinary Distribution at the time thereof); and (ii) vote and give consents, ratifications and waivers with respect to such instruments except to the extent that any such would, in the sole judgment of GMAC, detract from the value of such instruments as Collateral hereunder, and from time to time upon request from Obligor, GMAC shall deliver to Obligor suitable assignments, orders and proxies so that Obligor may receive such Distributions and cast such votes, consents, ratifications and waivers; each such request from Obligor shall constitute a representation and warranty by Obligor hereunder that there is no reason at such time for GMAC to deem itself to be insecure or the risk of non-payment or non-performance of any of the Obligations to be increased. d. GMAC may obtain the appointment of a receiver of any of the Collateral and Obligor waives any right to notice of and consents to such appointment. 5. EVENTS OF DEFAULT. a. It shall be an Event of Default if: (i) Obligor defaults in the payment when due of any of the Obligations; (ii) Obligor otherwise defaults in the performance of any of the Obligations, (iii) any representation or warranty made by Obligor to GMAC hereunder or in connection with any of the other Obligations proves to have been incorrect or misleading in any material respect when made; (iv) Obligor fails to pay when due any other indebtedness for borrowed money, the maturity of any such indebtedness is accelerated or an event occurs which, with notice or lapse of time or both, would permit acceleration of such indebtedness; (v) Obligor (if an individual) or any Individual Guarantor dies or becomes incompetent, or any Guarantor challenges, or institutes any proceedings, or any proceedings are instituted, to challenge, the validity, binding effect or enforceability of this Agreement; (vi) Obligor (if a business entity) or any Guarantor (if a business entity) is dissolved or is a party to any merger or consolidation or sells or otherwise disposes of all or substantially all of its assets without the written consent of GMAC; (vii) any Guarantor creates a security interest in or lien upon, or an attachment or levy is made upon, any assets of such Guarantor, or a judgment is rendered against any Guarantor or against Obligor; (viii) Obligor or any Guarantor becomes insolvent or unable to meet its debts as they mature, or is generally not paying its debts as they become due, or suspends or ceases its present business, or a custodian, as defined in Title 11 of the United States Code, of substantially all of its property shall have been appointed or taken possession; (ix) a case 3 7 under such Title 11, or any proceeding under any other federal or state bankruptcy, insolvency or other law related to the relief of debtors, the readjustment, composition or extension of indebtedness or reorganization, is commenced by or against Obligor or any Guarantor; (x) Obligor or any Guarantor makes any payment on account of any Indebtedness subordinated to any of the Obligations in contravention of the terms of such subordination; (xi) Obligor or any copartnership of which Obligor is a member is expelled from or suspended by any stock or securities exchange or other exchange; or (xii) an Event of Default shall occur under the terms of the Agreement. b. The occurrence of an Event of Default shall be conclusively presumed to have increased the risk of non-payment or non-performance of the Obligations, and GMAC shall be conclusively presumed, thereupon, to have deemed itself to be insecure. 6. POST-EVENT OF DEFAULT RIGHTS. Upon the occurrence of an Event of Default and at any time or from time to time thereafter: a. In the case of any Event of Default, other than an Event of Default referred to in clause (viii) or(ix) of paragraph (a) of Section 5, GMAC may declare, by notice to Obligor, any and all of the Obligations immediately due and payable, and, in the case of any Event of Default referred to in clause (viii) or (ix) of paragraph (a) of Section 5, all of the Obligations shall automatically be and become due and payable, in either case without any other presentment, demand, protest or notice of any kind, anything in any other agreement to the contrary notwithstanding; b. GMAC shall have no obligation to make further loans, extensions of credit or other financial accommodations to or on behalf of Obligor, anything in any other agreement to the contrary notwithstanding; c. GMAC may exercise all other rights to which it is entitled hereunder, including but not limited to those specified in Section 4 hereof; d. Obligor shall, upon request of GMAC, assemble the Collateral and maintain or deliver it into the possession of GMAC at such place or places as GMAC may designate and as are reasonably convenient to both GMAC and Obligor; e. GMAC may (i) without notice, demand or other process, and without charge, enter any of Obligor's premises and, without breach of the peace, until GMAC completes the enforcement of its rights in the Collateral, take possession of such premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of Obligor's equipment for the purpose of completing any work-in-process, preparing any Collateral for disposition and disposing of or collecting any Collateral, and (ii) in the exercise of its rights under this Agreement, without payment of compensation of any kind, use any and all trademarks, trade styles, trade names, patents, patent applications, licenses, franchises and the like to the extent of Obligor's rights therein and Obligor hereby grant a license for that purpose; and f. If the Collateral consists in whole or in part of instruments and GMAC elects to sell or otherwise dispose of such instruments, (i) Obligor will, if it controls the issuer of such instruments, or if it otherwise has the right to effect such registration, and if GMAC deems such registration to be desirable, cause such instruments to be registered under the Securities Act of 1933, as amended, and take all other action, including but not limited to complying with the "blue sky" or securities laws of the several states and delivering to GMAC appropriate quantities of prospectuses, necessary or appropriate so as to permit the public sale of other disposition thereof by GMAC in such jurisdictions as GMAC may select, and indemnify, in the form then customary, all persons who are underwriters, statutory or otherwise, of such instruments in connection with such sale or disposition, such indemnity, to the extent applicable to GMAC, to be in addition to that afforded GMAC under Section 8(c) hereof, and (ii) GMAC may elect not to exercise its rights under clause (i) and in that event may, 4 8 if in its judgment it shall be necessary or desirable so to do, restrict the number of prospective bidders so as to comply with the provisions of Section 5 of such Securities Act, and restrict such prospective bidders to persons who will represent and agree that they are purchasing the instruments in question for their own account for investment and not with a view to the distribution or resale of any thereof and who will further agree that such instruments purchased by them may bear an appropriate restrictive legend to that effect. 7. GENERAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Obligor hereby represents, warrants and agrees that: a. The execution, delivery and performance of this Agreement are within its powers, corporate or otherwise, have been duly authorized by all required action and do not and will not contravene any law or any agreement or undertaking to which it is a party or by which it may in any way be bound or, if Obligor is a corporation, its certificate of incorporation or bylaws; b. Obligor will furnish GMAC with all information concerning its business and financial condition as GMAC may request; and c. Each of the representations and warranties contained in the Questionnaire, if any, submitted to GMAC by Obligor in connection with this Agreement is true and correct on the date hereof as if made on the date hereof and all other information, including financial statements and projections, furnished to GMAC at any time by or on behalf of Obligor was and will be complete and correct in all material respects to the extent necessary for the purpose of presenting the subject matter thereof fairly to GMAC. 8. EXPENSES OF OBLIGOR'S DUTIES; GMAC'S RIGHT TO PERFORM ON OBLIGOR'S BEHALF; GMAC'S EXPENSES AND INDEMNIFICATION. a Obligor's agreements and duties hereunder shall be performed by it at its sole cost and expense. b. If Obligor shall fail to do any act or thing which it has covenanted to do hereunder, GMAC may (but shall not be obligated to ) do the same or cause it to be done, either in its name or in the name and on behalf of Obligor, and Obligor hereby irrevocably authorizes GMAC so to act. c. Obligor agrees to reimburse GMAC for all costs and expenses, including attorney's fees and disbursements, incurred, and to indemnify and hold GMAC harmless from and against all losses suffered, by GMAC in connection with (i) GMAC's exercise of any right or remedy granted to it hereunder, (ii) any claim and the prosecution or defense thereof arising out of or in any way connected with this Agreement, and (iii) the collection or enforcement of the Obligations. d. Amounts payable by Obligor under this Section 8 shall constitute Obligations which shall be payable on demand. 9. NO WAIVERS OF RIGHTS HEREUNDER; RIGHTS CUMULATIVE. a. No delay by GMAC in exercising any right hereunder, or under any of the other Obligations, shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude other or further exercises thereof or the exercise of any other right. No waiver of any of the other Obligations shall be enforceable against GMAC unless in writing and signed by an officer of GMAC, and unless it expressly refers to the provision affected; any such waiver shall be limited solely to the specific event waived. 5 9 b. All rights granted GMAC hereunder shall be cumulative and shall be supplementary of and in addition to those granted or available to GMAC with respect to the other Obligations or under applicable law and nothing herein shall be construed as limiting any such other right. 10. ASSIGNMENT; PARTICIPATIONS. a. GMAC may assign any or all of the Obligations and may transfer therewith any or all of the Collateral therefor and the transferee shall have the same rights with respect thereto as had GMAC. Upon such transfer, GMAC shall be released from all responsibility for the Collateral so transferred. b. GMAC may from time to time sell or otherwise grant participation in any of the Obligations and the holder of any such participation shall, subject to the terms of any agreement between GMAC and such holder, be entitled to the same benefits with respect to any Collateral for the Obligations in which such holder is a participant as GMAC. Obligor agrees that each such holder may exercise any and all rights of banker's lien, set-off and counterclaim with respect to its participation in the Obligations as fully as though Obligor were directly indebted to such holder in the amount of such participation. 11. CONTINUING AGREEMENT; TERMINATION. a. This Agreement shall be a continuing agreement and shall apply to all future Obligations notwithstanding that at any particular time all of the Obligations then outstanding shall have been paid in full. b. This Agreement shall continue in full force and effect until written notice of termination shall have been received by GMAC at its address stated below, but, notwithstanding any such notice, this Agreement shall continue in full force and effect until all Obligations then outstanding (whether absolute or contingent) shall have been paid in full and all rights of GMAC hereunder shall have satisfied or other arrangements for the securing of such rights satisfactory to GMAC shall have been made. Upon receipt of any such notice, GMAC shall have no obligation to make further loans, extensions of credit or other financial accommodations to or on behalf of Obligor, anything in any other agreement to the contrary notwithstanding. 12. GOVERNING LAW; JURISDICTION; CERTAIN WAIVERS. a. This agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of New York, and GMAC shall have the rights and remedies of a secured party under applicable law, including but not limited to the Uniform Commercial Code of New York. b. Obligor agrees that all actions and proceedings relating directly or indirectly to this Agreement or any of the other Obligations shall be litigated in courts located within the State of New York or elsewhere as GMAC may select and that such courts are convenient forums and submits to the personal jurisdiction of such courts. c. Obligor waives personal service of process and consents that service of process upon it may be made by certified or registered mail, return receipt requested, directed to Obligor at its address last specified for notices hereunder, and service so made shall be deemed completed two days after the same shall have been so mailed. d. Obligor waives the right to a trial by jury in any action or proceeding between it and GMAC and waives the right to assert in any action or proceeding with regard to this Agreement or any of the Obligations any offsets or counterclaims which it may have. e. GMAC shall not be required to take any steps necessary to preserve rights against prior parties. 6 10 13. DEFINITIONS. As used herein: a. All terms defined in Article 1 or 9 of the New York Uniform Commercial Code as in effect on the date of this Agreement (other than the term "Collateral") are used herein (including in Schedule A hereto) with the meanings therein given; such terms include but are not limited to "account," "chattel paper," "deposit account," "document," "equipment," "general intangibles," "goods," "instrument," "inventory," "money," and "security interest." b. The following terms shall have the indicated meanings: "AFFILIATE" of GMAC shall mean a corporation that directly or indirectly controls or is controlled by, or is under common control with, GMAC. "DISTRIBUTIONS" shall mean Ordinary Distributions and Extraordinary Distributions; "Ordinary Distributions" shall mean cash dividends to the extent paid out of retained earnings, and interest paid in cash, in each case with respect to all instruments constituting part of the Collateral, except to the extent that any such dividend is made in connection with a partial or total liquidation or a reduction of capital, or any such interest is penalty interest, or, in each case, to the extent the same is not in the ordinary course; and "EXTRAORDINARY DISTRIBUTIONS" shall mean all dividends, interest and distributions on or in respect of and all proceeds of such instruments other than Ordinary Distributions. "GUARANTOR" shall mean any maker, drawer, acceptor, endorser, guarantor, surety, accommodation party or other person liable upon or for any of the Obligations. "INSTRUMENT COLLATERAL" shall mean (a) all Distributions on or in respect of (i) the instruments listed in Schedule A, or (ii) any instruments or property which constitute Instrument Collateral by virtue of any provision of this definition (whether, in either case, upon conversion of convertible securities included therein or through stock split, spin-off, reclassification, merger, consolidation, sale of assets, combination of shares or otherwise) and (b) all other instruments and other property issued with respect to or in exchange for (i) the instruments listed in Schedule A or (ii) any instruments or other property which constitute Instrument Collateral by virtue of any provision of this definition (whether, in either case, upon conversion of convertible securities included therein or through stock split, spin-off, reclassification, merger, consolidation, sale of assets, combination of shares or otherwise). "PERMITTED LIENS" shall mean (i) the lien of any real estate mortgage in effect on the date of this Agreement to the extent that it is at any time a lien on any Collateral that constitutes a "fixture"; (ii) liens for taxes not yet due; (iii) other liens incurred in the ordinary course of business that do not (a) arise under the Employee Retirement Income Security Act of 1974 or (b) secure obligations which are due and payable or obligations for borrowed money; (iv) easements, rights-of-way and other similar encumbrances on real property which do not interfere with the ordinary conduct of the business of the Obligor; and (v) liens consented to by GMAC in writing. c. The words "it" or "its" as used herein shall be deemed to refer to individuals and to business entities. 14. NOTICES. Any notice or request hereunder may be given to Obligor or to GMAC at their respective addresses set forth below or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this Section. Any notice or request hereunder may be given by, in the case of notices or requests to Obligor, mail, telex or telegram, or by telephone subsequently confirmed by mail, telex or telegram, and, in the case of notices to GMAC, registered mail, return receipt requested, or by telex or telegram, subsequently confirmed by such registered mail. Notices and requests to Obligor shall, in the case of those by mail, telex or telegram, be deemed to have been given when deposited in the mail, first-class postage prepaid, or delivered to the telegraph office or telex operator, addressed as provided in this Section, and in the case of those by telephone, when 7 11 so communicated to Obligor; notices to GMAC shall be deemed to have been given only when actually received by GMAC at its address determined as provided in this Section. Any requirement under applicable law of reasonable notice by GMAC to Obligor of any event shall be met if notice is given to Obligor in the manner prescribed above at least seven days before (a) the date of such event or (b) the date after which such event will occur. 15. GENERAL. a If this Agreement is executed by two or more Obligors, they shall be jointly and severally liable hereunder, all provisions hereof regarding the Obligations or the Collateral shall apply to the Obligations and Collateral of any or all of them and the termination of this Agreement as to one or more of such Obligors shall not terminate this Agreement as to any remaining Obligors. b. This Agreement shall be binding upon the heirs, executors, administrators, assigns or successors of each of the undersigned Obligors and shall inure to the benefit of and be enforceable by GMAC, its successors, transferees and assigns. c. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction affecting the validity or enforceability of such provision in any other jurisdiction. d. Notwithstanding anything the contrary herein, any reference to GMAC herein shall be deemed to be a reference to GMAC, as Agent on behalf of and for the benefit of the Lenders under the Agreement, and any action taken by GMAC as Agent hereunder, shall be taken in accordance with the terms and provisions of the Agreement. If there shall be any discrepancy between the terms of the Agreement and the terms hereof, the terms of the Agreement shall govern. Dated June 6, 2000 in New York, New York INTERFACE ELECTRONICS CORP. By: /s/ Joel H. Girsky By: ------------------------------- ---------------------------------- Title: President Title: 124 Grove Street ---------------------------------- Franklin, MA 02028 ---------------------------------- [Address of Obligor] [Address of Obligor] Accepted in New York, New York, on , 20 GMAC COMMERCIAL CREDIT, LLC. FLEET BANK, N.A., as Agent and Lender as Lender By: /s/ Daniel J. Murray By: /s/ Alice Adelberg -------------------------------- ---------------------------------- Title: Senior Vice President Title: Vice President 1290 Avenue of the Americas 8 12 New York, NY 10104 9 13 SCHEDULE A The following property constitutes part of the "Collateral": ALL ACCOUNT RECEIVABLES, INVENTORY AND EQUIPMENT NOW OWNED OR HEREAFTER ACQUIRED BY OBLIGOR, AS DEFINED BELOW: "ACCOUNTS RECEIVABLE" SHALL MEAN AND INCLUDE ALL OF THE FOLLOWING: ALL PRESENT AND FUTURE ACCOUNTS, CONTRACT RIGHTS, CHATTEL PAPER, DOCUMENTS, INSTRUMENTS AND GENERAL INTANGIBLES AS SAID TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE INCLUDING, WITHOUT LIMITATION, TRADEMARKS, TRADENAME, TRADESTYLES, TRADE SECRETS, EQUIPMENT FORMULATION, MANUFACTURING PROCEDURES, QUALITY CONTROL PROCEDURES, PRODUCT SPECIFICATIONS, PATENTS, PATENT APPLICATIONS, COPYRIGHTS, REGISTRATIONS, CONTRACT RIGHTS, CHOSES IN ACTION, CAUSES OF ACTION, CORPORATE OR OTHER BUSINESS RECORDS, INVENTIONS, DESIGNS, GOODWILL, CLAIMS UNDER GUARANTEES, LICENSES, FRANCHISES, TAX REFUNDS, TAX REFUND CLAIMS, COMPUTER PROGRAMS, COMPUTER DATABASES, COMPUTER PROGRAM FLOW DIAGRAMS, SOURCE CODES, OBJECT CODES AND ALL OTHER INTANGIBLE PROPERTY OF EVERY KIND AND NATURE; GOODS REPRESENTED BY ANY OR ALL OF THE FOREGOING AND MERCHANDISE RETURNS; BOOKS AND RECORDS PERTAINING TO THE FOREGOING AND EQUIPMENT CONTAINING SAME, WHEREVER LOCATED; AND ALL PROCEEDS OF ALL OF THE FOREGOING. "INVENTORY" SHALL MEAN AND INCLUDE ALL OF THE FOLLOWING: ALL PRESENT AND HEREAFTER ACQUIRED INVENTORY, AS DEFINED IN THE UNIFORM COMMERCIAL CODE, WHEREVER LOCATED, INCLUDING BUT NOT LIMITED TO RAW MATERIALS, WORK IN PROCESS AND FINISHED GOODS; ALL PROCEEDS AND PRODUCTS OF THE FOREGOING; AND ALL DOCUMENTS OF TITLE EVIDENCING ANY OF THE FOREGOING. "EQUIPMENT" SHALL MEAN AND INCLUDE ALL OF THE FOLLOWING: ALL PRESENT AND HEREAFTER ACQUIRED EQUIPMENT, AS DEFINED IN THE UNIFORM COMMERCIAL CODE, WHEREVER LOCATED; AND PROCEEDS OF THE FOREGOING. 10 14 [Letterhead of GMAC] June 6, 2000 JACO ELECTRONICS, INC. ("Jaco") 145 Oser Avenue Hauppauge, NY 11778 NEXUS CUSTOM ELECTRONICS, INC. ("Nexus") Prospect Street Brandon, VT 05733 Gentlemen: 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 $15,000,000 to $25,000,000, for a total amount of $50,000,000; and WHEREAS, you have requested such increase to enable you to purchase 100% of the common stock of Interface Electronics Corp ("Interface"); and WHEREAS, the Lenders are willing to agree to such an increase in the Maximum Loan Amount for each Lender, provided that simultaneously with such increase, Interface execute and sign an Assumption Agreement by which it will become an additional Debtor under the Agreement with the same effect as if it had been an original signor of such Agreement, and WHEREAS, as part of such assumption by and incorporation of Interface into the Agreement as an additional Debtor, Interface would pledge all of its assets to the Agent on behalf of the Lenders; and WHEREAS, you and Interface are agreeable to the foregoing conditions; 15 NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS: 1. Effective as of the date hereof, the Agreement shall be amended by replacing the phrase "$15,000,000" appearing next to the phrase "Maximum Loan Amount" underneath the signature of each Lender, with the phrase "$25,000,000". 2. Interface shall be deemed a Debtor for all purposes of the Agreement, with the same result as if it had been an original signor of the Agreement. 3. The phrase "$15,000,000" appearing on the 8th line of Section 4(a) of the Agreement shall be deleted in its entirety, and replaced with the phrase "$30,000,000". 4. The definition of "Contract Rate" as set forth in paragraph 1 of the Agreement, as amended by an Amendment letter dated August 1, 1997, is hereby deleted and replaced with the following: "'Contract Rate' means an interest rate per annum equal to (i) the applicable LIBO Rate, plus one and three quarter percent (1.75%) in the case of LIBO Rate Loans first continued or converted thereto prior to June 30, 2000, (ii) in the case of LIBO Rate Loans first continued or converted thereto, in the quarter ending September 30, 2000 or thereafter, the applicable LIBO Rate plus the margin ("LIBO Margin") stated opposite the ratio range of Funded Debt to net earnings before interest, taxes, depreciation, amortization, extraordinary gains and losses and all other non-cash charges on a consolidated basis ("EBITDA") during the immediately preceding four fiscal quarters as stated in the table immediately below: Funded Debt/EBITDA LIBO Margin greater than 3.5 to 1 2 1/4% 3.0 to 3.5 to 1 2% 2.5 to 3.0 to 1 1 3/4% 2.0 to 2.5 to 1 1 1/2% 1.5 to 2.0 to 1 1 1/4% less than 1.5 to 1 1% 2 16 The Contract Rate applicable to LIBO Rate Loans shall be adjusted quarterly." 5. In consideration for the increase in the Maximum Loan Amounts, Debtor shall pay to Agent for the pro rata share of each Lender a facilitation fee of $50,000. 6. The following section shall be added as Section 5(a)(v)of the Agreement: "(v) If at any time, the Agent shall have determined (which determination shall be conclusive and binding upon the Debtor) that, by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Contract Rate for any requested Loan or any outstanding Loan, or if the Agent shall have received notice from any Lender (in each case an 'Affected Lender') that the Contract Rate determined pursuant to the terms hereof does not accurately reflect the cost to such Affected Lender of making or maintaining its Loans at the Contract Rate, then the Agent shall give telephonic notice thereof, to the Borrower, as soon as practicable thereafter. If such notice is given, any Loans outstanding or requested shall become or be made as Loans bearing interest at the Alternate Base Rate. Until such notice has been withdrawn by the Agent, no further Loans shall be made or continued at the Contract Rate. After withdrawal of such notice, all outstanding Loans, and all requested Loans thereafter, shall again bear interest at the Contract Rate." 7. The following shall be added as Section 5(a)(vi) of the Agreement: "(vi) Upon the occurrence and continuation of an Event of Default and after notice by the Agent to the Debtor or after maturity or after judgment has been rendered on Obligations of the Debtor hereunder, the unpaid principal of all Loans shall, at the opinion of the Agent, bear interest at a rate which is two (2%) percent per annum in excess of any interest rate which would otherwise be applicable under the terms of this Agreement." 8. The following shall be added as Section 5(a)(vii)of the Agreement: "(vii) If any payment hereunder becomes due on a day which is not a Business Day, the due date of payment shall be extended to the next succeeding Business Day, and such extension of time shall be included in computing interest and fees in connection with such payment." 3 17 9. Section 17(e) of the Agreement shall be amended to read in its entirety as follows: "(e) Maintain at all times consolidated net worth (all amounts which would be included under shareholder's equity on a consolidated balance sheet of Debtor, determined in accordance with generally accepted accounting principles), in an amount not less than $39,000,000 from 6/30/00 to 3/31/01, and of not less than $42,000,000 as of 6/30/01, which amount shall be increased at the end of each quarter on a cumulative basis by an amount equal to 50% of the consolidated net profit after taxes, if any, for such quarter." 10. Section 17(f) of the Agreement shall be amended to read as follows: "(f) Maintain at all times a ratio of the sum of (i) cash and cash equivalents, plus (ii) accounts receivable to current liabilities (as defined in paragraph 17(d) of not less than .40 to 1 as of 6/30/00 and at all times thereafter." 11. The following shall be added as Section 17(h) of the Agreement: "(h) Maintain a Cash Flow Ratio at the end of each of the following calculation quarters of at least 2.00 to 1 for each quarter for the period from the quarter ending 6/30/00 through the quarter ending 3/31/01, and for the quarter ending 6/30/01 and at all times thereafter, 2.25 to 1." 12. The following shall be added as Section 18(g): "(g) Permit the Funded Debt Ratio at the end of each quarter to be greater than the amount set forth below for each computation quarter: Computation Quarter Funded Debt Ratio 6/30/00 4.0 to 1 9/30/00 3.75 to 1 12/31/00 3.75 to 1 3/31/01 3.50 to 1 6/30/01 and at all times thereafter 3.50 to 1" 4 18 13. The terms and conditions of Sections 17(d), 17(g) and 18(e) of the Agreement shall be deleted in their entirety, and the words: "[Intentionally omitted]" shall be substituted therefor. 14. The following section shall be added as Section 22(e) of the Agreement: "(e) Any Lender shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Debtor, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in any or all of the Loans held by such lender hereunder. In the event of any such grant by a Lender of a participating interest to a Participant, whether or not upon notice to Debtor, such Lender shall remain responsible for the performance of its obligations hereunder and Debtor shall continue to deal solely and directly with such Lender in connection with Debtor's rights and obligations hereunder. A Lender may furnish any information concerning Debtor in its possession from time to time to prospective Participants, provided that such Lender shall require any such prospective Participant to agree in writing to maintain the confidentiality of such information." 15. The following section shall be added as Section 27 of the Agreement: "27. Any Lender may at any time pledge all or any portion of its rights hereunder and under the agreements, instruments and documents executed in connection herewith (collectively, the "Loan Documents") to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act. 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release such Lender from its obligations under any of the Loan Documents." 16. The following definitions shall be added to Section 1 of the Agreement in alphabetical order: "Funded Debt" shall mean for Debtors on a consolidated basis, liabilities for borrowed money, including without limitation, capitalized lease obligations. "Funded Debt Ratio" shall mean as at the end of each quarter, the ratio, for any given computation period of (a) Funded Debt to (b) EBITDA calculated on a rolling four quarter basis. 5 19 "Cash Flow Ratio" shall mean as EBITDA less unfunded capital expenditures and less cash taxes paid, divided by the sum of interest expense and current portion of long term debt, calculated at the end of each quarter on a rolling four quarter basis. 17. This Agreement shall become effective subject to the satisfaction of the following conditions precedent: (a) Delivery of a fully executed copy of this Amendment to the Agent. (b) Delivery of a fully executed Assumption Agreement signed by the Debtor (comprised of Jaco, Nexus and Interface as well as agreed to by all of the subsidiaries in their capacities as guarantors) by which all Debtors shall agree that Interface shall become a Debtor under the Agreement. (c) Delivery of a fully executed General Security Agreement, executed by Interface, granting the Agent, for the benefit of the Lenders, a First Priority security interest in all assets of Interface as well as delivery of duly executed UCC Financing Statements covering such assets. (d) Delivery of a fully executed questionnaire relating to the business of Interface. (e) Delivery of a Certificate by the Secretary of Interface in form satisfactory to the Agent, evidencing Board of Directors resolutions authorizing the transactions contemplated hereby. (f) The non-occurrence or continuation of an Event of Default under the Agreement. (g) The prior or simultaneous completion of the purchase by the Debtor of 100% of the outstanding common stock of Interface. 18. 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, 2001, or any extended termination date, or any earlier termination date, whether by acceleration or otherwise). 6 20 19. 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. Except as herein specifically amended, the Agreement shall remain in full force and effect in accordance with its original terms, except as previously amended. If the foregoing accurately reflects our understanding, kindly sign the enclosed copy of this letter and return it to our office as soon as practicable. Very truly yours, GMAC COMMERCIAL CREDIT LLC By: /s/ Frank Imperato ---------------------------- Title: Senior Vice President AGREED AND ACCEPTED: JACO ELECTRONICS, INC. FLEET BANK, N.A. By: /s/ Joel Girsky By: /s/ Alice Adelberg ----------------------------- ---------------------------- Title: President Title: Vice President NEXUS CUSTOM ELECTRONICS, INC. INTERFACE ELECTRONICS CORP. By: /s/ Joel Girsky By: /s/ Joel Girsky ----------------------------- ---------------------------- Title: President Title: President 7 -----END PRIVACY-ENHANCED MESSAGE-----