<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1995
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 11-1978958
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
------------------------
JOEL H. GIRSKY, PRESIDENT
JACO ELECTRONICS, INC.
145 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
(516) 273-5500
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS REGARDING THIS REGISTRATION STATEMENT SHOULD BE
SENT TO:
<TABLE>
<S> <C>
STEPHEN I. BUDOW, ESQ. MARK A. KLEIN, ESQ.
MORRISON COHEN SINGER & WEINSTEIN, LLP FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN
750 LEXINGTON AVENUE 9100 WILSHIRE BOULEVARD, 8TH FLOOR EAST
NEW YORK, NEW YORK 10022 BEVERLY HILLS, CA 90212-3480
(212) 735-8600 (TELEPHONE) (310) 273-1870 (TELEPHONE)
(212) 735-8708 (FACSIMILE) (310) 274-8293 (FACSIMILE)
</TABLE>
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.10... 1,840,000 shares(3) $12.47 $22,944,800 $7,912.00
Representatives' Warrants....... 70,000 warrants(4) $ .001 $ 70 $ .02
Common Stock.................... 70,000 shares(5) $14.96 $ 1,047,200 $ 361.10
------------------------------------------------------------------------------------------------------------
Total....................................................................................... $8,273.12
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</TABLE>
(1) As adjusted for a declared 4-for-3 stock split to be effective on September
22, 1995.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average of the high and low prices of the
Registrant's Common Stock on The Nasdaq National Market on September 5, 1995
(as adjusted for a declared 4-for-3 stock split to be effective September
22, 1995).
(3) Includes 240,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(4) To be issued to the Representatives.
(5) Issuable upon exercise of the Representatives' Warrants. This Registration
Statement also relates to such indeterminate number of shares of Common
Stock issuable pursuant to the anti-dilution provisions of the
Representatives' Warrants.
================================================================================
<PAGE> 2
JACO ELECTRONICS, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
---------------------------------------------- -----------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Cover of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Available Information; Incorporation of Certain
Documents by Reference; Inside Front Cover
Page; Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Incorporation of Certain
Documents by Reference; Investment
Considerations
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Underwriting
6. Selling Shareholders.................... Prospectus Summary; Principal and Selling
Shareholders
7. Plan of Distribution.................... Underwriting; Inside Front Cover Page
8. Description of Securities to
be Registered......................... Description of Capital Stock
9. Interests of Named Experts and
Counsel............................... Legal Matters
10. Information with Respect to the
Registrant............................ Prospectus Summary; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management
11. Incorporation of Certain Information by
Reference............................. Incorporation of Certain Documents by Reference
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Inapplicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1995
PROSPECTUS
1,600,000 SHARES
[LOGO]
COMMON STOCK
JACO ELECTRONICS, INC.
Of the 1,600,000 shares of Common Stock offered hereby, 1,325,000 shares
are being sold by Jaco Electronics, Inc. (together with its subsidiaries, "Jaco"
or the "Company") and 275,000 shares are being sold by certain shareholders of
the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any proceeds from the sale of shares
by the Selling Shareholders.
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "JACO." The last sale price for the Common Stock on September 8,
1995, was $17.06 per share ($12.80 per share as adjusted to give effect to a
declared 4-for-3 stock split to be effective on September 22, 1995). See "Price
Range of Common Stock."
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER "INVESTMENT
CONSIDERATIONS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
=====================================================================================================
UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
THE PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
-----------------------------------------------------------------------------------------------------
Total(3)..................... $ $ $ $
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes the value of warrants (the "Representatives' Warrants") to purchase
up to 70,000 shares of Common Stock. The Company and the Selling
Shareholders have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company and
$ payable by the Selling Shareholders. See "Underwriting."
(3) The Company has granted an option to the Underwriters, exercisable within
forty-five (45) days from the date of this Prospectus, to purchase up to
240,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters' over-allotment option is exercised in full, the total Price to
the Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ , and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters, subject to the right to
reject any order in whole or in part and certain other conditions. It is
expected that delivery of such shares will be made through the offices of
Cruttenden Roth Incorporated, Irvine, California or the facilities of the
Depository Trust Company on or about , 1995.
------------------------
CRUTTENDEN ROTH CLEARY GULL REILAND & MCDEVITT INC.
Incorporated
The date of this Prospectus is , 1995
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can be inspected and copies obtained at the public
reference facilities maintained by the Commission at its offices at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, New York, New York 10048.
Also, copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE
ACT. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in this Prospectus assumes no exercise of the Underwriters'
over-allotment option, Representatives' Warrants or options granted or reserved
under the Company's stock option plans and gives effect to a 10% stock dividend
paid on March 10, 1995 and a declared 4-for-3 stock split to be effective on
September 22, 1995. Investors should carefully consider the information set
forth under the heading, "Investment Considerations."
THE COMPANY
Jaco markets and distributes passive and active electronic components to
original equipment manufacturers ("OEMs") throughout the United States and
Canada from two distribution centers located on the East and West Coasts and 12
sales offices located throughout the United States. The Company distributes
products such as semiconductors, capacitors, resistors, electro-mechanical
devices, computers and computer subsystems, which are used in the manufacture
and assembly of electronic products. The Company also provides a variety of
value-added services including configuring complete computer systems to
customers' specifications, kitting the component requirements of certain
customers, assembling fractional-horsepower electric motors to customers'
specifications and furnishing contract manufacturing services. Value added
services are intended to attract new customers, maintain and increase sales to
existing customers and, where feasible, generate additional revenues and improve
margins from sales of components. In addition, these services are designed to
respond to an industry trend of outsourcing, in which purchasing, manufacturing
and distribution functions are allocated by customers to the most efficient
provider. The Company entered the contract manufacturing business in March 1994,
when it acquired all of the outstanding capital stock of Nexus Custom
Electronics, Inc. ("Nexus"), a Vermont-based turnkey contract manufacturer of
printed circuit boards ("PCBs"). Management believes the acquisition of Nexus
has enabled, and will continue to enable, the Company to expand and broaden its
range of value-added service capabilities. In the year ended June 30, 1995,
Nexus products accounted for approximately 9% of the Company's total sales.
The Company's core customer base consists primarily of small and
medium-sized OEMs that produce electronic equipment used in a wide variety of
industries, including manufacturers of telecommunications, computer,
computer-related, medical and aerospace equipment. In addition, over the past
three years, the Company has added several Fortune 500 manufacturers. In fiscal
1995, the Company distributed electronic components to thousands of customers,
none of which individually represented more than 3% of net sales.
According to the National Electronics Distributors Association, an industry
trade association, in 1994 the electronics distribution industry recorded
approximately $17 billion in sales. Of these sales, approximately $10.9 billion
consisted of sales of semiconductors and computer products, which accounted for
approximately 48% of the Company's net distribution sales for the year ended
June 30, 1995. Approximately $5.4 billion of industry sales consisted of sales
of interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which products, exclusive of
interconnects, accounted for approximately 52% of the Company's net distribution
sales in the year ended June 30, 1995.
Through acquisitions and internal growth, the Company's sales and earnings
increased from approximately $77.4 million and $312,000, respectively, in the
year ended June 30, 1992 to $138.7 million and $1.9 million, respectively, in
the year ended June 30, 1995. According to the April 17, 1995 edition of
Electronic Buyers' News, an industry publication, the Company ranked 8th among
distributors of passive electronic components in the United States and 19th
overall among electronic component distributors in the United States.
3
<PAGE> 6
Jaco is a service-oriented company built on strong customer and supplier
relationships. Management believes that the Company's logo, "Today Isn't Soon
Enough," is widely recognized in the electronics distribution industry and
articulates the Company's approach and commitment to its customers. The
Company's objective is to improve its position as a national distributor of
electronic components through increased sales and improved operating
efficiencies achieved by: (i) pursuing strategic acquisitions; (ii) capitalizing
on the trend towards outsourcing by increasing sales of value-added services,
particularly contract manufacturing; (iii) expanding geographic coverage in
targeted areas of the United States and Canada where the Company does not yet
have a significant presence; (iv) expanding and diversifying its product lines
by obtaining new distributorships with additional suppliers; and (v) expanding
its customer base to include more large, high-volume customers while maintaining
its traditional focus on its small and medium-sized customers. Fundamental to
the success of the Company's strategy is its continuing emphasis on quality,
controlling costs and improving customer service.
The Company was organized in the State of New York in 1961. Its principal
executive offices are located at 145 Oser Avenue, Hauppauge, New York 11788, and
its telephone number is (516) 273-5500.
THE OFFERING
Common Stock offered:
By the Company.................... 1,325,000 shares
By the Selling Shareholders....... 275,000 shares
Common Stock to be outstanding after
the offering........................ 3,789,384 shares*
Use of proceeds..................... Net proceeds will be used to reduce the
Company's outstanding bank
indebtedness. See "Use of Proceeds."
Investment considerations........... Prospective investors should consider
carefully the factors set forth under
"Investment Considerations."
Nasdaq National Market Symbol....... JACO
---------------
* Subject to adjustment to avoid fractional shares as a result of the Company's
4-for-3 stock split.
4
<PAGE> 7
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for the Company for
the fiscal years ended June 30, 1993 through 1995. Such information and data
should be read in conjunction with the "Selected Consolidated Financial Data"
and the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AND SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................................. $ 96,675 $ 105,213 $ 138,683
Gross profit.............................................. 21,045 22,175 28,781
Selling, general and administrative expenses.............. 17,786 19,155 23,551
Net earnings.............................................. 1,384 1,430 1,916
Net earnings per common share............................. $ 0.55 $ 0.56 $ 0.78
Weighted average number of common and common equivalent
shares outstanding...................................... 2,522,980 2,551,173 2,461,091
OTHER DATA:
Inventory turnover ratio.................................. 4.4x 4.6x 4.6x
Average number of days in accounts receivable............. 51 52 50
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1995
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $30,741 $ 30,741
Total assets........................................................ 56,323 56,323
Short-term debt..................................................... 453 453
Long-term debt and capitalized lease obligations.................... 23,666 8,351
Shareholders' equity................................................ 13,227 28,542
</TABLE>
-------------------------------
(1) Adjusted to reflect the sale of 1,325,000 shares of Common Stock by the
Company and the receipt and application of the net proceeds from this
offering estimated at $15,315,000 to the reduction of the Company's bank
indebtedness. See "Use of Proceeds."
5
<PAGE> 8
INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider the following factors, as
well as all other matters set forth elsewhere in this Prospectus, before making
an investment in the Common Stock offered hereby.
DEPENDENCE ON SUPPLIERS. The Company relies on a limited number of
suppliers for products which generate a significant portion of its sales.
Substantially all of the Company's inventory has and will be purchased from
suppliers with which the Company has entered into non-exclusive distributor
agreements. Such agreements are typically cancelable on short notice. These
agreements are generally designed to protect the Company against product
obsolescence and price reductions. However, there can be no assurance that these
agreements will not be canceled. In the year ended June 30, 1995, the Company's
three largest suppliers accounted for approximately 36% of the Company's sales.
No other supplier accounted for more than 5% of the Company's sales. While the
Company does not believe that the loss of any one supplier would have a material
adverse impact upon the Company since most products sold by the Company are
available from multiple sources, the Company's future success will depend in
large part on maintaining relationships with existing suppliers and developing
relationships with new ones. The loss of, or significant disruptions in,
relationships with major suppliers could have a material adverse effect on the
Company's business, since there can be no assurance that the Company will be
able to replace lost suppliers.
As is common in the electronics distribution industry, from time to time
the Company has experienced terminations of relationships with suppliers which
affected its results of operations in post-termination fiscal periods. For
example, in June 1995, the Company's largest supplier, AVX/Kyocera ("AVX"),
canceled its distributor agreement with the Company. Based upon sales for the
year ended June 30, 1995, AVX accounted for approximately 14% of the Company's
total sales. The Company believes that it will be able to replace a major
portion of those sales with sales of other product lines from other suppliers
and in August 1995 the Company entered into distribution agreements for similar
products with two new suppliers, Sprague, Inc. and Johanson Dielectric Inc.
However, there can be no assurance that the Company will, in fact, be able to
replace the AVX sales. Moreover, the Company's financial results in future
periods could be adversely affected to the extent it is unable to replace sales
of the AVX product line with sales of products from other suppliers and, even if
it succeeds in replacing the AVX product line, to the extent the Company's
customers are unwilling to purchase such other products.
At various times there have been shortages of components in the electronics
industry and certain components, including certain semiconductor devices and
capacitors, have been subject to limited allocation by some of the Company's
suppliers. Although such shortages and allocations have not had a material
adverse effect on the Company's results of operations or finances, there can be
no assurance that any future shortages or allocations would not have such an
effect on the Company.
COMPETITION. The electronic components and related services, distribution
and contract manufacturing industries are highly competitive. In the
distribution of electronic components and related services, the Company
generally competes with local, regional and national distributors and electronic
component manufacturers, including some of its own suppliers. In the area of
contract manufacturing, the Company competes against numerous domestic and
offshore manufacturers, as well as the in-house manufacturing capabilities of
its existing and potential customers. Many of such competitors have greater name
recognition and financial and other resources than the Company. Moreover, the
electronics distribution industry is going through a period of rapid
consolidation that is intensifying competition. There can be no assurance that
the Company will continue to compete successfully with existing or new
competitors and failure to do so would have a material adverse effect on the
Company's operating results. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
services of its executive officers, including Joel H. Girsky, its Chairman,
President and Treasurer, and Charles B. Girsky, its Executive Vice President and
Director. Although the Company continued to operate smoothly during the
temporary absence due to illness of Joel H. Girsky for two months during
6
<PAGE> 9
1995, the permanent loss for any reason of either Joel or Charles Girsky, or one
or more of the Company's other key executives, could have a material adverse
effect upon the business of the Company. While the Company believes that it
would be able to locate suitable replacements for its executives if their
services were lost, there can be no assurance that it would, in fact, be able to
do so. The Company's future success will also depend, in part, upon its
continuing ability to attract and retain highly qualified personnel.
UNCERTAINTY OF FUTURE ACQUISITIONS. The Company's growth strategy depends,
in part, on its ability to identify and acquire compatible electronics
distributors and/or contract manufacturers and to integrate the acquired
operations. A portion of the Company's sales growth during fiscal 1995 resulted
from the Nexus acquisition. See Note I of Notes to Consolidated Financial
Statements. There can be no assurance that the Company will be able to locate
additional appropriate acquisition candidates, that, if identified, any of such
candidates will be acquired or that the operations of acquired candidates will
be effectively integrated or prove profitable. The completion of future
acquisitions requires the expenditure of sizable amounts of capital and
management effort. Moreover, unexpected problems encountered in connection with
the Company's acquisitions could have a material adverse effect on the Company.
The Company could be forced to alter its strategy in the future if suitable
acquisition candidates are not available or are too costly. See
"Business -- Business Strategy."
FOREIGN MANUFACTURING AND TRADE REGULATION. A significant number of the
components sold by the Company are manufactured by foreign manufacturers. As a
result, the Company, and its ability to sell certain products at competitive
prices, could be adversely affected by increases in tariffs or duties, changes
in trade treaties, 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. The Company's ability to be
competitive with respect to sales of imported components could also be affected
by other governmental actions and policy changes relating to, among other
things, anti-dumping and other international antitrust legislation and adverse
currency fluctuations which could have the effect of making components
manufactured abroad more expensive. Because the Company purchases products from
United States subsidiaries or affiliates of foreign manufacturers, the Company's
purchases are paid for in U.S. dollars, which usually reduces or eliminates the
potential adverse effects of currency fluctuations. While the Company believes
that the factors involving foreign components supply have not adversely impacted
its business in the past, there can be no assurance that such factors will not
materially adversely affect its business in the future.
INDUSTRY CYCLICALITY AND POTENTIAL QUARTERLY FLUCTUATIONS. The electronics
distribution industry has historically been affected by general economic
downturns, which have often had an adverse economic effect upon manufacturers,
end-users of electronic components and electronic component distributors such as
the Company. In addition, the life-cycle of existing electronic products and
timing of new product development and introduction can affect demand for
electronic components. The Company's results of operations for any particular
period may be adversely affected by numerous factors, such as the loss of key
suppliers or customers, price competition, problems incurred in managing
inventories or receivables, the timing or cancellation of orders from major
customers, the timing or cancellation of purchase orders with suppliers and the
timing of expenditures in anticipation of increased sales and customer product
delivery requirements. Price competition in the industries in which the Company
competes is intense and could result in gross margin declines, which could have
an adverse impact on the Company's profitability. In various periods in the
past, the Company's operating results have been affected by all of these
factors.
CONTINUED CONTROL BY PRESENT SHAREHOLDERS AND MANAGEMENT. Upon completion
of the offering, Messrs. Joel H. Girsky and Charles B. Girsky will own an
aggregate of 698,453 shares of Common Stock, representing approximately 18.4% of
the outstanding shares. In the event of the exercise of all of their outstanding
stock options, after completion of the offering the Girskys would own
approximately 20.1% of the outstanding capital stock of the Company. As a result
of such stock ownership and their positions as executive officers and as two of
the four directors of the Company, they may be in a
7
<PAGE> 10
position to elect a majority of the Board of Directors and to control the
day-to-day affairs of the Company.
NEED FOR ADDITIONAL AUTHORIZED AND UNISSUED SHARES; ISSUANCE OF PREFERRED
STOCK AND NEWLY AUTHORIZED SHARES. The Company's Certificate of Incorporation
(the "Certificate") authorizes the issuance of 5,000,000 shares of Common Stock
and 100,000 shares of Preferred Stock. After giving effect to the issuance of
the 1,325,000 shares of Common Stock offered by the Company hereunder, 240,000
shares underlying the over-allotment option, 70,000 shares underlying the
Representatives' Warrants and of all shares covered by options granted under the
Company's stock option plans, only approximately 450,000 authorized shares of
Common Stock would remain unissued. As a result of the limited number of
authorized and unissued shares of Common Stock available for future issuance,
the Company intends at its 1995 annual meeting of shareholders, currently
anticipated to be held in December 1995 (the "1995 Annual Meeting"), to seek
approval from its shareholders to increase the number of shares of capital stock
authorized to be issued. If the Company's shareholders do not approve an
increase in the number of authorized shares, the continued growth of the Company
could be materially limited by its inability to raise additional equity capital
when needed or to issue shares of capital stock in connection with future
acquisitions or for other corporate purposes.
The Company's Board of Directors has the power, in its discretion and
without shareholder approval, to issue any or all authorized and unissued shares
of capital stock authorized by the Certificate which are not reserved for
issuance, as well as certain other securities exchangeable for, or rights to
purchase, such shares, including the 100,000 shares of Preferred Stock currently
authorized by the Certificate and any new shares of Common Stock authorized by
shareholders at the 1995 Annual Meeting. Any Preferred Stock can be issued with
such rights, preferences and limitations as may be determined by the Board. Any
such issuances of Common or Preferred Stock may result in a reduction in the
book value and/or market price of the outstanding shares and may reduce the
proportionate ownership and voting power of each then existing shareholder.
Further, any new issuances of securities could be used for anti-takeover
purposes or to effect or avoid a change of control of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common Stock
could be subject to significant fluctuations in response to such factors as,
among others, variations in the anticipated or actual results of operations of
the Company or of other distributors in the electronics industry and changes in
conditions affecting the economy generally, the financial markets or the
electronics distribution industry. Furthermore, relatively light trading volume
of the Common Stock which occurred during periods in the recent past may
exacerbate such volatility.
8
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,325,000 shares of
Common Stock offered by it hereby are estimated to be approximately $15,315,000
(approximately $18,160,550, if the Underwriters' over-allotment option is
exercised in full), based upon an assumed public offering price of $12.75 per
share of Common Stock. The Company will not receive any proceeds from the sale
of shares by the Selling Shareholders.
The Company intends to use such net proceeds to reduce the outstanding
balance of its bank indebtedness (approximately $25,300,000 as of August 31,
1995) under its credit facility (the "Credit Facility") with The Bank of New
York Commercial Corporation and NatWest Bank, N.A. The maximum amount available
under the Credit Facility is $30,000,000. Borrowings under the Credit Facility
have been used by the Company for working capital and to acquire the outstanding
capital stock of Nexus. As of August 31, 1995, approximately $4,700,000 remained
available to the Company under the Credit Facility. Of the amount borrowed under
the Credit Facility, $8,000,000 is structured as a term loan; $1,500,000 (the
outstanding balance of which was $1,196,000 at August 31, 1995) is structured as
a term loan repayable in equal monthly installments of $17,857; and the balance
is structured as a revolving line of credit. All amounts under the Credit
Facility are due in April 1998 unless the Credit Facility is extended.
Repayments of the term loans correspondingly increase amounts available under
the revolving line of credit. The Credit Facility bears interest at the higher
of the prime rate or the federal funds rate plus 1/2% or, at the Company's
option, at a rate equal to LIBOR plus 2.5%. The rate charged at August 31, 1995
was 8.75%.
As a result of the application of the net proceeds of this offering to
reduce the Company's indebtedness under the Credit Facility, the amount
available to be borrowed thereunder will be increased and may be drawn down in
the future to provide the Company with funds for working capital or potential
acquisitions. The Company has no current understanding or commitment with
respect to any such acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings, if any, for use in its business and to
support growth and does not anticipate paying cash dividends in the foreseeable
future. In addition, the agreement governing the Company's Credit Facility
contains provisions that prohibit the Company from paying cash dividends on its
Common Stock.
9
<PAGE> 12
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "JACO". The stock prices listed below represent the high and low
closing sale prices of the Common Stock, as reported by The Nasdaq National
Market, for each fiscal quarter beginning with the first fiscal quarter of 1994.
Stock prices prior to February 14, 1995 have been adjusted to give effect to the
10% stock dividend paid on March 10, 1995 and stock prices for all periods have
been adjusted to give effect to the declared 4-for-3 stock split to be effective
on September 22, 1995.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR 1994:
First quarter ended September 30, 1993............................ $ 7.84 $4.94
Second quarter ended December 31, 1993............................ $ 8.01 $5.28
Third quarter ended March 31, 1994................................ $ 6.48 $4.43
Fourth quarter ended June 30, 1994................................ $ 5.97 $4.26
FISCAL YEAR 1995:
First quarter ended September 30, 1994............................ $ 5.28 $3.75
Second quarter ended December 31, 1994............................ $ 5.45 $3.92
Third quarter ended March 31, 1995................................ $ 5.54 $4.26
Fourth quarter ended June 30, 1995................................ $ 7.31 $5.06
FISCAL YEAR 1996:
First quarter ending September 30, 1995
(through September 8, 1995).................................... $13.88 $6.28
</TABLE>
On September 8, 1995, the last reported sale price of the Company's Common
Stock on The Nasdaq National Market was $17.06 per share ($12.80 as adjusted for
the declared 4-for-3 stock split to be effective on September 22, 1995). As of
August 31, 1995, there were approximately 172 holders of record of the Company's
Common Stock, who management believes held for more than 950 beneficial owners.
10
<PAGE> 13
CAPITALIZATION
The following table sets forth the short term debt and capitalization of
the Company as of June 30, 1995 and as adjusted to reflect receipt of estimated
net proceeds from the sale of 1,325,000 shares of Common Stock of approximately
$15,315,000 and the application thereof to reduce bank indebtedness.
<TABLE>
<CAPTION>
AT JUNE 30, 1995
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS EXCEPT SHARE
INFORMATION)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt payable and capitalized lease
obligations(2)................................................. $ 453 $ 453
======= ====
Long-term debt and capitalized lease obligations(2)................. $23,666 $ 8,351
------- --------
Shareholders' equity:
Preferred Stock:
$10 par value, 100,000 shares authorized, none issued and
outstanding or to be issued and outstanding, as adjusted....... -- --
Common Stock:
$.10 par value, authorized shares;
2,464,384 shares issued and outstanding;
3,789,384 shares issued and outstanding, as adjusted........... 246 379
Additional paid-in capital.......................................... 5,014 20,196
Retained earnings................................................... 7,967 7,967
------- --------
Total shareholders' equity..................................... 13,227 28,542
------- --------
Total capitalization...................................... $36,893 $ 36,893
======= ========
</TABLE>
-------------------------------
(1) As adjusted to reflect receipt of estimated net proceeds from the sale of
1,325,000 shares of Common Stock of approximately $15,315,000 and the
application thereof to reduce bank indebtedness. See "Use of Proceeds."
(2) See Note E of Notes to Consolidated Financial Statements.
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below is qualified by reference to and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The following selected
consolidated financial data have been derived from the audited Consolidated
Financial Statements of the Company. The Consolidated Financial Statements as of
June 30, 1994 and 1995 and for each of the three years in the period ended June
30, 1995 have been audited by Grant Thornton LLP, independent certified public
accountants, and are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA
Net sales......................... $ 78,856 $ 77,358 $ 96,675 $ 105,213 $ 138,683
Cost of goods sold................ 61,244 59,951 75,630 83,038 109,902
---------- ---------- ---------- ---------- ----------
Gross profit...................... 17,612 17,407 21,045 22,175 28,781
Selling, general and
administrative expenses......... 17,436 15,753 17,786 19,155 23,552
---------- ---------- ---------- ---------- ----------
Operating profit.................. 176 1,654 3,259 3,020 5,229
Interest expense.................. 1,551 1,172 1,078 1,117 2,010
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes and cumulative effect of a
change in accounting for income
taxes........................... (1,375) 482 2,181 1,903 3,219
Income tax expense (benefit)...... (357) 170 797 714 1,303
---------- ---------- ---------- ---------- ----------
Earnings (loss) before cumulative
effect of a change in accounting
for income taxes................ (1,018) 312 1,384 1,189 1,916
Cumulative effect of a change in
accounting for income taxes..... -- -- -- 241 --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............... $ (1,018) $ 312 $ 1,384 $ 1,430 $ 1,916
========== ========== ========== ========== ==========
PER SHARE DATA
Earnings (loss) per common share
before cumulative effect of a
change in accounting............ $ (0.40) $ 0.12 $ 0.55 $ 0.47 $ 0.78
Cumulative effect of accounting
change.......................... -- -- -- 0.09 --
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common
share........................... $ (0.40) $ 0.12 $ 0.55 $ 0.56 $ 0.78
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding... 2,523,400 2,506,001 2,522,980 2,551,173 2,461,091
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital................... $ 13,187 $ 13,614 $ 14,910 $ 15,160 $ 30,741
Total assets...................... 34,076 35,547 36,056 45,685 56,323
Long-term obligations............. 8,375 8,225 8,058 9,694 23,666
Shareholders' equity.............. 8,208 8,520 9,905 11,202 13,227
</TABLE>
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Jaco is a distributor of electronic components and provider of contract
manufacturing and value-added services. Products distributed by Jaco include
semiconductors, capacitors, resistors and electro-mechanical devices and motors
used in the assembly and manufacturing of electronic equipment.
The Company's customers are primarily small and medium sized manufacturers.
The trend for these customers has been to shift certain manufacturing functions
to third parties (outsourcing). The Company intends to seek to capitalize on
this trend toward outsourcing by increasing sales of products enhanced by
value-added services. Value-added services currently provided by Jaco consist of
configuring complete computer systems to customer specifications both in tower
and desktop configurations, kitting (e.g. supplying sets of specified quantities
of products to a customer that are prepackaged for ease of feeding the
customer's production lines), assembling fractional-horsepower electric motors
and turnkey contract manufacturing through Nexus.
In March 1994, the Company entered the contract manufacturing business
through the acquisition of all the outstanding shares of capital stock of Nexus,
paying approximately $1,800,000 which was financed in part from a $1,500,000
term loan obtained under the Company's Credit Facility. See Notes E and I of
Notes to Consolidated Financial Statements. During the year ended June 30, 1995,
the Company devoted significant efforts to improving the performance of Nexus
including: capital expenditures in excess of $500,000 to improve Nexus'
capabilities for surface mount technology in the assembly of PCBs; consolidation
of Nexus' operational facilities from three buildings into one building;
utilization of Jaco's sales force in the Northeast to generate new customers for
Nexus; and reduction in the cost of components purchased by Nexus by
consolidating such purchases with other components purchased by Jaco.
The Company's sales from value-added services represented $18.1 million, or
13% of net sales in the year ended June 30, 1995, $8.9 million or 8% of net
sales in the year ended June 30, 1994, and $5.4 million or 6% of net sales in
the year ended June 30, 1993. Of these sales, sales from contract manufacturing
through Nexus, which was acquired in March 1994, were $2.7 million or 2.6% of
net sales in the year ended June 30, 1994 and $12.1 million or 8.7% of net sales
in the year ended June 30, 1995.
13
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's statements of
earnings as a percentage of net sales for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 78.2 78.9 79.2
----- ----- -----
Gross profit.............................................. 21.8 21.1 20.8
Selling, general and administrative expenses.............. 18.4 18.2 17.0
----- ----- -----
Operating profit.......................................... 3.4 2.9 3.8
Interest expense.......................................... 1.2 1.1 1.5
----- ----- -----
Earnings before income taxes and cumulative
effect of a change in accounting........................ 2.2 1.8 2.3
Income tax expense........................................ .8 .7 .9
----- ----- -----
Earnings before cumulative effect of a change
in accounting........................................... 1.4 1.1 1.4
Cumulative effect of a change in accounting
for income taxes........................................ -- .3 --
----- ----- -----
Net earnings.............................................. 1.4% 1.4% 1.4%
===== ===== =====
</TABLE>
COMPARISON OF YEAR ENDED JUNE 30, 1995 ("FISCAL 1995") WITH YEAR ENDED JUNE 30,
1994 ("FISCAL 1994")
Net sales were $138.7 million for fiscal 1995, an increase of $33.5 million
or 32% as compared to $105.2 million for fiscal 1994. The increase in sales is
the result of several factors, including strong overall demand for components in
the electronics industry generally, and the establishment of new offices and
expansion of sales forces in existing offices to grow the distribution business.
In addition, revenue from contract manufacturing by Nexus increased to
approximately $12.1 million in fiscal 1995, from $2.7 million in fiscal 1994.
Nexus was acquired in March 1994. Accordingly, the results of its operations for
only three and a half months of fiscal 1994 were included in fiscal 1994 results
of operations.
Gross profit margins, as a percentage of net sales, decreased slightly from
21.1% in fiscal 1994 to 20.8% in fiscal 1995. This was primarily due to intense
price competition relating to disk drives. The Company realized an improvement
in gross profit margins in its distribution business during the second half of
fiscal 1995 as a result of strong demand for products other than disk drives,
which have lower gross profit margins. The Company believes that the
continuation of such demand, combined with emphasis on components which are more
profitable than disk drives, should enable gross profit margins to improve.
Selling, general and administrative expenses were $23.6 million in fiscal
1995, an increase of $4.4 million, or 22.9%, from $19.2 million in fiscal 1994.
The addition of two new sales offices, coupled with the hiring of additional
sales personnel both for the new offices and existing sales offices and the
inclusion of a full year of Nexus' operating results, produced the increase.
Selling, general and administrative expenses, as a percentage of 1995 net sales,
declined to 17.0% from 18.2% in fiscal 1994. Strict attention to cost
containment resulted in the reduction. The Company believes that if net sales
continue to increase then selling, general and administrative expenses will
decrease as a percentage of net sales.
Interest expense increased to $2.0 million in fiscal 1995 from $1.1 million
in fiscal 1994. This increase was primarily attributable to rising interest
rates, borrowings to support sales growth and additional borrowings used in
connection with the acquisition of Nexus. Interest expense is expected to
decrease in fiscal 1996 as a result of the reduction of indebtedness under the
Company's Credit Facility by application of the net proceeds of this offering.
14
<PAGE> 17
Nexus recently moved operations from two formerly leased facilities in
Vermont and one in Massachusetts and consolidated such operations at its
Brandon, Vermont headquarters.
Net earnings for fiscal 1995 were $1.9 million, an increase of
approximately $500,000, or 34.0%, as compared to $1.4 million for fiscal 1994,
after taking into account the cumulative effect of a change in accounting for
income taxes of $241,000 in the fiscal year ended June 30, 1994. Earnings before
the change in accounting for income taxes increased $727,000 (61%) in fiscal
1995 as compared to fiscal 1994. Growth in the Company's distribution business
was primarily responsible for the growth in earnings. Nexus currently is
realizing modest profits after its first full year as a subsidiary.
COMPARISON OF YEAR ENDED JUNE 30, 1994 WITH YEAR ENDED JUNE 30, 1993 ("FISCAL
1993")
Net sales were $105.2 million for fiscal 1994, an increase of $8.5 million
or 8.8% as compared to $96.7 million for fiscal 1993. Management attributes the
increase to continued penetration in existing markets, the opening of sales
offices in Minnesota and Oregon, and the acquisition of Nexus. Net sales of
Nexus were $2.7 million for the period following its acquisition (March
11 -- June 30, 1994) or 2.6% of consolidated fiscal 1994 net sales. Nexus, as a
contract manufacturer, competes in a rapidly growing segment of the electronics
market.
Fiscal 1994 gross profit margins, as a percentage of net sales, decreased
compared to fiscal 1993. This was primarily attributable to active components
having represented an increasing percentage of the Company's product mix in
fiscal 1994. These products are historically sold at lower margins than passive
components.
Selling, general and administrative expenses were $19.2 million in fiscal
1994, an increase of $1.4 million, or 8.0% compared to $17.8 million in fiscal
1993. Increases in selling, general and administrative expenses resulted from an
expanded sales and support workforce, the establishment of additional sales
offices and the incremental selling, general and administrative expenses
incurred as a result of the acquisition of Nexus.
Interest expense increased 3.7% to $1.1 million in fiscal 1994 compared to
fiscal 1993 due to rising interest rates and additional borrowings to support
sales growth and used in connection with the acquisition of Nexus.
While net income was approximately $1.4 million both in fiscal 1994 and
fiscal 1993, fiscal 1994 included a $241,000 benefit resulting from the
Company's adoption of Financial Accounting Standard No. 109, "Accounting for
Income Taxes". The benefit derived from sales growth was more than offset by
decreases in gross profit margins and increased selling, general and
administrative expenses.
15
<PAGE> 18
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain statements of earnings information
for the periods indicated. This information has been derived from unaudited
financial statements which in the opinion of management, includes all
adjustments (consisting only of normal recurring accrual adjustments) necessary
for a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period and may fluctuate
significantly from quarter to quarter in the future.
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1995
Net sales........................... $ 31,087,594 $33,747,154 $35,825,167 $38,023,416
Gross profit........................ 6,394,122 6,919,043 7,496,699 7,970,828
Net earnings........................ 262,494 447,765 554,284 651,399
Earnings per common share........... .11 .18 .23 .26
FISCAL 1994
Net sales........................... $ 25,027,679 $24,035,522 $27,528,315 $28,621,561
Gross profit........................ 5,424,908 5,178,809 5,634,382 5,936,724
Net earnings........................ 413,033 242,982 382,528 150,124
Earnings per common share........... .25* .10 .15 .06
FISCAL 1993
Net sales........................... $ 23,260,952 $23,452,161 $24,419,669 $25,542,623
Gross profit........................ 5,229,523 5,135,003 5,183,823 5,496,480
Net earnings........................ 287,094 296,693 338,595 462,013
Earnings per common share........... .11 .12 .13 .18
</TABLE>
-------------------------------
* Includes a $.09 per share benefit derived from cumulative effect of a change
in accounting for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a total credit facility of $30,000,000, $8,000,000 of
which is structured as a term loan, $1,500,000 (the outstanding balance of which
at August 31, 1995 was approximately $1,196,000) of which is structured as a
term loan, payable in equal monthly installments of $17,857 and the balance of
which is structured as a revolving line of credit. During fiscal 1995, the
borrowing rate was reduced from prime +1% to a rate equal to the higher of prime
rate or the federal funds rate + 1/2% or, at the Company's option, LIBOR plus
2.5% for fixed periods of time. The Company must comply with various financial
covenants, with all of which the Company believes itself to be in compliance. As
of August 31, 1995, the Company had outstanding borrowings of $25.3 million,
with additional borrowing capacity of $4.7 million available under the revolving
line of credit.
Working capital increased to $30.7 million as of June 30, 1995, as compared
to $15.2 million as of June 30, 1994, an increase of $15.5 million or 102%. The
increase was primarily attributable to the Company's restructuring of its Credit
Facility which, among other things, extended its maturity date to April 1998;
the Company's profitable results during fiscal 1995; and higher inventory
necessary to support the Company's increased level of sales and resulting
increased accounts receivable.
During fiscal 1995, the Company's net cash used in operating activities was
$4.0 million, compared to $127,000 in fiscal 1994. Increases in accounts payable
and additional bank borrowings offset increases in accounts receivable and
inventory, all of which are a reflection of higher sales. In March 1995, Nexus
borrowed $500,000 to purchase machinery and equipment in order to expand Nexus'
surface mount assembly capacity. Management anticipates investing approximately
$500,000 in fiscal
16
<PAGE> 19
1996 for additional machinery and equipment as part of an ongoing program to
upgrade Nexus' operations. The Company's cash expenditures may vary
significantly from its current expectations, based on a number of factors,
including but not limited to, future acquisitions, if any.
For both fiscal 1994 and 1995, inventory turnover was 4.6x. The average age
of the Company's accounts receivable at June 30, 1995 was 50 days, as compared
to 52 days at June 30, 1994. The Company did not experience any significant
trade collection difficulties during fiscal 1995.
The Company expects that cash flow from operations and funds available
under its Credit Facility will be sufficient to fund the Company's capital needs
for at least the next 12 months.
INFLATION
Inflation has not had a significant impact on the Company's operations
during the last three fiscal years.
17
<PAGE> 20
BUSINESS
GENERAL
Jaco markets and distributes passive and active electronic components to
OEMs throughout the United States and Canada from two distribution centers
located on the East and West Coasts and 12 sales offices located throughout the
United States. The Company distributes products such as semiconductors,
capacitors, resistors, electro-mechanical devices, computers and computer
subsystems, which are used in the manufacture and assembly of electronic
products. The Company also provides a variety of value-added services including
configuring complete computer systems to customers' specifications, kitting the
component requirements of certain customers, assembling fractional-horsepower
electric motors to customers' specifications and furnishing contract
manufacturing services. Value-added services are intended to attract new
customers, maintain and increase sales to existing customers and, where
feasible, generate additional revenues and improve margins from sales of
components. In addition, these services are designed to respond to an industry
trend of outsourcing, in which purchasing, manufacturing and distribution
functions are allocated by customers to the most efficient provider. The Company
entered the contract manufacturing business in March 1994, when it acquired all
of the outstanding capital stock of Nexus, a Vermont-based turnkey contract
manufacturer of PCBs. Management believes the acquisition of Nexus has enabled,
and will continue to enable, the Company to expand and broaden its range of
value-added service capabilities. In the year ended June 30, 1995, Nexus
products accounted for approximately 9% of the Company's total sales.
The Company's core customer base consists primarily of small and
medium-sized OEMs that produce electronic equipment used in a wide variety of
industries, including manufacturers of telecommunications, computer,
computer-related, medical and aerospace equipment. In addition, over the past
three years, the Company has added larger, higher volume customers, including
accounts with several Fortune 500 manufacturers. In fiscal 1995, the Company
distributed electronic components to thousands of customers, none of which
individually represented more than 3% of net sales.
Jaco is a service-oriented company, built on strong customer and supplier
relationships. The Company's inventory management and information systems assist
its customers in controlling material costs, in reducing cycle times and in
keeping pace with rapidly occurring technological developments. The Company
utilizes a computerized inventory control system to assist in the marketing of
its products and coordinate purchases from suppliers with sales to customers.
The Company's computer system provides detailed on-line information regarding
the availability of the Company's entire stock of inventory located at its
stocking facilities as well as on-line access to the inventories of some of the
Company's major suppliers. Through the Company's integrated real-time
information system, customers' orders can readily be tracked through the entire
process of entering the order, reserving products to fill the order, ordering
components from suppliers, if necessary, and shipping products to customers on
scheduled dates. The Company is thus able to provide the type of distributor
service required by its OEM customers that have adopted the "just-in-time"
method of inventory procurement. The "just-in-time" method is utilized in an
effort to operate more efficiently and profitably by relying on scheduled
deliveries of such components at the time they are needed in the production
process and thereby reducing inventories of components.
The Company provides additional customer support through technically
competent product managers and field engineers, value-added services and
electronic data interchange. Management believes that the Company's logo, "Today
Isn't Soon Enough," is widely recognized in the electronics distribution
industry and articulates the Company's approach and commitment to servicing its
customers.
18
<PAGE> 21
INDUSTRY OVERVIEW
Over the past 30 years, the electronics industry has grown significantly as
a result of increased demand for products incorporating sophisticated electronic
components, such as telecommunications, computer and medical equipment. This
industry growth has been matched by an increase in the number of products,
component manufacturers and OEMs.
The electronics distribution industry has become an increasingly important
sales channel for the electronics industry because distributors can market
component manufacturers' products to a broader range of OEMs than such
manufacturers could economically serve with their direct sales forces.
Historically, manufacturers of electronic components have sold directly to large
OEMs and relied upon distributors to serve smaller customers. Today,
distributors have become more of an extension of component manufacturers'
product delivery channels by providing value-added services and technical
support to customers, by stocking sufficient inventory to ensure timely delivery
of components and by managing customer credit. Distributors also work with OEMs
to ensure that manufacturers' components are integrated into the design of new
products.
According to the National Electronics Distributors Association, an industry
trade assocation, in 1994 the electronics distribution industry recorded
approximately $17 billion in sales. Of these sales, approximately $10.9 billion
consisted of sales of semiconductors and computer products, which accounted for
approximately 48% of the Company's net distribution sales for the year ended
June 30, 1995. Approximately $5.4 billion of industry sales consisted of sales
of interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which products accounted for
approximately 52% of the Company's net distribution sales in the year ended June
30, 1995.
A number of trends are affecting the electronic components distribution
industry today. One of the most significant trends is that of consolidation. A
series of mergers and acquisitions over the last ten years has created a number
of very large distribution companies that have increasingly focused on larger
customers and expansion of international operations. As a result, regional and
smaller national distributors have gained market share among small and
medium-sized OEMs.
In addition, manufacturers of electronic components have contributed to
this trend by limiting the number of distributors through which they market
their products in an effort to improve operating efficiencies. Distributors
which can demonstrate strong local market positions and client relationships are
better positioned to obtain or retain distributorship arrangements with top
manufacturers. As a result, many distributors in the industry have made
substantial efforts to expand their market shares by emphasizing customer
services, such as value-added, just-in-time inventory management, automatic
replenishment and on-site inventory services.
Another key trend affecting the industry is the outsourcing of component
assembly by OEMs. Outsourcing allows OEMs to enhance profitability by
concentrating resources on product design, marketing and other core aspects of
their businesses. By serving many manufacturers of similar products,
distributors can often produce subassemblies more efficiently than many small
and medium-sized OEMs.
BUSINESS STRATEGY
The Company's objective is to improve its position as a rapidly growing
distributor of passive and active electronic components in the United States.
The Company's strategy for achieving this objective is to enhance operating
results by increasing sales and improving operating efficiencies. The Company's
strategy includes the following key elements:
- Pursue Strategic Acquisitions. Among the factors driving consolidation
of distributors are the desire of manufacturers to sell through fewer
distributors, the need for distributors to improve operating results and
the desire of OEMs to satisfy component requirements with fewer
suppliers. The Company plans to actively seek complementary acquisitions
which are expected
19
<PAGE> 22
to increase sales, profits and earnings and strengthen the Company's
presence in targeted markets. Management believes that there will be
future opportunities for attractive and synergistic acquisitions.
- Capitalize on the Trend Toward Outsourcing By Increasing Sales of
Value-Added Services. As the trend toward outsourcing by OEMs of all
sizes continues, the Company anticipates that it will have opportunities
to provide additional value-added services to its customer base. The
Company's large purchasing volumes and inventories and efficient
operations enable it to offer small and medium-sized OEMs the opportunity
to purchase electronic components and custom assemblies on a just-in-time
basis at lower costs than they would otherwise incur. This enables the
Company's customers to reduce end-product costs and required investments
in working capital, as well as improve product quality.
Additionally, value-added services enhance the Company's relationships
with its customers, who come to rely upon the Company's expertise and
efficiency in assembling key parts of their end-products. The Company
first offered contract manufacturing services in March 1994, when it
acquired Nexus. Contract manufacturing revenues amounted to 9% of net
sales in the fiscal year ended June 30, 1995.
- Expand United States Geographic Coverage. The Company has expanded its
United States geographic coverage by opening new sales offices in various
major metropolitan markets. For example, the Company established three
new sales offices located in Minnesota, Oregon and Colorado in November
1993, January 1994 and September 1995, respectively, and currently has
plans to open a total of three additional sales offices in the Rocky
Mountain States, the Midwest and the Southeast. By expanding in such
regions, the Company hopes to gain additional market share in targeted
areas in the United States and Canada where the Company does not yet have
a significant presence.
- Expand and Diversify Product Lines by Obtaining New Distributorships With
Additional Suppliers. The Company continuously seeks to obtain new
distributorships to expand its product lines. In fiscal 1995, the Company
became a distributor for Dale, a subsidiary of Vishay Intertechnology,
Inc. Dale produces a premier line of resistors. In August 1995, the
Company became a distributor for the entire capacitor line of Sprague,
Inc., another Vishay subsidiary, and for Johanson Dielectric, Inc.
Management regularly contacts other manufacturers of electronic
components with a view to expanding the Company's product lines.
- Maintain Focus on Small and Medium-sized Customers While Expanding the
Customer Base to Include Larger Companies. Cost structures and pressure
from manufacturers have pushed many large national distributors to
emphasize obtaining large orders of products from larger customers. By
contrast, since small OEMs generally do not have the purchasing power to
buy directly from manufacturers and frequently cannot be served on a
cost-effective basis by large national distributors due to the detailed
technical and product assistance they require for relatively small
orders, management believes that they are more likely to rely on smaller
distributors such as the Company. While historically the Company has
primarily catered to the special needs of smaller OEMs, management
believes that significant growth can also be achieved through expanding
the Company's customer base by selectively targeting larger national and
multinational companies. Management believes the successful
implementation of this strategy will diversify the Company's range of
potential customers and increase sales by generating larger-volume
orders. Over the past three years, the Company has added several Fortune
500 manufacturers in the telecommunications, aerospace, medical, computer
and computer-related industries to its roster of customers.
Fundamental to the success of the Company's strategy is its constant focus
on improving quality, lowering costs and improving customer service. The Company
pursues opportunities to reduce operating expenses in every aspect of its
business. The Company emphasizes working capital management and links product
manager compensation to improved inventory efficiency. Management
20
<PAGE> 23
regularly reviews the performance of the Company's information systems and
employs cost-saving technological advances wherever feasible.
Both quality and efficiency are recognized by the Company to be important
to its continued success. Jaco's dedication to achieving quality and efficiency
in its distribution and contract manufacturing operations is evidenced by the
certification of the Company's principal distribution facility in Hauppauge, New
York and its contract manufacturing facility in Brandon, Vermont to be in
compliance with the ISO 9002 Quality System Standard by the International
Organization for Standardization. ISO 9000 is a program developed initially by
the International Organization for Standardization in Geneva, Switzerland, to
provide quality control registration standards that can be relied upon to
provide assurance to third parties.
PRODUCTS
The Company currently distributes over 60,000 stock items. Management
believes that it is necessary for the Company to carry a wide variety of items
in order to fully service its customers requirements and, in addition, many
suppliers require the Company to carry their full product line.
The components distributed by the Company are used in the assembly and
manufacture of electronic equipment such as computers, data transmission and
telecommunications equipment and transportation equipment, including electronic
signals and aircraft, and a broad variety of other electronic products. The
Company's products fall into two broad categories: "passive" components and
"active" components.
Passive components consist primarily of capacitors, electromechanical
devices, fractional-horsepower motors and resistors. Passive products accounted
for approximately 57%, 52% and 52% of the Company's net distributor sales in
fiscal 1993, fiscal 1994 and fiscal 1995, respectively. The Company believes
that the number of passive components of the types distributed by the Company
that are used in personal computers has been increasing as the speed and
capacity of semiconductors has increased.
Active components include semiconductors and computer subsystems.
Semiconductors consist of such items as integrated circuits and discrete
components, transistors, diodes, dynamic RAMs, static RAMs, video RAMs and
MOSFETs. Computer subsystems are an integral part of personal computers and
computer workstations and incorporate such items as disk drives, tape drives,
floppy disks and controllers. These products represented approximately 43%, 48%
and 48% of the Company's net distributor sales in fiscal 1993, fiscal 1994 and
fiscal 1995, respectively.
VALUE-ADDED SERVICES
The Company provides a number of value-added services which are intended to
attract new customers, to maintain and increase sales to existing customers and,
where feasible, to generate additional revenues and improve margins from sales
of components. Value-added services include:
- Configuring Computer Systems. Subsystem integration is a service offered
by the Company where it offers turnkey solutions to customers' computer
requirements by integrating such components as disks, tapes and floppy
disk drives with other components, including power suppliers, enclosures,
interface electronics cables and converters and active components to
configure complete computer systems to customer specifications, both in
tower and desktop configurations.
- Kitting. Kitting of customer component product requirements is provided
to fill a segment or a complete order of products to a select customer
base. Kitting consists of assembling to a customer's specifications two
or more of the Company's 60,000 stock items into pre-packaged kits ready
for use in the customer's assembly line.
21
<PAGE> 24
- Motor Assembly. The Company assembles fractional-horsepower electric
motors in conformity with customer specifications. The Company's
Hauppauge, New York distribution center is one of only two authorized by
the Globe Motors division of Labinal Components and Systems, Inc. as a
Globe Motors assembly center.
- Contract Manufacturing. The Company also furnishes turnkey contract
manufacturing of PCBs for OEMs using both conventional pin-through-hole
and more advanced surface mount technologies. Contract manufacturing
operations involve assembling PCBs to customer specifications utilizing
components from suppliers with whom the Company has distribution
agreements and other suppliers. As a turnkey contract manufacturer of
PCBs, the Company procures the required raw materials and components,
manages the assembly and test operations, and supplies the PCBs in
accordance with the customer's delivery schedule and quality requirements
for the finished product.
The Company conducts its contract manufacturing operations through Nexus,
a Brandon, Vermont-based contract manufacturer which the Company acquired
in March 1994.
SALES AND MARKETING
Management believes the Company has developed valuable long-term customer
relationships and an in-depth understanding of its customers' needs and
purchasing patterns. Jaco serves a broad range of customers in the computer,
computer-related, telecommunications, data transmission, defense, aerospace,
medical equipment and other industries. None of the Company's customers
individually represented more than 3% of net sales in the years ended June 30,
1994 and June 30, 1995.
The Company's sales personnel are trained to identify their customers'
requirements and to actively market the Company's entire product line to satisfy
those needs. For example, the Company's sales staff and field engineers
regularly meet with customers' engineers and designers to discuss prospective
needs and potential design or procurement problems and enable the sales
personnel to recommend use of products which meet the customers' performance
criteria, are cost-effective and target specifically identified problems.
Sales are made throughout the United States and Canada from the sales
departments maintained at the Company's two distribution facilities located on
the East and West Coasts of the United States in New York and California and
from 12 additional sales offices located in Colorado, Florida, Maryland,
Massachusetts, Minnesota, North Carolina, Oregon, Texas and Washington. The
Company currently has plans to open a total of three additional sales offices in
the Rocky Mountain States, the Midwest and the Southeast. Sales are made
primarily through personal visits by the Company's employees and by a staff of
trained telephone sales personnel who answer inquiries and receive and process
orders from customers. In addition, the Company utilizes the services of
independent sales representatives whose territories include parts of the United
States, Canada, and several foreign countries. These sales representatives
operate under agreements which are terminable by either party upon 30 days'
notice. Independent sales representatives are authorized to solicit sales of all
of the Company's product lines and are prohibited from representing competing
product lines.
In fiscal 1995, 92% of the Company's sales were produced by Company sales
personnel and 8% by independent sales representatives, one of whom produced
approximately $4.7 million in revenue. No other representative produced more
than $2 million in revenue. The Company believes that the termination of any
independent sales representative would not have a material adverse effect upon
its business.
22
<PAGE> 25
BACKLOG
The Company's backlog consists of purchase orders received from customers
for products scheduled for delivery within the next twelve months. The Company's
backlog was $31.3 million at June 30, 1994, compared to $44.9 million at June
30, 1995. Orders constituting the Company's backlog are subject to delivery
rescheduling, price negotiations and cancellations by the buyer, sometimes
without penalty or notice. Backlog is not necessarily indicative of future sales
for any particular period and the Company expects that in the normal course of
business less than all backlogged orders will be filled.
OPERATIONS
Component Distribution. Inventory management is critical to a
distributor's business. The Company constantly focuses on a high number of
resales or "turns" of existing inventory to reduce exposure to product
obsolescence and changing customer demand.
The Company's central computer system facilitates the control of purchasing
and inventory, accounts payable, shipping and receiving, and invoicing and
collection information of Jaco's distribution business. Each of the Company's
sales departments and offices is electronically linked to the Company's central
computer system which provides fully integrated on-line real-time data with
respect to the Company's inventory levels. The Company's inventory management
system was developed internally by Jaco and is considered proprietary. Inventory
turns are tracked by vendor, and the Company's inventory management system
provides immediate information to assist in making purchasing decisions and
decisions as to which inventory to exchange with suppliers under stock rotation
programs. The Company's inventory management system also uses bar-code
technology along with scanning devices, which are supplied by Jaco to certain
customers, and is networked to the facilities of select customers. In some
cases, customers use computers that interface directly with the Company's
computers to identify available inventory and rapidly process orders. This
system enables the Company to more effectively manage its inventory and to
respond more quickly to customer requirements for timely and reliable delivery
of components. The Company's turnover ratio was approximately 4.6x for the year
ended June 30, 1995.
Approximately 75% of the Company's component distribution inventory is
maintained at its East Coast distribution center in Hauppauge, New York. Most of
the remaining inventory is maintained at the Company's West Coast facility in
Westlake Village, California, approximately 35 miles north of Los Angeles. The
Company also monitors supplier stock rotation programs, inventory price
protection, rejected material and other factors related to inventory quality and
quantity.
Contract Manufacturing. The Company conducts its contract manufacturing
operations through Nexus at an approximately 32,600 square foot facility located
in Brandon, Vermont. Nexus provides turnkey contract manufacturing of PCBs for
OEMs. "Turnkey" is an industry term that describes a contract manufacturer that
buys customer-specified components from suppliers, assembles the components onto
finished PCBs and performs post-assembly testing. OEMs then incorporate the PCBs
into finished products. In assembling PCBs, Nexus is capable of employing both
pin-through-hole ("PTH") and surface mount technologies ("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. The SMT process allows for more miniaturization, cost
savings and shorter lead paths between components (which results in greater
signal speed). In fiscal 1995, the Company borrowed $500,000 to purchase
machinery and equipment in order to expand Nexus' SMT assembly capability and
plans in fiscal 1996 to invest approximately $500,000 in additional machinery
and equipment as part of the Company's ongoing program to upgrade Nexus'
operations.
Nexus maintains strict quality control procedures for its products,
including use of total quality management ("TQM") systems. All incoming raw
materials and components are checked by the Nexus quality control personnel.
During the production stage, quality control personnel check all work in
23
<PAGE> 26
process at several points in the production process. Finally, after the assembly
stage, Nexus conducts random testing of finished products. When requested by OEM
customers, Nexus provides a limited warranty for products it manufactures.
Nexus' manufacturing facility has earned ISO 9002 certification. The ISO is
a Geneva-based organization dedicated to the development of worldwide standards
for quality management guidelines and quality assurance. ISO 9002 is the ISO
level appropriate for manufacturers like Nexus. Nexus' receipt of ISO 9002
certification demonstrates that Nexus' manufacturing operations meet the
established world standards.
Management believes sophisticated customers increasingly are requiring
their manufacturers to be ISO 9002-certified and that OEMs that are not so
qualified are increasingly looking to manufacturers like Nexus that have done
so, rather than undertaking the expensive and time-consuming process of
qualifying their own operations.
SUPPLIERS
Manufacturers of passive and active electronic components are increasingly
relying on the marketing, customer service and other resources of a limited
number 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. 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, the Company has
non-exclusive distribution agreements with many manufacturers, including Globe
Motors (a division of Labinal Components and Systems, Inc.), International
Resistive Company, Inc., Kemet Electronics Corporation, Micropolis Corporation,
Mitel Inc., Rohm Company, Limited, Samsung Semiconductor, Inc., Vishay
Intertechnology, Inc., and Zetex, Inc. Management continuously seeks to identify
potential new suppliers and obtain additional distributorships for new lines of
products. Management believes that such expansion and diversification will
increase the Company's sales and market share. See "Business -- Business
Strategy".
In fiscal 1995, of the Company's top ten suppliers, three, AVX, Kemet and
Samsung, accounted for 14%, 13%, and 9% respectively, of net sales and the
remaining seven each accounted for between 2% and 5% of net sales. No other
supplier accounted for more than 2% of net sales. As is common in the
electronics distribution industry, from time to time the Company has experienced
terminations of relationships with suppliers which affected its results of
operations in post-termination fiscal periods. For example, in June 1995, the
Company's largest supplier, AVX, canceled its distributor agreement with the
Company. While the Company believes that it will be able to replace a major
portion of those sales with sales of other product lines from other suppliers
and in August 1995 the Company entered into distribution agreements with
Sprague, Inc. and Johanson Dielectric, Inc., there can be no assurance that it
will, in fact, be able to replace the AVX sales. See "Investment
Considerations -- Relationships with Suppliers."
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. Selection as an authorized distributor is a
valuable marketing tool for the Company because customers receive warranty
protection and support from manufacturers when they purchase products from the
Company. As an authorized distributor, the Company is able to offer customers
marketing and engineering support from the product manufacturers, which enhances
the Company's ability to attract new customers and close sales.
Most of the Company's 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 certain
inventory if the agreement is canceled. Price protection is typically in the
form of a credit to the distributor for any inventory in the distributor's
possession for which the manufacturer reduces its prices. Stock rotation
privileges typically allow the Company to exchange inventory in an amount up to
5% of a prior period's purchases. Upon termination of a distributor
24
<PAGE> 27
agreement, the right of return typically requires the manufacturer to repurchase
the Company's inventory at the Company's adjusted purchase price. The Company
believes that the above-described provisions of its distributorship agreements
generally have served to reduce the Company's exposure to loss from unsold
inventory. As such price protection and stock rotation privileges are limited in
scope, there can be no assurance that the Company will not experience
significant losses from unsold inventory in the future.
COMPETITION
The electronics distribution industry is highly competitive, primarily with
respect to price and product availability. The Company believes that the breadth
of customer base, services and product lines, its level of technical expertise
and the quality of its services generally are also particularly important. The
Company competes with large national distributors such as Arrow Electronics,
Inc. and Avnet, Inc., as well as regional and specialty distributors, many of
whom distribute the same or competitive products. Many of the Company's
competitors have significantly greater name recognition and greater financial
and other resources than those of the Company.
The Company encounters some competition from products manufactured abroad
and distributed domestically. Such foreign-manufactured products are often sold
at prices below the Company's prices for comparable products. The Company
competes by providing its customers with reliable, rapid delivery of products
that meet strict quality control standards and by providing value-added services
not available from foreign distributors.
The PCB contract manufacturing industry is highly fragmented. Many large
contract manufacturers operate high-volume facilities and primarily focus on
high-volume markets, such as the personal computer and disk drive industries.
This segment of the contract manufacturing industry is characterized by
relatively high levels of volatility, competition and pricing and margin
pressure. In contrast, other contract manufacturers focus on low-to-medium
volume and service-intensive products, where the value-added component
represents a relatively high percentage of the overall value of the finished
product.
The Company believes that contract manufacturers which are affiliated or
integrated with electronics distributors have competitive advantages over
comparably-sized, stand-alone contract manufacturers. Distributors can reduce
the risk of inventory obsolescence through stock rotation privileges and
inventory price protection and can also take advantage of material acquisition
skills, just-in-time delivery expertise and broad supplier relationships.
EMPLOYEES
At August 31, 1995, the Company had a total of 404 employees, of which 129
were employed by Nexus. Of total employees, 11 were engaged in administration,
55 were managerial and supervisory employees, 128 were in sales and 210
performed warehouse, manufacturing and clerical functions. Of these employees,
Nexus employed one in administration, 14 in management and supervisory
positions, six in sales and 108 in warehouse, manufacturing and clerical
functions. There are no collective bargaining contracts covering any of the
Company's employees. The Company believes its relationship with its employees is
satisfactory.
PROPERTIES
All of the Company's facilities are leased except for the Brandon, VT
property which is owned by Nexus. Jaco currently leases 14 facilities located in
the States of California, Colorado, Florida, Maryland, Massachusetts, Minnesota,
New York, North Carolina, Oregon, Texas and Washington, two of which are
multipurpose facilities used principally as administrative, sales, and
purchasing offices, as well as warehouses, and the remainder of which are used
exclusively by Jaco as sales offices. Jaco's satellite sales offices range in
size from approximately 1,000 square feet to approximately 7,200 square feet.
Base rents for such properties range from approximately $1,000 per month to
approximately
25
<PAGE> 28
$3,400 per month. Depending on the terms of each particular lease, in addition
to base rent, Jaco 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 month-to-month to as long as three years. All
facilities are linked by computer terminals to Jaco's Hauppauge, New York
headquarters. The following paragraphs set forth certain information respecting
Jaco's two principal leased facilities:
(i) Jaco leases from Bemar Realty Company, a partnership consisting of
Messrs. Joel H. Girsky and Charles B. Girsky, approximately 72,000 square
feet of office and warehouse space at 145 Oser Avenue, Hauppauge, New York.
See "Management -- Certain Transactions." The lease provides for a current
monthly base rent of approximately $56,250 and has a term which expires in
December 1995. Jaco is currently negotiating a renewal of that lease. Such
renewal is anticipated to be at a rental rate similar to that currently
being charged for comparable properties in the area and, as a result, the
Company expects that the new rental rate will be slightly lower than the
current rate. Approximately 26,000 square feet of space is sublet by Jaco
to an unaffiliated third party. In addition to its headquarters, Jaco
maintains purchasing and sales offices and warehouse facilities at its
Hauppauge location.
(ii) Jaco leases from an unaffiliated party approximately 10,000
square feet of office and warehouse space in Westlake Village, California,
approximately 35 miles north of Los Angeles, for a base rent of
approximately $7,800 per month. The lease expires on March 31, 1996. Jaco
maintains both a purchasing and sales office at this location, as well as
warehouse facilities.
Nexus currently owns and occupies a 32,000 square foot facility located in
Brandon, Vermont, that is used for manufacturing, storage and office space. The
building was acquired by the Company on March 11, 1994 as part of the
acquisition of all of the outstanding shares of capital stock of Nexus.
The Company believes that its present facilities will be adequate to meet
its needs for the foreseeable future.
LEGAL PROCEEDINGS
There are no material legal proceedings pending, or, to the knowledge of
management, threatened against the Company.
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<PAGE> 29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company, their ages, and their
positions and terms of office with the Company are set forth below.
<TABLE>
<CAPTION>
NAME AGE TITLE
------------------------------ --- ----------------------------------------------
<S> <C> <C>
Joel H. Girsky................ 56 Chairman of the Board, President, Treasurer,
and Director.
Charles B. Girsky............. 61 Executive Vice President and Director.
Jeffrey D. Gash............... 42 Vice President of Finance and Principal
Financial Officer.
Stephen A. Cohen(1)........... 58 Director.
Edward M. Frankel(1).......... 57 Director.
</TABLE>
-------------------------------
(1) Messrs. Cohen and Frankel serve as the members of the Audit Committee,
Option Committee and Compensation Committee.
Joel H. Girsky has been a Director and executive officer of the Company
since it was founded in 1961. Since January 1983, he has been the President and
Chairman of the Board of Directors of the Company. He also is a Director of
Nastech Pharmaceutical Company, Inc. of Hauppauge, New York, and Frequency
Electronics, Inc. of Uniondale, New York.
Charles B. Girsky became an executive officer of the Company on August 2,
1985 and has been its Executive Vice President since January 1983. Since April,
1984, he has been President of Distel, Inc., a wholly-owned subsidiary of the
Company. He was a founder, Director, and the President of the Company from 1961
through January 1983, and was elected a Director of the Company again in 1986.
Jeffrey D. Gash has been employed by the Company for over 14 years. He
became Vice President of Finance in January 1989, and was Controller of the
Company for more than five years prior thereto. He has also served in similar
capacities with the Company's subsidiaries.
Stephen A. Cohen has been a Director of the Company since 1970. Since
August 1989, he has practiced law as a member of the law firm of Morrison Cohen
Singer & Weinstein, LLP, general counsel to the Company. For more than five
years prior thereto, he was engaged in the practice of law as a member of the
firm of Friedlander, Gaines, Cohen & Rosenberg, former general counsel to the
Company.
Edward M. Frankel became a Director of the Company in May 1984. For more
than five years, he has been President of both Garden State Nutritionals, Inc.
and Windmill Marketing Services, Inc., each a regional distributor of vitamins
and health and beauty products.
Directors are elected at each annual meeting of shareholders. Officers
serve at the discretion of the Board, subject to existing employment agreements.
Except for Joel and Charles Girsky who are brothers, no family relationship
exists between any directors or executive officers of the Company.
The Board of Directors has standing Audit, Option, and Compensation
Committees. The Audit Committee reviews the work and reports of the Company's
independent accountants. The Option Committee, administers the Company's 1993
NonQualified Stock Option Plan. The Compensation Committee makes recommendations
to the Board of Directors concerning compensation arrangements for directors,
executive officers, and senior management of the Company.
OTHER KEY EMPLOYEES
The Company also considers the following individuals to be key to its
operations:
Denis Haggerty, Vice President of Marketing -- Passives. Mr. Haggerty
oversees marketing of passive components and has been employed by the Company
for approximately 30 years.
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<PAGE> 30
Morton J. Denson, Vice President of Marketing -- Actives. Mr. Denson
oversees marketing of active components and has been employed by the Company for
over 8 years.
Herbert Entenberg, Vice President of Management and Information Systems and
Secretary. Mr. Entenberg has been employed by the Company for over 15 years. Mr.
Entenberg oversees management information systems and operations and is
responsible for developing and implementing the Company's inventory control
system.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for each of the Company's last three fiscal
years, the compensation paid or accrued to the President of the Company and paid
to the executive officers of the Company other than the President whose
aggregate annual salary and bonus for the Company's last fiscal year exceeded
$100,000 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- --------------------- PAYOUTS ALL
YEAR OTHER RESTRICTED ----------- OTHER
NAME AND ENDED ANNUAL STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION JUNE 30 SALARY($) BONUS($) COMPENSATION ($) AWARDS ($) SARS (#) PAYOUTS ($) ($)(2)
----------------------- ------- --------- -------- ---------------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel H. Girsky......... 1993 $225,000 $ 87,000 -- -- -- -- $ 55,087
Chairman of the
Board, 1994 $250,000 $ 76,000 -- -- 81,400 -- $ 62,519
President, and 1995 $300,000 $193,000 -- -- -- -- $ 72,100
Treasurer(1)
Charles B. Girsky...... 1993 $168,269 $ 40,037 -- -- -- -- $ 3,762
Executive Vice
President 1994 $181,000 $ 17,997 -- -- -- -- $ 3,783
1995 $206,720 $ 42,073 -- -- -- -- $ 3,947
Jeffrey D. Gash........ 1993 $ 86,160 $ 9,000 -- -- -- -- $ 1,513
Vice President, 1994 $ 96,000 $ 10,000 -- -- 4,033 -- $ 1,663
Finance 1995 $ 96,347 $ 10,000 -- -- -- -- $ 1,806
</TABLE>
-------------------------------
(1) Mr. Joel Girsky entered into a four-year employment agreement with the
Company, effective as of July 1, 1993, to serve as the Company's Chairman,
President and Treasurer. Pursuant to the agreement, Mr. Girsky received a
base salary of $250,000 for the fiscal year ended June 30, 1994 and $300,000
for the fiscal year ended June 30, 1995 and is to receive $325,000 for each
of the fiscal years ended June 30, 1996 and June 30, 1997. In addition, he
is entitled to receive a cash bonus equal to four percent (4%) of the
Company's earnings before income taxes for each year in which such earnings
are in excess of $1,000,000, and six percent (6%) of the Company's earnings
before income taxes for each year in which such earnings are in excess of
$2,500,000. Mr. Girsky or his estate, as the case may be, is entitled to
receive a payment of $500,000 if he dies or becomes permanently disabled
during the term of the employment agreement. This death and disability
benefit is funded by a "key-man" life insurance policy maintained by the
Company. In the event of Mr. Girsky's cessation of employment with the
Company, upon his request, the Company is obligated to transfer such policy
to Mr. Girsky. Thereafter, the Company would have no further liability for
the payment of such benefit or the premiums on such policy. In addition,
pursuant to the terms of the employment agreement, Mr. Girsky is to 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, or (ii) his cessation of employment, with or without cause, by the
Company at any time after July 1, 1993. In the event of a change in control
resulting in termination of Mr. Girsky's employment, Mr. Girsky will receive
between $450,000 and $600,000 depending on the date of termination.
(2) Includes auto expenses, 401(k) matching contributions by the Company,
premiums paid on group term life insurance, taxable portion of split dollar
life insurance policies and amounts accrued in connection with the
retirement or termination of Mr. Joel Girsky's employment with the Company.
Auto expenses for fiscal 1995 for the Named Executives were as follows: Mr.
Joel Girsky -- $12,031, Mr. Charles Girsky -- $2,110, and Mr. Jeffrey
Gash -- $724. 401(K) matching contributions for fiscal 1995 for the Named
Executives were as follows: Mr. Joel Girsky -- $1,009, Mr. Charles
Girsky -- $1,162, and Mr. Jeffrey Gash -- $1,000. Premiums paid on group
term life insurance for fiscal 1995 for the Named Executives were as
follows: Mr. Joel Girsky -- $1,008, Mr. Charles Girsky -- $675, and Mr.
Jeffrey Gash -- $82. The taxable portion of split dollar life insurance
policies for Mr. Joel Girsky was $8,052 for fiscal 1995. In addition,
$50,000 was accrued in fiscal 1995 in connection with the retirement or
termination of Mr. Joel Girsky's employment with the Company.
28
<PAGE> 31
STOCK OPTIONS
There were no grants of stock options made to any of the Named Executives
in fiscal 1995.
The following table sets forth information concerning the exercise of stock
options during fiscal 1995 by each of the Named Executives and the number and
value of unexercised options held by them at the fiscal year-end.
AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END (#) FY-END ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel H. Girsky........ 0 0 81,400 0 123,728 0
Charles B. Girsky..... 36,667 92,188 0 0 0 0
Jeffrey D. Gash....... 0 0 4,033 0 6,130 0
</TABLE>
-------------------------------
(1) Based on the fair market value per share of the Common Stock at year end,
minus the exercise or base price on "in-the-money" options. The closing sale
price for the Company's Common Stock as of June 30, 1995 on The Nasdaq
National Market was $6.38.
COMPENSATION OF DIRECTORS
Pursuant to the Company's 1993 Stock Option Plan for Outside Directors (the
"Outside Directors' Plan"), the Company's outside directors (directors who are
not employees of the Company) were each granted options on December 31, 1993 to
purchase 14,667 shares of Common Stock. In addition, the Outside Directors Plan
provides that each outside director shall also be granted on each December 31
subsequent to December 31, 1993 stock options to purchase 2,933 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.
CERTAIN TRANSACTIONS
During the year ended 1995, the Company incurred approximately $654,000 of
rental expenses in connection with its main headquarters and centralized
inventory distribution facility, located in Hauppauge, New York, which was paid
to Bemar Realty Company ("Bemar"), 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 of the Company. The lease on
the property, which is net of all expenses, including taxes, utilities,
insurance, maintenance and repairs, expires on December 31, 1995. The Company is
in the process of negotiating a renewal of such lease at a rental rate
comparable to the rates currently being charged to rent similar properties in
the area. It is anticipated that the new rental rate will be slightly lower than
the current rate. For information concerning the Company's contingent guarantee
of a mortgage on this property, see Note F of Notes to Consolidated Financial
Statements.
During fiscal 1995, Joel H. Girsky, the Chairman, President and Treasurer
of the Company, was indebted to the Company under demand loans bearing interest
at a rate of 9 3/4% per annum, the greatest amount of which indebtedness was
$641,425 during such fiscal year. At June 30, 1995, the amount of such
indebtedness was $309,808. Such indebtedness will be repaid in full on or before
the closing of the offering.
29
<PAGE> 32
In September 1995, the Company's Board of Directors adopted a policy
resolution prohibiting the Company from making any loan or advance of money or
property to, or guaranteeing the obligation of, any non-employee director of the
Company and limiting the Company's ability to make such loans, advances or
guarantees to employee directors and executive officers of the Company or its
subsidiaries unless a majority of independent disinterested outside directors
determine that such loan, advance or guarantee may reasonably be expected to
benefit the Company.
Stephen A. Cohen, a Director of the Company, is a member of Morrison Cohen
Singer & Weinstein, LLP, general counsel to the Company. Mr. Cohen currently
owns 4,789 shares of Common Stock and options to purchase an additional 17,600
shares of Common Stock. See "Legal Matters".
30
<PAGE> 33
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned as of August 31, 1995, and as adjusted to give
effect to the sale of 1,325,000 shares by the Company and 275,000 shares by the
Selling Shareholders in the offering, by (i) each director of the Company, (ii)
all persons who, to the knowledge of the Company, are the beneficial owners of
more than 5% of the outstanding shares of Common Stock, (iii) each of the
executive officers named in the Summary Compensation Table; (iv) all of the
Company's executive officers and directors as a group; and (v) each Selling
Shareholder. Each person named in the table has sole investment power and sole
voting power with respect to the shares of Common Stock set forth opposite such
person's name, except as otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
OFFERING(1) OFFERED OFFERING
---------------------- ------------ --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER NUMBER PERCENT
----------------------------------------- --------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Joel H. Girsky........................... 666,540(2) 26.2% 137,500 529,040 13.7%
Chairman of the Board, President,
Treasurer and Director
Charles B. Girsky........................ 388,313 15.8% 137,500 250,813 6.6%
Executive Vice President and Director
of the Company
Stephen A. Cohen......................... 22,389(3) * 0 22,389(3) *
Director
Edward M. Frankel........................ 17,600(3) * 0 17,600(3) *
Director
Jeffrey D. Gash.......................... 4,565(4) * 0 4,565(4) *
Vice President, Finance of the Company
All Directors and Executive Officers as a
Group (5 persons)...................... 1,099,407(5) 42.5% 275,000 824,407(5) 21.1%
</TABLE>
-------------------------------
* Less than 1%.
(1) Based upon (i) 2,464,384 shares of Common Stock issued and outstanding,
plus, if appropriate, (ii) the number of shares of Common Stock which may be
acquired by the named person or by all persons included in the group
pursuant to the exercise of options.
(2) Includes 81,400 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Non-Qualified Stock Option Plan.
(3) Includes 17,600 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Stock Option Plan for Outside
Directors.
(4) Includes 4,033 shares acquirable pursuant to the exercise of options granted
under the Company's 1993 Non-Qualified Stock Option Plan.
(5) Includes 120,633 shares of Common Stock acquirable pursuant to the exercise
of options.
31
<PAGE> 34
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company has 5,000,000 authorized shares of Common Stock, $0.10 par
value, of which 2,464,384 shares were issued and outstanding as of August 31,
1995. Holders of the Common Stock are entitled to one vote per share on all
matters requiring shareholder action. The Company's Restated Certificate of
Incorporation does not permit cumulative voting for the election of directors.
Holders of Common Stock have no preemptive or other subscription rights and
there are no redemption, sinking fund or conversion privileges applicable
thereto. The holders of the Common Stock are entitled to receive dividends as
and when declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy". Upon liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. All outstanding shares of the Common
Stock are, and all shares to be issued and sold by the Company in this offering
will be, fully paid and non-assessable.
PREFERRED STOCK
The Company has 100,000 authorized shares of Preferred Stock, $10.00 par
value ("Preferred Stock"), none of which was issued and outstanding as of August
31, 1995. The Company's Restated Certificate of Incorporation permits the terms,
rights and preferences of any Preferred Stock issued in the future, including
dividend rates, voting rights, redemption prices, maturity dates, liquidation
preference and similar matters, to be determined by the Company's Board of
Directors at the time such issuance is approved. Management does not presently
know whether any shares of Preferred Stock will actually be issued or, if
issued, what the terms, rights and preferences thereof will be. Under the New
York Business Corporation Law (the "BCL"); however, the holders of such
Preferred Stock will not have any preemptive rights with respect to any future
issuance of shares of the Common Stock or Preferred Stock, unless the Company's
Restated Certificate of Incorporation is amended to provide for such rights. See
"Investment Considerations -- Need for Additional Authorized and Unissued
Shares, Issuance of Preferred Stock and Newly Authorized Shares."
CERTAIN CERTIFICATE OF INCORPORATION AND STATUTORY PROVISIONS REGARDING
LIMITATIONS OF LIABILITY OF DIRECTORS.
The Company's Restated Certificate of Incorporation includes a provision
eliminating director liability to the fullest extent permissible under New York
law, as such law currently exists or as it may be amended in the future. New
York corporations are permitted to adopt provisions in their certificates of
incorporation eliminating the monetary liability of directors for certain
breaches of duty. Such provisions are subject to exceptions, as described below.
Under New York law, a New York corporation may include a provision in its
certificate of incorporation which eliminates or limits the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. However, such a provision may not
eliminate or limit director's liability for (i) breaches of the duty of loyalty
to the corporation or its stockholders, (ii) acts or omissions in bad faith or
involving intentional misconduct or knowing violations of law, (iii) a violation
of Section 719 of the BCL (including the payment of unlawful dividends or
unlawful stock purchases or redemptions), or (iv) transactions in which a
director receives an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company.
32
<PAGE> 35
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 3,789,384 shares of Common
Stock outstanding. Of these shares, 667,107 shares, together with any shares
acquired by affiliates in this offering, will be subject to Rule 144 under the
Securities Act. As a result, 3,122,277 shares, less any shares acquired by
affiliates in this offering, will be freely transferable without restriction.
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least two years,
including persons who may be deemed to be affiliates of the Company, would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of then-outstanding shares of
Common Stock or the average weekly trading volume in the Common Stock as
reported by NASDAQ during the four calendar weeks preceding such sale. Sales
pursuant to Rule 144 also are subject to certain other requirements relating to
the manner of sale, notice and availability of current public information about
the Company. Affiliates may publicly sell shares not constituting restricted
securities under Rule 144 in accordance with the foregoing volume limitations
and other restrictions but without regard to the two-year holding period. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days immediately preceding a sale by such person, and
who has beneficially owned restricted shares for at least three years, would be
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
The Company, its directors, executive officers and certain shareholders
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, for a period of 180 days after the date of the
Prospectus, without the prior written consent of Cruttenden Roth Incorporated.
After this period, 667,107 shares of Common Stock held by this group will be
eligible for sale subject to resale limitations of Rule 144 promulgated under
the Securities Act and 36,667 shares will be eligible for sale under a
Registration Statement filed under the Securities Act.
No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale will have on the prevailing
market price of the Common Stock. Sales of substantial amounts of Common Stock
of the Company in the public market or the perception that such sales might
occur, could adversely affect the prevailing market price of the Common Stock.
33
<PAGE> 36
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to the
Underwriters named below, for whom Cruttenden Roth Incorporated and Cleary Gull
Reiland & McDevitt Inc. are acting as representatives (the "Representatives"),
and the Underwriters have severally agreed to purchase, the numbers of shares of
Common Stock set forth opposite their respective names in the table below at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions and that the Underwriters are
committed to purchase all of such shares if any are purchased:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated..............................................
Cleary Gull Reiland & McDevitt Inc. ......................................
-----------
Total........................................................... 1,600,000
===========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain securities dealers at such
price less a concession of not more than $ per share, and that the
Underwriters and such dealers may reallow to other dealers, including the
Underwriters, a discount not in excess of $ per share. After the public
offering, the public offering price and concessions and discounts may be changed
by the Representatives.
The Company has granted an option to the Underwriters, exercisable for a
period of 45 days after the date of this Prospectus, to purchase up to an
additional 240,000 shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus less the underwriting discounts and
commissions. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase a
percentage of such additional shares approximately equal to the percentage of
shares it was obligated to purchase from the Company pursuant to the
Underwriting Agreement.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities under
the Securities Act.
The Company has also agreed to issue to the Representatives for $70.00
warrants (the "Representatives' Warrants") to purchase up to 70,000 shares of
Common Stock at an exercise price per share equal to 120% of the public offering
price per share. The Representatives' Warrants are exercisable for a period of
three years beginning one year from the date of this Prospectus, and are not
transferable for a period of one year except to officers of the Representatives
or any successors to the Representatives. In addition, the Company has granted
certain rights to the holders of the Representatives' Warrants to register the
Common Stock underlying the Representatives' Warrants under the Securities Act.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the
34
<PAGE> 37
highest bid by a market maker not connected with the offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, certain Underwriters and other members of the selling group intend
to engage in passive market making in the Company's Common Stock during the
cooling off period.
LEGAL MATTERS
The law firm of Morrison Cohen Singer & Weinstein, LLP, New York, New York
has acted as counsel to the Company in connection with this offering and will
render an opinion as to the legality of the securities being offered hereby.
Stephen A. Cohen, a member of the firm and a Director of the Company, currently
owns 4,789 shares of Common Stock and holds options to purchase an additional
17,600 shares of Common Stock. Freshman, Marantz, Orlanski, Cooper & Klein, a
law corporation, has acted as counsel to the Underwriter in connection with
certain legal matters relating to this offering.
EXPERTS
The consolidated balance sheets as of June 30, 1994 and 1995, and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the three years ended June 30, 1993, 1994 and 1995 have been included
in this Prospectus in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, given on the authority of such firm as
experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K for the fiscal year ended June 30, 1995
filed with the Commission by the Company is incorporated by reference in this
Prospectus.
Any statement contained herein or in any document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein, which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to furnish without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, copies of any or all of the
documents which are incorporated by reference herein (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Written or telephone requests for such documents should be
directed to Mr. Jeffrey D. Gash, Vice President and Principal Financial Officer,
Jaco Electronics, Inc., 145 Oser Avenue, Hauppauge, New York 11788. The
Company's telephone number is (516) 273-5500.
35
<PAGE> 38
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and a schedule thereto pursuant to the
Act and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and a
schedule filed as a part thereof. The statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of all or any part of the Registration Statement, including
exhibits thereto, may be obtained upon payment of the prescribed fees, or
inspected without charge at the offices of the Commission set forth on page 2.
See "Available Information."
36
<PAGE> 39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Earnings................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 40
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, 1994 and 1995,
and the related consolidated statements of earnings, changes in shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jaco
Electronics, Inc. and Subsidiaries as of June 30, 1994 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
GRANT THORNTON LLP
Melville, New York
August 15, 1995, except for Note H, as to which
the date is August 30, 1995
F-2
<PAGE> 41
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................... $ 434,798 $ 393,671
Accounts receivable, less allowance for doubtful accounts of
$610,000 in 1994 and 1995................................... 17,135,923 20,437,664
Inventories.................................................... 20,081,596 26,653,881
Prepaid expenses and other..................................... 1,072,219 1,256,319
Due from officers.............................................. 291,119 309,808
Deferred income taxes.......................................... 433,000 571,000
----------- -----------
Total current assets........................................ 39,448,655 49,622,343
PROPERTY, PLANT AND EQUIPMENT -- AT COST, NET.................... 3,560,786 4,106,221
DEFERRED INCOME TAXES............................................ 199,000 174,000
EXCESS OF COST OVER NET ASSETS ACQUIRED,
less accumulated amortization of $216,800 in 1994 and
$297,700 in 1995............................................... 1,515,900 1,353,031
OTHER ASSETS..................................................... 960,687 1,067,643
----------- -----------
$45,685,028 $56,323,238
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................... $13,593,794 $16,651,774
Notes payable -- bank.......................................... 8,938,087
Current maturities of long-term debt and
capitalized lease obligations............................... 346,172 452,995
Accrued expenses............................................... 1,262,916 1,300,611
Income taxes payable........................................... 147,499 475,702
----------- -----------
Total current liabilities................................... 24,288,468 18,881,082
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS................. 9,694,108 23,665,624
DEFERRED COMPENSATION............................................ 500,000 550,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock -- authorized, 100,000 shares, $10 par value;
none issued
Common stock -- authorized, 5,000,000 shares, $.10 par value;
issued and outstanding, 1,652,309 and 2,464,384 shares,
respectively................................................ 165,231 246,438
Additional paid-in capital..................................... 3,810,516 5,013,663
Retained earnings.............................................. 7,226,705 7,966,431
----------- -----------
11,202,452 13,226,532
----------- -----------
$45,685,028 $56,323,238
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 42
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $96,675,405 $105,213,077 $138,683,331
Cost of goods sold................................. 75,630,576 83,038,254 109,902,639
----------- ------------ ------------
Gross profit..................................... 21,044,829 22,174,823 28,780,692
Selling, general and administrative expenses....... 17,785,532 19,154,802 23,551,196
----------- ------------ ------------
Operating profit................................. 3,259,297 3,020,021 5,229,496
Interest expense................................... 1,077,902 1,117,354 2,010,554
----------- ------------ ------------
Earnings before income taxes and cumulative
effect of a change in accounting for income
taxes......................................... 2,181,395 1,902,667 3,218,942
Income tax provision............................... 797,000 714,000 1,303,000
----------- ------------ ------------
Earnings before cumulative effect of a change in
accounting for income taxes................... 1,384,395 1,188,667 1,915,942
Cumulative effect of a change in accounting for
income taxes..................................... 241,000
----------- ------------ ------------
NET EARNINGS..................................... $ 1,384,395 $ 1,429,667 $ 1,915,942
=========== ============ ============
Earnings per common share:
Earnings before cumulative effect of a change in
accounting for income taxes...................... $ .55 $ .47 $ .78
Cumulative effect of a change in accounting for
income taxes.................................. .09
----------- ------------ ------------
Net earnings per common share.................... $ .55 $ .56 $ .78
=========== ============ ============
Weighted average common and common equivalent
shares outstanding............................... 2,522,980 2,551,173 2,461,091
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 43
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1992............... 1,708,637 $170,864 $3,936,613 $4,412,643 $ 8,520,120
Net earnings.......................... 1,384,395 1,384,395
--------- -------- ---------- --------- -------------
Balance at June 30, 1993.............. 1,708,637 170,864 3,936,613 5,797,038 9,904,515
Cancellation of shares in satisfaction
of amounts due in connection with a
previous acquisition................ (56,953) (5,695) (126,972) (132,667)
Exercise of stock options............. 625 62 875 937
Net earnings.......................... 1,429,667 1,429,667
--------- -------- ---------- --------- -------------
Balance at June 30, 1994.............. 1,652,309 165,231 3,810,516 7,226,705 11,202,452
Exercise of stock options............. 28,000 2,800 105,700 108,500
10% stock dividend.................... 167,979 16,798 1,159,056 (1,175,854)
Payment for fractional shares
resulting from 10% stock dividend... (362) (362)
4-for-3 stock split................... 616,096 61,609 (61,609)
Net earnings.......................... 1,915,942 1,915,942
--------- -------- ---------- --------- -------------
Balance at June 30, 1995.............. 2,464,384 $246,438 $5,013,663 $7,966,431 $ 13,226,532
======== ======== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 44
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings.................................... $ 1,384,395 $ 1,429,667 $ 1,915,942
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities
Depreciation and amortization................ 300,780 412,704 693,290
Deferred compensation........................ 50,000 50,000 50,000
Deferred income tax expense (benefit)........ 50,000 (111,000) (31,000)
Loss on sale of equipment.................... 12,447 35,006 18,403
Provision for doubtful accounts.............. 549,000 160,000 458,000
Changes in operating assets and liabilities,
net of effects of acquisition
Increase in accounts receivable............ (2,287,602) (1,807,919) (3,759,741)
(Increase) decrease in inventories......... 1,281,159 (1,936,676) (6,572,285)
Increase in prepaid expenses and other..... (16,490) (224,965) (184,100)
Increase (decrease) in accounts payable.... (265,606) 2,493,897 3,057,980
Increase (decrease) in accrued expenses.... 176,204 (234,864) 37,695
Increase (decrease) in income taxes
payable................................. 341,066 (392,514) 328,203
------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. 1,575,353 (126,664) (3,987,613)
------------ ------------ ------------
Cash flows from investing activities
Capital expenditures............................ (155,628) (875,797) (908,153)
Proceeds from the sale of equipment............. 36,058 49,302 20,000
Purchase of subsidiary, net..................... (1,796,355)
(Increase) decrease in due from officers, net... 123,263 (101,878) (18,689)
(Increase) decrease in other assets............. (215,533) 16,452 (106,956)
------------ ------------ ------------
Net cash used in investing activities...... (211,840) (2,708,276) (1,013,798)
------------ ------------ ------------
Cash flows from financing activities
Borrowings from line of credit.................. 95,927,072 110,434,283 141,391,776
Payments of line of credit...................... (96,954,529) (109,501,754) (136,774,193)
Principal payments under equipment financing.... (148,959) (269,613) (434,854)
Borrowings from term loans...................... 1,982,071 669,417
Proceeds from exercise of stock option.......... 937 108,500
Payments for fractional shares.................. (362)
------------ ------------ ------------
Net cash (used in) provided by financing
activities.............................. (1,176,416) 2,645,924 4,960,284
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH............ 187,097 (189,016) (41,127)
Cash and cash equivalents at beginning of year.... 436,717 623,814 434,798
------------ ------------ ------------
Cash and cash equivalents at end of year.......... $ 623,814 $ 434,798 $ 393,671
============ ============ ============
Supplemental cash flow disclosures:
Interest paid................................... $ 1,096,000 $ 1,126,000 $ 1,970,000
Income taxes paid............................... 484,000 660,000 993,000
Supplemental schedule of noncash financing and
investing activities:
Equipment under capital leases.................. $ 86,000 $ 288,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 45
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of electronic components, electromechanical devices
and computer subsystems, produced by others, to numerous manufacturing
companies. Further, through a fiscal 1994 acquisition, the Company provides
contract manufacturing services.
Electronics parts distribution sales include exports made principally to
customers located in Western Europe. For the years ended June 30, 1993, 1994 and
1995, export sales amounted to approximately $5,356,000, $5,289,000 and
$5,032,000, 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. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and average cost methods.
4. Property, Plant and Equipment
Depreciation is provided for using accelerated methods, principally the
double-declining balance method over the estimated useful life of the assets
related to the Company's distribution business. Plant and equipment related to
the Company's manufacturing business is depreciated using the straight-line
method.
5. Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired is amortized over periods of
ten to forty years using the straight-line method. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121") that establishes accounting standards for the
impairment of long-lived assets, certain intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. In accordance with SFAS No. 121, it
is the Company's policy to periodically review and evaluate whether there has
been a permanent impairment in the value of intangibles. Factors considered in
the valuation include current operating results, trends and anticipated
undiscounted future cash flows.
6. Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes," as of July 1, 1993 and recorded
income of $241,000 as the cumulative effect of a change in accounting for income
taxes. Pursuant to SFAS No. 109, 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
F-7
<PAGE> 46
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reduce deferred tax assets attributable to the Company's acquired subsidiary, 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.
7. Earnings Per Common Share
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding during the year and reflects the dilutive
effect of outstanding stock options. All per share information has been restated
to reflect stock dividends and stock splits.
8. Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
9. Concentration of Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of receivables. Concentration
of credit risk with respect to these receivables is generally diversified due to
the large number of entities comprising the Company's customer base, their
dispersion across geographic areas and the Company's policy of maintaining
credit insurance. The Company routinely addresses the financial strength of its
customers and, as a consequence, believes that its receivable credit risk
exposure is limited.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. During the year ended June 30, 1995, the
Company's top three suppliers accounted for 14%, 13% and 9%, respectively, of
net sales. In June 1995 the Company's largest supplier canceled its distributor
agreement with the Company. While the Company believes that it will be able to
replace a major portion of those sales with sales of other product lines from
other suppliers, there can be no assurance that it will, in fact, be able to
replace these sales.
NOTE B -- INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Finished goods and goods held for resale.................... $18,092,596 $23,374,881
Work-in-process............................................. 742,000 718,000
Raw materials............................................... 1,247,000 2,561,000
----------- -----------
$20,081,596 $26,653,881
=========== ===========
</TABLE>
F-8
<PAGE> 47
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIFE -----------------------
IN YEARS 1994 1995
----------- --------- ---------
<S> <C> <C> <C>
Land, building and improvements................... 10 to 30 $1,259,781 $1,389,603
Machinery and equipment........................... 3 to 8 3,721,215 4,699,761
Transportation equipment.......................... 3 to 5 186,060 134,997
Leasehold improvements............................ 5 to 10 600,780 687,566
---------- ----------
5,767,836 6,911,927
Less accumulated depreciation and amortization
(including $496,884 in 1994 and $607,851 in 1995
of capitalized lease amortization).............. 2,207,050 2,805,706
---------- ----------
$3,560,786 $4,106,221
========== ==========
</TABLE>
Included in machinery and equipment is computer equipment recorded under
capitalized leases at June 30, 1994 and 1995 for $654,933 and $943,038,
respectively.
NOTE D -- INCOME TAXES
The provision for income taxes for the fiscal years ended June 30, 1993,
1994 and 1995, respectively, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal
Current........................................ $ 645,000 $ 505,000 $1,063,000
Deferred....................................... 50,000 111,000 (31,000)
--------- --------- ----------
695,000 616,000 1,032,000
State............................................ 102,000 98,000 271,000
--------- --------- ----------
$ 797,000 $ 714,000 $1,303,000
========= ========= ==========
</TABLE>
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory Federal tax rate................................... 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit............... 3.5 5.0 5.6
Prior period tax adjustments................................. (3.7)
Earnings of foreign sales corporation........................ (.9) (1.0) (.6)
Sales expense for which no tax benefit arises................ 1.0 2.4 1.7
Other........................................................ (1.1) .8 (.2)
----- ----- -----
Effective tax rate........................................... 36.5% 37.5% 40.5%
===== ===== =====
</TABLE>
F-9
<PAGE> 48
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE D -- INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes, pursuant
to SFAS No. 109, at June 30, 1994 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards............................ $ 528,000 $ 521,000
Allowance for bad debts..................................... 223,000 222,000
Inventory valuation......................................... 465,000 532,000
Deferred compensation....................................... 195,000 201,000
Other deferred assets....................................... 60,000 30,000
--------- ---------
1,471,000 1,506,000
Deferred tax liabilities
Depreciation................................................ (46,000) (56,000)
Other....................................................... (53,000) (47,000)
--------- ---------
1,372,000 1,403,000
Valuation allowance........................................... (740,000) (658,000)
--------- ---------
Net deferred tax asset........................................ $ 632,000 $ 745,000
========= =========
</TABLE>
At June 30, 1995, the Company, through an acquisition (see Note I), has
available a Federal net operating loss carryforward of approximately $1,426,000.
Such net operating loss is subject to certain limitations and expires in varying
amounts during the fiscal years 2007 through 2009. Further, the Company has
established a valuation allowance with respect to the net deferred tax assets
attributable to this acquired subsidiary. During fiscal 1995, $82,000 of such
net deferred tax asset was recognized as a reduction of the excess of cost over
net assets acquired attributable to the acquired subsidiary. The subsequent
realization of the majority of such deferred tax asset will result in the
reduction of the excess of cost over net assets acquired.
The components of the deferred income tax expense (benefit) for the year
ended June 30, 1993 are comprised of the following:
<TABLE>
<S> <C>
Deferred compensation............................ $(17,000)
Inventory capitalization......................... 19,000
Bad debts........................................ 49,000
Other............................................ (1,000)
--------
$ 50,000
========
</TABLE>
F-10
<PAGE> 49
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE E -- DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Term loans and revolving line of credit(a).................. $9,446,429 $22,787,811
Other term loans(b)......................................... 485,646
Equipment notes(c).......................................... 469,191 487,189
Capitalized lease obligations(d)............................ 143,900 413,722
---------- ----------
10,059,520 24,174,368
Less amounts representing interest on capitalized leases.... 19,240 55,749
---------- ----------
10,040,280 24,118,619
Less current maturities..................................... 346,172 452,995
---------- ----------
$9,694,108 $23,665,624
========== ==========
</TABLE>
(a) Term Loans and Revolving Line of Credit Facility
On April 25, 1995, the Company amended its agreement with a bank which, as
amended, provides the Company with a $30,000,000 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 amendment increased
the credit facility to $30,000,000 from $24,500,000 and bears interest at the
higher of the (1) bank's prime rate or the Federal funds rate plus 1/2% or (2)
at the Company's option LIBOR plus 2.5% for fixed time periods, and extended the
maturity date of the term loan to January 31, 1998 and the revolving line of
credit to April 30, 1998. The agreement contains provisions for maintenance of
certain financial ratios and prohibits the payment of cash dividends. The
outstanding balance on the revolving line of credit facility, $13,555,670 at
June 30, 1995, bears interest at the bank's prime rate. Pursuant to the same
agreement, at June 30, 1995, there are two outstanding term loans in the amounts
of: (1) $8,000,000 due January 31, 1998, and (2) $1,232,141 payable in
eighty-four consecutive monthly installments of $17,857, which commenced on
April 1, 1994, both bearing interest at the bank's prime rate (9% at June 30,
1995). These borrowings are collateralized by substantially all of the assets of
the Company.
(b) Other Term Loans
Other term loans as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
MONTHLY
DATE OF LOAN BALANCE TERM PAYMENT
------------------------------------------------- -------- --------- -------
<S> <C> <C> <C>
March 16, 1995................................... $ 57,407 60 months $1,160
March 16, 1995................................... 184,396 84 months 2,730
March 16, 1995................................... 243,843 84 months 4,216
--------
$485,646
========
</TABLE>
The above loans are collateralized by the related equipment acquired,
having a carrying value of approximately $495,000 at June 30, 1995. The
agreements contain, among other things, restrictive covenants on one of the
Company's subsidiaries, which place limitations on: (i) consolidations,
F-11
<PAGE> 50
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE E -- DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
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 6%, 5.5% and 1.5%
over a bank's prime rate, respectively.
(c) Equipment Notes
The equipment notes are payable through September 1999, bearing implicit
interest rates from 7.55% to 13.25%.
(d) Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to make
monthly payments through June 1999, with implicit interest rates from 7.55% to
13.20%.
The following is a summary of the aggregate annual maturities of long-term
debt and capitalized lease obligations as of June 30, 1995:
<TABLE>
<CAPTION>
LONG-TERM CAPITALIZED
DEBT LEASES
---------- -----------
<S> <C> <C>
Year ending June 30,
1996...................................................... $ 377,278 $ 97,035
1997...................................................... 401,863 99,014
1998...................................................... 21,973,472 99,014
1999...................................................... 410,097 97,300
2000...................................................... 302,138 21,359
Thereafter................................................ 295,798
----------- -----------
$23,760,646 $ 413,722
=========== ===========
</TABLE>
NOTE F -- COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases 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
at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Year ending June 30,
1996........................................... $592,000
1997........................................... 124,000
1998........................................... 50,000
1999........................................... 4,000
--------
$770,000
========
</TABLE>
F-12
<PAGE> 51
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases office and warehouse facilities from a partnership owned
by two officers and directors of the Company. The lease expires in December 1995
and requires minimum annual lease payments of $337,500 for the year ending June
30, 1996.
In addition, the Company is contingently liable as a guarantor of a
mortgage on such property in the amount of approximately $396,000 as of June 30,
1995. The Company's rent expense was approximately $583,000, $571,000 and
$571,000 for the years ended June 30, 1993, 1994 and 1995, respectively, in
connection with the above lease.
Rent expense on office and warehouse facilities leases for the years ended
June 30, 1993, 1994 and 1995 was approximately $834,000, $872,000 and $909,000,
respectively, net of sublease income of approximately $194,000, $147,000 and
$135,000, respectively.
2. Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through December 1999. The minimum
rental commitments required under these leases at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Year ending June 30,
1996........................................... $305,000
1997........................................... 242,000
1998........................................... 157,000
1999........................................... 64,000
2000........................................... 12,000
--------
$780,000
========
</TABLE>
3. Employment Agreement
Effective July 1, 1993, the Company entered into a new employment agreement
with the Chairman which expires July 1, 1997. Pursuant to this agreement, he
received a base salary of $250,000 and $300,000 in 1994 and 1995, respectively,
and will receive a base salary of $325,000 for each of the years ending June 30,
1996 and 1997. In addition, the Chairman will be entitled to an annual bonus
equal to 4% of earnings before income taxes, if earnings for a particular fiscal
year exceed $1,000,000 or 6% if earnings before income taxes are in excess of
$2,500,000. The agreement also provides for the continuation of the deferred
compensation arrangement first established in fiscal 1985, whereby $50,000 per
year has been accrued and becomes payable in its entirety no later than January
15 of the year next following the last to occur of the following events: (1) the
Chairman's attainment of age 60 (fiscal 1999) or (2) cessation of the Chairman's
employment with or without cause after July 1, 1993. In the event of a change in
control resulting in termination of the Chairman's employment, the Chairman will
receive between $450,000 and $600,000 depending on the date of termination. For
the years ended June 30, 1994 and 1995, bonuses of approximately $76,000 and
$193,000, respectively, were earned pursuant to the Chairman's employment
agreement. Further, the Chairman has outstanding demand loans at June 30, 1995
aggregating $309,808 which bear interest at 9 3/4% per annum.
F-13
<PAGE> 52
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE G -- 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, 1993, 1994 and 1995, the Company contributed to
this plan approximately $60,000, $61,000 and $90,000, respectively.
NOTE H -- SHAREHOLDERS' EQUITY
On February 3, 1995, the Company declared a 10% stock dividend which was
paid on March 10, 1995. Further, on August 30, 1995, the Company authorized a
4-for-3 stock split. The 4-for-3 split will be effective on September 22, 1995.
All references to the number of common shares and earnings per common shares
have been restated to reflect the 10% stock dividend and the 4-for-3 stock
split.
The Company has stock option plans which provide for the granting of stock
options to employees, directors and officers under the following stock option
plans:
In November 1981, the Company approved the adoption of a qualified
incentive stock option plan, hereinafter referred to as the "1981 Plan." The
stock options granted under the 1981 Plan are generally exercisable for a period
of five years at a price not less than the market value on the date of grant. A
total of 2,750 shares are reserved for issuance upon exercise of stock options
under this plan.
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 of and price 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. The Company
has reserved 293,333 shares of common stock for the 1993 Plan, of which 100,100
options are outstanding.
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 14,667 shares of the Company's common
stock at the fair market value on the date of grant. Of the 111,467 options
currently available for grant under the Outside Directors Plan, each person who
is an outside director on December 31 of each calendar year subsequent to 1993
shall be granted options to purchase 2,933 shares of the Company's common stock
annually. 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. The Company has reserved 146,667 shares of
common stock for the Outside Directors Plan of which 35,200 options are
outstanding.
F-14
<PAGE> 53
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
<TABLE>
<CAPTION>
NONQUALIFIED STOCK
INCENTIVE STOCK OPTIONS OPTIONS
------------------------ ------------------------
PRICE RANGE SHARES PRICE RANGE SHARES
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1992........... $1.02 - 2.65 44,734
Granted...............................
Exercised.............................
-------
Outstanding at June 30, 1993.......... $1.02 - 2.65 44,734
Granted............................... $4.77 - 5.80 129,433
Exercised............................. $1.02 (917)
------- -------
Outstanding at June 30, 1994.......... $1.02 - 2.65 43,817 $4.77 - 5.80 129,433
Granted............................... $4.94 5,867
Exercised............................. $2.65 (41,067)
------- -------
Outstanding at June 30, 1995.......... $1.02 2,750 $4.77 - 5.80 135,300
======= =======
Amounts exercisable at June 30,
1995................................ $1.02 2,750 $4.77 - 5.80 135,300
======= =======
</TABLE>
NOTE I -- ACQUISITION
On March 11, 1994, the Company purchased all of the outstanding common
stock of a contract manufacturer for $1,796,355 in cash, financed in part by the
Company obtaining a term loan (see Note E). The acquisition was accounted for by
the purchase method and, accordingly, the purchase price was allocated to assets
acquired and liabilities assumed based upon their fair market value as of the
date of acquisition. The amount paid in excess of the fair market value,
$418,478, as adjusted to reflect the realization of deferred tax assets not
previously recognized, is being amortized over a ten-year period and is included
in the accompanying consolidated financial statements as of June 30, 1995, net
of accumulated amortization of $62,580. The operations of the contract
manufacturer are included in the accompanying financial statements from the date
of acquisition. The fair market values of the assets and the liabilities assumed
at the date of acquisition were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................................. $5,455,526
Liabilities assumed....................................................... (3,659,171)
----------
Purchase price............................................................ $1,796,355
==========
</TABLE>
The pro forma unaudited results of operations for the year ended June 30,
1994, assuming consummation of the purchase and term loan borrowing as of July
1, 1993, are as follows:
<TABLE>
<S> <C>
Net sales................................................................ $108,793,684
============
Net earnings............................................................. $ 799,967
============
Net earnings per share................................................... $.31
====
</TABLE>
F-15
<PAGE> 54
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE I -- ACQUISITION (CONTINUED)
As a result of this acquisition, the Company now has two business segments:
electronics parts distribution and contract manufacturing. The following is a
summary of selected consolidated information for the electronics components
distribution and contract manufacturing segments for fiscal 1995 and 1994.
Fiscal year ended 1994 information for the contract manufacturing segment is
from March 11, 1994 (the date of acquisition) to June 30, 1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
Sales
Electronics components distribution..................... $102,493,000 $126,545,000
Contract manufacturing.................................. 2,720,000 12,138,000
------------ ------------
$105,213,000 $138,683,000
============ ============
Operating profit
Electronics components distribution..................... $ 2,991,000 $ 4,666,000
Contract manufacturing.................................. 29,000 563,000
------------ ------------
$ 3,020,000 $ 5,229,000
============ ============
Identifiable assets
Electronics components distribution..................... $ 39,545,000 $ 47,909,000
Contract manufacturing.................................. 6,140,000 8,414,000
------------ ------------
$ 45,685,000 $ 56,323,000
============ ============
Capital expenditures
Electronics components distribution..................... $ 828,000 $ 342,000
Contract manufacturing.................................. 48,000 566,000
------------ ------------
$ 876,000 $ 908,000
============ ============
Depreciation and amortization
Electronics components distribution..................... $ 329,000 $ 397,000
Contract manufacturing.................................. 84,000 296,000
------------ ------------
$ 413,000 $ 693,000
============ ============
</TABLE>
NOTE J -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... $31,087,594 $33,747,154 $35,825,167 $38,023,416
Gross profit....................... 6,394,122 6,919,043 7,496,699 7,970,828
Net earnings....................... 262,494 447,765 554,284 651,399
Earnings per common share
Net earnings per common
share (a)..................... $.11 $.18 $.23 $.26
====== ====== ====== ======
</TABLE>
F-16
<PAGE> 55
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE J -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1993 1993 1994 1994
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... $25,027,679 $24,035,522 $27,528,315 $28,621,561
Gross profit....................... 5,424,908 5,178,809 5,634,382 5,936,724
Earnings before cumulative effect
of a change in accounting for
income taxes..................... 413,033 242,982 382,528 150,124
Net earnings....................... 654,033 242,982 382,528 150,124
Earnings per common share
Earnings per share before
cumulative effect of a change
in accounting for income
taxes......................... $.16 $.10 $.15 $.06
Cumulative effect of a change in
accounting for income taxes
per share..................... .09 -- -- --
------ ------ ----- -----
Net earnings per common share
(a)........................... $.25 $.10 $.15 $.06
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
-------------------------------
(a) As adjusted to reflect the 10% stock dividend paid on March 10, 1995
and a 4-for-3 stock split authorized on August 30, 1995.
F-17
<PAGE> 56
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF THE
COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 2
Prospectus Summary................... 3
Investment Considerations............ 6
Use of Proceeds...................... 9
Dividend Policy...................... 9
Price Range of Common Stock.......... 10
Capitalization....................... 11
Selected Consolidated Financial
Data............................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
Business............................. 18
Management........................... 27
Principal and Selling Shareholders... 31
Description of Capital Stock......... 32
Shares Eligible for Future Sale...... 33
Underwriting......................... 34
Legal Matters........................ 35
Experts.............................. 35
Incorporation of Certain Documents By
Reference.......................... 35
Additional Information............... 36
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,600,000 SHARES
[LOGO]
COMMON STOCK
JACO ELECTRONICS, INC.
------------------------
P R O S P E C T U S
------------------------
CRUTTENDEN ROTH
I N C O R P O R A T E D
CLEARY GULL REILAND & MCDEVITT INC.
, 1995
------------------------------------------------------
------------------------------------------------------
<PAGE> 57
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Accounting Fees........................................................... $ 50,000
Printing Expenses......................................................... 100,000
Blue Sky Fees and Expenses................................................ 20,000
Registration Fee.......................................................... 8,273
NASD Fee.................................................................. 2,900
Legal Fees................................................................ 125,000
Additional Listing Fees................................................... 17,500
Miscellaneous............................................................. 74,435
-------
Total................................................................ $398,108
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 402 of the Business Corporation Law of the State of New York (the
"BCL") provides that a corporation may indemnify its officers and directors (or
persons who have served, at the corporation's request, as officers or directors
of another corporation) against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred by them in connection with the defense of
any action by reason of being or having been directors or officers, if such
person shall have acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or matter as to which
such person shall have been judged to have been liable to the corporation unless
and to the extent that the Supreme Court of the State of New York, or any other
court in which the suit may be brought, shall determine upon application that,
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnification.
The Restated Certificate of Incorporation (the "Charter"), and the Restated
By-Laws (the "By-Laws") of the registrant provide for the elimination of the
personal liability of a director to the registrant and its stockholders for
monetary damages for breach of a fiduciary duty as a director. However, the
Charter and By-Laws have not (and are not permitted by statute to have)
eliminated the liability of a director for (i) any breach of a director's duty
of loyalty to the registrant and its stockholders; (ii) any acts or omissions
not undertaken in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) any action under Section 719 of the BCL,
including paying a dividend or approving an illegal dividend; or (iv) any
transaction from which the director derived an improper personal benefit.
The Charter and By-Laws also provide that expenses incurred by an officer
or director may be paid in advance of the final disposition of such action, suit
or proceeding by the registrant upon the receipt of an undertaking by or on
behalf of the director or officer to repay the said amount advanced if a
specific determination is made that the officer or director is not entitled to
the indemnification. In addition, the By-Laws provide that the registrant may
maintain insurance to protect itself and its officers and directors against any
liability, cost, payment or expense associated with such indemnification.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
--------
<S> <C>
1.1 Form of draft of Underwriting Agreement
</TABLE>
II-1
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NO.
--------
<S> <C>
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
4.2 Form of Representatives' Warrant Agreement (with form of Representatives' Warrant
Certificate attached thereto as Exhibit A).
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP, as to the legality of the
shares of Common Stock (to be filed by Amendment).
10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech Realty
Company), incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty Company (as assignee
of Hi-Tech Realty Company), incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 10.2.
10.3 1993 Non-Qualified Stock Option Plan, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993, Exhibit 10.6.
10.4 Stock Purchase Agreement, dated as of February 8, 1994 by and among the Company
and Reilrop, B.V. and Guaranteed by Cray Electronics Holdings PLC, incorporated by
reference to the Company's Current Report on Form 8-K, dated March 11, 1994.
10.5 1993 Stock Option Plan for Outside Directors, incorporated by reference to the
Company's Annual Report on Form 10-K, filed October 7, 1994, Exhibit 10.8.
10.6 Employment Agreement between Joel H. Girsky and the Company, dated December 29,
1989, incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1990, Exhibit 10.3.
10.7 Employment Agreement between Joel H. Girsky and the Company, dated October 5,
1994, incorporated by reference to the Company's Annual Report on Form 10-K, filed
October 7, 1994, Exhibit 10.9.
10.8 Authorized Electronic Industrial Distributor Agreement, dated as of August 24,
1970 by and between AVX and the Company (to be filed by Amendment).
10.9 Electronic Corporation Distributor Agreement, dated November 15, 1974, by and
between Kemet and the Company (to be filed by Amendment).
23.1 Consent of Morrison Cohen Singer & Weinstein, LLP (included in the Opinion of
Morrison Cohen Singer & Weinstein, LLP to be filed by Amendment as Exhibit 5.1).
23.2 Consent of Grant Thornton LLP (included in Part II of this Registration
Statement).
24.1 Power of Attorney (included in the signature page filed as a part of this
Registration Statement).
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).
</TABLE>
II-2
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NO.
--------
<S> <C>
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,
filed October 7, 1994, Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor of BNYCC,
dated March 11, 1994, incorporated by reference to the Company's Annual Report on
Form 10-K, filed October 7, 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.
99.8 Second Restated and Amended Loan and Security Agreement dated September , 1995
among Jaco Electronics, Inc., Nexus Custom Electronics, Inc., The Bank of New York
Commercial Corporation and NatWest Bank, N.A. (to be filed by Amendment).
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statement Schedules filed as part of this Registration Statement:
Report of Independent Certified Public Accountants on Schedule. .... S-1
Schedule II -- Valuation and Qualifying Accounts. .................. S-2
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement with
respect to the following:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 60
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For purposes of determining any liability under the Securities Act, (i) the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (ii) each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 61
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated August 15, 1995 (except for Note H to the
consolidated financial statements as to which the date is August 30, 1995)
accompanying the consolidated financial statements and schedule of Jaco
Electronics, Inc. as of June 30, 1994 and 1995 and for each of the three years
in the period ended June 30, 1995 contained in and incorporated by reference in
this Registration Statement on Form S-2 of Jaco Electronics, Inc. and the
related Prospectus. We consent to the use and incorporation by reference of the
aforementioned reports in the Registration Statement and Prospectus and to the
use of our name as it appears under the captions "Selected Consolidated
Financial Data" and "Experts".
GRANT THORNTON LLP
Melville, New York
September 11, 1995
II-5
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Hauppauge, New York on September 11, 1995.
JACO ELECTRONICS, INC.
By: /s/ JOEL H. GIRSKY
------------------------------------
Joel H. Girsky, Chairman of the
Board, President and Treasurer
By: /s/ JEFFREY D. GASH
------------------------------------
Jeffrey D. Gash, Principal Financial
and Accounting Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Joel H. Girsky and Jeffrey D. Gash, or
either of them, each with the power of substitution, his or her
attorney-in-fact, to sign any amendments to this Registration Statement and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his or her substitute, may
do or choose to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ----------------------- -------------------
<C> <S> <C>
Chairman of the Board, September 11, 1995
/s/ JOEL H. GIRSKY President and
--------------------------------------------- Treasurer
Joel H. Girsky
Executive Vice September 11, 1995
/s/ CHARLES S. GIRSKY President and
--------------------------------------------- Director
Charles S. Girsky
/s/ STEPHEN A. COHEN Director September 11, 1995
---------------------------------------------
Stephen A. Cohen
/s/ EDWARD M. FRANKEL Director September 11, 1995
---------------------------------------------
Edward M. Frankel
</TABLE>
II-6
<PAGE> 63
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Shareholders
JACO ELECTRONICS, INC.
In connection with our audit of the consolidated financial statements of
Jaco Electronics, Inc. and Subsidiaries referred to in our report dated August
15, 1995, which is included in the annual report to security holders and
incorporated by reference in Part II of this form, we have also audited Schedule
II as of June 30, 1995 and for each of the three years in the period then ended.
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, 1995
S-1
<PAGE> 64
JACO ELECTRONICS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COLUMN C
-----------------------
ADDITIONS
----------------------- COLUMN E
COLUMN B (2) --------
---------- (1) CHARGED TO COLUMN D BALANCE
COLUMN A BALANCE AT CHARGED TO OTHER ------------ AT
------------ BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
--------------------------------- ---------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1993....... $1,007,000 $549,000 $110,000(b) $803,000(a) $863,000
========= ======== ======== ========== ========
Year ended June 30, 1994....... $ 863,000 $160,000 $187,000(b)(c) $600,000(a) $610,000
========= ======== ======== ========== ========
Year ended June 30, 1995....... $ 610,000 $458,000 $104,000(b) $562,000(a) $610,000
========= ======== ======== ========== ========
</TABLE>
-------------------------------
(a) Represents write-offs of uncollectible accounts.
(b) Recoveries of accounts.
(c) Includes balance attributable to acquired subsidiary.
S-2
<PAGE> 65
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ----------------------------------------------------------------------
<S> <C>
1.1 Form of draft of Underwriting Agreement
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
4.2 Form of Representatives' Warrant Agreement (with form of
Representatives' Warrant Certificate attached thereto as Exhibit A).
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP, as to the legality
of the shares of Common Stock (to be filed by Amendment).
10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech
Realty Company), incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1983, Exhibit 10(1),
pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty Company
(as assignee of Hi-Tech Realty Company), incorporated by reference to
the Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 10.2.
10.3 1993 Non-Qualified Stock Option Plan, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1993,
Exhibit 10.6.
10.4 Stock Purchase Agreement, dated as of February 8, 1994 by and among
the Company and Reilrop, B.V. and Guaranteed by Cray Electronics
Holdings PLC, incorporated by reference to the Company's Current
Report on Form 8-K, dated March 11, 1994.
10.5 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K, filed October
7, 1994, Exhibit 10.8.
10.6 Employment Agreement between Joel H. Girsky and the Company, dated
December 29, 1989, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1990, Exhibit 10.3.
10.7 Employment Agreement between Joel H. Girsky and the Company, dated
October 5, 1994, incorporated by reference to the Company's Annual
Report on Form 10-K, filed October 7, 1994, Exhibit 10.9.
10.8 Authorized Electronic Industrial Distributor Agreement, dated as of
August 24, 1970 by and between AVX and the Company (to be filed by
Amendment).
10.9 Electronic Corporation Distributor Agreement, dated November 15, 1974,
by and between Kemet and the Company (to be filed by Amendment).
23.1 Consent of Morrison Cohen Singer & Weinstein, LLP (included in the
Opinion of Morrison Cohen Singer & Weinstein, LLP to be filed by
Amendment as Exhibit 5.1).
23.2 Consent of Grant Thornton LLP (included in Part II of this
Registration Statement).
24.1 Power of Attorney (included in the signature page filed as a part of
this Registration Statement).
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ----------------------------------------------------------------------
<S> <C>
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, filed October 7, 1994, Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor
of BNYCC, dated March 11, 1994, incorporated by reference to the
Company's Annual Report on Form 10-K, filed October 7, 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.
99.8 Second Restated and Amended Loan and Security Agreement dated
September , 1995 among Jaco Electronics, Inc., Nexus Custom
Electronics, Inc., The Bank of New York Commercial Corporation and
NatWest Bank, N.A. (to be filed by Amendment).
</TABLE>
<PAGE> 1
Exhibit 1.1
1,600,000 SHARES(1)
JACO ELECTRONICS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1995
DRAFT OF SEPTEMBER 1, 1995
CRUTTENDEN ROTH INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
As Representatives of the several Underwriters
c/o Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92715
Gentlemen:
JACO ELECTRONICS, INC. a New York corporation (the "Company"), and
certain shareholders of the Company named in Schedule B hereto (hereafter called
the "Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
1,325,000 shares of its authorized and unissued Common Stock, $0.10 par value
per share, to the several Underwriters. The Selling Shareholders, acting
severally and not jointly, propose to sell an aggregate of 275,000 shares of the
Company's authorized and outstanding Common Stock, $0.10 par value per share, to
the several Underwriters. The 1,325,000 shares of Common Stock, $0.10 par value
per share, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the 275,000 shares of Common Stock, $0.10 par value per
share, to be sold by the Selling Stockholders are hereinafter called the
"Selling Stockholder Shares." The Company Shares and the Selling Stockholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Company also proposes to grant to the Underwriters an option to purchase up to
240,000 additional shares of the Company's Common Stock, $0.10 par value per
share (the "Option Shares"), as provided in Section 7 hereof. In addition, the
Company proposes to sell to you, individually and not in your capacity as
Representatives, four-year warrants (the "Representatives' Warrants") to
purchase up to 70,000 shares of Common Stock, $0.10 par value per share, of the
Company (the "Representatives' Warrant Stock"), which sale will be consummated
in accordance with the terms and conditions of the Representatives' Warrant
Agreement (the "Representatives' Warrant Agreement"), the form of which is filed
as an exhibit to the Registration Statement described below. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Common Stock, $0.10 par value per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby, including
the Shares, are hereinafter referred to as "Common Stock."
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
I. The Company and the Selling Stockholders each represents and
warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-2 (File No.
33-_____) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
------------------------
(1) Plus an option to purchase up to 240,000 additional shares from the Company
to cover over-allotments.
<PAGE> 2
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses"), including all
documents incorporated by reference therein, have been delivered to you. The
Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-2 under the Act.
If the registration statement relating to the Shares
has been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) of the Rules and Regulations
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
or as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement relating
to the Shares has not been declared effective under the Act by the Commission,
the Company will prepare and promptly file an amendment to the registration
statement, including a final form of prospectus. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. Any reference to the
Registration Statement or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-2
under the Act, as of the date of the Registration Statement or the Prospectus,
as the case may be. As used in this Agreement, the term "Incorporated Documents"
means the documents which at the time are incorporated by reference in the
Registration Statement, the Prospectus or any amendment or supplement thereto.
(b) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
at the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to be
purchased, (i) the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were
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<PAGE> 3
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder; no such
document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(c) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of the
outstanding capital stock of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and its subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities which are material
to the conduct of its business, all of which are valid and in full force and
effect; neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound; and neither the Company nor any of its
subsidiaries is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than those subsidiaries listed in Exhibit __
to the Company's Annual Report on Form 10-K filed with the Commission and
incorporated by reference into the Registration Statement.
(d) The Company has full legal right, power and
authority to enter into this Agreement and the Representatives' Warrant
Agreement and to perform the transactions contemplated hereby and thereby. This
Agreement and the Representatives' Warrant Agreement each has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement on the part of the Company, enforceable in accordance with its terms,
except as rights to indemnification under this Agreement or the Representatives'
Warrant Agreement may be limited by applicable law and except as the enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
Representatives' Warrant Agreement and the consummation of the transactions
herein or therein contemplated will not result in a material breach or violation
of any of the terms and provisions of, or constitute a default under, (i) any
bond, debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound, (ii) the charter or bylaws of the Company or any of its
subsidiaries, or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic
-3-
<PAGE> 4
or foreign, having jurisdiction over the Company or any of its subsidiaries or
over their respective properties. No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the execution
and delivery of this Agreement or the Representatives' Warrant Agreement and the
consummation by the Company or any of its subsidiaries of the transactions
herein and therein contemplated, except such as may be required under the Act or
under state or other securities or Blue Sky laws, all of which requirements have
been satisfied in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or any of their respective officers or any of
their respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations or by the Exchange Act or the rules and regulations of the
Commission thereunder which have not been accurately described in all material
respects in the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the
Company (including the Selling Stockholder Shares) have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Company Shares and the Option Shares have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of shareholders exists with respect to any of the Company Shares or Option
Shares or the issuance and sale thereof other than those that have been
expressly waived prior to the date hereof and those that will automatically
expire upon the consummation of the transactions contemplated on the Closing
Date. No further approval or authorization of any shareholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state or
other securities or Blue Sky laws. All issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation of
or subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, neither the Company nor
any subsidiary has outstanding any options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth or incorporated by reference in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
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<PAGE> 5
(g) Grant Thorton LLP which has examined the
consolidated financial statements of the Company, together with the related
schedule and notes, as of June 30, 1994 and 1995 and for each of the years in
the three (3) years ended June 30, 1995 filed with the Commission as a part of
or incorporated by reference into the Registration Statement are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedule and notes, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company and its subsidiaries at the respective dates and for the
respective periods to which they apply; and all audited consolidated financial
statements of the Company, together with the related schedule and notes, filed
with the Commission as part of or incorporated by reference into the
Registration Statement, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as may be otherwise stated therein. The selected and summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements or
schedules are required to be included or incorporated by reference in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement
and Prospectus, (i) each of the Company and its subsidiaries has good and
marketable title to all properties and assets described in the Registration
Statement and Prospectus as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (ii) the agreements to which
the Company or any of its subsidiaries is a party described in the Registration
Statement and are valid agreements, enforceable by the Company and its
subsidiaries (as applicable), except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) each of the Company and its
subsidiaries has valid and enforceable leases for all properties described in
the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company owns or leases
all such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(j) The Company and its subsidiaries have timely filed
all necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown thereon as due, and there is no tax deficiency that
has been or, to the best of the Company's knowledge, might be asserted against
the Company or any of its subsidiaries that might have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business
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<PAGE> 6
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; neither the Company
nor any such subsidiary has been refused any insurance coverage sought or
applied for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, that might be
expected to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus, the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(n) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed on The Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from The Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(n) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(o) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution
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<PAGE> 7
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(p) Neither the Company nor any of its subsidiaries
has at any time during the last five (5) years (i) made any unlawful
contribution to any candidate for foreign office or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(q) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(r) Each officer and director of the Company, each
Selling Stockholder and each beneficial owner of _,000 or more shares of Common
Stock has agreed in writing that such person will not, for a period of 180 days
from the date that the Registration Statement is declared effective by the
Commission (the "Lock-up Period"), offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to limited
partners or shareholders of such person, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Cruttenden Roth Incorporated. The foregoing restriction
is expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period, even
if such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, such person will also agree and
consent to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
shareholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other shareholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Cruttenden Roth
Incorporated.
(s) Except as set forth in the Registration Statement
and Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(t) The Company and each of its subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general
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<PAGE> 8
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(u) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(v) The Representative's Warrants have been duly and
validly authorized by the Company and upon delivery to you in accordance with
the Representatives' Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.
(w) The Representative's Warrant Stock have been duly
authorized and reserved for issuance upon the exercise of the Representative's
Warrants and when issued upon payment of the exercise price therefor will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.
II. Each Selling Stockholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Stockholder now has and on the
Closing Date will have valid marketable title to the Shares to be sold by such
Selling Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to this Agreement;
and upon delivery of such Shares hereunder and payment of the purchase price as
herein contemplated, each of the Underwriters will obtain valid marketable title
to the Shares purchased by it from such Selling Stockholder, free and clear of
any pledge, lien, security interest pertaining to such Selling Stockholder or
such Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
(b) Such Selling Stockholder has duly executed and
delivered, in the form heretofore furnished to the Representatives, an
irrevocable Power of Attorney (the "Power of Attorney") appointing Joel H.
Girsky and Jeffrey D. Gash, and each of them, as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with American Stock
Transfer & Trust Company, as custodian (the "Custodian"); each of the Power of
Attorney and the Custody Agreement constitutes a valid and binding agreement on
the part of such Selling Stockholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; and
each of such Selling Stockholder's Attorneys, acting alone, is authorized to
execute and deliver this Agreement and the certificate referred to in Section
6(g) hereof on behalf of such Selling Stockholder, to determine the purchase
price to be paid by the several Underwriters to such Selling Stockholder as
provided in Section 3 hereof, to authorize the delivery of the Selling
Stockholder Shares under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a stock
power or powers with respect thereto, to accept payment therefor, and otherwise
to act on behalf of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and
orders required for the execution and delivery by such Selling Stockholder of
the Power of Attorney and the Custody Agreement, the execution and delivery by
or on behalf of such Selling Stockholder of this Agreement and the sale and
delivery of the Selling Stockholder Shares under this Agreement (other than, at
the time of the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective
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<PAGE> 9
and such consents, approvals, authorizations or orders as may be necessary under
state or other securities or Blue Sky laws) have been obtained and are in full
force and effect; and such Selling Stockholder has full legal right, power and
authority to enter into and perform its obligations under this Agreement and
such Power of Attorney and Custody Agreement, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the
Lock-up Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Stockholder or with respect to which such
Selling Stockholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or shareholders of such Selling Stockholder, provided that
the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Cruttenden Roth
Incorporated. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the Selling Stockholder. Such prohibited hedging or
other transactions would include, without limitation, any short sale (whether or
not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Such Selling Stockholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Stockholder except in compliance
with this restriction.
(e) Certificates in negotiable form for all Shares to
be sold by such Selling Stockholder under this Agreement, together with a stock
power or powers duly endorsed in blank by such Selling Stockholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(f) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(g) Such Selling Stockholder has not distributed and
will not distribute any prospectus or other offering material in connection with
the offering and sale of the Shares.
(h) All information furnished by or on behalf of such
Selling Stockholder relating to such Selling Stockholder and the Selling
Stockholder Shares that is contained in the representations and warranties of
such Selling Stockholder in such Selling Stockholder's Power of Attorney or set
forth in the Registration Statement and the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date was or will be, true,
correct and complete, and does not, and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date (hereinafter defined) will not, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information not
misleading.
(i) Such Selling Stockholder will review the
Prospectus and will comply with all agreements and satisfy all conditions on its
part to be complied with or satisfied pursuant to this Agreement on or prior to
the Closing Date and will advise one of its Attorneys and Cruttenden Roth
Incorporated prior to the Closing Date if any statement to be made on behalf of
such Selling Stockholder in the certificate contemplated by Section 6(g) would
be inaccurate if made as of the Closing Date.
(j) Such Selling Stockholder does not have, or has
waived prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that are to
be sold by the Company or any of the other Selling Stockholders to the
Underwriters pursuant to this Agreement; such
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<PAGE> 10
Selling Stockholder does not have, or has waived prior to the date hereof, any
registration right or other similar right to participate in the offering made by
the Prospectus, other than such rights of participation as have been satisfied
by the participation of such Selling Stockholder in the transactions to which
this Agreement relates in accordance with the terms of this Agreement; and such
Selling Stockholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares and Selling Stockholder Shares set forth
opposite the names of the Company and the Selling Stockholders in Schedule B
hereto. The obligation of each Underwriter to the Company and to each Selling
Stockholder shall be to purchase from the Company or such Selling Stockholder
that number of Company Shares or Selling Stockholder Shares, as the case may be,
which (as nearly as practicable, as determined by you) is in the same proportion
to the number of Company Shares or Selling Stockholder Shares, as the case may
be, set forth opposite the name of the Company or such Selling Stockholder in
Schedule B hereto as the number of Firm Shares which is set forth opposite the
name of such Underwriter in Schedule A hereto (subject to adjustment as provided
in Section 10) is to the total number of Firm Shares to be purchased by all the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of each such Selling Stockholder (or the Custodian for the
respective accounts of the Selling Stockholders) with regard to the Shares being
purchased from such Selling Stockholders (and the Company and such Selling
Stockholders agree not to deposit and to cause the Custodian not to deposit any
such check in the bank on which it is drawn until the day following the date of
its delivery to the Company or the Custodian, as the case may be), at the
offices of Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard,
Eighth Floor, East Tower, Beverly Hills, California, or such other place as may
be agreed upon among the Representatives and the Company and the Selling
Stockholders), at 7:00 A.M., California time, on the third (3rd) full business
day following the first day that Shares are traded or at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company and the Selling
Stockholders may determine (or at such time and date to which payment and
delivery shall have been postponed pursuant to Section 10 hereof), such time and
date of payment and delivery being herein called the "Closing Date." The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location as you may reasonably request for
checking at least one (1) full business day prior to the Closing Date and will
be in such names and denominations as you may request, such request to be made
at least two (2) full business days prior to the
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<PAGE> 11
Closing Date. If the Representatives so elect, delivery of the Firm Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), under the
last two paragraphs on page 2, concerning stabilization and over-allotment and
passive market marking by the Underwriters, and under the _____ and _____
paragraphs under the caption "Underwriting" in any Preliminary Prospectus and in
the final form of Prospectus filed pursuant to Rule 424(b) constitutes the only
information furnished by the Underwriters to the Company for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration Statement, and you,
on behalf of the respective Underwriters, represent and warrant to the Company
and the Selling Stockholders that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause
the Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; it will notify you,
promptly after it shall receive notice thereof, of the time when the
Registration Statement or any subsequent amendment to the Registration Statement
has become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, it will prepare and file
with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
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<PAGE> 12
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the rules and regulations of the Commission
thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it
shall receive notice or obtain knowledge, of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify
the Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so long
as may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction in which it is not otherwise required to
be so qualified or to so execute a general consent to service of process. In
each jurisdiction in which the Shares shall have been qualified as above
provided, the Company will make and file such statements and reports in each
year as are or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, copies of the Registration Statement (three of which will be signed
and which will include all exhibits), each Preliminary Prospectus, the
Prospectus and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Act, and
the Incorporated Documents (three of which will include all exhibits,) all in
such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
shareholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"), (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to shareholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
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<PAGE> 13
(g) The Company will apply the net proceeds from the
sale of the Shares being sold by it in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder to perform any agreement on its their
respective parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not,
without the prior written consent of Cruttenden Roth Incorporated effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Company Shares and the Option Shares hereunder and the Company's
issuance of options or Common Stock under the Company's presently authorized
stock option plans (the "Option Plans").
(l) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Option Plans or other
employee benefit plan.
5. Expenses.
(a) The Company and the Selling Stockholders agree
with each Underwriter that:
(i) The Company and the Selling
Stockholders will pay and bear all costs and expenses in connection with the
preparation, printing and filing of the Registration Statement (including
financial statements, schedules and exhibits), Preliminary Prospectuses and the
Prospectus and the Incorporated Documents and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any supplemental
Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus and the Incorporated Documents, and any amendments or
supplements to any of the foregoing; NASD filing fees and the cost of qualifying
the Shares under the laws of such jurisdictions as you may designate (including
filing fees and fees and disbursements of Underwriters' Counsel in connection
Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the sale
of the Shares by the Selling Stockholders will be borne collectively by the
Company and the Selling Stockholders. The provisions of this Section 5(a)(i) are
intended
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<PAGE> 14
to relieve the Underwriters from the payment of the expenses and costs which the
Selling Stockholders and the Company hereby agree to pay, but shall not affect
any agreement which the Selling Stockholders and the Company may make, or may
have made, for the sharing of any of such expenses and costs. Such agreements
shall not impair the obligations of the Company and the Selling Stockholders
hereunder to the several Underwriters.
(ii) In addition to its other
obligations under Section 8(a) hereof, the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly return
such payment to the Company together with interest, compounded daily, determined
on the basis of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) listed from time to time in The Wall Street
Journal which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(iii) In addition to their other
obligations under Section 8(b) hereof, each Selling Stockholder agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof relating to such
Selling Stockholder, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Stockholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under
Section 8(c) hereof, the Underwriters severally and not jointly agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(c) hereof, they will
reimburse the Company and each Selling Stockholder on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company and each
such Selling Stockholder for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company and each such Selling Stockholder shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company and each such Selling
Stockholder within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of
the operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted pursuant to the Code of Arbitration Procedure
of the NASD in Orange County, California (or as close geographically to Orange
County, California as is reasonably practical). Any such arbitration must be
commenced by service of a written demand for arbitration or a
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<PAGE> 15
written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such arbitration
will be limited to the operation of the interim reimbursement provisions
contained in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve
the ultimate propriety or enforceability of the obligation to indemnify for
expenses which is created by the provisions of Sections 8(a), 8(b) and 8(c)
hereof or the obligation to contribute to expenses which is created by the
provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., California time, on the date following the
date of this Agreement, or such later date as shall be consented to in writing
by you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company, any Selling Stockholder or any Underwriter, threatened
by the Commission, and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters
in connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date there shall not have been any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, the
following opinion of Morrison Cohen Signer & Weinstein, LLP, counsel for the
Company, dated the Closing Date or such later date on which Option Shares are
purchased, addressed to the Underwriters (and stating that it may be relied upon
by Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, Underwriters'
Counsel, in rendering its opinion pursuant to Section 6(e) of this Agreement)
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company and each significant
subsidiary within the meaning of Item 3-01 of Regulation S-X
under the Rules and Regulations (a "Significant Subsidiary")
has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction
of its incorporation;
(ii) The Company and each Significant
Subsidiary has the corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus;
(iii) The Company and each
Significant Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or
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<PAGE> 16
leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material
adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its
subsidiaries considered as one enterprise. To such counsel's
knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other
than [list subsidiaries];
(iv) The authorized, issued and
outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" as of the dates
stated therein, the issued and outstanding shares of capital
stock of the Company (including the Selling Stockholder Shares)
have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or
other similar right;
(v) All issued and outstanding shares
of capital stock of each Significant Subsidiary of the Company
have been duly authorized and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, have not
been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or
other similar right and are owned by the Company free and clear
of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Firm Shares and the Option
Shares, as the case may be, to be issued by the Company
pursuant to the terms of this Agreement each have been duly
authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and
validly issued and fully paid and nonassessable, and will not
have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first
refusal or other similar right of shareholders;
(vii) The Company has the corporate
power and authority to enter into this Agreement and to issue,
sell and deliver to the Underwriters the Shares to be issued
and sold by it hereunder;
(viii) The Company has the corporate power and
authority to enter into the Representatives' Warrant Agreement
and to issue, sell and deliver to the Representatives the
Representatives' Warrants to be issued and sold by it
thereunder;
(ix) This Agreement and the
Representatives' Warrant Agreement each has been duly
authorized by all necessary corporate action on the part of the
Company and has been duly executed and delivered by the Company
and, assuming due authorization, execution and delivery by you,
is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
(x) The Registration Statement has
become effective under the Act and, to such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(xi) The Registration Statement and
the Prospectus, and each amendment or supplement thereto (other
than the financial statements (including supporting schedule)
and financial data derived therefrom as to which such counsel
need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable
Rules and Regulations;
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<PAGE> 17
(xii) The information in the
Prospectus under the caption "Description of Capital Stock," to
the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the forms of
certificates evidencing the Common Stock and filed as exhibits
to the Registration Statement comply with New York law;
(xiii) The description in the
Registration Statement and the Prospectus of the charter and
bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Act and
the applicable Rules and Regulations;
(xiv) To such counsel's knowledge,
there are no agreements, contracts, leases or documents to
which the Company is a party of a character required to be
described or referred to in the Registration Statement or
Prospectus or any Incorporated Document or to be filed as an
exhibit to the Registration Statement or any Incorporated
Document which are not described or referred to therein or
filed as required;
(xv) The performance of this
Agreement and the Representatives' Warrant Agreement and the
consummation of the transactions herein and therein
contemplated (other than performance of the Company's
indemnification obligations hereunder or under the
Representatives' Warrant Agreement, concerning which no opinion
need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge,
result in a material breach or violation of any of the terms
and provisions of, or constitute a default under, any bond,
debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument known
to such counsel to which the Company is a party or by which its
properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court, government
or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their
properties or operations;
(xvi) No consent, approval,
authorization or order of or qualification with any court,
government or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of
their properties or operations is necessary in connection with
the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act
or such as may be required under state or other securities or
Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xvii) To such counsel's knowledge, there are
no legal or governmental proceedings pending or threatened
against the Company or any of its subsidiaries of a character
required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations or by the
Exchange Act or the applicable rules and regulations of the
Commission thereunder, other than those described therein;
(xviii) To such counsel's knowledge, neither
the Company nor any of its subsidiaries is presently (a) in
material violation of its respective charter or bylaws, or (b)
in material breach of any applicable statute, rule or
regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their
properties or operations;
(xix) The Representative's Warrants have been
duly and validly authorized by the Company and upon delivery to
you in accordance with the Representatives' Warrant Agreement
will be duly issued and legal, valid and binding obligations of
the Company;
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<PAGE> 18
(xx) The Representatives' Warrant
Stock to be issued by the Company pursuant to the terms of the
Representatives' Warrants have been duly authorized and, upon
issuance and delivery against payment therefor in accordance
with the terms of the Representatives' Warrant Agreement, will
be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of
first refusal or other similar right of shareholders;
(xxi) To such counsel's knowledge,
except as set forth in the Registration Statement and
Prospectus, no holders of Common Stock or other securities of
the Company have registration rights with respect to securities
of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the
Company having rights known to such counsel to registration of
such shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the
Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights; and
(xxii) Each of the Selling
Stockholders has full right, power and authority to enter into
and to perform its obligations under this Agreement and to
sell, transfer, assign and deliver the Shares to be sold by
such Selling Stockholder hereunder.
(xxiii) Upon the delivery of and
payment for the Shares as contemplated in this Agreement, each
of the Underwriters will receive valid marketable title to the
Shares purchased by it from such Selling Stockholder, free and
clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of
any defect in the title of the Shares being purchased from the
Selling Stockholders;
In addition, such counsel shall state that such
counsel has participated in conferences with officials and other representatives
of the Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement, when such documents became effective or were filed with the
Commission (other than the financial statements including supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such counsel
shall also state that the conditions for the use of Form S-2 set forth in the
General Instructions thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of New
York upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
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<PAGE> 19
(e) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, in
form and substance satisfactory to you, with respect to the sufficiency of all
such corporate proceedings and other legal matters relating to this Agreement
and the transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
letter from Grant Thorton LLP, addressed to the Company and the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Grant Thorton LLP shall be addressed to
or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of June 30, 1994 and 1995 and related
consolidated statements of operations, shareholders' equity, and cash flows for
the each of the years in the three year period ended June 30, 1995, (iii) state
that Grant Thorton LLP has performed the procedure set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report(s) of Grant Thorton LLP as described in SAS
71 on the financial statements for each of the quarters ended September 30,
December 31, March 31 and June 30, 1993, September 30, December 31, March 31 and
June 30, 1994, and September 30, December 31, March 31 and June 30, 1995 and
(iv) address other matters agreed upon by Grant Thorton LLP and you. In
addition, you shall have received from Grant Thorton LLP a letter addressed to
the Company and made available to you for the use of the Underwriters stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's consolidated financial statements as of June 30, 1995 did not
disclose any weaknesses in internal controls that they considered to be material
weaknesses.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the President
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and
warranties of the Company in this Agreement are true and
correct, as if made on and as of the Closing Date or any later
date on which Option Shares are to be purchased, as the case
may be, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be;
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<PAGE> 20
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(iii) When the Registration Statement
became effective and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement and
the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included
therein by the Act and the Rules and Regulations or the
Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, and in all material
respects conformed to the requirements of the Act and the Rules
and Regulations or the Exchange Act and the applicable rules
and regulations of the Commission thereunder, as the case may
be, the Registration Statement, and any amendment or supplement
thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement
thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective
dates as of which information is given in the Registration
Statement and Prospectus, there has not been (a) any material
adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b)
any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the
Company and its subsidiaries considered as one enterprise,
incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (d) any change in
the capital stock or outstanding indebtedness of the Company or
any of its subsidiaries that is material to the Company and its
subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital
stock of the Company or any of its subsidiaries, or (f) any
loss or damage (whether or not insured) to the property of the
Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on
the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(h) You shall be satisfied that, and you shall have
received a certificate, dated the Closing Date from the Attorneys for each
Selling Stockholder to the effect that, as of the Closing Date, they have not
been informed that:
(i) The representations and
warranties made by such Selling Stockholder herein are not true
or correct in any material respect on the Closing Date; or
(ii) Such Selling Stockholder has not
complied with any obligation or satisfied any condition which
is required to be performed or satisfied on the part of such
Selling Stockholder at or prior to the Closing Date.
(i) The Company shall have obtained and delivered to
you an agreement from each officer and director of the Company, each Selling
Stockholder and each beneficial owner of _,000 or more shares of Common Stock in
writing prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to limited partners or shareholders of such
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<PAGE> 21
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
Cruttenden Roth Incorporated. The foregoing restriction is expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the such holder. Such prohibited
hedging or other transactions would including, without limitation, any short
sale (whether or not against the box) or any purchase, sale or grant of any
right (including, without limitation, any put or call option) with respect to
any Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will have also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction.
(j) The Company and the Selling Stockholders shall
have furnished to you such further certificates and documents as you shall
reasonably request (including certificates of officers of the Company, the
Selling Stockholders as to the accuracy of the representations and warranties of
the Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of its their respective obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
(k) The Representative's Warrant Agreement shall have
been entered into by the Company and you, and the Representative's Warrants
shall have been issued and sold to you pursuant thereto.
All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling Stockholders
will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares only, a nontransferable option to purchase up to an aggregate
of 240,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of forty-five (45) days after the date on which the
Firm Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn until the day following the date of its delivery to the
Company). Such delivery and payment shall take place at the offices of Freshman,
Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, Eighth Floor, East
Tower, Beverly Hills, California, or at such other place as may be agreed upon
among the Representatives and the Company (i) on the Closing Date, if written
notice of the exercise of such option is received by the Company at least three
(3) full business days prior to the Closing Date, or (ii) on a date which shall
not be later than the fifth (5th) full business day following the date the
Company receives written notice of the exercise of such option, if such notice
is received by the Company less than three (3) full business days prior to the
Closing Date.
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<PAGE> 22
The certificates for the Option Shares to be so
delivered will be made available to you at such office or such other location as
you may reasonably request for checking at least two (2) full business days
prior to the date of payment and delivery and will be in such names and
denominations as you may request, such request to be made at least three (3)
full business days prior to such date of payment and delivery. If the
Representatives so elect, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as
the Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in
Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company and the
Selling Stockholders herein, to the accuracy of the statements of the Company,
the Selling Stockholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of its their respective obligations hereunder, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been furnished
with all such documents, certificates and opinions as you may request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company and the Selling Stockholders or the compliance with any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such
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<PAGE> 23
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 4(d)
hereof.
The indemnity agreement in this Section 8(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Stockholder, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including, without limitation, in its capacity
as an Underwriter or as a "qualified independent underwriter" within the meaning
of Schedule E or the Bylaws of the NASD) under the Act, the Exchange Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or such Underwriter
by such Selling Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly,
agrees to indemnify and hold harmless the Company and each Selling Stockholder
against any losses, claims, damages or liabilities, joint or several, to which
the Company or such Selling Stockholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such
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<PAGE> 24
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter, directly or through you, specifically for use
in the preparation thereof, and agrees to reimburse the Company and each such
Selling Stockholder for any legal or other expenses reasonably incurred by the
Company and each such Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Stockholder and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that, except as set forth in Section 8(f) hereof, the Underwriters severally and
not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public offering
price, and the Company and the Selling
-24-
<PAGE> 25
Stockholders are responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter in
excess of the amount of damages which such Underwriter has otherwise required to
pay and (ii) no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The contribution
agreement in this Section 8(e) shall extend upon the same terms and conditions
to, and shall inure to the benefit of, each person, if any, who controls the
Underwriters or the Company or any Selling Stockholder within the meaning of the
Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company and each officer of the
Selling Stockholders who signed the Registration Statement.
(f) The liability of each Selling Stockholder under
the representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge
that they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 8, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 8 and further agree not to attempt to
assert any such defense.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any controlling person within the meaning of the Act or the Exchange Act, or
by or on behalf of the Company or any Selling Stockholder, or any of its their
officers, directors or controlling persons within the meaning of the Act or the
Exchange Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours
-25-
<PAGE> 26
(including non-business hours) another underwriter or underwriters (which may
include any nondefaulting Underwriter) satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid by such
postponed Closing Date, the Closing Date may, at the option of the Company, be
postponed for a further twenty-four (24) hours, if necessary, to allow the
Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the
earlier of (i) 6:30 A.M., California time, on the second full business day
following the effective date of the Registration Statement, or (ii) the time of
the initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several
Underwriters, shall have the right to terminate this Agreement by giving notice
as hereinafter specified at any time at or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company or any Selling Stockholder shall have failed, refused
or been unable to perform any agreement on its part to be performed, or because
any other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended
-26-
<PAGE> 27
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 4(j), 5
and 8 hereof. In the event of termination pursuant to subparagraph (i) above,
the Company shall also remain obligated to pay costs and expenses pursuant to
Sections 4(j), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: Mr. Byron Roth; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to 145 Oser Avenue, Hauppauge, Long Island, New York 11788, telecopier
number (516) 273-5528, Attention: Joel H. Girsky, Chairman of the Board and
President; if sent to one or more of the Selling Stockholders, such notice shall
be sent mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to Joel H. Girsky, as Attorney-in-Fact for the Selling
Stockholders, at 145 Oser Avenue, Hauppauge, Long Island, New York 11788,
telecopier number (516) 273-5528.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Stockholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or corporation, other than the parties hereto
and their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or corporation. No purchaser of any of the Shares from any
Underwriter shall be construed a successor or assign by reason merely of such
purchase.
In all dealings with the Company and the Selling Stockholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Stockholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Cruttenden Roth Incorporated on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
-27-
<PAGE> 28
If the foregoing correctly sets forth the understanding among
the Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
JACO ELECTRONICS, INC.
By ___________________________________________
Joel H. Girsky,
Chairman of the Board and President
SELLING STOCKHOLDERS
By ___________________________________________
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By: ___________________________________
Authorized Signatory
-28-
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ---------
<S> <C>
Cruttenden Roth Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cleary Gull Reiland & McDevitt Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000
=========
</TABLE>
<PAGE> 30
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Shares To
Company Be Sold
------- -------
<S> <C>
Jaco Electronics, Inc. 1,325,000
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,325,000
=========
</TABLE>
<TABLE>
<CAPTION>
Number of
Selling
Stockholder
Shares
Name of Selling Stockholder To Be Sold
--------------------------- -----------
<S> <C>
Joel H. Girsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,500
Charles B. Girsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,500
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,000
=======
</TABLE>
<PAGE> 1
Exhibit 4.2
DRAFT OF SEPTEMBER 1, 1995
------------------------------------------------------------
JACO ELECTRONICS, INC.
and
CRUTTENDEN ROTH INCORPORATED
CLEARY GULL REILAND & MCDEVITT INC.
-----------------------
REPRESENTATIVES' WARRANT AGREEMENT
Dated as of __________, 1995
------------------------------------------------------------
<PAGE> 2
REPRESENTATIVES' WARRANT AGREEMENT
THIS REPRESENTATIVES' WARRANT AGREEMENT (the "Agreement"), dated as of
________ 1995 is made and entered into by and between JACO ELECTRONICS, INC., a
California corporation (the "Company") and CRUTTENDEN ROTH INCORPORATED and
CLEARY GULL REILAND & MCDEVITT INC. (individually the "Warrantholder" and
collectively the "Warrantholders").
The Company agrees to issue and sell, and the Warrantholders agree to
purchase, for the price of $70, warrants, as hereinafter described (the
"Warrants"), to purchase up to an aggregate of 70,000 shares (the "Shares") of
the Company's Common Stock, no par value (the "Common Stock"), in connection
with a public offering (the "Public Offering") by the Company and certain
stockholders of 1,600,000 shares of Common Stock pursuant to an underwriting
agreement (the "Underwriting Agreement"), dated as of _____________, 1995
between the Company and the Warrantholders, as Representatives of the several
Underwriters named in the Underwriting Agreement. The purchase and sale of the
Warrants shall occur on the Closing Date, as defined in the Underwriting
Agreement, and be subject to the conditions to the Underwriters' obligations to
purchase Common Stock thereunder.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholders, for value received, hereby agree
as follows:
Section 1. Transferability and Form of Warrants.
1.1 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the
books of the Company maintained at its principal office in Hauppauge, Long
Island, New York, or wherever its principal office may then be located, upon
delivery thereof duly endorsed by the Warrantholder or by its duly authorized
attorney or representative, accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of transfer, the
Company shall execute and deliver new Warrants to the person entitled thereto.
1.3 Limitations on Transfer of the Warrants. Subject to the
provisions of Section 11, the Warrants shall not be sold, transferred, assigned
or hypothecated by the Warrantholders until ___________, 1996, except to (i) one
or more persons, each of whom on the date of transfer is an officer of the
transferring Warrantholder; (ii) a general partnership or general partnerships,
the general partners of which are the transferring Warrantholder and one or more
persons, each of whom on the date of transfer is an officer of the transferring
Warrantholder; (iii) a successor to the transferring Warrantholder in merger or
consolidation; (iv) a purchaser of all or substantially all of the transferring
Warrantholder's assets; or (v) any person receiving the Warrants from one or
more of the persons listed in this subsection 1.3 at such person's or persons'
death pursuant to will, trust or the laws of intestate succession. The Warrants
may be divided or combined, upon request to the Company by the Warrantholder,
into a certificate or certificates representing the right to purchase the same
aggregate number of Shares. Unless the context indicates otherwise, the terms
"Warrantholder" or "Warrantholders" shall include any transferee or transferees
of the Warrants pursuant to this subsection 1.3, and the term "Warrants" shall
include any and all warrants outstanding pursuant to this Agreement, including
those evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrants and of the form
of election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares issuable upon exercise of the Warrants is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by its
President or by a Vice President, attested to by its Secretary or an Assistant
Secretary. A Warrant bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the
<PAGE> 3
Company, notwithstanding that such individual shall have ceased to hold such
office prior to the delivery of such Warrant or did not hold such office on the
date of this Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Shares. Each certificate for Shares initially issued upon
exercise of the Warrants shall bear the following legend, unless, at the time of
exercise, such Shares are subject to a currently effective Registration
Statement under the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY
MANNER EXCEPT IN COMPLIANCE WITH SECTION 11 OF THE AGREEMENT PURSUANT
TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Act"), of the securities represented
thereby) shall also bear the above legend unless, in the opinion of the
Company's counsel, the securities represented thereby need no longer be subject
to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, the Warrantholders
shall have the right, at any time during the period commencing at 9:00 a.m.,
California Time, on ___________, 1996 and ending at 5:00 p.m., California Time,
on ___________, 1999 (the "Termination Date"), to purchase from the Company up
to the number of fully paid and nonassessable Shares to which the Warrantholder
may at the time be entitled to purchase pursuant to this Agreement, upon
surrender to the Company, at its principal office, of the certificate evidencing
the Warrants to be exercised, together with the purchase form on the reverse
thereof duly filled in and signed, with signatures guaranteed, and upon payment
to the Company of the Warrant Price (as defined in and determined in accordance
with the provisions of this section 3 and sections 7 and 8 hereof), for the
number of Shares in respect of which such Warrants are then exercised, but in no
event for less than 100 Shares (unless less than an aggregate of 100 Shares are
then purchasable under all outstanding Warrants held by a Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made in
cash or by check, through the use of Appreciation Currency (as defined below),
or any combination thereof. Upon such surrender of the Warrants and payment of
such Warrant Price as aforesaid, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
Warrantholder and in such name or names as the Warrantholder may designate a
certificate or certificates for the number of full Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in Section 9 hereof, in
respect of any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the certificate
or certificates representing such securities shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
The Warrants shall be exercisable, at the election of the
2
<PAGE> 4
Warrantholder, either in full or from time to time in part and, in the event
that a certificate evidencing the Warrants is exercised in respect of less than
all of the Shares specified therein at any time prior to the Termination Date, a
new certificate evidencing the remaining portion of the Warrants will be issued
by the Company.
(c) As used herein, "Appreciation Currency" shall mean the
consideration given by the surrender of a Warrant for such number of shares of
Common Stock as is determined by multiplying the number of Shares by a fraction,
the numerator of which shall be the difference between the Current Market Price
(as defined in section 9) per share of Common Stock and the Warrant Price, and
the denominator of which shall be the Current Market Price per share of Common
Stock. For purposes of determining Appreciation Currency, the Warrant Price
shall mean the Warrant Price defined in section 7 as adjusted and readjusted as
set forth in Section 8.
Section 4. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Shares; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Shares.
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrants certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Section 6. Reservation of Shares. There has been reserved, and the
Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of Common
Stock as shall be subject to purchase under the Warrants. Every transfer agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants will be irrevocably authorized and directed at all
times to reserve such number of authorized shares and other securities as shall
be requisite for such purpose. The Company will keep a copy of this Agreement on
file with every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants. The Company will supply
every such transfer agent with duly executed stock and other certificates, as
appropriate, for such purpose and will provide or otherwise make available any
cash which may be payable as provided in Section 9 hereof.
Section 7. Warrant Price. The price per Share at which Shares shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$_____ subject to further adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Number of Shares. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 Adjustments. The number of Shares purchasable upon the
exercise of the Warrants shall be subject to adjustment as follows: In case the
Company shall (i) pay a dividend in Common Stock or make a distribution in
Common Stock, (ii) subdivide its outstanding Common Stock, (iii) combine its
outstanding Common Stock into a smaller number of shares of Common Stock, (iv)
effect any increase or decrease in the number of outstanding shares of Common
Stock without receipt of consideration by the Company, or (v) issue by
reclassification of its Common Stock other securities of the Company, the
Warrant Price and the number of Shares purchasable upon exercise of the Warrants
immediately prior thereto shall be proportionately adjusted so that the
Warrantholder shall be entitled to receive the kind and number of Shares or
other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised at the Warrant Price
immediately prior to the
3
<PAGE> 5
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.1 shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
For the purpose of this subsection 8.1, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
8.2 No Adjustment for Dividends. Except as provided in
subsection 8.1, no adjustment in respect of any dividends or distributions out
of earnings shall be made during the term of the Warrants or upon the exercise
of the Warrants.
8.3 Certificate of Adjustment. Whenever the number of Shares
purchasable upon the exercise of the Warrants is adjusted as herein provided,
the Company shall cause to be promptly mailed to the Warrantholder by first
class mail, postage prepaid, notice of such adjustment and a certificate of the
chief financial officer of the Company setting forth the number of Shares
purchasable upon the exercise of the Warrants after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
8.4 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Warrant Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants been exercised immediately prior to such action. In the event
of a merger described in Section 368(a)(2)(E) of the Internal Revenue Code of
1986, in which the Company is the surviving corporation, the right to purchase
Shares under the Warrants shall terminate on the date of such merger and
thereupon the Warrants shall become null and void, but only if the controlling
corporation shall agree to substitute for the Warrants its warrant which
entitles the holder thereof to purchase upon its exercise the kind and amount of
shares and other securities and property which it would have owned or been
entitled to receive had the Warrants been exercised immediately prior to such
merger. Any such agreements referred to in this subsection 8.4 shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 8 hereof. The provisions of this subsection
8.4 shall similarly apply to successive consolidations, mergers, sales or
conveyances.
8.5 Par Value of Shares of Common Stock. Before taking any
action which would cause an adjustment effectively reducing the portion of the
Warrant Price allocable to each Share below the then par value per share of the
Common Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock upon exercise of the Warrants.
8.6 Independent Public Accountants. The Company may retain a
firm of independent public accountants of recognized national standing (which
may be any such firm regularly employed by the Company) to make any computation
required under this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 8.
8.7 Statement on Warrant Certificates. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof; and any Warrant certificate thereafter
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<PAGE> 6
issued, whether upon registration of transfer of, or in exchange or substitution
for, an outstanding Warrant certificate, may be in the form so changed.
Section 9. Fractional Interests; Current Market Price. The Company
shall not be required to issue fractional Shares on the exercise of the
Warrants. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of the Warrants (or specified portion
thereof), the Company shall pay an amount in cash equal to the then Current
Market Price multiplied by such fraction. For purposes of this Agreement, the
term "Current Market Price" shall mean (i) if the Common Stock is traded in the
over-the-counter market and not in The Nasdaq National Market nor on any
national securities exchange, the average of the per share closing bid prices of
the Common Stock on the 30 consecutive trading days immediately preceding the
date in question, as reported by NASDAQ or an equivalent generally accepted
reporting service, or (ii) if the Common Stock is traded in The Nasdaq National
Market or on a national securities exchange, the average for the 30 consecutive
trading days immediately preceding the date in question of the daily per share
closing prices of the Common Stock in The Nasdaq National Market or on the
principal stock exchange on which it is listed, as the case may be. For purposes
of clause (i) above, if trading in the Common Stock is not reported by NASDAQ,
the bid price referred to in said clause shall be the lowest bid price as
reported in the "pink sheets" published by National Quotation Bureau,
Incorporated. The closing price referred to in clause (ii) above shall be the
last reported sale price or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices, in either case in
The Nasdaq National Market or on the national securities exchange on which the
Common Stock is then listed.
Section 10. No Rights as Shareholder; Notices to Warrantholder. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a shareholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 14 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
shareholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive such notice
or any defect therein shall not affect the validity of any action taken with
respect thereto.
Section 11. Restrictions on Transfer; Registration Rights.
(a) The Warrantholder agrees that prior to making any
disposition of the Warrants or the Shares, other than to persons or entities
identified in clauses (i) through (vi), inclusive, of Section 1.3, the
Warrantholder shall give written notice to the Company describing briefly the
manner in which any such proposed disposition is to be made; and no such
disposition shall be made if the Company has notified the Warrantholder that in
the opinion of counsel reasonably satisfactory to the Warrantholder a
registration statement or other notification or post-effective amendment thereto
(hereinafter collectively a "Registration Statement") under the Act is required
with respect to such disposition and no such Registration Statement has been
filed by the Company with, and declared effective, if necessary, by, the
Securities and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of the
Warrants and the Shares to file a Registration Statement whenever during the
three-year period beginning on ______________, 1996 and ending on ___________,
1999,
5
<PAGE> 7
the Company proposes to file with the Commission a Registration Statement
(other than as to securities issued pursuant to an employee benefit plan or as
to a transaction subject to Rule 145 promulgated under the Act or which a Form
S-4 Registration Statement could be used), it shall, at least 30 days prior to
each such filing, give written notice of such proposed filing to the
Warrantholder and each holder of Shares at their respective addresses as they
appear on the records of the Company, and shall offer to include and shall
include in such filing any proposed disposition of the Shares upon receipt by
the Company, not less than 10 days prior to the proposed filing date, of a
request therefor setting forth the facts with respect to such proposed
disposition and all other information with respect to such person reasonably
necessary to be included in such Registration Statement. In the event that the
managing underwriter for said offering advises the Company in writing that the
inclusion of such securities in the offering would be detrimental to the
offering, such securities shall nevertheless be included in the Registration
Statement, provided that the Warrantholder and each holder of Warrants and
Shares desiring to have their Shares included in the Registration Statement
agree in writing, for a period of 90 days following such offering, not to sell
or otherwise dispose of such Shares pursuant to such Registration Statement,
which Registration Statement the Company shall keep effective for a period of at
least nine months following the expiration of such 90-day period.
(c) All fees, disbursements and out-of-pocket expenses (other
than Warrantholders' brokerage fees and commissions and legal fees of counsel to
the Warrantholder, if any) in connection with the filing of any Registration
Statement under Section 11(b) (or obtaining the opinion of counsel and any
no-action position of the Commission with respect to sales under Rule 144) and
in complying with applicable securities and Blue Sky laws shall be borne by the
Company. The Company at its expense will supply any Warrantholder and any holder
of Shares with copies of such Registration Statement and the prospectus included
therein and other related documents any opinions and no-action letters in such
quantities as may be reasonably requested by the Warrantholder or holder of
Shares.
(d) The Company shall not be required by this Section 11 to
file such Registration Statement if, in the opinion of counsel for the
Warrantholders and holders of Shares and the Company (or, should they not agree,
in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed public
offering or other transfer as to which such Registration Statement is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Act.
(e) The provisions of this Section 11 and Section 12 hereof
shall apply to the extent as provided herein if the Company chooses to file an
Offering Statement under Regulation A promulgated under the Act.
(f) The Company agrees that until all Shares have been sold
under a Registration Statement or pursuant to Rule 144 under the Act, it will
keep current in filing all materials required to be filed with the Commission in
order to permit the holders of such securities to sell the same under Rule 144.
Section 12. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to the Shares pursuant to Section 11 hereof, the Company agrees to
indemnify and hold harmless the Warrantholder or any holder of such Shares and
each person, if any, who controls the Warrantholder or any holder of such Shares
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Warrantholder or any holder of such Shares or
such controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such Registration Statement, or any
related preliminary prospectus, final prospectus, or amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity
6
<PAGE> 8
with, written information furnished to the Company by such Warrantholder or the
holder of such Shares specifically for use in the preparation thereof. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Warrantholders and the holders of the Shares agree
that they will indemnify and hold harmless the Company, each other person
referred to in subparts (1), (2) and (3) of Section 11(a) of the Act in respect
of the Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include but not be
limited to, all costs of defense and investigation and all attorneys' fees) to
which the Company or any such director, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Warrantholder or such holder of Shares specifically for
use in the preparation thereof. This indemnity agreement will be in addition to
any liability which the Warrantholder or such holder of Shares may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 12 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 12, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section 12. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 12 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is a Warrantholder or a holder of Shares
or a person who controls a Warrantholder or a holder of Shares within the
meaning of the Act, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action, including any impleaded parties, include both a
Warrantholder or a holder of Shares or such controlling person and the
indemnifying party and a Warrantholder or a holder of Shares or such controlling
person shall have been advised by such counsel that there may be one or more
legal defenses available to a Warrantholder or a holder of Shares or controlling
person which are not available to or in conflict with any legal defenses which
may be available to the indemnifying party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of a
Warrantholder or a holder of Shares or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the Warrantholders, the holders of the Shares and
controlling persons, which firm shall be designated in writing by a majority in
interest of such holders and controlling persons based upon the value of the
securities included in the Registration Statement). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified and the indemnifying parties, which shall not be unreasonably
withheld in light of all factors of importance to such parties.
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<PAGE> 9
Section 13. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or any
holder of the Shares or controlling person makes a claim for indemnification
pursuant to Section 12 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of Section 12 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Warrantholder or any holder of the Shares or controlling person, then the
Company and any Warrantholder or any such holder of the Shares or controlling
person shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or a Warrantholder or holder of Shares
or controlling person on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 13 were determined by pro rata allocation or by any other method
which does not take account of the equitable considerations referred to in this
Section 13. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 13 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 14. Notices. Any notice pursuant to this Agreement by the
Company or by a Warrantholder or a holder of Shares shall be in writing and
shall be deemed to have been duly given if delivered or mailed by certified
mail, return receipt requested:
(a) If to a Warrantholder or a holder of Shares addressed to
Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100, Irvine, California,
Attention: Corporate Finance Department, and to Cleary Gull Reiland & McDevitt
Inc., 100 East Wisconsin Avenue, Suite 2850, Milwaukee, Wisconsin 53202,
Attention: Corporate Finance Department,.
(b) If to the Company addressed to it at 145 Oser Avenue,
Hauppauge, Long Island, New York 11788, Attention: Mr. Joel H. Girsky, Chairman
of the Board and President.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
Section 15. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholders, or the
holders of Shares shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 16. Merger or Consolidation of the Company. The Company will
not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 are complied with.
Section 17. Survival of Representations and Warranties. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
8
<PAGE> 10
Section 18. Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of said State.
Section 19. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrantholders and the holders of Shares.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
JACO ELECTRONICS, INC.
By_____________________________
CRUTTENDEN ROTH INCORPORATED
By____________________________
CLEARY GULL REILAND & MCDEVITT INC.
By____________________________
9
<PAGE> 11
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION 11
OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. ___
REPRESENTATIVES' WARRANTS TO PURCHASE __________ SHARES
OF COMMON STOCK, $0.10 PAR VALUE PER SHARE
VOID AFTER 5:00 P.M.,
CALIFORNIA TIME, ON ________________, 1999
JACO ELECTRONICS, INC.
ORGANIZED UNDER THE LAWS OF THE STATE OF NEW YORK
This certifies that, for value received, __________________, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from JACO ELECTRONICS INC. (the "Company"), at any time during the
period commencing at 9:00 a.m., California Time, on ______________, 1995, and
before 5:00 p.m., California Time, on ______________, 1999, at the purchase
price per share of $_______ (the "Warrant Price"), the number of shares of
Common Stock of the Company set forth above (the "Shares"). The number of shares
of Common Stock of the Company purchasable upon exercise of these Warrants shall
be subject to adjustment from time to time as set forth in the Representatives'
Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash or by check
or through the use of "Appreciation Currency" as defined in the Representatives'
Warrant Agreement.
The Warrants evidenced hereby represent the right to purchase an
aggregate of up to 70,000 Shares and are issued under and in accordance with a
Representatives' Warrant Agreement, dated as of ___________1995 (the
"Representatives' Warrant Agreement"), between the Company and Cruttenden Roth
Incorporated and Cleary Gull Reiland & McDevitt Inc. and are subject to the
terms and provisions contained in the Representatives' Warrant Agreement, to all
of which the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the Shares as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Shares as here evidenced by the Warrant
or Warrants exchanged. No fractional securities will be issued upon the exercise
of rights to purchase hereunder, but the Company shall pay the cash value of any
fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Representatives' Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of
the rights of a shareholder of the Company.
JACO ELECTRONICS INC.
By_________________________________________
Joel H. Girsky
President and Chairman of the Board
Dated: __________, 1995
ATTEST: [Seal]
________________________
Secretary
<PAGE> 12
JACO ELECTRONICS INC.
PURCHASE FORM
JACO ELECTRONICS INC.
145 Oser Avenue
Hauppauge, Long Island, New York 11788
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ____________ shares of Common Stock (the "Shares") provided for
therein, and requests that certificates for the Shares be issued in the name of:
_________________________________________________________________
(Please Print or Type Name, Address and Social Security Number)
_________________________________________________________________
_________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the Shares purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: ______________
Name of Warrantholder
or Assignee: __________________________________________
(Please Print)
Address: ______________________________________
______________________________________
Signature: ______________________________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed: ___________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten
________________________________________
________________________________________
________________________________________
the within Warrants, hereby irrevocably constituting and appointing
__________________________ Attorney to transfer said Warrants on the books of
the Company, with full power of substitution in the premises.
Dated:_____________ ________________________________________________
Signature of Registered Holder
Note:The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:_____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE> 1
Exhibit 99.7
RESTATED AND AMENDED
LOAN AND SECURITY AGREEMENT
JACO ELECTRONICS, INC. ("Jaco"), a New York corporation and NEXUS CUSTOM
ELECTRONICS, INC. ("Nexus"), a New Jersey corporation (collectively referred to
as "Debtor"), and The Bank of New York Commercial Corporation ("Secured Party")
hereby agree as follows:
This Agreement restates and amends in its entirety without a break in
continuity the Loan and Security Agreement -- Accounts Receivable and Inventory
between Secured Party and Jaco dated January 20, 1989 and the Security
Agreement between Secured Party and Nexus dated March 11, 1994.
1. As used herein, the following terms shall have the following meanings:
"ABR Loan" means the Loan or any portion thereof bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate in effect on such day or (ii) the Federal Funds
Rate in effect on such day plus 1/2 of 1%.
"Account" or "accounts" shall mean and include all accounts, accounts
receivable, contract rights, chattel paper, instruments, notes, drafts,
acceptances, and all other debts, obligations and liabilities in whatever form
owing to Debtor from any person, firm, corporation or other legal entity
whether now existing or hereafter arising or acquired.
"Account Debtor" shall mean any person, firm, corporation or other
legal entity who is obligated on any Account.
"Accounts Receivable Borrowing Base" shall mean 85% of the net
outstanding amount of Reported Accounts, exclusive of Slow Accounts, after
deducting therefrom all payments, adjustments and credits applicable thereto
less such reasonable reserves as Secured Party may deem reasonably necessary and
proper. The Accounts Receivable Borrowing Base may be changed by Secured Party
from time to time in its reasonable discretion, such change to be effective,
upon thirty (30) days written notice to Debtor. Whenever the Accounts Receivable
Borrowing Base is used as a measure of loans, it shall be computed as of, and
the loans referred to shall be those reflected in the Debtor's Loan Account at,
the time in question.
"Bank" means The Bank of New York.
"Business Day" means (a) any day other than a day on which commercial
banks in New York are authorized or required by law to close and (b) relative
to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any
day on which dealings in dollars are carried on in the London interbank
eurodollar market.
"Collateral" shall have the meaning set forth in Paragraph 2 hereof.
"Continuation Notice" means a notice of continuation duly executed by
an authorized officer of the Debtor substantially in the form of Exhibit A
hereto.
"Contract Rate" means an interest rate per annum equal to (A) in the
case of LIBO Rate Loans, (i) the applicable LIBO Rate plus (ii) two percent
(2.5%) or (B) in the case of all other Loans, the Alternate Base Rate.
"Debtor's Loan Account" shall mean the account on the records of the
Secured Party in which shall be recorded the loans and advances made by the
Secured Party to the Debtor, payments made on such loans, and other appropriate
debits and credits all made pursuant to, or as provided by, this Agreement or
any other agreement made between Secured Party and Debtor.
"Eligible Equipment" shall mean Equipment purchased by Debtor which
Secured Party has determined at the time of such purchase in its sole and
reasonable discretion to be eligible. In general, Equipment shall not be deemed
eligible unless such Equipment was purchased after January 1, 1995, is subject
to a first perfected security interest in favor of Secured Party and with
respect to which Debtor has requested that Secured Party deem it eligible.
"Eligible Inventory" shall mean inventory consisting of current
saleable finished goods.
"Equipment" shall mean equipment, machinery, furniture, fixtures, dies,
tools and other tangible personal property of Debtor, wherever located and
whether now owned or hereafter acquired by the Debtor and all accessions and
attachments to and replacements of or relating to the foregoing.
"Equipment Borrowing Base" shall mean 80% of the invoice cost of
Eligible Equipment, provided that for purposes of calculating the Equipment
Borrowing Base, the invoice cost of each piece of Eligible Equipment shall be
deemed to be reduced by 2% for each month following its date of purchase.
<PAGE> 2
"Event of Default" shall have the meaning set forth in Paragraph 19
hereof.
"Federal Funds Rate" means, for any day, the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day
(or if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on
such transactions received by the Bank from three Federal funds brokers of
recognized standing selected by the Bank.
"General Intangibles" shall mean all general tangibles as defined in
Article 9 of the Uniform Commercial Code of the State of New York now owned or
hereafter acquired, whether now existing of hereafter arising, including
without limitation, all trademarks, patents, copyrights, service marks, brand
names, trade names, trade styles, together with the goodwill of the business
represented thereby, all claims for moneys due (including tax refunds) from any
federal, state or municipal government, agency or subdivision thereof or taxing
authority and all excess pension funds.
"Interest Period" means, relative to any Loan constituting a LIBO Rate
Loan, the period beginning on (and including) the date on which such LIBO Rate
Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to
Section (4)a or 4(b) and shall end on (but exclude) the day which numerically
corresponds to such date one, two, or three months thereafter (or, if such
month has no numerically corresponding day, on the last Business Day of such
month), in either case as the Debtor may select in its relevant notice pursuant
to Section 4(a) or 4(b); provided, however, that
(a) the Debtor shall not be permitted to select Interest
Periods to be in effect at any one time which have expiration dates
occurring on more than five different dates;
(b) if such Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the following
Business Day (unless such next following Business Day is the first
Business Day of a calendar month, in which case such Interest Period
shall end on the Business Day next preceding such numerically
corresponding day); and
(c) no Interest Period may end later than the last day of the
Term.
"Inventory" shall mean all now owned hereafter acquired and wherever
located goods, merchandise and other personal property which are held for sale
or lease or to be furnished under contracts of service or held as raw
materials, work in process or finished goods and supplies or materials used or
consumed in Debtor's business or used in connection with the manufacture,
packing, shipping, advertising or furnishing of such goods.
"Inventory Borrowing Base" shall mean 60% of Debtor's Eligible
Inventory. The Inventory Borrowing Base may be changed by Secured Party from
time to time in its reasonable discretion, such change to be effective upon
thirty (30) days written notice to Debtor.
"Letters of Credit" shall mean all letters of credit issued by banks
for the account of Debtor with respect to which Secured Party has joined in
and/or guaranteed payment of all obligations and liabilities of Debtor under
such letters of credit.
"LIBO Rate" means, relative to the Interest Period for a LIBO Rate
Loan, the rate of interest equal to the average (rounded upwards, if
necessary, to the nearest 1/100th of 1%) of the rates per annum at which
dollar deposits in immediately available funds are offered to the Bank's LIBOR
Office in the London interbank eurodollar market as at or about 11:00 a.m. two
Business Days prior to the beginning of such Interest Period for delivery on
the first day of such Interest Period, and in an amount approximately equal to
the amount of the LIBO Rate Loan and for a period approximately equal to such
Interest Period.
"LIBO Rate Loan" means the Loan or any portion thereof bearing
interest, at all times during the Interest Period applicable to such Loan, at
a fixed rate of interest determined by reference to the LIBO Rate (Reserve
Adjusted).
The "LIBO Rate (Reserve Adjusted)" means, relative to the Loan or any
portion thereof to be made, continued or maintained as, or converted into, a
LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) determined pursuant to the following
formula:
LIBO Rate = LIBO Rate
(Reserve Adjusted) ----------------------------
1.00-LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for the Interest Period for a LIBO
Rate Loan will be determined by the Secured Party on the basis of the LIBOR
Reserve Percentage in effect two Business Days before the first day of such
Interest Period.
"LIBOR Office" means the office of the Bank at 48 Wall Street, New
York, New York or such other office of the Bank as designated from time to
time by the Bank, whether or not outside the United States.
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"LIBOR Reserve Percentage" means, relative to the Interest Period for a
LIBO Rate Loan, the reserve percentage (expressed as a decimal) equal to the
maximum aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements)
specified under regulations issued from time to time by the Federal Reserve
Board and then applicable to assets or liabilities consisting of and including
"Eurocurrency Liabilities," as currently defined in Regulation D of the Federal
Reserve Board, having a term approximately equal or comparable to such Interest
Period and applicable to the Bank.
"Loan" or "Loans" means any extensions of credit hereunder.
"Maximum Loan Amount" shall mean $30,000,000.
"Mortgage" shall mean the Commercial Mortgage executed on March 11,
1994 and delivered by Nexus to Secured Party with respect to the Real Property.
"Obligations" shall mean any and all debts, liabilities and obligations
of Debtor to Secured Party hereunder and also any and all other debts,
liabilities and obligations of Debtor to Secured party of every kind and
description, direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, including without limitation, the
obligations and liabilities of Debtor under the Term Loan Notes and under that
certain Letter of Credit and Security Agreement executed by Debtor in favor of
the Secured Party on January 20, 1989, and further including, without
limitation, all interest, fees, reasonable charges and reasonable expenses
(including reasonable attorneys' fees and expenses).
"Overadvances" shall have the meaning set forth in paragraph 4(a).
"Permitted Liens" means (i) liens of carriers, warehousemen, mechanics
and materialmen incurred in the ordinary course of business securing sums not
overdue; (ii) liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a)
not overdue or (b) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of Debtor in
conformity with GAAP; (iii) liens in favor of Secured Party; (iv) liens for
taxes (a) not yet due or (b) being diligently contested in good faith provided
that adequate reserves with respect thereto are maintained on the books of the
Debtor in conformity with GAAP; (v) liens placed upon Equipment hereafter
acquired and the proceeds thereof to secure a portion of the purchase price
thereof, provided that any such lien shall not encumber any other property of
Debtor (it being understood that Secured Party will upon Debtor's request
provide UCC-3 Financing Statements releasing its lien on such Equipment and the
proceeds thereof); and (vi) liens specified on Schedule 1 hereto.
"Prime Rate" means the prime commercial lending rate of the Bank as
publicly announced in New York, New York to be in effect from time to time,
such rate to be adjusted automatically, without notice, on the effective date
of any change in such rate. This rate of interest is determined from time to
time and is neither tied to any external rate of interest or index nor does it
necessarily reflect the lowest rate of interest actually charged to any
particular class or category of customers.
"Real Property" shall mean the property located at Prospect Street,
Brandon, VT 05733.
"Reported Account" shall mean any Account arising out of the sale of
merchandise or rendition of services which Debtor has reported to Secured
Party in accordance with Paragraph 6.
"Slow Account" shall mean any Reported Account with respect to which
any of the following has occurred:
(i) all or a substantial part of the property or services giving
rise to the Reported Account is returned, rejected or repossessed, or
lost or damaged;
(ii) any merchandise or other dispute has arisen (it being understood
that such Account shall be a Slow Account only to the extent of the
amount of such dispute);
(iii) the Account Debtor has become insolvent;
(iv) payment on such Reported Account is unpaid more than 90 days
from invoice date;
(v) all Reported Accounts due from the same Account Debtor if 50% or
more of all unpaid invoices due from such Account Debtor remain unpaid
more than 90 days from invoice date; or
(vi) in Secured Party's reasonable discretion the Account may not
be used in computing the Accounts Receivable Borrowing Base.
In the event of any dispute as to whether a Reported Account has become
a Slow Account, the reasonable decision of Secured Party made in accordance
with this definition shall control.
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"Subsidiary" shall mean any corporation of which more than 50% of the
outstanding shares of stock of each class having ordinary voting power is at
the time owned by Debtor and/or one or more of its subsidiaries.
"Term" shall have the meaning set forth in Paragraph 21 hereof.
"Term Loans" shall mean the loans made by Secured Party to Debtor as
evidenced by the Term Loan Notes.
"Term Loan Notes" shall mean the promissory notes issued by Debtor to
Secured Party (i) dated as of June 1, 1989 in the original principal amount of
$3,000,000; (ii) dated as of March 31, 1990 in the original principal amount
$5,000,000; and (iii) dated as of March 11, 1994 in the original principal
amount of $1,500,000.
2. To secure the payment and performance of Debtor's Obligations, Debtor hereby
grants to Secured Party a security interest in all of the following personal
property (all herein referred to as the "Collateral"):
a) all Accounts of Debtor whether now existing or hereafter arising or
acquired, including, without limitation, Reported Accounts, all guarantees,
securities and liens for payment of any Account, all right, title and interest
of Debtor in the merchandise which gave rise to any Account, including the
rights of reclamation and stoppage in transit, all rights of an unpaid seller
of merchandise or service, and all rights of Debtor earned or yet to be earned
under contracts with Account Debtor;
b) all inventory of Debtor now owned or hereafter acquired, including
without limitation all of Debtor's contract rights with respect thereto and all
documents representing the same;
c) all General Intangibles of Debtor now existing or hereafter
arising or acquired;
d) all returned, rejected or repossessed goods whether now owned or
hereafter acquired which were Inventory before sale;
e) all sums at any time due from Secured Party to Debtor;
f) all instruments, documents, policies and certificates of insurance,
securities, goods, choses in action, cash or other property owned by Debtor or
in which Debtor has an interest, which now or hereafter are at any time in
possession or control of Secured Party or in transit by mail or carrier to or
from Secured Party in the possession of any third party acting in Secured
Party's behalf, without regard to whether Secured Party received the same in
pledge, for safekeeping, as agent for collection or transmission, or otherwise
or whether Secured Party has conditionally released the same;
g) all Equipment, excluding Equipment subject to liens described in
clause (v) of the definition of Permitted Liens and the proceeds thereof;
h) all proceeds of the foregoing, including, without limitation,
proceeds of policies of fire, credit or other insurance; and
i) all books, records, ledger sheets, and other records relating to
the foregoing.
Secured Party shall have the right (y) at any time to apply any or all
of the proceeds of the Accounts against any and all Obligations excluding the
Term Loan evidenced by the Term Loan Note dated as of March 11, 1994 in the
original principal amount of $1,500,000 ("$1,500,000 Term Loan") and (z) upon
an Event of Default, to apply any or all of the proceeds of the Collateral
against any and all Obligations including the $1,500,000 Term Loan, whether or
not, in either case, other security held by Secured Party is considered by
Secured Party to be adequate.
3. For the purpose of inducing Secured Party to make loans to Debtor, Debtor
hereby warrants, represents, covenants and guarantees which warranties,
representations, covenants and guarantees shall survive the execution and
delivery of this Agreement and shall be deemed repeated and confirmed with
respect to each loan or advance made by Secured party hereunder:
a) Debtor is duly organized and existing under the laws of its state of
incorporation and licensed or qualified to do business in all other states in
which the laws thereof require Debtor to be so qualified and/or licensed, and
the execution, delivery and performance of this agreement and any security
agreement, notes, guarantees or other agreements or instruments delivered in
connection herewith are within Debtor's corporate powers, have been
authorized, and are not in contravention of law or the terms of Debtor's
charter, bylaws, or other incorporation papers, or of any indenture, agreement
or undertaking to which Debtor is a party or by which it or its assets are
bound;
b) to the extent that Debtor has knowledge or should have knowledge,
any Account reported by Debtor to Secured Party as a Reported Account will be
a good and valid Account representing an undisputed bona fide indebtedness of
an Account Debtor to Debtor; and no agreement under which any deduction or
discount may be
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<PAGE> 5
claimed has been or will be made with the Account Debtor on any Account except
as shown on the statement or invoice furnished to Secured Party with reference
thereto:
c) the Inventory is either (i) in the possession of Debtor at the
locations listed on Schedule 3(c) hereto or (ii) on the premises of Account
Debtors with respect to which Secured Party has been given notice of such fact
and has been given UCC-1 Financing Statements executed by Debtor for filing in
such locations, and the location thereof will not be changed without prior
written notice to Secured Party in each and every instance;
d) upon the occurrence and during the continuance of an Event of
Default, Secured Party shall, at all times, have the right to (i) take
possession of any of the Collateral and to maintain such possession on Debtor's
premises, at the expense of the Debtor, by use of a custodian or custodians in
such a manner as Secured Party may elect and (ii) at the expense of the Debtor,
to remove the Collateral or any part thereof to such other place or places as
Secured Party may from time to time select;
e) Debtor is and will be the lawful owner of all Collateral and has
now and will in the future have the right to pledge, sell, assign and transfer
the same and grant a security interest in any of the Collateral except for
Permitted Liens;
f) the Collateral is and will continue to be free and clear of all
liens, claims, security interests and encumbrances except for Permitted Liens,
and Debtor will warrant and defend all Collateral against the claims and
demands of all persons;
g) all representations made by Debtor to Secured Party with reference
to the description, content or valuation or any and all of the Collateral are
and will continue to be true and correct in all material respects; the sale of
all Inventory which gives rise to an Account shall, subject to the terms of
Paragraph 3(c)(ii), be an absolute sale and not on consignment or approval, and
all such inventory shall have been the absolute property of Debtor, free of
liens and other encumbrances, and Debtor shall not have received the same on
consignment or approval; all service which gave rise to an account shall have
actually been performed; all invoices, records, notes, documents of title,
shipping and delivery receipts and any and all other instruments, memoranda and
documents presented or delivered to Secured Party shall be valid and genuine;
and
h) Debtor will promptly notify Secured Party of any material change
from the date hereof in Debtor's own financial status or a material adverse
change which is known or should be known to Debtor in the status of any Account
Debtor, or in the condition of the Inventory, or in the collectibility of any
Account, including all material claims, rejections, reductions, returns and
adjustments by Account Debtors. Debtor will comply with the terms and
conditions of any leases covering the premises where Inventory or Equipment is
located and any other order, ordinances, laws or statutes of any city, state or
governmental department having jurisdiction with respect to such premises or
the conduct of business thereon. If Inventory shipped on any Account is
returned, Debtor may sell said Inventory in the ordinary course of business;
however, upon an Event of Default and during the continuance thereof, at the
request of Secured Party, Debtor shall hold the same segregated in trust for
Secured Party subject to its exclusive disposition, and shall, at Debtor's
expense, deliver the same to Secured Party, or to such place or places as
Secured Party may designate.
4. a. Subject to the terms of this Agreement and provided that there
does not exist, at the time of any request, an Event of Default, Secured Party
will lend to Debtor hereunder, from time to time, sums of money (inclusive of
the Term Loans) up to the lesser of (A) the Maximum Loan Amount or (b) the sum
of (i) the Accounts Receivable Borrowing Base plus (ii) the lesser of (x) the
Inventory Borrowing Base or (y) $15,000,000; plus (iii), the lesser of (x) the
Equipment Borrowing Base or (y) $500,000; plus (iv) the amount outstanding
under the Term Loan Note dated March 11, 1994 in the principal amount of
$1,500,000. The total amount of loans outstanding shall include the sum of the
aggregate face amount of all drafts which may then or thereafter be presented
by beneficiaries under all Letters of Credit then outstanding and also
including the sum of the aggregate face amount of all drafts theretofore
presented under the Letters of Credit but not paid and the aggregate amount of
outstanding banker's acceptances created under the Letters of Credit. Secured
Party's assistance in joining in or guaranteeing Letters of Credit shall be in
Secured Party's sole discretion and in no event shall the aggregate face amount
of all drafts which may then or thereafter be presented by beneficiaries under
all Letters of Credit together with the aggregate amount of outstanding
banker's acceptances created under the Letters of Credit exceed $2,000,000.
Notwithstanding the foregoing, the Secured Party shall have the right to make
advances hereunder in excess of the advances ("Overadvances") which would
otherwise be permitted hereunder pursuant to the percentages in the definitions
of Accounts Receivable Borrowing Base, Equipment Borrowing Base and Inventory
Borrowing Base in Secured Party's sole and absolute discretion. The aggregate
unpaid principal amount advanced under the Inventory Borrowing Base shall not
at any time exceed 60% of the aggregate unpaid principal amount advanced
hereunder, as reduced by the outstanding principal amount at such time of the
$1,500,000 Term Loan Note dated March 11, 1994, provided that for the purpose
of such calculation such remaining amount advanced hereunder shall be deemed to
have been advanced first against the maximum amount available at such time
under the Accounts Receivable Borrowing Base.
b. (i) The Debtor may by written notice request a borrowing prior to
1:00 P.M. New York time in the form of a LIBO Rate Loan three (3) Business Days
prior to the date, and in the form of an ABR Loan on the date, on which it
requests to incur an advance, such request to specify the amount of the advance
requested (which in the case of a LIBO Rate Loan shall be in a minimum amount
of $1,000,000 and an integral multiple of $100,000). All advances shall be
disbursed from whichever office or other place Secured Party may designate from
time to time and, together with any and all other Obligations of Debtor to
Secured Party, shall be charged to
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<PAGE> 6
the Debtor's account on Secured Party's books. The proceeds of each advance
made by the Secured Party shall be made available to the Debtor on the day so
requested by way of credit to the Debtor's operating account maintained with
Secured Party. Any and all Obligations due and owing hereunder may be charged
to Debtor's account and shall constitute an advance hereunder.
(ii) By delivering a Continuation Notice to the Secured Party
on or before 10:00 a.m., New York time, on a Business Day, the Debtor may from
time to time irrevocably elect, on not less than three nor more than five
Business Days' notice that all, or any portion in an aggregate minimum amount
of $1,000,000 and an integral multiple of $100,000, of (A) a LIBO Rate Loan be
continued as, or an ABR Loan be converted into, a LIBO Rate Loan (in the
absence of delivery of a Continuation Notice with respect to any LIBO Rate Loan
at least three Business Days before the last day of the then current interest
Period with respect thereto, such LIBO Rate Loan shall, upon such last day,
automatically convert to an ABR Loan) or (B) a LIBO Rate Loan may be converted
into an ABR Loan; provided, however, that no portion of the outstanding
principal amount of a Loan may be continued as, or converted into, a LIBO Rate
Loan when any Event of Default has occurred and is continuing.
5. a. (i) Interest on Loans shall be payable in arrears on the last
day of each month except that interest with respect to LIBO Rate Loans shall be
payable on the last day of the Interest Period with respect thereto. Interest
payments hereunder may, at Secured Party's option be charged by Secured Party
to Debtor's account. Interest charges shall be computed on the unpaid balance
of the loans for each day they are outstanding at a rate per annum equal to the
Contract Rate.
(ii) Interest shall be computed on the basis of actual days
elapsed over a 360-day year.
(iii) Notwithstanding the foregoing, in no event shall interest
exceed the maximum rate permitted under any applicable law or regulation, and
if any provision of this Agreement is in contravention of any such law or
regulation, such provision shall be deemed amended to provide for interest at
said maximum rate and any excess amount shall either be applied, at Secured
Party's option, to the outstanding Loans in such order as Secured Party shall
determine or refunded by Secured Party to Debtor.
(iv) Debtor shall pay principal, interest and all other amounts
payable hereunder, without any deduction whatsoever, including but not limited
to, any deduction for any set-off or counterclaim.
b. (i) Debtor shall pay to Secured Party an annual fee in an
amount equal to $20,000.00 which fee shall be paid in equal monthly
installments during each year that this Agreement is in effect.
(ii) Upon Secured Party's performance of any due diligence -
namely any field examination, collateral analysis or other business analysis,
the need for which is to be determined in the reasonable discretion of Secured
Party and which due diligence is undertaken by Secured Party or for Secured
Party's benefit, an amount equal to Secured Party's reasonable out of pocket
travel expenses to locations other than the 145 Oser Avenue office incurred in
connection therewith shall be charged to Debtor's account.
(iii) In the event the average closing daily unpaid balances of
all advances hereunder during any calendar month is less than the Maximum Loan
Amount, Debtor shall pay to Secured Party a fee at a rate per annum equal to
2/10 of one percent (.2%) on the amount by which the Maximum Loan Amount
exceeds such average daily unpaid balance. Such fee shall be calculated on the
basis of a year of 360 days and actual days elapsed, and shall be charged
to Debtor's account on the first day of each month with respect to the prior
month.
c. In the event of any change in any applicable law, treaty or
governmental regulation, or in the interpretation or application thereof, or
compliance by Secured Party (for purposes of this Section 5(c), the term
"Secured Party" shall include Secured Party and any corporation or bank
controlling Secured Party) with any request or directive (whether or not having
the force of law) from any central bank or other financial, monetary or other
authority, shall:
(i) subject Secured Party to any tax of any kind whatsoever
with respect to this Agreement or change the basis of taxation of payments to
Secured Party of principal, fees, interest or any other amount payable
hereunder or (except for taxes on or changes in the rate of tax on the overall
net income of Secured Party);
(ii) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by,
any office of Secured Party, including (without limitation) pursuant to
Regulation D of the Board of Governors of the Federal Reserve System; or
(iii) impose on Secured Party any other condition with respect
to this Agreement;
and the result of any of the foregoing is to increase the cost to Secured Party
of making, renewing or maintaining its Loans hereunder by an amount that
Secured Party deems to be material or to reduce the amount of any payment
(whether of principal, interest or otherwise) in respect of any of the Loans by
an amount that Secured Party deems to be material, then, in any case Debtor
shall promptly pay Secured Party, upon its demand, such additional amount as
will compensate Secured Party for such additional cost or such reduction, as
the case may be. Secured Party shall certify the amount of such additional cost
or reduced amount to Debtor, including all
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pertinent information regarding the calculation thereof, and such certification
shall be conclusive absent manifest error.
d. (i) In the event of any change in any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Secured Party (for purposes of this Section 5(d), the
term "Secured Party" shall include Secured Party and any corporation or bank
controlling Secured Party) with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on Secured Party's capital as a consequence of its obligations
hereunder to a level below that which Secured Party could have achieved but for
such adoption, change or compliance (taking into consideration Secured Party's
policies with respect to capital adequacy) by an amount deemed by Secured
Party to be material, then, from time to time, Debtor shall pay upon demand to
Secured Party such additional amount or amounts as will compensate Secured
Party for such reduction. In determining such amount or amounts, Secured Party
may use any reasonable averaging or attribution methods. The protection of this
Section shall be available to Secured Party regardless of any possible
contention of invalidity or inapplicability with respect to the applicable law,
regulation or condition.
(ii) A certificate of Secured Party setting forth such
amount or amounts as shall be necessary to compensate Secured Party with
respect to Section 5(d) hereof including all pertinent information regarding
the calculation thereof, when delivered to Debtor shall be conclusive absent
manifest error.
e. If the Secured Party (for purposes of this Section 5(e) the
term "Secured Party" shall include Secured Party and any corporation or bank
controlling Secured Party) shall determine (which determination shall, upon
notice thereof to Debtor, be conclusive and binding on Debtor) that the
introduction of or any change in or in the Interpretation of any law makes it
unlawful, or any central bank or other governmental authority asserts that it
is unlawful, for the Secured Party to make, continue or maintain the Loans or
any portion thereof as a LIBO Rate Loan, the obligations of the Secured Party
to make, continue, maintain or convert the Loans or any portion thereof as or
into LIBO Rate Loans shall, upon such determination, forthwith be suspended
until the Secured Party shall notify Debtor that the circumstances causing
such suspension no longer exist, and all LIBO Rate Loans shall automatically
convert into ABR Loans at the end of the then current Interest Periods with
respect thereto or sooner, if required by such law or assertion.
f. If the Secured Party (for the purposes of this Section 5(f) the
term "Secured Party" shall include Secured Party and any corporation or bank
controlling Secured Party) shall have determined that by reason of
circumstances affecting the London Interbank market, adequate means do not
exist for ascertaining the interest rate applicable hereunder to LIBO Rate
Loans, then, upon notice from the Secured Party to Debtor, the obligations of
the Secured Party under this Agreement to make, continue, maintain or convert
the Loans or any portion thereof as LIBO Rate Loans shall forthwith be
suspended until the Secured Party shall notify Debtor that the circumstances
causing such suspension no longer exist.
g. Absent any gross negligence on the part of the Secured Party,
in the event the Secured Party (for purposes of this Section 5(g) the term
"Secured Party" shall include Secured Party and any corporation or bank
controlling Secured Party) shall incur any loss or expense (including any
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by the Secured Party to make, continue,
maintain or convert any portion of the principal amount of the Loans or any
portion thereof as a LIBO Rate Loan) as a result of
1. any conversion or repayment or prepayment of
the principal amount of any LIBO Rate Loans on a date other than the scheduled
last day of the Interest Period applicable thereto;
2. the Loans not being made as LIBO Rate Loans in
accordance with the written request therefor (other than as a result of the
breach of Secured Party's obligation to make such LIBO Rate Loan in accordance
with the terms hereof); or
3. the Loans or any portion thereof not being
continued as LIBO Rate Loans in accordance with the Continuation Notice
therefor,
then, upon the written notice of the Secured Party to Debtor the Debtor shall,
within five days of receipt thereof, pay to the Secured Party such amount as
will (in the reasonable determination of the Secured Party) reimburse the
Secured Party for such loss or expense. Such written notice (which shall
include calculations in reasonable detail) shall, in the absence of manifest
error, be conclusive and binding on Debtor.
5A. Until Debtor's authority to do so is terminated by the Secured Party
either as a result of notice by Secured Party which it may give at any time or
automatically upon the occurrence of an Event of Default, Debtor will on the
Secured Party's behalf and for the Secured Party's account, collect as the
Secured Party's property and in trust for the Secured Party all amounts
received on Accounts from Account Debtors and will turn over and/or mail and
deliver to the office of Secured Party, on the day of receipt thereof, all
cash, original checks, drafts, notes and other evidences of payment received in
full or part payment of any Accounts, with full right in Secured Party to
endorse and deposit such original Account Debtor's checks and remittances to
its own account, whether said remittances are made payable to Secured Party or
Debtor, the proceeds thereof to be credited to Debtor's loan account as
provided in Paragraph 8 hereof. Debtor shall submit to Secured Party, with all
remittances, a report in
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such form as Secured Party may require; and further, shall submit original
remittance advice in the form received by Debtor from Account Debtors.
6. Debtor shall make clear and suitable entries and notations on Debtor's books
and records, which shall reflect all facts giving rise to the Account (and in
such a case where the Account arises by reason of a sale or delivery of
merchandise, such notation shall clearly reflect the absolute sale of such
merchandise), all payments, credits and adjustments applicable to the Account
and the security interest of Secured Party. Upon the occurrence and continuance
of an Event of Default, Debtor shall deliver to and sign for Secured Party as
it shall require, any bills, statements and letters to be directed to Account
Debtors and shall execute and deliver to Secured Party any and all instruments
(including, without limitation, ageing of Accounts), reasonably determined by
Secured Party to be necessary or convenient to carry into effect the terms,
provisions and conditions of this Agreement, to perfect the security interest
granted hereunder, and to facilitate collection of Accounts. Any employee or
agent of Secured Party shall have the right to call at Debtor's place of
business from time to time during normal business hours and, without hindrance
or delay, inspect, examine, check and make abstracts from all the books,
records, receipts, correspondence, memoranda and other papers or data of the
Debtor. Debtor shall at all times maintain a complete set of books and records,
containing up-to-date posting of all Debtor's cash and accrual transactions of
any nature whatsoever.
6a. Debtor shall deliver to Secured Party daily, or at such other periods as
Secured Party shall determine, a report in form reasonably satisfactory to
Secured Party enumerating the Accounts arising out of the sale of merchandise
or rendition of service. Debtor shall deliver to Secured Party, duplicate
invoices, shipping receipts and such other evidence of shipment or delivery of
the merchandise or performance of the services or the performance of such other
act or acts giving rise to said Account as Secured Party may, from time to
time, reasonably require. Upon request, Debtor shall deliver to Secured Party a
report in form satisfactory to Secured Party enumerating all Accounts. If
Debtor shall at any time grant to any Account Debtor a credit, or if Debtor
shall, at any time, receive back any merchandise which it had delivered to an
Account Debtor, Debtor shall forthwith give notice to Secured Party, in
writing, of the issuance of such credit or the return of such merchandise.
7. Secured Party may, upon the occurrence and during the continuance of an
Event of Default, without notice to Debtor, notify Account Debtors that
Accounts have been assigned to Secured Party and shall be paid directly to
Secured Party. Upon the occurrence and during the continuance of an Event of
Default, upon the request of the Secured Party, Debtor shall so notify Account
Debtors and shall indicate on all billings to Account Debtors that all moneys
due thereon are payable to Secured Party. Secured Party shall further have the
right upon the occurrence and during the continuance of an Event of Default,
directly or through its agents, to collect any or all of the Accounts, and in
its own name, or in Debtor's name, to sell, transfer, set over, compromise,
discharge or extend the whole or any part of the Accounts, and for that purpose
to do all acts and things necessary or incidental thereto, including the right
of suit, Debtor hereby ratifying all that Secured Party shall do by virtue
thereof. Granting extensions to Account Debtors or to Debtor, suffering any
delay, or permitting any breach by Debtor or Account Debtors in connection with
any transactions between the parties hereto, shall in no way be construed as a
waiver or any subsequent breach or delay or of the rights of Secured Party
against Debtor, and Debtor's liability shall in no way be restricted, limited,
diminished or abated by virtue of any such extension or privilege granted.
Debtor shall not, except in the ordinary course of its business, without the
express written consent of Secured Party, release, compromise or adjust any
Account, or any guarantee, security or lien therefor, or grant any discounts,
allowances or credits thereon, or bring any suit to enforce payment thereof.
Secured Party shall not, under any circumstances, or in any event whatsoever,
have any liability for any error, omission or delay of any kind occurring in
the settlement, collection or payment of any Account or of any instrument
received in full or part payment thereof, or in dealing with any lien, security
or guarantee of any Account.
8. Secured Party shall credit to Debtor's Loan Account proceeds of Accounts
received by Secured Party, such credits to be entered one day after receipt of
the proceeds; such credits, however are conditional upon final payment to
Secured Party at its own office in cash or solvent credits of all items giving
rise to the credits, and if any item is not so paid, any credit given to Debtor
for it shall be reversed, whether or not the item is returned.
9. All sales of Inventory by Debtor shall be reported to Secured Party promptly
on a Sales Summary Report. Secured Party shall have the right upon an Event of
Default and during the continuance thereof to the immediate possession of all
Inventory including without limitation, labels, stationery, documents and
packing materials and products and proceeds of the foregoing, and Debtor shall
make such Inventory and all its records pertaining thereto available to Secured
Party for inspection at any time requested by Secured Party. Debtor shall, upon
request of Secured Party, promptly furnish Secured Party with a report, in form
and substance satisfactory to the Secured Party, describing and detailing the
Inventory including, but not limited to, the location of such Inventory and the
value thereof at cost or market value, whichever is lower. Secured Party shall
have the right to take or cause to be taken a physical count of the Inventory
upon the occurrence and during the continuance of an Event of Default. Secured
Party shall have the right, in its discretion, to pay any liens or claims upon
said inventory including, but not limited to, warehouse charges, dyeing,
finishing and processing charges, landlord's claims or any other liens or
encumbrances thereon, and the amount of any such payment by Secured Party shall
be charged to Debtor's Loan Account and be part of the Obligations. Secured
Party shall not be liable for the safekeeping of any of the Inventory or for
any loss, damages or diminution in the value thereof, or for any act or default
of any warehouse or other person dealing in and with said Inventory, whether as
agent for Secured Party, or otherwise, or for the collection of any proceeds
thereof, but the same shall at all times be at Debtor's risk.
10. Debtor agrees at its own expense, to keep all Inventory and Equipment
insured to the full value thereof on a cost basis against such risks and by
policies of insurance issued by such companies as Secured Party may
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reasonably designate or approve, and the policies evidencing such insurance
shall be issued with such loss payable rider as Secured Party may reasonably
designate and said policies shall be delivered to Secured Party at its request.
Until such time as Secured Party requires otherwise, such loss payable rider
shall provide that payment with respect to any claim exceeding $150,000 shall
be made directly to Secured Party. Should Debtor fail for any reason to furnish
Secured Party with such insurance, Secured Party shall have the right to effect
the same and charge any costs in connection therewith to Debtor's Loan Account.
Secured Party shall have no risk, liability or responsibility in connection
with payment or non-payment of any loss, the sole obligation of Secured Party
being to credit Debtor's Loan Account with the net proceeds of any insurance
payments received on account of any loss.
11. Debtor hereby authorizes Secured Party at Debtor's expense to file one or
more financing statements to perfect the security interests granted herein
without Debtor's signature thereon, and Debtor agrees to do, file, record,
make, execute and deliver all such acts, deeds, things, notices, instruments
and financing statements as Secured Party may reasonably request in order to
perfect and enforce the rights of Secured Party herein. Debtor hereby
authorizes Secured Party to complete any blank space therein according to the
terms upon which the Obligations hereunder are granted. At the request of
Secured Party, Debtor will execute and deliver to Secured Party such financing
statements or amendments thereof or supplements thereto, and such other
instruments, all in a form satisfactory to Secured Party, as Secured Party may
from time to time deem necessary or advisable, and will pay costs and expenses
of filing or recording same, in order to preserve, protect and maintain the
security interests hereby granted. Debtor further agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. Except for
Collateral subject to Permitted Liens, without the prior written consent of
Secured Party, Debtor will not grant any security interest in any of the
Collateral and will not permit or allow any adverse financing statement
covering the Collateral to be on file in any public office. Except for
Collateral subject to Permitted Liens, Debtor warrants and represents that as
of the time of execution of this Agreement, no other financing agreements
covering any of the Collateral are in force and that no claim of any security
interest in any of the Collateral is on file in any public office.
12. Debtor shall pay to Secured Party on demand any and all reasonable
expenses, including, but not limited to, a collection charge on all Accounts
collected, all reasonable attorneys' fees and expenses, and all other
reasonable expenses, of like or unlike nature, which may be expended or
incurred by Secured Party to obtain or enforce payment of any Account either as
against the Account Debtor, upon the occurrence and during the continuance of
an Event of Default, Debtor or any guarantor or surety of Debtor or in the
prosecution or defense of any action concerning any matter growing out of or
connected with the subject matter of this Agreement, any amendment hereto or
modification or waiver hereof, the Obligations or the Collateral or any of
Secured Party's rights or interests therein or thereto, including, without
limitation, any reasonable counsel fees or expenses incurred in any bankruptcy
or insolvency proceeding or otherwise with respect hereto.
13. Debtor will pay to Secured Party forthwith upon the expiration or
termination of this Agreement, the current amount of the debit balance of
Debtor's Loan Account.
14. Upon an Event of Default and during the continuance thereof, in the event
that Debtor shall become liable to, or any lien against Debtor shall arise in
favor of, any taxing authority, whether or not the amount of such liability
shall have been assessed against Debtor and whether or not notice of such lien
shall have been filed or recorded as may be required by law, Secured Party
shall have the right, but is not obligated, to pay the amount of such liability
(including interest and/or penalties thereon) and also to pay any tax or
liability by virtue of which such lien shall have arisen, and any amount or
amounts paid for the discharge of such liability or lien shall be for Debtor's
Loan Account, and any such amount shall be paid by Debtor to Secured Party with
interest thereon upon demand, notwithstanding that the payments made may also
discharge a liability of the Secured Party.
15. Debtor does hereby make, constitute and appoint any officer of Secured
Party as Debtor's true and lawful attorney-in-fact, with power to endorse the
name of Debtor upon any notes, checks, drafts, money orders or other
instruments of payment or Collateral that may come into possession of Secured
Party, if any, in full or part payment or any amount owing to Secured Party; to
sign and endorse the name of Debtor upon any invoice, freight or express bill,
bill of lading, storage or warehouse receipt, drafts against Account Debtors,
assignments, verifications and notices in connection with Accounts, and any
instruments or documents relating thereto, if any, or to Debtor's rights
therein; upon an Event of Default and during the continuance thereof, to give
written notice to such office and officials of the United States Post Office to
effect such change or changes of address so that all mail addressed to Debtor
may be delivered directly to Secured Party; granting unto Debtor's said
attorney full power to do any and all things necessary to be done in and about
the premises as fully and effectually as Debtor might or could do and hereby
ratifying all that said attorney shall lawfully do or cause to be done by
virtue herein. This power of attorney shall be irrevocable for the term of this
Agreement and all transactions hereunder and thereafter as long as Debtor may
be indebted to Secured Party.
16. Debtor hereby certifies to Secured Party that Debtor's address as set forth
at the end of this Agreement is Debtor's mailing address, Debtor's principal
place of business and the office at which Debtor's records relating to Accounts
are kept. Debtor agrees not to effect any change in its mailing address, or in
its principal place of business, or in the office in which its records relating
to Accounts are kept without first giving Secured Party at least thirty days
prior written notice thereof.
17. Until the Agreement has been terminated and all Obligations satisfied in
full Debtor shall:
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a) Furnish to Secured Party as soon as possible but in no event more
than 120 days after the close of each fiscal year of Debtor, and 60 days after
the end of each fiscal quarter following each fiscal year of Debtor the
following: consolidated financial statements of Debtor and its subsidiaries all
in reasonable detail and form satisfactory to Secured Party: (i) a balance
sheet as of the close of such period; and (ii) a statement of income and
changes in cash flow for such period; together with copies of the management
letters relating thereto furnished to Debtor by its independent certified
public accountants in connection with such financial statements. The foregoing
financial statements shall set forth in each case in comparative form the
corresponding figures for the respective date or period for the preceding
fiscal year. The foregoing financial statements with respect to fiscal years
shall be audited by such firm of certified public accountants as shall be
selected by Debtor and shall be reasonably satisfactory to Secured Party and
shall be certified by such accountants without qualification or limitation
because of the restricted or limited nature of the examination made by such
accountants, and with respect to quarterly statements shall be prepared
internally, shall be certified by an authorized financial officer of Debtor and
shall be delivered subject to year end adjustments. All of the foregoing
statements shall be prepared in accordance with generally accepted accounting
principles consistently applied by Debtor. Secured Party hereby acknowledges
that Grant Thorton, L.L.P. is a certified public accounting firm satisfactory
to Secured Party.
b) Furnish to Secured party concurrently with each delivery of financial
statements set forth in Section 17(a) hereof: (i) with respect to annual
financial statements, a certificate of Debtor's chief financial officer stating
whether in the course of the examination necessary for certifying the financial
statements Debtor obtained knowledge of any event which constitutes an Event of
Default or an event which with notice or lapse of time, or both, would
constitute such an Event of Default under the Agreement and if so, stating the
facts with respect thereto and whether the same has been cured prior to the date
of such certificate; and (ii) with respect to any other financial statements, a
certificate of the chief financial officer of Debtor stating whether an Event of
Default occurred or an event which with the giving of notice or lapse of time,
or both, would constitute such an Event of Default under the Agreement and if
so, stating the facts with respect thereto and whether the same has been cured
prior to the date of such certificate.
c) Permit officers of Secured party, at reasonable times, to visit and
inspect any of the offices of Debtor and its Subsidiaries, to examine their
books and records, to discuss the affairs and accounts of the Debtor and its
Subsidiaries with their officers and furnish to Secured Party such other
information as it may reasonably request.
d) Maintain at all times a ratio of consolidated current assets of
Debtor and its Subsidiaries to consolidated currents liabilities of Debtor and
its Subsidiaries of not less than 1.2 to 1.0. "Current assets" shall mean all
assets treated as current assets in accordance with generally accepted
accounting principles consistently applied. "Current liabilities" shall mean
all liabilities treated as current liabilities in accordance with generally
accepted accounting principles consistently applied including without
limitation all obligations payable on demand or within one year after the date
on which the determination is made together with Obligations under this
Agreement exclusive of any amounts outstanding under the Term Loan Notes.
e) Maintain at all times consolidated tangible net worth (common stock
plus preferred stock plus retained earnings plus additional paid in capital
plus subordinated debt less intangible assets) in an amount not less than
$9,000,00.00.
f) Maintain at all times a ratio of the sum of (1) cash and cash
equivalents plus (2) accounts receivable to current liabilities of not less
than 0.3 to 1.0 all on a consolidated basis.
g) Maintain at all times an excess of current assets over current
liabilities each on a consolidated basis of not less than $13,500,000.
h) Maintain at all times the insurance required by the Agreement and
cause each Subsidiary to maintain insurance with responsible insurance
companies on such of its properties in such amounts and against such risks as
is customarily maintained by similar businesses.
18. Until the agreement has been terminated and all Obligations
satisfied in full, Debtor shall not:
a) Contract for, purchase or make any expenditure or commitments for,
fixed or capital assets or securities or capital stock, or permit any
Subsidiary so to do, in an aggregate amount in excess of $3,000,000 in any
fiscal year without the consent of Secured Party, which consent will not be
unreasonably withheld.
b) With respect to Jaco declare or pay any cash dividends on any shares
of any class of its capital stock, or apply any of its property or assets to
the purchase, redemption or retirement of, or set apart any sum for the payment
of dividends on, or for the purchase, redemption or other retirement of, or
make any other distribution by reduction of capital or otherwise in respect of
any shares of any class of its capital stock.
c) Enter into any merger or consolidation or acquire all or
substantially all of the assets of any person, firm, joint venture or
corporation, or permit any Subsidiary so to do without Secured Party's prior
written consent which shall not be unreasonably withheld.
d) Create, incur, assume or suffer to exist any Indebtedness in excess
of $2,500,000.00 in the aggregate at any one time, or permit any Subsidiary so
to do, other than (i) indebtedness to Secured Party under the
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Agreement, (ii) accounts payable and other liabilities created in the ordinary
course of business but not including any liability or indebtedness incurred in
connection with the borrowing of money, (iii) liability of indebtedness
incurred by Debtor in a public offering of debt securities by the Debtor, (iv)
liability of indebtedness incurred by the Debtor in a private offering of debt
securities by the Debtor, or (v) indebtedness evidenced by liens described in
clause (v) of the definition of Permitted Liens. For purposes of this Section
18(d), "Indebtedness" shall mean (i) all indebtedness for borrowed money or for
the deferred purchase price of property, (ii) all obligations for the payment
of rent or hire of property of any kind whatsoever under leases or lease
arrangements which under generally accepted accounting principles are required
to be capitalized, (iii) all obligations under conditional sales or other title
retention agreement, and (iv) all indebtedness for borrowed money secured by
any lien upon property owned by the Debtor (whether or not the holder of such
indebtedness has recourse against the Debtor).
e) Permit at any time the ratio of Indebtedness to Tangible Net Worth
to be more than 5.0 to 1.0 for purposes of this Section 18(e), "Indebtedness"
shall mean consolidated total liabilities of Debtor and its Subsidiaries
determined in accordance with generally accepted accounting principles
consistently applied. "Tangible Net Worth" shall mean the excess of
consolidated total assets of Debtor and its Subsidiaries over consolidated
total liabilities of Debtor and its Subsidiaries, each to be determined in
accordance with generally accepted accounting principles consistently applied
excluding however, from the determination of consolidated total assets, all
assets which would be classified as intangible assets under generally accepted
accounting principles, including without limitation, goodwill, patents,
trademarks, trade names, copyrights and franchises.
f) Permit the aggregate outstanding amount of Accounts due from
Vargas, Inc. net of allowances or reserves to exceed $1,500,000.00 at any one
time.
19. The occurrence of any of the following events shall constitute a default
("Event of Default") by Debtor under this Agreement:
a) Debtor fails to pay any Obligation, excluding reasonable expenses,
when due and payable or declared due and payable, and with respect to expenses,
Debtor fails to pay any reasonable expense within five (5) days of when such
expense is due and payable or declared due and payable; or
b) Debtor fails or neglects to perform, keep or observe any term,
provision, condition, warranty, representation or covenant, other than those
contained in Paragraph 3, Paragraph 5, Paragraph 5A, Paragraph 17(c) through
17(g) or in Paragraph 18 hereof, contained in this Agreement or in any other
instrument or document delivered pursuant hereto or in any other agreement,
instrument or document under which Debtor is obligated to Secured Party and
such failure or neglect continues for twenty (20) days after Secured Party
gives Debtor notice thereof; or
c) Debtor fails or neglects to perform, keep or observe any term,
provision, condition, warranty, representation or covenant contained in
Paragraph 3, Paragraph 5, Paragraph 5A, Paragraph 17(c) through 17(g) or in
Paragraph 18 hereof.
d) Debtor or any guarantor, surety or other party liable upon any
Obligation makes any false, untrue, incomplete or misleading representation,
warranty, schedule, report or other communication to Secured Party in
connection with this Agreement or any transaction relating thereto which, in
any such case, is material in the reasonable judgment of Secured Party; or
e) Debtor or any guarantor, surety or other party liable upon any
Obligation becomes insolvent or generally fails to pay, or admits in writing
its inability to pay, its debts as they mature; or
f) Debtor or any guarantor, surety or other party liable upon any
Obligation makes an assignment for the benefit of creditors, commences a
voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect
or any successor legislation) or files a petition thereunder; or petitions or
applies to any tribunal for any receiver, custodian or trustee of Debtor or any
such guarantor, surety or other party or any substantial part of its property;
or commences any proceeding relating to Debtor or any guarantor, surety or
other party liable upon any Obligation, under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction whether now or hereafter in effect, or there is commenced against
Debtor or any guarantor, surety or party liable on any Obligation any such
proceeding which proceeding is not dismissed within 45 days; or Debtor or any
guarantor, surety or party liable on any Obligation by any act indicates its
consent to, approval of or acquiescence in any such proceeding or of the
appointment of any receiver, custodian or trustee for Debtor or any guarantor,
surety or any party liable upon any Obligation or any substantial part of its
property; or Debtor or any guarantor, surety or party liable on any Obligation
suffers any such custodianship, receivership or trusteeship; or
g) any guarantor, surety or other party liable upon any Obligation
shall die or become incompetent; or
h) any guarantor, surety or other party liable upon any Obligation
shall deny or contest its liability with respect to any Obligation or any
liability of any guarantor, surety or other party liable upon any Obligation
with respect to such Obligation shall be declared to be null and void; or
i) Debtor, or any guarantor, surety or party liable upon any
Obligation shall be dissolved or liquidated or be a party to any merger or
consolidation without the prior written consent of Secured Party; or
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j) the loss, theft, substantial damage or destruction of any material
portion of the Inventory or Equipment shall occur, which is not insured as
required by this Agreement; or
k) any guarantor, surety or other party liable on any Obligation shall
fail or neglect to perform, keep or observe any term, provision, condition,
covenant, warranty or representation contained in any agreement, instrument or
document under which it is obligated to Secured Party or which it delivered to
the Secured Party in connection herewith; or
l) any judgment against the Debtor in an amount exceeding $50,000 or
any and all attachments, executions, levies or restraining notices against
its property having an aggregate value in excess of $50,000 remain unpaid
or unstayed on appeal or undischarged, unbonded or undismissed for a period
of thirty days; or
m) any obligation of the Debtor for the payment of borrowed money in
excess of $350,000 in the aggregate is not paid when due or within any grace
period for the payment thereof or there shall occur any default in the
performance or observance of any term, condition or agreement contained in such
obligation or in any agreement relating thereto if the effect of such
nonpayment or other default is to cause the holder or holders of such
obligation to cause such obligation to become due prior to its stated maturity.
20. Upon the occurrence of any of the Events of Default specified in paragraph
19 hereof, Secured Party shall have all the rights and remedies of a secured
party under the Uniform Commercial Code and other applicable laws with respect
to all Collateral in which Secured Party has a security interest, such rights
and remedies being in addition to all of Secured Party's other rights and
remedies provided for herein. Secured Party may require the Debtor to assemble
the Collateral at Debtor's expense at such place or places as the Secured Party
designates, and Secured Party shall have the right, with or without legal
process and without prior notice or demand, to keep possession of the
Collateral or any part thereof and to enter any premises for taking possession
thereof. Secured Party may sell or cause to be sold any or all of such
Collateral in one or more sales or parcels, at such price and upon such terms
as Secured Party may deem best, and for cash or on credit, or for future
delivery, without Secured Party assuming any credit risk and at a public or
private sale as Secured Party may deem appropriate. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or any other intended disposition thereof is
to be made. The requirements of reasonable notice shall be met if any such
notice is mailed, postage prepaid, to Debtor's mailing address shown herein, at
least ten (10) days before the time of the sale or other disposition thereof.
Secured Party may invoice any such sale in its name or in Debtor's name, as
Secured Party may elect, as the seller, and in such latter event such invoice
may be marked payable to Secured Party. Secured Party may be the purchaser at
any such public sale and thereafter hold the property so sold at public sale,
absolutely free from any claim or right of whatsoever kind including any equity
of redemption. The proceeds of sale shall be applied first to all costs and
expenses of and incident to such sale, including attorneys' fees, and then to
the payment (in such order as Secured Party may elect) of all Obligations.
Secured Party will return any excess to Debtor and Debtor shall remain liable
for any deficiency. All Secured Party's rights and remedies under this
Agreement are cumulative and non-exclusive.
21. The term of this Agreement (the "Term") shall begin as of the date hereof
and continue until the last day of the 36th month hereafter and thereafter
shall be automatically renewed from year to year unless terminated on such date
or any anniversary thereof by either party hereto giving at least sixty (60)
days prior written notice of such termination to the other. Notwithstanding the
foregoing, upon the occurrence of an Event of Default under paragraph 19(f),
this Agreement shall automatically terminate without notice and all Obligations
shall immediately become due and payable, and upon the occurrence of any other
Event of Default, Secured Party may terminate this Agreement with notice and
all Obligations shall, unless and to the extent that Secured Party otherwise
elects, become immediately due and payable. Until all Obligations shall have
been fully paid and satisfied, and notwithstanding any termination of this
Agreement, Debtor shall continue to assign Accounts to Secured Party and turn
over collections to Secured Party as herein provided and this Agreement shall
remain in full force and effect as to, and be binding upon, Debtor, and Secured
Party shall retain its security interest in all Collateral. Debtor may repay
the facility at any time in whole or in part without premium or penalty by
giving Secured Party sixty (60) days' written notice of such repayment.
The Term Loan evidenced by the Term Loan Note dated March 11, 1994
shall be payable, with respect to principal, as follows, subject to acceleration
upon the occurrence of an Event of Default under this Agreement or termination
of this Agreement: consecutive monthly installments of $17,857.14 commencing on
April 1, 1994 and on the first day of each month thereafter with a final payment
in an amount equal to the unpaid principal amount plus all accrued interest
thereon. Debtor may sell such Real Property or refinance such Term Loan Note so
long as no Event of Default has occurred and is continuing, provided that there
is paid to Secured Party the net proceeds thereof, but not less than
$1,012,500.00 and not more than the then remaining principal amount of, plus all
accrued interest on, such Term Loan with such amount to be applied in reduction
or discharge of such Term Loan. Upon such sale of the Real Property or
refinancing of such Term Loan, Secured Party shall release the Mortgage;
provided, however, Secured Party shall receive an executed mortgagee waiver on
terms and conditions satisfactory to Secured Party from the refinancing party,
if any. Such Term Loan Note shall be subject to mandatory prepayments upon
disposition of the Real Property in an amount equal to the net proceeds realized
from such disposition. If the amount so paid is less than the then principal
amount of the Term Loan Note, then the monthly installments remaining on the
Term Loan Note shall be reduced, pro rata, based on the amount so paid.
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22. This Agreement is made and is to be performed under the laws of the State
of New York and shall be governed by and construed in accordance with said
laws. Debtor expressly submits and consents to the jurisdiction of any federal,
state or local court, located in the State of New York, City of New York, with
respect to any controversy arising out of or relating to this Agreement or any
amendment or supplement thereto or to any transactions in connection therewith
and Debtor hereby agrees that service of any summons or complaint or other
process in any action or proceeding involving any such controversy may be made
by registered or certified mail to it at the address appearing herein and
service so made shall be deemed to be completed five business days after
mailing; failure on the part of Debtor to appear or answer within thirty days
after such mailing of such summons, complaint or process shall constitute a
default entitling Secured Party to enter a judgment or order as demanded or
prayed for therein to the extent that said court or duly authorized officer
thereof may authorize or permit. DEBTOR HEREBY WAIVES ANY AND ALL RIGHTS TO A
TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING AND ANY OBJECTION OF FORUM NON
CONVENIENS OR VENUE IN ANY SUCH ACTION OR PROCEEDING. No failure or delay by
Secured Party in exercising any of its powers or rights hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any such
power or right preclude other or future exercise thereof or the exercise of any
other right or power. Secured Party's rights, remedies and benefits hereunder
are cumulative and not exclusive of any other rights, remedies or benefits
which Secured Party may have. Every provision of this Agreement is intended
to be severable; if any term or provision of this Agreement shall be invalid,
illegal or unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. This Agreement may only be modified in writing
and no waiver by Secured Party will be effective unless in writing and shall
be sent to the other party at the address specified herein. This Agreement
shall inure to the benefit of and shall bind the respective successors
and assigns of Secured Party and of Debtor. Secured Party may sell, assign
or transfer any of the Obligations and its rights and duties with respect
thereto, and may deliver the Collateral, or any part thereof, to the assignee
or transferee of the Obligations, who shall become vested with all the rights,
remedies, powers, security interests and liens herein given to Secured Party
in respect thereto; and Secured Party shall thereafter be relieved and fully
discharged from any liability or responsibility in the premises. Debtor may
not assign or transfer any of its rights or delegate any of its duties under
this Agreement without the prior written consent of Secured Party.
23. Secured Party shall have the continuing and exclusive rights to apply or
reverse and re-apply any and all payments to any portion of the Obligations. To
the extent Debtor makes a payment or Secured Party receives any payment or
proceeds of the Collateral for Debtor's benefit, which is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver or any other party
under any bankruptcy law, common law or equitable cause, then, to such extent,
the Obligations, or part thereof intended to be satisfied, shall be revived and
continue as if such payment or proceeds had not been received by Secured Party.
24. No termination of this Agreement or any guarantee of the Obligations shall
affect or impair the powers, obligations, duties, rights, warranties,
representations or liabilities of the parties hereto which arose or were made
prior to such termination and are stated to survive such termination.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto on this 25th day of April, 1995.
THE BANK OF NEW YORK JACO ELECTRONICS, INC.
COMMERCIAL CORPORATION
By: /s/ By:
----------------------- -----------------------
Title: Vice President
-------------------- Title: Vice President
--------------------
Address: 530 Fifth Avenue Address: 145 Oser Avenue
New York, New York 10036 Hauppauge, NY 11788
NEXUS CUSTOM ELECTRONICS, INC.
By: /s/
------------------------
Title: Vice President
---------------------
Address: Prospect Street
Brandon, VT 05733
-13-
<PAGE> 14
EXHIBIT A
LETTERHEAD OF JACO
Mr. Jeff Hegel
Bank of New York
1 Penn Plaza, 9th Floor
New York, NY 10119
Dear Mr. Hegel:
This letter will serve as formal request to rollover our Eurodollar LIBOR
accounts expiring as follows:
Jaco Electronics, Inc. Revolver
Amount:
Term:
Jaco Electronics, Inc., Term
Amount:
Term:
Please confirm this letter by phone. Feel free to contact me if you have any
questions.
Very truly yours,
<PAGE> 15
SCHEDULE 1
Permitted Liens - Clause (vi)
UCC filings against Jaco Electronics Inc.
<TABLE>
<CAPTION>
Secured Pty. File # Date Jurisdiction Collateral
------------ ------ ---- ------------ ----------
<S> <C> <C> <C> <C>
GECC 035487 2/24/94 NYS Specific Equip.
" 02806 2/24/94 Suffolk " "
" 079214 4/22/94 NYS " "
" 180236 9/1/94 NYS " "
" 14688 9/6/94 Suffolk " "
" 06283 4/22/94 Suffolk " "
Winbond 184633 4/30/93 NYS Computers
Pacific 15851 9/28/94 Suffolk "
Machinery Credit 01355 1/17/91 Suffolk Leased Equip.
Pacific 194446 9/22/94 NYS Computers
Machinery Credit 014352 1/23/91 NYS Leased Equip.
Toshiba 173822 8/13/90 NYS Leased Equip.
Lease America 107892 5/26/92 NYS Leased Equip.
Atlantic 015675 1/23/90 NYS Leased Equip.
Master Lease 155753 7/24/92 NYS Copier Leased
Pitney Bowes 000522 1/3/95 NYS Leased Equip.
</TABLE>
<PAGE> 16
SCHEDULE I (continued)
Permitted Liens -- Clause (vi)
UCC filings against Nexus Custom Electronics, Inc. as follows:
1. Security interests existing when Nexus Custom Electronics Inc. was
acquired by Jaco Electronics Inc. on March 11, 1994 in favor of the following
Secured Parties:
Eaton Financial Corporation
Hewlett Packard Company
Finance and Remarketing Division
Reprographics of N.E.
GenRad Inc.
M&I First National Leasing Corp.
2. Security interests granted by Nexus Custom Electronics, Inc.
subsequent to March 11, 1994 to Vermont National Bank and/or Vermont Economic
Development Authority and/or Rutland Economic Development Corporation on the
following equipment:
Electrovert Wave Solder System
Type EPK + 400F
S/N 10540620061
Carrier Chiller Process Equipment
Model 30HK060670
S/N 2594-107610
Digital Microvax 3100 Computer System
and software
S/N KA4288C2C1
FUJI CP-3 Chip Shooter
In-Line Semi-Arqueout Cleaning System
Cellular Manufacturing Equipment
Mydata Tape Magazine TM88
Computer Workstations - FY 94/95
Acquisition
DEK 260 Series High Precision Screen Printer with
modular upgrade capability, align vision, programmable
PCB/stencil separation and menu driven setup
<PAGE> 17
SECRETARY'S CERTIFICATE OF DIRECTORS' RESOLUTIONS
RESOLVED, that any officer, including without limitation, the
President, Vice President, Secretary and Treasurer of this Corporation, and
each of them, are hereby authorized and directed to execute and deliver on
behalf of this Corporation to The Bank of New York Commercial Corporation
("Lender") a Restated and Amended Loan and Security Agreement -- Accounts
Receivable and Inventory and related Uniform Commercial Code Financing
Statements; and it is further
RESOLVED, that any such officer may from time to time modify or
supplement such Restated and Amended Loan and Security Agreement -- Accounts
Receivable and Inventory and they or any persons hereafter and from time to
time designated by any of them to act for this Corporation are hereby further
authorized and empowered from time to time to sell, assign, transfer and
deliver, endorse, negotiate or otherwise transfer to Lender and its assigns
any and all accounts receivable now or hereafter belonging to or acquired by
this Corporation, and for said purposes to execute and deliver any and all
assignments, schedules, transfers, endorsements, contracts, agreements or
other instruments in respect thereof and to make remittances and payments in
respect thereof by checks, drafts or otherwise, and to do and perform all such
other acts and things deemed by such officer necessary, convenient and proper
to carry out, modify or supplement any such agreement and arrangements made
with Lender.
RESOLVED, that said documents shall be substantially in the forms
presented to this meeting; and it is further
RESOLVED, that said Officers and each of them are hereby authorized and
directed to execute and deliver all further documentation and to do all other
acts that they may deem convenient or proper to carry out the foregoing; and
it is further
RESOLVED, that all action heretofore taken and all documentation
heretofore delivered by any of said officers in furtherance of the foregoing is
hereby ratified and confirmed.
I, HERBERT ENTENBERG, hereby certify that I am Secretary of Nexus
Custom Electronics, Inc., a New Jersey corporation; that I am the custodian of
the corporate records and the seal of said Corporation; that the foregoing is a
true and correct copy of resolutions duly adopted and ratified at a special
meeting of the Board of Directors of said Corporation, duly convened and held
in accordance with its by-laws and the laws of said State, as taken and
transcribed by me from the minutes of said meeting and compared by me with the
original of said resolutions recorded in said minutes, and that these
resolutions have not been modified, repealed or rescinded but are in full force
and effect.
I further certify that the following are all of the officers (empowered
as set forth above) of said Corporation and that all of the directors of said
Corporation are officers of said Corporation, namely:
OFFICERS:
President/Treasurer: /s/
--------------------------------
Vice President: /s/
--------------------------------
Secretary: /s/ Herbert Entenberg
--------------------------------
Treasurer:
--------------------------------
WITNESS my hand and the seal of said Corporation this 25th day of
April, 1995.
/s/ Herbert Entenberg
--------------------------------
Secretary
[CORPORATE SEAL]
<PAGE> 18
SECRETARY'S CERTIFICATE OF DIRECTORS' RESOLUTIONS
RESOLVED, that any officer, including without limitation, the President,
Vice President, Secretary and Treasurer of this Corporation, and each of them,
are hereby authorized and directed to execute and deliver on behalf of this
Corporation to The Bank of New York Commercial Corporation ("Lender") a Restated
and Amended Loan and Security Agreement -- Accounts Receivable and Inventory
and related Uniform Commercial Code Financing Statements; and it is further
RESOLVED, that any such officer may from time to time modify or
supplement such Restated and Amended Loan and Security Agreement -- Accounts
Receivable and Inventory and they or any persons hereafter and from time to
time designated by any of them to act for this Corporation are hereby further
authorized and empowered from time to time to sell, assign, transfer and
deliver, endorse, negotiate or otherwise transfer to Lender and its assigns any
and all accounts receivable now or hereafter belonging to or acquired by this
corporation, and for said purposes to execute and deliver any and all
assignments, schedules, transfers, endorsements, contracts, agreements or other
instruments in respect thereof and to make remittances and payments in respect
thereof by checks, drafts or otherwise, and to do and perform all such other
acts and things deemed by such officer necessary, convenient and proper to
carry out, modify or supplement any such agreement and arrangements made with
Lender.
RESOLVED, that said documents shall be substantially in the forms
presented to this meeting; and it is further
RESOLVED, that said Officers and each of them are hereby authorized and
directed to execute and deliver all further documentation and to do all other
acts that they may deem convenient or proper to carry out the foregoing; and it
is further
RESOLVED, that all action heretofore taken and all documentation
heretofore delivered by any of said officers in furtherance of the foregoing is
hereby ratified and confirmed.
I, HERBERT ENTENBERG, hereby certify that I am Secretary of Jaco
Electronics, Inc., a New York corporation; that I am the custodian of the
corporate records and the seal of said Corporation; that the foregoing is a
true and correct copy of resolutions duly adopted and ratified at a special
meeting of the Board of Directors of said Corporation, duly convened and held
in accordance with its by-laws and the laws of said State, as taken and
transcribed by me from the minutes of said meeting and compared by me with the
original of said resolutions recorded in said minutes, and that these
resolutions have not been modified, repealed or rescinded but are in full force
and effect.
I further certify that the following are all of the officers (empowered
as set forth above) of said Corporation and that all of the directors of said
Corporation are officers of said Corporation, namely:
OFFICERS:
President/Treasurer: /s/
-------------------------------
Vice President: /s/
-------------------------------
Secretary: /s/ Herbert Entenberg
-------------------------------
Treasurer:
-------------------------------
WITNESS my hand and the seal of said Corporation this 25th day of
April, 1995.
/s/ Herbert Entenberg
--------------------------------
Secretary
[CORPORATE SEAL]
<PAGE> 19
AMENDMENT TO TERM LOAN NOTES
EXECUTED BY
JACO ELECTRONICS, INC.
IN FAVOR OF
THE BANK OF NEW YORK COMMERCIAL CORPORATION
Amendment dated as of April 25, 1995 to (i) the Term Loan Note
executed by Jaco Electronics, Inc. (the "Debtor") in favor of The Bank of New
York Commercial Corporation (the "Secured Party") in the principal amount of
$3,000,000, dated June 1, 1989 as amended (the "$3,000,000 Note"); (ii) the
Term Loan Note executed by the Debtor in favor of the Secured Party in the
principal amount of $5,000,000, dated March 31, 1990 as amended (the
"$5,000,000 Note"); and (iii) the Additional Term Loan Note executed by the
Debtor in favor of the Secured Party in the principal amount of $1,500,000,
dated March 11, 1994 (the "$1,500,000 Note"). The $3,000,000 Note, the
$5,000,000 Note and the $1,500,000 Note may be collectively referred to as
the "Notes".
BACKGROUND
Debtor executed the $3,000,000 Note and the $5,000,000 Note in favor
of Secured Party, which Notes are payable upon the earlier of (i) July 31, 1995
(the "Maturity Date") or (ii) termination of the "Loan Agreement" (as defined
in the Notes) or cessation of operation thereunder or (iii) the occurrence of
an event of default under the Loan Agreement. Debtor and Secured Party have
agreed to enter into a Restated and Amended Loan and Security Agreement (the
"Restated Agreement") and in connection therewith Debtor has requested that
Secured Party extend the Maturity Date of the $3,000,000 Note and the
$5,000,000 Note to January 31, 1998 and Secured Party has agreed to do so
subject to the terms hereof.
NOW THEREFORE, it is hereby agreed as follows:
1. All references to the Loan Agreement in the Notes shall now and
hereafter be deemed to refer to the Restated Agreement.
2. The second paragraph of the $3,000,000 Note is hereby amended to
read in its entirety as follows:
"(i) the principal sum of THREE MILLION DOLLARS ($3,000,000),
payable upon the earlier of (i) January 31, 1998 or (ii) as
otherwise provided
<PAGE> 20
herein, at which time the remaining unpaid interest
shall be due and payable; and"
3. The second paragraph of the $5,000,000 Note is hereby amended to
read in its entirety as follows:
"(i) the principal sum of FIVE MILLION DOLLARS ($5,000,000),
payable upon the earlier of (i) January 31, 1998 or (ii) as
otherwise provided herein, at which time the remaining unpaid
interest shall be due and payable; and"
4. This Amendment shall become effective as of the date first written
above upon the Secured Party's receiving: (i) counterparts hereof duly executed
by each of the parties hereto and (ii) executed confirmations of this Amendment
from the guarantors of the obligations of the Debtor. Upon receipt of such
documents, any reference to the Notes on and after the date first above written
shall be a reference to the Notes as amended by this Amendment.
5. The Debtor certifies to the Secured Party that no event of default
under the Notes or Loan Agreement, or any event that with the passage of time
or giving of notice, or both, would constitute such an event of default, has
occurred and is continuing.
6. Except as expressly amended hereby, all other terms, conditions and
provisions of the Notes are hereby ratified, confirmed and continued in effect.
7. This Amendment may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Notes as of the day and year first above written.
THE BANK OF NEW YORK
COMMERCIAL CORPORATION JACO ELECTRONICS CORP.
[Secured Party] [Debtor]
By: /s/ By: /s/
--------------------------- ------------------------------
Title: Title: Vice President -- Finance
-2-
