<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1995
REGISTRATION NO. 33-62559
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
NEW YORK 11-1978958
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
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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:
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<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
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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
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<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
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Total............................................................................................ $8,273.12
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</TABLE>
(1) As adjusted for a 4-for-3 stock split which was 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 4-for-3 stock split which was effective on 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.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
JACO ELECTRONICS, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K
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<CAPTION>
ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
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<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; Risk Factors
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 OCTOBER 13, 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 October 12, 1995,
was $13.50 per share (which gives effect to a 4-for-3 stock split which was
effective on September 22, 1995). See "Price Range of Common Stock."
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER
"RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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>
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UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
THE PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
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Total(3)..................... $ $ $ $
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</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 October , 1995.
------------------------
CRUTTENDEN ROTH CLEARY GULL REILAND & MCDEVITT INC.
Incorporated
The date of this Prospectus is October , 1995
<PAGE> 4
(Logo with four pictures of Electronic Components)
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 4-for-3 stock split which was effective on
September 22, 1995. Investors should carefully consider the information set
forth under the heading, "Risk Factors."
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.
Recent Developments. The Company recently announced that its net sales,
net earnings and earnings per share were $40.1 million, $808,000 and $.32 per
share, respectively, for the three months ended September 30, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
THE OFFERING
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<S> <C>
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
"Risk Factors."
Nasdaq National Market Symbol....... JACO
</TABLE>
- ---------------
* 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
Supplemental net earnings per common share(1)............. -- -- $ .72
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(2)
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(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>
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(1) Supplemental net earnings per common share is computed based on the weighted
average number of common and common equivalent shares outstanding during the
period, as if the shares issuable pursuant to this offering were outstanding
at the beginning of the period after giving retroactive effect to the
reduction of interest expense, net of income tax effect, applicable to the
reduction of the Company's bank indebtedness.
(2) 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
RISK FACTORS
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 37% 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 15% 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 699,914 shares of Common Stock, representing approximately 18.5% 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 20.2% 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 to 10,000,000. If the Company's shareholders approve the
increase in the number of authorized shares, shares may be issued to raise
equity capital, in connection with acquisitions, or for anti-takeover or other
purposes without further shareholder approval unless required by applicable law,
which could result in dilution to current shareholders. The Company's management
has no present intention of issuing additional shares other than as a result of
the exercise of stock options or the Representatives' Warrants. 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 September 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 of other component distributors which might be acquired for
geographic, consolidation or franchise expansion reasons, or of other contract
manufacturers of PCBs. The Company has no current plans, arrangements, or
understandings, written or oral, 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
through October 3, 1995 have been adjusted to give effect to a 4-for-3 stock
split which was 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 ended September 30, 1995........................... $13.88 $ 6.28
Second quarter ending December 31, 1995
(through October 12, 1995).................................... $13.50 $10.50
</TABLE>
On October 12, 1995, the last reported sale price of the Company's Common
Stock on The Nasdaq National Market was $13.50 per share (which gives effect to
the 4-for-3 stock split which was effective on September 22, 1995). As of
October 9, 1995, there were approximately 150 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........................ 654,033* 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 $241,000 or a $.09 per share benefit derived from cumulative effect
of a change in accounting for income taxes.
RECENT DEVELOPMENTS
For the three months ended September 30, 1995, net sales were $40.1
million, an increase of $9.0 million or 29% as compared to $31.1 million for the
first quarter of fiscal 1995. The increase in sales is the result of continued
strength in the electronic components markets and the expansion of sales forces
in existing and more recently established offices.
Net earnings for the three months ended September 30, 1995 were $808,000,
or $.32 per share, a 208% increase over the net earnings of $262,000, or $.11
per share, reported in the first quarter of fiscal 1995. The incremental growth
in sales was primarily responsible for the increase in earnings.
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
16
<PAGE> 19
September 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
increased to $4.0 million, from $127,000 in fiscal 1994 as a result of increases
in accounts receivable and inventory, which were partially offset by increases
in accounts payable, all of which is a reflection of higher sales. In fiscal
1995 the Company increased its borrowings under its Credit Facility by $4.6
million principally to provide cash for operating activities. 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 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's lenders under its Credit Facility have advised the Company of
their willingness to increase the maximum amount thereof to $33 million. The
Company expects that cash flow from operations and funds available under its
Credit Facility, as same may be so amended, 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
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<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
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<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.
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<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
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<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 15%, 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
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<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
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<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, who
is 62 years old, 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, who
is 61 years old, 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, who is 61 years old, 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 and key employees 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,
Finance 1994 $ 96,000 $10,000 -- -- 4,033 -- $ 1,663
1995 $ 96,347 $10,000 -- -- -- -- $ 1,806
Denis Haggerty......... 1993 $ 76,096 $33,368 -- -- -- -- $ 10,814
Vice President, 1994 $ 90,000 $31,377 -- -- 3,667 -- $ 11,165
Marketing 1995 $ 90,348 $36,964 -- -- -- -- $ 11,029
Morton J. Denson....... 1993 $114,306 $16,173 -- -- -- -- $ 8,762
Vice President, 1994 $114,998 $19,887 -- -- -- -- $ 8,891
Marketing 1995 $115,440 $37,955 -- -- -- -- $ 8,957
Herbert Entenberg...... 1993 $102,560 $ -- -- -- -- -- $ 3,369
Vice President, 1994 $102,560 $ 4,363 -- -- 3,667 -- $ 3,436
Management and 1995 $102,816 $16,155 -- -- -- -- $ 3,538
Information Systems
</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, Mr. Gash -- $724 and
Mr. Entenberg -- $2,354. 401(K) matching contributions for fiscal 1995 for
the Named Executives were as follows: Mr. Joel Girsky -- $1,009, Mr. Charles
Girsky -- $1,162, Mr. Gash -- $1,000, Mr. Haggerty -- $1,078, Mr.
Denson -- $1,055 and Mr. Entenberg -- $1,031. 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, Mr. Gash -- $82, Mr.
Haggerty -- $351, Mr. Denson -- $702 and Mr. Entenberg -- $153. 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
Denis Haggerty........ 0 0 3,667 0 5,877 0
Morton J. Denson...... 4,400 10,875 0 0 0 0
Herbert Entenberg..... 0 0 3,667 0 5,877 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
29
<PAGE> 32
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 this offering.
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 October 9, 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........................... 389,774 15.8% 137,500 252,274 6.7%
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
Dennis Haggerty............................. 3,667(5) * 0 3,667(5) *
Vice President, Marketing of the Company
Morton J. Denson............................ 4,400 * 0 4,400 *
Vice President, Marketing of the Company
Herbert Entenberg........................... 3,667(5) * 0 3,667(5) *
All Directors and Executive Officers as a
Group (8 persons)......................... 1,112,602(6) 42.9% 275,000 837,602(6) 21.4%
</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 3,667 shares of Common Stock acquirable pursuant to the exercise of
options granted under the Company's 1993 Non-Qualified Stock Option Plan.
(6) Includes 127,967 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. The Preferred Stock may be
issued with voting, dividend or liquidation rights superior to the Common Stock,
and could be used to frustrate a takeover attempt by a third party or to
entrench management. 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. 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 in
Washington, D.C. 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 these statements.
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 15%, 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
================================================================================
(Logo w/4 pictures of taped and reeled components, assembly of fractional horse
power motors, assembly of electronic components on printed circuit boards and
printed circuit board)
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
Risk Factors......................... 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.
OCTOBER , 1995
================================================================================
<PAGE> 57
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
TO BE PAID
TO BE PAID BY THE
BY THE COMPANY SELLING STOCKHOLDERS
-------------- --------------------
<S> <C> <C>
Accounting Fees**.................................. $ 50,000 $ --
Printing Expenses**................................ 100,000 --
Blue Sky Fees and Expenses**....................... 20,000 --
Registration Fee*.................................. 6,851 1,422
NASD Fee*.......................................... 2,402 498
Legal Fees**....................................... 160,000 --
Additional Listing Fees**.......................... 17,500 --
Miscellaneous**.................................... 39,435 --
-------- ------
Total......................................... $396,188 $1,920
======== ======
</TABLE>
- ---------------
* Actual.
** Estimated.
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.
II-1
<PAGE> 58
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
--------
<S> <C>
1.1 Final form 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 Final 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).
</TABLE>
II-2
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NO.
--------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
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.
(Previously filed)
99.8 Second Restated and Amended Loan and Security Agreement dated September 13, 1995
among Jaco Electronics, Inc., Nexus Custom Electronics, Inc., The Bank of New York
Commercial Corporation and NatWest Bank, N.A.
</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.
II-3
<PAGE> 60
(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.
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
October 12, 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 Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Hauppauge, New York on October 13, 1995.
JACO ELECTRONICS, INC.
By: JOEL H. GIRSKY
-------------------------------------
Joel H. Girsky, Chairman of the
Board, President and Treasurer
By: JEFFREY D. GASH
-------------------------------------
Jeffrey D. Gash, Principal Financial
and Accounting Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
JOEL H. GIRSKY
- --------------------------------------------- Chairman of the Board, October 13, 1995
Joel H. Girsky President and Treasurer
/s/ CHARLES S. GIRSKY
- --------------------------------------------- Executive Vice President October 13, 1995
Charles S. Girsky and Director
/s/ STEPHEN A. COHEN*
- --------------------------------------------- Director October 13, 1995
Stephen A. Cohen
/s/ EDWARD M. FRANKEL*
- --------------------------------------------- Director October 13, 1995
Edward M. Frankel
By: JOEL H. GIRSKY
- ---------------------------------------------
(Joel H. Girsky, at attorney-in-fact)
</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 A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- ----------------------- ------------ --------
ADDITIONS
-----------------------
(2)
(1) CHARGED TO BALANCE
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 Final form 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 Final 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. (Previously filed)
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among Jaco Electronics, Inc., Nexus Custom
Electronics, Inc., The Bank of New York Commercial Corporation and
NatWest Bank, N.A.
</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 MARKED TO SHOW CHANGES
----------------------
Gentlemen:
JACO ELECTRONICS, INC. a New York corporation (the "Company"), and
certain stockholders 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 Stockholders, 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.
33-62559) 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
-2-
<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 21.1
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. Each
of 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 and 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 stockholders 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 stockholder, 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.
-4-
<PAGE> 5
(g) Grant Thornton LLP which has audited 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
-5-
<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 the 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, in the reasonable
judgment of the Company, 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.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) Each officer and director of the Company, each
Selling Stockholder and each key employee of the Company set forth in the
Prospectus 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 stockholders 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
key persons 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 key persons from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Cruttenden Roth
Incorporated.
(t) 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)
except for its property in Brandon, Vermont, no property which is owned,
leased or occupied by the Company or its subsidiaries 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, and such designation of such Brandon, Vermont property will not have
a material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
aconsidered as one enterprise.
(u) 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
-7-
<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.
(v) 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 or except such loans, advances or guarantees of indebtedness which
are not material, individually or in the aggregate, to the Company and its
subsidiaries considered as one enterprise.
(w) 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.
(x) 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(h) 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 stockholders 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 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 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.
(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(h) 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 first, second and last
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 stockholders 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
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
stockholders' 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 stockholders, (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 stockholders 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 or 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 reasonable and documented 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 incurred by the Company
and the Selling Stockholders in connection with the preparation, printing and
filing of the Registration Statement (including financial statements,
schedules and exhibits) and the Preliminary Prospectuses and the Prospectus
and the Incorporated Documents and any amendments or supplements thereto; in
connection with 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; in connection
with the issuance and delivery of the Shares hereunder to the several
Underwriters, including transfer taxes, if any; in connection with the cost
of all certificates representing the Shares and transfer agents' and
registrars' fees; in connection with the fees and disbursements of counsel for
the Company; in connection with all fees and other charges of the Company's
independent certified public accountants; in connection with 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; in connection with NASD filing fees and the cost of qualifying
the Shares under the laws of such jurisdictions as you may designate (including
filing fees and up to $20,000 of fees and disbursements of Underwriters'
Counsel in connection Blue Sky qualifications); and directly 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 in all material respects, 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 reasonable 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 Distel, Inc., R. C. Components, Inc., Micatron Inc.,
Quality Components, Inc., Jaco Overseas, Inc. and Nexus Custom
Electronics, Inc.
(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 stockholders;
(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
material 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 Significant 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 Significant 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 has been duly authorized and, upon
issuance and delivery against payment therefor in accordance
with the terms of the Representatives' Warrant Agreement and
assuming no change in applicable law or facts from those
existing on the date 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 stockholders;
(xxi) To such counsel's knowledge no
holders of Common Stock or other securities of
the Company have registration rights with respect to securities
of the Company.
(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; and
(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 (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 (including, without limitation, those set forth in this
Agreement) 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 Thornton 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 Thornton 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 audit 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
Thornton LLP has performed the procedure set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information 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 Thornton LLP and you. In addition, you shall have
received from Grant Thornton 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 in all material respects, 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 in all material respects 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 key employee of the Company set forth in the Prospectus 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 stockholders 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) 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 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 is necessary 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
-23-
<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 was 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(i), 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
reasonable 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(i), 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(i), 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) 434-3963, 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) 434-3963.
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 New York.
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
----------------------
MARKED TO SHOW CHANGES
----------------------
------------------------------------------------------------
<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
New York 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, $0.10 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 and the performance of such obligations by the
Underwriters.
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 or partner of
the transferring Warrantholder; (ii) a successor to the transferring
Warrantholder in merger or consolidation; (iii) a purchaser of all or
substantially all of the transferring Warrantholder's assets; or (iv) 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 Securities Act of 1933, as amended (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 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.,
New York Time, on ___________, 1996 and ending at 5:00 p.m., New York 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, by
wire transfer, by certified or official bank check or 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 the name or names of the
Warrantholder or, subject to compliance with the provisions of Section 11(s), 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 Warrants in exchange for Shares. The
number of Shares to which the holder shall be entitled upon such surrender of
Warrants ("X") shall be determined by applying the following formula: X = N x
(($S-$W) divided by $S), where "N" is the number of Shares that would be
received if the Warrants surrendered were instead exercised for cash. "$S" is
the Current Market Price (as defined in section 9) per share of Common Stock and
"$W" is 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 reasonably 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. The company will
supply every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants 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
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<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 per share of Common Stock 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 price on the 30 consecutive trading days
immediately preceding the date in question, as reported by The Nasdaq Small Cap
Market (or an equivalent generally accepted reporting service if quotations are
not reported on The Nasdaq Small Cap Market), 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 The Nasdaq Small Cap Market, the applicable bid price referred
to in said clause shall be the lowest bid price as reported in The Nasdaq
Electronic Bulletin Board or, if not reported thereon, as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated, and, if such
securities are not so reported, shall be the price of a share of Common Stock
determined by the Company's Board of Directors in good faith. 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, including without limitation, to persons or entities
identified in clauses (i) through (vi), inclusive, of Section 1.3 other than
pursuant to a registration statement or other notification or post-effective
amendment thereto (hereinafter collectively a "Registration Statement") filed by
the Company with, and declared effective, by, the Securities and Exchange
Commission (the "Commission") the Warrantholder shall give written notice to the
Company describing briefly the manner in which any such proposed disposition is
to be made and shall provide such other information as may reasonably be
required by the Company and counsel familiar with securities matter to conclude
that no Registration Statement under the Act is required with respect to such
disposition, 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 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 Commission.
(b) Whenever during the three-year period beginning on ______________,
1996 and ending on ___________, 1999,
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<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 15 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' and holders' of Shares brokerage fees and commissions and legal
fees of counsel to the Warrantholder and holders of Shares, 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 use its
best efforts to 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
reasonable 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
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<PAGE> 8
with, written information furnished to the Company by such Warrantholder or the
holder of such Shares or any person who controls the Warrantholder or any
holder of such Shares within the meaning of the Act 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 shall, if a claim
in respect thereof is to be made against any indemnifying party under this
Section 12, 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 12. 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 12 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 12(a)
or 12(b) 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.
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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 permitted 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.
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<PAGE> 10
Section 18. Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of New York 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____________________________
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<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.,
NEW YORK 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., New York Time, on ______________, 1995, and
before 5:00 p.m., New York 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 cash, by wire
transfer, by certified or official bank check or through the use of
"Appreciation Currency" as defined in the Representatives' Warrant Agreement, or
any combination thereof.
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 99.8
SECOND
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"), each with a principal place of business at the
addresses listed on the signature pages hereof, The Bank of New York Commercial
Corporation in its capacity as a Lender, with its principal place of business
also as listed on the signature pages hereof ("BNYCC"), each other financial
institution from time to time a party to this Agreement (hereafter BNYCC and
such other financial institutions may be referred to individually as a "Lender"
or alternatively as a "Secured Party" and collectively, as the "Lenders" or
alternatively, the "Secured Parties"), and BNYCC as agent for the Lenders (in
such capacity and any successor appointed in accordance with the terms hereof,
the "Agent"), each hereby agree as follows:
Upon this Second Restated and Amended Loan and Security Agreement
("Agreement") becoming effective, in accordance with the terms and provisions
set forth below, this Agreement shall restate and amend in its entirety,
without any interruption or break in continuity, the Restated and Amended Loan
and Security Agreement between BNYCC and Debtor dated April 25, 1995 (which in
turn restated and amended in its entirety, also without any interruption or
break in continuity, the Loan and Security Agreement - Accounts Receivable and
Inventory between BNYCC and Jaco dated January 20, 1989) and the Security
Agreement between BNYCC 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.
"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 Agent may deem reasonably necessary and
proper. The Accounts Receivable Borrowing Base may be changed by Agent from
time to time in its reasonable discretion subject to Paragraph 22 hereof as
among Lenders and Agent,, 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.
"Agent" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Agent ABR Loan" shall have the meaning set forth in Paragraph
4(c) of this Agreement.
"Aggregate Maximum Loan Amount" shall mean the total principal
Maximum Loan Amounts applicable to all of the Lenders hereunder on a cumulative
basis as the same may be reduced pursuant to paragraph 5(b)(v) hereof.
"Agreement" shall have the meaning set forth in the second
paragraph hereof.
"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%.
"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.
"Closing Date" means the date on which all of the following
shall have occurred: (a) all of the parties hereto have executed this Agreement
and have delivered the same to the Agent and all other Conditions Precedent in
relation to the initial Loans have been completed to the Lenders' satisfaction;
and (b) NatWest Bank N.A. ("NatWest") BNYCC, the Agent and the Debtor have each
executed and delivered an Assignment and Acceptance Agreement substantially in
the form of Exhibit C hereto and NatWest has also fully funded, in immediately
available funds, its initial Pro Rata Share of the outstanding Obligations
hereunder as of said Closing Date.
"Collateral" shall have the meaning set forth in Paragraph 2
hereof.
"Conditions Precedent" shall mean with respect to the making
of Loans under this Agreement, those conditions precedent more fully described
in Paragraph 13 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 and
one-half percent (2.5%) or (B) in the case of all other Loans, the Alternate
Base Rate.
<PAGE> 2
1
"Credit Exposure" means an amount determined for each Lender,
equal to the aggregate principal amount of the Loans owing to such Lender plus
the aggregate unutilized amounts of such Lender's Maximum Loan Amount,
provided, however, that if any Lender shall have failed to pay its Pro Rata
Share of any Loans hereunder to the Agent when due and such Loans have been
advanced by the Agent to the Debtor, such Lender's Credit Exposure attributable
to the Pro Rata Share not so paid, shall be deemed to be held by the Agent for
purposes of this definition.
"Debtor's Loan Account" shall mean the account on the records
of the Agent in which shall be recorded the Loans and any other advances or
extension(s) of credit made by the Agent and/or any of the Lenders to or for
the benefit of the Debtor pursuant to this Agreement, including without
limitation in respect of any Letters of Credit and/or the Term Loans, any
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 or concerning any of the Secured Parties, on the one hand and Debtor,
on the other hand.
"Deficiency Loan" shall have the meaning set forth in
Paragraph 4(d) of this Agreement.
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United States of
America.
"Eligible Equipment" shall mean Equipment purchased by Debtor
which Agent has determined at the time of such purchase in its sole and
reasonable discretion to be eligible. 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 Agent, on behalf of the Secured
Parties and with respect to which Debtor has requested that Agent deem it
eligible.
"Eligible Assignee" means a commercial bank organized under
the laws of the United States, or any state thereof, having a combined capital
and surplus of at least One Hundred Million Dollars ($100,000,000), an entity
that is primarily engaged in the business of commercial lending, having a
combined capital surplus of at least One Hundred Million Dollars
($100,000,000), or an entity acceptable to the Agent, whose acceptance shall
not be unreasonably withheld.
"Eligible Inventory" shall mean Inventory; valued at the lower
of cost or market, consisting of current saleable finished goods, which
conforms to the representations and warranties contained herein and which at
all times continues to be acceptable to the Agent in its sole and reasonable
discretion, less work-in-process if any, supplies (other than raw materials),
goods not located in the United States of America, returned or rejected goods
of customers unless the same are undamaged and resalable in the normal course
of business, goods returned to the Debtor's suppliers, goods in transit to
third parties, and less any reserves required by the Agent, in its sole and
reasonable discretion, for special order goods, market value declines and bill
and hold (deferred shipment) or consignment sales goods to the extent that such
consignment sales goods (A) do not comply with the provisions of Paragraph
3(c)(ii) hereof or (B) do comply but exceed $1,500,000 in the aggregate valued
at the lower of cost or market.
"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. The
Equipment Borrowing Base may be changed by Agent from time to time in its
reasonable discretion, subject to Paragraph 22 hereof as among Lenders and
Agent, such change to be effective upon thirty (30) days written notice to
Debtor.
"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 Paragraph 4 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 Paragraph 4(c)(ii) hereof; 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
next 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
<PAGE> 3
2
(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 Agent from time to
time in its reasonable discretion subject to Paragraph 22 hereof as among Agent
and Lenders, such change to be effective upon thirty (30) days written notice
to Debtor.
"Letter of Credit Agreement" shall mean that certain Letter of
Credit and Security Agreement executed by Jaco in favor of BNYCC on January 20,
1989, as the same has been or may be amended, supplemented, extended, modified
or restated from time to time.
"Letters of Credit" shall mean all letters of credit issued
pursuant to the Letter of Credit Agreement.
"Letter of Credit Fee" shall mean the fee due the Agent on
behalf of the Lenders with respect to Letters of Credit issued pursuant to the
Letter of Credit Agreement.
"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%) per annum rate, determined by the
LIBOR Office (each such determination to be conclusive and binding absent
manifest error), at which Dollar deposits in immediately available funds are
being, have been, or would be offered to or quoted by the Agent to major banks,
through its LIBOR Office, in the London interbank market for eurodollar
deposits, as at or about 11:00 a.m. two Business Days immediately preceding the
first day 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 Agent at 48 Wall
Street, New York, New York or such other office of the Agent as designated from
time to time by the Agent, whether or not outside the United States.
"LIBOR Reserve Percentage" means, for any day, that percentage
(expressed as a decimal) which is in effect from time to time, equal to the
maximum aggregate reserve requirements (including without limitation all basic,
emergency, supplemental, special, 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 or any successor regulation (or against any
other category of liabilities that includes deposits by reference to which the
interest rate of LIBO Rate Loans is determined), having a term approximately
equal or comparable to such Interest Period and applicable to the Bank, whether
or not any Lender has any Eurocurrency Liabilities subject to such
requirements, without benefit of credits or pro-rations, exceptions or offsets
that may be available from time to time to the Agent.
"Loan" or "Loans" means any extensions of credit hereunder;
without limiting the foregoing, "Loans" shall additionally include the Term
Loans and the Letters of Credit unless the context herein otherwise requires.
"Maximum Loan Amount" shall mean for each Lender, the
principal amount set forth beneath the signature of each Lender hereunder set
forth on the signature page hereof, as the same may be reduced pursuant to
paragraph 5(b)(v) hereof.
"Mortgage" shall mean the Commercial Mortgage executed on
March 11, 1994 and delivered by Nexus to BNYCC with respect to the Real
Property, as the same has been or may be amended, supplemented, extended,
modified or restated from time to time including, without limitation the
Mortgage Modification and Assignment Agreement among Debtor and Lenders,
executed contemporaneously herewith.
"Obligations" shall mean any and all debts, liabilities and
obligations of Debtor to the Agent, whether in its capacity as Agent or on
behalf of any of the Lenders hereunder and/or to any of the Secured Parties
hereunder, including without limitation any and all Loans, (including, without
limitation, Letters of Credit and/or Term Loans), as well as any and all other
debts, liabilities and obligations of Debtor to the Agent, in its capacity as
Agent, or on behalf of any of the Lenders and/or to any of the Secured Parties
of every kind and description, however arising, 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, under the Letter of Credit Agreement, under any guaranty(ies) or
indemnity(ies) given or to be given in favor of Agent and/or any Lender and
further including, without limitation, all interest, fees, reasonable charges
and reasonable expenses (including reasonable attorneys' fees and expenses).
<PAGE> 4
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"Overadvances" shall have the meaning set forth in paragraph
4(d) hereof.
"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 the Agent and/or the Secured
Parties; (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 acquired after April 25, 1995 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 Agent and/or
the Secured Parties 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.
"Pro Rata Share" means with respect to each Lender at any
time, such Lender's share of the total amount of all outstanding Loans, Letters
of Credit and Term Loans, and is expressed as a percentage equivalent to a
fraction where the numerator thereof is the Maximum Loan Amount of such Lender
and the denominator thereof is the Aggregate Maximum Loan Amount of all
Lenders, as the same may be adjusted pursuant to Paragraphs 4(c) and/or 4(d) of
this Agreement.
"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 Agent
in accordance with Paragraph 6.
"Required Lenders" shall mean at any time Lenders then
holding, in the aggregate, Pro Rata Shares totalling at least sixty-six and two
thirds percent (66 2/3%) of the aggregate Credit Exposure of all Lenders on
such date.
"Secured Party(ies)" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"Settle" shall mean the provisions hereof in respect of the
Agent and the Lenders settling matters between or among each of them on a
particular Settlement Date.
"Settlement Date" shall mean the date, weekly and more
frequently, at the discretion of the Agent, that the Agent and the Lenders
shall settle the outstanding balance of all Loans (inclusive of all ABR Loans,
LIBO Rate Loans, Letters of Credit, and Term Loans) between or among themselves
in order that Agent shall not have any funds at risk (beyond BNYCC's Pro Rata
Share thereof in its capacity as a Lender hereunder, as contrasted with its
capacity as Agent hereunder) and so that on such Settlement Date the Lenders
will each have their respective Pro Rata Share of all Loans (including, without
limitation, ABR Loans, LIBO Rate Loans, Letters of Credit and Term Loans);
provided, however, in accordance with Paragraph 4(c)(ii), the "Settlement Date"
applicable to any LIBO Rate Loan requested by the Debtor (and which is not a
request for continuation of or conversion into a LIBO Rate Loan) shall be the
third Business Day following the date on which the Debtor requests the Agent to
incur such a Loan under this Agreement; and further provided however, that each
Settlement Date for a Lender shall be a Business Day on which such Lender is
open for business.
"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 Agent'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 Agent made in accordance with
this definition shall control.
"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.
<PAGE> 5
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"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 six separate promissory notes
issued by Debtor to the order of the Agent on behalf of each Lender,
substantially in the forms attached hereto as Exhibits B-1 through and
including B-6 respectively, which evidence and which without any interruption
or break in continuity, amend and restate in their entirety, upon the terms and
conditions therein more fully described, those three certain promissory notes
initially issued by Debtor to the order of BNYCC (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 full and timely payment and performance of
Debtor's Obligations, Debtor hereby grants to the Agent, for itself and for the
ratable benefit of the Secured Parties (and wherever in this Agreement, the
terms "ratable", "ratably", "pro rata" or the like may be used, such terms
shall mean such portion as may be determined by reference to that particular
Lender's Pro Rata Share), a first priority 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 any 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 any Lender 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 any Lender or in transit by mail or carrier to
or from any Lender in the possession of any third party acting in any Lender's
behalf, without regard to whether any Lender received the same in pledge, for
safekeeping, as agent for collection or transmission, or otherwise or whether
any Lender 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.
The Agent for itself and on behalf of the Lenders 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 which is evidenced by those notes
attached hereto as Exhibits B-5 and B-6, which notes in turn amend and restate
in their entirety, upon the terms and conditions therein more fully described,
that certain Term Loan Note to the order of BNYCC dated as of March 11, 1994 in
the original principal amount of $1,500,000 (such amended and restated notes
herein collectively, the "$1,500,000 Term Loan"), provided that any application
of the proceeds of Accounts which (i) is made prior to the occurrence of an
Event of Default and (ii) is not made at the direction of Borrower, and which
application results in the payment of a LIBO Rate Loan prior to the last day of
an Interest Period with respect thereto shall not result in the required
payment by Debtor to Lender of any penalty or premium or loss or expense
pursuant to Paragraph 5(g). hereof, 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 the Agent and/or any of the Lenders is considered by any of
them to be adequate.
The Agent may, subject to Paragraph 22(b) hereof as among Lenders and
Agent, in its sole discretion, on behalf of itself and/or the other Lenders,
exchange, waive, or release any of the Collateral, without affecting the
Obligations or the Lenders' right to take any other action with respect to any
other Collateral. Debtor agrees to safeguard, protect and hold all Inventory
and Equipment for the Secured Parties' account and to make no disposition
thereof except in the regular course of business as herein provided. Until the
occurrence of an Event of Default any Inventory may be sold and shipped by the
Debtor to its customers in the ordinary course of business, on open account and
on terms currently being extended by the Debtor to their customers, provided
that the proceeds of all sales (including cash, Accounts, checks, notes,
instruments for the payment of money and similar proceeds) are forthwith
transferred, endorsed and turned over and delivered to the Agent. Upon the
occurrence of an Event of Default and until such time as such Event of Default
is waived or cured to the Required Lenders' reasonable satisfaction no further
disposition shall be made of the Inventory and/or Equipment without the Agent's
prior written approval. Upon and following the occurrence of an Event of
Default (i) cash sales or sales of Inventory in which a lien upon, or security
interest in, Inventory or Equipment is retained by the Debtor, shall be made by
the Debtor only with the approval of the Agent and the proceeds of such sales
shall not be commingled with the Debtor's other property, but shall be
segregated, held by the Debtor in trust for the Agent on behalf of the Lenders,
as the Agent's exclusive property, and shall be delivered immediately by the
Debtor to the Agent in the identical form received; (ii) upon the sale,
exchange, or other disposition of Inventory, as herein provided, the security
interest in the Debtor's Inventory provided for herein shall, without any break
in continuity or interruption and without further formality or act, continue in
and attach to all proceeds, of every type or nature and (iii) as to any such
sale, exchange or other disposition, the Agent, on behalf of the Lenders, shall
have all of the rights of an unpaid seller, including stoppage in transit,
replevin, rescission and reclamation.
<PAGE> 6
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The rights and security interests granted herein to the Agent, on behalf of the
Lenders, shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that the account of the Debtor may
from time to time be temporarily in a credit position, until the final payment
in full to the Agent and the Lenders of all Obligations and the termination of
this Agreement. To the extent that the Obligations are now or hereafter
secured by any assets or property other than the Collateral, or by the
guarantee, endorsement, assets or property of any other person, then the Agent
shall have the right in its sole discretion, to determine which rights,
security interests, liens, or remedies the Agent shall at any time pursue,
foreclose upon, relinquish, subordinate, modify or take any other action with
respect to, without in any way modifying or affecting any of them, or any of
the rights of the Agent or any Lender hereunder.
Any balances to the credit of Debtor and any other property or assets of Debtor
in the possession of the Agent and/or the Lenders may be held by the Agent or
the Lenders, as the case may be, as security for any Obligations and upon the
occurrence and during the continuance of an Event of Default, applied in whole
or partial satisfaction of such Obligations subject to Paragraph 23(b) hereof.
The liens and security interests granted herein and any other lien or security
interest the Agent or the Lenders may have in any other assets of the Debtor
shall secure payment and performance of all now existing and future
Obligations. The Agent may in its sole discretion charge any or all of the
Obligations to the account of the Debtor when due.
In addition to the foregoing, the Debtor authorizes the Lenders and each of the
Lenders shall have the right, without notice, upon the occurrence and during
the continuance of an Event of Default to set-off and apply against any and all
property held by, or in the possession of the Lenders, the Obligations due the
Lenders, subject to Paragraph 23(b) hereof.
3. For the purpose of inducing each of the Lenders to make Loans
to Debtor, Debtor hereby warrants, represents, covenants and guarantees to
Agent and each Lender, 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 of the Loans made by, and
with respect to each of the Letters of Credit issued, extended or confirmed
with the assistance of Agent or any of the Lenders 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 Agent 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 claimed has been or will be made with the Account
Debtor on any Account except as shown on the statement or invoice furnished to
Agent 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 Agent, on behalf of the Secured
Parties, has been given notice of such fact, has been given UCC-1 Financing
Statements executed by Debtor as, consignor and Account Debtor as consignee
with assignments of the UCC-1 financing statements to Agent for filing in such
locations, and the location thereof will not be changed without prior written
notice given by the Debtor to Agent, on behalf of the Secured Parties in each
and every instance provided, however, that the failure to comply with this
subsection 3(c)(ii) shall result in an Event of Default only to the extent that
it affects Inventory with an aggregate value, at lower of cost or market, of
$1,500,000;
(d) upon the occurrence and during the continuance of an
Event of Default, the Agent on behalf of the Secured Parties 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 the Agent on behalf of the
Secured Parties 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 the Agent on
behalf of the Secured Parties 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 Agent and/or
any of the Lenders with reference to the description, content or valuation of
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 an all other
instruments, memoranda and documents presented or delivered to the Agent, on
behalf of the Secured Parties shall be valid and genuine; and
(h) Debtor will promptly notify Agent on behalf of the
Secured Parties 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 and/or Equipment, or in the collectability 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,
<PAGE> 7
6
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 the Agent made on behalf of the Secured Parties, Debtor shall
hold the same segregated in trust for the Agent for the benefit of the Secured
Parties, subject to its exclusive disposition, and shall, at Debtor's expense,
deliver the same to the Agent on behalf of the Secured Parties, or to such
place or places as the Agent on behalf of the Secured Parties may designate.
4. (a) Subject to the terms of this Agreement and provided
that there does not exist, at the time of any request of Debtor to Agent, an
Event of Default or an event which with the giving of notice or the passage of
time or both would become an Event of Default, each Lender severally agrees,
upon any such request, to make Loans to Debtor hereunder, on a revolving basis
from time to time and which the Debtor may borrow, repay and reborrow during
the Term hereof, provided that the sum of all such Loans inclusive of all
Obligations under or in connection with Letters of Credit and the Term Loans,
shall not be in excess of such Lender's Pro Rata Share of the lesser of (i)
the Aggregate Maximum Loan Amount or (ii) the sum of (A) the Accounts
Receivable Borrowing Base plus (B) the lesser of (x) the Inventory Borrowing
Base or (y) $15,000,000; plus (C), the lesser of (x) the Equipment Borrowing
Base or (y) $500,000; plus (D) the amount outstanding under the $1,500,000 Term
Loan but only for so long as the Term Loan is secured by the Mortgage. 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 less, the unpaid principal amount at such time, of the
$1,500,000 Term Loan, provided that for the purpose of such calculation the
unpaid principal amount advanced hereunder (less the then outstanding balance
of $1,500,000 Term Loan) advanced hereunder shall be deemed to have been
advanced first against the maximum amount available at such time under the
Accounts Receivable Borrowing Base. Notwithstanding anything to the contrary
contained herein the indebtedness evidenced by the Term Loan Notes constitutes
term loans.
(b) The total amount of Loans outstanding shall include,
without limitation, 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.
In no event, however, 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 unpaid drafts pursuant to the Letters of
Credit exceed $2,000,000. The Agent shall have the right, without notice to
the Debtor, to charge the Debtor's accounts on the Agent's books with the
amount of any and all Obligations of any kind incurred by the Agent and/or
Lenders under or in connection with any Letters of Credit at the earlier of
payment by the Agent and/or Lenders therefor, or the occurrence of an Event of
Default. Any amount charged to the Debtor's loan account shall be included in
the Loans and shall incur interest at the rates provided for herein. In any
event no Letter of Credit shall have an expiration date that extends beyond the
end of the Term.
(c) (i) The Debtor may by telephonic notice received
by an officer of the Agent, request a borrowing prior to 1:00 P.M. New York
time in the form of an ABR Loan on the date on which it requests to incur such
a Loan, such request to specify the amount of the Loan requested. In any such
instance, the Agent may: (a) notify each of the Lenders, not later than 2:00
P.M. New York time, of the ABR Loan to be funded on such date, as well as the
amount of such Lender's Pro Rata Share of the requested ABR Loan, and each such
Lender shall make such amount available to the Agent on such date in same day
funds, to such account of the Agent as the Agent may designate, by not later
than 5:00 P.M. New York time; or (b) if the Agent shall elect to do so in its
sole and absolute discretion, subject to the terms and conditions hereof and in
its capacity as a Lender, make such ABR Loan available to the Debtor (each an
"Agent ABR Loan") on the date so requested, by transferring same day funds to
the operating account(s) of the Debtor maintained with the Agent. Each such
Agent ABR Loan shall constitute a Loan hereunder and shall be subject to all of
the terms and conditions applicable to other Loans, except that all payments
thereon shall be payable to the Agent in its capacity as Lender, solely for its
own account, until such time as each of the Lenders shall Settle with the Agent
as to such Agent ABR Loan on the Settlement Date next occurring. Until such
Settlement shall occur, the Agent shall correspondingly increase its Pro Rata
Share of the Aggregate Maximum Loan Amount and the Pro Rata Share of each such
other Lender shall be correspondingly decreased and upon such Settlement
occurring, appropriate adjustments shall be made to such Pro Rata Shares in
order to restore such Pro Rata Shares to their respective levels prior to the
relevant Agent ABR Loan.
(ii) Alternatively, the Debtor may by written
notice received by an officer of the Agent (and the Agent shall promptly notify
the Lenders) request a borrowing prior to 11:00 A.M. New York time in the form
of a LIBO Rate Loan on the day on which it requests Lenders to incur such Loans
and which date is three (3) Business Days prior to the Settlement Date in
relation thereto, such request to specify the amount of such Loans so
requested, as well as the requested Interest Period applicable thereto, shall
be in a minimum amount of $1,000,000 and an integral multiple of $100,000. On
each such Settlement Date in relation to any LIBO Rate Loan so requested by the
Debtor, each Lender shall make the amount of its Pro Rata Share of such LIBO
Rate Loan available to the Agent and to such account of the Agent as the Agent
may designate, in same day funds on such Settlement Date, by no later than 1:00
P.M New York time. Such amounts made available to the Agent shall be applied
against the amounts of the applicable LIBO Rate Loan so requested, and together
with the portion of such LIBO Rate Loan representing the other Pro Rata
Share(s) thereof made available by all other Lenders, shall constitute a LIBO
Rate Loan of the Lenders to the Debtor pursuant to this Agreement. In any
event, no LIBO Rate Loan shall be made which has an Interest Period that,
shall expire on a date that, extends beyond the end of the Term, and each LIBO
Rate Loan may, subject to the provisions of Paragraph 5(g) hereof, be repaid
only on the last day of the Interest Period with respect thereto.
(iii) Each such request for a borrowing hereunder
by the Borrower shall be deemed to include and restate to the Agent and to each
Lender each representation and warranty contained in this Agreement and to
constitute a certification by the Debtor to the Agent and to each Lender that
no event has occurred and is continuing on the date of such request, or would
result from any such Loan, which constitutes an Event of Default. Any such
request shall be irrevocable and the Debtor shall be bound to borrow the funds
requested therein in accordance therewith. The Agent shall not incur any
liability to the Debtor or Lenders as a result of acting upon any request or
notice which the Agent believes in good faith to have been given by an officer
duly authorized by the Debtor in relation to the Loans or for otherwise acting
in good faith in relation thereto and the crediting of Loans to the Debtor's
account, or transmittal to such person as the Debtor shall
<PAGE> 8
7
direct, or other action called for hereunder shall conclusively establish the
obligation of the Debtor to repay such Loans as provided herein.
(iv) On each Settlement Date under this Agreement
the Agent shall be entitled to assume that each Lender has made its Pro Rata
Share of such Loan available to the Agent, unless a Lender shall have notified
the Agent to the contrary. The Agent, in its sole discretion, based upon such
assumption and in reliance thereon, may make available to the Debtor a
corresponding amount on such Settlement Date. If such corresponding amount not
in fact been made available to the Agent by any Lender, such Lender and the
Debtor severally agree to repay to the Agent forthwith, on demand, such
corresponding amount, together with interest thereon for each day during the
period commencing on the date such amount is made available to the Debtor and
ending on the date such amount is repaid to the Agent, at (A) in the case of
the Debtor, the interest rate applicable from time to time to such borrowing,
and (B) in the case of a Lender, the Federal Funds Rate for the first three
days following the date such amount was made available by the Agent and
thereafter, at the interest rate applicable to the Debtor from time to time
with respect to such Loans. If the Lender repays to the Agent such
corresponding amount, such amount so repaid shall constitute a Loan, and if
both such Lender and the Debtor shall have repaid such corresponding amount,
the Agent shall promptly return to the Debtor such corresponding amount in same
day funds. Nothing in this paragraph, however, shall or shall be deemed to: (a)
obligate Agent to make available to the Debtor any Loans or to issue or cause
to be opened any Letters of Credit, when the Agent has any notice that any
Lender will not advance its Pro Rata Share thereof; or (b) relieve any Lender
of its obligation, if any, to make a Loan on any Settlement Date.
(v) By delivering a Continuation Notice to the
Agent 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, immediately following last day of the Interest Period Applicable
thereto, as, or that an ABR Loan be converted into, a LIBO Rate Loan (and in
the absence of timely 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, on
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, immediately following
the last day of the Interest Period Applicable thereto, as, or converted into,
a LIBO Rate Loan, and no LIBO Rate Loans may be requested by the Debtor, in any
instance when any Event of Default has occurred and is continuing. The Agent
shall give written notice to each Lender of any such Continuation Notice or
conversion prior to 3:00 P.M. on the day such notice is received. All such
continuation or conversions of Loans shall be effected based on the respective
Pro Rata Share of each Lender.
(vi) On the Settlement Date relevant to each Loan,
the Agent and the Lenders shall each remit to the other, in immediately
available funds, all amounts necessary so as to ensure that, as of the
Settlement Date, the Lenders shall have their Pro Rata Share of all outstanding
Obligations. All Loans made by the Agent hereunder shall be disbursed from
whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Debtor to the Agent and/or to
the Lenders arising under or in connection with this Agreement, shall be
charged to the Debtor's account on Agent's books. The proceeds of each Loan
made by the Agent shall be made available to the Debtor by way of credit to the
Debtor's operating account(s) maintained with the Agent. Any and all
Obligations due and owing hereunder may be charged to Debtor's account and
shall constitute Loans hereunder.
(vii) INTENTIONALLY DELETED
(viii) The Agent shall forward to each Lender, at
the end of each month, a copy of the account statement rendered by the Agent to
the Debtor.
(ix) All Loans shall be made by the Lenders in
accordance with their Pro Rata Shares thereof. The Debtor hereby agrees that
each Lender is solely responsible for its Pro Rata Share of the Obligations,
including all Loans to be made and all Letters of Credit to be issued for the
Debtor's account, as well as such Lender's Pro Rata Share of the Term Loans,
and that neither the Agent nor any Lender shall be responsible for, nor assume
any obligations for the failure of any Lender to make any Loans hereunder or
otherwise to make available such Pro Rata Share. Furthermore, no such failure
by any Lender to perform its obligations hereunder shall excuse any other
Lender from its obligations hereunder, whether to make Loans or otherwise.
However, should any Lender refuse to make available its Pro Rata Share as
described above, then the Agent may proceed in accordance with subparagraph (d)
immediately below, or the other Lenders or any other Lender (including without
limitation, the Agent in its capacity as Lender) may, but without the
obligation to do so, increase, unilaterally, their or its Maximum Loan Amount,
in which event the Debtor shall be correspondingly obligated to such other
Lenders or Lender. Any such defaulting Lender, however, shall not thereafter be
entitled to receive from the Agent any payments of principal, interest, fees or
other amounts paid hereunder (whether by collection of the Collateral or
otherwise), and the Agent shall be entitled to retain such amounts, until all
amounts owing by such defaulting Lender to the Agent (together with any
interest therein as provided in this Agreement) shall have been paid in full.
(x) In the event that the Agent, the Lenders, or
any of them, is sued or threatened with suit by the Debtor or by a receiver,
trustee, creditor or any committee of creditors on account of any preference,
voidable transfer or lender liability issue, alleged to have occurred or been
received as a result of, or during the transactions contemplated in this
Agreement, then in such event any money paid in satisfaction or compromise of
such suit, action, claim or demand and any expenses, costs and attorneys' fees
paid or incurred in connection therewith, whether by the Agent, the Lenders, or
any of them, shall be the responsibility of the Lenders on a Pro Rata Share
basis. In addition, any costs, expenses, fees or disbursements reasonably
incurred by outside agencies or attorneys retained by the Agent to effect
collection or enforcement of any rights in the Collateral, including enforcing,
preserving or maintaining rights under this Agreement shall be also the
responsibility of the Lenders on a Pro Rata Share basis to the extent not
reimbursed by the Debtor or from the proceeds of Collateral.
(xi) INTENTIONALLY DELETED
(xii) The Agent may, in its sole discretion and at
any time for the Debtor's account and expense, pay any amount or do any act
required of the Debtor hereunder or reasonably requested by the Agent, to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
security interests or liens
<PAGE> 9
8
now or hereafter held by the Agent and/or any of the Lenders, and which the
Debtor fails to pay or do, including without limitation, payment of any
judgment against the Debtor, any insurance premium, any warehouse charge, any
finishing or processing charge, any landlord's claim, and any other security
interest, lien, charge and/or encumbrance upon or with respect to the
Collateral and which such failure to pay or do would impair the Agent's rights
hereunder or constitute an Event of Default. All payments that the Agent makes
or any action taken by the Agent under this paragraph shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
thereafter as herein provided.
(d) Notwithstanding the foregoing, the Agent shall have
the right, in Agent's sole and absolute discretion, to make Loans hereunder:
(i) on behalf of the Lenders, on a Pro Rata Share basis, which are in excess of
the maximum amount of Loans which would otherwise be permitted hereunder
pursuant to Paragraph 4(a) above ("Overadvances") to the maximum amount of
$1,000,000 for no more than five (5) consecutive Business Days applicable to
all of such (voluntary) Overadvances, whether or not any such Overadvances are
in excess of the Accounts Receivable Borrowing Base, the Equipment Borrowing
Base and/or the Inventory Borrowing Base, or are in excess of any the above
percentages and/or dollar limitations or any other pertinent limitations herein
set forth. Notwithstanding the foregoing, however, such Overadvance limitation
shall not include, or be deemed to include, or be considered to have been
exceeded by reason of, any Loans which at any time or from time to time arise
in an involuntary manner, whether by reason of items charged to the Debtor's
account in accordance with this Agreement or otherwise, and such Overadvance
limitation shall only apply to any Overadvances which may be voluntarily
extended under this Agreement to the Debtor and which are made by Agent, in
Agent's sole and absolute discretion, on behalf of the Lenders, subject to any
additional terms the Agent may deem necessary; and (ii) in the event any Lender
shall fail to fund Loans to the Debtor as herein provided, by making such Loans
itself, in its capacity as a Lender, in whole or in part (each a "Deficiency
Loan"), but there shall be no obligation on its part to make any such
Deficiency Loan. Upon making any such Deficiency Loan, the Agent in its
capacity as Lender shall thereafter be entitled to payments of principal of and
interest thereon in the same manner and at the same interest rate or rates to
which such other Lender would have been entitled had it made such Loan; in such
an instance, the Agent in its capacity as Lender shall correspondingly increase
its Pro Rata Share of the Aggregate Maximum Loan Amount (and decrease the Pro
Rata Share thereof held by the defaulting Lender) until such time, if any, as
full repayment of the Deficiency Loan may be made by such defaulting Lender, as
more fully described below. Should the defaulting Lender later pay to the
Agent, in its capacity as Lender, the entire outstanding amount of such
Deficiency Loan, together with accrued and unpaid interest thereon, from the
most recent date or dates interest was paid to the Agent by the Debtor on each
Loan comprising a Deficiency Loan, at the interest rate per annum for overnight
borrowing by the Bank from the Federal Reserve Bank, then such payment shall be
credited against the Deficiency Loan and in full payment thereof and the Debtor
shall be deemed to have borrowed the amount of such Deficiency Loan from such
other Lender as of the most recent date or dates, as the case may be, upon
which any payments of interest were made by the Debtor thereon.
Under no circumstances, however, shall the Agent or any Lender be
responsible for any default of any other Lender in respect to such Lender's
obligation to make any Loan hereunder, nor shall the Pro Rata Share of any
Lender hereunder in any Loans be increased as a result of such default of any
other Lender.
(e) Except as otherwise specifically provided in this
Agreement all payments under this Agreement and the Term Loan Notes shall be
made to the Agent for the ratable account of each Lender in immediately
available funds not later than 1:30 p.m. (New York time) on the date when due
and shall be made in immediately available funds and in lawful money of the
United States of America. Any payments under this Agreement or under the Term
Loan Notes which are made later than 1:30 p.m. (New York time) shall be deemed
to have been made on the next succeeding Business Day. If any payment of
principal, interest, premium, or any other sum to be made hereunder becomes due
and payable on a day other than a Business Day, the due date of such payment
shall be extended to the next succeeding Business Day (except as set forth in
subsection (b) of the definition of "Interest Period" appearing herein) and
interest thereon shall be payable at the applicable rate during such extension.
(f) As between the Debtor and the Agent, the Agent shall
determine in its sole discretion the order and manner in which the proceeds of
Collateral and other payments that the Agent receives are applied to the Loans,
interest thereon and the other Obligations, and the Debtor hereby irrevocably
waives the right to direct the application of any payment or proceeds. As
between Debtor and Agent, the Agent shall have the continuing and exclusive
right to apply and reverse and reapply any and all such proceeds and payments
to any portion of the Obligations. As between the Agent and the Lenders, all
payments against and all proceeds of Accounts or other Collateral received by
the Agent, shall be applied, ratably, subject to the provisions of this
Agreement, first, to pay any attorney costs, fees or other expense
reimbursements then due to the Agent from the Debtor; second, to pay any Loans
of the Agent made in its capacity as Lender, not as yet Settled as of the
applicable Settlement Date, together with all interest thereon; third, to pay
any fee or expense reimbursements then due to the Lenders from the Debtor;
fourth, to pay interest due in respect of all Loans; fifth, to pay principal of
the Loans (other than any Loans of the Agent made in its capacity as Lender,
covered by clause "second" above) and unpaid reimbursement Obligations in
respect of Letters of Credit; and sixth, to payment of any other Obligation due
to the Agent or any Lender by the Debtor.
(g) The Debtor shall indemnify, defend and hold harmless
upon demand, the Agent and the Lenders from and against any and all
liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever,
which are at any time (including without limitation at any time following the
repayment of the Loans) imposed or asserted against the Agent or any Lender
arising out of: (i) the ownership, use, operation, maintenance, repair, leasing
or subleasing of the Collateral; (ii) the design, maintenance and construction
of the Collateral; (iii) the sale or other disposition of the Collateral or
proceeds; (iv) the issuance, sale or delivery of any notes hereunder, including
without limitation the Term Loan Notes; (v) breach of representations or
warranties made by the Debtor; or (vi) any agreement entered into by the Debtor
in connection with the Collateral; unless it is determined that such
liabilities, claims, obligations, damages, penalties, or judgments were the
result of acts or omissions on the part of the Agent or the Lenders
constituting gross negligence or willful misconduct, and then only to the
extent of such gross negligence or willful misconduct.
(h) Without limiting the foregoing, if after receipt of
any payment, or any proceeds of Collateral applied to the payment of, all or
any part of the Obligations, Agent or any Lender is for any reason compelled to
surrender such payment or proceeds to or for the benefit of the Debtor, because
such payment or proceeds is invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference,
<PAGE> 10
9
impermissible setoff, or a diversion of trust funds, (each a "Surrender Event")
then the Obligations or part thereof intended to be satisfied shall be revived
and continue, the Debtor hereby agrees to unconditionally and irrevocably
indemnify each Lender and the Agent with respect thereto and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by the Lender or the Agent, as the case may be; and the Debtor
shall be liable to pay to the Lender or the Agent, the amount of such payment
or proceeds surrendered. Notwithstanding the foregoing and not in limitation,
in any respect, of the indemnity by Debtor contained herein, in the event of
the occurrence of a Surrender Event the Lenders which have not so surrendered
shall pay to the Lender required to so surrender such sums as will cause each
Lender to have paid its Pro Rata Share of the amount so surrendered. The
provisions of this subparagraph (g) shall be and remain effective
notwithstanding any contrary action which may have been taken by any Lender or
the Agent in reliance upon such payment or proceeds, and any such contrary
action so taken shall be without prejudice to the rights of the Lenders and the
Agent under this Agreement and shall be deemed to have been conditioned upon
such payment or proceeds having become final and irrevocable. The provisions of
this subparagraph (g) shall survive the payment of all Obligations hereunder,
the termination of all outstanding Letters of Credit, the termination of this
Agreement and/or the resignation of the Agent.
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 Agent's option be charged by
Agent to Debtor's account. Interest charges shall be computed on the unpaid
balance of the Loans (other than the Term Loans which shall bear interest at
the rates set forth in the respective Term Loan Notes) 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
Agent's option, to the outstanding Loans in such order as Agent shall determine
or refunded by Agent or by the Lender, as the case may be, 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) In the event the average closing daily unpaid
balances of all Loans hereunder during any calendar month is less than the
Aggregate Maximum Loan Amount, Debtor shall pay to Agent for the ratable
benefit of the Lenders, a non-refundable fee at a rate per annum equal to 2/10
of one percent (.2%) on the amount by which the Aggregate 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.
(ii) The Debtor shall also pay to the Agent for
the ratable benefit of the Lenders, the Letter of Credit Fee, which shall be
payable on a monthly basis in accordance with the Letter of Credit Agreement.
(iii) Upon Agent'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 Agent
and which due diligence is undertaken by Agent or for the benefit of Agent and
the Lenders, an amount equal to Agent'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 provided, however,
that only the Agent can conduct field examinations but any Lender may, without
charge to Debtor, participate in any such field examination.
(iv) With respect to any and all other fees and
charges at any time and from time to time paid or payable by the Debtor to the
Agent under or in connection with this Agreement, which fees and charges may be
set forth herein or in separate agreements between Agent and the Debtor, the
Agent alone shall be entitled to retain the same for its exclusive account.
Without limiting the foregoing, Debtor shall pay to Agent for the Agent's
account only (or Agent may charge Debtor's account(s) with), an annual
Collateral Monitoring Fee, in an amount equal to $20,000, which fee shall be
paid in equal monthly installments during each year that this Agreement is in
effect.
(v) Notwithstanding anything to the contrary
contained in this Agreement, in the event of a public offering by Jaco
("Public Offering") and provided that no Event of Default has occurred, Debtor
may reduce the Aggregate Maximum Loan Amount, in not more than two reductions,
to an amount of not less than $10,000,000, subject to the following conditions:
(A) notice of such reduction must be given to Agent no less than five Business
Days prior to the effective date of such reduction ("Effective Reduction Date")
and Debtor shall no later than the Effective Reduction Date, pay to Agent the
amount which will reduce the outstanding balance of the Loans (including
interest, costs, fees, amounts payable pursuant to Paragraph 5(g) and other
charges as specified in the Agreement) to an amount not greater than the
Aggregate Maximum Loan Amount as so reduced; (B) the aggregate of such
reductions shall not exceed the net proceeds received by Debtor from the Public
Offering (C) any such reduction must be for an amount no less than $1,000,000
and in integral multiples of $500,000; and (D) any such reduction shall be
irrevocable and shall permanently reduce the Aggregate Maximum Loan Amount and
Debtor shall thereafter have no right to increase the same. Any such
reduction shall equally decrease each Lender's Pro Rata Shares.
(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 any Lender (for purposes of this Paragraph 5(c), the
term "Lender" shall include Lender and any corporation or bank controlling
Lender) 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 any Lender to any tax of any kind
whatsoever with respect to this Agreement or change the basis of taxation of
payments to any Lender 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 any Lender);
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(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 any Lender, including (without limitation) pursuant
to Regulation D of the Board of Governors of the Federal Reserve System; or
(iii) impose on any Lender any other condition with
respect to this Agreement;
and the result of any of the foregoing is to increase the cost to any Lender of
making, renewing or maintaining its Loans commitments or other extensions of
credit hereunder or under the Term Notes by an amount that any Lender 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 any
Lender deems to be material, then, in any case Debtor shall promptly pay any
Lender, upon its demand, such additional amount as will compensate such Lender
for such additional cost or such reduction, as the case may be. Any such Lender
shall certify the amount of such additional cost or reduced amount to Debtor,
including all 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 any Lender (for purposes of this
Paragraph 5(d), the term "Lender" shall include any Lender and any corporation
or bank controlling such Lender) 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 such Lender's capital as a consequence of its
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then, from time to time, Debtor shall pay upon
demand to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. In determining such amount or amounts, any such
Lender may use any reasonable averaging or attribution methods. The protection
of this Paragraph shall be available to any Lender regardless of any possible
contention of invalidity or inapplicability with respect to the applicable law,
regulation or condition.
(ii) A certificate of any Lender setting forth
such amount or amounts as shall be necessary to compensate such Lender with
respect to Paragraph 5(d) hereof including all pertinent information regarding
the calculation thereof, when delivered to Debtor shall be conclusive absent
manifest error.
(e) If any Lender (for purposes of this Paragraph 5(e)
the term "Lender" shall include any Lender and any corporation or bank
controlling such Lender) 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 such Lender to make, continue or maintain the Loans or any
portion thereof as a LIBO Rate Loan, the obligations of such Lender 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 such
Lender 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 any Lender (for the purposes of this Paragraph
5(f) the term "Lender" shall include any Lender and any corporation or bank
controlling such Lender) 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 or the
LIBO Rate does not reflect such Lender's cost of funds, then, upon notice from
such Lender to Debtor, the obligations of such Lender under this Agreement to
make, continue, maintain or convert the Loans or any portion thereof as LIBO
Rate Loans shall forthwith be suspended until such Lender shall notify Debtor
that the circumstances causing such suspension no longer exist.
(g) Absent any gross negligence on the part of any
Lender, in the event any Lender (for purposes of this Paragraph 5(g) the term
"Lender" shall include any Lender and any corporation or bank controlling such
Lender) shall incur any loss or expense (including any loss of margin or any
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender 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
(i) 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;
(ii) 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 such Lender's obligation to make such LIBO Rate Loan in accordance
with the terms hereof); or
(iii) the Loans or any portion thereof not being
continued as or converted to, LIBO Rate Loans in accordance with the
Continuation Notice therefor,
then, upon the written notice of such Lender to Debtor the Debtor shall, within
five days of receipt thereof, pay to such Lender such amount as will (in the
reasonable determination of such Lender) reimburse such Lender 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.
5(A). Until Debtor's authority to do so is terminated by the Agent
on behalf of the Secured Parties, either as a result of notice by Agent which
it may give at any time, or automatically upon the occurrence of an Event of
Default, Debtor will for the benefit of and for the account of the Agent on
behalf of the Secured Parties, but at the Debtor's expense, enforce, collect
and receive as the property of the Secured Parties and hold in trust for the
Secured Parties, separate from the Debtor's own property and funds, all amounts
received on Accounts from Account Debtors and will turn over and/or mail and
deliver to the office of Agent on behalf of the Secured Parties, 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
Agent on behalf of the Secured Parties to
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endorse and deposit such original Account Debtor's checks and remittances to
its own account, whether said remittances are made payable to Agent, any of the
Secured Parties or Debtor, the proceeds thereof to be credited to Debtor's loan
account as provided in Paragraph 8 hereof. Debtor shall submit to Agent on
behalf of the Secured Parties, with all remittances, a report in such form as
Agent may require; and further, shall submit original remittance advice in the
form received by Debtor from Account Debtors. This privilege shall terminate
automatically upon the occurrence of an Event of Default pursuant to Paragraph
19 (f) of this Agreement, or at the election of the Agent or the Required
Lenders, upon the occurrence of any other Event of Default and until such Event
of Default is cured or waived to the satisfaction of the Agent.
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 each of the Agent on behalf of the Secured
Parties. Upon the occurrence and continuance of an Event of Default, Debtor
shall deliver to and sign for Agent on behalf of Secured Parties as Agent shall
require, any bills, statements and letters to be directed to Account Debtors
and shall execute and deliver to Agent on behalf of the Secured Parties any and
all instruments (including, without limitation, ageing of Accounts), reasonably
determined by Agent 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 the Agent on behalf of the Secured Parties 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.
6(A). Debtor shall deliver to Agent on behalf of the Secured
Parties daily, or at such other periods as Agent shall determine, a report in
form reasonably satisfactory to Agent on behalf of the Secured Parties
enumerating the Accounts arising out of the sale of merchandise or rendition of
service. Debtor shall deliver to Agent on behalf of the Secured Parties,
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 Agent may, from time
to time, reasonably require. Upon request, Debtor shall deliver to Agent on
behalf of the Secured Parties a report in form satisfactory to Agent
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 Agent, in writing, of the issuance of such credit or the return of such
merchandise. The Debtor agrees to maintain such books and records regarding
Accounts as the Agent may reasonably require and agrees that the books and
records of the Debtor will reflect the Agent's interest in the Accounts for the
benefit of the Lenders. All of the books and records of the Debtor will be
available to the Agent at normal business hours, including any records handled
or maintained for Debtor by any other company or entity.
7. Agent on behalf of the Secured Parties 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 Agent on
behalf of the Secured Parties and shall be paid directly to Agent on behalf of
the Secured Parties. Upon the occurrence and during the continuance of an
Event of Default, upon the request of the Agent on behalf of the Secured
Parties, Debtor shall so notify Account Debtors and shall indicate on all
billings to Account Debtors that all moneys due thereon are payable to Agent.
Agent shall further have the right upon the occurrence and during the
continuance of an Event of Default, directly or through its agents, on behalf
of the Secured Parties, to collect any or all of the Accounts, and in Agent's
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 Agent 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 of any subsequent breach or delay or of the rights of Agent and/or any
of the Secured Parties 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 Agent on behalf of the Secured
Parties, release, compromise or adjust any Account, or any guarantee, security
or lien therefor, accept any returns, or grant any discounts, allowances or
credits thereon, or bring any suit to enforce payment thereof; in any event,
after the occurrence of an Event of Default under Paragraph 19(f) hereof, or
after the Agent has notified the Debtor of the occurrence of any other Event of
Default which has occurred and is continuing, none of the foregoing shall be
deemed any longer to be in the ordinary course of business and thereafter, all
of the foregoing are only to occur after the Agent, in its sole discretion, may
have given its prior written approval. Upon the occurrence of an Event of
Default and until such time as such Event of Default is waived or cured to the
Agent's satisfaction and on notice from the Agent, the Debtor agrees that all
returned, reclaimed or repossessed merchandise or goods shall be set aside by
the Debtor and held by the Debtor for the Agent's account as owner and
assignee. Agent and/or the Secured Parties 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. Agent shall credit to Debtor's Loan Account proceeds of
Accounts received by Agent on behalf of the Secured Parties, such credits to be
entered one Business Day after receipt of the proceeds; such credits, however
are conditional upon final payment to Agent on behalf of the Secured Parties,
at Agent's 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. At the end of each
month, the Agent shall send the Debtor a statement showing the accounting for
the charges, Loans, payments and other transactions occurring between the Agent
and the Lenders and the Debtors during that month, with a copy thereof to each
Lender. The monthly statements shall constitute an account stated between the
Debtor and the Lenders and shall fully bind the Debtor unless the Agent
receives a written statement of the exceptions within thirty (30) days of the
date on which the monthly statement is mailed or within thirty (30) days of the
mailing by Agent of any adjustment thereof.
9. All sales of Inventory by Debtor shall be reported to Agent on
behalf of the Secured Parties promptly on a Sales Summary Report. Agent on
behalf of the Secured Parties shall have the right upon the occurrence of 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 Agent on behalf of the Secured Parties for inspection at any time
requested by Agent. Debtor shall, upon
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12
request of Agent, promptly furnish Agent on behalf of the Secured Parties with
a report, in form and substance satisfactory to the Agent, 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.
Agent on behalf of the Secured Parties 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. Agent on behalf of the Secured Parties
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 Agent shall be charged to
Debtor's Loan Account and be part of the Obligations. Neither Agent nor any of
the Secured Parties shall 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 by Agent or by or through any other agent for any of them, or
otherwise, or for the collection of any proceeds thereof, but the same shall at
all times be solely 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 Agent on behalf of the
Secured Parties may reasonably designate or approve, and the policies
evidencing such insurance shall be issued with such loss payable rider as Agent
may reasonably designate and said policies shall be delivered to Agent on
behalf of the Secured Parties at Agent's request. Until such time as the Agent
requires otherwise, such loss payable rider shall provide that payment with
respect to any claim exceeding $150,000 shall be made directly to Agent on
behalf of the Secured Parties. Should Debtor fail for any reason to furnish
Agent with such insurance, Agent shall have the right to effect the same and
charge any costs in connection therewith to Debtor's Loan Account. Neither
Agent nor any of the Secured Parties shall have any risk, liability or
responsibility in connection with payment or non- payment of any loss, the sole
obligation of Agent on behalf of the Secured Parties 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 Agent on behalf of the Secured
Parties, 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
Agent may reasonably request in order to perfect and enforce the rights of the
Agent and/or the Secured Parties herein. Debtor hereby authorizes Agent to
complete any blank space therein according to the terms upon which the
Obligations hereunder are granted. At the request of Agent, Debtor will
execute and deliver to Agent on behalf of the Secured Parties such financing
statements or amendments thereof or supplements thereto, and such other
instruments, all in a form satisfactory to Agent, as Agent 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 Agent, 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 Agent on demand, for itself and on behalf
of the Lenders any and all reasonable costs and 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 Agent or by any Secured
Party to obtain or enforce payment of any Account, either as against the
Account Debtor, and 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 the rights or
interests therein or thereto of the Agent and/or any Lender, including, without
limitation, any reasonable counsel fees or expenses incurred in any bankruptcy
or insolvency proceeding or otherwise with respect hereto.
13 (a). The obligation of the Lenders to make any initial Loan to be
made hereunder on or after the Closing Date and the obligation of the Agent to
cause any initial Letter(s) of Credit to be issued hereunder on or after the
Closing Date, is subject to the conditions precedent that the Agent shall have
received on or before the Closing Date all of the following (except as waived
by the Agent), in form and substance satisfactory to the Agent and in
sufficient copies for each Lender: (i) the Agreement and all related
agreements, instruments and documentation, executed by the Debtor, the Agent
and where called for, each of the Lenders including Uniform Commercial Code - 1
financing statements (each a "UCC-1") and Uniform Commercial Code - 3 financing
statements (each a "UCC-3") and a guaranty by Jaco of the Obligations of Nexus
to Agent and Lenders; (ii) copies of the resolutions of the board of directors
of the Debtor approving and authorizing the execution, delivery and performance
by the Debtor of this Agreement, certified as of the Closing Date; (iii) good
standing certificates for the Debtor of their state of incorporation and from
each other jurisdiction in which it is doing business, verifying the good
standing of the Debtor; (iv) an officer's certificate dated as of the Closing
Date, stating that the representations and warranties herein are true and
correct on and as of such date, as though made on and as of such date and that
no Event of Default exists or would result immediately after the Closing Date;
(v) the Debtor shall have executed and delivered to the Agent the (revised)
Term Loan Notes, substantially in the forms attached hereto as Exhibits B-1
through and including B-6 respectively; (vi) a modification to Commercial
Mortgage shall have been executed and delivered to the Agent, in relation to
that certain Commercial Mortgage Deed from Nexus to BNYCC dated March 11, 1994,
recorded in Book 117 at Page 389 of the Town of Brandon (Vermont) Land Records
on March 17, 1994; (vii) in relation to the modification referenced in
immediately preceding subparagraph, an amendment to Lawyer's Title Insurance
Policy #112-02-090492 shall have been executed and delivered to the Agent;
(viii) the Debtor shall have executed and delivered an amendment to that
certain Trademark Collateral Security Agreement and to that certain Patent
Collateral Security Agreement heretofore executed in favor of BNYCC, as Secured
Party, together with an amendment to any related agreements and/or powers of
attorney; (ix) the Debtor shall have provided to the Agent certificates
executed by its insurance carriers with respect to each of Debtors relevant
insurance policies which shall be in form and substance acceptable to the
Agent, (provided that Debtor shall, upon request of the Agent, provide to the
Agent copies of its up to date insurance policies), as well as having executed
and delivered to Agent an amended loss payable endorsement accepted by its
insurance carriers, with respect to relevant insurance coverages, in form and
substance acceptable to the Agent; (xi) each guarantor of the Obligations of
Debtor to Agent and/or Lenders shall execute and deliver (A) such
reaffirmations of existing guarantees as may be required by Agent; (B) such
reaffirmations of existing security agreements as may be required by Agent; and
(C) such UCC-1 and UCC-3 financing statements as may be required by Agent;
(xii) NatWest, BNYCC, the Agent and the Debtor shall have
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each executed and delivered an Assignment and Acceptance Agreement
substantially in the form of Exhibit C hereto; (xiii) NatWest shall have funded
its initial Pro Rata Share of the Obligations hereunder; and (xiv) Jaco shall
have executed and delivered to Agent its guaranty of the Obligations of Nexus
to Agent and/or Lenders.
(b) The obligation of the Lenders to make each Loan,
after the Closing Date and the obligation of the Agent to cause initial
Letter(s) of Credit to be issued hereunder after the Closing Date, is subject
to the further conditions precedent that on the date of any such extension of
credit: (i) the following statements shall be true and correct: (A) all
representations and warranties in this Agreement and all related agreements,
instruments and documentation are correct in all material respects on and as of
the date of such extension of credit as though made on and as of such date,
except to the extent the Agent and the Lenders have been notified by the Debtor
in writing that any representation or warranty is not correct and the Required
Lenders have explicitly waived in writing compliance with such representation
or warranty; and (B) no event or circumstance exists and is continuing, or
would result from any such extension of credit, which constitutes an Event of
Default hereunder, or which with the giving of notice, or the passage of time,
or both, would constitute an Event of Default hereunder; and (ii) the Agent
shall have received an appropriate notice of borrowing or a notice of
conversion/continuation, as applicable, and Agent shall have received all
reports, information and documents to be provided to it as of the date of such
relevant notice, in a timely manner; provided however, that the foregoing
conditions precedent are not conditions to each Lender Settling with the Agent
on the relevant Settlement Date, or for reimbursing its Pro Rata Share of any
Loans as provided in this Agreement.
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, Agent on behalf Secured Parties 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 Agent for the ratable benefit of the Secured Parties
with interest thereon upon demand, notwithstanding that the payments made may
also discharge a liability of the Agent and/or any of the Secured Parties.
15. Debtor does hereby make, constitute and appoint any officer of
Agent as Debtor's true and lawful attorney-in-fact, with power at all times to
receive and take and 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 the Agent and/or any of the Secured Parties, if any, in full or
part payment or any amount owing to any Lender; 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; to sign the Debtor's
name on any financing statements contemplated by this Agreement; to request
from customers indebted on Accounts at any time, in the name of the Agent or
the Agent's designees, or the Debtor, or any one of them, information
concerning the amounts owing on the Accounts; upon an Event of Default and
during the continuance thereof: (i) 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 Agent
on behalf of the Secured Parties and to receive, open and dispose of all mail
of the Debtor; (ii) to transmit to customers indebted on Accounts notice of the
Agent's interest therein and to notify customers indebted on Accounts to make
payment directly to the Agent for the benefit of the Lenders, on any of the
Debtor's Accounts; and (iii) to take or bring, in the name of the Agent or the
Debtor, or any one of them, all steps, actions, suits or proceedings deemed by
the Agent necessary or desirable to enforce or effect collection of the
Accounts. Debtor does hereby grant 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. Neither the
Agent nor any Lender shall be liable for any acts or omissions or for any error
in judgment or mistake of fact or law except to the extent that such act or
omission constituted the gross negligence or willful misconduct of the Agent or
any Lender, as the case may be. This power of attorney shall be exercisable at
the Debtor's sole expense and being coupled with an interest, shall be
irrevocable for the Term of this Agreement and for all transactions hereunder
and thereafter as long as Debtor may be indebted to Agent and/or any of the
Secured Parties.
16. Debtor hereby certifies to Agent on behalf of the Secured
Parties 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 Agent at least thirty days prior written notice thereof.
17. Until the Agreement has been terminated and all Obligations
satisfied in full Debtor shall:
(a) Furnish to each of the Lenders, 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 Agent: (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 Agent 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. Agent hereby acknowledges that Grant Thorton,
L.L.P. is a certified public accounting firm presently satisfactory to Agent.
(b) Furnish to Agent concurrently with each delivery of
financial statements set forth in Paragraph 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
<PAGE> 15
14
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 Agent, accompanied by officers of
the Secured Parties, 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 Agent and/or the Secured Parties such other information
as any of them 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 $9,000,000.
(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 this 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, in
any fiscal year of Debtor and corresponding fiscal year of every Subsidiary
which, for all such entities combined, exceeds $3,000,000 in the aggregate
without the consent of Agent, 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 Agent's prior written
consent which shall not be unreasonably withheld.
(d) Create, incur, assume or suffer to exist any
Indebtedness of Debtor and every Subsidiary which, for all such entities
combined, exceeds $2,500,000 in the aggregate at any one time, other than (i)
indebtedness to the Lenders under the 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 or indebtedness incurred by Debtor in a public offering
of debt securities by the Debtor, (iv) liability or indebtedness incurred by
the Debtor in a private offering of debt securities by the Debtor, (v)
indebtedness evidenced by liens described in clause (v) of the definition of
Permitted Liens or (vi) indebtedness owing by any Debtor or Subsidiary to any
other Debtor or Subsidiary. For purposes of this Paragraph 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 sale 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 Paragraph
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 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 of the Obligations, 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
<PAGE> 16
15
(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 Agent or
any of the Secured Parties, as the case may be, and such failure or neglect
continues for twenty (20) days after Agent and/or any of such Secured Parties
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 of the Obligations makes any false, untrue, incomplete or misleading
representation, warranty, schedule, report or other communication to Agent
and/or any of the Secured Parties in connection with this Agreement or any
transaction relating thereto which, in any such case, is material in the
reasonable judgment of Agent; or
(e) Debtor or any guarantor, surety or other party liable
upon any of the Obligations 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 of the Obligations 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 of the
Obligations, 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 of the Obligations any such proceeding which
proceeding is not dismissed within 45 days; or Debtor or any guarantor, surety
or party liable on any of the Obligations 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 of the Obligations or any substantial part of its property; or
Debtor or any guarantor, surety or party liable on any of the Obligations
suffers any such custodianship, receivership or trusteeship; or
(g) any guarantor, surety or other party liable upon any
of the Obligations shall die or become incompetent; or
(h) Debtor, any guarantor, surety or other party liable
upon any of the Obligations shall deny or contest its liability with respect to
any of the Obligations or any liability of any guarantor, surety or other party
liable upon any of the Obligations with respect to any of Obligations shall be
declared to be null and void; or
(i) Debtor shall be dissolved or liquidated or be a party
to any merger or consolidation without the prior written consent of Agent.
(j) any guarantor, surety or party liable upon any of the
Obligations shall be dissolved or liquidated or be a party to any merger or
consolidation excepting only for a merger with or consolidation into Debtor or
any guarantor of all of the Obligations, without the prior written consent of
Agent; or
(k) 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
(l) any guarantor, surety or other party liable on any of
the Obligations shall fail or neglect to perform, keep or observe any material
term, provision, condition, covenant, warranty or representation contained in
any agreement, instrument or document under which it is obligated to Agent
and/or any of the Secured Parties or which it delivered to the Agent and/or any
of the Secured Parties in connection herewith; or
(m) any judgment against the Debtor in an amount
exceeding $250,000 or any and all attachments, executions, levies or
restraining notices against its property having an aggregate value in excess of
$250,000 remain unpaid or unstayed on appeal or undischarged, unbonded or
undismissed for a period of thirty days; or
(n) 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 non payment 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;
or
(o) Debtor or any guarantor, surety or party liable upon
any of the Obligations contests the validity, perfection or priority of
Lender's first lien on the Collateral.
20. Upon the occurrence of any of the Events of Default specified
in paragraph 19 hereof, Agent on behalf of the Secured Parties 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 Agent on
behalf of the Secured Parties has a security interest, such rights and remedies
being in addition to all of the other rights and remedies of Agent and/or the
Secured Parties provided for herein. Upon the occurrence of an Event of
Default specified in paragraph 19 (f) hereof, this Agreement shall
automatically be terminated, there shall no longer be any outstanding
commitments of the Agent and/or of any of the Lenders to make Loans hereunder,
the outstanding principal amount of all outstanding Loans and all other
Obligations shall automatically be and become immediately due and payable,
without notice, demand or presentment and the Debtor shall also provide the
Agent with one or more supporting letters of credit or pay to the Agent in
immediately available funds an amount equal to the then aggregate undrawn face
amount of all outstanding Letters of Credit. Upon the occurrence of any other
Event of Default (other than an Event of Default described in paragraph 19 (f)
hereof) so long as the same shall be continuing , the Agent: (a) shall upon
the direction of the Required Lenders: (i) by written notice to the Debtor,
terminate this Agreement and/or declare all commitments of the Agent and the
Lenders terminated, whereupon such commitments will terminate immediately and
all unpaid fees hereunder will become due and payable without notice of any
kind; (ii) by written notice to the Debtor, declare all or any portion
<PAGE> 17
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of the then outstanding principal amount of the Loans and other Obligations to
be due and payable, whereupon the full unpaid amount of such Loans and other
Obligations which shall so be declared due and payable, shall be and become
immediately due and payable, without further notice, demand or presentment and
the Debtor shall also provide the Agent with one or more supporting letters of
credit or pay to the Agent in immediately available funds an amount equal to
the then aggregate undrawn face amount of all outstanding Letters of Credit;
and/or (iii) terminate any Letter of Credit which may be terminated in
accordance with its terms; and (b) shall, upon the direction of the Required
Lenders and may, in its sole and absolute discretion: (i) restrict the amount
of or refuse to make Loans; (ii) reduce the advance rates applicable against
Collateral (used in calculating the borrowing base(s) thereof) or otherwise
reduce Loans to be made in accordance with Paragraph 4 hereof; or (iii) decline
to permit the issuance or renewal of Letters of Credit or the extension of the
stated expiry date of any outstanding Letter of Credit. All Loans and Letters
of Credit provided for herein, notwithstanding anything to the contrary
contained in this Agreement, shall thereafter otherwise be in the Agent's sole
discretion and the obligation of the Agent to make any Loans on behalf of the
Lenders and/or to assist in establishing such Letters of Credit on behalf of
the Lenders shall cease, unless such Event of Default is waived or cured to the
Agent's satisfaction. Nothing contained herein, however, shall or shall be
deemed to change, limit or otherwise adversely affect the right of the Agent
after the occurrence of an Event of Default to pay any amount or do any act
required of the Debtor hereunder or reasonably requested by the Agent to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
security interests or liens now or hereafter held by the Agent and/or any of
the Lenders, and which the Debtor fails to pay or do, all as more fully
described in subparagraph 4 (c) (xii) hereof. Agent may also require the
Debtor to assemble the Collateral at Debtor's expense at such place or places
as the Agent designates, and Agent on behalf of and for the ratable benefit of
the Secured Parties, shall have the right: (I) to remove from any premises
where the same may be located any and all documents, instruments, files and
records, and any receptacles or cabinets containing the same, relating to
Accounts, or the Agent may use, at the Debtor's expense, such of the Debtor's
personnel, supplies or space as the Debtor's places of business or otherwise,
as may be necessary to properly administer and control the Accounts or the
handling of collections and realizations thereon; (II) bring suit, in the name
of the Debtor or the Agent, and generally shall have all other rights
respecting said Accounts, including without limitation the right to accelerate
or extend the time of payment, settle, compromise, release in whole or in part
any amounts owing on any Accounts and issue credits in the name of the Debtor
or the Agent; (III) sell, assign and deliver the Collateral and any returned,
reclaimed or repossessed merchandise, with or without advertisement, at public
or private sale, for cash, on credit or otherwise, at the Agent's sole option
and discretion, and the Agent may bid or become a purchaser at any such sale,
free from any right of redemption, which right is expressly waived by Debtor;
(IV) foreclose the security interests created herein by any available a
judicial process, and to enter any premises where any inventory may be located
for the purpose of taking possession of any of all of Collateral without
judicial process; (V) 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 or removing the same; and (VI)
exercise any other rights and remedies provided in law, in equity, by contract
or otherwise. Agent shall have the right, (x) without notice or advertisement,
if the collateral to be sold is perishable or subject to rapid diminution in
value or (y) upon five (5) day notice otherwise and may sell or lease or cause
to be sold, leased or otherwise disposed of, any or all of such Collateral,
whether in its then condition or after further preparation or processing, in
the name of the Debtor or the Agent, or in the name of such other party as the
Agent may designate, in one or more sales or parcels, at such price and upon
such terms as Agent on behalf of the Secured Parties may deem best, and for
cash or on credit, or for future delivery, without Agent and/or any of the
Secured Parties assuming any credit risk and at a public or private sale as
Agent may deem appropriate. Upon the occurrence of an Event of Default the
Debtor agrees at the request of the Agent, to assemble the Collateral and to
make it available to the Agent at the premises and facilities of the Debtor for
the purpose of the Agent's taking possession of, removing or putting the
Collateral in saleable form. Unless the Collateral is perishable or threatens
to decline speedily in value or is of a type customarily sold on a recognized
market, Agent 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. Agent may invoice any such sale in its name
or in Debtor's name, as Agent may elect, as the seller, and in such latter
event such invoice may be marked payable to Agent and/or the Secured Parties.
Agent and/or any of the Secured Parties 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 reasonable attorneys' fees, and then to the
payment of all Obligations in accordance with paragraph 4(f) of this Agreement.
The Debtor agrees that the Agent has no obligation to preserve rights to the
Collateral or to marshal any Collateral for the benefit of any person. Agent
will return any excess proceeds to Debtor and Debtor shall remain liable for
any deficiency. In no event shall prior recourse to any Accounts or other
Collateral granted to or by Debtor be a prerequisite to the Agent and/or the
Lenders right to payment of any Obligations due in accordance with this
Agreement, including without limitation any such deficiency. All rights and
remedies of the Agent and of each of the Lenders under this Agreement are
cumulative and non- exclusive and shall be in addition to every other right,
power and remedy provided herein or in any related agreement, instrument or
document, or provided under applicable law.
The Debtor shall immediately notify the Agent in writing of any Event of
Default, with a copy thereof to each Lender.
21. This (Second Restated and Amended Loan and Security) Agreement
shall (subject to compliance with the Conditions Precedent) become effective on
the Closing Date hereof, without any interruption or break in continuity (as
more fully described in the second paragraph hereof) and shall continue until
the third anniversary of the Closing Date. Notwithstanding the foregoing: (a)
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 (b) upon the occurrence of any
other Event of Default, Agent may, at its option, or shall at the written
request of the Required Lenders, terminate this Agreement with notice. All
Obligations shall, unless and to the extent that Agent (with the consent of the
Required Lenders) otherwise elects, become immediately due and payable upon any
termination of this Agreement; the Debtor shall thereupon pay all Obligations
to the Agent for the ratable benefit of the Lenders and the Agent may withhold
any balances in the Debtor's account(s) (unless supplied with an indemnity
satisfactory to the Agent) to cover all of the Debtor's Obligations, whether
absolute or contingent. Until this Agreement has been terminated and all
Obligations shall have been fully paid and satisfied, and notwithstanding any
termination of this Agreement, Debtor shall continue to assign Accounts to
Agent on behalf of the Secured Parties and turn over collections to Agent on
behalf of the Secured Parties as herein provided and this Agreement shall
remain in full force and effect as to, and be binding upon, Debtor, Agent and
the Lenders and the Secured Parties shall retain all of their respective
rights, as well as their security interests in all Collateral. Debtor may
repay the facility at any time in whole or in part without premium or penalty
by giving Agent on behalf of the Secured Parties sixty (60) days'
<PAGE> 18
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written notice of such repayment provided that any such payment which results
in a payment of a LIBO Rate Loan before the last date of the Interest Period
with respect thereto shall be subject to the provisions of Paragraph 5(g)
hereof. The period commencing with the effective date of this Agreement,
through and including the effective termination date of this Agreement,
determined in accordance with the preceding provisions, shall be the "Term" of
this Agreement.
The $1,500,000 Term Loan (the balance of which is, as of the Closing
Date, $1,196,428.45), shall be payable, with respect to principal, as follows,
subject to acceleration upon the occurrence of an Event of Default and subject
to payment in full upon termination of this Agreement consecutive monthly
installments of $17,857.14 commencing on September 1, 1995 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 Notes so long as no Event of
Default has occurred and is continuing, provided that there is paid to Agent
for the ratable benefit of the Secured Parties the net proceeds thereof, but
not less than $1,012,500 and not more than the then remaining principal amount
of, plus all accrued interest on, such $1,500,000 Term Loan provided that a
release of the Mortgage for a payment of less than the then outstanding balance
of the $1,500,000 Term Loan shall be subject to the condition that after giving
effect to such payment and the release of the Mortgage the Debtor is in
compliance with the borrowing limitations set forth in Paragraph 4(a) hereof,
with such amount to be applied in reduction or discharge of such $1,500,000
Term Loan. Upon such sale of the Real Property or refinancing of such
$1,500,000 Term Loan, Agent on behalf of the Secured Parties shall release the
Mortgage; provided, however, Agent for the benefit of the Secured Parties shall
receive with respect to the Collateral, an executed mortgagee waiver on terms
and conditions satisfactory to Agent from the refinancing party, if any. Such
$1,500,000 Term Loan 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 $1,500,000 Term Loan, then the monthly installments remaining on the
$1,500,000 Term Loan shall be reduced, pro rata, based on the amount so paid.
22. (a) 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 Agent on behalf of the Secured
Parties 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, THE AGENT AND THE LENDERS EACH HEREBY WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR IN ANY MATTER
RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF AND ANY OBJECTION OF
FORUM NON CONVENIENCE OR VENUE IN ANY SUCH ACTION OR PROCEEDING. No failure or
delay by Agent of any of the Secured Parties 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. All of the rights,
remedies and benefits of the Agent and/or of the Lenders hereunder are
cumulative and not exclusive of any other rights, remedies or benefits which
they 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 shall inure to the benefit of and
shall bind the respective successors and assigns of Agent, the Secured Parties
and of Debtor. Any Lender including, without limitation, BNYCC in its capacity
as a Lender may at any time sell, assign or transfer its Pro Rata Share of the
Obligations (including without limitation Obligations arising under or with
respect to all or any portion of Loans, Letters of Credit and/or the Term
Loans) and its rights and duties with respect thereto, in accordance with
subparagraph (c) below.
(b) No waiver by Agent on behalf of the Secured Parties
will be effective unless in writing and shall be sent to the Debtor at the
address specified herein. Except as expressly otherwise provided herein, the
provisions of this Agreement may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to by the Agent, the Required Lenders, and the Debtor, unless such amendment,
modification or waiver does not adversely affect Debtor's rights hereunder,
provided that, and notwithstanding anything to the contrary contained in this
Agreement, without the prior written consent of all Lenders, (A) the Agreement
will not be amended to: (1) increase the Aggregate Maximum Loan Amount; (2)
reduce the interest rate; (3) reduce or waive any fees (other than fees to
which the Agent alone may be entitled) or the repayment of any Obligations due
the Lenders; (4) extend the maturity of any Obligations; (5) alter or amend
this paragraph or the definitions of Required Lenders, Slow Accounts, Eligible
Accounts, Eligible Inventory or the Agent's criteria for determining compliance
therewith; (6) release any Collateral in excess of $1,000,000 (valued at lower
of cost or market) during any fiscal year of Debtor provided, that in no event
shall any Collateral be released without the prior written consent of all
Lenders if the effect thereof is to cause Loans to exceed the borrowing
limitations set forth in this Agreement; (7) release any Guarantor; (8)
release the Mortgage (except as provided in section 21 hereof) or (9) increase
the advance percentages set forth in the definitions of each of the following
terms: Accounts Receivable Borrowing Base, Inventory Borrowing Base and
Equipment Borrowing Base; (B) the Agent shall not make intentional Overadvances
beyond the limitations set forth in Paragraph 4(d) of this Agreement and (C)
upon and following an Event of Default, Agent shall endeavor to consult with
Lenders with respect to any material decisions regarding the Loans, Obligations
or Collateral including the enforcement of Agents rights (on behalf of such
Lenders) with respect thereto.
(c) Any Lender may at any time assign and delegate to one
or more Eligible Assignees (provided that in no event shall there be more than
four entities comprising Lender at any one time) all, or any ratable part of
all, of the Loans, and the other rights and obligations of such Lender
hereunder, in a minimum amount of Five Million Dollars ($5,000,000); provided
however, that the Debtor and the Agent may continue to deal solely and directly
with such Lender in connection with the interest so assigned to an Eligible
Assignee until (i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Eligible
Assignee, shall have been given to the Borrower, the Agent and the other
Lenders by such Lender and the Eligible Assignee; and (ii) such Lender and such
Eligible Assignee shall have delivered to the Borrower and the Agent an
Assignment and Acceptance Agreement in the form of Exhibit C hereto, together
with any note(s) subject to such assignment and the Agent shall have accepted
the same in its sole discretion, which shall not be unreasonably withheld;
(iii) the assignor Lender has paid to the Agent a processing fee in the amount
of $2,000; and (iv) the Eligible Assignee, in any instance in which it is a
foreign person (i.e., a person
<PAGE> 19
18
other than a United States person for United States Federal income tax
purposes) shall have provided to the Agent and the Borrower the forms required
to demonstrate that the Lender is entitled to receive payments of principal,
interest and fees under this Agreement free from withholding of United States
federal income tax. From and after the date that the Agent notifies the
assignor Lender that it has received and provided its consent with respect to
an executed Assignment and Acceptance Agreement and payment of the
above-referenced processing fee, the Eligible Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance Agreement, shall have
the rights and obligations of a Lender under the Agreement; the assignor Lender
shall, to the extent that rights and obligations hereunder have been assigned
pursuant to such Assignment and Acceptance Agreement, relinquish its rights and
be released from its obligations hereunder. Within three (3) Business Days
after its receipt of notice by the Agent that it has received an executed
Assignment and Acceptance Agreement and payment of the processing fee, the
Debtor shall execute and deliver to the Agent, a new note or notes, if any,
necessary to evidence such Eligible Assignee's assigned Loans and/or its
commitment hereunder and, if the assignor Lender has retained a portion of its
Loans, a replacement note or notes in the amount of its retained Loans and/or
commitment hereunder (with such notes to be in exchange for, but not in payment
of, the notes held by such assigning Lender). Immediately upon each Eligible
Assignee's paying its processing fee under the completed and accepted
Assignment and Acceptance Agreement, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the
addition of the Eligible Assignee and the resulting adjustment of the
commitments arising therefrom. The commitment allocated to each Eligible
Assignee shall reduce such commitment of the assigning Lender pro tanto.
Debtor shall not be responsible for payment or reimbursement for any fees or
charges incurred by Agent or Lender solely as a result of an assignment
pursuant to this Paragraph 22 unless such assignment is made at the request of
Debtor.
If at any time, a Lender ("Proposed Transferor") proposes to enter into any
agreement with a party ("Purchaser") pursuant to which the Proposed Transferor
would sell, assign or transfer any of its Pro Rata Share of Obligations under
this Agreement (other than to one or more concerns affiliated with such
Proposed Transferor which such Proposed Transferor may complete without regard
to this paragraph), with the result that following the completion of the
transaction(s) with Purchaser, the Proposed Transferor would retain a Pro Rata
Share of the Obligations under this Agreement which in the aggregate would be
less than the aggregate Pro Rata Share of any other Lender following such
completion, then at least ten (10) days prior to closing thereof by such
Proposed Transferor it, shall notify each other Lender in writing of such
proposed sale, assignment or transfer, the terms and conditions thereof
including the amount thereof (the "Assignment Amount") and the proposed closing
date thereof. Each of the Lenders shall have the right, and such Proposed
Transferor hereby grants such right to each of the Lenders, to participate in
such sale, transfer or assignment, by assigning to the Purchaser (or selling a
participation to Purchaser in) each of the other Lender's Pro Rata Share of the
Obligations and rights under this Agreement, in an amount equal to the electing
Lender's Pro Rata Share of the Assignment Amount. Each Lender shall have five
(5) days after receipt of any such notice of sale, transfer or assignment
within which to notify such Proposed Transferor in writing of its decision to
participate in any such transaction in the manner indicated above. If any
other Lender notifies Proposed Transferor that it will not participate in such
transaction, or if any Lender fails to respond within the time frame specified
in the preceding sentence, such Proposed Transferor shall be entitled to
consummate the sale, transfer or assignment with the Purchaser as contemplated
in its earlier notice.
Notwithstanding anything to the contrary contained herein, in the event that
Agent sells and assigns to an Eligible Assignee any or all of its Loans, Agent
shall use its best efforts to find an Eligible Lender to purchase and assume a
pro rata share of the Loans from the other Lenders.
(d) 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 the Lenders.
23. (a) To the extent Debtor makes a payment, or Agent or any
of the Secured Parties 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 so received.
(b) If any Lender shall obtain any payment, whether
voluntarily or involuntarily, by setoff or otherwise, on account of the Loans
made by it, or receive any collateral therefor, in an amount that exceeds that
portion of all payments or Collateral obtained by any other Lender on account
of the Loans, to which such other Lender would be entitled if all such payments
and Collateral were allocated among the Lenders in accordance with the
provisions of this Agreement, then such benefitted Lender shall purchase for
cash a participation from such other Lender(s) such portion of the Loans made
by them , or shall provide such other Lender(s) with the benefits of any such
Collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such Collateral or
proceeds ratably with each such other Lender in accordance with their Pro Rata
Shares; provided, that if all or any portion of such excess payment or benefits
thereafter is recovered from such benefitted Lender, such purchase shall be
rescinded and the purchase price and benefit returned by such other Lender(s)
to the extent of such recovery, but without interest. Each Lender so purchasing
a portion of another Lender's Loans may exercise all rights of payment
(including without limitation, rights of setoff) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
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.
25. In all respects, except as expressly limited in this
Agreement, the Agent is authorized to take such actions or to fail to take such
actions that the Agent, in its reasonable discretion, deems to be advisable and
in the best interests of the Lenders, including making Overadvances within the
limitations set forth in Paragraph 4 (d) of this Agreement and upon the
occurrence of an Event of Default hereunder, the termination of this Agreement
and/or the exercise of any other rights or remedies hereunder, unless and until
the Agent may be specifically instructed to the contrary by the Required
Lenders.
26. (a) Each Lender hereby irrevocably appoints and
authorizes the Agent to act as its agent hereunder with such powers as are
specifically delegated to the Agent by the terms of this Agreement, together
with such other powers as are reasonably incidental thereto. The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement, and shall not by reason of this Agreement be a trustee for
<PAGE> 20
19
any Lender. The Agent shall not be responsible to the Lenders for any
recitals, statements, representations or warranties contained in this
Agreement, or in any certificate or other document referred to or provided for
in, or received by any of them under, this Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other document referred to or provided for herein or for any
failure by the Borrower to perform any of its obligations hereunder. The Agent
may employ agents and attorneys-in-fact and shall not be answerable, except as
to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Agent nor any of its directors, officers,
employees, or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or in connection herewith, except
for its or their own gross negligence or willful misconduct.
(b) The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper person or
persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. As to any matters not
expressly provided for by this Agreement, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders.
(c) The Agent shall not be deemed to have knowledge of
the occurrence of any Event of Default (other than the non-payment of principal
of or interest on Loans, Letters of Credit and/or Term Loans in accordance with
this Agreement), or the occurrence of any event or circumstance with which the
giving of notice, the passage of time or both would constitute and Event of
Default, unless the Agent has received notice from a Lender or the Debtor
specifying such Event of Default, event or circumstance and stating that such
notice is a "Notice of Default". In the event of any non-payment of principal
of or interest on Loans, Letters of Credit and/or Term Loans in accordance with
this Agreement, or in the event that the Agent receives any such Notice of
Default, the Agent shall give notice thereof to the Lenders . The Agent shall
(subject to subparagraph (g) below) take such action with respect to such
non-payment or other Event of Default as shall be directed by the Required
Lenders, provided that, unless and until the Agent shall have received such
directions, the Agent may take such action, or refrain from taking such action,
with respect thereto as Agent shall deem advisable in the best interests of the
Lenders.
(d) With respect to its Maximum Loan Amount, its Pro Rata
Share of the Obligations, including without limitation the Loans made by it,
BNYCC in its capacity as a Lender hereunder shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it
were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include BNYCC in its individual capacity. The
Agent and its affiliates may (without having to account therefor to any Lender)
also accept deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Debtor (and any Subsidiaries of
Debtor) as if it were not acting as the Agent, and the Agent may accept fees
and other consideration from the Debtor for services in connection with this
Agreement or otherwise without having to account for the same to the Lenders.
(e) The Lenders agree to indemnify the Agent (to the
extent not reimbursed by the Debtor hereunder, but without limiting the
obligations of the Debtor hereunder), ratably, based upon their respective Pro
Rata Share hereunder, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other documents contemplated by or referred to herein or the
transactions contemplated hereby (including, without limitation, the costs and
expenses which the Debtor is obligated to pay hereunder) or the enforcement of
any of the terms hereof or of any such other documents, provided that no Lender
shall be liable for any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the Agent. Without limiting the
foregoing, each Lender shall reimburse the Agent upon demand for such Lender's
Pro Rata Share of any costs or out-of-pocket expenses(including reasonable
attorneys fees) incurred by Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights, or responsibilities under, this Agreement or any
of the transactions contemplated hereby or referred to herein, to the extent
that the Agent is not reimbursed for such costs or expenses by or on behalf of
the Debtor and such expenses are properly chargeable to Debtor. The
Obligations of the Lenders under this subparagraph shall survive the payment of
all Obligations hereunder, the termination of all outstanding Letters of
Credit, the termination of this Agreement and/or the resignation of the Agent.
(f) Each Lender agrees that it has, independently and
without reliance on the Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own credit analysis of
the Debtor and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement. The Agent shall not be required to keep itself
informed as to the performance or observance by the Debtor of this Agreement or
any other document referred to or provided for herein or to inspect the
properties or books of the Debtor. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Debtor (or any of Debtor's Subsidiaries)
which may come into the possession of the Agent or any of its affiliates.
(g) Except for action expressly required of the Agent
hereunder, the Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall have received the written consent of
the Required Lenders and unless it shall be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
(h) Subject to the appointment and acceptance of a
successor Agent as provided below, the Agent may resign at any time by giving
notice thereof to the Lenders. Upon any such resignation, the Required Lenders
shall have the right to appoint a successor Agent provided, that if such
successor Agent will not be a Lender holding a share of the Loans at least
equal to the share held by any other Lender, the consent of the Debtor to such
appointment shall be required but shall not be unreasonably withheld. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which shall be a Lender having
combined capital and surplus of not less
<PAGE> 21
20
than $100,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent (immediate written notice of which acceptance shall be
given to the Debtor), such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation as Agent, the
provisions of this paragraph 26 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Agent.
(i) Each and all of the provisions hereunder contained
pertaining to this Paragraph 26 and any other provisions hereof pertaining to
the Agent acting or refraining from acting based upon the acquiescence of the
Required Lenders are matters strictly between and among the Agent, on the one
hand, and the Lenders on the other hand and neither the Debtor or any other
person or entity shall have or assert any rights or benefits, as a third party
beneficiary or otherwise, by reason of any of such provisions.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto on this 13th day of September, 1995.
THE BANK OF NEW YORK JACO ELECTRONICS, INC.
COMMERCIAL CORPORATION
as Agent and a Lender
By: /s/ Alice Adelberg By: Jeffrey D. Gash
------------------------- -------------------------
Title: Vice President Title: Vice President
Address: 530 Fifth Avenue Address: 145 Oser Avenue
New York, New York 10036 Hauppague, NY 11778
Maximum Loan Amount: $15,000,000
-----------
NATWEST BANK N.A. NEXUS CUSTOM ELECTRONICS, INC.
as a Lender
By: /s/ Daniel J. Murray By: Jeffrey D. Gash
------------------------- -------------------------
Title: Vice President Title: Vice President
Address: 100 Jericho Quadrangle Address: Prospect Street
Jericho, NY 11753 Brandon, VT 05733
Maximum Loan Amount: $15,000,000
-----------
<PAGE> 22
SCHEDULE I
PERMITTED LIENS
<PAGE> 23
SCHEDULE 3(c)
INVENTORY LOCATIONS
Jaco Electronics, Inc. 9900 West Sample Road
145 Oser Avenue Suite 404
Hauppauge, NY 11788 Coral Springs, Fl. 33065
5206 Greens Diary Road 10340 Viking Drive - Suite 115
Raleigh, NC 27604 Eden Prairie, MN 55344
10270 Old Columbia
Columbia, MD 21046
_________________________________________________________________
Jaco Overseas, Inc. R.C. Components, Inc.
145 Oser Avenue 1053 East Street
Hauppauge, NY 11788 Tewksbury, MA 01876
_________________________________________________________________
Micatron, Inc.
145 Oser Avenue
Hauppauge, NY 11788
_________________________________________________________________
Distel, Inc. 17220 127th Place, N.E.
2282 Townsgate Road Suite 300
Westlake, CA 91361 Woodinville, WA 98072
1610-A Berryessa Road 1541 Parkway Loop #A
San Jose, CA 95134 Tustin, CA 92680
4900 SW Griffith Drive
Suite 129
Beaverton, OR 97005
_________________________________________________________________
Nexus Custom Electronics, Inc.
Prospect Street
Brandon, VT 05733
_________________________________________________________________
Quality Components, Inc.
1209 North Glenville Dr.
Richardson, TX 75081
2120-A Braker Lane
Austin, Tx 78758
<PAGE> 24
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE AGREEMENT
<PAGE> 25
EXHIBIT A
CONTINUANCE NOTICE
<PAGE> 26
EXHIBIT B-1
$2,500,000 TERM LOAN NOTE
<PAGE> 27
EXHIBIT B-2
$2,500,000 TERM LOAN NOTE
<PAGE> 28
EXHIBIT B-3
$1,500,000 TERM LOAN NOTE
<PAGE> 29
EXHIBIT B-4
$1,500,000 TERM LOAN NOTE
<PAGE> 30
EXHIBIT B-5
$598,214.23 TERM LOAN NOTE
<PAGE> 31
EXHIBIT B-6
$598,214.23 TERM LOAN NOTE
