<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ......................................June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _____________________.
Commission File Number 0-5896
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1978958
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
145 Oser Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (516) 273-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates
of the Company, computed by reference to the closing price on September 20, 1996
was $22,722,237.
Number of shares outstanding of each class of Common Stock, as of
September 20, 1996: 3,888,221 shares (excluding 87,500 shares of treasury
stock).
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Definitive Proxy Statement to be filed on or before October 28,
1996, under Regulation 14A, in connection with the Company's 1996
Annual Meeting of Shareholders.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Jaco Electronics, Inc., a New York corporation organized in 1961
(collectively with all of its subsidiaries, unless otherwise noted, "Jaco" or
the "Company").
GENERAL
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 14 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. 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.
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 and several
2
<PAGE> 3
Fortune 500 manufacturers. In the fiscal year ended June 30, 1996, the Company
distributed electronic components to thousands of customers, none of which
individually represented more than 2% 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 materials 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.
INDUSTRY OVERVIEW
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
3
<PAGE> 4
relied upon distributors to serve small 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 association, in 1995 the electronics distribution industry
recorded approximately $22 billion in sales. Of these sales, approximately $14.4
billion consisted of sales of semiconductors and computer products, which
accounted for approximately $81.8 million of the Company's net distribution
sales for the year ended June 30, 1996. Approximately $6.6 billion of industry
sales consisted of sales of interconnect (connectors, sockets),
electromechanical (relays, switches) and passive (resistors, capacitors)
components, which products accounted for approximately $74.5 million of the
Company's net distribution sales in the year ended June 30, 1996.
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- horse-power motors and resistors. Passive
products accounted for approximately 52%, 52% and
4
<PAGE> 5
48% of the Company's net distributor sales in the fiscal years ended June 30,
1994, June 30, 1995 and June 30, 1996, respectively.
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 48%, 48%
and 52% of the Company's net distributor sales in the fiscal years ended June
30, 1994, June 30, 1995 and June 30, 1996, 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.
5
<PAGE> 6
- 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 printed circuit boards ("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.
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% and 2%, respectively, of net sales in the
fiscal years ended June 30, 1995 and June 30, 1996.
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 understand which products will meet the customers'
performance criteria, are cost-effective and target specifically identified
problems.
6
<PAGE> 7
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 California and New
York and from 14 additional sales offices located in California, Florida,
Maryland, Massachusetts, Minnesota, North Carolina, Oregon, Texas, Washington,
Colorado, Arizona (established in March 1996) and Illinois (established in
August 1996). 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 the fiscal year ended June 30, 1996, 94% of the Company's
sales were produced by Company sales personnel and 6% by independent sales
representatives, one of whom produced approximately $5 million in revenue. The
Company believes that the termination of any independent sales representative
would not have a material adverse effect upon its business.
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 $44.9 million at June 30, 1995, compared to $40.6 million
at June 30, 1996. 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.
7
<PAGE> 8
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 systems 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 inventory turnover was approximately 4.7x for the
year ended June 30, 1996.
Approximately 80% 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. 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
8
<PAGE> 9
provides turnkey and consigned 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, while "consigned" refers to a
contract manufacturer that provides the assembly and testing elements only. 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 the fiscal year ended June 30, 1996, the
Company invested approximately $237,000 primarily in SMT machinery and
equipment, as part of the Company's ongoing program to expand Nexus' operations.
Nexus maintains strict quality control procedures for its
products, including use of total quality management ("TQM") systems. Incoming
raw material and components are checked by the Nexus quality control personnel.
During the production stage, quality control personnel check all work in process
at several points in the production process. Finally, after the assembly stage,
Nexus conducts random testing of finished products.
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. Nexus'
receipt of ISO 9002 certification demonstrates that Nexus' manufacturing
operations meet establish world standards. Management believes sophisticated
customers increasingly are requiring their manufacturers to be ISO
9002-certified for purposes of quality assurance.
Acquisition of Q.P.S. Electronics, Inc. On August 2, 1996, the
Company acquired the operating assets of Q.P.S. Electronics, Inc. ("QPS"), a
distributor of quality active and passive
9
<PAGE> 10
electronic components based in Schaumburg, Illinois. Management expects that the
acquisition of QPS will contribute to the expansion of the Company's national,
dedicated distribution network by establishing the Company's presence in the
Northern Mid-West of the United States.
SUPPLIERS
Manufacturers of passive and active electronic components are
increasingly relying on the marketing, customer service and other resources of
distributors who market their product lines to customers not normally served by
the manufacturer, and to supplement the manufacturer's direct sales efforts in
other accounts often by providing value-added services not offered by the
manufacturer. Manufacturers seek distributors who have strong relationships with
desirable customers, are financially strong, have the infrastructure to handle
large volumes of products and can assist customers in the design and use of the
manufacturers' products. Currently, the Company has non-exclusive distribution
agreements with many manufacturers, including General Instrument Corporation,
Globe Motors (a division of Labinal Components and Systems, Inc.), International
Resistive Company, Inc., Kemet Electronics Corporation, Mitel Inc., Rohm
Company, Limited, Samsung Semiconductor, Inc., TDK Corporation of America,
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.
In the fiscal year ended June 30, 1996, of the Company's top ten
suppliers, two, Kemet, Samsung, accounted for 18.1% , and 10.7 %, respectively,
of net sales and the remaining eight each accounted for between 6.7% and 1.5% of
net sales. No other supplier accounted for more than 1% 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.
The Company generally purchases products from manufacturers
pursuant to nonexclusive distributor agreements. Selection as an authorized
distributor is a valuable marketing tool for the
10
<PAGE> 11
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
inventory. 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 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 PCB contract manufacturing industry is highly fragmented and
is characterized by relatively high levels of volatility, competition and
pricing and margin pressure. Many large contract
11
<PAGE> 12
manufacturers operate high-volume facilities and primarily focus on high-volume
product runs. In contrast, certain contract manufacturers, such as Nexus, focus
on low-to-medium volume and service-intensive products, where the finished
product often requires a greater amount of overall labor.
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, 1996, the Company had a total of 394 employees, of
which 101 were employed by Nexus. Of total employees, 11 were engaged in
administration, 55 were managerial and supervisory employees, 143 were in sales
and 185 performed warehouse, manufacturing and clerical functions. Of these
employees, Nexus employed one in administration, nine in management and
supervisory positions, four in sales and 87 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.
12
<PAGE> 13
ITEM 2. PROPERTIES
All of the Company's facilities are leased except for the
Brandon, VT property which is owned by Nexus. Jaco currently leases 16
facilities located in the States of Arizona, California, Colorado, Florida,
Illinois, 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 $5,700 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 regarding 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. The lease provides for a current monthly base rent of approximately
$42,000 net of all expenses, including taxes, utilities, insurance, maintenance
and repairs, and has a term which expires on December 31, 2003. Jaco negotiated
a renewal of the lease and the current rental rate is similar to that currently
being charged for comparable properties in the area. 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, on a month-to-month
basis, approximately 10,000 square feet of office and warehouse space in
Westlake Village, California for a base rent of approximately $8,400 per month.
Jaco maintains both a purchasing and sales office at this location, as well as
warehouse facilities.
13
<PAGE> 14
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.
ITEM 3. Legal Proceedings.
The Company is not a party to any material pending legal
proceedings.
ITEM 4. Submission of Matters To A Vote of Security Holders.
No response to this Item is required.
14
<PAGE> 15
PART II
ITEM 5. Market For the Company's Common Stock and Related Security
Holder Matters.
(a) The Company's common stock (the "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 1995. 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 of all periods have been adjusted to give effect to the 4-for-3
stock split which was distributed to shareholders of record as of September 22,
1995.
<TABLE>
<CAPTION>
FISCAL YEAR 1995: HIGH LOW
<S> <C> <C>
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
<CAPTION>
FISCAL YEAR 1996: HIGH LOW
<S> <C> <C>
First quarter ended September 30, 1995 $13.88 $ 6.28
Second quarter ended December 31, 1995 $16.00 $10.50
Third quarter ended March 31, 1996 $12.38 $ 9.75
Fourth quarter ended June 30, 1996 $12.63 $ 9.75
</TABLE>
(b) As of August 31, 1996 there were approximately 194 holders of
record of The Company's Common Stock who management believes held for more than
2,476 beneficial owners.
(c) The Company has never declared or paid cash dividends on its
Common Stock. The Company intends to retain its 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
15
<PAGE> 16
the Company's credit facility (the "Credit Facility") contains provisions that
prohibit the Company from paying cash dividends on its Common Stock.
16
<PAGE> 17
Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year ended June 30,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATING DATA (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 77,358 $ 96,675 $ 105,213 $ 138,683 $ 167,149
Cost of goods sold 59,951 75,630 83,038 109,902 133,105
---------- ---------- ---------- ---------- ----------
Gross profit 17,407 21,045 22,175 28,781 34,044
Selling, general and
administrative expenses 15,753 17,786 19,155 23,552 26,247
---------- ---------- ---------- ---------- ----------
Operating profit 1,654 3,259 3,020 5,229 7,797
Interest expense 1,172 1,078 1,117 2,010 1,347
---------- ---------- ---------- ---------- ----------
Earnings before income
taxes and cumulative effect
of a change in accounting
for income taxes 482 2,181 1,903 3,219 6,450
Income tax expense 170 797 714 1,303 2,600
---------- ---------- ---------- ---------- ----------
Earnings before cumulative
effect of a change in
accounting for income
taxes 312 1,384 1,189 1,916 3,850
Cumulative effect of a change in
accounting for income taxes 241
---------- ---------- ---------- ---------- ----------
NET EARNINGS $ 312 $ 1,384 $ 1,430 $ 1,916 $ 3,850
========== ========== ========== ========== ==========
PER SHARE DATA *
Earnings per common share
before cumulative effect of
a change in accounting $ 0.12 $ 0.55 $ 0.47 $ 0.78 $ 1.08
Cumulative effect of a change
in accounting 0.09
---------- ---------- ---------- ---------- ----------
Net earnings per common share $ 0.12 $ 0.55 $ 0.56 $ 0.78 $ 1.08
========== ========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding 2,506,001 2,522,980 2,551,173 2,461,091 3,554,018
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Working capital $ 13,614 $ 14,910 $ 15,160 $ 30,741 $ 36,964
Total assets 35,547 36,056 45,685 56,323 61,143
Long-term obligations 8,225 8,058 9,694 23,666 8,791
Shareholders' equity 8,520 9,905 11,202 13,227 34,304
</TABLE>
* All per share information has been restated to give effect to a 10% stock
dividend paid on March 10, 1995 and a 4-for-3 stock split distributed to
shareholders of record as of September 22, 1995.
17
<PAGE> 18
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Result of Operations
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995:
Statements in this filing, and elsewhere, which look forward in
time involve risks and uncertainties which may effect the actual results of
operations. The following important factors, among others, have affected and,
in the future, could affect the Company's actual results: dependence on a
limited number of suppliers for products which generate a significant portion
of the Company sales, the effect upon the Company of 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, and
general economic downturns in the electronics distribution industry which may
have an adverse economic effect upon manufacturers, end-users of electronic
components and electronic component distributors.
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 electromechanical 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 D
and I of Notes to Consolidated Financial Statements. Since March 1994, the
Company devoted significant efforts to improving the performance of Nexus
including: capital expenditures of approximately $700,000 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.
18
<PAGE> 19
The Company's sales from value-added services represented $18.0
million, or 11.0 % of net sales in the year ended June 30, 1996, $18.1 million,
or 13% of net sales in the year ended June 30, 1995, and $8.9 million or 8% of
net sales in the year ended June 30, 1994. Of these sales, sales from contract
manufacturing through Nexus, which was acquired in March 1994, were $10.8
million or 6.5% of net sales in the year ended June 30, 1996, $12.1 million or
8.7% of net sales in the year ended June 30, 1995 and $2.7 million or 2.6% of
net sales in the year ended June 30, 1994.
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,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 78.9 79.2 79.6
----- ----- -----
Gross profit 21.1 20.8 20.4
Selling, general and administrative expenses 18.2 17.0 15.7
----- ----- -----
Operating profit 2.9 3.8 4.7
Interest expense 1.1 1.5 .8
----- ----- -----
Earnings before income taxes and cumulative effect
of a change in accounting 1.8 2.3 3.9
Income tax expense .7 .9 1.6
----- ----- -----
Earnings before cumulative effect of a change in
accounting 1.1 1.4 2.3
Cumulative effect of a change in accounting for
income taxes .3 -- --
----- ----- -----
Net earnings 1.4% 1.4% 2.3%
===== ===== =====
</TABLE>
19
<PAGE> 20
COMPARISON OF YEAR ENDED JUNE 30, 1996 ("FISCAL 1996") WITH YEAR ENDED JUNE 30,
1995 ("FISCAL 1995")
Net sales for the fiscal year ended June 30, 1996 increased 20.5%
to $167,149,000, as compared to $138,683,000 reported for the same fiscal 1995
period. The increase in sales is the result of strong overall demand for
electronic components in the electronics industry, the Company's continued
expansion as a national distributor into new territories, and the addition of
sales personnel in existing locations. The Company has recently expanded its
product offerings to include the flat panel display market. Though sales were
minimal during fiscal 1996, the Company anticipates that flat panel display
sales will contribute to the Company's sales growth in the future. Sales from
contract manufacturing (Nexus) decreased by approximately $1.0 million during
fiscal 1996, compared to fiscal 1995, due to the loss of two major customers.
The Company believes that it has replaced the lost business and anticipates
increases in contract manufacturing sales during future periods.
Gross profit margins, as a percentage of net sales, decreased
slightly from 20.8% in fiscal 1995 to 20.4% in fiscal 1996. This was primarily
due to a softening in demand for components during the second half of fiscal
1996. The Company is hopeful that it will be able to raise margins realized from
the contract manufacturing group during fiscal 1997.
Selling, general and administrative (SG&A) expenses were $26.2
million in fiscal 1996, an increase of $2.7 million, or 11.4%, from $23.6
million in fiscal 1995. The continued geographic expansion of the Company by
opening sales offices in Arizona and Colorado, the higher commissions paid based
on sales growth, the addition of sales personnel in existing locations and the
hiring of additional support personnel to handle increased sales all attributed
to the increase in SG&A. As a percentage of fiscal 1996 net sales, SG&A declined
to 15.7% from 17.0% in fiscal 1995. Close attention to cost containment resulted
in the reduction. The Company believes that if net sales continue to increase,
SG&A will decrease as a percentage of net sales.
20
<PAGE> 21
Interest expense decreased to $1.3 million in fiscal 1996 from
$2.0 million in fiscal 1995. The 33% decrease was primarily the result of a
reduction in borrowings as a result of the reduction in indebtedness under the
Company's Credit Facility by application of the net proceeds from the public
offering completed during the second quarter of fiscal 1996.
Net earnings for fiscal 1996 were $3.8 million, an increase of
approximately $1.9 million, or approximately 100% as compared to the same period
in fiscal 1995. The increase in the net earnings is principally the result of
increases in sales, control of SG&A expenses and a reduction in interest
expense.
COMPARISON OF YEAR ENDED JUNE 30, 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 sale was 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.
21
<PAGE> 22
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.
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.
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 realized modest
profits after its first full year as a subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
On October 20, 1995, the Company completed a public offering of
1,600,000 shares of its common stock at $12.75 per share. The offering consisted
of 1,325,000 shares offered by the Company and an aggregate of 275,000 shares
offered by certain officers and directors of the Company. On December 8, 1995,
the underwriters of the public offering exercised a portion of their
overallotment option for an additional 160,000 shares at a price per share equal
to that of the public offering. The Company's net proceeds from the public
offering of approximately $17,140,000, after deducting the underwriters'
commission and costs of the public offering, were used to reduce its bank
indebtedness. In connection with the public offering, the Company also issued
stock warrants,
22
<PAGE> 23
to the representative underwriters, to purchase up to 70,000 shares of common
stock at an exercise price per share equal to 180% of the public offering price,
which expire on October 20, 1999.
The Company maintains a total Credit Facility of $30,000,000,
$1,500,000 (the outstanding balance of which at August 31, 1996 was
approximately $982,000) 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 (during fiscal 1996, the borrowing rate was further reduced to LIBOR plus
2.0%). The Company must comply with various financial covenants, with all of
which the Company believes itself to be in compliance. As of August 31, 1996,
the Company had outstanding borrowings of $10.3 million, with additional
borrowing capacity of $19.7 million available under the revolving line of
credit.
Working capital increased to $37.0 million as of June 30, 1996,
as compared to $30.7 million as of June 30, 1995, an increase of $6.3 million or
approximately 21%. The increase was primarily attributable to increased accounts
receivable and inventory related to increased level of sales.
During fiscal 1996, the Company's net cash used in operating
activities decreased to $1.6 million from $4.0 million in fiscal 1995 as a
result of increases in earnings offset by increases in accounts receivable and
inventory. In fiscal 1996, the Company decreased its borrowings under its Credit
Facility by $14.6 million principally as a result of the application of the net
proceeds from the public offering. 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 fiscal 1995 and 1996, inventory turnover was 4.6x and 4.7x,
respectively. The average age of the Company's accounts receivable at June 30,
1996 was 48 days, as compared to 50 days at June 30, 1995. The Company did not
experience any significant trade collection difficulties during fiscal 1996.
23
<PAGE> 24
On April 15, 1996, the Company's Board of Directors authorized
the purchase of up to 250,000 shares of its common stock or approximately 6.3%
of the then outstanding shares, under a stock repurchase program. As of
September 20, 1996, the Company has repurchased 87,500 shares at an average
market price of $8.00 per share.
INFLATION
Inflation has not had a significant impact on the Company's
operations during the last three fiscal years.
ITEM 8. Financial Statements and Supplementary Data.
For an index to the financial statements and supplementary data,
see Item 14(a).
ITEM 9. Disagreements on Accounting and Financial Disclosure.
No response to this Item is required.
24
<PAGE> 25
PART III
ITEM 10. Directors and Executive Officers of the Company.
Incorporated herein by reference is the information to appear
under the caption "Election of Directors" in the Company's definitive proxy
statement for its Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission not later than October 28, 1996.
ITEM 11. Executive Compensation.
Incorporated herein by reference is the information to appear
under the caption "Executive Compensation" in the Company's definitive proxy
statement for its Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission not later than October 28, 1996.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference is the information to appear
under the caption "Principal Shareholders; Shares Held by Management" in the
Company's definitive proxy statement for its Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission not later than
October 28, 1996.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated herein by reference is the information to appear
under the caption "Certain Transactions" in the Company's definitive proxy
statement for its Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission not later than October 28, 1996.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(a) (1) Financial Statements included in Part II, Item 8, of this Report:
Index to Consolidated Financial Statements and Schedule F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Earnings F-5
Consolidated Statement of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-24
(a) (2) Financial Statement Schedule included in Part IV of this Report:
Report of Independent Certified Public Accountant on Schedule II F-25
Schedule II - Valuation and Qualifying Accounts F-26
</TABLE>
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
Exhibit
No.
- -------
3.1 Restated Certificate of Incorporation adopted November, 1987,
incorporated by reference to the Company's definitive proxy
statement distributed in connection with the Company's annual
meeting of shareholders held in November, 1987, filed with the
SEC on November 3, 1986, as set forth in Appendix A to the
aforesaid proxy statement.
3.1.1 Certificate of Amendment of the Certificate of Incorporation,
adopted December, 1995.
26
<PAGE> 27
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1987 ("the Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference
to the Company's Registration Statement on Form S-1, Commission
File No. 2-91547, filed June 9, 1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of
Hi-Tech Realty Company), incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30,
1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty
Company (as assignee of Hi-Tech Realty Company), incorporated by
reference to the Company's Registration Statement on Form S-1,
Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2.
10.2.2 Lease Between the Company and Bemar Realty Company, dated January
1, 1996.
10.3 Employment Agreement between Joel 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 ("the
Company's 1990 10-K"), Exhibit 10.3 pages 47-52.
10.4 1980 Stock Incentive Plan, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 10.4, pages 168-172.
10.5 Restated 1981 Incentive Stock Option Plan, incorporated by
reference to the Company's 1987 10-K, Exhibit 10.1.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference
to the Company's 1993 10-K, Exhibit 10.6.
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and
among the Company and Reilrop, B.V. and Guaranteed by Cray
Electronics Holdings PLC, incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, Exhibit 10.8.
27
<PAGE> 28
10.9 Employment Agreement between Joel Girsky and the Company, dated
October 5, 1994, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 10.9.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as
of August 24, 1970 by and between AVX and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Exhibit 10.10.
10.11 Electronics Corporation Distributor Agreement, dated November 15,
1974, by and between Kemet and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, Exhibit 10.11.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP.
27. Financial Data Schedule.
99.1 General Loan and Security Agreement dated January 20, 1989,
between the Company as borrower and The Bank of New York
Commercial Corporation ("BNYCC") as secured party, incorporated
by reference to the Company's Current Report on Form 8-K, filed
January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory,
dated January 20, 1989, between the Company and BNYCC,
incorporated by reference to the Company's Current Report on Form
8-K filed January 31, 1989, Exhibit 28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989,
between the Company and BNYCC, incorporated by reference to the
Company's Current Report on Form 8-K filed January 31, 1989,
Exhibit 28(3).
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the
Company in favor of BNYCC dated January 13, 1992, together with
Letters from R.C. Components, Inc., Quality Components, Inc.,
Micatron, Inc. and Distel, Inc., each a subsidiary of the Company
and a guarantor of the obligations evidenced by the Term Notes,
to BNYCC acknowledging the amendment to the Term Notes for the
extension of the maturity date of each such note, incorporated by
reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between
the Company and BNYCC, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 99.5.
28
<PAGE> 29
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in
favor of BNYCC, dated March 11, 1994, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994, Exhibit 99.6.
99.7 Restated and Amended Loan and Security Agreement, dated April 25,
1995, among the Company, Nexus and BNYCC, together with an
Amendment to Term Loan Note executed by the Company in favor of
BNYCC and Letter executed by R.C. Components, Inc., Quality
Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas,
Inc., incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among the Company, Nexus Custom Electronics,
Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended
Loan and Security Agreement"), incorporated by reference to the
Company's Registration Statement on Form S-2, Commission File No.
33-62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of April 10, 1996.
(b) Reports on Form 8-K filed during last quarter of the period
covered by this Report:
None.
29
<PAGE> 30
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Earnings F-5
Consolidated Statement of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-24
Report of Independent Certified Public Accountants
on Schedule F-25
Schedule II - Valuation and Qualifying Accounts F-26
F-1
<PAGE> 31
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, 1995 and 1996
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,
1996. 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, 1995 and 1996, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended June 30, 1996 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 16, 1996
F-2
<PAGE> 32
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1995 1996
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 393,671 $ 164,161
Marketable securities 493,281
Accounts receivable, less allowance for doubtful
accounts of $610,000 in 1995 and $758,000
in 1996 20,437,664 22,217,130
Inventories 26,653,881 30,089,508
Prepaid expenses and other 1,256,319 739,530
Due from officers 309,808
Deferred income taxes 571,000 708,000
----------- -----------
Total current assets 49,622,343 54,411,610
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 4,106,221 4,226,617
DEFERRED INCOME TAXES 174,000 189,000
EXCESS OF COST OVER NET ASSETS ACQUIRED, less accumulated amortization of
$297,700 in 1995 and $369,200 in 1996 1,353,031 1,241,533
OTHER ASSETS 1,067,643 1,073,969
----------- -----------
$56,323,238 $61,142,729
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 33
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY 1995 1996
----------- -----------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $16,651,774 $15,413,879
Current maturities of long-term debt and
capitalized lease obligations 452,995 474,082
Accrued expenses 1,300,611 1,175,973
Income taxes payable 475,702 383,970
----------- -----------
Total current liabilities 18,881,082 17,447,904
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 23,665,624 8,791,270
DEFERRED COMPENSATION 550,000 600,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares, $10
par value; none issued
Common stock - authorized, 5,000,000 and 10,000,000 shares, respectively,
$.10 par value; issued and outstanding, 2,464,384 and 3,955,721 shares,
respectively 246,438 395,572
Additional paid-in capital 5,013,663 22,024,795
Unrealized gain on marketable securities 68,245
Retained earnings 7,966,431 11,814,943
----------- -----------
13,226,532 34,303,555
----------- -----------
$56,323,238 $61,142,729
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 34
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $105,213,077 $138,683,331 $167,149,385
Cost of goods sold 83,038,254 109,902,639 133,105,227
------------ ------------ ------------
Gross profit 22,174,823 28,780,692 34,044,158
Selling, general and administrative expenses 19,154,802 23,551,196 26,246,741
------------ ------------ ------------
Operating profit 3,020,021 5,229,496 7,797,417
Interest expense 1,117,354 2,010,554 1,347,639
------------ ------------ ------------
Earnings before income taxes and cumulative effect
of a change in accounting for income taxes 1,902,667 3,218,942 6,449,778
Income tax provision 714,000 1,303,000 2,600,000
------------ ------------ ------------
Earnings before cumulative effect of a change
in accounting for income taxes 1,188,667 1,915,942 3,849,778
Cumulative effect of a change in accounting for
income taxes 241,000
------------ ------------ ------------
NET EARNINGS $ 1,429,667 $ 1,915,942 $ 3,849,778
============ ============ ============
Earnings per common share
Earnings per share before cumulative effect of a
change in accounting for income taxes $ .47 $ .78 $ 1.08
Cumulative effect of a change in accounting for
income taxes .09
------------ ------------ ------------
Net earnings per common share $ .56 $ .78 $ 1.08
============ ============ ============
Weighted average common shares and common
equivalent shares outstanding 2,551,173 2,461,091 3,554,018
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 35
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Years ended June 30, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Unrealized
Additional gain on Total
paid-in marketable Retained shareholders'
Shares Amount capital securities earnings equity
--------- -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1993 1,708,637 $170,864 $3,936,613 $5,797,038 $9,904,515
Cancellation of shares in satisfac-
tion of amounts due in connec-
tion 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
Issuance of common stock for
cash 1,485,000 148,500 16,991,466 17,139,966
Exercise of stock options 6,415 642 19,658 20,300
Payment for fractional shares
resulting from 4-for-3 stock
split (78) (8) 8 (1,266) (1,266)
Unrealized gain on marketable
securities $68,245 68,245
Net earnings 3,849,778 3,849,778
--------- -------- ----------- ------- ----------- -----------
BALANCE AT JUNE 30, 1996 3,955,721 $395,572 $22,024,795 $68,245 $11,814,943 $34,303,555
========= ======== =========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 36
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
Cash flows from operating activities
<S> <C> <C> <C>
Net earnings $ 1,429,667 $ 1,915,942 $ 3,849,778
Adjustments to reconcile net earnings to net
cash used in operating activities
Depreciation and amortization 412,704 693,290 719,899
Deferred compensation 50,000 50,000 50,000
Deferred income tax benefit (111,000) (31,000) (158,000)
Loss on sale of equipment 35,006 18,403 8,793
Provision for doubtful accounts 160,000 458,000 761,190
Changes in operating assets and liabilities, net
of effects of acquisition
Increase in accounts receivable (1,807,919) (3,759,741) (2,540,656)
Increase in inventories (1,936,676) (6,572,285) (3,435,627)
Decrease (increase) in prepaid expenses and other (224,965) (184,100) 516,789
(Decrease) increase in accounts payable 2,493,897 3,057,980 (1,237,895)
(Decrease) increase in accrued expenses (234,864) 37,695 (124,638)
(Decrease) increase in income taxes payable (392,514) 328,203 (91,732)
------------- ------------- -------------
Net cash used in operating activities (126,664) (3,987,613) (1,682,099)
------------- ------------- -------------
Cash flows from investing activities
Increase in marketable securities (379,036)
Capital expenditures (875,797) (908,153) (789,635)
Proceeds from the sale of equipment 49,302 20,000 12,047
Purchase of subsidiary, net (1,796,355)
Decrease (increase) in due from officers, net (101,878) (18,689) 309,808
(Increase) decrease in other assets 16,452 (106,956) (6,328)
------------- ------------- -------------
Net cash used in investing activities (2,708,276) (1,013,798) (853,144)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from public offering - net 17,139,966
Borrowings from line of credit 110,434,283 141,391,776 173,061,732
Payments of line of credit (109,501,754) (136,774,193) (179,449,087)
Principal payments under equipment financing (269,613) (434,854) (251,626)
Borrowings (payments) under term loans 1,982,071 669,417 (8,214,286)
Proceeds from exercise of stock option 937 108,500 20,300
Payments for fractional shares (362) (1,266)
------------- ------------- -------------
Net cash provided by financing activities 2,645,924 4,960,284 2,305,733
------------- ------------- -------------
NET DECREASE IN CASH (189,016) (41,127) (229,510)
Cash and cash equivalents at beginning of year 623,814 434,798 393,671
------------- ------------- -------------
Cash and cash equivalents at end of year $ 434,798 $ 393,671 $ 164,161
============= ============= =============
Supplemental cash flow disclosures:
Interest paid $ 1,126,000 $ 1,970,000 $ 1,472,000
Income taxes paid 660,000 993,000 2,882,000
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-7
<PAGE> 37
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of semiconductors, capacitors, resistors,
electromechanical devices, computers and computer subsystems, produced by
others, for the manufacture and assembly of electronic products. 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, 1994,
1995 and 1996, export sales amounted to approximately $5,289,000,
$5,032,000 and $4,963,000, respectively.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Jaco Electronics, Inc. and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions
have been eliminated.
2. Revenue Recognition
The Company recognizes revenue as products are shipped and title passes
to customers.
3. Investments in Marketable Securities
Investments in marketable securities consist of investments in mutual
funds. Such investments have been classified as "available for sale
securities" and are reported at fair market value which is inclusive of
an unrealized gain of approximately $114,245. Changes in the fair value
of "available for sale securities" are classified as a separate
component of shareholders' equity, net of any related deferred tax
effects.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and average cost methods.
F-8
<PAGE> 38
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
provided for using 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.
6. 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.
7. 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 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.
F-9
<PAGE> 39
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. 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 the Company's fiscal 1995 stock dividend
and stock split.
9. Statement of Cash Flows
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
10. Financial Instruments and Business Concentrations
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 mitigated 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.
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Fair Value of Financial Instruments," requires disclosure of the
estimated fair value of an entity's financial instrument assets and
liabilities. The Company's principal financial instrument consists of a
revolving credit facility, expiring on September 13, 1998, with a bank.
The Company believes that the carrying amount of such debt approximates
the fair value as the variable interest rate approximates the current
prevailing interest rate.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. During the year ended June 30,
1996, the Company's top three suppliers accounted for 18%, 11% and 7%,
respectively, of net sales. In June 1995, the Company's then largest
supplier canceled its distributor agreement with the Company. The
Company has
F-10
<PAGE> 40
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been able to replace a major portion of those sales with sales of other
product lines from other suppliers. However, there can be no assurance
that in the event a current supplier cancels its distributor agreement
with the Company, that the Company will be able to replace the related
sales with sales of other product lines.
11. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
12. Accounting Pronouncements Not Yet Adopted
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," is also required to be
implemented in fiscal 1997 and introduces a choice in the method of
accounting used for stock-based compensation. Entities may use the
"intrinsic value" method currently based on APB No. 25 or the new "fair
value" method contained in SFAS No. 123. The Company intends to
implement SFAS No. 123 in 1997 by accounting for stock-based
compensation, if applicable, under APB No. 25. As required by SFAS No.
123, the pro forma effects on net income and earnings per share will be
determined as if the fair value-based method had been applied and
disclosed in the notes to the financial statements.
F-11
<PAGE> 41
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE B - INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Finished goods and goods held for resale $23,374,881 $27,025,508
Work-in-process 718,000 477,000
Raw materials 2,561,000 2,587,000
----------- -----------
$26,653,881 $30,089,508
=========== ===========
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
Useful June 30,
life -------------------------------
in years 1995 1996
---------- ------------ -----------
<S> <C> <C> <C>
Land, building and improvements 10 to 30 $1,389,603 $1,419,126
Machinery and equipment 3 to 8 4,699,761 5,193,265
Transportation equipment 3 to 5 134,997 108,370
Leasehold improvements 5 to 10 687,566 661,479
---------- ----------
6,911,927 7,382,240
---------- ----------
Less accumulated depreciation and amortization
(including $607,851 in 1995 and $688,957
in 1996 of capitalized lease amortization) 2,805,706 3,155,623
---------- ----------
$4,106,221 $4,226,617
========== ==========
</TABLE>
Included in machinery and equipment is computer equipment recorded under
capitalized leases at June 30, 1995 and 1996 for $943,038.
F-12
<PAGE> 42
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE D - INCOME TAXES
The components of the Company's provision for income taxes is as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal
Current $ 505,000 $ 1,063,000 $ 2,176,000
Deferred 111,000 (31,000) (158,000)
----------- ----------- -----------
616,000 1,032,000 2,018,000
State 98,000 271,000 582,000
----------- ----------- -----------
$ 714,000 $ 1,303,000 $ 2,600,000
=========== =========== ===========
</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,
------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Statutory Federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit 5.0 5.6 6.0
Prior period tax adjustments (3.7)
Sales expense for which no tax
benefit arises 2.4 1.7 .1
Other (.2) (.8) .2
------ ------ ------
Effective tax rate 37.5% 40.5% 40.3%
====== ====== ======
</TABLE>
F-13
<PAGE> 43
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE D - INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 409,000 $ 409,000
Allowance for bad debts 222,000 347,000
Inventory valuation 532,000 582,000
Deferred compensation 201,000 219,000
Other deferred assets 30,000 24,000
----------- -----------
1,394,000 1,581,000
Deferred tax liabilities
Depreciation (56,000) (85,000)
Other (47,000) (47,000)
Unrealized gain on marketable securities
available for sale (46,000)
----------- -----------
1,291,000 1,403,000
Valuation allowance (546,000) (506,000)
----------- -----------
Net deferred tax asset $ 745,000 $ 897,000
=========== ===========
</TABLE>
At June 30, 1996, the Company, through an acquisition (see Note I), has
available a Federal net operating loss carryforward of approximately
$1,121,000. 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 1996, $40,000 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.
F-14
<PAGE> 44
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE E - DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Term loans and revolving line of credit (a) $22,787,811 $ 8,186,172
Other term loans (b) 485,646 424,721
Equipment notes (c) 487,189 373,608
Capitalized lease obligations (d) 413,722 314,945
----------- -----------
24,174,368 9,299,446
Less amounts representing interest on capitalized
leases 55,749 34,094
----------- -----------
24,118,619 9,265,352
Less current maturities 452,995 474,082
----------- -----------
$23,665,624 $ 8,791,270
=========== ===========
</TABLE>
(a) Term Loans and Revolving Line of Credit Facility
The Company's agreement with its banks, 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 agreements expiring
September 13, 1998. Borrowings thereunder bear interest at the higher
of the (i) bank's prime rate or the Federal funds rate plus 1/2% or
(ii) at the Company's option, LIBOR plus 2.0% for fixed time periods.
Of the outstanding balance on the revolving line of credit facility,
$7,168,315 at June 30, 1996, $4,168,315 bears interest at the bank's
prime rate (8.25%) and $3,000,000 bears interest at LIBOR plus 2%
(7.63%). Pursuant to the same agreement, at June 30, 1996, a term
loan with a remaining balance of $1,017,857 requires monthly
principal payments of $17,857, together with interest at the bank's
prime rate through September 13, 1998, with a final payment of
$553,600 on September 13, 1998. Borrowings under this facility are
collateralized by substantially all of the assets of the Company. The
agreement contains provisions for maintenance of certain financial
ratios, all of which the Company is in
F-15
<PAGE> 45
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE E - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
compliance with, and prohibits the payment of cash dividends. The
agreement also provides for the issuance of letters of credit by the
Bank on the Company's behalf. At June 30, 1996, $500,000 of such
letters of credit were outstanding.
(b) Other Term Loans
Other term loans as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Monthly
Date of loan Balance Term payment
------------ ------- ---- -------
<S> <C> <C> <C>
March 16, 1995 $ 46,639 60 months $1,160
March 16, 1995 161,195 84 months 2,730
March 16, 1995 216,887 84 months 4,216
---------
$ 424,721
=========
</TABLE>
The above loans are collateralized by the related equipment acquired,
having a carrying value of approximately $464,000 at June 30, 1996
and $413,000 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, 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 the bank's prime rate,
respectively.
(c) Equipment Notes
The equipment notes are payable through September 1999, bearing
implicit interest rates from 7.55% to 9.68%.
(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 October 1999, with implicit
interest rates from 7.07% to 7.55%.
F-16
<PAGE> 46
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE E - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
The following is a summary of the aggregate annual maturities of long-term
debt and capitalized lease obligations as of June 30, 1996:
<TABLE>
<CAPTION>
Long-term Capitalized
debt leases
Year ending June 30,
<S> <C> <C> <C>
1997 $ 392,563 $ 98,984
1998 418,147 99,014
1999 7,953,524 95,588
2000 86,503 21,359
2001 74,141
Thereafter 59,623
---------- --------
$8,984,501 $314,945
========== ========
</TABLE>
NOTE F - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases certain office and warehouse facilities under
noncancellable operating leases. The leases also provide for the
payment of real estate taxes and other operating expenses of the
buildings. The minimum annual lease payments under such leases are as
follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C> <C>
1997 $ 732,869
1998 639,172
1999 604,165
2000 629,791
2001 646,757
Thereafter 1,706,170
----------
$4,958,924
==========
</TABLE>
F-17
<PAGE> 47
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE F - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company leases office and warehouse facilities from a
partnership owned by two officers and directors of the Company. The
lease expires in December 2003 and requires minimum annual lease
payments as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C> <C>
1997 $ 516,600
1998 542,430
1999 569,550
2000 598,000
2001 627,900
Thereafter 1,706,170
----------
$4,560,650
==========
</TABLE>
In addition, the Company is contingently liable as a guarantor of a
mortgage on such property in the amount of approximately $327,000 as of
June 30, 1996. The Company's rent expense was approximately $571,000,
$571,000 and $528,000 for the years ended June 30, 1994, 1995 and 1996,
respectively, in connection with the above lease.
Rent expense on office and warehouse facilities leases for the years
ended June 30, 1994, 1995 and 1996 was approximately $872,000, $909,000
and $846,000, respectively, net of sublease income of approximately
$147,000, $135,000 and $120,000, 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, 1996
are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C> <C>
1997 $ 240,899
1998 176,262
1999 70,095
2000 9,618
---------
$ 496,874
=========
</TABLE>
F-18
<PAGE> 48
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE F - COMMITMENTS AND CONTINGENCIES (CONTINUED)
3. Employment Agreement
Effective July 1, 1993, the Company entered into an employment
agreement with its Chairman expiring July 1, 1997, pursuant to which
the Chairman receives a base annual salary of $325,000. 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, 1995 and 1996, bonuses
of approximately $76,000, $193,000 and $387,000, respectively, were
earned pursuant to the Chairman's employment agreement. Further, the
Chairman had outstanding demand loans at June 30, 1995 aggregating
$309,808 which bore interest at 9-3/4% per annum and were paid in full
in September 1995. The Company's Board of Directors further adopted a
policy of requiring a majority of outside directors to approve any
further loans.
4. Other Matters
The Company is a party to legal matters arising in the general conduct
of business. The ultimate outcome of such matters is not expected to
have a material adverse effect on the Company's results of operations
or financial position.
NOTE 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, 1994, 1995 and 1996, the Company
contributed to this plan approximately $61,000, $90,000 and $104,000,
respectively.
NOTE H - SHAREHOLDERS' EQUITY
On October 20, 1995, the Company completed a public offering of 1,600,000
shares of its common stock at $12.75 per share. The offering consisted of
1,325,000 shares offered by the Company and 275,000 shares offered by
certain officers and directors of the Company. On December 8, 1995, the
underwriters of the public offering exercised a portion of their
overallotment option for an additional 160,000 shares at a price per share
equal to that of the public offering. The Company's net proceeds from the
public offering of $17,139,966, after deducting the underwriters'
commission and costs of
F-19
<PAGE> 49
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE H - SHAREHOLDERS' EQUITY (CONTINUED)
the public offering, were used to reduce its bank indebtedness. In
connection with the public offering, the Company also issued stock
warrants, to the representative underwriters, to purchase up to 70,000
shares of common stock at an exercise price per share equal to 180% of the
public offering price, which expire on October 20, 1999.
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 was distributed on October 3, 1995
to shareholders of record as of 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 were generally exercisable
for a period of five years at a price not less than the market value on the
date of grant. The 1981 Plan terminated in November 1991. Options granted
prior to expiration of the 1981 Plan which, by their terms, do not expire
until after November 1991 remain outstanding in accordance with their terms
until their individual expiration dates. During fiscal 1996, all
outstanding options under the 1981 Plan had been exercised.
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 158,934 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 105,601 options currently available for grant under the
F-20
<PAGE> 50
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE H - SHAREHOLDERS' EQUITY (CONTINUED)
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 41,066 options are
outstanding.
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
<TABLE>
<CAPTION>
Incentive Nonqualified
stock options stock options
----------------------------- ----------------------------
Price range Shares Price range Shares
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
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 July 1, 1995 $1.02 2,750 $ 4.77-5.80 135,300
Granted $11.50-12.75 68,366
Exercised $1.02 (2,750) $ 4.77 (3,666)
------- -------
OUTSTANDING AT JUNE 30, 1996 -- 200,000
======= =======
AMOUNTS EXERCISABLE AT
JUNE 30, 1996 -- 200,000
======= =======
</TABLE>
F-21
<PAGE> 51
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE H - SHAREHOLDERS' EQUITY (CONTINUED)
On April 15, 1996, the Company announced that its Board of Directors has
authorized the purchase of up to 250,000 shares of its common stock or
approximately 6.3% of the then outstanding shares, under a stock repurchase
program. The purchases may be made by the Company from time to time in the
open market at the Company's discretion. Through August 16, 1996, the
Company purchased 37,500 shares of its common stock for aggregate
consideration of $303,750.
NOTE I - SEGMENT INFORMATION
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, $378,650, 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, 1996, net of accumulated amortization of
$103,275. 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-22
<PAGE> 52
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE I - SEGMENT INFORMATION (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.
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Sales
Electronics components distribution $102,493 $126,545 $156,303
Contract manufacturing 2,720 12,138 10,846
-------- -------- --------
$105,213 $138,683 $167,149
======== ======== ========
Operating profit
Electronics components distribution $ 2,991 $ 4,666 $ 7,640
Contract manufacturing 29 563 157
-------- -------- --------
$ 3,020 $ 5,229 $ 7,797
======== ======== ========
Identifiable assets
Electronics components distribution $ 39,545 $ 47,909 $ 53,376
Contract manufacturing 6,140 8,414 7,543
-------- -------- --------
$ 45,685 $ 56,323 $ 60,919
======== ======== ========
Capital expenditures
Electronics components distribution $ 828 $ 342 $ 524
Contract manufacturing 48 566 266
-------- -------- --------
$ 876 $ 908 $ 790
======== ======== ========
Depreciation and amortization
Electronics components distribution $ 329 $ 397 $ 422
Contract manufacturing 84 296 298
-------- -------- --------
$ 413 $ 693 $ 720
======== ======== ========
</TABLE>
F-23
<PAGE> 53
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE J - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL
DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $40,083,485 $43,589,877 $43,176,834 $40,299,189
GROSS PROFIT 8,541,214 8,821,196 8,633,057 8,048,691
NET EARNINGS 807,951 1,079,907 1,112,740 849,180
EARNINGS PER COMMON SHARE
NET EARNINGS PER COMMON
SHARE $ .32 $ .30 $ .28 $ .21
=========== =========== =========== ===========
</TABLE>
<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>
(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-24
<PAGE> 54
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 16,
1996, which is included in this annual report on Form 10-K, we have also audited
Schedule II for each of the three years in the period ended June 30, 1996. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Melville, New York
August 16, 1996
F-25
<PAGE> 55
Jaco Electronics, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ------------------------------ -------- --------
Additions
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts - Deductions - at end of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
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
======== ======== ======== ======== ========
Year ended June 30, 1996 $610,000 $761,000 $153,000 (b) $766,000 (a) $758,000
======== ======== ======== ======== ========
</TABLE>
(a) Represents write-offs of uncollectible accounts.
(b) Recoveries of accounts.
(c) Includes balance attributable to acquired subsidiary.
F-26
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
Date: September 27, 1996 By: /s/ Joel H. Girsky
--------------------------------
Joel H. Girsky, Chairman of the
Board, President and Treasurer
(Principal Executive Officer)
Date: September 27, 1996 By: /s/ Jeffrey D. Gash
--------------------------------
Jeffrey D. Gash, Vice President-
Finance (Principal Financial and
Accounting Officer)
Pursuant to the Requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Date: September 27, 1996 /s/ Stephen A. Cohen
------------------------------------
Stephen A. Cohen, Director
Date: September 27, 1996 /s/ Edward M. Frankel
------------------------------------
Edward M. Frankel, Director
Date: September 27, 1996 /s/ Charles B. Girsky
------------------------------------
Charles B. Girsky, Executive Vice
President and Director
30
<PAGE> 57
EXHIBIT INDEX
Exhibit
No.
- -------
3.1 Restated Certificate of Incorporation adopted November, 1987,
incorporated by reference to the Company's definitive proxy
statement distributed in connection with the Company's annual
meeting of shareholders held in November, 1987, filed with the
SEC on November 3, 1986, as set forth in Appendix A to the
aforesaid proxy statement.
3.1.1 Certificate of Amendment of the Certificate of Incorporation,
adopted December, 1995.
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1987 ("the Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference
to the Company's Registration Statement on Form S-1, Commission
File No. 2-91547, filed June 9, 1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of
Hi-Tech Realty Company), incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30,
1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty
Company (as assignee of Hi-Tech Realty Company), incorporated by
reference to the Company's Registration Statement on Form S-1,
Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2.
10.2.2 Lease Between the Company and Bemar Realty Company, dated January
1, 1996.
10.3 Employment Agreement between Joel 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 ("the
Company's 1990 10-K"), Exhibit 10.3 pages 47-52.
10.4 1980 Stock Incentive Plan, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 10.4, pages 168-172.
10.5 Restated 1981 Incentive Stock Option Plan, incorporated by
reference to the Company's 1987 10-K, Exhibit 10.1.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference
to the Company's 1993 10-K, Exhibit 10.6.
<PAGE> 58
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and
among the Company and Reilrop, B.V. and Guaranteed by Cray
Electronics Holdings PLC, incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, Exhibit 10.8.
10.9 Employment Agreement between Joel Girsky and the Company, dated
October 5, 1994, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 10.9.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as
of August 24, 1970 by and between AVX and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Exhibit 10.10.
10.11 Electronics Corporation Distributor Agreement, dated November 15,
1974, by and between Kemet and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, Exhibit 10.11.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP.
27. Financial Data Schedule.
99.1 General Loan and Security Agreement dated January 20, 1989,
between the Company as borrower and The Bank of New York
Commercial Corporation ("BNYCC") as secured party, incorporated
by reference to the Company's Current Report on Form 8-K, filed
January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory,
dated January 20, 1989, between the Company and BNYCC,
incorporated by reference to the Company's Current Report on Form
8-K filed January 31, 1989, Exhibit 28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989,
between the Company and BNYCC, incorporated by reference to the
Company's Current Report on Form 8-K filed January 31, 1989,
Exhibit 28(3).
<PAGE> 59
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the
Company in favor of BNYCC dated January 13, 1992, together with
Letters from R.C. Components, Inc., Quality Components, Inc.,
Micatron, Inc. and Distel, Inc., each a subsidiary of the Company
and a guarantor of the obligations evidenced by the Term Notes,
to BNYCC acknowledging the amendment to the Term Notes for the
extension of the maturity date of each such note, incorporated by
reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between
the Company and BNYCC, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in
favor of BNYCC, dated March 11, 1994, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994, Exhibit 99.6.
99.7 Restated and Amended Loan and Security Agreement, dated April 25,
1995, among the Company, Nexus and BNYCC, together with an
Amendment to Term Loan Note executed by the Company in favor of
BNYCC and Letter executed by R.C. Components, Inc., Quality
Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas,
Inc., incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among the Company, Nexus Custom Electronics,
Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended
Loan and Security Agreement"), incorporated by reference to the
Company's Registration Statement on Form S-2, Commission File No.
33-62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of April 10, 1996.
<PAGE> 1
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
JACO ELECTRONICS, INC.
Under Section 805 of
the Business Corporation Law
of the State of New York
---------------------------------
The undersigned, for purposes of amending the Certificate of
Incorporation of Jaco Electronics, Inc., a corporation organized under the
Business Corporation Law of the State of New York, does hereby certify that:
1. The name of the corporation is:
JACO ELECTRONICS, INC.
2. The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of New York was July 7, 1961. The date
of filing of its Restated Certificate of Incorporation with the Secretary of
the State of New York was December 3, 1987.
3. Article FIFTH of the Certificate of Incorporation is hereby amended
to increase the aggregate number of shares of common stock which the
corporation shall authority to issue from 5,000,000 to 10,000,000, and
substituted in its entirety so that it shall now read:
"FIFTH: The aggregate number of shares which the Corporation shall have
authority to issue is 10,100,000 shares, of which 10,000,000 shares shall
be common shares, ten cents ($.10) par value, and 100,000 of which shall be
preferred shares, Ten Dollars ($10.00) par value, which may be issued in
series, and shall have such relative rights, preferences and limitations as
the Board of Directors shall determine upon issuance of such preferred
shares."
4. The Amendment made hereby has been authorized by Resolution of the
Corporation's Board of Directors at a meeting held on September 29, 1995. The
Amendment made hereby has been
1
<PAGE> 2
duly approved and adopted by the shareholders at an annual meeting on December
11, 1995.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of its Certificate of Incorporation to be duly adopted in accordance
with Section 803 of the Business Corporation Law of the State of New York, and
has caused this Certificate of Amendment of its Certificate of Incorporation to
be signed by its President this 27th day of December, 1995.
JACO ELECTRONICS, INC.
By: /s/ Jeffrey D. Gash
-------------------------------
Its: Jeffrey D. Gash/Vice President
By: /s/ Joel Girsky
-------------------------------
Its: Joel Girsky, CEO/President
VERIFICATION
STATE OF NEW YORK )
) ss.:
COUNTY OF SUFFOLK )
I, Adelaide Rodler, a notary public do hereby certify that on the 4 day
of Jan., 1996, Jeffrey D. Gash and Joel Girsky personally appeared before me
and being first duly sworn by me acknowledged that each signed as his free act
and deed the foregoing document in the capacity therein set forth and declared
that the statements therein contained are true to their best knowledge and
belief.
IN WITNESS WHEREOF, I hereunto set my hand and seal the day and year
above written.
/s/ Adelaide Rodler
-------------------
Notary Public
Notarial Seal
My commission expires: 5/31/96 [SEAL]
2
<PAGE> 1
EXHIBIT 10.2.2
-------------------------------------------------
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
-------------------------------------------------
AGREEMENT OF LEASE, made as of this first (1st) day of January 1996, between
BEMAR REALTY CO., a New York general partnership, having an office at
145 Oser Avenue, Hauppauge, New York 11788
party of the first part, hereinafter referred to as OWNER, and
JACO ELECTRONICS, INC., a New York corporation, having an office at 145
Oser Avenue, Hauppauge, New York 11788
party of the second part, hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the building known as 145 Oser Avenue (the "Premises") Hauppauge, New
York, for the term of eight (8) years (or until such term shall sooner cease and
expire as hereinafter provided) to commence on the 1st day of January nineteen
hundred and ninety-six, and to end on the 31st day of December two thousand and
four both dates inclusive, at an annual rental rate of Five Hundred Four
Thousand ($504,000), subject to increases in accordance with Article 37. which
Tenant agrees to pay in lawful money of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, in equal monthly installments in advance on the first day of each month
during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
hereby convenant as follows:
RENT OCCUPANCY
1. Tenant shall pay the rent as above and as hereinafter
provided.
2. Tenant shall use and occupy demised premises for warehouse
and office and for no other purpose.
TENANT ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant at Tenant's
expense, may make alterations, installations, additions or improvements which
are non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
obtain all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals
and certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the demised premises, or the building of which
the same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this article, the same
shall be discharged by Tenant within thirty days thereafter, at Tenant's
expense, by filing the bond required by law. All fixtures and all paneling,
partitions, railings and like installations, installed in the premises at any
time, either by Tenant or by Owner in Tenant's behalf, shall, upon
installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no
later than twenty days prior to the date fixed as the termination of this
lease, elects to relinquish Owner's right thereto and to have them removed by
Tenant, in which event the same shall be removed from the premises by Tenant
prior to the expiration of the lease, at Tenant's expense. Nothing in this
Article shall be construed to give Owner title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Owner, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed, by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed abandoned
and may, at the election of Owner, either be retained as Owner's property or
may be removed from the premises by Owner, at Tenant's expense.
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this lease, take good care of
the demised premises and the fixtures and appurtenances therein. Tenant shall
be responsible for all damage or injury to the demised premises or any other
part of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or which arise out of any work, labor,
service or equipment done for or supplied to Tenant or any subtenant or
arising out of the installation, use or operation of the property or equipment
of Tenant or any subtenant or for any other reason. Tenant shall also repair
all damage to the building and the demised premises caused by the moving of
Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at
Tenant's expense, all repairs in and to the demised premises for which Tenant
is responsible, using only the contractor for the trade or trades in question,
selected from a list of at least two contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems thereof
for which Tenant is responsible shall be performed by Tenant at the Tenant's
expense. Tenant shall maintain in good working order and repair the exterior
and the structural portions of the building, including the structural portions
of its demised premises, and the public portions of the building interior and
the building plumbing, electrical, heating and ventilating systems (to the
extent such systems presently exist) serving the demised premises. There shall
be no allowance to Tenant for diminution of rental value and no liability on
the part of Owner by reason of inconvenience, annoyance or injury to business
arising from repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. It is specifically agreed that Tenant shall
not be entitled to any setoff or reduction of rent by reason of any failure of
Owner to comply with the covenants of this or any other article of this Lease.
Tenant agrees that Tenant's sole remedy at law in such instance will be by way
of an action for damages for breach of contract. The provisions of this Article
4 shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board of
Fire Underwriters, Insurance Services Office, or any similar body which shall
impose any violation, order or duty upon Owner or Tenant with respect to the
demised premises, whether or not arising out of Tenant's use or manner of use
thereof, (including Tenant's permitted use) or, with respect to the building
whether or not arising out of Tenant's
<PAGE> 2
use or manner of use of the premises or the building (including the use
permitted under the lease) including structural and non-structural repairs.
Tenant may, after securing Owner to Owner's satisfaction against all damages,
interest, penalties and expenses, including, but not limited to, reasonable
attorney's fees, by cash deposit or by surety bond in an amount and in a
company satisfactory to Owner, contest and appeal any such laws, ordinances,
orders, rules, regulations or requirements provided same is done with all
reasonable promptness and provided such appeal shall not subject Owner to
prosecution for a criminal offense or constitute a default under any lease or
mortgage under which owner may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Tenant shall not do or permit any
act or thing to be done in or to the demised premises which is contrary to law,
or which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner with
respect to the demised premises or the building of which the demised premises
form a part, or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization
or other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the insurance
rate for the building or any property located therein over that in effect prior
to the commencement of Tenant's occupancy. Tenant shall pay all costs,
expenses, fines, penalties, or damages, which may be imposed upon Owner by
reason of Tenant's failure to comply with the provisions of this article and
if by reason of such failure the fire insurance rate shall, at the beginning
of this lease or at any time thereafter, be higher than it otherwise would be,
then Tenant shall reimburse owner, as additional rent hereunder, for that
portion of all fire insurance premiums thereafter paid by Owner which shall
have been charged because of such failure by Tenant. In any action or
proceeding wherein Owner and Tenant are parties, a schedule or "make-up" of
rate for the building or demised premises issued by the New York Fire Insurance
Exchange, or other body making fire insurance rates applicable to said premises
shall be conclusive evidence of the facts therein stated and of the several
items and charges in the fire insurance rates then applicable to said premises.
Tenant shall not place a load upon any floor of the demised premises exceeding
the floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position
of all safes, business machines and mechanical equipment. Such installations
shall be placed and maintained by Tenant, at Tenant's expense, in settings
sufficient, in Owner's judgement, to absorb and prevent vibration, noise and
annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any
such underlying leases and mortgages. This clause shall be self-operative and
no further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificates that Owner may
request.
PROPERTY -- LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property
of Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury
or damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi public work. If at
any time any windows of the demised premises are temporarily closed, darkened
or bricked up (or permanently closed, darkened or bricked up, if required by
law) for any reason whatsoever including, but not limited to Owner's own acts,
Owner shall not be liable for any damage Tenant may sustain thereby and Tenant
shall not be entitled to any compensation therefor nor abatement or diminution
of rent nor shall the same release Tenant from its obligations hereunder nor
constitute an eviction. Tenant shall indemnify and save harmless Owner against
and from all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Owner shall not be reimbursed by insurance, including
reasonable attorneys fees, paid, suffered or incurred as a result of any breach
by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of
any covenant or condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant, Tenant's agents, contractors, employees,
invitees or licensees. Tenant's liability under this lease extends to the acts
and omissions of any sub-tenant, and any agent, contractor, employee, invitee
or licensee of any sub-tenant. In case any action or proceeding is brought
against Owner by reason of any such claim, Tenant, upon written notice from
Owner, will, at Tenant's expense, resist or defend such action or proceeding by
counsel approved by Owner in writing, such approval not to be unreasonably
withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered partially
unusable by fire or other casualty, the damages thereto shall be repaired by
and at the expense of Owner and the rent, until such repair shall be
substantially completed, shall be apportioned from the day following the
casualty according to the part of the premises which is usable. (c) If the
demised premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the rent shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner, subject to Owner's right to elect not
to restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged
in whole or in part) if the building shall be so damaged that Owner shall
decide to demolish it or to rebuild it, then, in any of such events, Owner may
elect to terminate this lease by written notice to Tenant, given within 90 days
after such fire or casualty, specifying a date for the expiration of the lease,
which date shall not be more than 60 days after the giving of such notice, and
upon the date specified in such notice the term of this lease shall expire as
fully and completely as if such date were the date set forth above for the
termination of this lease and Tenant shall forthwith quit, surrender and vacate
the premises without prejudice however, to Landlord's rights and remedies
against Tenant under the lease provisions in effect prior to such termination,
and any rent owning shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due
to adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for
Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from
liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery against the
other or any one claiming through or under each of them by way of subrogation
or otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefitting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired
or condemned by Eminent Domain for any public or quasi public use or purpose,
then and in that event, the term of this lease shall cease and terminate from
the date of title vesting in such proceeding and Tenant shall have no claim for
the value of any unexpired term of said lease and assigns to Owner, Tenant's
entire interest in any such award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Owner in each instance.
Transfer of the majority of the stock of a corporate Tenant shall be deemed
an assignment. If this lease be assigned, or if the demised premises or any
part thereof be underlet or occupied by anybody other than Tenant, Owner may,
after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but
no such assignment, underletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, under-tenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. The consent by Owner
to an assignment or underletting shall not in any wise be construed to relieve
Tenant from obtaining the express consent in writing of Owner to any further
assignment or underletting.
ELECTRIC CURRENT:*
12. Rates and conditions in respect to submetering or rent inclusion,
as the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time
of the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, to examine the same and to make such repairs,
replacements, and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Owner may elect to perform. Tenant shall permit Owner to use and
maintain and replace pipes and conduits in and through the demised premises and
to erect new pipes and conduits therein provided they are concealed within the
walls, floor, or ceiling. Owner may, during the progress of any work in the
demised premises, take all necessary materials and equipment into said
premises without the same constituting an eviction nor shall the Tenant be
entitled to any abatement of rent while such work is in progress nor to any
damages by reason of loss or interruption of business or otherwise. Throughout
the term hereof Owner shall have the right to enter the demised premises at
reasonable hours for the purpose of showing the
- ------------------
* Rider to be added if necessary.
<PAGE> 3
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the
premises, Owner or Owner's agents may enter the same whenever such entry may be
necessary or permissible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render Owner
or its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by
any federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge
of municipal authorities for such vault or area shall be paid by Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the sending of a
written notice to Tenant within a reasonable time after the happening of any
one or more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any state naming Tenant as the debtor; or (2)
the making by Tenants of an assignment or any other arrangement for the benefit
of creditors under any state statute. Neither Tenant nor any person claiming
through or under Tenant, or be reason of any statute or order of court, shall
thereafter be entitled to possession of the premises demised but shall
forthwith quit and surrender the premises. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be
applicable only to the party then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages are to be proved,
whether or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or
if the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant;
or if this lease be rejected under Section 235 of Title 11 of the U.S. Code
(bankruptcy code); or if Tenant shall fail to move into or take possession of
the premises within fifteen (15) days after the commencement of the term of
this lease, then, in any one or more of such events, upon Owner serving a
written five (5) days notice upon Tenant specifying the nature of said default
and upon the expiration of said five (5) days, if Tenant shall have failed to
comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within said five (5) days period, and if Tenant shall not have
diligently commenced curing such default within such five (5) day period, and
shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such three (3) day period were
the day herein definitely fixed for the end and expiration of this lease and
the term thereof and Tenant shall then quit and surrender the demised premises
to Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease, Owner may cancel and
terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charge a higher rental than that in this lease, and/or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's
covenants herein contained, any deficiency between the rent hereby reserved
and/or covenanted to be paid and the net amount, if any, of the rents collected
on account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses
as Owner may incur in connection with re-letting, such as legal expenses,
attorneys' fees, brokerage, advertising and for keeping the demised premises in
good order or for preparing the same for re-letting. Any such liquidated
damages shall be paid in monthly installments by Tenant on the rent day
specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Owner shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention
in this lease of any particular remedy, shall not preclude Owner from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the event of Owner
obtaining possession of demised premises, by reason of the violation by Tenant
of any of the covenants and conditions of this lease, or otherwise.
FEES AND EXPENSES
19. If Tenant shall default in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease , then,
unless otherwise provided elsewhere in this lease, Owner may immediately or at
any time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to attorney's fees, in instituting, prosecuting or defending any
action or proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred
by reason of Tenant's default shall be deemed to be additional rent hereunder
and shall be paid by Tenant to Owner within five (5) days of rendition of any
bill or statement to Tenant therefor. If Tenant's lease term shall have expired
at the time of making of such expenditures or incurring of such obligations,
such sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same
constituting an eviction and without incurring liability to Tenant therefor to
change the arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public parts of the
building and to change the name, number of designation by which the building
may be known. There shall be no allowance to Tenant for diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making any
repairs in the building or any such alterations, additions and improvements.
Furthermore, Tenant shall not have any claim against Owner by reason of Owner's
imposition of such controls of the manner of access to the building by Tenant's
social or business visitors as the Owner may deem necessary for the security of
the building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which
<PAGE> 4
it is erected or the demised premises, the rents, leases, expenses of operation
or any other matter or thing affecting or related to the premises except as
herein expressly set forth and no rights, easements or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease.
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this Lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
31 hereof and to the ground leases underlying, leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24.
NO WAIVER:
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. No act or thing done by Owner or Owner's
agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary proceeding for
possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including, but not limited to, government
preemption in connection with a National Emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill, statement,
notice or communication which Owner may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered if, in writing, delivered to
Tenant personally or sent by registered or certified mail addressed to Tenant at
the building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
SERVICES PROVIDED BY OWNERS
29. *
CAPTIONS:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
DEFINITIONS:
31. The term "office", or "offices", wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 29
hereof), Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
- ----------
* Rider to be added if necessary.
<PAGE> 5
ADJACENT EXCAVATION -- SHORING:
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as Owner
or Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
SECURITY
34. Tenant has deposited with Owner the sum of $*__________ as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults
in respect of any of the terms, provisions and conditions of this lease,
including, but not limited to, the payment of rent and additional rent, Owner
may use, apply or retain the whole or any part of the security so deposited to
the extent required for the payment of any rent and additional rent or any
other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Owner and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns.
- ----------------------------------
*Space to be filled in or deleted.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: BEMAR REALTY COMPANY
By: /s/ Joel Girsky
- ---------------------------------- --------------------------------
Witness for Tenant: JACO ELECTRONICS, INC.
By: /s/ Jeffrey D. Gash V.P.
- ---------------------------------- ---------------------------------
ACKNOWLEDGEMENTS
CORPORATE OWNER CORPORATE TENANT
STATE OF NEW YORK, ss.: STATE OF NEW YORK, ss.:
County of County of
On this ___ day of __________, On this ___ day of ___________,
19___, before me personally came 19___, before me personally came
_________________________________ ___________________________________
to me known, who being by me duly to me known, who being by me duly
sworn, did depose and say that he sworn, did depose and say that he
resides in _______________________ resides in _______________________
_________________________________: _________________________________:
that he is the ________________ of that he is the ________________ of
______________________________ the ______________________________ the
corporation described in and which corporation described in and which
executed the foregoing instrument, executed the foregoing instrument,
as OWNER: that he knows the seal as TENANT: that he knows the seal
of said corporation; that the seal of said corporation; that the seal
affixed to said instrument is such affixed to said instrument is such
corporate seal; that it was so corporate seal; that it was so
affixed by order of the Board of affixed by order of the Board of
Directors of said corporation, and Directors of said corporation, and
that he signed his name thereto by that he signed his name thereto by
like order. like order.
.................................. ...................................
INDIVIDUAL OWNER INDIVIDUAL TENANT
STATE OF NEW YORK, ss.: STATE OF NEW YORK, ss.:
County of County of
On this ___ day of __________, On this ___ day of ______________,
19___, before me personally came 19___, before me personally came
__________________________________ __________________________________
to me known and known to me to be to me known and known to me to be
the individual ___________________ the individual ___________________
described in and who, as OWNER, described in and who, as TENANT,
executed the foregoing instrument executed the foregoing instrument
and acknowledged to me that and acknowledged to me that
__________________________________ ___________________________________
he executed the same. he executed the same.
.................................. ...................................
<PAGE> 6
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
Owner making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or
non-observance, or proof, or notice, or demand, whereby to charge the
undersigned therefor, all of which the undersigned hereby expressly waives and
expressly agrees that the validity of this agreement and the obligations of the
guarantor hereunder shall in no wise be terminated, affected or impaired by
reason of the assertion by Owner against Tenant of any of the rights or
remedies reserved to Owner pursuant to the provisions of the within lease. The
undersigned further covenants and agrees that this guaranty shall remain and
continue in full force and effect as to any renewal, modification or extension
of this lease and during any period when Tenant is occupying the premises as a
"statutory tenant." As a further inducement to Owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action or proceeding brought by either Owner or the undersigned against the
other on any matters whatsoever arising out of, under, or by virtue of the terms
of this lease or of this guarantee that Owner and the undersigned shall and do
hereby waive trial by jury.
Dated:______________________________ 19______
_____________________________________________
Guarantor
_____________________________________________
Witness
_____________________________________________
Guarantor's Residence
_____________________________________________
Business Address
_____________________________________________
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this ______ day of _____________________________, 19___, before me
personally came _______________________ to me known and known to me to be the
individual described in, and who executed the foregoing Guaranty and
acknowledged to me that he executed the same.
_______________________________________________
Notary
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from
the demised premises and for delivery of merchandise and equipment in a
prompt and efficient manner using elevators and passageways designated for such
delivery by Owner. There shall not be used in any space, or in the public hall
of the building, either by any Tenant or by jobbers or others in the delivery
or receipt of merchandise, any hand trucks, except those equipped with rubber
tires and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window
of the building; and no Tenant shall sweep or throw or permit to be swept or
thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if
the same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Owner may remove same without any liability, and may charge the expense
incurred by such removal to Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly
prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between the hours of
6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all persons
who do not present a pass to the building signed by Owner. Owner will furnish
passes to persons for whom any Tenant requests same in writing. Each Tenant
shall be responsible for all persons for whom he requests such pass and shall
be liable to Owner for all acts of such persons.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by the Owner with respect to such services. If Tenant
requires air conditioning or ventilation after the usual hours, Tenant shall
give notice in writing to the building superintendent prior to 3:00 P.M. in the
case of services required on week days, and prior to 3:00 P.M. on the day prior
in the case of after hours service required on weekends or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
Address
Premises
==========================================
to
==========================================
STANDARD FORM OF
[SEAL] OFFICE [SEAL]
LEASE
The Real Estate Board of New York, Inc.
(c)Copyright 1983. All rights Reserved.
Reproduction in whole or in part prohibited.
===========================================
Dated 19
Rent per Year
Rent per Month
Term
From
To
Drawn by ___________ Checked by ____________
Entered by _________ Approved by ___________
============================================
<PAGE> 7
RIDER TO LEASE BETWEEN
BEMAR REALTY COMPANY, AS LANDLORD
AND JACO ELECTRONICS, AS INC. TENANT
37. The annual rate at which rent ("Base Rent") shall be paid shall be
adjusted as of the times and in the manner set forth herein. Base Rent
shall be payable in equal monthly installments in advance, due on the
first day of each calendar month at the address of Landlord.
(A) For the purposes of this Section, the following definitions shall
apply:
(i) The term "Initial Base Rent" shall mean: Five Hundred Four
Thousand Dollars ($504,000) per annum. The parties confirm
that for purposes of this Lease, the agreed square footage of
the Building is 72,000 square feet and the Initial Base Rent
has been calculated on the basis thereof.
(ii) The term "CPI" shall mean: "the Consumer Price Index for
Urban Wage Earners and Clerical Workers (1982-4=100) issued
monthly by the Bureau of Labor Statistics of the United States
Department of Labor for New York, NY--Northeastern NJ
(1982-4=100)" or any successor index appropriately adjusted.
(iii) The term "Current CPI" shall mean: the CPI for the month
of December of the year immediately preceding the year for
which the Base Rent is being determined. By way of example, if
the Base Rent is being determined for 1997, the Current CPI
would be the CPI for December, 1996.
(iv) The term "Base CPI" shall mean: the CPI published for the
month of December of the year which precedes by two years, the
year for which the Base Rent is being determined. By way of
example, if the Base Rent is being determined for 1997, the
Base CPI would be the CPI for December, 1995.
(v) The term "Minimum Annual Escalation" shall mean: five (5%)
percent.
(vi) The term "CPI Change" shall mean a fraction, the
numerator of which is the Current CPI for December of the year
immediately preceding the year for which the Base Rent is
being determined and the denominator of which is the Base CPI
for December of the year which precedes by two years, the year
for which the Base Rent is being determined. By way of
example, if the Base Rent is being determined for 1997, the
CPI Change would be:
December, 1996 CPI
------------------
December, 1995 CPI
(B) It is the intention of the parties that during each calendar year
after the first calendar year, the Base Rent shall increase over the
prior year Base Rent by the greater of five percent (5%) or the change
in the CPI during the preceding year and that the
<PAGE> 8
amount of Base Rent so determined for any calendar year shall be used
in determining the amount of increase to Base Rent for the next
following calendar year. Accordingly, (i) during the first calendar
year included within the Term, the Base Rent shall be equal to the
Initial Base Rent, and (ii) during each subsequent calendar year
included within the Term, the Base Rent shall be equal to the Base Rent
for the immediately preceding year, multiplied by the greater of (a)
the Minimum Annual Escalation or (b) the CPI Change.
(C) In the event that the CPI ceases to be used or if a substantial
change is made in the terms or number of items contained in the CPI,
the CPI shall be adjusted to the figure that would have been arrived at
had the manner of computing the CPI in effect on the Commencement Date
not been changed. In the event the CPI (or successor or substitute
index) is not available, a reliable governmental or other non-partisan
publication evaluating the information theretofore used in determining
the CPI shall be used.
(D) On the first day of January during each calendar year during the
term year hereof beginning January 1, 1997, the Base Rent shall
automatically be preliminarily increased by the Minimum Annual
Escalation above the amount of the Base Rent for the immediately
preceding year and when the Current CPI is published, the actual Base
Rent shall be determined. If such determination results in a higher
Base Rent than such preliminarily established Base Rent, then Tenant
shall, within fifteen (15) days of notice from Landlord, pay to
Landlord the difference in Base Rent for the number of months then
elapsed, whereupon the Base Rent as so established shall be applicable
for the balance of such calendar year.
38. ANYTHING HEREIN CONTAINED TO THE CONTRARY NOTWITHSTANDING, TENANT
ACKNOWLEDGES AND AGREES THAT IT IS INTENDED THAT THIS IS A TRIPLE NET
LEASE THAT IS COMPLETELY CAREFREE TO THE LANDLORD, EXCEPT AS EXPRESSLY
SET OUT IN THIS LEASE; THAT THE LANDLORD IS NOT RESPONSIBLE DURING THE
TERM FOR SUPPLYING ANY SERVICES, MAKING ANY STRUCTURAL OR
NON-STRUCTURAL REPAIRS OR FOR ANY COSTS, CHARGES, EXPENSES OR OUTLAYS
OF ANY NATURE WHATSOEVER ARISING FROM OR RELATING TO THE DEMISED
PREMISES, OR THE USE AND OCCUPANCY THEREOF, OR THE CONTENTS THEREOF, OR
THE BUSINESS CARRIED ON THEREIN; AND TENANT SHALL PAY ALL CHARGES,
EXPENSES, COSTS, AND OUTLAYS OF EVERY NATURE AND KIND RELATING TO THE
DEMISED PREMISES, EXCEPT AS EXPRESSLY SET OUT IN THIS LEASE.
39. (A) Tenant shall at its sole cost and expense procure, maintain and pay
the premiums for liability insurance coverage naming as an insured
Landlord, insuring and saving harmless the Landlord from all
liabilities arising from any injury, or death, or damages sustained by
any person(s), or the property of any person, firm, corporation, or
entity
2
<PAGE> 9
by reason of any use of the Premises, which insurance shall be carried
by companies of adequate financial responsibility and licensed to do
business in the State of New York, and shall be in such form that the
limit of liability thereunder, for all injury, death and damage, in the
case of injury and damage to any person in one accident shall be
$5,000,000.00 and the limit of liability in case of injury to property
or property damage, direct or consequential, shall be $1,000,000.00.
Tenant agrees to deliver to Landlord, within five (5) days after the
commencement of this lease, certificates evidencing the existence of
the insurance referred to above, together with proof of payment of the
premiums therefor, and to deliver renewal certificates from time to
time during the term as renewals shall occur.
(B) Tenant shall not do or permit any act or thing to be done in or to
the Premises which is contrary to law, or which will invalidate or be
in conflict with public liability, fire or other policies of insurance
at any time carried by or for the benefit of Landlord, or which shall
or might subject Landlord to any liability or responsibility to any
person or for property damage. Tenant shall not keep anything on or in
the Premises, except as now or hereafter permitted by the Fire
Department, Board of Fire Underwriters, Fire Insurance Rating
Organization or other authority having jurisdiction. Tenant shall pay
all costs, expenses, fines, penalties, or damages which may be imposed
upon Landlord by reason of Tenant's failure to comply with the
provisions of this Article.
40. Tenant shall purchase its utilities, including electricity, directly
from the utility company supplying the same.
41. Tenant represents that all activities undertaken on or about the
Premises, by Tenant, any subtenant, assignee, licensee, occupant or
user of the Premises shall not violate any applicable federal, state or
local statutes, rules or regulations (whether now existing or hereafter
enacted or promulgated) or any judicial or administrative
interpretation thereof, including any judicial or administrative orders
or judgments (hereinafter collectively referred to as "statutes, rules
or regulations"), governing the use, storage, transportation and
disposal of any hazardous substances, including petroleum, petroleum
products and other petrochemicals, asbestos, polychlorinated biphenyls,
or any other hazardous or toxic materials or waste. The provisions of
this Article shall survive the expiration or sooner termination of this
Lease.
42. Tenant shall carry replacement value hazard insurance on the Premises
at its sole cost and expense. To the extent Tenant and Landlord carry
hazard insurance on the Premises or on the property therein, whether or
not required hereby, each such policy of insurance shall contain a
provision waiving subrogation against Landlord or Tenant as the case
may be. Tenant hereby releases Landlord from any liability which
Landlord may have for damage by fire or other casualty with respect to
which Tenant shall be insured under a policy of insurance containing
such provision waiving subrogation. Landlord hereby releases Tenant
from any liability which Tenant may have for damage by fire or other
3
<PAGE> 10
casualty with respect to which Landlord shall be insured under a policy
of insurance containing such provision waiving subrogation.
43. Tenant shall not sublet the Premises nor any portion thereof, nor shall
this Lease be assigned by Tenant without the prior written consent of
Landlord, in each instance, which Landlord shall not reasonably
withhold. Notwithstanding the foregoing, without releasing Tenant from
its obligations herein, Tenant may assign or sublet the premises to
corporations which are wholly-owned subsidiaries of Tenant.
44. In no event shall Tenant be entitled to make, nor shall Tenant make,
any claim, and Tenant hereby waives any claim for money damages (nor
shall Tenant claim any money damages by way of set-off, counterclaim or
defense) based upon any claim or assertion by Tenant that Landlord has
unreasonably withheld or unreasonably delayed its consent or approval.
Tenant's sole remedy shall be an action or proceeding to enforce any
such provision, or for specific performance, injunction or declaratory
judgment.
45. (A) All notices by either party to the other shall be given by
certified mail, return receipt requested. If intended for the Landlord,
the same shall be mailed to the Landlord at its address set forth above
on page one of this lease or such other address as the Landlord shall
designate in writing. If intended for the Tenant, the same shall be
mailed to Tenant at its address set forth above on page one of this
lease or such other address as Tenant shall designate in writing.
(B) Service of notice by any party to this lease to any other party
shall be sufficient if forwarded by certified mail, return receipt
requested, to the address of such other party as set forth above, or as
hereafter changed by a notice, forwarded in accordance with the terms
of this paragraph, by the party desiring to change the address to which
notices directed to such party shall be addressed. Service by overnight
delivery by Federal Express, shall be equivalent to service by
certified mail under the terms of this paragraph provided that a signed
receipt for delivery or a record of the name of the individual
receiving delivery and the date of delivery is obtained.
46. Tenant may, at its own cost and expense, make such temporary
modifications or alterations to the Premises as shall be required or
necessary for the operation of Tenant's business (including the
installation of temporary partitions) with Landlord's prior written
consent, which consent shall not be unreasonably withheld, provided
that no such modification or alteration shall result in any structural
or permanent change to the Building, provided, further, that such
partitions or alterations shall be removed at the end of the term of
this Lease. Tenant shall hold Landlord harmless from any liability,
charge or expense, including attorney fees and disbursements, resulting
from any such modification or alteration.
47. Tenant shall make all repairs to the Premises, including structural and
non-structural, interior and exterior repairs throughout the term of
this Lease.
4
<PAGE> 11
48. (A) Tenant, upon the expiration or earlier termination of this lease,
shall peaceably and quietly surrender the Premises broom clean, free of
debris, in good order, repair and condition, reasonable wear and tear
excepted, and shall repair all damage to the Premises caused by or
resulting from the removal of any removable property of Tenant or any
subtenant. Any removable property of Tenant or any subtenant which
shall remain in the Premises after the expiration of the term of this
lease or the sooner termination thereof and the removal of Tenant from
the Premises may, at the option of Landlord, be deemed to have been
abandoned, and either may be retained by Landlord as its property or
may be disposed in such manner as Landlord may see fit, without
liability of Landlord. If such personal property or any part thereof
shall be sold, Landlord may receive and retain the proceeds of such
sale and apply the same, at its option, against the expense of the
sale, the cost of moving and storage, any arrears of rent or additional
rent payable hereunder and any damages to which Landlord may be
entitled hereunder or pursuant to law.
(B) Tenant will save Landlord harmless against all liability or expense
(including attorneys' fees and disbursements) resulting from delay in
surrendering the Premises, including any claims made by any succeeding
tenant. Landlord and Tenant agree that the damage to Landlord resulting
from any failure by Tenant timely to surrender the Premises will be
substantial, will exceed the amount of monthly rent previously payable
under this lease, and will be impossible of accurate measurement.
Tenant, therefore, agrees that if possession of the Premises is not
timely surrendered to Landlord, then Tenant will pay Landlord, at
Landlord's option, as liquidated damages for each month and for each
portion of any month during which Tenant holds over in the Premises, a
sum equal to 125% of the rent and additional rent which was payable for
the last month of the term of this lease.
49. If Tenant shall fail to fully comply with any of its obligations under
this lease, Landlord, without thereby waiving such default and without
liability to Tenant, may, but shall not be obligated to, perform the
same for the account and at the expense of Tenant without notice in
case of emergency and upon thirty (30) days prior notice in all other
cases. Landlord may enter the Premises at any time to cure any default.
Bills for all costs and expenses incurred by Landlord in connection
with any such performance (including, without limitation, bills for any
property, material, labor or services provided, furnished or rendered,
and attorneys' fees and disbursements) shall be paid by Tenant as
additional rent within thirty (30) days of demand.
50. In the event any payment of rent and/or additional rent required to be
made hereunder shall not be made within ten (10) days after due under
the provisions of this lease, Tenant shall pay to Landlord monthly, on
the first day of each and every month, a sum equal to two (2) cents for
each and every dollar of rent and/or additional rent which continues to
be so overdue. It is expressly acknowledged and agreed that nothing
herein contained shall be deemed or construed as permitting or allowing
Tenant to make any payment of rent and/or additional rent at a time
other than when same shall be required
5
<PAGE> 12
to be paid pursuant to the provisions of this lease. The acceptance of
the late charge referred to in this Article shall not in any manner
preclude Landlord from enforcing any of its rights contained elsewhere
in this lease.
51. Tenant agrees that the liability of Landlord under this lease and all
matters pertaining to or arising out of the tenancy and the use and
occupancy of the Premises shall be limited to Landlord's interest in
the Premises, and in no event shall Tenant make any claim against or
seek to impose any personal liability upon any individual, general or
limited partner of any partnership, or principal of any firm, company
or corporation that may now be or hereafter become the Landlord.
52. In the event of any conflict or inconsistency between the provisions of
this Rider and the provisions of the printed form of this lease to
which this Rider is annexed, the provisions of this Rider shall govern
and control.
53. This lease may be executed in two or more counterparts and all
counterparts so executed shall for all purposes constitute one
agreement binding on all the parties hereto notwithstanding that all
parties shall not have executed the same counterpart.
54. This lease shall be governed in all respects by the laws of the State
of New York and shall be in all respects governed, construed, applied
and enforced in accordance with the laws of said State and no defense
given or allowed by the laws of any other state or government shall be
interposed in any action or proceeding herein unless such defense is
also given or allowed by the laws of the State of New York.
BEMAR REALTY CO.
By: /s/ Joel Girsky
--------------------------------
JACO ELECTRONICS, INC.
By: /s/ Jeffrey D. Gash
--------------------------------
6
<PAGE> 1
EXHIBIT 21.1
The following subsidiaries, all of which were 100% directly owned, were
included in the Registrant's consolidated financial statements.
NAME OF SUBSIDIARY STATE OR JURISDICTION OF INCORPORATION
- ------------------ --------------------------------------
Distel, Inc. California
RC Components, Inc. Massachusetts
Micatron Inc. New York
Quality Components, Inc. Texas
Jaco Overseas, Inc. Virgin Islands
Nexus Custom Electronics, Inc. New Jersey
Jaco Electronics Canada, Inc. Canada
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our reports dated August 16, 1996 accompanying the consolidated
financial statements and schedule of Jaco Electronics, Inc. as of June 30, 1995
and 1996 and for each of the three years in the period ended June 30, 1996
contained in this annual report of Jaco Electronics, Inc. on Form 10-K for the
year ended June 30, 1996. We hereby consent to the incorporation by reference of
the aforementioned reports in the Registration Statement of Jaco Electronics,
Inc. on Form S-8/S-3 (File No. 33-89994, effective March 3, 1995).
GRANT THORNTON LLP
Melville, New York
September 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE AUDITED CONSOLIDATED
STATEMENT OF EARNINGS FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> $164,161
<SECURITIES> $493,281
<RECEIVABLES> $22,974,984
<ALLOWANCES> $757,854
<INVENTORY> $30,089,508
<CURRENT-ASSETS> $54,411,610
<PP&E> $7,382,240
<DEPRECIATION> $3,155,623
<TOTAL-ASSETS> $61,142,729
<CURRENT-LIABILITIES> $17,447,904
<BONDS> $9,391,270
$0
$0
<COMMON> $395,572
<OTHER-SE> $33,907,983
<TOTAL-LIABILITY-AND-EQUITY> $61,142,729
<SALES> $167,149,385
<TOTAL-REVENUES> $167,149,385
<CGS> $133,105,227
<TOTAL-COSTS> $133,105,227
<OTHER-EXPENSES> $26,246,741
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $1,347,639
<INCOME-PRETAX> $6,449,778
<INCOME-TAX> $2,600,000
<INCOME-CONTINUING> $3,849,778
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $3,849,778
<EPS-PRIMARY> $1.08
<EPS-DILUTED> $1.08
</TABLE>
<PAGE> 1
EXHIBIT 99.8.1
[THE BANK OF NEW YORK COMMERCIAL CORPORATION LETTERHEAD]
As of April 10, 1996
JACO ELECTRONICS, INC. ("Jaco")
145 Oser Avenue
Hauppague, NY 11778
NEXUS CUSTOM ELECTRONICS, INC. ("Nexus")
Prospect Street
Brandon, VT 05733
Re: The Second Restated and Amended Loan and Security Agreement between Jaco
and Nexus, as Debtor and The Bank of New York Commercial Corporation, as
Lender, and each other Lender a party thereto, dated September 13, 1995, as
amended and supplemented (the "Loan Agreement")
Ladies/Gentlemen:
In connection with the above referenced Loan Agreement, you have requested: (a)
a prospective reduction in the Contract Rate (with all initially capitalized
terms not defined herein, but which are defined in the Loan Agreement, to have
the meaning therein set forth) applicable to LIBO Rate Loans first arising
after the date hereof; and (b) the consent of the Lenders in order to permit a
repurchase by Debtor of up to $3,000,000 in their capital stock.
The purpose of this letter is to set forth our mutual understanding in respect
of such matters as of the date hereof as follows:
(a) Subdivision (A) of the definition of "Contract Rate" in the Loan Agreement
(which immediately precedes the word "or" appearing therein) is hereby amended
to read as follows:
"(A) in the case of LIBO Rate Loans first arising, or first continued or
converted thereto on or after 4/10/96, (i) the applicable LIBO Rate plus (ii)
two percent (2%), and, in the case of LIBO Rate Loans first arising, or first
continued or converted thereto before 4/10/96, (i) the applicable LIBO Rate
plus (ii) two and one-half percent (2-1/2%);"
(b) Each of the Lenders also hereby consents to the repurchase by Debtor of up
to $3,000,000 in their capital stock, provided however that: (i) immediately
following any such repurchase and to the extent that after giving effect
thereto, the maximum amount that would then otherwise be permitted pursuant to
the terms and conditions of Paragraph 4 (a) of the Loan Agreement
<PAGE> 2
would exceed the outstanding balance of all Loans, inclusive of the Term Loans
and all Letters of Credit, by an amount of not less than ten million dollars
($10,000,000); and (ii) any such repurchase occurs before the third anniversary
of the Closing Date at the very latest; and
(c) Furthermore, each of the undersigned additionally hereby confirm that: (i)
as of May 1, 1996, a merger of Fleet Bank of New York, N.A. into NatWest Bank
N.A. is to occur, with the resulting bank title of such merged institution
being Fleet Bank, N.A., (ii) by reason of the merger and name change and as of
May 1, 1996, any and all references to NatWest Bank N.A. in the Loan Agreement
shall be replaced by references to Fleet Bank, N.A. f/k/a NatWest Bank N.A.
instead, and (iii) accordingly, as of May 1, 1996, the Loan Agreement shall be
amended, in order to reflect all of the matters described in this paragraph and
the identification of Fleet Bank, N.A. as a "Lender" and as a "Secured Party"
thereunder, with a corresponding amendment to be simultaneously made to all
related agreements, instruments and documentation.
Except to the extent herein specifically set forth, no change to the Loan
Agreement is intended or implied and the Loan Agreement, modified as set forth
above is hereby ratified and confirmed in all respects. If the foregoing is in
accordance with your understanding, would you kindly sign below to so indicate.
Very truly yours,
THE BANK OF NEW YORK COMMERCIAL CORPORATION
as Agent and a Lender
By /s/ Dan Murray
----------------------------------------
Title: VP
FLEET BANK, N.A. f/k/a
NATWEST BANK N.A. as Lender
By /s/ Alice Adelberg
----------------------------------------
Title: Vice President
Read and Agreed:
JACO ELECTRONICS, INC.
By /s/ Jeffrey D. Gash, V.P.
----------------------------------------
Title:
NEXUS CUSTOM ELECTRONICS, INC.
By /s/ Jeffrey D. Gash, V.P.
----------------------------------------
Title:
