JACO ELECTRONICS, INC.
145 Oser Avenue
Hauppauge, New York 11788
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on December 7, 1998
---------------------------
To the Shareholders of JACO ELECTRONICS, INC.
Please be advised that the annual meeting of shareholders (the
"Annual Meeting") of Jaco Electronics, Inc. (the "Company") will be held on
December 7, 1998, at 9:30 a.m., at the Melville Marriott, 1350 Old Walt Whitman
Road, Melville, New York 11747.
The Annual Meeting will be held for the following purposes:
1. To elect five Directors of the Company to hold office
until the next annual meeting of shareholders or
until their successors are duly elected and
qualified;
2. To adopt and approve an amendment to the Company's
1993 Non-Qualified Stock Option Plan, as amended
("1993 Non-Qualified Plan"), to provide that
Directors will be eligible to receive stock options
under the 1993 Non-Qualified Plan;
3. To adopt and approve an amendment to the Company's
Restricted Stock Plan ("Restricted Stock Plan"), to
provide that Directors will be eligible to receive
awards under the Restricted Stock Plan; and
4. To transact such other business as may properly come
before the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on
October 26, 1998 as the record date for the determination of the shareholders
entitled to notice of and to vote at the Annual Meeting or any adjournment or
adjournments thereof. Only shareholders of record at the close of business on
the record date are entitled to notice of and to vote at the Annual Meeting.
YOUR VOTE IS IMPORTANT! PLEASE PROMPTLY MARK, DATE, SIGN, AND
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ARE ABLE TO ATTEND THE
MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME
BEFORE YOUR PROXY IS VOTED.
By Order of the Board of Directors,
Joel H. Girsky,
Date: November 2, 1998 Chairman
<PAGE>
JACO ELECTRONICS, INC.
145 Oser Avenue
Hauppauge, New York 11788
---------------
PROXY STATEMENT
---------------
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Jaco Electronics, Inc. (the "Company")
of proxies to be voted at the annual meeting of shareholders (the "Annual
Meeting") to be held on December 7, 1998, at 9:30 a.m., at the Melville
Marriott, 1350 Old Walt Whitman Road, Melville, New York, 11747, and any and all
adjournments thereof.
The solicitation will be by mail, and the cost of such
solicitation, including the reimbursement of brokerage firms and others for
their expenses in forwarding proxies and proxy statements to the beneficial
owners of the Company's common stock, will be borne by the Company.
The shares of common stock represented by each duly executed
proxy received by the Board of Directors before the Annual Meeting will be voted
at the Annual Meeting as specified in the proxy. A shareholder may withhold
authority to vote for all of the nominees by marking the appropriate box on the
accompanying proxy card or may withhold authority to vote for an individual
nominee by striking a line through such nominee's name in the appropriate space
on the accompanying proxy card. UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN,
EACH PROPERLY EXECUTED PROXY WILL BE VOTED FOR (i) THE ELECTION OF DIRECTORS
NAMED IN THIS PROXY STATEMENT AND THE FORM OF PROXY, (ii) THE ADOPTION AND
APPROVAL OF AN AMENDMENT TO THE 1993 NON-QUALIFIED STOCK OPTION PLAN (THE "1993
NON-QUALIFIED PLAN") TO PROVIDE THAT DIRECTORS WILL BE ELIGIBLE TO RECEIVE STOCK
OPTIONS UNDER THE 1993 NON-QUALIFIED PLAN, AND (iii) THE ADOPTION AND APPROVAL
OF AN AMENDMENT TO THE COMPANY'S RESTRICTED STOCK PLAN ("RESTRICTED STOCK PLAN")
TO PROVIDE THAT DIRECTORS WILL BE ELIGIBLE TO RECEIVE AWARDS UNDER THE
RESTRICTED STOCK PLAN. Shareholders who execute proxies nevertheless retain the
right to revoke them at any time before they are voted by submitting new proxies
bearing a later date, by submitting written revocations to the named proxies, or
by attending the Annual Meeting and voting thereat.
This Proxy Statement, the accompanying form of proxy, and the
1998 Annual Report to Shareholders, are first being sent to shareholders on or
about November 3, 1998.
1
<PAGE>
VOTING SECURITIES AND RECORD DATE
The Board of Directors has designated October 26, 1998, as the
record date (the "Record Date") for determining the shareholders entitled to
notice of the Annual Meeting and to vote thereat. On the Record Date, the total
number of shares of common stock of the Company, $0.10 par value per share (the
"Common Stock"), outstanding and entitled to vote was 3,653,521 (excluding
412,200 shares of treasury stock). The holders of all outstanding shares of
Common Stock are entitled to one vote for each share of Common Stock registered
in their names on the books of the Company at the close of business on the
Record Date. The presence in person or by proxy of a majority of the outstanding
shares of the Common Stock entitled to vote at the Annual Meeting will be
necessary to constitute a quorum. Abstentions and broker non-votes on any item
will not be counted as voting in respect of such item; they will be counted only
for purposes of determining whether a quorum is present at the Annual Meeting.
PRINCIPAL SHAREHOLDERS; SHARES HELD BY MANAGEMENT
The following table sets forth the number and percentage of
shares of Common Stock owned as of October 22, 1998 by (i) each director of the
Company and each nominee for director, (ii) all persons who, to the knowledge of
the Company, are the beneficial owners of more than 5% of the outstanding shares
of Common Stock, (iii) each of the executive officers, and (iv) all of the
Company's Directors and executive officers, as a group. Each person named in the
table has sole investment power and sole voting power with respect to the shares
of Common Stock set forth opposite such person's name, except as otherwise
indicated.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Common Stock
Name of Beneficial Owner Beneficially Owned(1) Outstanding(2)
<S> <C> <C>
* Joel H. Girsky
President, Treasurer
and Director 564,139(3) 15.0%
</TABLE>
- --------
* Nominee for election to the Board of Directors.
** Less than 1%.
1 Includes shares of Common Stock issuable pursuant to options and warrants
exercisable within sixty (60) days from the date hereof. Also includes
shares of Common Stock awarded under the Restricted Stock Plan.
2 Based upon (i) 3,653,521 shares of Common Stock issued and outstanding
(excluding 412,200 shares of treasury stock), plus, if appropriate, (ii)
the number of shares of Common Stock awarded under the Restricted Stock
Plan, and/or (iii) the number of shares of Common Stock which may be
acquired by the named person or by all persons included in the group
pursuant to the exercise of options and warrants exercisable within sixty
(60) days from the date hereof.
3 Includes 96,799 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Non-Qualified Plan and 25,000
Shares of Common Stock awarded under the Restricted Stock Plan. Does not
include 100,000 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Non-Qualified Plan which are
not exercisable within sixty (60) days from the date hereof.
2
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Number of Shares Common Stock
Name of Beneficial Owner Beneficially Owned (1) Outstanding(2)
- ------------------------ ---------------------- ----------------
<S> <C> <C>
*Charles B. Girsky
Executive Vice President
Director 311,774(4) 8.4%
*Stephen A. Cohen
Director 31,197(5) **
*Edward M. Frankel
Director 26,399(6) **
*Joseph F. Hickey, Jr. 31,433(7) **
Director
Jeffrey D. Gash
Vice President, Finance 29,565(8) **
Herbert Entenberg
Vice President of Management
and Information Systems,
and Secretary 16,167(9) **
</TABLE>
- --------------------
4 Includes 243,077 shares of Common Stock owned by the Girsky Family Trust,
40,000 shares of Common Stock acquirable pursuant to the exercise of
options granted under the Company's 1993 Non-Qualified Plan and 25,000
shares of Common Stock awarded under the Restricted Stock Plan.
5 Includes 26,399 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Stock Option Plan for Outside
Directors. Does not include 7,500 shares of Common Stock acquirable
pursuant to the exercise of non-qualified stock options granted to Mr.
Cohen by the Company, which are not exercisable within sixty (60) days
hereof
6 Includes 26,399 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Stock Option Plan for Outside
Directors. Does not include 7,500 shares of Common Stock acquirable
pursuant to the exercise of non-qualified stock options granted to Mr.
Frankel by the Company, which are not exercisable within sixty (60) days
hereof.
7 Includes 2,933 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Stock Option Plan for Outside
Directors and 10,000 shares of Common Stock acquirable pursuant to the
exercise of non-qualified stock options granted to Mr. Hickey by the
Company. Includes 17,500 shares of Common Stock acquirable by Cleary Gull
Reiland and McDevitt Inc. pursuant to warrants granted to it by the
Company. The reporting person disclaims beneficial ownership of the shares
of Common Stock acquirable upon the exercise of the warrants, except to
the extent of his pecuniary interest therein.
8 Includes 19,000 shares of Common Stock acquirable pursuant to the exercise
of options granted under the Company's 1993 Non-Qualified Plan and 10,000
shares of Common Stock awarded under the Restricted Stock Plan.
9 Consists of 11,167 shares of Common Stock acquirable pursuant to the
exercise of options granted under the Company's Non-Qualified Plan and
5,000 shares of Common Stock awarded under the Restricted Stock Plan.
3
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Number of Shares Common Stock
Name of Beneficial Owner Beneficially Owned (1) Outstanding (2)
- ------------------------ ------------------ --------------
<S> <C> <C>
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202 641,700(10) 17.6%
Advisory Research Inc.
18 North Stetson Street, Suite 5780
Two Prudential Plaza
Chicago, IL 60601 278,900(11) 7.6%
Goldman Sachs Group, LP
Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004 275,300(12) 7.5%
Liberty Investment Management, Inc.
2502 Rocky Point Drive, Suite 500
Tampa, Fl 33607 203,300(13) 5.6%
</TABLE>
- -------------------
10 These securities are held in investment advisory accounts of Heartland
Advisors, Inc. Based upon Amendment No. 3 to Schedule 13G filed with the
Securities and Exchange Commission ("S.E.C.") on February 3, 1998.
11 David B. Heller, President and controlling shareholder of Advisory
Research, Inc., shares power to vote or to direct the vote of, and to
dispose or direct the disposition of these shares. Based upon a Schedule
13G filed with the S.E.C. on February 13, 1998.
12 The Goldman Sachs Group, L.P. ("GS Group") is the Parent Holding Company
of Goldman, Sachs & Co. ("Goldman Sachs"). GS Group and Goldman Sachs
share dispositive power as to these shares and share voting power as to
158,800 of these shares. GS Group and Goldman Sachs each expressly
disclaim beneficial ownership of the Common Stock beneficially owned by
(i) managed accounts and (ii) certain investment limited partnerships, of
which a subsidiary of GS Group or Goldman Sachs is the general partner or
managing general partner, to the extent partnership interests in such
partnerships are held by persons other than GS Group, Goldman Sachs or
their affiliates. Based upon a Schedule 13G filed with the S.E.C. on
February 17, 1998.
13 Based upon a Schedule 13G filed with the S.E.C. on July 24, 1997.
4
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Number of Shares Common Stock
Name of Beneficial Owner Beneficially Owned (1) Outstanding (2)
- ------------------------ ------------------ ---------------
<S> <C> <C>
Wellington Management Company, LLP
75 State Street
Boston, MA 02109 359,000(14) 9.8%
All Directors and executive officers
as a group (7 persons) 1,010,674(15) 25.0%
</TABLE>
1. ELECTION OF DIRECTORS
Five directors are to be elected to serve until the next annual meeting of
shareholders or until their successors are elected and qualified. Directors
shall be elected by shareholders holding a plurality of the shares of Common
Stock present at the Annual Meeting. It is the intention of the persons named in
the form of proxy, unless authority is withheld, to vote the proxies given them
for the election of all nominees hereinafter named, all of whom are presently
directors of the Company. In the event, however, that any one of them is unable
or declines to serve as a director, the appointees named in the form of proxy
reserve the right to substitute another person of their choice as nominee, in
his place and stead, or to vote for such lesser number of directors as may be
presented by the Board of Directors in accordance with the Company's By-Laws.
The nominees for the Board of Directors of the Company are as
follows:
Stephen A. Cohen
Edward M. Frankel
Charles B. Girsky
Joel H. Girsky
Joseph F. Hickey, Jr.
Information about the foregoing nominees is set forth under
"Management" below.
- --------------------
14 According to the Schedule 13G filed with the S.E.C. on February 10, 1998,
these securities are owned by clients of Wellington Management Company,
LLP ("WMC") for which WMC serves as investment advisor. Those clients have
the right to receive, or the power to direct the receipt of, dividends
from, or the proceeds from the sale of, such securities.
15 Includes 250,197 shares of Common Stock acquirable pursuant to the exercise
of options and warrants and 65,000 shares of Common Stock awarded under the
Restricted Stock Plan.
5
<PAGE>
Unless marked to the contrary, the shares of Common Stock
represented by the enclosed Proxy will be voted FOR the election of the nominees
named above as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE TO THE BOARD OF DIRECTORS.
The Board of Directors held three meetings during the year
ended June 30, 1998 ("Fiscal 1998"). Each director (during the period in which
each such director served) attended at least seventy-five (75%) percent of the
aggregate of (i) the total number of meetings of the Board of Directors, plus
(ii) the total number of meetings held by all committees of the Board of
Directors on which the director served.
The Board of Directors has a standing Audit Committee and a
standing Compensation Committee. The Option Committee was not re-appointed
during Fiscal 1998. The entire Board of Directors administered the Company's
1993 Non-Qualified Plan and Restricted Stock Plan during Fiscal 1998. The Audit
Committee reviews the work and reports of the Company's independent accountants.
During Fiscal 1998, the Audit Committee was comprised of Stephen A. Cohen and
Edward M. Frankel. The Audit Committee met once during Fiscal 1998. The
Compensation Committee makes recommendations to the Board of Directors
concerning compensation arrangements for directors, executive officers, and
senior management of the Company. The Compensation Committee did not meet during
Fiscal 1998. Until December 9, 1997, the Compensation Committee consisted of
Messrs. Cohen and Frankel. Since December 9, 1997, the Compensation Committee
has been comprised of Edward M. Frankel and Joseph F. Hickey, Jr.
6
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT
Executive Officers and Directors
The directors and executive officers of the Company, their
ages, their positions and terms of office with the Company are set forth below.
Name Age Title
<S> <C> <C>
* Joel H. Girsky 59 Chairman of the Board, President, Treasurer, and Director
* Charles B. Girsky 64 Executive Vice President and Director
* Stephen A. Cohen 61 Director
* Edward M. Frankel 60 Director
* Joseph F. Hickey, Jr. 40 Director
Jeffrey D. Gash 45 Vice President, Finance
Herbert Entenberg 64 Vice President of Management and Information
Systems, and Secretary
</TABLE>
- ---------------
* Nominee for election to the Board of Directors.
Joel H. Girsky has been a Director and executive officer of the Company
since it was founded in 1961. He also is a director of Nastech Pharmaceutical
Company, Inc. of Hauppauge, New York, and Frequency Electronics, Inc. of
Uniondale, New York. Messrs. Joel H. Girsky and Charles B. Girsky are brothers.
Charles B. Girsky became an executive officer of the Company on August 2,
1985 and has been its Executive Vice President since January 1988. Since April,
1984, he has been President of Distel, Inc., a wholly-owned subsidiary of the
Company since August, 1985. He was a founder, Director, and the President of the
Company from 1961 through January, 1983, and was elected a Director of the
Company again in 1986. Messrs. Charles B. Girsky and Joel H. Girsky are
brothers.
Stephen A. Cohen has been a Director of the Company since 1970. Since
August, 1989, he has practiced law as a member of Morrison Cohen Singer &
Weinstein, LLP, general counsel to the Company.
Edward M. Frankel became a Director of the Company in May, 1984. For more
than five years, he has been President of Vitaquest International, Inc., a
distributor of vitamins and health and beauty products, and its predecessor
entities.
7
<PAGE>
Joseph F. Hickey, Jr. became a Director of the Company on May 28, 1997.
Since February 1, 1991, he has been employed by Cleary Gull Reiland and McDevitt
Inc., an investment banking firm located in Milwaukee, Wisconsin. Since 1997, he
has been the managing director at Cleary Gull Reiland and McDevitt Inc.
syndication department.
Jeffrey D. Gash became Vice President of Finance of the Company in January,
1989, and was Controller of the Company for more than five years prior thereto.
He has also served in similar capacities with the Company's subsidiaries.
Herbert Entenberg has served as Vice President of Management and
Information Systems, and Secretary since 1988. Mr. Entenberg oversees management
information systems and operations of the Company and is responsible for
developing and implementing the Company's inventory control system.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth, for the Company's three most recently ended
fiscal years, the compensation paid or accrued to the President of the Company
and to the executive officers of the Company, other than the President, whose
aggregate annual salary and bonus for the Company's last fiscal year exceeded
$100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Payouts
Name and Other
Principal Annual
Position Year Salary($) Bonus($) Compensation($)
- -------- ---- --------- -------- ---------------
<S> <C> <C> <C>
Joel H. Girsky, 1996 325,000 387,000 -
Chairman of the Board, 1997 325,000 210,000 -
President, and Treasurer(1) 1998 325,000 81,000 -
Charles B. Girsky, 1996 225,000 96,535 -
Executive Vice President(3) 1997 225,000 73,475 -
1998 225,000 41,000 -
Jeffrey D. Gash, 1996 96,000 42,595 -
Vice President, Finance(4) 1997 104,808 25,000 -
1998 125,000 33,100 -
Herbert Entenberg 1996 102,560 20,188 -
Vice President of 1997 102,560 10,481 -
Management and 1998 109,920 30,694 -
Information Systems,
and Secretary
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Name and Restricted All Other
Principal Stock Options/ LTIP Compensation
Position Year Awards($) SARs (#) Payouts($) ($)(2)
- -------- ---- --------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Joel H. Girsky, 1996 -- -- -- 84,301
Chairman of the Board, 1997 150,000** 15,399 -- 73,924
President, and Treasurer(1) 1998 -- -- -- 77,196
Charles B. Girsky, 1996 -- 15,000 -- 5,608
Executive Vice President(3) 1997 150,000** 25,000 -- 4,976
1998 -- -- -- 6,719
Jeffrey D. Gash, 1996 -- 5,000 -- 1,841
Vice President, Finance(4) 1997 60,000** 10,000 -- 2,004
1998 -- -- -- 3,920
Herbert Entenberg 1996 -- 2,500 -- 3,197
Vice President of 1997 30,000** 5,000 -- 3,343
Management and 1998 -- -- -- 4,926
Information Systems,
and Secretary
8
<PAGE>
</TABLE>
- -----------------------
(1) Mr. Joel Girsky entered into a four-year employment agreement with the
Company, effective as of July 1, 1997, to serve as the Company's Chairman
and President. The employment agreement will automatically renew for
additional one year periods on each anniversary date, until such time that
the Company or Mr. Joel Girsky delivers written notice to the other party
not less than 90 days prior to an anniversary date, declining such renewal.
In the event that a notice of non-renewal is delivered by either party, Mr.
Girsky's employment agreement shall continue for a period of three years
following the anniversary date which follows immediately after the date
that such notice is delivered. Pursuant to the agreement, Mr. Joel Girsky
received a base salary of $325,000 for the fiscal year ended June 30, 1998
and shall receive a base salary of $325,000 for each fiscal year ending
June 30, thereafter. In addition, he is entitled to receive a cash bonus
equal to four percent (4%) of the Company's earnings before income taxes
for each fiscal year in which such earnings are in excess of $1,000,000, or
six percent (6%) of the Company's earnings before income taxes for such
fiscal year if such earnings are in excess of $2,500,000 up to a maximum
annual cash bonus of $720,000. If the Company's earnings before income
taxes are in excess of $12,000,000 for any such fiscal year, Mr. Girsky may
also receive common stock options of the Company as negotiated by Mr.
Girsky and the Company at such time. Mr. Girsky or his estate, as the case
may be, is entitled to receive a payment of $1,500,000 if he dies or
$500,000 if he becomes permanently disabled during the term of the
employment agreement. The death and disability benefit may be funded by
insurance policies maintained by the Company. In the event of Mr. Girsky's
cessation of employment with the Company, upon his request, the Company is
obligated to transfer such policies to Mr. Girsky. Thereafter, the Company
would have no further liability for the payment of such benefit or the
premiums on such policy. In addition, pursuant to the terms of the
employment agreement, Mr. Girsky shall receive deferred compensation which
accrues at the rate of $50,000 per year, and becomes payable in a lump sum
at the later of (i) Mr. Girsky's attainment of age 60 (which event shall
occur in Fiscal 1999), or (ii) his cessation of employment, with or without
cause, at any time. In the event of a change in control, Mr. Girsky will
receive two hundred and ninety-nine percent of the average of his base
salary plus cash bonus for the previous five years, to the extent that such
payment does not equal or exceed three times Mr. Girsky's base amount, as
computed in accordance with Section 280G(d)(4) of the Internal Revenue Code
of 1986. Additionally, upon a change of control, under certain
circumstances, Mr. Girsky's employment agreement may be assigned by the
Company or any such successor or surviving corporation upon sixty days
prior written notice to Mr. Girsky.
(2) Includes auto expenses, 401(k) matching contributions by the Company,
premiums paid on group term life insurance, taxable portion of split dollar
life insurance policies and deferred compensation accrued in connection
with Mr. Joel Girsky's employment agreement with the Company, as described
in footnote (1) above. Auto expenses for Fiscal 1998 for the Named
Executives were as follows: Mr. Joel Girsky -- $19,247, Mr. Charles Girsky
-- $3,574, Mr. Gash -- $2,025 and Mr. Entenberg -- $2,154. 401(k) matching
contributions for Fiscal 1998 for the Named Executives were as follows: Mr.
Joel Girsky -- $1,000, Mr. Charles Girsky -- $1,039, Mr. Gash -- $1,373 and
Mr. Entenberg -- $1,256. Premiums paid on group term life insurance for
Fiscal 1998 for the Named Executives were as follows: Mr. Joel Girsky --
$1,350, Mr. Charles Girsky -- $2,106, Mr. Gash -- $522 and Mr. Entenberg --
$1,516. The taxable portion of split dollar life insurance policies for Mr.
Joel Girsky was $5,599 for Fiscal 1998. $50,000 deferred compensation was
accrued in Fiscal 1998 in connection with Mr. Joel Girsky's employment
agreement with the Company.
(3) Mr. Charles Girsky entered into a four-year employment agreement with the
Company, effective as of July 1, 1998, to serve as the Company's Executive
Vice President. The employment agreement will automatically renew for
additional one year periods on each anniversary date, until such time that
the Company or Mr. Charles Girsky delivers written notice to the other
party not less than 90 days prior to an anniversary date, declining such
renewal. In the event that a notice of non-renewal is delivered by either
party, Mr. Girsky's employment agreement shall continue for a period of
three years following the anniversary date which follows immediately after
the date that such notice is delivered. Pursuant to the agreement, Mr.
Girsky will receive a base salary of $225,000 for the fiscal year ending
June 30, 1999, and shall receive a base salary of $225,000 for each fiscal
year ending June 30, thereafter. In addition, he is entitled to receive a
cash bonus equal to two percent (2%) of the Company's earnings before
income taxes for each fiscal year in which such earnings are in excess of
$1,000,000, or three percent (3%) of the Company's earnings before income
taxes for such fiscal year if such earnings exceed $2,500,000 up to a
maximum annual cash bonus of $360,000. If the Company's earnings before
income taxes are in excess of $12,000,000 for any such fiscal year, Mr.
Girsky may receive the number of common stock options of the Company as
shall be negotiated by Mr. Girsky and the Company at that time. Mr. Girsky
or his estate, as the case may be, is entitled to
9
<PAGE>
receive a payment of $1,000,000 if he dies during the term of the
employment agreement. The death benefit may be funded by a life insurance
policy maintained by the Company. In the event of Mr. Girsky's cessation of
employment with the Company, upon his request, the Company is obligated to
transfer such policy to Mr. Girsky. Thereafter, the Company would have no
further liability for the payment of such benefit or the premiums on such
policy. In the event of a change in control, Mr. Girsky will receive two
hundred and fifty percent of the average of his base salary plus cash bonus
for the previous five years, to the extent that such payment does not equal
or exceed three times Mr. Girsky's base amount, as computed in accordance
with Section 280G(d)(4) of the Internal Revenue Code of 1986. Additionally,
upon a change of control, under certain circumstances, Mr. Girsky's
employment agreement may be assigned by the Company or any such successor
or surviving corporation upon sixty days prior written notice to Mr.
Girsky.
(4) Mr. Jeffrey D. Gash entered into a four-year employment agreement with the
Company, effective as of July 1, 1998, to serve as the Company's Vice
President of Finance. The employment agreement will automatically renew for
additional one year periods on each anniversary date, until such time that
the Company or Mr. Gash delivers written notice to the other party not less
than 90 days prior to an anniversary date, declining such renewal. In the
event that a notice of non-renewal is delivered by either party, Mr. Gash's
employment agreement shall continue for a period of three years following
the anniversary date which follows immediately after the date that such
notice is delivered. Pursuant to the agreement, Mr. Gash will receive a
base salary of $125,000 for the fiscal year ending June 30, 1999, and shall
receive a base salary of $125,000 for each fiscal year ending June 30,
thereafter. In addition, he is entitled to receive a cash bonus as
determined by the Board of Directors and the President of the Company. Mr.
Gash or his estate, as the case may be, is entitled to receive a payment of
$750,000 if he dies during the term of the employment agreement. The death
benefit may be funded by a life insurance policy maintained by the Company.
In the event of Mr. Gash's cessation of employment with the Company, upon
his request, the Company is obligated to transfer such policy to Mr. Gash.
Thereafter, the Company would have no further liability for the payment of
such benefit or the premiums on such policy. In the event of a change in
control, Mr. Gash will receive two hundred percent of the average of his
base salary plus cash bonus for the previous five years, to the extent that
such payment does not equal or exceed three times Mr. Gash's base amount,
as computed in accordance with Section 280G(d)(4) of the Internal Revenue
Code of 1986. Additionally, upon a change of control, under certain
circumstances, Mr. Gash's employment agreement may be assigned by the
Company or any such successor or surviving corporation upon sixty days
prior written notice to Mr. Gash.
** On June 9, 1997, the Board of Directors awarded an aggregate of 65,000
shares of Common Stock of the Company under the Restricted Stock Plan to
the Named Executives of the Company as follows: 25,000 shares of Common
Stock to Joel Girsky, 25,000 shares of Common Stock to Charles Girsky,
10,000 shares of Common Stock to Jeffrey Gash and 5,000 shares of Common
Stock to Herbert Entenberg. These grants were subject to the approval of
the Restricted Stock Plan by the Company's shareholders, which approval was
received on December 9, 1997. The awards vest in one-quarter increments
annually. Accordingly, as of June 30, 1998, the following portions of the
aforementioned awards were vested: 6,250 shares of Common Stock awarded to
each of Joel Girsky and Charles Girsky, 2,500 shares of Common Stock
awarded to Jeffrey Gash and 1,250 shares of Common Stock awarded to Herbert
Entenberg. The value of the aggregate restricted stock holdings of these
individuals at June 30, 1998 was as follows: $125,000 for Joel H. Girsky,
$125,000 for Charles B. Girsky, $50,000 for Jeffrey D. Gash and $25,000 for
Herbert Entenberg. These figures are based upon the fair market value per
share of the Common Stock at year end, minus the exercise or base price of
such awards. The closing sale price for the Company's Common Stock as of
June 30, 1998 on the NASDAQ National Market System was $6.00.
10
<PAGE>
Stock Options
The following tables set forth information concerning number
and value of unexercised options held by each of the persons described in the
Summary Compensation Table on page 8, 9 and 10 at the end of Fiscal 1998.
<TABLE>
<CAPTION>
AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Option/SARs at Option/SARs at
on Value FY-End (#) FY-End ($)(1)
---------------------------- ------------------------------
Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Joel H. Girsky -- -- 96,799 0 92,796 -
Charles B. Girsky -- -- 40,000 0 - -
Jeffrey D. Gash -- -- 19,033 0 4,598 -
Herbert Entenberg -- -- 11,167 0 4,510 -
</TABLE>
- -------------------------------
(1) Based on the fair market value per share of the Common Stock at
year end, minus the exercise or base price on "in-the-money"
options. The closing sale price for the Company's Common Stock as
of June 30, 1998 on the NASDAQ National Market System was $6.00.
Compensation of Directors
Pursuant to the Company's 1993 Stock Option Plan for Outside
Directors (the "Outside Directors Plan"), the Company's outside directors
(directors who are not employees of the Company) were each granted options
on December 31, 1993 to purchase 14,667 shares of Common Stock. In
addition, the Outside Directors' Plan provided that each outside director
shall also be granted on each December 31 subsequent to December 31, 1993
stock options to purchase 2,933 shares of Common Stock. All options
granted under the Outside Directors' Plan are immediately exercisable, and
the exercise price per share of each option is equal to the fair market
value of the shares of Common Stock on the date of grant. No option may be
granted after January 1, 1998 under the Outside Directors' Plan.
On September 16, 1998, each of Messrs. Cohen and Frankel were
granted options to purchase 7,500 shares of Common Stock. The options
become exercisable one year from the date of grant and expire on September
15, 2003. The exercise price per share of each option is equal to the
closing price of the Common Stock on the date of grant, or $4.125 per
share.
Employment Contracts and Termination of Employment
and Change-In-Control Arrangements
The Company's employment agreements with Messrs. Joel Girsky,
Charles Girsky and Jeffrey Gash are described in the footnotes to the
Summary Compensation Table on page 8, 9 and 10 of this Proxy Statement.
11
<PAGE>
Compensation Committee Interlocks and Insider Participation
Stephen A. Cohen, a Director of the Company, is a member of Morrison
Cohen Singer & Weinstein, LLP, general counsel to the Company. Mr. Cohen
currently owns 4,798 shares of Common Stock, currently exercisable options to
purchase an additional 26,399 shares of Common Stock and options to purchase an
additional 7,500 shares of Common Stock which become exercisable on September
16, 1999. As of December 9, 1997, Mr. Cohen ceased serving as a member of the
Company's Compensation Committee.
Joseph F. Hickey, Jr., a Director of the Company, is a managing director
at Cleary Gull Reiland and McDevitt Inc. ("Cleary"). Cleary co-managed the
Company's offering of Common Stock in 1995 and is a market maker of the
Company's Common Stock. Mr. Hickey currently owns 1,000 shares of Common Stock,
and currently exercisable options to purchase an additional 12,933 shares of
Common Stock, and Cleary owns warrants to acquire 17,500 shares of Common Stock.
As of December 9, 1997, Mr. Hickey became a member of the Company's Compensation
Committee.
Board Compensation Committee Report on Executive Compensation
Introduction
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is composed of Non-Employee Directors. The Committee is responsible
for determining and administering the Company's compensation policies for the
remuneration of the Company's senior executive officers (collectively,
"Executives"). In determining the cash and non-cash compensation of Executives,
the Committee annually evaluates both individual and corporate performance from
both a short-term and long-term perspective.
Philosophy
The Company's compensation program for Executives ("Program") seeks to
encourage the achievement of business objectives of the Company and superior
corporate performance by the Company's Executives. The Program enables the
Company to reward and retain highly qualified executives and to foster a
performance-oriented environment wherein management's long-term focus is on
maximizing stockholder value through the use of equity-based incentives. The
Program calls for consideration of the nature of each Executive's work and
responsibilities, his or her leadership and technical skills, unusual
accomplishments or achievements on the Company's behalf, years of service, the
Executive's total compensation package (cash and non-cash compensation) and the
Company's financial condition generally.
Components of Executive Compensation
Historically, the Company's executive employees have received cash-based
and equity-based compensation.
12
<PAGE>
Cash-Based Compensation: Base salary represents the primary cash
component of an Executive's compensation, and is determined by evaluating the
responsibilities associated with an Executive's position at the Company and his
or her overall level of experience. In addition, the Committee, in its
discretion, may award bonuses. The Committee believes that the Executives are
best motivated through a combination of stock option awards and cash incentives.
Equity-Based Compensation: Equity-based compensation principally has
been in the form of stock options, granted pursuant to the Company's 1993
Non-Qualified Plan and awards of shares of Common Stock under the Company's
Restricted Stock Plan. The Committee believes that stock options represent an
important component of a well-balanced compensation program. Because stock
option awards provide value only in the event of share price appreciation, stock
options enhance management's focus on maximizing long term shareholder value,
and thus provide a direct relationship between an executive's compensation and
the shareholders' interests. No specific formula is used to determine option
awards for an Executive. Rather, individual award levels are based upon the
subjective evaluation of each Executive's overall past and expected future
contributions to the success of the Company. Additionally, the Committee
believes that awards under the Restricted Stock Plan will enhance the alignment
of an Executive's interest with that of the shareholders, because the Executive
may be able to realize greater value with increased stock performance.
Compensation of the Chief Executive Officer
The philosophy, factors, and criteria of the Committee generally
applicable to the Company's senior management is applicable to the Chief
Executive Officer.
Joseph F. Hickey, Jr.
Edward M. Frankel
Directors' and Officers' Liability Insurance
The Company has purchased a directors' and officers' liability
insurance policy, as permitted by Article 7 of the New York Business Corporation
Law. National Union Insurance Company issued the policy, which provides coverage
of $5,000,000 for an annual premium of $63,000. The policy has an expiration
date of February 5, 1999 and is expected to be renewed on that date.
13
<PAGE>
Comparative Stock Performance Graph
The following is a graph comparing the annual percentage change in the
cumulative total shareholder return of the Company's Common Stock with the
cumulative total returns of the published Dow Jones Equity Market Index and Dow
Jones Industrial & Commercial Services -- General Services Index, for the
Company's last five (5) fiscal years:
(Chart and Graph)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Jaco Electronics, Inc. 100 90 121 192 136 114
Dow Jones Equity Market Index 100 101 127 160 214 280
Dow Jones Industrial & Commercial Services - General Services 100 95 111 127 144 171
</TABLE>
14
<PAGE>
2. APPROVAL AND ADOPTION OF AN AMENDMENT TO THE 1993 NON-QUALIFIED
STOCK OPTION PLAN TO PROVIDE THAT DIRECTORS WILL BE ABLE TO RECEIVE STOCK
OPTIONS UNDER THE 1993 NON-QUALIFIED STOCK OPTION PLAN.
The Board of Directors of the Company is submitting to the shareholders
of the Company, for their approval and adoption, an amendment to the Company's
1993 Non-Qualified Stock Option Plan to provide that Directors of the Company
will be eligible to receive options under the 1993 Non-Qualified Stock Option
Plan (the "Non-Qualified Stock Option Eligibility Amendment"). On September 16,
1998, the Board of Directors unanimously adopted and approved the Non-Qualified
Stock Option Eligibility Amendment, subject to approval by the Company's
shareholders in the form attached hereto as Exhibit A. The vote of a majority of
the shares of Common Stock present at the Annual Meeting is required to adopt
the Non-Qualified Stock Option Eligibility Amendment. As of October 22, 1998,
there were outstanding under the Company's 1993 Non-Qualified Plan options to
purchase 395,833 shares of Common Stock at a weighted average exercise price of
$6.62 per share with expiration dates ranging from February 21, 1999 to
September 15, 2003.
Purpose
The purpose of the 1993 Non-Qualified Plan is to enable the Company,
and its affiliated companies ("Affiliates") to attract and retain the best
available personnel for positions of substantial responsibility, and to provide
additional incentives to officers and other key employees of the Company, its
Affiliates and any future parent or subsidiary of the Company to promote the
success of the Company. Options granted under the 1993 Non-Qualified Plan are
not intended to be characterized as incentive stock options under Internal
Revenue Code ss.422. Proceeds of cash or property received by the Company from
the sale of Common Stock pursuant to options granted under the 1993
Non-Qualified Plan shall be used for general corporate purposes. The Board has
proposed to amend the 1993 Non-Qualified Plan to provide that Directors of the
Company will be eligible to receive stock options under the 1993 Non-Qualified
Plan. The Board believes that the ability to grant stock options to Directors of
the Company, thereby providing them with the opportunity to acquire an equity
investment in the Company, will stimulate their efforts on the Company's behalf
and attract other qualified persons to serve as directors of the Company.
Summary of the 1993 Non-Qualified Stock Option Plan
The following is a summary of the material provisions of the 1993
Non-Qualified Plan as currently in effect. This summary is in all respects
qualified in its entirety by reference to the complete text of the 1993
Non-Qualified Plan attached hereto as Exhibit A.
Administration. The 1993 Non-Qualified Plan is administered by a
committee (the "Committee") composed of either (i) the full Board of Directors;
or (ii) a committee of Directors appointed by the Board of Directors. The
Committee shall be composed of not fewer than two (2) directors. If the
Committee is composed of other than the entire Board, all of the members of the
Committee shall be Non-Employee Directors, as such term is defined under Rule
16b-3 promulgated under the Exchange Act. In addition, the Committee may (but
need not) be composed of members also characterized as "outside directors"
within the meaning of Treasury Department Regulations
15
<PAGE>
interpreting Section 162(m) of the Internal Revenue Code. The Committee has
complete authority to interpret all provisions of the 1993 Non-Qualified Plan
consistent with applicable laws, to prescribe the form of instruments evidencing
the stock options granted under the 1993 Non-Qualified Plan, to prescribe,
amend, and rescind rules and regulations for its administration, and to make all
other determinations necessary or advisable for the administration of the 1993
Non-Qualified Plan. Since May 28, 1997, the Board has been administering the
Plan.
Eligibility. Options may be granted under the 1993 Non-Qualified Plan
to any employee of the Company or any of its Affiliates who, in the judgment of
the Committee, has or is expected to make key contributions to the success of
the Company and its Affiliates. The Committee must designate the options to whom
options are to be granted, and must specify the number of shares of Common Stock
subject to each option, the duration and exercise price of each option, the time
or times within which all or portions of each option may be exercised, and
whether cash, Common Stock, or other property may be accepted in full or partial
payment upon the exercise of an option. No single individual shall be eligible
to receive options to purchase more than 150,000 shares of Common Stock (as such
shares may be adjusted in accordance with the provisions of Section 6 of the
1993 Non-Qualified Plan) in any one calendar year. There are currently
approximately 90 employees eligible for the grant of options under the 1993
Non-Qualified Plan. On September 16, 1998, the Board amended the 1993
Non-Qualified Plan, subject to approval by the shareholders of the Company, to
permit the grant of stock options to Directors of the Company. As of October 22,
1998, there were three Directors of the Company that did not serve as officers
of the Company, and therefore, were not previously eligible to receive grants of
options under the 1993 Non-Qualified Plan.
Shares. Options may be granted for up to an aggregate of 600,000 shares
of Common Stock subject to adjustment in the event of certain changes in the
Company's capitalization. If any option is terminated, in whole or in part, for
any reason other than the exercise thereof, the shares of Common Stock allocated
to the option or portion thereof so terminated may be reallocated to another
option or options to be granted. The closing price of the Company's Common Stock
on October 22, 1998, on the Nasdaq market was $3.75.
Option Price. The option price for options granted under the 1993
Non-Qualified Plan shall be either 100% of the Fair Market Value of the Common
Stock at the time such option is granted or a value to be determined in
accordance with the procedures established by the Committee. As used in the 1993
Non-Qualified Plan, "Fair Market Value" means the closing price of the Common
Stock as reported by the National Association of Securities Dealers (as
published by the Wall Street Journal, if published).
Maximum Term. No option shall be exercisable more than five years from the
date it was granted.
Termination of Option. If an optionee shall cease to be employed by the
Company and/or any of its Affiliates and/or serve as a Director for any reason
other than death, the optionee may exercise his or her option(s) at any time
during the three-month period after such cessation of employment and/or
termination of service as a Director, but only to the extent that such option(s)
would have been exercisable on the date of termination. If termination of an
optionee's employment
16
<PAGE>
and/or service as a Director is due to disability, such three-month period shall
be extended to six months. If an optionee's employment is terminated for "cause"
as defined in the 1993 Non-Qualified Plan and/or if a Director is removed for
"cause" as defined in the Company's By-laws, his or her option(s) shall
terminate at the time the notice of termination is given by the Company or the
Affiliate to such optionee. If an optionee dies while in the employ of the
Company or any of its Affiliates and/or while serving as a Director, or within
three months after cessation of such employment and/or termination of service as
a Director, the optionee's estate or beneficiary may exercise any outstanding
options within three months of the optionee's death, but only to the extent that
such options were exercisable on the date of the optionee's death.
Method of Exercise. An option shall be exercised by so notifying the
Treasurer of the Company in writing, stating the number of shares of Common
Stock with respect to which the option is being exercised, and tendering payment
therefor. Payment shall be made in either cash or Common Stock.
Adjustments. Subject to certain changes in the Company's capital
structure, appropriate adjustments shall be made to the aggregate number of
shares of Common Stock with respect to which options may be granted and to the
number of shares of Common Stock subject to each outstanding option.
Amendment and Termination of the 1993 Non-Qualified Plan. No option may
be granted after June 10, 2003. The Board of Directors, acting by a majority of
its members, without further action on the part of the shareholders, has the
authority to alter, amend, or suspend the 1993 Non-Qualified Plan; provided,
however, the Board of Directors may not (a) change the total number of shares of
Common Stock available for options under the 1993 Non-Qualified Plan (except for
appropriate adjustments as described in the 1993 Non-Qualified Plan), (b)
materially modify the eligibility requirements of the 1993 Non-Qualified Plan,
(c) decrease the minimum option price or otherwise materially increase the
benefits accruing to participants under the 1993 Non-Qualified Plan, (d) extend
the duration of the 1993 Non-Qualified Plan, or (e) increase the maximum term of
the options; provided, further, no such action shall materially and adversely
affect any outstanding options without the consent of the respective optionees.
Federal Tax Consequences. Options granted under the 1993 Non-Qualified
Plan are not intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986 as amended (the "Code"), but
rather are considered to be so-called non-qualified stock options for federal
income tax purposes. No income will be recognized by a recipient at the time of
the grant of a non-qualified stock option. On exercise of a
17
<PAGE>
non-qualified stock option, the amount by which the fair market value of the
Common Stock on the date of exercise exceeds the option exercise price will be
taxable to the recipient as ordinary income. The subsequent disposition of
shares acquired upon exercise of a non-qualified stock option will ordinarily
result in capital gain or loss.
A recipient who is an officer or a director of the Company or a beneficial owner
of more than 10% of any class of registered equity securities of the Company
should consult with his or her tax advisor as to whether, as a result of Section
16(b) of the Exchange Act and the rules and regulations thereunder, the timing
of income recognition is deferred for any period following the exercise of a
non-qualified stock option (the "Deferral Period"). If there is a Deferral
Period, recognition of income by the recipient could, in certain instances, be
deferred until the expiration of the Deferral Period absent a written election
(pursuant to Section 83(b) of the Code) filed with the Internal Revenue Service
within 30 days after the date of transfer of the shares of Common Stock pursuant
to the exercise of the non-qualified stock option to include in income, as of
the transfer date, the excess (on such date) of the fair market value of such
shares over their exercise price. The ordinary income recognized with respect to
the transfer of shares to a Company employee upon exercise of a non-qualified
stock option will be subject to both wage withholding and employment taxes.
A recipient's tax basis and the shares of Common Stock received on exercise of a
non-qualified stock option will be equal to the amount of any cash paid on
exercise plus the amount of ordinary income recognized by such individual as a
result of the receipt of such shares. The recipient's holding period, for income
tax purposes, for the shares so acquired would begin just after the transfer of
the shares or, in the case of an officer or beneficial owner of more than 10% of
any class of registered equity securities of the Company who does not make a
Section 83(b) election, just after the expiration of any Deferral Period.
Generally, the Company will be entitled to a tax deduction in connection with
the recipient's exercise of a non-qualified stock option in an amount equal to
the income recognized by the recipient, subject to the possible application of
Sections 162(m) and 280G of the Code.
Section 162(m) of the Code denies a deduction to any publicly held corporation
for compensation paid to certain "covered employees" in a taxable year to the
extent that such compensation exceeds $1,000,000. "Covered employees" are a
corporation's chief executive officer on the last day of the taxable year and
any other individual whose compensation is required to be reported to
shareholders under the Exchange Act by reason of being among the four most
highly compensated officers (other than the chief executive officer) for the
taxable year and who are employed on the last day of the taxable year.
Compensation paid under certain qualified performance-based compensation
arrangements, which (among other things) provide for compensation based on
pre-established performance goals established by a compensation committee that
is composed solely of two or more "outside directors", is not considered in
determining whether a "covered employee's" compensation exceeds $1,000,000.
Whether an award of options under the 1993 Non-Qualified Plan will satisfy the
requirements of Section 162(m) of the Code for performance-based compensation
will depend upon the specific facts and circumstances existing at the time of
the issuance of the option. Accordingly, the income recognized in connection
with the awards under the 1993 Non-Qualified Plan may be included in a "covered
employee's" compensation for a purpose of determining whether such person's
compensation exceeds $1,000,000.
In the event that exercisability of an option granted under the 1993
Non-Qualified Plan is accelerated because of a change in ownership (as defined
in Code Section 280G(b)(2)) of the Company, a portion of the ordinary income to
the recipient resulting from the exercise of such option may, either alone or
together with any other payments made to the recipient, constitute an excess
parachute payment under Section 280G of the Code. In such event, subject to
certain exceptions, a portion of such amount would be nondeductible to the
Company and the recipient would be subject to a 20% excise tax on such portion
of such amount.
18
<PAGE>
Unless marked to the contrary, the shares of Common Stock
represented by the enclosed Proxy will be voted FOR the approval and adoption of
the Non-Qualified Stock Option Eligibility Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE NON-QUALIFIED STOCK OPTION ELIGIBILITY
AMENDMENT TO THE 1993 NON-QUALIFIED STOCK OPTION PLAN.
3. APPROVAL AND ADOPTION OF AN AMENDMENT TO THE COMPANY'S RESTRICTED
STOCK PLAN TO PROVIDE THAT DIRECTORS WILL BE ABLE TO RECEIVE AWARDS UNDER THE
RESTRICTED STOCK PLAN.
The Board of Directors of the Company is submitting to the shareholders
of the Company, for their approval and adoption, an amendment to the Company's
(the "Restricted Stock Plan"), a copy of which is attached hereto as Exhibit B
to provide that Directors of the Company will be able to receive awards under
the Restricted Stock Plan (the "Restricted Stock Eligibility Amendment"). On
September 16, 1998, the Board of Directors of the Company unanimously adopted
and approved the Restricted Stock Eligibility Amendment. The vote of a majority
of the shares of Common Stock present at the Annual Meeting is required to adopt
the Restricted Stock Eligibility Amendment. On June 9, 1997 the Board of
Directors awarded in the aggregate 90,000 shares of Common Stock of the Company
subject to the restrictions set forth in Section 6.7 of the Restricted Stock
Plan (the "Restricted Stock") to certain executive officers named in the Summary
Compensation Table (two of whom serve as Directors of the Company), and certain
other employees (subject to approval of the Restricted Stock Plan by the
Company's shareholders which approval was received on December 9, 1997). There
are currently approximately 90 employees, executive officers named in the
Summary Compensation Table and/or Directors eligible for awards under the
Restricted Stock Plan. As of October 22, 1998, there were three Directors of the
Company that did not serve as officers of the Company, and therefore, were not
previously eligible to receive awards under the Restricted Stock Plan.
Purpose.
The purpose of the Restricted Stock Plan is to advance the interests of
the Company and its shareholders by affording to key management employees an
opportunity to acquire or increase their proprietary interest in the Company by
purchasing Restricted Stock under the terms set forth therein. The Restricted
Stock Plan is intended to serve as an employment incentive through which the
Company seeks to motivate, retain and attract those highly competent individuals
upon whose judgment, initiative, leadership and continued efforts the success of
the Company in large measure depends. The Board has proposed to amend the
Restricted Stock Plan to provide that Directors of the Company will be eligible
to receive awards under the Restricted Stock Plan. The Board believes that the
ability to grant stock to Directors of the Company, thereby providing them with
the opportunity to acquire an equity investment in the Company, will stimulate
their efforts on the Company's behalf and may attract other qualified persons to
serve as directors of the Company.
19
<PAGE>
Summary of the Company's Restricted Stock Plan
The following is a summary of the material features of the Restricted
Stock Plan as currently in effect. This summary is in all respects qualified in
its entirety by reference to the complete text of the Restricted Stock Plan
attached hereto as Exhibit B.
Administration. The Plan is administered by the Board of Directors of
the Company. Subject to the express provisions of the Restricted Stock Plan, the
Board of Directors have the sole discretion and authority to determine (a) from
among eligible employees, and as amended, eligible Directors of the Company,
those who may purchase Restricted Stock, (b) the time or times at which
Restricted Stock may be purchased, (c) the number of shares of Restricted Stock
which may be purchased, (d) the duration of the restrictions on the Restricted
Stock, (e) the manner and type of restrictions to be imposed on the Restricted
Stock, and (f) the valuation of the consideration to be paid for the Restricted
Stock, provided that the consideration may not be less than the par value
thereof and that such consideration need not be the same for each grant
thereunder. Subject to the express provisions of the Restricted Stock Plan, the
Board of Directors also has the sole discretion and complete authority to
interpret the Restricted Stock Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the details and provisions of each
escrow agreement and stock purchase agreement executed by a Participant (as
defined below) pursuant to the Restricted Stock Plan, and to take all such other
and further steps as may or shall be necessary or advisable to administer the
Restricted Stock Plan.
Eligibility. Any key employee, and as amended Director, of the Company
is eligible to participate in the Restricted Stock Plan. The Board may select
any eligible key employee and/or Director ("Participant") who may purchase
shares of Common Stock in accordance with such determinations as the Board from
time to time in its sole discretion may make ("Restricted Stock"). The
Restricted Stock Plan does not entitle a Participant to purchase Restricted
Stock unless such Participant is selected by the Board of Directors. A
Participant who has been eligible and/or selected by the Board of Directors to
purchase Restricted Stock in one year may not necessarily be eligible and/or
selected to purchase Restricted Stock in subsequent years. The Board of
Directors may, before it approves the purchase of Restricted Stock or as a
condition of such approval, require the Participant by whom the purchase is to
be made to enter into an escrow agreement and/or stock purchase agreement with
the Company containing such terms and conditions as the Board of Directors may
prescribe. On September 16, 1998, the Board amended the Restricted Stock Plan,
subject to approval by the Company's shareholders, to permit the grant of awards
to Directors of the Company. As of October 22, 1998, there were three Directors
of the Company that did not serve as officers of the Company, and therefore,
were not previously eligible to receive awards under the Restricted Stock Plan.
20
<PAGE>
Shares. 300,000 shares of Common Stock (subject to adjustment) have
been reserved for issuance by the Company under the Restricted Stock Plan. Such
shares may consist, either in whole or in part, of the Company's authorized and
Unicode shares or the Company's authorized and issued shares thereafter
re-acquired by the Company and held in its treasury, as may from time to time be
determined by the Board of Directors. Any of such shares which remain unsold at
the termination of the Restricted Stock Plan shall cease to be reserved for the
purposes of the Restricted Stock Plan. The certificates representing Restricted
Stock shall each bear restrictive legends under the conditions set forth in
Section 6.7(d) of the Restricted Stock Plan. The holder of Restricted Stock
shall be a shareholder and have all the rights of a shareholder with respect to
such shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such shares; provided, that such
shares of Restricted Stock, and any new, additional or different securities the
holder may become entitled to receive with respect to such shares by virtue of a
stock split or stock dividend or any other change in the corporate or capital
structure of the Company, shall be subject to the restrictions imposed on the
Restricted Stock under the Restricted Stock Plan.
Restricted Stock Purchase. All Restricted Stock purchased pursuant to
the Restricted Stock Plan shall be authorized by minutes of a meeting or the
written consent of the Board of Directors, which shall specify the terms and
provisions to be contained in the stock purchase agreement and/or the escrow
agreement to be executed by the Participant, in accordance with the Restricted
Stock Plan. The Participant shall be required, at the time he or she purchases
Restricted Stock, to represent to the Company in writing that he or she will
hold the Restricted Stock for his or her own account for investment only and not
with a view to distribution or resale and that he or she will not make any sale,
transfer or other disposition of any shares of Restricted Stock purchased except
pursuant to registration under the Securities Act or pursuant to an opinion of
counsel satisfactory in form and substance to the Board of Directors, that the
sale, transfer or other disposition may be made without such registration. The
escrow agreement and the stock purchase agreement shall be executed by an
authorized officer of the Company. Notwithstanding anything contained in the
Restricted Stock Plan, the Restricted Stock purchased pursuant thereto must be
held for not less than six months following the date of acquisition.
Restricted Stock Purchase Price. The per share Restricted Stock price
shall be determined by the Board of Directors, but the per share price shall not
be less than the par value of the Common Stock of the Company on the date the
Restricted Stock is purchased. The purchase price for the Restricted Stock shall
be paid in cash.
21
<PAGE>
Adjustments. In the event that the Common Stock of the Company is
changed into or exchanged for a different number or kind of shares or other
securities of the Company or another corporation by reason of a merger,
consolidation or other reorganization, recapitalization, reclassification,
combination of shares, stock split-up or stock dividend, there will be
appropriate adjustments made to the aggregate number of shares of Restricted
Stock purchased under the Restricted Stock Plan, both as to the number or
subject shares and the price. In addition, any new or additional or different
shares or securities which are distributed to any Participant, in his/her
capacity as the owner of Restricted Stock purchased under the Restricted Stock
Plan, will bear a restrictive legend as set forth in the Restricted Stock Plan.
Restrictions. The Board of Directors may impose some or all of the
restrictions set forth in Section 6.7 of the Restricted Stock Plan and/or such
other restrictions on any shares sold pursuant to the Restricted Stock Plan as
they may deem advisable in their sole discretion, including without limitation,
restrictions under the Securities Act of 1933, as amended, under the
requirements of any stock exchange upon which such shares or shares of the same
class are then listed, and under any state or local blue sky or securities laws
applicable to such shares. Three of the restrictions imposed on Restricted Stock
in Section 6.7 of the Restricted Stock Plan include: (1) if a Participant's
employment with the Company is terminated by the Company based upon Discharge
For Cause (as defined in the Restricted Stock Plan) or by the act of the
Participant, and/or if a Director is removed for "cause" as defined in the
Company's By-laws, within five (5) years from the date Restricted Stock was
purchased under the Restricted Stock Plan, the Company shall have the option for
a period of sixty (60) days after such termination of employment and/or service
as a Director, to buy any or all of the shares purchased by such terminated
employee and/or former Director which are, at such time, subject to restriction
as provided in the applicable Stock Purchase Agreement, for an amount equal to
the Product of (x) the consideration paid by the terminated Participant to the
Company to acquire such shares, multiplied by (y) the number of shares which the
Company repurchases ("Repurchase Price"); (2) if a Participant shall, within
five (5) years from the date Restricted Stock shall have been purchased,
directly or indirectly, own, manage, operate, control, be employed by, or
participate in, as a partner, joint venturer, employee, agent, salesman,
officer, director, five percent (5%) shareholder, or be connected in any manner
with the ownership, management, operation, control, employment or participation
as a partner, joint venturer, employee, agent, salesman, officer, director, or
five percent (5%) shareholder, of any business similar to the type of business
conducted by the Company at that time, as determined in the sole discretion of
the Board of Directors, the Company shall have the option for a period of sixty
(60) days after such determination by the Board of Directors, to buy any or all
of the shares purchased by such Participant which are, at such time, subject to
restriction as provided in the applicable Stock Purchase Agreement, for an
amount equal to the Repurchase Price; (3) if, within twelve months of the date
on which Restricted Stock is purchased hereunder, the Company shall not have
filed a registration statement under the Securities Act for the offer and sale
of shares of its Common Stock and any such registration statement shall not have
been declared effective by the Securities and Exchange Commission, then the
Company shall have the option for a period of sixty (60) days after the end of
such twelve month period to buy any or all of the shares purchased hereunder for
an amount equal to the Repurchase Price.
22
<PAGE>
Removal of Restrictions. Certain of the restrictions under the
Restricted Stock Plan shall automatically terminate and the restrictions shall
be removed in accordance with Section 6.9 thereof, immediately following a
"Change of Control of the Company" and/or if the Participant is terminated by
the Company under circumstances which do not constitute a Discharge for Cause. A
"Change of Control of the Company" for the purposes of the Restricted Stock Plan
means a dissolution or liquidation of the Company or a merger, consolidation,
sale of all or substantially all of its assets, or other corporate
reorganization in which the Company is not the surviving corporation.
Transferability. No Restricted Stock shall be transferred by a Participant
otherwise than by Last Will and Testament or the laws of Descent and
Distribution.
Amendment and Termination of the Stock Plan. The Restricted Stock Plan
will terminate on May 28, 2002, unless terminated earlier by the Board of
Directors. No further shares of Restricted Stock shall be sold or issued after
the termination date. The termination of the Restricted Stock Plan, however,
shall not affect any restrictions previously imposed on shares issued pursuant
to the Restricted Stock Plan. The Board of Directors of the Company may, at any
time and from time to time, amend or modify the Restricted Stock Plan; provided,
however, that no amendment to the Restricted Stock Plan may provide for a
purchase price for the Restricted Stock of less than the par value thereof or
change the manner for removal of the restrictions set forth in Section 6.9
thereof.
Federal Tax Consequences. A Participant receiving Restricted Stock may
elect under Section 83(b) of the Code to include in ordinary income, as
compensation, at the time Restricted Stock is first transferred to him, the
excess of the fair market value of such shares at the time of the transfer over
the amount paid, if any, by the recipient for such shares. Unless an election
under Section 83(b) of the Code is timely made by the recipient (not later than
the expiration of thirty days following the time of the transfer of the stock to
him) taxable income will not be recognized by the recipient until such shares
are no longer subject to a substantial risk of forfeiture (the "Restrictions").
However, when the Restrictions lapse, the recipient will recognize ordinary
income in an amount equal to the excess of the fair market value of the Common
Stock on the date of lapse over the amount paid, if any, by the recipient for
such shares. Such ordinary income recognized by a recipient who is a Company
employee will be subject to both wage withholding and employment taxes.
If a Section 83(b) election is made, any dividends received on shares which are
subject to Restrictions will be treated as dividend income. If a recipient does
not make an election under Section 83(b), dividends received on the Common Stock
prior to the time the Restrictions on such shares lapse will be treated as
additional compensation income, and not dividend income, for federal income tax
purposes, and generally will be subject to wage withholding and employment
taxes.
A recipient's tax basis in Restricted Stock received pursuant to the Restricted
Stock Plan will be equal to the sum of the price paid for such shares, if any,
and the amount of ordinary income recognized by such recipient with respect to
the receipt of such shares or the lapse of Restrictions thereon. The recipient's
holding period for such shares for purposes of determining gain or loss on
subsequent sale will begin immediately after the transfer of such shares to the
recipient if a Section
23
<PAGE>
83(b) election is made with respect to such shares, or immediately after the
Restrictions on such shares lapse if no Section 83(b) election is made.
In general, a deduction will be allowed to the Company for federal income tax
purposes, subject to the application of Sections 162(m) and 280G of the Code, in
an amount equal to the ordinary income recognized by the recipient with respect
to restricted stock awarded pursuant to the Restricted Stock Plan. If,
subsequent to the lapse of Restrictions on his or her Common Stock, the
recipient sells such shares, the difference, if any, between the amount realized
from such sale and the tax basis of such shares will ordinarily result in
capital gain or loss.
If a Section 83(b) election is made and, before the Restrictions on the shares
lapse, the shares which are subject to such election are in effect forfeited:
(i) no deduction will be allowed to such recipient for the amount included in
the income of such recipient by reason of the Section 83(b) election, and (ii)
the recipient will realize a loss in an amount equal to the excess, if any, of
the amount paid by the recipient for such shares over the amount received by the
recipient upon forfeiture (which loss would ordinarily be a capital loss). In
such an event, the Company will be required to include in its income the amount
of any deduction previously allowable to it in connection with the transfer of
such shares. A recipient will realize gain in an amount equal to the excess, if
any, of the amount received by the recipient upon such resale or forfeiture over
the recipient's tax basis in such shares (which gain would ordinarily be capital
gain).
Section 162(m) of the Code denies a deduction to any publicly held corporation
for compensation paid to certain "covered employees" in a taxable year to the
extent that such compensation exceeds $1,000,000. "Covered employees" are a
corporation's chief executive officer and any other individual whose
compensation is required to be reported to shareholders under the Exchange Act
by reason of being among the four most highly compensated officers (other than
the chief executive officer) for the taxable year. Compensation paid under
certain qualified performance-based compensation arrangements which (among other
things) provide for compensation based on pre-established performance goals
established by a compensation committee that is composed solely of two or more
"outside directors", is not considered in determining whether a "covered
employee's" compensation exceeds $1,000,000. Awards under the Restricted Stock
Plan will not satisfy the requirements of Section 162(m) of the Code for
performance based compensation, so that the income recognized in connection with
the awards thereunder will be included in a "covered employee's" compensation
for purposes of determining whether such covered employee's compensation exceeds
$1,000,000.
In the event that the lapse of Restrictions on any shares awarded under the
Restricted Stock Plan is accelerated because of a change of ownership of the
Company (as defined in Code Section 280G(b)(2)), a portion of the income to the
recipient resulting from the lapse of such Restrictions, either alone or
together with any other payments made to the recipient, may constitute an excess
parachute under Section 280G of the Code. In such event, subject to certain
exceptions, a portion of such amount would be nondeductible to the Company and
the recipient would be subject to a 20% excise tax on such portion of such
amount.
24
<PAGE>
Unless marked to the contrary, the shares of Common Stock represented
by the enclosed Proxy will be voted FOR the approval and adoption of the
Restricted Stock Eligibility Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF RESTRICTED STOCK ELIGIBILITY AMENDMENT.
The following table sets forth the benefits or amounts that have been
allocated to each of the following groups under the 1993 Non-Qualified Plan and
the Restricted Stock Plan being acted upon.
AMENDED PLAN BENEFITS
1993 Non-Qualified Stock Option Plan and Restricted Stock Plan
<TABLE>
<CAPTION>
Group or Dollar Number of
Name and Position Value ($)(1) Options/Shares
1993 Non-Qualified Stock Option Plan:
<S> <C> <C>
Joel H. Girsky,
Chairman of the Board,
President and Treasurer $0 196,799
Charles B. Girsky,
Executive Vice President $0 40,000
Jeffrey D. Gash,
Vice President, Finance $0 19,033
Herbert Entenberg,
Vice President of Management Information
and Systems, and Secretary $0 11,167
Non-Executive-Officer
Directors as a Group $0 0
Executive Officers as a Group $0 266,999
Employees as a Group $0 128,834
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Group or Dollar Number of
Name and Position Value ($)(1) Options/Shares
Jaco Electronics, Inc. Restricted Stock Plan:
<S> <C> <C>
Joel H. Girsky,
Chairman of the Board,
President and Treasurer $ 68,750 25,000
Charles B. Girsky,
Executive Vice President $ 68,750 25,000
Jeffrey D. Gash,
Vice President, Finance $ 27,500 10,000
Herbert Entenberg,
Vice President of Management
Information and Systems, and Secretary $ 13,750 5,000
Non-Executive-Officer
Directors as a Group $ 0 0
Executive Officers as a Group $178,750 65,000
Employees as a Group $ 68,750 25,000
</TABLE>
(1) Based on the difference between the closing price of the Common Stock of
the Company, as listed on the Nasdaq National Market, on October 22, 1998
of $3.75, and (a) the fair market value (as defined under the 1993
Non-Qualified Plan) on the date of grant for options granted under the 1993
Non-Qualified Plan, between $4.13 per share and $12.75 per share, and (b)
the purchase price for shares of common stock granted under the Restricted
Stock Plan, which was $1.00 per share. Some of the options granted under
the 1993 Non-Qualified Plan are currently exercisable.
INDEPENDENT AUDITORS
The Board of Directors selected Grant Thornton LLP as independent auditors
for its fiscal year ended June 30, 1998. Grant Thornton LLP were also auditors
for the fiscal year ended June 30, 1997. The Company has not chosen an
independent auditor for the fiscal year ending June 30, 1999, as the Company,
historically, does not choose its auditors until near the end of the fiscal
year. Representatives of Grant Thornton LLP will be present at the Annual
Meeting, will be afforded an opportunity to make a statement, and will be
available to respond to appropriate inquiries from shareholders.
CERTAIN TRANSACTIONS
During the fiscal year ended June 30, 1998, the Company incurred
approximately $602,000 of rental expenses in connection with its main
headquarters and centralized inventory distribution facility, located in
Hauppauge, New York, which was paid to Bemar Realty Company ("Bemar"), the owner
of such premises. Bemar is a partnership consisting of Messrs. Joel Girsky and
Charles
26
<PAGE>
Girsky, both of whom are officers, directors and principal shareholders
of the Company. The lease on the property, which is net of all expenses,
including taxes, utilities, insurance, maintenance and repairs was renewed on
January 1, 1996 and expires on December 31, 2003. The Company believes, the
current rental rate is at its fair market value.
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of
the Common Stock (the "Ten Percent Shareholders") to file with the Securities
and Exchange Commission initial reports of beneficial ownership on Form 3 and
reports of changes in beneficial ownership on Form 4 or Form 5. Executive
officers, directors, and Ten Percent Shareholders are required to furnish the
Company with copies of such Forms. Based solely on a review of such Forms
furnished to the Company, the Company believes that during Fiscal 1998, the
Company's executive officers, directors, and Ten Percent Shareholders complied
with all applicable Section 16(a) filing requirements.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
The Company currently anticipates holding its next annual meeting of
shareholders on or about December 6, 1999 (the "1999 Annual Shareholder
Meeting").
Shareholder Proposals. Proposals of shareholders intended to be presented
at the Company's 1999 Shareholder Meeting (i) must be received by the Company at
its offices no later than June 15, 1999, (ii) may not exceed 500 words and (iii)
must otherwise satisfy the conditions established by the Commission for
stockholder proposals to be included in the Company's Proxy Statement for that
meeting.
Discretionary Proposals. Shareholders intending to commence their own proxy
solicitations and present proposals from the floor of the 1999 Annual
Shareholder Meeting in compliance with Rule 14a-4 promulgated under the Exchange
Act of 1934, as amended, must notify the Company before September 17, 1999, of
such intentions. After such date, the Company's proxy in connection with the
1999 Annual Shareholder's Meeting may confer discretionary voting authority on
the Board.
27
<PAGE>
GENERAL
The Board of Directors knows of no other matters which are likely to be
brought before the Annual Meeting. If, however, any other matters are properly
brought before the Annual Meeting, the persons named in the enclosed proxy or
their substitutes shall vote thereon in accordance with their judgment pursuant
to the discretionary authority conferred by the form of proxy.
By Order of the Board of Directors,
Joel H. Girsky, Chairman
Hauppauge, New York
November 2, 1998
28
<PAGE>
EXHIBIT A
JACO ELECTRONICS, INC.
1993 Non-Qualified Stock Option Plan
As Amended on September 16, 1998
1. Purpose: The purpose of the Jaco Electronics, Inc. 1993 Non-Qualified Stock
Option Plan (the "Plan") as hereinafter set forth, is to enable Jaco
Electronics, Inc., ("Jaco") a New York corporation, and its affiliated companies
(hereinafter referred to, individually and/or collectively, as the
"Corporation") to attract and retain the best available personnel for positions
of substantial responsibility and to provide additional incentives to officers,
members of the Board of Directors of the Corporation ("Directors"), and/or other
key employees of the Corporation and any future parent or subsidiary of the
Corporation to promote the success of the Corporation. Options granted under the
Plan are not intended to be incentive stock options under Internal Revenue Code
ss. 422. Proceeds of cash or property received by the Corporation from the sale
of common stock of the Corporation pursuant to options granted under the Plan
will be used for general corporate purposes.
2. Administration.
(a) The Plan shall be administered by a committee (the "Committee")
composed of either the entire Board of Directors (the "Board") of the
Corporation, or a committee thereof appointed by the Board. The Committee shall
be composed of not less than two (2) directors. If the Committee is composed of
other than the entire Board, all of the members of the Committee shall be
"Non-Employee Directors", as such term is defined in subparagraph 2(b) hereof.
In addition, the Committee may (but need not) be composed of members
characterized as "outside directors" within the meaning of the Treasury
Department Regulations interpreting Section 162(m) of the Internal Revenue Code.
The Committee may have responsibilities in addition to the administration of the
Plan. The Executive Committee or Compensation Committee of the Board may be
designated as the Committee which administers the Plan. Subject to the express
provisions of the Plan, the Committee may interpret the Plan, prescribe, amend
and rescind rules and regulations relating to it, determine the terms and
provisions of participants' agreements (which need not be identical) and make
such other determinations as it deems necessary or advisable for the
administration of the Plan. The decisions of the Committee on matters within
their jurisdiction under the Plan shall be conclusive and binding. No member of
the Committee shall be liable for any action taken or determination made in good
faith.
(b) The term "Non-Employee Director" as used in this Plan, shall mean a
director of the Company who satisfies the definition thereof under Rule 16b-3
promulgated under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Any such person shall
A-1
<PAGE>
comply with the requirements of Rule 16b-3 promulgated under the Exchange Act,
as from time to time in effect.
3. Eligibility. Options may be granted under this Plan to any employee and/or
Director of the Corporation or its affiliates, who, in the opinion of the
Committee, has or is expected to make key contributions to the success of the
Corporation. The Committee shall determine, within the limits of the express
provisions of the Plan, those employees and/or Directors to whom, and the time
or times at which, options shall be granted. The Committee shall also determine
the number of shares to be subject to each option, the duration of each option,
the exercise price (option price) under each option, the time or times within
which (during the term of the option) all or portions of each option may be
exercised, and whether cash, common stock of the Corporation, or other property
may be accepted in full or partial payment upon exercise of an option. In making
such determinations, the Committee may take into account the nature of the
services rendered by the employee and/or Director, his/her present and potential
contributions to the Corporation's success and such other factors as the
Committee in its discretion shall deem relevant.
4. Common Stock. Options may be granted for a number of shares not to exceed, in
the aggregate, 600,000 shares of common stock of the Corporation, $0.10 par
value per share ("Common Stock"), except as such number of shares shall be
adjusted in accordance with the provisions of Section 6 hereof. No single
individual may be granted in any one calendar year options to purchase more than
150,000 shares of Common Stock (as such number of shares may be adjusted in
accordance with the provisions of Section 6 hereof). Such shares may be either
authorized but unissued shares or reacquired shares or other treasury shares. In
the event that any option granted under the Plan expires unexercised, or is
surrendered by a participant for cancellation, or is terminated or ceases to be
exercisable for any other reason without having been fully exercised prior to
the end of the period during which options may be granted under the Plan, the
shares which had been subject to such option, or to the unexercised portion
thereof, shall again become available for new options to be granted under the
Plan to any eligible employee and/or Director (including the holder of such
former option) at an option price determined in accordance with Section 5(a)
hereof, which price may then be greater or less than the option price of such
former option.
5. Required Terms and Conditions of Options. The options granted under the Plan
shall be in such form and upon such terms and conditions as the Committee shall
from time to time determine subject to the provisions of the Plan, including the
following:
(a) Option Price. The option price of each option to purchase Common Stock
shall be at either 100% of the Fair Market Value (as defined below) of the
Common Stock subject to such option at the time such option is granted, or at
such value to be determined in accordance with procedures established by the
Committee; provided that the option price shall in no event be less than the par
value of the Common Stock subject to such option. As used herein, Fair Market
Value shall mean the closing price of the Common Stock as reported by the
National Association of Securities Dealers (as published by the Wall Street
Journal, if published).
A-2
<PAGE>
(b) Maximum Term. No option shall be exercisable after the expiration of
five years from the date it is granted.
(c) Installment Exercise Limitations. At the discretion of the Committee,
options may become exercisable in such number of cumulative annual installments
as the Committee may establish.
(d) Termination of Option. In the event an optionee shall cease to be
employed by and/or serve as a Director of the Corporation for any reason other
than death, the optionee shall have the right, subject to the provisions of
Sections 5(b) and 6 hereof, to exercise his option at any time within three
months after such cessation of employment and/or termination of service as a
Director, but only as to such number of shares as to which his option was
exercisable at the date of such cessation of employment and/or termination of
service as a Director. Notwithstanding the provisions of the preceding sentence,
(i) if cessation of employment and/or termination of service as a Director
occurs by reason of the disability (within the meaning of Section 22(e)(3) of
the Internal Revenue Code), such three month period shall be extended to six
months; and (ii) if employment is terminated at the request of the Corporation
for "cause", and/or a Director is removed for "cause" as defined in the
Corporation's By-laws, the participant's right to exercise his option shall
terminate at the time notice of termination of employment and/or removal is
given by the Corporation to such optionee. For purposes of this provision, for
optionees, other than Directors, "cause" shall include: (i) committing a
criminal act against, or in derogation of the interest of the Corporation, (ii)
divulging confidential information about the Corporation; (iii) interfering with
the relationship between the Corporation and any supplier, client, customer or
similar person; or (iv) performing any similar action that the Committee, in its
sole discretion, may deem to be sufficiently injurious to the interest of the
Corporation to constitute "cause" for termination. If a participant dies while
in the employ and/or while serving as a Director of the Corporation or its
subsidiaries or within three months after cessation of such employment and/or
service as a Director, his estate, personal representative or the person that
acquires his option by bequest or inheritance or by reason of his death shall
have the right, subject to the provisions of Section 5(b) and 6 hereof, to
exercise his option at any time within three months from the date of his death,
but only as to the number of shares as to which his option was exercisable on
the date of his death. In any such event, unless so exercised within the period
as aforesaid, the option shall terminate at the expiration of said period. The
time of cessation of employment and whether an authorized leave of absence or
absence on military or government service shall constitute cessation of
employment, for the purpose of the Plan, shall be determined by the Committee.
(e) Method of Exercise. Options may be exercised by giving written notice
to the Treasurer of the Corporation, stating the number of shares of Common
Stock with respect to which the option is being exercised and tendering payment
therefor. Payment for Common Stock, whether in cash or other shares of Common
Stock shall be made in full at the time that an option, or any part thereof, is
exercised. Notwithstanding the foregoing, payment for Common Stock may not be
made with other shares of Common Stock acquired through previous exercise of a
stock option under this Plan if such Common Stock has not been held by the
participant at least six months from date of exercise.
A-3
<PAGE>
6. Adjustments.
(a) The aggregate number of shares of Common Stock with respect to which
options may be granted hereunder and the number of shares of Common Stock
subject to each outstanding option, may all be appropriately adjusted, as the
Committee may determine, for any increase or decrease in the number of shares of
issued Common Stock resulting from a subdivision or consolidation of shares
whether through reorganization, payment of a share dividend or other increase or
decrease in the number of such shares outstanding effected without receipt of
consideration by the Corporation; provided, however, that no adjustment in the
number of shares with respect to which options may be granted under the Plan or
in the number of shares subject to outstanding options shall be made except in
the event, and then only to the extent, that such adjustment, together with all
respective prior adjustments which were not made as a result of this provision,
involves a net change of more than ten percent (i) from the number of shares of
Common Stock with respect to which options may be granted under the Plan or (ii)
with respect to each outstanding option, from the respective number of shares of
Common Stock subject thereto on the date of grant thereof.
(b) Subject to any required action by the shareholders, if the Corporation
shall be a party to a transaction involving a sale of substantially all its
assets, a merger or a consolidation, any option granted hereunder shall pertain
to and apply to the securities to which a holder of the number of shares of
Common Stock subject to the option would have been entitled if he actually owned
the stock subject to the option immediately prior to the time any such
transaction became effective; provided, however, that all unexercised options
under the Plan may be canceled by the Corporation as of the effective date of
any such transaction, by giving notice to the holders thereof of its intention
to do so and by permitting the exercise, during the 30-day period preceding the
effective date of such transaction of all partly or wholly unexercised options
in full (without regard to installment exercise limitations).
(c) In the case of dissolution of the Corporation, every option outstanding
hereunder shall terminate; provided, however that each option holder shall have
30 days' prior written notice of such event, during which time he shall have a
right to exercise his partly or wholly unexercised option (without regard to
installment exercise limitations).
(d) On the basis of information known to the Corporation, the Committee
shall make all determinations under this Section 6, including whether a
transaction involves a sale of substantially all of the Corporation's assets;
and all such determinations shall be conclusive and binding.
7. Option Agreements. Each optionee shall agree to such terms and conditions in
connection with the exercise of an option, including restrictions on the
disposition of the Common Stock acquired upon the exercise thereof, as the
Committee may deem appropriate. Option agreements need not be identical. The
certificates evidencing the shares of Common Stock acquired upon exercise of an
option may bear a legend referring to the terms and conditions contained in the
A-4
<PAGE>
respective option agreement and the Plan, and the Corporation may place a stop
transfer order with its transfer agent against the transfer of such shares.
8. Certain Legal and Other Requirements.
(a) The obligation of the Corporation to sell and deliver Common Stock
under options granted under the Plan shall be subject to all applicable laws,
regulations, rules and approvals, including, but not by way of limitation, the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, or any state securities laws, if deemed necessary or appropriate by the
Board, of the Common Stock reserved for issuance upon exercise of options.
Nothing herein shall be construed to obligate the Corporation to effect any such
registration or qualification. The certificates evidencing the Common Stock
issued upon exercise of options may be legended to indicate a lack of such
registration or qualification. The Corporation may require any optionee, as a
condition of exercising his option, or at any time thereafter, to represent in
writing that he is acquiring (or has acquired) the Common Stock for his own
account and not with a view to distribution; notwithstanding the foregoing, the
Corporation's failure or refusal to request and/or obtain such representation
shall not be construed as a waiver of any provision hereof.
(b) A participant shall have no rights as a shareholder with respect to any
shares covered by an option granted to, or exercised by, him until the date of
delivery of a stock certificate to him for such shares. No adjustment other than
pursuant to Section 6 hereof shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is delivered.
9. Non-transferability. During the lifetime of an optionee, any option granted
to him shall be exercisable only by him or by his guardian or legal
representative. No option shall be assignable or transferable, except by will or
by the laws of descent and distribution. The granting of an option shall impose
no obligation upon the employee and/or Director to exercise such option or
right.
10. No Contract of Employment. Neither the adoption of this Plan nor the grant
of any option shall be deemed to obligate the Corporation to continue the
employment or service of any optionee for any particular period, nor shall the
granting of an option constitute a request or consent to postpone the retirement
date of any employee and/or the resignation date of any Director.
11. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Corporation against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding (or in
connection with any appeal therein) to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as
A-5
<PAGE>
to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for gross negligence or misconduct in the performance
of his duties; provided that within 60 days after institution of any such
action, suit or proceeding, a Committee member shall, in writing, offer the
Corporation the opportunity, at its own expense, to handle and defend the same.
12. Termination and Amendment of Plan. No options shall be granted under the
Plan more than ten years after the date the Plan was adopted. The Board, acting
by a majority of its members, without further action on the part of the
shareholders, may from time to time alter, amend or suspend the Plan or any
option granted hereunder or may at any time terminate the Plan; provided,
however, that the Board may not (i) change the total number of shares of Common
Stock available for options under the Plan, except as provided in Section 6
hereof, (ii) extend the duration of the Plan, (iii) increase the maximum term of
options, (iv) decrease the minimum option price or otherwise materially increase
the benefits accruing to participants under the Plan, or (v) materially modify
the eligibility requirements of the Plan; and provided further, that no such
action shall materially and adversely affect any outstanding options without the
consent of the respective optionees.
13. Effective Date. The Plan shall become effective upon adoption by the Board;
provided, however, that it shall be submitted for approval by the holders of a
majority of the outstanding shares of Common Stock of the Corporation within
twelve months thereafter, and options made available prior to such shareholder
approval shall become null and void if such shareholder approval is not
obtained.
A-6
<PAGE>
EXHIBIT B
JACO ELECTRONICS, INC.
RESTRICTED STOCK PLAN
(Limited to 300,000 Shares)
as Amended on September 16, 1998
ARTICLE I
DEFINITIONS
1.1 As used herein, the following terms have the meanings hereinafter
set forth unless the context clearly indicates to the contrary:
(i) "Board" shall mean the Board of Directors of the Company.
(ii) "Change of Control of the Company" shall have the meaning
given in Section 6.7 hereof.
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(iv) "Common Stock" shall mean the common stock of the
Company, par value $.10 per share.
(v) "Company" shall mean Jaco Electronics, Inc., a New York
corporation.
(vi) "Discharge for Cause" shall mean termination of
employment due to (i) such acts or conduct on the part of the Participant which
is contrary to the interests of the Company, as determined by the Board; (ii)
the occurrence of an event described in Section 6.7(b) hereof; (iii) the
commission of any crime or act of material dishonesty by the Participant; or
(iv) the commission of any willful, malicious, grossly negligent or reckless act
by the Participant which is deemed, in the reasonable judgment of the Board,
detrimental to the business, prospects or reputation of the Company.
Notwithstanding anything to the contrary contained herein, however, the term
"Discharge for Cause" or "Cause" shall not include a determination by a Board
constituted at any time following a Change of Control of the Company (as defined
below).
(vii) "Effective Date of the Plan" shall be as defined in
Section 2.3 hereof.
B-1
<PAGE>
(viii) "Escrow Agent" shall mean any escrow agent or its
successor designated by the Board to act under the provisions of the Escrow
Agreement.
(ix) "Escrow Agreement" shall mean the form of escrow
agreement as determined from time to time by the Board.
(x) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(xi) "Fair Market Value" shall mean, in the event that the
Stock is not listed on a national securities exchange, such value as may be
determined by the Board, or, in the event that the Stock is listed on Nasdaq (or
any other exchange on which it may be listed), the average of the highest price
and the lowest price per share at which the Stock is sold in the regular way on
Nasdaq (or any other exchange on which it may be listed) on the day Restricted
Stock is purchased hereunder, or in the absence of any reported sales on such
day, the first preceding day on which there were such sales, provided such price
shall not be less than the par value of the Stock.
(xii) "Key Management Employees" shall mean officers of the
Company and those key or outstanding employees of the Company, from time to
time, designated by the Board.
(xiii) "Participant" shall mean a person who has purchased
Restricted Stock pursuant to the provisions hereof and which has not been
forfeited under the Plan.
(xiv) "Plan" shall mean the Jaco Electronics, Inc. Restricted
Stock Plan, the terms of which are set forth herein.
(xv) "Restricted Stock" shall mean Common Stock delivered to
or held by a Participant which is subject to the restrictions described in
Section 6.7 hereof and any new, additional or different stock or securities of
the Company or some other corporation, which a Participant may become entitled
to receive with respect to such shares by virtue of a stock split or stock
dividend or any other change in the corporate or capital structure of the
Company. Shares of Restricted Stock delivered pursuant to the Plan, at the
election of the Board, may consist either in whole or in part of the Company's
authorized and unissued shares or the Company's authorized and issued shares
thereafter re-acquired by the Company and held in its treasury, as may from time
to time, be determined by the Board.
(xvi) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(xvii) "Stock" shall mean the Common Stock of the Company or,
in the event that the outstanding shares of Stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Company or some
other corporation, any new, additional or different stock or securities of the
Company or some other corporation. Shares of Stock delivered pursuant to the
Plan, at the election of the Board, may consist either in whole or in part of
the Company's authorized
B-2
<PAGE>
and unissued shares or the Company's authorized and issued shares thereafter
re-acquired by the Company, and held in its treasury, as may from time to time
be determined by the Board.
(xviii) "Stock Purchase Agreement" shall mean the form of
stock purchase agreement as determined from time to time by the Board.
(xix) "Subsidiary" shall mean any corporation, the majority of
the outstanding capital stock of which is owned, directly or indirectly, by the
Company, and as defined in Section 425 of the Code.
ARTICLE 2
THE PLAN
2.1 Name. This Plan shall be known as the "Jaco Electronics, Inc.
Restricted Stock Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording Key Management Employees and/or
members of the Board of Directors of the Company ("Directors"), an opportunity
to acquire or increase their proprietary interest in the Company by purchasing
Restricted Stock under the terms set forth herein. This Plan is intended to
serve as an employment and/or service incentive through which the Company seeks
to motivate, retain and attract those highly competent individuals upon whose
judgment, initiative, leadership and continued efforts the success of the
Company in large measure depends.
2.3 Effective Date. The Plan shall become effective upon the earlier of
the date of its adoption by the Board, or its approval by the holders of a
majority of the shares of Common Stock of the Company represented by the next
annual or special meeting of the shareholders of the Company.
ARTICLE 3
PARTICIPANTS
Any Key Management Employee and/or Director of the Company shall be
eligible to participate in the Plan. The Board may select any eligible Key
Management Employee and/or Director who may purchase Restricted Stock in
accordance with such determinations as the Board from time to time in its sole
discretion shall make. The Plan does not entitle an eligible Key Management
Employee and/or Director to purchase Restricted Stock unless such employee
and/or Director is selected by the Board. A Key Management Employee and/or
Director who has been eligible and/or selected by the Board to purchase
Restricted Stock in one year may not necessarily be eligible and/or selected to
B-3
<PAGE>
purchase Restricted Stock in subsequent years. The Board may, before it approves
the purchase of Restricted Stock or as a condition of such approval, require the
Participant by whom the purchase is to be made to enter into an Escrow Agreement
and/or Stock Purchase Agreement with the Company containing such terms and
conditions as the Board may prescribe. Nothing contained in the Plan shall give
any employee the right to be retained in the employ of the Company and/or any
Director the right of continued service as a director of the Company or affect
the right of the Company to dismiss any employee and/or any Director. The
adoption of the Plan shall not constitute a contract between the Company and any
employee or any Director.
ARTICLE 4
ADMINISTRATION
4.1 Duties and Powers of the Board. The Plan shall be administered by
the Board. Subject to the express provisions of the Plan, the Board shall have
the sole discretion and authority to determine (a) from among eligible Key
Management Employees and/or Directors those who may purchase Restricted Stock,
(b) the time or times at which Restricted Stock may be purchased, (c) the number
of shares of Restricted Stock which may be purchased, (d) the duration of the
restrictions on the Restricted Stock, (e) the manner and type of restrictions to
be imposed on the Restricted Stock, and (f) the valuation of the consideration
to be paid for the Restricted Stock, provided that the consideration may not be
less than the par value thereof and that such consideration need not be the same
for each grant hereunder. Subject to the express provisions of the Plan, the
Board shall also have the sole discretion and complete authority to interpret
the Plan, to prescribe, amend, and rescind rules and regulations relating to it,
to determine the details and provisions of each Escrow Agreement and Stock
Purchase Agreement, and to take all such other and further steps as may or shall
be necessary or advisable to administer the Plan.
The Board may employ such legal counsel, consultants and agents as they
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant. None of the members of the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Restricted Stock purchased under it and the Company
shall indemnify and hold harmless each member of the Board against any
liability, cost or expense (including reasonable counsel fees) arising out of
any act or omission to act in connection with the Plan, unless arising out of
such person's own fraud, bad faith or willful misconduct.
4.2 Majority Rule. Any resolution adopted by the Board in accordance
with the by-laws of the Company, and provided a quorum is present in accordance
with such by-laws, shall be deemed sufficient for purposes of taking any action
required to be taken by the Board hereunder.
4.3 Company Assistance. The Company shall supply full and timely
information to the Board on all matters relating to Participants, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the Board may require. The Company
B-4
<PAGE>
shall furnish the Board with such clerical and other assistance as is necessary
in the performance of their duties.
ARTICLE 5
SHARES OF RESTRICTED STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to adjustment pursuant to the provisions of
Section 5.3 hereof, the number of shares of Restricted Stock which may be issued
and sold hereunder shall not exceed Three Hundred Thousand (300,000) shares.
Such shares may consist, either in whole or in part, of the Company's authorized
and unissued shares or the Company's authorized and issued shares thereafter
re-acquired by the Company and held in its treasury, as may from time to time be
determined by the Board. Any of such shares which remain unsold at the
termination of the Plan shall cease to be reserved for the purposes of the Plan.
5.2 Shareholder Approval. The Company may, but shall not be required
to, issue or deliver any certificate for restricted stock which may be purchased
under the Plan, prior to approval of the Plan by a resolution adopted by the
holders of a majority of the outstanding shares of Stock of the Company present
at an annual or special meeting of shareholders. If such shareholder approval is
not obtained, the Company may determine that Restricted Stock previously
purchased pursuant to the Plan shall be void and thereupon the Company shall
have no liability whatsoever in connection with any such Restricted Stock other
than to return the purchase price paid therefor.
5.3 Antidilution. In the event that the Stock hereafter is changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of merger, consolidation, or other
reorganization, recapitalization, reclassification, combination of shares, stock
split-up, or stock dividend, then:
(a) The aggregate number and kind of shares in the Plan
shall be adjusted appropriately;
(b) The number of shares of Restricted Stock purchased by a
Participant pursuant hereto shall be adjusted appropriately, both as to
the number of subject shares and the price; and
(c) Such new or additional or different shares or securities
which are distributed to a Participant, in his capacity as the owner of
Restricted Stock purchased hereunder, shall be legended in accordance
with Section 6.7(d) hereof and shall be subject to all of the
conditions and restrictions applicable to Restricted Stock issued as
provided herein.
B-5
<PAGE>
Any adjustments required hereunder and the manner of application of the
foregoing provisions shall be determined solely by the Board, and any such
adjustment may provide for the elimination of fractional share interests.
ARTICLE 6
RESTRICTED STOCK PURCHASE
6.1 Restricted Stock Purchase. All Restricted Stock purchased pursuant
hereto shall be authorized by minutes of a meeting or the written consent of the
Board, which shall specify the terms and provisions to be contained in the Stock
Purchase Agreement and/or the Escrow Agreement, in accordance with the Plan. The
Escrow Agreement and the Stock Purchase Agreement shall be executed by an
authorized officer of the Company. Notwithstanding anything contained herein,
the Restricted Stock purchased pursuant hereto must be held for not less than
six months following the date of acquisition.
6.2 Restricted Stock Price. The per share Restricted Stock price shall
be determined by the Board, but the per share price shall not be less than the
par value of the Restricted Stock on the date the Restricted Stock is purchased.
The purchase price for the Restricted Stock shall be paid in cash.
6.3 Section 83(b) Election. A Participant who files an election with
the Internal Revenue Service to include the fair market value of any Restricted
Stock in gross income while it is still subject to restrictions shall promptly
furnish the Company with a copy of such election together with information as to
the amount of any federal, state, local or other taxes required to be withheld
to enable the Company to claim an income tax deduction with respect to such
election.
6.4 Withholding. All Restricted Stock purchased pursuant hereto and
dividends on such Restricted Stock shall be subject to withholding as required
by applicable federal, state and local laws, and the Board may make such
arrangements for the payment of any withholding taxes on Restricted Stock
purchased pursuant hereto as they deem satisfactory, including but not limited
to (i) reducing the number of shares of Restricted Stock otherwise deliverable,
based upon their Fair Market Value, to permit deduction of the amount of any
such withholding taxes from the amount which may otherwise be purchased under
the Plan, (ii) deducting the amount required to be withheld from salary or any
other amount then or thereafter payable to a Participant, and (iii) requiring a
Participant to pay to the Company the amount required to be withheld as a
condition of releasing the Restricted Stock and any other distributions related
thereto.
6.5 Nontransferability of Restricted Stock. Unless otherwise permitted
hereunder, no Restricted Stock shall be transferred by a Participant otherwise
than by Last Will and Testament or the laws of Descent and Distribution.
B-6
<PAGE>
At such time that a Participant purchases Restricted Stock pursuant
hereto, the Participant shall represent to the Company in writing that he or she
will hold the Restricted Stock for his or her own account for investment only
and not with a view to distribution or resale and that the Participant will not
make any sale, transfer or other disposition of any shares of Restricted Stock
purchased except pursuant to registration under the Securities Act or pursuant
to an opinion of counsel satisfactory in form and substance to the Board, that
the sale, transfer or other disposition may be made without such registration.
6.6 No Alienation of Benefits. Except insofar as may otherwise be
required by law, no Restricted Stock held at any time pursuant to an Escrow
Agreement shall be subject in any manner to alienation by anticipation, sale,
transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of
any kind nor in any manner be subject to the debts or liabilities of any person
and any attempt to so alienate or subject any such amount, whether presently or
thereafter payable, shall be void. If any person shall attempt to, or shall
alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumber
any Restricted Stock purchased under the Plan, or any part thereof, or if by
reason of his of her bankruptcy or other event happening at any such time such
amount would be made subject to his debts or liabilities or would otherwise not
be enjoyed by him or her, then the Board, if it so elects, may direct that such
Restricted Stock be withheld and that the same or any part thereof be paid or
applied to or for the benefit of such person, his or her spouse, children or
other dependents, or any of them, in such manner and proportion as the Board may
deem proper, in their sole discretion.
6.7 Restrictions Imposed. The Board may impose any or all of the
restrictions enumerated in subsections (a), (b) and (c) of this Section 6.7 or
such other restrictions as provided in subsection (e) below, with respect to any
Restricted Stock purchased hereunder:
(a) If a Participant's employment with the Company shall be
terminated by the Company based upon Discharge For Cause or by the act
of the Participant, and/or a Director shall be removed for "cause" as
defined in the Company's By-laws, within five (5) years from the date
Restricted Stock shall have been purchased hereunder, the Company shall
have the option for a period of sixty (60) days after such termination
of employment and/or termination of service as a Director, to buy any
or all of the shares purchased by such terminated employee and/or
Director which are, at such time, subject to restriction as provided in
the applicable Stock Purchase Agreement, for an amount equal to the
Product of (x) the consideration paid by the terminated employee and/or
Director to the Company to acquire such shares, multiplied by (y) the
number of shares which the Company repurchases ("Repurchase Price").
The provisions of this paragraph shall automatically terminate and the
restrictions shall be removed in accordance with Section 6.9 hereof,
immediately following a "Change of Control of the Company". A "Change
of Control of the Company" shall mean a dissolution or liquidation of
the Company or a merger, consolidation, sale of all or substantially
all of its assets, or other corporate reorganization in which the
Company is not the surviving corporation.
B-7
<PAGE>
(b) If a Participant shall, within five (5) years from the
date Restricted Stock shall have been purchased, directly or
indirectly, own, manage, operate, control, be employed by, or
participate in, as a partner, joint venturer, employee, agent,
salesman, officer, director, five percent (5%) shareholder, or be
connected in any manner with the ownership, management, operation,
control, employment or participation as a partner, joint venturer,
employee, agent, salesman, officer, director, or five percent (5%)
shareholder, of any business similar to the type of business conducted
by the Company at that time, as determined in the sole discretion of
the Board, the Company shall have the option for a period of sixty (60)
days after such determination by the Board, to buy any or all of the
shares purchased by such Participant which are, at such time, subject
to restriction as provided in the applicable Stock Purchase Agreement,
for an amount equal to the Repurchase Price. The provisions of this
paragraph shall automatically terminate and the restrictions shall be
removed in accordance with Section 6.9 hereof, immediately following a
Change of Control of the Company or if the Participant is terminated by
the Company under circumstances which do not constitute a Discharge for
Cause, and/or a removal for "cause" as defined in the Company's
By-Laws.
(c) If, within twelve months of the date on which Restricted
Stock is purchased hereunder, the Company shall not have filed a
registration statement under the Securities Act for the offer and sale
of shares of its Common Stock and any such registration statement shall
not have been declared effective by the Securities and Exchange
Commission, then the Company shall have the option for a period of
sixty (60) days after the end of such twelve month period to buy any or
all of the shares purchased hereunder for an amount equal to the
Repurchase Price.
(d) Stock certificates evidencing Restricted Stock purchased
by a Participant shall be issued and delivered in the sole name of the
Participant and each such certificate shall bear the following legends:
(i) "The shares of Jaco Electronics, Inc. $.10 par
value common stock evidenced by this certificate are subject
to repurchase by Jaco Electronics, Inc., and such shares may
not be sold or otherwise transferred, pledged or hypothecated
except pursuant to the provisions of the Escrow Agreement
and/or Stock Purchase Agreement by and between the Escrow
Agent, Jaco Electronics, Inc. and the registered owner of such
shares."; and
(ii) "This stock certificate may not be sold,
transferred, pledged or hypothecated unless it has first been
registered under the Securities Act of 1933, as amended, or
unless counsel for Jaco Electronics, Inc. has given an opinion
that registration under said Act is not required, except that
after a Change of Control of the Company, an opinion of
counsel that registration under said Act is not required, may
be provided by counsel independent of Jaco Electronics, Inc.
These shares are subject to the terms of an Escrow Agreement
and/or Stock Purchase Agreement with the Escrow Agent, Jaco
Electronics Inc. and the registered owner of such shares."
B-8
<PAGE>
No such share may be sold, transferred, or otherwise alienated
or hypothecated so long as the certificate evidencing such share bears
the legends provided above.
The foregoing provisions in subsection (d) hereof shall not be
effective if and to the extent that the shares of Stock delivered under
the Plan are covered by an effective and current registration statement
under the Securities Act, or if and so long as the Board determines
that application of such provisions is no longer required. In making
such determination, the Board shall rely upon an opinion of counsel for
the Company, except that after a Change of Control of the Company, an
opinion of counsel that registration under the Securities Act is not
required may be provided by counsel independent of the Company.
(e) The Board may impose some or all of the restrictions set
forth in this Section and/or such other restrictions on any shares sold
pursuant to the Plan as they may deem advisable in their sole
discretion, including without limitation, restrictions under the
Securities Act, under the requirements of any stock exchange upon which
such shares or shares of the same class are then listed, and under any
state or local blue sky or securities laws applicable to such shares.
(f) In the event the Company exercises its sixty (60) day
option with respect to any shares, the Company may set off the
Repurchase Price from any obligation or liability to a Participant,
whether as compensation or otherwise.
6.8 Rights as Shareholder. Subject to the provisions of Section 6.9
hereof, a certificate or certificates for all shares of Restricted Stock
registered in the name of a Participant shall be delivered to him or her as soon
as reasonably practicable and he or she shall thereupon be a shareholder and
have all the rights of a shareholder with respect to such shares, including the
right to vote and receive all dividends or other distributions made or paid with
respect to such shares; provided, that such shares of Restricted Stock, and any
new, additional or different securities the Participant may become entitled to
receive with respect to such shares by virtue of a stock split or stock dividend
or any other change in the corporate or capital structure of the Company, shall
be subject to the restrictions theretofore imposed on the Restricted Stock.
6.9 Removal of Restrictions. (a) If (i) a Participant shall die, retire
or become permanently and totally disabled as determined in accordance with
applicable Company personnel policies, or (ii) there is a Change of Control of
the Company, at any time within five (5) years from the date Restricted Stock
shall have been purchased hereunder, the events of forfeiture specified in
Section 6.7(a) and (b) hereof (but not Section 6.7(c)) or as otherwise
determined by the Board shall terminate, and upon surrender and presentation to
the Company of the legended certificates evidencing such shares, replacement
certificates shall be issued and delivered to the Participant, free from the
legend provided for in Section 6.7(d)(i) hereof or any other restrictions on the
sale or other transfer of such shares, pursuant to the Plan, but legended in
accordance with Section 6.7(d)(ii) hereof, and such shares shall, nonetheless,
remain subject to the Securities Act and the Exchange Act, unless an opinion of
counsel is provided in accordance with Section 6.7(d) hereof.
B-9
<PAGE>
(b) If the Company chooses not to exercise its sixty (60) day
option with respect to any shares or such sixty (60) day option period
has expired pursuant to Section 6.7(a) hereof, the events of forfeiture
specified in Section 6.7(a) hereof shall terminate, and upon surrender
and presentation to the Company of the legended certificates evidencing
such shares, replacement certificates shall be issued and delivered to
the Participant, free from the legend provided for in Section 6.7(d)(i)
hereof or any other restrictions on the sale or transfer of such
shares, pursuant to the Plan, but legended in accordance with Section
6.7(d)(ii) hereof, and such shares shall, nonetheless, remain subject
to the Securities Act and the Exchange Act, unless an opinion of
counsel is provided in accordance with Section 6.7(d) hereof.
(c) If the Company chooses not to exercise its sixty (60) day
option with respect to any shares or such sixty (60) day option period
has expired pursuant to Section 6.7(b) hereof, the events of forfeiture
specified in Section 6.7(b) hereof shall terminate, and upon surrender
and presentation to the Company of the legended certificates evidencing
such shares, replacement certificates shall be issued and delivered to
the Participant, free from the legend provided for in Section 6.7(d)(i)
hereof or any other restrictions on the sale or transfer of such
shares, pursuant to the Plan, but legended in accordance with Section
6.7(d)(ii) hereof, and such shares shall, nonetheless, remain subject
to the Securities Act and the Exchange Act, unless an opinion of
counsel is provided in accordance with Section 6.7(d) hereof.
(d) If a Participant's Stock Purchase Agreement provides for
the release from restriction of portions of the Restricted Stock upon
the passage of time, then upon the passage of such time periods, the
events of forfeiture specified in Section 6.7(a) and 6.7(b) hereof
shall terminate as to such portions of the Restricted Stock and upon
surrender and presentation to the Company of the legended certificates
evidencing such shares, replacement certificates shall be issued and
delivered to the Participant, free from the legend provided for in
Section 6.7(d)(i) hereof or any other restrictions on the sale or
transfer of such shares, pursuant to the Plan, but legended in
accordance with Section 6.7(d)(ii) hereof, and such shares shall,
nonetheless, remain subject to the Securities Act and the Exchange Act,
unless an opinion of counsel is provided in accordance with Section
6.7(d) hereof.
6.10 Escrow. In order to enforce the restrictions imposed upon shares
issued under the Plan, the Board may require any Participant to deposit with the
Escrow Agent all certificates for Restricted Stock together with stock powers,
appropriately endorsed in blank and to enter into an Escrow Agreement providing
that the certificates representing shares issued pursuant to the Plan shall
remain in the physical custody of the Escrow Agent until any or all of the
restrictions imposed pursuant to the Plan have terminated.
B-10
<PAGE>
ARTICLE 7
STOCK CERTIFICATES
The Company may, but shall not be required to, issue or deliver any
certificate for shares of Restricted Stock purchased hereunder or any portion
thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any federal or state law or under the rules or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Board shall in their sole
discretion deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Board shall in their
sole discretion determine to be necessary or advisable;
(d) Compliance with all terms and provisions of the Plan, the
Stock Purchase Agreement and the Escrow Agreement;
(e) The lapse of such reasonable period of time following the
purchase of the Restricted Stock as the Board from time to time in
their sole discretion may establish for reasons of administrative
convenience; and
(f) The approval of the Plan by the holders of a majority of
the shares of Stock of the Company present at an annual or special
meeting of the shareholders of the Company; and
Nothing herein contained shall be construed as imposing any obligation on the
Board or the Company to undertake or complete any act with respect to
subparagraphs (a), (b) and (c) of this Article VII.
ARTICLE 8
TERMINATION, AMENDMENT, AND MODIFICATION OF PLAN
8.1 Termination. The Plan shall terminate and no further shares shall
be sold or issued hereunder on or after the fifth anniversary of the Effective
Date, or such earlier date as may be determined by the Board. The termination of
the Plan, however, shall not affect any restrictions previously imposed on
shares issued pursuant to the Plan.
B-11
<PAGE>
8.2 Amendment and Modification. The Board may at any time terminate,
and may at any time and from time to time and in any respect amend or modify,
the Plan; provided, however, that no amendment to the Plan may provide for a
purchase price for the Restricted Stock of less than the par value thereof or
change the manner for removal of the restrictions set forth in Section 6.9
hereof.
No termination, amendment, or modification of the Plan shall in any
manner affect any Stock Purchase Agreement or Escrow Agreement theretofore
executed pursuant to the Plan without the consent of the Participant.
ARTICLE 9
MISCELLANEOUS
9.1 Employment. Nothing in the Plan or in any Stock Purchase Agreement
relating hereto shall confer upon any employee the right to continue in the
employ of the Company.
9.2 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company, nor shall the Plan preclude the Company from establishing any other
forms of incentive or other compensation plans for employees and/or Directors of
the Company.
9.3 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
9.4 Singular, Plural, Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
9.5 Headings, etc., No Part of Plan. Headings or Articles and Sections
hereof are inserted for convenience and reference and they constitute no part of
the Plan.
9.6 Unfunded Plan. The Plan is intended to constitute an unfunded
deferred compensation arrangement for a select group of management, key or
outstanding personnel.
B-12
<PAGE>
JACO ELECTRONICS, INC.
Proxy for Annual Meeting of Shareholders - December 7, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned constitutes and appoints Charles B. Girsky and Joel H.
Girsky, and each of them, proxies of the undersigned (the "Proxies"), with the
power to appoint a substitute, to represent and to vote all shares of common
stock of Jaco Electronics, Inc. (the "Company"), $0.10 par value per share (the
"Common Stock"), which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders of the Company, to be held on
December 7, 1998, and all adjournments thereof, as follows:
*1. To vote on the election of each of the following nominees to
the Board of Directors, as indicated:
FOR all nominees listed below (except as marked to the
contrary).
WITHHOLD AUTHORITY to vote for all nominees listed below.
Stephen A. Cohen, Edward M. Frankel, Charles B. Girsky, Joel
H. Girsky and Joseph F. Hickey, Jr.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name above.)
*2. To adopt and approve an amendment to the Company's 1993
Non-Qualified Stock Option Plan, as amended ("1993
Non-Qualified Plan"), to provide that Directors will be
eligible to receive options under the 1993 Non-
Qualified Plan.
o For o Against o Abstain
*3. To adopt and approve an amendment to the Company's
Restricted Stock Plan ("Restricted Stock Plan") to provide
that Directors will be eligible to receive awards under the
Restricted Stock Plan.
o For o Against o Abstain
4. To vote, in the discretion of the Proxies, on such other matters as
may properly come before the meeting.
*The shares of Common Stock represented by this Proxy shall be voted as directed
above by the shareholder. In the absence of such direction, the shares of Common
Stock shall be voted FOR the matters set forth in items 1, 2 and 3.
Receipt of the Notice of Annual Meeting, the Proxy Statement, and the Annual
Report to Shareholders is hereby acknowledged.
Date: ________________, 1998
___________________________
___________________________
___________________________
Signatures of Shareholders
Please sign as name appears hereon. If signing as attorney, executor,
administrator, trustee, guardian, or other fiduciary, please give your full
title as it appears. If shares of Common Stock are held jointly, each named
shareholder should sign.
PLEASE DATE, SIGN, AND RETURN THIS PROXY PROMPTLY.
