SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended June 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-5896
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JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1978958
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
145 Oser Avenue, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 273-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes: No: X
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes: No: X
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The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 31, 2004 was $ 19,198,400 (based on the last reported
sale price on the Nasdaq National Market on that date).
The number of shares of the registrant's common stock outstanding as of
September 20, 2005 was 6,267,832 shares (excluding
659,900 treasury shares). DOCUMENTS INCORPORATED BY REFERENCE: None.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K
for the fiscal year ended June 30, 2005 filed on September 28, 2005 (the "Form
10-K") is being filed to amend and restate only the following items of the Form
10-K: Part III, Items 10, 11, 12, 13 and 14. Other than these items, none of the
information contained in the Form 10-K has been revised or amended.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The current directors and executive officers of the Company, their
ages, their positions and terms of office with the Company are set forth below.
Name Age Position
Joel H. Girsky................................ 66 Chairman of the Board, President and Treasurer
Joseph F. Oliveri............................. 56 Vice Chairman of the Board and Executive Vice President
Charles B. Girsky............................. 71 Executive Vice President and Director
Jeffrey D. Gash............................... 53 Executive Vice President, Finance and Secretary
Gary Giordano................................. 48 Executive Vice President
Stephen A. Cohen.............................. 68 Director
Edward M. Frankel............................. 67 Director
Joseph F. Hickey, Jr.......................... 47 Director
Neil Rappaport................................ 59 Director
Robert J. Waldman............................. 70 Director
- ---------------
Joel H. Girsky has served as Chairman of the Board, President and
Treasurer of the Company since 1983, and has been a Director and executive
officer of the Company since it was founded in 1961. He also is a director of
Frequency Electronics, Inc. of Uniondale, New York, a manufacturer of highly
sophisticated synchronized time clocks. Mr. Girsky and Charles B. Girsky are
brothers.
Joseph F. Oliveri has served as Vice Chairman of the Board of Directors
and an Executive Vice President of the Company since June 2000. From March 1983
to June 2000, he served as President and Chief Executive Officer of Interface
Electronics Corp., a distributor of electronic components ("Interface"). The
Company acquired Interface in June 2000.
Charles B. Girsky has served as Executive Vice President of the Company
since 1988 and as a Director since 1996. He was a founder, Director and
President of the Company from 1961 through 1983 and then rejoined the Company as
an executive officer in August 1985. Mr. Girsky and Joel H. Girsky are brothers.
Jeffrey D. Gash has served as an Executive Vice President, Finance of
the Company since October 2000. He served as Vice President of Finance from
January 1989 to September 2000, and as Controller of the Company for more than
five years prior thereto. In September 1999, he became Secretary of the Company.
He has also served in similar capacities with the Company's subsidiaries.
Gary Giordano has served as Executive Vice President of the Company
since June 2000. From February 1992 to June 2000, he served as Vice President of
Sales and Marketing.
Stephen A. Cohen has served as a Director since 1970. Since August
1989, he has practiced law as a member of Morrison Cohen, LLP, the Company's
outside general counsel.
Edward M. Frankel has served as a Director since May 1984. Since
December 1999, he has been Chairman of the Board of Vitaquest International,
Inc., a manufacturer and distributor of vitamins and health and beauty products.
For more than five years prior thereto, he served as President of Vitaquest and
its predecessor entities.
Joseph F. Hickey, Jr. has served as a Director since May 1997. Since
January 2003, he has been a retirement consultant for Cleary Gull Inc., a
Milwaukee-based financial services firm. He is also currently a managing
director at Hopewell Ventures, L.P., a venture capital firm. From February 1991
to April 2001, he was employed by Tucker Anthony Sutro Capital Markets, a
national investment banking firm which merged with RBC Dain Rauscher Corp. in
March 2002, where he was a managing director in its investment banking
department.
Neil Rappaport has served as a Director since February 2004 and is a
Venture Partner with Windward Ventures, a venture capital firm. Prior to joining
Windward Ventures, Mr. Rappaport was Vice President of Sales for Vitesse
Semiconductor Corporation. Previously, Mr. Rappaport was national sales manager
with Applied Micro Circuits Corporation. He began his career as a design
engineer at Hughes Aircraft Company.
Robert J. Waldman has served as a Director since February 2004 and is
President of RJW Associates Inc., a financial and tax consulting firm located in
Boynton Beach, Florida. Prior thereto, Mr. Waldman served as senior partner of
Horowitz, Waldman, Berretta & Maldow, L.L.P., Woodbury, New York, a certified
public accounting firm from 1968 to 2002. He is licensed to practice as a
certified public accountant in both New York and in Florida, and has over 45
years of experience in public accounting.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules promulgated thereunder require the Company's
directors and executive officers, and persons who beneficially own more than ten
percent of the Company's Common Stock to file with the Securities and Exchange
Commission (the "SEC") 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 and written representations from certain reporting
persons, the Company believes that during its fiscal year ended June 30, 2005
("Fiscal 2005"), the Company's executive officers, directors and ten percent
shareholders complied with all applicable Section 16(a) filing requirements.
Audit Committee and Audit Committee Expert
The Company has a separately-designated standing Audit Committee of its
Board of Directors established in accordance with Section 3(a)(58)(A) of the
Exchange Act. The members of the Audit Committee currently are Robert J.
Waldman, who acts as Chairman of the committee, Edward M. Frankel and Joseph F.
Hickey, Jr.
Our Board of Directors has determined that at least one person serving
on the Audit Committee is an "audit committee financial expert" as defined under
Item 401(h) of SEC Regulation S-K. Robert J. Waldman, the Chairman of the Audit
Committee, is an "audit committee financial expert" and is independent as
defined under applicable rules of the SEC and The Nasdaq Stock Market.
Code of Ethics
We have adopted a code of ethics within the meaning of Item 406(b) of
SEC Regulation S-K, called the "Jaco Electronics, Inc. Code of Business
Conduct," which applies to our chief executive officer, chief financial officer,
controller and all our other officers, directors and employees. This document is
available free of charge on our website at jacoelectronics.com.
Item 11. Executive Compensation.
Summary of Cash and Certain Other Compensation
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered to the Company
in all capacities for the fiscal years ended June 30, 2005, 2004 and 2003 by its
Chief Executive Officer and each of the Company's other four most highly
compensated executive officers during Fiscal 2005 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation (1) Long Term Compensation
----------------------- ----------------------
Securities
Name and Restricted Underlying All Other
- ------------------------ Stock Options/ Compensation
Principal Position Year Salary($) Bonus($) Awards($)(2) SARs(#) ($)(3)
- ------------------ ---- --------- -------- ------------ ------- ------
Joel H. Girsky (4) 2005 337,500 -- -- -- 53,447
Chairman of the Board 2004 337,500 -- -- -- 52,740
President, and Treasurer 2003 337,500 -- -- 25,000 60,496
Joseph F. Oliveri 2005 270,000 85,700 -- -- 804
Vice Chairman and 2004 270,000 77,300 -- -- 432
Executive Vice President 2003 270,000 123,200 -- 25,000 414
Charles B. Girsky (4) 2005 225,000 --- --- -- 2,495
Executive Vice President 2004 225,000 -- -- -- 3,519
2003 225,000 25,000 2,344
Jeffrey D. Gash 2005 146,700 15,000 -- -- 2,076
Executive Vice 2004 144,000 -- -- -- 2,187
President, Finance and 2003 144,000 2,700 -- 25,000 2,473
Secretary
Gary Giordano 2005 180,000 -- -- -- 1,804
Executive Vice President 2004 180,000 -- -- -- 2,687
2003 180,000 -- -- 25,000 1,095
1. The costs of certain benefits are not included because they did not exceed,
in the case of each Named Executive Officer, the lesser of $50,000 or ten
percent of the total annual salary and bonus reported in this table.
2. On June 9, 1997, the Board of Directors awarded an aggregate of 97,500
shares of Common Stock under the Company's Restricted Stock Plan to its
executive officers as follows: 37,500 shares of Common Stock to Mr. Joel
Girsky, 37,500 shares of Common Stock to Mr. Charles Girsky, 15,000 shares
of Common Stock to Mr. Jeffrey Gash and 7,500 shares of Common Stock to Mr.
Gary Giordano. The plan was approved by the Company's shareholders on
December 9, 1997. The awards vested in one-quarter increments annually and
have been adjusted to give effect to the 3-for-2 split of the Common Stock
effected on July 24, 2000. Accordingly, as of June 30, 2005, all of the
aforementioned awards were vested. The value of the aggregate restricted
stock holdings of these individuals at June 30, 2005 was as follows:
$86,000 for Mr. Joel Girsky, $86,000 for Mr. Charles Girsky, $34,400 for
Mr. Jeffrey Gash and $8,600 for Mr. Gary Giordano. These amounts are based
upon the fair market value per share of the Company's Common Stock at June
30, 2005, minus the purchase price of such awards. The closing sale price
for the Company's Common Stock as of June 30, 2005 on the Nasdaq National
Market was $2.96.
3. Includes 401(k) matching contributions, premiums paid on group term life
insurance, and, in the case of Mr. Joel Girsky, deferred compensation
accrued in connection with his employment agreement with the Company.
401(k) matching contributions for Fiscal 2005 for the Named Executive
Officers were as follows: Mr. Joel Girsky - $1,428, Mr. Oliveri - $0, Mr.
Charles Girsky - $1,038, Mr. Gash - $1,646 and Mr. Giordano - $1,523.
Premiums paid on group term life insurance for Fiscal 2005 for the Named
Executives were as follows: Mr. Joel Girsky - $2,019, Mr. Oliveri - $804,
Mr. Charles Girsky - $1,457, Mr. Gash - $430 and Mr. Giordano - $281.
$50,000 in deferred compensation was accrued in Fiscal 2005 in connection
with Mr. Joel Girsky's employment agreement with the Company.
4. Effective July 1, 2005, each of Messrs. Joel Girsky and Charles Girsky
voluntarily agreed to an annual base salary reduction of $70,000 and
$20,000, respectively, for the fiscal year ending June 30, 2006.
Employment Agreements
The Company entered into a four-year employment agreement with Mr. Joel Girsky,
effective as of July 1, 2001, to serve as the Company's Chairman and President.
The employment agreement will automatically be extended for additional one-year
periods on each anniversary date, unless notice of non-renewal is given 90 days
prior to an anniversary date. In the event that a notice of non-renewal is so
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. However, in the event that a
notice of non-renewal is delivered by either party at such time as Mr. Girsky is
at least 70 years of age, then the employment agreement shall continue for a
period of only one year following the anniversary date which follows immediately
after the date that such notice is delivered. The employment agreement has been
automatically extended for an additional one-year period. Mr. Girsky is entitled
to receive a base salary of $375,000 for each fiscal year ending June 30;
however, effective October 2001, he (and other Named Executive Officers)
voluntarily agreed to a 10% salary reduction, which remains in effect. In
addition, he is entitled to receive a cash bonus equal to four percent of the
Company's earnings before income taxes for each fiscal year in which such
earnings are between $1.0 million and $2.5 million, or six percent of the
Company's earnings before income taxes for such fiscal year if such earnings are
in excess of $2.5 million, up to a maximum annual cash bonus of $720,000. If the
Company's earnings before income taxes are in excess of $12.0 million for any
such fiscal year, Mr. Girsky may also receive stock options. Mr. Girsky or his
estate, as the case may be, is entitled to receive a payment of $375,000 if he
dies or becomes permanently disabled during the term of the employment
agreement. The death benefit of $1.5 million provided for in Mr. Girsky's prior
employment agreement was funded by life insurance policies maintained by the
Company, which policies have been transferred to Mr. Girsky. Mr. Girsky also
receives deferred compensation which accrues at the rate of $50,000 per year,
and becomes payable in a lump sum at the cessation of his employment, with or
without cause, at any time. In the event of a change in control of the Company,
Mr. Girsky will receive 299% of the average of his base salary plus cash bonus
for the previous five years, to the extent that such payment does not equal or
exceed three times Mr. Girsky's base amount, as computed
in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code"). Additionally, upon a change of control, Mr. Girsky's
employment agreement may be assigned by the Company or any such successor or
surviving corporation with the prior written consent of Mr. Girsky. Commencing
upon the termination of Mr. Girsky's employment with the Company, and ending on
the later to occur of Mr. Girsky's death or his spouse's death, the Company will
permit Mr. Girsky and his spouse, to the extent eligible, to participate in the
health and medical benefit program provided by the Company to senior executive
officers.
The Company entered into a three-year employment agreement with Joseph F.
Oliveri, effective as of June 6, 2000, as amended as of July 1, 2001. The
employment agreement will automatically be extended for additional one-year
periods on each anniversary date, unless notice is given 90 days prior to an
anniversary date. Mr. Oliveri is entitled to receive a base salary at an annual
rate of $300,000 however, effective October 2001, he (and the other Named
Executive Officers) voluntarily agreed to a 10% salary reduction, which remains
in effect. The employment agreement has been automatically extended for three
successive one-year periods. In addition, he is entitled to receive a cash bonus
equal to two percent of gross profit from certain customers for each
twelve-month period beginning June 1, 2000.
The Company entered into a four-year employment agreement with Charles Girsky,
effective as of July 1, 2001, to serve as the Company's Executive Vice
President. The employment agreement will automatically be extended for
additional one-year periods on each anniversary date, unless notice by either
party is given 90 days prior to an anniversary date. In the event that a notice
of non-renewal is so 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.
However, in the event that a notice of non-renewal is delivered at such time as
Mr. Girsky is at least 70 years of age, then the employment agreement shall
continue for a period of only one year following the anniversary date which
follows immediately after the date that such notice is delivered. The employment
agreement has been automatically extended for an additional one-year period. Mr.
Girsky is entitled to receive a base salary of $250,000 for each fiscal year
ending June 30; however, effective October 2001, he (and the other Named
Executive Officers) voluntarily agreed to a 10% salary reduction, which remains
in effect. In addition, he is entitled to receive a cash bonus equal to two
percent of the Company's earnings before income taxes for each fiscal year in
which such earnings are between $1.0 million and $2.5 million, or three percent
of the Company's earnings before income taxes for such fiscal year if such
earnings are in excess of $2.5 million, up to a maximum annual cash bonus of
$360,000. If the Company's earnings before income taxes are in excess of $12.0
million for any such fiscal year, Mr. Girsky may also receive stock options. Mr.
Girsky or his estate, as the case may be, is entitled to receive a payment of
$250,000 if he dies during the term of the employment agreement. The death
benefit of $1.0 million provided for in Mr. Girsky's prior employment agreement
was funded by a life insurance policy maintained by the Company, which policy
has been transferred to Mr. Girsky. In the event of a change in control of the
Company, Mr. Girsky will receive 250% of the average of his base salary plus
cash bonus for the previous five years, to the extent that such payment does not
equal or exceed three times Mr. Girsky's base amount, as computed in accordance
with Section 280G(d)(4) of the Code. Additionally, upon a change of control, Mr.
Girsky's employment agreement may be assigned by the Company or any such
successor or surviving
corporation with the prior written consent of Mr. Girsky. Commencing upon the
termination of Mr. Girsky's employment with Jaco, and ending on the later to
occur of Mr. Girsky's death or his spouse's death, the Company will permit Mr.
Girsky and his spouse, to the extent eligible, to participate in the health and
medical benefit program provided by the Company to senior executive officers.
The Company entered into a four-year employment agreement with Jeffrey Gash,
effective as of July 1, 1998, as amended as of July 1, 2001, to serve as the
Company's Executive Vice President of Finance. The employment agreement will
automatically be extended for additional one-year periods on each anniversary
date, unless notice is given 90 days prior to an anniversary date. In the event
that a notice of non-renewal is delivered by either party, Mr. Gash's employment
agreement shall continue for a period of three years following the anniversary
date which follows immediately after the date that such notice is delivered. The
employment agreement has been automatically extended for three successive
one-year periods. Pursuant to the agreement, as amended, Mr. Gash is entitled to
receive a base salary of $160,000 for each fiscal year ending June 30; however,
effective October 2001, he (and the other Named Executive Officers) voluntarily
agreed to a 10% salary reduction, which remains in effect. In addition, he is
entitled to receive a cash bonus as determined by the Board of Directors and the
President. Mr. Gash or his estate, as the case may be, is entitled to receive a
payment of $750,000 if he dies during the term of the employment agreement. The
death benefit is currently being 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 of the Company, Mr. Gash will receive 200% of the average of his base
salary plus cash bonus for the previous five years, to the extent that such
payment does not equal or exceed three times Mr. Gash's base amount, as computed
in accordance with Section 280G(d)(4) of the Code. Additionally, upon a change
of control, Mr. Gash's employment agreement may be assigned by the Company or
any such successor or surviving corporation with the prior written consent of
Mr. Gash.
The Company entered into an agreement with Gary Giordano dated as of July 20,
1998, which provides a lump sum payment to him in the event of a change in
control of the Company. If Mr. Giordano's employment with the Company or a
successor or surviving corporation is terminated other than for cause (e.g.,
commission by Mr. Giordano of an act constituting common law fraud or a felony),
for a period of up to two years after the change in control event, he will
receive up to 200% of the average of his base salary plus cash bonus for the
previous three years based upon a formula. The payment will be made to Mr.
Giordano to the extent such payment does not exceed Mr. Giordano's base amount
as computed in accordance with Section 280G(d)(4) of the Code. The agreement
also requires Mr. Giordano to refrain from disclosing proprietary or
confidential information regarding the Company. The agreement does not obligate
the Company to retain the services of Mr. Giordano.
Option Grants
There were no stock options granted during Fiscal Year 2005 to any of
the Named Executive Officers.
Option Exercises and Fiscal Year-End Option Values
The following table provides information concerning stock options
exercised during Fiscal 2005 and the number of unexercised options held by the
Named Executive Officers as of June 30, 2005. Also reported are the values for
unexercised, "in the money" options, which represent the positive spread between
the respective exercise prices of such options and the fair market value of the
Common Stock as of June 30, 2005.
AGGREGATE OPTIONS/SAR EXERCISES IN FISCAL 2005
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs at FY-End In-the-Money Options/SARs at
Acquired Value (#) FY-End($)(1)
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------ --------- ----------- ----------- ----------- -------------
Name (#) ($)
---- --- ---
Joel H. Girsky -- -- 75,000 -- 15,300 --
Joseph F. Oliveri -- -- 40,000 -- 15,300 --
Charles B. Girsky 15,000 46,800 50,000 -- 15,300 --
Jeffrey D. Gash 15,000 46,800 40,000 -- 15,300 --
Gary Giordano -- -- 40,000 -- 15,300 --
(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, 2005 on
the Nasdaq National Market was $2.96 per share.
Director Compensation
Members of our Board of Directors who are not officers or employees
of the Company receive an annual fee of $10,000 for their service on our Board
of Directors. Directors are also reimbursed for reasonable expenses incurred in
connection with attending Board and committee meetings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Introduction
The Compensation Committee of the Board of Directors of the Company
(the "Committee") is composed of three directors, each of whom is independent as
defined in applicable rules of the Nasdaq Stock Market, Inc. The Committee is
responsible for reviewing and recommending to the Company's Board of Directors
the Company's compensation policies for the remuneration of the Company's Chief
Executive Officer and all of its other executive officers (collectively,
"Executives"), including salaries, bonuses and grants of awards under, and
administration of the Company's stock incentive plans. 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 (the "Program") seeks
to encourage the achievement of business objectives of the Company and superior
corporate performance by the Executives. The Program is designed to enable the
Company to attract, reward and retain highly qualified executives and to foster
a performance-oriented environment wherein management's long-term focus is on
maximizing shareholder 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. The Committee does not assign weights
to these factors nor necessarily consider any one more important than the
others.
Components of Executive Compensation
Historically, the Company's executive-level employees have received
cash-based and equity-based compensation. The Company attempts to pay its
executive officers competitively in order that it may retain the most capable
people in the industry. Compensation levels for the Executives are derived from
market comparisons with similarly-sized distribution companies, including those
engaged in the electronic components distribution industry with which the
Company competes for executive talent. The Committee believes that the Company's
most direct competitors for this purpose are not necessarily all of the
companies that would be included in a peer group established to compare
shareholder returns. Therefore, the compensation peer group is not the same as
the peer group index set forth in the Company's Stock Performance Graph included
elsewhere in this report. Based on information currently available to the
Committee, including publicly available compensation information relating to
direct competitors of the Company, the Committee believes that cash compensation
levels for the Executives, including the Chief Executive Officer, are, on
average, at or below the median of base salary levels for executive officers of
similar companies.
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 cash incentive bonuses. The Committee believes
that the Executives are best motivated through a combination of stock option
awards and cash incentives.
As described above under "Executive Compensation -- Employment
Agreements," a number of the Executives, including four of five Named Executive
Officers, have entered into employment agreements with the Company that provide
for fixed amounts of base salary and in some cases, cash bonuses based upon the
Company's profitability. For Fiscal 2005, Messrs. Joel Girsky, Charles Girsky
and Gary Giordano did not receive cash bonuses, and Messrs. Joseph Oliveri and
Jeffrey Gash did receive cash bonuses, as determined in accordance with the
terms of their respective employment agreements.
Equity-Based Compensation: Equity-based compensation principally has
been in the form of stock options, granted pursuant to the Company's 2000 Stock
Option Plan and 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 by the Committee 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
As described above under "Executive Compensation -- Employment
Agreements," the Company has entered into an employment agreement with Joel H.
Girsky, our Chairman of the Board and President, pursuant to which Mr. Joel
Girsky receives a base salary of $375,000 per fiscal year and an annual
incentive cash bonus based on a percentage of the Company's earnings before
income taxes, up to a maximum bonus of $720,000 in any fiscal year. Through this
incentive bonus arrangement, a substantial portion of Mr. Joel Girsky's cash
compensation is specifically linked to the Company's profitability. Because the
Company reported a loss from continuing operations in Fiscal 2005, Mr. Girsky
was not paid a bonus for Fiscal 2005.
In general, the philosophy, factors and criteria of the Committee
generally applicable to the Company's senior management are applicable to the
Chief Executive Officer.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code imposes limitations on the
federal income tax deductibility of compensation paid to the Company's chief
executive officer and to each of the other four most highly compensated
executive officers of the Company. Under these limitations, the Company may
deduct such compensation only to the extent that during any fiscal year the
compensation does not exceed $1,000,000 or meets certain specified conditions
(such as certain performance-based compensation that has been approved by the
Company's shareholders). Based on the Company's current compensation plans and
policies and the Section 162(m) rules, the Company and the Committee believe
that, for the near future, there is not a
significant risk that the Company will lose any significant tax deduction for
executive compensation. The Company's compensation plans and policies will be
modified to ensure full deductibility of executive compensation if the Company
and the Committee determine that such an action is in the best interests of the
Company.
COMPENSATION COMMITTEE
Edward M. Frankel
Joseph F. Hickey, Jr., Chairman
Neil Rappaport
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 2005, the Compensation Committee of the Board of
Directors consisted of Messrs. Frankel, Hickey and Rappaport. No member of this
committee was at any time during Fiscal 2005 or at any other time an officer or
employee of the Company, and no member had any relationship with the Company
requiring disclosure under SEC rules. No executive officer of the Company has
served on the board of directors or compensation committee of any other entity
that has or has had one or more executive officers who served as a member of the
Company's Board of Directors or the Compensation Committee during Fiscal 2005.
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 US Equity Market Index and
Dow Jones US Support Services Index for the Company's last five (5) fiscal
years:
[GRAPH]
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
Jaco Electronics, Inc. 100.00 41.86 32.05 32.80 41.45 20.18
Dow Jones US Equity Market 100.00 84.89 69.54 70.32 84.65 90.84
Dow Jones US Support Services 100.00 83.53 79.17 71.92 89.77 88.08
- ---------------------
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings made by the Company under
those statutes, none of the preceding Compensation Committee Report on Executive
Compensation or the Company Stock Performance Graph will
be incorporated by reference into any of those prior filings, nor will any of
such reports or graph be incorporated by reference into any future filings made
by the Company under those statutes.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth the number and percentage of
shares of Common Stock owned as of October 27, 2005 by (i) each director of the
Company, (ii) all persons who, to the knowledge of the Company, are the
beneficial owners of more than 5% of the outstanding shares of Common Stock,
(iii) each of the Company's executive officers, and (iv) all of the Company's
directors and executive officers, as a group. Each person named in this 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.
Aggregate Number of
Name and Address of Shares Beneficially Percentage of Shares
Beneficial Owner(1) Owned Beneficially Owned(2)
- ------------------- ----- ----------------------
Joel H. Girsky 993,540 (3) 15.7%
Joseph F. Oliveri 40,000 (4) **
Charles B. Girsky 482,461 (5) 7.6%
Stephen A. Cohen 59,683 (6) **
Edward M. Frankel 41,250 (7) **
Joseph F. Hickey, Jr. 57,750 (8) **
Jeffrey D. Gash 72,298 (9) 1.1%
Gary Giordano 43,750 (10) **
Robert Waldman 10,500 (11) **
Neil Rappaport 7,500 (12) **
Dimensional Fund Advisors 388,465 (13) 6.2%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Royce & Associates, LLC 604,150 (14) 9.6%
1414 Avenue of the Americas
New York, NY 10019
All directors and executive
officers as a
group (10 persons) 1,808,732 (15) 27.3%
- ---------------------------------
** Less than one percent.
(1) Unless otherwise indicated, the address of each person listed is c/o
Jaco Electronics, Inc., 145 Oser Avenue, Hauppauge, New York, 11788.
(2) Assumes a base of 6,267,832 shares of Common Stock outstanding, before
any consideration is given to outstanding options.
(3) Includes (i) 75,000 shares of Common Stock acquirable pursuant to
options presently exercisable and granted under the Company's 2000
Stock Option Plan, and (ii) 37,500 shares of Common Stock awarded under
the Company's Restricted Stock Plan.
(4) Includes 40,000 shares of Common Stock acquirable pursuant to options
presently exercisable and granted under the Company's 2000 Stock Option
Plan.
(5) Includes (i) 319,311 shares of Common Stock owned by the Girsky Family
Trust, (ii) 50,000 shares of Common Stock acquirable pursuant to
options presently exercisable and granted under the Company's 2000
Stock Option Plan, and (iii) 37,500 shares of Common Stock awarded
under the Company's Restricted Stock Plan.
(6) Includes (i) 30,000 shares of Common Stock acquirable pursuant to
options presently exercisable and granted under the Company's 2000
Stock Option Plan, and (ii) 22,500 shares of Common Stock held as
nominee for the law firm of Morrison Cohen, LLP, of which Mr. Cohen is
a partner. Mr. Cohen disclaims beneficial ownership of such 22,500
shares except to the extent of his pecuniary interest therein by virtue
of his partnership interest in Morrison Cohen, LLP.
(7) Includes 30,000 shares of Common Stock acquirable pursuant to options
presently exercisable and granted under the Company's 2000 Stock Option
Plan.
(8) Includes 30,000 shares of Common Stock acquirable pursuant to options
presently exercisable and granted under the Company's 2000 Stock Option
Plan.
(9) Includes (i) 40,000 shares of Common Stock acquirable pursuant to
options presently exercisable and granted under the Company's 2000
Stock Option Plan, and (ii) 15,000 shares of Common Stock awarded under
the Company's Restricted Stock Plan.
(10) Includes (i) 40,000 shares of Common Stock acquirable pursuant to
options presently exercisable and granted under the Company's 2000
Stock Option Plan, and (ii) 3,750 shares of Common Stock awarded under
the Company's Restricted Stock Plan.
(11) Includes 7,500 shares of Common Stock acquirable pursuant to options
presently exercisable and granted under the Company's 2000 Stock Option
Plan.
(12) Includes 7,500 shares of Common Stock acquirable pursuant to options
presently exercisable and granted under the Company's 2000 Stock Option
Plan.
(13) These securities are held in investment advisory accounts of
Dimensional Fund Advisors, Inc. This information is based upon an
amendment to Schedule 13G filed with the SEC dated February 9, 2005,
and information made available to the Company.
(14) The information is based upon an amendment to Schedule 13G filed with
the SEC dated January 31, 2005, and information made
available to the Company.
(15) Includes 350,000 shares of Common Stock acquirable pursuant to
options presently exercisable and 93,750 shares of Common
Stock awarded under the Company's Restricted Stock Plan.
Equity Compensation Plan Disclosure
The following table summarizes equity compensation plans
approved by security holders and equity compensation plans that were not
approved by security holders as of June 30, 2005:
(c)
(a) (b) Number of Securities
Number of Securities Weighted-Average Remaining Available for
To be Issued Upon Exercise Price of Future Issuance Under Equity
Exercise of Outstanding Outstanding Compensation Plans (Excluding
Options, Warrants and Options, Securities
Plan Category Rights Warrants and Rights Reflected in Column(a)
- ------------------------------- ------------------------- ---------------------- -------------------------------
Equity compensation plans
(stock option ) approved by
stockholders 532,000 $4.97 653,500
------------------------- ---------------------- -------------------------------
Total 532,000 $4.97 653,500
========================= ====================== ===============================
Item 13. Certain Relationships and Related Transactions.
During Fiscal 2005, the Company paid approximately $615,000 of rental
expenses in connection with the Company's main headquarters, Flat Panel Display
integration and centralized inventory distribution facility located in
Hauppauge, New York, which was paid to Bemar Realty Company, the owner of such
premises. Bemar is a partnership consisting of Messrs. Joel Girsky and Charles
Girsky, both of whom are executive 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 in December 2003 and expires on December 31, 2013. The Company believes
the current rental rate for this facility is at its fair market value. As of
June 30, 2005, Bemar advanced the Company $125,000 to fund the construction of a
new LCD Integration Center which amount the Company has accrued as a liability.
During the fiscal years ended June 30, 2005, 2004 and 2003, the Company
recorded sales of $1,065,391, $5,515,450 and $1,910,201, respectively, from a
customer, Frequency Electronics, Inc. ("Frequency"). Mr. Joel Girsky serves on
the Board of Directors of Frequency. Such sales transactions with Frequency are
in the normal course of business. Amounts included
in accounts receivable from Frequency at June 30, 2005 and 2004 aggregate $206
and $188,720, respectively.
Stephen A. Cohen, a director of the Company, is a partner of the law
firm of Morrison Cohen, LLP, which rendered legal services to the Company during
Fiscal 2005 for which the Company was billed aggregate fees that did not exceed
5% of such law firm's annual gross revenues.
The son-in-law of Mr. Joel Girsky, our Chairman and President, is
Douglas Spelfogel, who is a partner of the law firm of Nixon Peabody LLP, which
rendered legal services to the Company during Fiscal 2005 for which the Company
was billed aggregate fees that did not exceed 5% of such law firm's annual gross
revenues.
Item 14. Principal Accountant Fees and Services.
Grant Thornton LLP has audited the Company's financial statements
annually since the fiscal year ended June 30, 1984.
Audit Fees
The aggregate fees billed by Grant Thornton LLP for professional
services for the audit of the Company's annual consolidated financial statements
for the fiscal years 2005 and 2004 and the review of the consolidated financial
statements included in the Company's Forms 10-Q for fiscal years 2005 and 2004
were $289,341 and $396,170, respectively.
Audit-Related Fees
The aggregate fees billed by Grant Thornton LLP for professional
services related to the audit of the Company's annual consolidated financial
statements for the fiscal years 2005 and 2004 were $20,027 and $42,344,
respectively. These services consisted primarily of (i) services rendered in
connection with acquisitions and divestitures by the Company, (ii) assistance
with regulatory filings and (iii) consultations on the effects of various
accounting issues and changes in professional standards.
Tax Fees
The aggregate fees billed by Grant Thornton LLP for tax services for
the fiscal years 2005 and 2004 were $136,687 and $63,917, respectively. These
services consisted primarily of tax planning and assistance with the preparation
of returns.
All Other Fees
There were no fees billed by Grant Thornton LLP for other services for
the fiscal years 2005 and 2004.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee of the Company's Board of Directors pre-approves on
an annual basis the audit, audit-related, tax and other non-audit services to be
rendered by the Company's accountants based on historical information and
anticipated requirements for the following fiscal year. The Audit Committee
pre-approves specific types or categories of engagements
constituting audit, audit-related, tax and other non-audit services as well as
the range of fee amounts corresponding to each such engagement. To the extent
that the Company's management believes that a new service or the expansion of a
current service provided by the Company's accountants is necessary or desirable,
such new or expanded services are presented to the Audit Committee for its
review and approval prior to the Company's engagement of its accountants to
render such services. The Company's Chief Financial Officer reports regularly to
the Audit Committee on the services rendered by the Company's accountants and
related fees for audit, audit-related and permitted non-audit services.
For Fiscal 2005, the Audit Committee has determined that the non-audit
services performed by Grant Thornton LLP are compatible with maintaining the
independence of Grant Thornton LLP. .
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) (3) See Exhibit Index on page 20 of this report for a list
of the exhibits furnished as part of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 27, 2005
JACO ELECTRONICS, INC.
By: /s/ Joel H. Girsky
----------------------------------------
Joel H. Girsky, Chairman, President and
Treasurer (Principal Executive
Officer)
By: /s/ Jeffrey D. Gash
-----------------------------------------
Jeffrey D. Gash, Executive Vice President -
Finance and Secretary (Principal
Financial and Accounting Officer)
Exhibit No. Exhibit
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.