August 1, 1997

JACO ELECTRONICS, INC.
145 Oser Avenue
Hauppauge, NY 11778

NEXUS CUSTOM ELECTRONICS, INC.
Prospect Street
Brandon, VT 05733

Gentlemen:

         Reference is made to the Second  Restated and Amended Loan and Security
Agreement between Jaco Electronics, Inc. and Nexus Custom Electronics,  Inc., as
Debtor,  and  our  predecessor-in-interest,  The  Bank  of New  York  Commercial
Corporation,  as Lender, and each other Lender a party thereto,  dated September
13,  1995,  as  amended  and  supplemented  (the  "Loan  Agreement").  Initially
capitalized  terms not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.

         It is hereby  agreed  that  effective  as of August 1,  1997,  the Loan
Agreement shall be amended as follows:

         1. The  definition  of "Agent  ABR Loan"  set forth in  Paragraph  1 is
  deleted in its  entirety and replaced by the  following  definition  of "Agent
  LIBO Rate Loan":

" "Agent LIBO Rate Loan" shall have the meaning set forth in Paragraph 4( c ) of
this Agreement."

2. The definition of "Contract Rate" set forth in Paragraph 1 is amended to read
in its entirety as follows:

         " "Contract  Rate"  means an  interest  rate per annum equal to (i) the
         applicable  LIBO  Rate plus one  percent  (1%) in the case of LIBO Rate
         Loans first arising,  or first continued or converted  thereto prior to
         January 1, 1998, and (ii) in the case of LIBO Rate Loans first arising,
         or first  continued or converted  thereto on or after  January 1, 1998,
         the  applicable  LIBO Rate plus ( a ) one and  one-quarter  percent  (1
         1/4%) if the  ratio of total  Loans to net  earnings  before  interest,
         taxes, depreciation,  amortization, extraordinary gains and losses, and
         all other non-cash charges on a consolidated  basis  ("EBITDA")  during
         the immediately preceding four (4) fiscal quarters is greater than 2 to
         1, ( b ) one percent (1%) if the ratio of total Loans to EBITDA  during
         the immediately  preceding four (4) fiscal quarters is 1.5-2 to 1, or (
         c ) three-quarters of one percent (3/4%) if the ratio of total Loans to
         EBITDA during the  immediately  preceding  four (4) fiscal  quarters is
         less than 1.5 to 1. The  Contract  Rate  applicable  to LIBO Rate Loans
         under clause (ii) hereof shall be adjusted quarterly."

     3. The definitions of "Interest  Period",  "LIBO Rate (Reserve  Adjusted)",
"LIBOR  Office"  and "LIBOR  Reserve  Percentage"  set forth in  Paragraph 1 are
deleted in their entirety.

     4. The  definition  of "LIBO  Rate" set forth in  Paragraph 1 is amended to
read in its entirety as follows:

         " "LIBO  Rate"  means the rate per  annum  for the one  month  LIBOR as
         published in The Wall Street  Journal,  averaged  monthly on a calendar
         month basis."

     5. The  definition  of "LIBO Rate Loan" set forth in Paragraph 1 is amended
to read in its entirety as follows:

         " "LIBO  Rate  Loan"  means a Loan or any  portion  thereof  that bears
interest based on the LIBO Rate."

     6. The fourth  through the seventh  lines of the  definition  of "Term Loan
Notes" set forth in  Paragraph 1 are deleted in their  entirety  and replaced by
the following:

         "restate in their  entirety,  upon terms and  conditions  therein  more
         fully  described,  that certain  promissory  note  initially  issued by
         Debtor to the order of BNYCC dated as of March 11, 1994 in the original
         principal amount of $1,500,000."

     7. The second full  paragraph  of  Paragraph  2 is amended by deleting  the
following language:

         "provided that any application of the proceeds of Accounts which (i) is
         made prior to the  occurrence  of an Event of  Default  and (ii) is not
         made at the direction of Borrower, and which application results in the
         payment of a LIBO Rate Loan prior to the last day of an Interest Period
         with respect thereto shall not result in the required payment by Debtor
         to Lender of any  penalty or premium  or loss or  expense  pursuant  to
         Paragraph 5(g) hereof,"

     8.  Paragraph  4( c )( i ) is deleted in its  entirety  and replaced by the
following:

         "[INTENTIONALLY OMITTED]".

     9. Paragraph 4( c )( ii ) is amended to read in its entirety as follows:

         "( ii ) The Debtor may by telephonic  notice  received by an officer of
         the Agent,  request a borrowing prior to 1:00 P.M. New York time in the
         form of a LIBO Rate Loan on the date on which it requests to incur such
         a Loan,  such request to specify the amount of the Loan  requested.  In
         any such instance,  the Agent may: (a) notify each of the Lenders,  not
         later than 2:00 P.M. New York time,  of the LIBO Rate Loan to be funded
         on such date,  as well as the amount of such Lender's Pro Rata Share of
         the  requested  LIBO Rate Loan,  and each such  Lender  shall make such
         amount  available to the Agent on such date in same day funds,  to such
         account of the Agent as the Agent may designate, by not later than 5:00
         P.M.  New York time;  or (b) if the Agent  shall  elect to do so in its
         sole and  absolute  discretion,  subject  to the terms  and  conditions
         hereof  and in its  capacity  as a  Lender,  make  such  LIBO Rate Loan
         available to the Debtor (each an "Agent LIBO Rate Loan") on the date so
         requested,  by transferring same day funds to the operating  account(s)
         of the Debtor maintained with the Agent. Each such Agent LIBO Rate Loan
         shall  constitute a Loan  hereunder  and shall be subject to all of the
         terms  and  conditions  applicable  to  other  Loans,  except  that all
         payments  thereon  shall be  payable  to the Agent in its  capacity  as
         Lender,  solely  for its own  account,  until  such time as each of the
         Lenders  shall Settle with the Agent as to such Agent LIBO Rate Loan on
         the Settlement Date next occurring.  Until such Settlement shall occur,
         the Agent  shall  correspondingly  increase  its Pro Rata  Share of the
         Aggregate Maximum Loan Amount and the Pro Rata Share of each such other
         Lender  shall be  correspondingly  decreased  and upon such  Settlement
         occurring,  appropriate  adjustments  shall  be made to such  Pro  Rata
         Shares in order to  restore  such Pro Rata  Shares to their  respective
         levels prior to the relevant Agent LIBO Rate Loan."

     10.  Paragraph  4( c )( v ) is deleted in its  entirety and replaced by the
following:

         "[INTENTIONALLY OMITTED]".

     11.  Paragraph  5(a)(i) is  amended  by  deleting  the words  "except  that
interest with respect to LIBO Rate Loans shall be payable on the last day of the
Interest Period with respect thereto" and inserting at the end of said paragraph
the following sentence:

         "Whenever  the LIBO Rate is  increased  or  decreased,  the  applicable
         Contract Rate shall be similarly changed without notice or demand by an
         amount equal to the amount of such change in the LIBO Rate."

     12. Paragraph 4(e)is amended by deleting the following language:

     "(except as set forth in  subsection  (b) of the  definition  of  "Interest
Period" appearing herein)".

     13. Paragraph 5(a) is amended by deleting the following language:

         "except that  interest with respect to LIBO Rate Loans shall be payable
         on the last day of the Interest Period with respect thereto".

     14. Paragraph 5(e) is amended by deleting the following language:

     "at the end of the then current  Interest  Periods with respect  thereto or
sooner".


     15.  Paragraph  5(g)  is  deleted  in  its  entirety  and  replaced  by the
following:

         "[INTENTIONALLY OMITTED]".

     16.  The  first  sentence  of  Paragraph  17(d) is  amended  to read in its
entirety as follows:

         "Maintain at all times a ratio of consolidated current assets of Debtor
         and its Subsidiaries to consolidated  current liabilities of Debtor and
         its Subsidiaries of not less than 1.6 to 1.0."

     17.  Paragraphs 17(e), (f) and (g) are amended to read in their entirety as
follows:

         "(e)  Maintain at all times  consolidated  net worth (all amounts which
         would be included under shareholders'  equity on a consolidated balance
         sheet of the Debtor  determined in accordance  with generally  accepted
         accounting  principles) in an amount not less than  $34,000,000,  which
         amount  shall be  increased  at the end of each quarter on a cumulative
         basis by an amount equal to fifty percent (50%) of the consolidated net
         profit after taxes, if any, for such quarter."

         "(f)  Maintain  at all  times a ratio  of the sum of (1)  cash and cash
         equivalents  plus (2) accounts  receivable to current  liabilities  (as
         defined  in  Paragraph  17(d))  of  not  less  than  0.65  to  1.0 on a
         consolidated basis."

         "(g)  Maintain at all times an excess of current  assets  over  current
         liabilities  (both  as  defined  in  Paragraph  17(d)  and  each  on  a
         consolidated basis) of not less than $23,000,000."

     18.  The  first  sentence  of  Paragraph  18(e) is  amended  to read in its
entirety as follows:

         "Permit at any time the ratio of  Indebtedness to Tangible Net Worth to
         be greater  than 1.30 to 1.0;  "Indebtedness"  shall mean  consolidated
         total  liabilities  of  Debtor  and  its  Subsidiaries   determined  in
         accordance with generally accepted accounting  principles  consistently
         applied."

     19. The first  sentence of  Paragraph 21 is amended to read in its entirety
as follows:

         "This (Second  Restated and Amended Loan and Security)  Agreement shall
         (subject to compliance with the Conditions  Precedent) become effective
         on the  Closing  Date  hereof,  without  any  interruption  or break in
         continuity (as more fully described in the second paragraph hereof) and
         shall continue until the fifth anniversary of the Closing Date."

     20. The fifth sentence of Paragraph 21 is amended by deleting the following
language:

         "provided  that any such payment  which  results in a payment of a LIBO
         Rate Loan  before the last date of the  Interest  Period  with  respect
         thereto shall be subject to the provisions of Paragraph 5(g) hereof".

         Except as hereinabove  specifically set forth, the Loan Agreement shall
remain unmodified and in full force and effect in accordance with its terms.

         If you are in  agreement  with the  foregoing,  please so  indicate  by
signing and returning to us the enclosed copy of this letter.


                                    Very truly yours,

                      BNY FINANCIAL CORPORATION f/k/a THE
                    BANK OF NEW YORK COMMERCIAL CORPORATION,
                                    as Agent and Lender


                                       
                                    By:Frank Imperato
                                         Title: Vice President

                                    FLEET BANK, N.A. f/k/a/
                                    NATWEST BANK N.A., as Lender

                                    By:Alice Adelberg
                                         Title:Vice President


  AGREED:

  JACO ELECTRONICS, INC.

  By:Jeffrey D. Gash
       Title:Vice President

  NEXUS CUSTOM ELECTRONICS, INC.

  By:Jeffrey D. Gash
       Title:Vice President