As filed with the Securities and Exchange Commission on September 29, 1997
Registration No. 333-_______
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Form S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PARLEX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS 04-2464749
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
-------------------
145 MILK STREET, METHUEN, MASSACHUSETTS 01844
(978) 685-4341
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
-------------------
HERBERT W. POLLACK PETER J. MURPHY
Chairman President and Chief Executive Officer
Parlex Corporation Parlex Corporation
145 Milk Street 145 Milk Street
Methuen, Massachusetts 01844 Methuen, Massachusetts 01844
(978) 685-4341 (978) 685-4341
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agents For Service)
-------------------
<PAGE> 1
<TABLE>
<S> <S> <S>
Copies to:
KEITH F. HIGGINS, ESQ. EDWARD D. KUTCHIN, ESQ. PAUL V. ROGERS, ESQ.
Ropes & Gray Kutchin & Rufo, PC Hale and Dorr LLP
One International Place One Liberty Square 60 State Street
Boston, Massachusetts 02110 Boston, Massachusetts 02109 Boston, Massachusetts 02109
(617) 951-7000 (617) 542-3000 (617) 526-6000
</TABLE>
-------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
-------------------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [ ]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this form, check the following box: [ ]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering:
[ ] _______________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering:
[ ] _______________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering:
[ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
Proposed Maximum Proposed Maximum Amount Of
Title of Shares Amount To Be Offering Price Per Aggregate Offering Registration
To Be Registered Registered (1) Unit (2) Price (2) Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock--$0.10 Par Value 1,322,500 shares $19.75 $26,119,375 $7,915
=========================================================================================================
<FN>
<F1> Includes 172,500 shares which the Underwriters have the option to
purchase to cover over-allotments, if any. See "Underwriting."
<PAGE> 2
<F2> Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended, and based on the average of the high and low sales prices on
September 24, 1997, as reported on the Nasdaq National Market.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
============================================================================
SUBJECT TO COMPLETION, DATED SEPTEMBER 29, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
1,150,000 Shares
[Company Logo]
Common Stock
Of the 1,150,000 shares of Common Stock offered hereby, 1,000,000
shares are being sold by the Company and 150,000 shares are being sold by
the Selling Stockholders. See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders. The Company's Common Stock is quoted on the Nasdaq National
Market under the symbol "PRLX." On September 26, 1997, the last reported
sale price of the Common Stock was $21 1/4 per share. See "Price Range of
Common Stock."
See "Risk Factors" commencing on page 5 for a discussion of certain
factors that should be considered by prospective purchasers of the Common
Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
<TABLE>
<CAPTION>
============================================================================
Price Underwriting Proceeds Proceeds
to Discounts and to to Selling
Public Commissions (1) Company (2) Stockholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- ----------------------------------------------------------------------------
Total (3) $ $ $ $
============================================================================
<FN>
<F1> The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
<F2> Before deducting expenses payable by the Company estimated at
$325,000.
<F3> The Company and the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 172,500 additional
shares of Common Stock solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
</FN>
</TABLE>
The shares of Common Stock are offered by the several Underwriters,
subject to receipt and acceptance by them and to their right to reject any
order in whole or in part. It is expected that delivery of the shares of
Common Stock will be made at the offices of Adams, Harkness & Hill, Inc.,
Boston, Massachusetts, on or about , 1997.
Adams, Harkness & Hill, Inc. Needham & Company, Inc.
The date of this Prospectus is , 1997.
Parlex Corporation provides a variety of high
performance flexible interconnects for a wide
range of applications.
[Photo depicting a sampling of the Company's products
and selected applications]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR
THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M. SEE "UNDERWRITING."
The logo of the Company is a registered trademark of the Company.
PALFlex(R), PALCore(R) and U-Flex(R) are registered trademarks of the
<PAGE> 4
Company and the Company has applied for registration of the trademark
PALCoat(TM).
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. Investors should
carefully consider the risk factors related to the purchase of Common
Stock of the Company. See "Risk Factors." All information reflects a
three-for-two stock split effected as a stock dividend on April 21, 1997.
The Company's fiscal year ends June 30. References to a particular fiscal
year are to the fiscal year ending June 30 of that year. Unless the
context indicates otherwise, all references to "Parlex" or the "Company"
refer to Parlex Corporation and its subsidiaries. Except as otherwise
noted, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. See "Capitalization," "Description
of Capital Stock" and "Underwriting."
The Company
Parlex is a leading supplier of flexible interconnects principally
for sale to the automotive, military/aerospace, computer,
telecommunications and industrial markets. The Company's product
offering, which the Company believes is the broadest of any company in the
flexible interconnect industry, includes flexible circuits, laminated
cables, flexible/cable hybrid circuits and flexible interconnect
assemblies. Flexible circuits are used to provide connections between
components and electronic systems and as a substrate to support electronic
devices. Laminated cables provide connections between electronic sub-
systems and replace conventional wire harnesses. Flexible/cable hybrid
circuits combine the lower cost of laminated cable with the technology of
flexible circuits into a single cost-effective interconnect. Flexible
interconnect assemblies are formed by adding components such as integrated
circuits, connectors, resistors and capacitors to flexible circuits or
laminated cables. The advantages of flexible interconnects over
alternative technologies such as rigid printed circuits include superior
thermal qualities, reduced size and weight, and the ability to provide
three-dimensional packaging. The IPC, an international trade
organization, estimates that worldwide sales of flexible circuits in 1996
exceeded $2.5 billion. The IPC has reported that the flexible circuit
industry in North America has grown at rates between 17% and 19% in each
of the past three years.
The Company believes that its creative engineering expertise and its
ability to advance the technology of manufacturing processes and materials
allow it to provide its customers with a comprehensive range of flexible
interconnect solutions. Beginning at the design phase, the Company's
design engineers work closely with customers to ensure the produceability
of a design. Once a design has been completed, the Company utilizes its
innovative materials and processes, including PALFlex, PALCoat, U-Flex,
Polyamber, Pemacs and PALCore, to produce a flexible interconnect product
that meets its customers' performance needs and cost objectives.
The Company's objective is to be the supplier of choice for key
customers in markets where cost-effective flexible interconnects provide
added value to the customers' products. Within its targeted market
segments, the Company believes that its ability to develop strategic
<PAGE> 5
customer relationships and provide a broad product offering serves as a
competitive advantage. These relationships have enabled the Company to
work closely with its customers from the design phase through production
to ensure that its customers' flexible interconnect requirements are met.
In fiscal 1997, the Company's top customers in terms of revenues were
Motorola, Texas Instruments, Northern Telecom, Allied-Signal, Delco
Electronics and Compaq Computer.
An important element of the Company's growth strategy has been
diversification among its targeted markets and expansion of its global
presence. The execution of this strategy enabled the Company to reduce
its dependence on any particular market segment and to increase its sales
by approximately 92% since fiscal 1992. In fiscal 1997, none of the
Company's target markets represented greater than 29% of the Company's
total revenues. As a result of the Company's growth in recent years, the
Company has expanded its manufacturing operations to better accommodate
its customers' geographic and cost requirements. In 1995, the Company
established Parlex Shanghai, a joint venture in China designed to serve
the Asian market in flexible circuits as well as to produce certain
products more cost-effectively for North American customers. The Company
is planning to expand its manufacturing facilities and acquire equipment
to increase capacity and accommodate new technology at all of its
manufacturing locations during fiscal 1998.
The Company was incorporated in Massachusetts in 1970. The Company
maintains its principal executive offices at 145 Milk Street, Methuen,
Massachusetts 01844, and its telephone number is (978) 685-4341.
The Offering
<TABLE>
<S> <S>
Common Stock offered by:
The Company 1,000,000 shares
The Selling Stockholders 150,000 shares
Common Stock to be outstanding after
the offering 4,593,310 shares (1)
Use of proceeds To expand manufacturing
facilities, purchase capital
equipment, repay indebtedness
and for working capital and
general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol PRLX
<FN>
- --------------------
<F1> Based on shares outstanding at September 24, 1997. Does not include
374,724 shares issuable upon the exercise of outstanding options
under the Company's stock plans.
</FN>
</TABLE>
Summary Consolidated Financial Information
<PAGE> 6
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total revenues $31,392 $34,926 $40,251 $47,257 $55,087
Gross profit 4,756 5,776 7,305 6,949 10,950
Selling, general and administrative expenses 4,432 4,637 4,998 5,518 7,288
Operating income 324 1,139 2,307 1,431 3,662
Income from operations before income taxes 252 1,007 2,240 1,170 3,381
Net income 302 1,007 1,486 770 2,120
Net income per share $ 0.09 $ 0.29 $ 0.41 $ 0.21 $ 0.57
Weighted average number of common and
common equivalent shares outstanding 3,466 3,466 3,651 3,675 3,716
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
----------------------
As
Actual Adjusted (1)
------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital $ 9,592 $26,742
Total assets 32,234 48,884
Short-term debt, including current portion of long-term debt 1,000 500
Long-term debt, less current portion 2,500 -
Stockholders' equity 17,788 37,438
<FN>
- -------------------
<F1> Adjusted to give effect to the sale of 1,000,000 shares of Common
Stock by the Company offered hereby at an assumed offering price of
$21.25 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
</FN>
</TABLE>
RISK FACTORS
The following risk factors should be considered carefully in
addition to the other information in this Prospectus before purchasing the
Common Stock offered by this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains
certain forward-looking statements that involve risks and uncertainties.
When used in this Prospectus, the words "believes," "expects,"
"anticipates," "intends," "estimates," "should," "will likely" and similar
expressions are intended to identify such forward-looking statements. The
<PAGE> 7
cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear
in this Prospectus. The Company's actual results could differ materially
from those discussed here. Important factors that could cause or
contribute to such differences include those discussed below, as well as
those discussed elsewhere herein. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Fluctuations in Operating Results; Variability of Orders. The
Company's operating results have historically been subject to
fluctuations, and the Company expects that they will continue to fluctuate
due to a variety of factors, including the timing and volume of orders
from, and shipments to, customers, the timing of introductions of and
market acceptance of new products and general economic trends. Typically,
in the flexible interconnect industry, a substantial portion of sales in a
given quarter depends on obtaining orders for products to be manufactured
and shipped in the same quarter in which those orders are received.
Although the Company monitors its customers' needs, it often has limited
knowledge of the magnitude or timing of future orders. As a result, the
timing of revenues may be affected by the need to ramp up to or down from
volume production in response to fluctuations in customer demand, the
introduction of replacement products or the balancing of inventory. A
significant decrease in the number, magnitude or timing of orders in any
given quarter could have a material adverse effect on the Company's
business, financial condition and operating results. Because it is
difficult for the Company to readily reduce spending on certain operating
expenses, such as fixed manufacturing costs, development costs and ongoing
customer service, a reduction in sales could have a material adverse
effect on near-term profit margins. Results of operations in any period
are therefore not necessarily indicative of the results to be expected for
any future period. Due to all of the foregoing factors, it is possible
that in some future quarter the Company's operating results may be below
the expectations of public market analysts and investors. Such an event
could have a material adverse effect on the market price of the Company's
Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Expansion of Manufacturing Capacity. The Company believes its long-
term competitive position depends in part on its ability to increase its
manufacturing capacity. The Company's business, financial condition and
operating results could be materially and adversely affected if the
Company is not able to obtain sufficient manufacturing capacity to meet
increases in demand for its products. The Company expects to use a
portion of the proceeds from this offering to fund expansion of its
manufacturing capacity. The failure of the Company to complete the
expansion on schedule and within budget could have a material adverse
effect on its business, financial condition and operating results. In
addition, the Company is in the process of implementing new operations
control and accounting information systems, which may temporarily impact
the Company's operations. See "Use of Proceeds," "Business-Manufacturing
Processes" and "-Management Information Systems."
Market and Customer Concentration. Applications for flexible
interconnects include automotive electronics, military/aerospace products,
computers and computer peripherals, telecommunications subscriber and
infrastructure equipment, as well as circuits and cables for medical and
<PAGE> 8
industrial applications. Although the Company markets products for each
of these applications in order to avoid a dependency on any one sector, a
significant downturn in any of these market sectors could have a material
adverse effect on the Company's business, financial condition and
operating results. Historically, the Company has sold a substantial
portion of its flexible interconnects to a limited number of customers.
In fiscal 1995, 1996 and 1997, sales to Motorola accounted for
approximately 12%, 29% and 20%, respectively, of the Company's total
revenues and the Company's top 20 customers accounted for approximately
61%, 66% and 69% of the Company's total revenues, respectively. The
Company expects that a limited number of customers will continue to
account for a high percentage of its total revenues in the foreseeable
future. The loss of a significant customer or a substantial reduction in
orders by any significant customer could reduce the Company's cash flow
and have a material adverse effect on the Company's business, financial
condition and operating results. See "Business-Customers."
Current and Future Capital Needs. The development and manufacture
of flexible interconnects is highly capital intensive. In order to remain
competitive, the Company must continue to make significant expenditures
for capital equipment, expansion of operations and research and
development. The Company expects that substantial capital will be
required to expand its manufacturing capacity and fund working capital for
anticipated growth. The need to raise capital to expand the Company's
manufacturing capacity is a significant reason for this offering. To the
extent the Company's financial resources are insufficient to fund these
activities, the Company will need to raise additional funds either through
borrowings or further equity financings. There can be no assurance that
such additional capital will be available on reasonable terms or at all.
The inability of the Company to obtain adequate additional financing on
reasonable terms when needed would have a material adverse effect on the
Company's business, financial condition and operating results.
Furthermore, the Company's credit facility contains various financial
covenants predicated on the Company's present and future financial
condition. In the event the Company is no longer able to meet the
covenants contained in the credit facility, it may be required to repay
the debt incurred thereunder. See "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital
Resources" and "Business-Manufacturing Processes."
Foreign Operations. The Company is currently expanding its
operations globally. The Company owns a 50.1% equity interest in a joint
venture in China. Manufacturing and sales operations outside the United
States are accompanied by a number of risks inherent in international
operations, including imposition of governmental controls, compulsory
licensure requirements, compliance with a wide variety of foreign and
United States export laws, currency fluctuations, unexpected changes in
trade restrictions, tariffs and barriers, political and economic
instability, longer payment cycles typically associated with foreign
sales, difficulties in administering business overseas, labor union issues
and potentially adverse tax consequences. Although the Company's current
products are designed to meet the regulatory standards of certain foreign
countries, any inability to meet foreign regulatory approvals on a timely
basis could have an adverse effect on the Company's business, financial
condition and operating results. See "Business-Joint Venture and
Strategic Relationships."
<PAGE> 9
Competition. The Company's business is highly competitive. The
flexible interconnect industry is differentiated by customers, markets and
geography, with each niche having its own combination of complex packaging
and interconnect requirements. The Company experiences competition
worldwide in the flexible interconnect market from a number of foreign and
domestic providers as well as from alternative technologies such as rigid
printed circuits. Many of the Company's competitors are larger and have
greater financial resources than the Company. There can be no assurance
that existing or future competitors will not be able to duplicate the
Company's strategies or that the Company will continue to be able to
compete successfully. See "Business-Industry Overview" and "-
Competition."
Limited Sources of Supply. The Company purchases raw materials,
process chemicals and various components from multiple outside sources.
In fiscal 1997, the Company's largest supplier of raw materials was
Dupont, from which it purchased approximately 44% of its materials and
supplies. Any unanticipated disruption in shipments from Dupont would
have a material adverse effect on the Company's business, financial
condition and operating results. Although there exist alternate suppliers
for the raw materials, process chemicals and various components that the
Company currently purchases from its suppliers, because of the Company's
limited inventory of raw materials and tight manufacturing cycles, any
unanticipated interruption of supply could have a short-term material
adverse effect on the Company's business, financial condition and
operating results. See "Business-Materials and Materials Management."
Intellectual Property. The Company relies on a combination of
patent and trade secret laws and non-disclosure and other contractual
agreements to protect its proprietary rights. There can be no assurance
that the Company's efforts to protect its intellectual property will be
effective in preventing misappropriation or that others may not
independently develop similar technology. In addition, litigation may be
necessary to protect the Company's proprietary rights or to defend against
claims of infringement. Although no claims have been asserted against the
Company for infringement of the proprietary rights of others, there can be
no assurance that third parties will not assert such claims in the future.
If any infringement claim is asserted, the Company may be required to
obtain a license of such rights. There can be no assurance that any such
license would be available on reasonable terms, if at all. Litigation
with respect to patents and other intellectual property matters could
result in substantial costs and diversion of management and other
resources and could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business-
Intellectual Property."
Technological Change. The market for the Company's products and
services is characterized by rapidly changing technology and continuing
process development. The future success of the Company's business will
depend in large part upon its ability to maintain and enhance its
technological capabilities, develop and market products and services that
meet changing customer needs and successfully anticipate or respond to
technological changes on a cost-effective and timely basis. In addition,
the flexible interconnect industry could in the future encounter
competition from new technologies that render existing interconnect
technology less competitive or obsolete. There can be no assurance that
the Company will effectively respond to the technological requirements of
<PAGE> 10
the changing market. Moreover, there can be no assurance that the
materials and processes that the Company is currently developing will
result in commercially viable technological processes or that there will
be commercial applications for these technologies. To the extent that the
Company determines that new technologies and equipment are required to
remain competitive, the development, acquisition and subsequent
implementation of such technologies and equipment are likely to continue
to require significant capital investment. The Company's failure to keep
pace with technological change could have a material adverse effect on its
business, financial condition and operating results.
Dependence on Key Personnel. The Company is dependent upon a number
of its key management personnel. In addition, the future success of the
Company depends on its continuing ability to attract and retain highly-
qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel. The loss of
service of one or more key individuals, or the inability to attract
additional qualified personnel, could have a material adverse effect on
the Company's business, financial condition and operating results. The
Company maintains a key person life insurance policy in the amount of $1.0
million on each of Mr. Herbert W. Pollack and Mr. Peter J. Murphy.
See "Management."
Environmental Regulations. The Company is subject to a variety of
environmental laws relating to the storage, discharge, handling, emission,
generation, manufacture, use and disposal of chemicals, solid and
hazardous waste and other toxic and hazardous materials used to
manufacture, or resulting from the process of manufacturing, the Company's
products. The Company cannot predict the nature, scope or effect of
future legislation or regulatory requirements to which its operations
might be subject or the manner in which existing or future laws or
regulations will be administered or interpreted, including whether they
will be applied in the future to materials, products or activities to
which they have not been applied previously. Complying with new or more
stringent laws or regulations, or to more vigorous enforcement of the
current or future policies of regulatory agencies, could require
substantial expenditures by the Company and could have a material adverse
effect on its business, financial condition and operating results.
Environmental laws and regulations require the Company to maintain and
comply with a number of permits, authorizations and approvals and to
maintain and update training programs and safety data regarding materials
used in its processes. Violations of those requirements could result in
financial penalties and other enforcement actions, and could require the
Company to halt one or more portions of its operations until a violation
is cured. Although the Company works to operate in compliance with these
environmental laws, there can be no assurance that the Company will
succeed in that effort at all times. The combined costs of curing
incidents of non-compliance, resolving enforcement actions that might be
initiated by government authorities or satisfying business requirements
following any period affected by the need to take such actions could have
a material adverse effect on the Company's business, financial condition
and operating results. See "Business-Environmental Regulations."
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000
shares of Common Stock offered by the Company hereby at an assumed public
offering price of $21.25 per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company,
are estimated to be approximately $19.7 million ($22.6 million if the
Underwriters' over-allotment option is exercised in full). The Company
will not receive any of the proceeds from the sale of shares of Common
Stock offered by the Selling Stockholders. See "Selling Stockholders."
The Company expects to use approximately $12 million of the net
proceeds to substantially expand its manufacturing facilities and purchase
capital equipment that will increase its manufacturing capacity and
accommodate various new forms of technology processes. See "Business-
Manufacturing Processes." The Company also intends to use a portion of the
net proceeds to repay all of the outstanding indebtedness under the
Company's revolving credit loan facility with Fleet National Bank (which
was $3.0 million as of September 15, 1997), which was incurred for the
purchase of equipment and for working capital. As of September 15, 1997,
the interest rate on loans outstanding under the revolving credit facility
was 8.5%. The revolving credit facility matures on December 31, 1997, at
which time it converts into a three-year term loan. The balance of the
net proceeds will be used for working capital and other general corporate
purposes. Pending the application of the net proceeds as described above,
the net proceeds to the Company from this offering will be invested in
short-term, interest-bearing, investment-grade securities.
PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low sale prices
for the Common Stock on the Nasdaq National Market, under the symbol
"PRLX," for the periods indicated:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1996
First Quarter $ 9.00 $ 6.17
Second Quarter 7.50 4.83
Third Quarter 6.67 5.00
Fourth Quarter 10.17 5.50
Fiscal 1997
First Quarter 9.67 5.33
Second Quarter 7.83 5.83
Third Quarter 16.33 6.67
Fourth Quarter 15.25 10.00
Fiscal 1998
First Quarter (through September 26, 1997) 24.00 13.88
</TABLE>
On September 26, 1997 the last reported sale price for the Common
Stock on the Nasdaq National Market was $21.25 per share. As of September
24, 1997, there were approximately 87 holders of record of the Common
Stock.
<PAGE> 12
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any,
to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future. Future cash
dividends, if any, will be determined by the Board of Directors and will
be based on the Company's earnings, capital, financial condition and other
factors deemed relevant by the Board of Directors. In addition, the
Company's revolving line of credit limits the amount available for cash
dividends (as of June 30, 1997, $4.3 million was available for cash
dividends). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the short-term debt and
capitalization of the Company as of June 30, 1997, and as adjusted to give
effect to the application of the estimated net proceeds from the sale of
the 1,000,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $21.25 per share.
<TABLE>
<CAPTION>
June 30, 1997
-----------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Short-term debt, including current portion of long-term debt $ 1,000 $ 500
Long-term debt, less current portion $ 2,500 $ -
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none outstanding - -
Common stock, $0.10 par value; 5,000,000 shares authorized,
3,798,750 shares issued and 4,798,750 shares issued as
adjusted (1)(2) 380 480
Additional paid-in capital 3,334 22,884
Retained earnings 15,112 15,112
Less treasury stock, at cost-210,000 shares (1,038) (1,038)
Total stockholders' equity 17,788 37,438
Total capitalization $20,288 $37,438
<FN>
- -------------------
<F1> Excludes options to purchase 291,034 shares of Common Stock under
the Company's stock plans outstanding at June 30, 1997.
<F2> The Company has called a special meeting of its stockholders on
October 20, 1997 for the purpose of voting on a proposal to increase
to 10,000,000 shares its authorized Common Stock.
</FN>
</TABLE>
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with
respect to the Company's consolidated statements of income for each of the
three years in the period ended June 30, 1997, and with respect to the
consolidated balance sheets as of June 30, 1996 and 1997, are derived from
the consolidated financial statements that have been audited by Deloitte &
Touche LLP, independent auditors, which are included elsewhere in this
Prospectus. The consolidated statement of income data for the years ended
June 30, 1993 and 1994, and the consolidated balance sheet data as of June
30, 1993, 1994 and 1995 are derived from audited consolidated financial
statements not included herein. The data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes thereto and the other financial information
included in this Prospectus.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total revenues $31,392 $34,926 $40,251 $47,257 $55,087
Cost of products sold 26,636 29,150 32,946 40,308 44,137
-----------------------------------------------
Gross profit 4,756 5,776 7,305 6,949 10,950
Selling, general and administrative expenses 4,432 4,637 4,998 5,518 7,288
-----------------------------------------------
Operating income 324 1,139 2,307 1,431 3,662
Income from operations before income taxes 252 1,007 2,240 1,170 3,381
Net income 302 1,007 1,486 770 2,120
Net income per share $ 0.09 $ 0.29 $ 0.41 $ 0.21 $ 0.57
===============================================
Weighted average number of common and
common equivalent shares outstanding 3,466 3,466 3,651 3,675 3,716
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 5,257 $ 6,704 $ 8,466 $ 9,148 $ 9,592
Total assets 18,906 20,845 24,517 29,662 32,234
Short-term debt, including current portion of
long-term debt 875 200 200 501 1,000
Long-term debt, less current portion 500 950 2,300 3,650 2,500
Stockholders' equity 11,848 12,880 14,667 15,455 17,788
<PAGE> 14
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading supplier of flexible interconnects
principally for sale to the automotive, military/aerospace, computer,
telecommunications and industrial markets. Prior to 1990, substantially
all of the Company's sales were for military/aerospace applications.
Beginning in 1990, the Company developed a business strategy of pursuing
broader commercial applications for its products. The execution of this
strategy has resulted in a reduction of revenues from the
military/aerospace sector as a percentage of the Company's total revenues
from 53% in fiscal 1992 to 21% in fiscal 1997, while increasing overall
revenues approximately 92%.
The Company believes that its development of innovative materials
and processes provides it with a competitive advantage in the markets in
which it competes. During the past three years, the Company has invested
over $7.3 million (or approximately 5% of total revenues) in research and
development to develop materials and enhance its manufacturing processes.
The Company includes in cost of products sold its expenditures for the
development of materials and processes.
To better serve customers that have production facilities in Asia
and to more cost effectively manufacture certain products for worldwide
distribution, the Company formed a Chinese joint venture, Parlex
(Shanghai) Circuit Co., Ltd. ("Parlex Shanghai"), in 1995. Parlex owns
50.1% of the equity interest in Parlex Shanghai. Accordingly, Parlex
Shanghai's results of operations, cash flows and financial position are
included in the Company's consolidated financial statements.
Results of Operations
The following table sets forth, for the periods indicated, selected
items in the Company's statements of income as a percentage of total
revenues. The table and the discussion below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0%
Cost of products sold 81.9 85.3 80.1
Gross profit 18.1 14.7 19.9
Selling, general and administrative expenses 12.4 11.7 13.2
Operating income 5.7 3.0 6.6
Income from operations before income taxes 5.6 2.5 6.1
Net income 3.7% 1.6% 3.8%
</TABLE>
<PAGE> 15
Results of Operations For the Past Three Fiscal Years
Total Revenues. Total revenues increased approximately 17% over the
previous year in each of fiscal 1996 and fiscal 1997, from $40.3 million
to $47.3 million to $55.1 million. Revenues grew in each of the Company's
principal product lines-flexible circuits, laminated cables,
flexible/cable hybrid circuits and flexible interconnect assemblies. The
increase in total revenues in each period was primarily attributable to an
increase in the volume of units shipped.
Total revenues included licensing and royalty fees of $495,000,
$155,000 and $110,000 in fiscal 1995, 1996 and 1997, respectively.
Although the Company intends to continue its practice of developing
materials and processes that it can license to third parties, it does not
expect that royalty revenues will represent a significant portion of total
revenues in the near term.
Cost of Products Sold. Cost of products sold in fiscal 1995, 1996
and 1997 was $32.9 million, $40.3 million and $44.1 million, respectively.
As a percentage of total revenues, cost of products sold was 81.9%, 85.3%
and 80.1% in each of fiscal 1995, 1996 and 1997, respectively. The
decrease in the percentage in fiscal 1997 was primarily the result of
manufacturing yield improvements, particularly in connection with a major
automotive program for Motorola, while general productivity gains and
increased absorption of overhead also contributed to the reduction. These
improvements were made possible by enhancements to the manufacturing
process, the acquisition of additional production equipment and cost
savings on materials and supplies.
In fiscal 1996, the increase in the cost of products sold as a
percentage of total revenues was substantially attributable to the
introduction of the Motorola program described above. Although the
Company made progress in reducing costs throughout fiscal 1996, it was not
until March 1996 that the Company overcame most of the technical issues
affecting yields and costs in this program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1995, 1996 and 1997 were $5.0 million,
$5.5 million and $7.3 million, respectively. As a percentage of total
revenues, selling, general and administrative expenses remained relatively
constant during the three-year period, rising slightly in fiscal 1997 to
13.2%. The dollar increase was the result of increased expenses
associated with the hiring of additional sales personnel, increased sales
commissions on the incremental sales, additional costs associated with
incentive compensation and the inclusion of Parlex Shanghai's expenses for
twelve months in fiscal 1997 versus seven months in fiscal 1996. The
Company believes that it has added sufficient sales resources to
accommodate its near-term growth prospects, and management expects that
selling, general and administrative expenses will increase at a rate less
than the growth in revenues.
Other Income and Interest Expense. Other income of $88,000 and
$91,000 in fiscal 1995 and 1996, respectively, was comprised entirely of
items of a miscellaneous nature. The increase in other income in fiscal
1997 to $156,000 was principally the result of a gain on the sale of
equipment.
<PAGE> 16
Interest expense increased from $155,000 in fiscal 1995 to $351,000
in fiscal 1996 and $436,000 in fiscal 1997. Interest expense increased in
fiscal 1996 and fiscal 1997, principally as a result of increased
borrowings to finance capital expenditures. Interest rates during the
period remained relatively constant.
Selected Quarterly Operating Results
The following tables present certain unaudited quarterly
consolidated financial information for each of the eight quarters in the
two-year period ended June 30, 1997 and selected information as a
percentage of total revenues for each period. In the opinion of the
Company's management, this information has been prepared on the same basis
as the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus and includes all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the
financial results set forth herein. Although results from period to
period may vary, the first fiscal quarter of each year is impacted by a
plant shutdown of flexible circuit operations in order to perform
maintenance operations, environmental inspections, facility modification
and equipment installation. Results of operations for any previous
quarters are not necessarily indicative of results for any future period.
<TABLE>
Fiscal 1996 Fiscal 1997
------------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Total revenues $11,611 $11,685 $11,703 $12,258 $12,807 $14,068 $13,225 $14,987
Gross profit 1,316 1,539 1,820 2,274 1,895 2,595 2,985 3,475
Operating income 64 209 349 809 308 858 1,232 1,264
Net income 24 91 196 460 188 558 643 731
Net income per share $ 0.01 $ 0.02 $ 0.05 $ 0.12 $ 0.05 $ 0.15 $ 0.17 $ 0.19
As a Percentage of Total Revenues:
Gross profit 11.3% 13.2% 15.6% 18.6% 14.8% 18.4% 22.6% 23.2%
Operating income 0.5 1.8 3.0 6.6 2.4 6.1 9.3 8.4
Net income 0.2% 0.8% 1.7% 3.8% 1.5% 4.0% 4.9% 4.9%
</TABLE>
Liquidity and Capital Resources
In fiscal 1997, the Company generated $3.4 million in cash flow from
operations. In addition to net income of $2.1 million, depreciation and
amortization of $1.9 million as well as changes in inventories and
payables of $1.0 million added to cash flow. Cash flow was reduced, in
part, by an increase in accounts receivable of $1.6 million associated
with the Company's increased revenues.
During fiscal 1997, the Company's investing and financing activities
included an investment of $2.6 million in property, plant and equipment,
repayment of $650,000 under its revolving credit facility and payment at
maturity of $100,000 on an industrial revenue bond.
<PAGE> 17
The Company has a $5 million unsecured revolving line of credit with
a bank. Borrowings under the unsecured line bear interest at the bank's
corporate base rate (8.5% at September 15, 1997), and the Company pays an
annual commitment fee of 0.5% on the average daily unused portion of the
bank's commitment. Amounts available for borrowings are reduced by
$500,000 due to the Company's guarantee of a loan made to Parlex Shanghai.
At September 15, 1997, $3.0 million was outstanding under the line of
credit and $1.4 million remained available for borrowing. On January 1,
1998, the unsecured line converts to a term loan with principal and
interest payments due monthly over a 36-month period. The agreement
establishing the line of credit has restrictive covenants, which include
restrictions on payment of cash dividends and requirements or limitations
as to tangible net worth, current ratio, working capital, debt service
ratio, capital expenditures and the ratio of total liabilities to equity.
Under these restrictive covenants, amounts available for dividends or
other distributions at June 30, 1997 approximated $4.3 million. The
Company also has a $2 million unsecured equipment financing line of credit
that expires on October 24, 1997, although amounts outstanding on that
date may be converted to a three-year term loan. No amounts were
outstanding under the equipment line at September 15, 1997.
The Company has received a commitment letter from the bank for a $10
million unsecured revolving line of credit to replace the two existing
facilities. The Company expects this new credit facility to be in place
before the end of the second quarter in fiscal 1998.
The Company believes that its cash flow from operations, its
available line of credit, the net proceeds of this offering and other
financing alternatives available to it should be sufficient to satisfy its
operating and capital needs for the foreseeable future.
The Company has a deferred compensation obligation of approximately
$941,000 as of June 30, 1997 that is owed to the Chairman of its Board of
Directors. Under the current arrangement, monthly payments begin in June
1999, or the first month after the termination of his employment,
whichever occurs first, and continue for no fewer than 60 months or, at
the election of the Chairman prior to his termination of employment, for
up to 120 months. Amounts to be paid within one year are not expected to
be material.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share," and SFAS No. 129, "Disclosure
of Information About Capital Structure." SFAS No. 128 establishes
standards for computing and presenting earnings per share and applies to
entities with publicly held common stock or common stock equivalents.
SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure and applies to all entities. The Company will
adopt both SFAS Nos. 128 and 129 in the second quarter of fiscal 1998 as
required by those standards. The implementation of SFAS No. 128 will not
have a material effect on previously reported earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
<PAGE> 18
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS No. 131 establishes standards for the
manner in which public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company has not yet completed the analysis of which
operating systems, if any, it will report on. Both standards will be
adopted by the Company during the first quarter of fiscal year 1999.
BUSINESS
Parlex is a leading supplier of flexible interconnects principally
for sale to the automotive, military/aerospace, computer,
telecommunications and industrial markets. The Company's product
offering, which the Company believes is the broadest of any company in the
flexible interconnect industry, includes flexible circuits, laminated
cables, flexible/cable hybrid circuits and flexible interconnect
assemblies. Flexible circuits, which consist of conductive copper
patterns that are laminated to flexible substrate materials such as
polyimide or polyester, are used to provide connections between components
and electronic systems and as a substrate to support electronic devices.
Laminated cables, which consist of flat or round wire laminated to a
flexible substrate material, provide connections between electronic sub-
systems and replace conventional wire harnesses. Flexible/cable hybrid
circuits combine the lower cost of laminated cable with the technology of
flexible circuits into a single cost-effective interconnect. Flexible
interconnect assemblies are formed by adding components such as integrated
circuits, connectors, resistors and capacitors to flexible circuits or
laminated cables. The advantages of flexible interconnects over
alternative technologies such as rigid printed circuits include three-
dimensional packaging and superior thermal qualities as well as reduced
size and weight. The Institute for Interconnecting and Packaging of
Electronic Circuits ("IPC"), an international trade organization,
estimates that worldwide sales of flexible circuits in 1996 exceeded $2.5
billion. The IPC has reported that the flexible circuit industry in North
America has grown at rates between 17% and 19% in each of the past three
years.
The Company believes that its creative engineering expertise and its
ability to advance the technology of manufacturing processes and materials
allow it to provide its customers with a comprehensive range of flexible
interconnect solutions. Beginning at the design phase, the Company's
design engineers work closely with its customers to ensure the
produceability of a design. Once a design has been completed, the Company
utilizes its innovative materials and processes, including PALFlex,
PALCoat, U-Flex, Polyamber, Pemacs and PALCore, to produce a flexible
interconnect product that meets its customers' performance needs and cost
objectives.
The Company's objective is to be the supplier of choice for key
customers in markets where cost-effective flexible interconnects provide
added value to the customers' products. Within its targeted market
segments, the Company believes that its ability to develop strategic
customer relationships and provide a broad product offering serves as a
competitive advantage. These relationships have enabled the Company to
<PAGE> 19
work closely with its customers from the design phase through production
to ensure that its customers' flexible interconnect requirements are met.
In fiscal 1997, the Company's top customers in terms of revenues were
Motorola, Texas Instruments, Northern Telecom, Allied-Signal, Delco
Electronics and Compaq Computer.
An important element of the Company's growth strategy has been
diversification among its targeted markets. Since 1992, the Company has
reduced revenues from military/aerospace applications from approximately
53% to 21% of total revenues, while increasing overall revenues by
approximately 92% over the same period. As a result of the Company's
growth in recent years, the Company has expanded its manufacturing
operations to better accommodate its customers' geographic and cost
requirements. In 1995, the Company established Parlex Shanghai, a joint
venture in China designed to serve the Asian market with flexible circuits
as well as to produce certain products more cost-effectively for North
American customers. The Company is planning to expand its manufacturing
facilities and acquire equipment to increase capacity and accommodate new
technology at all of its manufacturing locations during fiscal 1998. See
"Use of Proceeds."
Industry Overview
Over the past two decades electronic systems have become smaller,
lighter and more reliable, while demands for performance at lower costs
have increased dramatically. Although rigid printed circuits are a
conventional form of electronic packaging, their two-dimensional form
limits the options available to the design engineer. As the demand for
more portable electronic packaging has increased, so too has the demand
for flexible, three-dimensional circuits. In addition to the improved
packaging and performance characteristics, flexible circuits offer
superior thermal dissipation characteristics compared to rigid circuits,
making flexible circuits attractive for use in advanced, high-speed
electronics.
Flexible interconnects are used in most segments of the electronics
industry. The primary market segments that place high value on superior,
cost-effective flexible interconnect solutions include:
Automotive. Automobile manufacturers increasingly use electronics
to enhance vehicle performance and functionality, while at the same time
reducing electronic component size, weight and manufacturing and assembly
costs. Flexible circuits and laminated cables can provide cost-effective
interconnect solutions for such applications as dashboard instrumentation,
automotive entertainment systems, electronic engine control units,
steering wheel controls, power distribution, sensors and anti-lock brakes.
Providers of flexible interconnects typically work closely with the
companies that supply these electronic systems to the vehicle
manufacturers. Because automotive production cycles generally last three
to five years and designs are unlikely to change during that period, a
flexible interconnect that is designed into an automobile model or
platform provides a relatively predictable source of demand over an
extended time period.
Telecommunications. The telecommunications market has two distinct
segments: infrastructure equipment and subscriber equipment.
Infrastructure equipment consists of support electronics for the
<PAGE> 20
distribution of voice and data transmission. The growth of data transfer
via the Internet has dramatically increased demand for this type of
equipment. Infrastructure equipment employs sophisticated electronics
which usually require the use of complex flexible interconnects.
Subscriber equipment consists of cellular devices including battery
assemblies. Tight packaging and the need to reduce weight have driven the
demand for flexible interconnects in this segment. Laminated cables and
single- and double-sided flexible circuits are generally used in
subscriber equipment.
Computer. The IPC has reported that the computer market represents
approximately 37% of the worldwide consumption of flexible interconnects.
Demand for flexible circuits and laminated cable in this market is driven
by short product life cycles as consumers demand increasingly powerful,
less expensive, smaller, faster and lighter equipment. Disk drives
represent the largest application for flexible circuits in this market.
Other applications include notebook displays, mass storage devices and
interconnects for peripheral equipment such as scanners, printers and
docking stations.
Military/Aerospace. Military/aerospace electronics were at one time
the primary applications for flexible circuitry. Because of product
complexity and space restrictions, aerospace requirements often demand
multilayer rigid-flexible circuits. Typical applications are navigation
systems, flight controls, displays, communications equipment and
munitions. Although overall spending in this segment has decreased, the
Company estimates procurement of flexible interconnects will continue to
experience modest growth. The Company believes that the trend toward
"smart" military systems will continue to drive demand for flexible
interconnects in this segment.
Industrial. The industrial market, which the Company defines to
include medical electronics, encompasses many applications. Virtually any
electronic device in which tight packaging, light weight or high
reliability is a priority is a candidate for flexible interconnects.
Typical applications include electronic scales, industrial controls,
metering devices, scanners, sensors and medical monitoring equipment.
The Parlex Solution
Parlex combines creative engineering design capabilities with
innovative manufacturing processes to provide its customers with a
complete and cost-effective flexible interconnect solution. The solution
begins in the design phase, where Parlex engineers typically work closely
with customers to develop a technically superior flexible interconnect
design. Although the Company's customers generally provide the initial
engineering guidelines for a particular interconnect, the Company's design
engineers are often called upon to work in tandem with a customer's design
team to develop a solution. An important part of the Parlex solution is
ensuring the produceability of a design at an early stage-before time and
money are spent on manufacturing.
Once the design is completed, the Company applies its experience
with innovative materials and manufacturing processes to produce a
flexible interconnect solution that meets the customer's needs and cost
objectives. The Company has developed materials and processes that
provide its customers improved performance at a lower cost. Over the past
<PAGE> 21
several years the Company has gained substantial experience in introducing
programs for high-volume products, and it believes this expertise is a key
factor in its ability to provide its customers with cost-effective
flexible interconnect solutions.
The Company believes manufacturers with the capability to supply a
broad range of products with a diverse mix of performance characteristics
and with a global presence will capture additional market share in the
flexible interconnect industry. The Company is one of a limited number of
independent manufacturers that offers a range of flexible interconnect
solutions from design concept through high-volume production. By offering
its broad range of products and services, the Company can provide design
and manufacturing solutions for its customers while reducing its
customers' time-to-market and product development costs.
Strategy
The Company's objective is to be the flexible interconnect supplier
of choice for key customers in its target markets. The Company's strategy
to achieve this objective includes the following key elements:
* Develop Innovative Processes and Materials. The Company
believes that its ability to develop innovative materials and
processes enhances the opportunity for growth within its
targeted markets. The Company intends to continue to focus its
development efforts on proprietary flexible materials and
processes that have a broad range of applications. These
materials and processes enable the Company to produce cost
-effective flexible interconnects, at reduced cycle time, that
are reliable and improve its customers' product performance.
The Company's PALFlex, PALCoat, Polyamber, U-Flex and PALCore
technologies are examples of materials and manufacturing
processes that have resulted from the Company's focus on
innovation.
* Develop Strategic Relationships with Target Customers. The
Company seeks to develop strategic relationships with key
customers in targeted industries. As a value-added strategic
partner with its customers, the Company works with a customer's
technology roadmap to design and develop cost-effective flexible
interconnect solutions. The Company believes that these
relationships are most effective where the Company is providing
a significant portion of a customer's flexible interconnect
requirements. Through these strategic relationships, the
Company achieves greater visibility into the customer's entire
range of flexible interconnect requirements.
* Diversify Customer Base across Specified Markets. The Company
seeks to serve a variety of markets to help mitigate the effects
of economic cycles in any one industry. The Company's business
units are aligned to specific market segments in order to better
understand and service customers within particular industries.
In addition, the Company believes its diversification among the
major segments provides greater insight into emerging
technological requirements. For example, the Company has
applied its knowledge of shielding requirements in the computer
industry to gain a competitive advantage in the
telecommunications market.
<PAGE> 22
* Offer the Broadest Range of Products in the Flexible
Interconnect Industry. The Company intends to continue to
provide a broad product offering that allows it to service
virtually all of its customers' flexible interconnect
requirements. Parlex is not aware of any other company in the
flexible interconnect industry that offers a broader range of
products. The Company's product line includes flexible and
rigid-flexible circuits from one to 24 layers, laminated cables,
flexible/cable hybrid circuits and flexible interconnect
assemblies. The Company uses a variety of materials in its
products, including adhesiveless and adhesive-based polyimide as
well as polyester.
* Expand Global Presence. The Company believes that flexible
interconnect customers will increasingly require service on a
global basis. To address these requirements, the Company has
continued to expand its global presence in emerging markets and
throughout the world. For example, the Company established a
joint venture company in China as a base for its operations in
that region and to serve the emerging market in China. The
Company has also developed, and plans to continue to develop,
strategic relationships and alliances that it believes are
necessary for the success of its international business. The
Company is also exploring the formation of a joint venture to
produce laminated cables in Asia where it believes the market
for this product is substantially greater than in North America.
See "-Joint Venture and Strategic Relationships."
Current Products
The Company's current products include flexible circuits, laminated
cables, flexible/cable hybrid circuits and flexible interconnect
assemblies. The products are produced to customers' application-specific
requirements and are designed by the Company, the customer or jointly.
Lead times for the design and manufacture of the Company's products
generally range from one week for some products to three months for more
sophisticated products.
Flexible Circuits
Flexible circuits, which consist of conductive copper patterns that
are laminated to flexible substrate materials such as polyimide or
polyester, are used to provide connections between electronic components
and as a substrate to support these electronic devices. The circuits are
manufactured by passing base materials through multiple processes such as
drilling, photo imaging, etching, copper plating and finishing. Flexible
circuits can be produced in single or multiple layers. The Company
produces a wide range of flexible circuits including:
* Single-Sided Flexible Circuits have a conductive pattern only on
one side and are commonly used for cellular phones, batteries
for portable electronics and dashboard displays. Parlex has
converted many double-sided flexible circuits to single-sided by
incorporating its HSI+ (high speed interconnect) screening
technology that incorporates superior shielding qualities and
eliminates a separate shield layer. The Company manufactures
single-sided circuitry in both the United States and at Parlex
<PAGE> 23
Shanghai, where substantially all of the production to date has
been single-sided.
* Double-Sided Flexible Circuits have conductive patterns on both
sides which are interconnected by a drilled and copper-plated
hole. The Company's double-sided circuits are used primarily in
the automotive market. Other applications include high
definition displays, instrumentation products and digital data
converters.
* Multilayer and Rigid-Flexible Circuits consist of layers of
circuitry that are stacked and laminated. These circuits are
used where the complexity of the electronic design demands
multiple layers of flexible circuitry. If some of the layers
are rigid board material, the product becomes a rigid-flexible
circuit. Multilayer and rigid-flexible circuits are common in
military applications for flight computers, multipurpose
displays and flight control systems. In commercial
applications, these products are used on high speed telephone
distribution equipment, computer networking electronics and
patient monitoring devices. The Company has manufactured these
circuits with up to 40 layers in prototype programs and 24
layers in production.
Laminated Cables
The Company manufactures laminated cables in an efficient roll
process proprietary to Parlex. Substantially all of the laminated cable
that the Company produces uses flat wire. Approximately 70% of the
laminated cable that the Company produces is insulated with polyester
material allowing for maximum flexibility while the remainder is insulated
with polyimide material for its enhanced performance at elevated
temperatures. The Company's laminated cables are capable of handling both
power (high current) and signal (low current) levels.
Improving the process by which laminated cable is manufactured can
increase functionality and lower the cost of production. To this end, the
Company has developed U-Flex, a technique that forms conductors into a
u-shape, followed by an injection molding process which provides the
function of a connector. This technique improves electrical performance
and eliminates the need for a separate costly connector. The Company has
also developed Pemacs shielding, which adds a specially designed silver
ink to laminated cable to meet stringent electronic shielding requirements
without compromising flexibility. The Company's Autoline cable process
incorporates pushpins into the laminated cable to provide for automatic
alignment to a printed circuit board for subsequent soldering.
Flexible/Cable Hybrid Circuits
In many cases, although a laminated cable is capable of carrying the
necessary signals, etched circuitry is required for termination. For
these applications the Company manufactures flexible/cable hybrid
circuits, which take advantage of the lower cost of laminated cables and
the technology of flexible circuits by combining them into a single
interconnect. Flexible/cable hybrid circuits are currently used in
switching stations, postage metering devices and electronic scales. On
some products, Parlex adds its HSI+ process to the flexible/cable hybrid
<PAGE> 24
circuit to provide signal clarity and shielding to the cable and the
flexible circuit.
Flexible Interconnect Assemblies
Both flexible circuits and laminated cables can be converted into an
electronic assembly by adding electronic components. This process can be
as simple as adding a connector or as complex as assembling and soldering
many components such as capacitors, resistors and integrated circuits. In
some cases, the Company subcontracts with electronic manufacturing service
companies for component placement and attachment.
The following table describes applications in which the Company's
products are used:
<TABLE>
<CAPTION>
Product Applications
------- ------------
<S> <C>
Flexible Circuits
Single-Sided Batteries for Cell Phones
VCRs
Computer Networks
Double-Sided Engine Controls
Laptop Computers
Cellular Phones
Multilayer and Rigid-Flexible Computer Networks
Telecom Switching Stations
Aircraft Displays
Portable Medical Monitors
Laminated Cables
Standard Postage Meters
U-Flex Automotive Sound Systems
ZIF Laptop Computers
Pemacs Industrial Controls
Autoline Automotive Sound Systems
Flexible/Cable Hybrid Circuits Printers
Electronic Scales
Switching Stations
Flexible Interconnect Assemblies Aircraft Identification Systems
Sensors
Scanning Devices
Batteries for Portable Products
Disk Drives
Night Vision Systems
</TABLE>
<PAGE> 25
New Product Development
An important part of the Company's strategy is development of new
materials, processes and products. During the past three fiscal years,
the Company has invested an aggregate of $7.3 million in research and
development. The Company believes that its commitment to innovation is
evidenced by the fact that it has developed new materials for use in its
products even though it is not considered a materials supplier. The
Company has developed the following new products:
PALFlex. The Company has developed an adhesiveless polyimide-based
material, PALFlex (Parlex Adhesiveless Laminate for Flex). PALFlex is
both a material and a manufacturing process that the Company believes is
an enabling technology that provides superior performance at a lower cost
than with traditional copper-clad materials. PALFlex provides additional
cost benefits by allowing the Company to combine certain material
manufacturing steps with circuit manufacturing, eliminating several major
process steps including conventional drilling, plasma etching, copper
deposition and copper plating. PALFlex has been developed for high volume
automotive applications but could potentially be used across a number of
product lines. Because PALFlex is produced in roll form and the copper
thickness can be controlled to tight tolerances, the Company believes that
PALFlex may serve as the foundation for the Company's development of
products to serve the emerging fine line, micro-via market. The Company
shipped its first product incorporating the current version of PALFlex in
September 1997.
PALCoat. Working closely with Coates ASI, a materials manufacturer,
and Teledyne HALCO, an equipment manufacturer, the Company developed
PALCoat, a new material for coating the outside of the circuit. PALCoat
has been designed to provide the electrical and physical characteristics
required for a new generation of products but at a substantially lower
cost than what is commercially available. PALCoat is in production
validation testing with two of the Company's automotive customers, and the
Company currently expects to begin production in November 1997.
Polyamber. Parlex has worked closely with a materials manufacturer
to develop an alternative dielectric to polyimide and polyester. The
Company recognized that polyimide is too expensive to compete with
alternative materials when the performance of polyimide is not required,
and that less expensive polyester has limited soldering capability and is
unsuitable in extreme cold. The Company's solution was to develop
Polyamber, a polyethylene napthalate, made to look like polyimide, as a
lower cost alternative to polyimide but with better thermal
characteristics than polyester. The Company believes that Polyamber may
be a cost-effective solution in applications such as cellular battery
products and industrial controllers. The first product incorporating
Polyamber was shipped in September 1997.
PALCore. The Company developed PALCore as a low-cost multilayer
flexible material to minimize the difference between the cost of materials
used in flexible circuits and those used in conventional rigid circuits.
The Company has licensed PALCore to Allied-Signal and Polyclad Laminates
for thin core rigid board applications, which are products that the
Company does not produce. Parlex receives a royalty in connection with
sales by the licensees. The Company first shipped product in low volumes
using PALCore in fiscal 1996.
<PAGE> 26
Joint Venture and Strategic Relationships
Parlex Shanghai Joint Venture. In 1995 the Company established a
joint venture company in China, Parlex Shanghai, to manufacture and sell
flexible circuits. The participants in Parlex Shanghai are the Company
(50.1% equity), the Shanghai 20th Radio Factory, a Chinese printed circuit
board company (40.0% equity), and Mascon, Inc., a Massachusetts-based
international marketing and manufacturing company (9.9% equity). The
Company established Parlex Shanghai to better serve customers and
potential customers that have manufacturing facilities in Asia and to more
cost effectively manufacture certain products for worldwide distribution.
Parlex Shanghai commenced operations in September 1995 and serves
customers both in North America and Asia. Parlex Shanghai's largest
China-based customer is a General Motors Chinese joint venture and its
largest United States-based customer is Thomas & Betts. In addition to
serving customers in Asia, Parlex Shanghai provides the Company with a
competitive production capability for lower technology products to serve
the Company's customers in other parts of the world.
Samsung Agreement. In September 1994, the Company entered into a
five-year manufacturing and sales agreement with Samsung Electro-Mechanics
Co., Ltd. of Korea ("Samsung") whereby Samsung was granted the exclusive
right to manufacture flexible multilayer and rigid-flexible products in
Korea using the Company's PALCore technology. Under the terms of the
agreement, Samsung may only sell PALCore products to the Company,
customers designated by the Company or to pre-existing Samsung customers
approved by the Company.
Pucka Agreements. In 1996 the Company granted Pucka Industrial Co.,
Ltd. of Taiwan ("Pucka") a five-year exclusive, area specific license to
design, manufacture and sell flexible circuits using the Parlex HSI+
shielding process in Taiwan and, with the prior approval of the Company,
other territories. During the term of the agreement and for a period of
three years thereafter, Pucka may not sell, manufacture or distribute any
flexible circuit technology product which competes with the Company's
products using the Company's HSI+ shielding processes. Under a separate
agreement, the Company appointed Pucka as its sole and exclusive
distributor and independent sales representative for laminated cable in
Taiwan and, with prior approval of the Company, other territories.
Customers
The Company's customers are a diverse group of original equipment
manufacturers that serve a variety of industries. A list of
representative customers appears below:
Automotive Computer Industrial
---------- -------- -------
Delco AMP Foxboro
Delphi Compaq Hewlett Packard
Motorola EMC Pitney Bowes
Siemens Thomas & Betts Texas Instruments
<PAGE> 27
Military/Aerospace Telecommunications
------------------ ------------------
Allied-Signal Motorola
Lockheed Northern Telecom
Raytheon
Textron
In fiscal 1997, the Company sold products to approximately 700
customers, counting divisions within certain major companies as separate
customers. In fiscal 1995, 1996 and 1997, sales to several divisions of
Motorola comprised approximately 12%, 29% and 20%, respectively, of the
Company's total revenues. The Company's top 20 customers accounted for
approximately 61%, 66% and 69% of total revenues in fiscal 1995, 1996 and
1997, respectively.
Sales and Customer Service
The Company has organized its sales and customer service into
business units that are tied to the following specific industry segments:
automotive, military/aerospace, telecommunications, computer and
industrial. The Company believes that this organizational structure
allows its business unit managers to increase their focus on a specific
industry and develop targeted customers within those industries. Business
unit managers are assigned customer service representatives to support
their customers' day-to-day requirements. The business unit managers draw
upon the expertise of the Company's engineering staff as an integral part
of the sales process. In the United States, business unit managers
coordinate the efforts of a network of 19 independent manufacturers'
representative organizations. In fiscal 1997, manufacturers'
representative organizations accounted for approximately 60% of total
revenues.
The sales process involves extensive work with the customer's design
engineers and the Company's design and engineering staff. The business
unit manager then works closely with the Company's applications engineers
to prepare a feasibility study to assess the cost of producing the
interconnect solution to the customer's specifications. The process can
often involve multiple design and manufacturing iterations to assure that
the product can be produced to specifications at the lowest possible cost.
The business unit manager leads the Company's effort to become the
preferred supplier with target customers. The manager's ability to
understand the quality, cost, delivery, technology and service objectives
of target customers is critical to the Company's goal of achieving the
highest level of customer satisfaction. In order to develop strategic
relationships with target customers, the Company has participated in joint
training, engineering seminars, manufacturing intern programs and as
members of customers' problem solving teams. The Company often has access
to a customer's materials resource planning schedule, which allows the
Company to better forecast the customer's near- and mid-term requirements.
The Company has direct sales and customer support offices in
Austin, Texas and San Diego, California. The Company uses these offices
to provide applications engineering, logistical support and coordination
of activities between the customer and the Company. The Company has
entered into agreements with distribution companies in Singapore and in
France to provide forward stocking and inventory coordination for regional
<PAGE> 28
customers. These relationships obviate the requirement to establish a
local presence, while providing the customer with service comparable to
that of a local provider.
Under the terms of the Chinese joint venture agreement, Parlex
Shanghai has agreed that it will sell its products outside China only
through the Company and Mascon. In turn, the Company has agreed that it
will sell flexible circuits in China only through the joint venture.
Manufacturing Processes
The Company's manufacturing processes are designed to accommodate
high throughput, as well as to minimize cost and maximize yield. All of
the Company's manufacturing facilities are certified to the international
standard ISO 9002. The Company is in the process of having its facilities
certified to the automotive standard QS 9002.
The manufacturing process varies a great deal from product to
product. While the production of laminated cable is a "dry" process
incorporating virtually no chemical treatment, a multilayer flexible
circuit is processed through a dozen or more chemical operations.
Although there is no standard process, significant elements of production
are highlighted in the following chart:
<TABLE>
<CAPTION>
"Dry" "Wet" Laminated
Flexible Circuit Flexible Circuit Cable
Processes Processes Processes
---------------------------- ----------------- -----------------
<S> <C> <C>
Drilling Copper deposition Lamination
Automated optical inspection Carbon coating Slitting
Lamination Chemical cleaning Conductor forming
Electrical testing Developing Injection molding
Routing Etching Shielding
Die cutting Solder leveling Laser skiving
Assembly Gold plating Assembly
</TABLE>
The Company's computer aided manufacturing system takes the
customer's design and programs the various steps that will be required to
manufacture the particular product. The product then follows the
appropriate production flow until finally released for shipment by the
quality organization.
The Company believes that its substantial capital investment and its
manufacturing expertise in a number of specialized areas have contributed
to its position as an industry leader. A substantial amount of the
Company's production equipment is unique to its processes and
technologies. Examples include cable laminators, roll plating, roll
etching, precision cable slitters and automatic punching equipment.
The Company is planning to add capacity at all of its facilities.
In the Methuen, Massachusetts facility, the Company plans to add an
additional 35,000 square feet to its current manufacturing space of
<PAGE> 29
125,000 square feet. In the Salem, New Hampshire facility, the Company's
manufacturing space will be expanded by 12,000 square feet to a total of
46,000 square feet. Parlex Shanghai has a leased facility in Shanghai,
China of approximately 24,000 square feet and intends to expand or move to
a larger facility in order to support growth. The Company also plans to
acquire equipment including additional PALFlex roll process lines for
automotive and potential fine line micro via applications, and to build
related clean rooms, fine line imaging and roll develop-etch-strip and
inspection lines. At its laminated cable facility, the Company plans to
add two lamination lines as well as additional injection molding and
finishing equipment.
Materials and Materials Management
The Company aggressively attempts to control the cost of purchased
materials and the level of inventories. The Company believes it benefits
from long-term relationships with its suppliers. The Company's goal is to
attain a competitive price from suppliers and foster a shared vision
towards advancing technology.
The Company purchases raw circuit materials, process chemicals and
various components from multiple outside sources. The Company often makes
long-term purchasing commitments with key suppliers for specific customer
programs. These suppliers commit to provide cooperative engineering as
required and in some cases to maintain a local inventory in order to
provide shorter lead times and reduced inventory levels for the Company.
In many cases the Company's customers approve, and often specify, sources
of supply. The Company relies on key suppliers for certain raw materials.
<TABLE>
<CAPTION>
Top Five Suppliers in Fiscal 1997
Supplier Items Supplied
-------- --------------
<S> <C>
Dupont Flexible Laminates
Coverlay Film
AMP Connectors
Sheldahl Flexible Laminates
Cable Insulation
Steel Heddle Copper Wire
JAE Connectors
</TABLE>
The Company qualifies its suppliers through a vendor rating system
which limits the number of suppliers to those that can provide the Company
with the best total value and quality. The Company monitors each
supplier's quality, delivery, service and technology to insure that the
Company will receive materials that meet its objectives.
<PAGE> 30
Management Information Systems
The Company presently has a mainframe-based information system that
allows for integration of manufacturing, accounting, sales, material
management and engineering data. The Company recently entered into a
contract with a systems integrator to develop a client/server system that
will enhance the timeliness and quality of information concerning the
Company's operations. This system is designed to automate the Company's
activity-based cost system and provide automatic quoting and quote
tracking. The new system, which is scheduled to be fully implemented by
July 1998, will enable the Company to make software changes more easily,
allowing faster project completion and improved customer satisfaction.
Competition
The Company's business is highly competitive. The Company competes
against other manufacturers of flexible interconnects as well as against
manufacturers of rigid printed circuits. Competitive factors among
flexible circuit and laminated cable suppliers are price, product quality,
technological capability and service. The Company believes that it
competes favorably with respect to these competitive factors, but believes
that its competitive strength is in its ability to apply technology to
reduce cost. The Company competes against rigid board products on the
basis of product versatility, although price can also be a competitive
factor if the difference between the cost of a rigid circuit and a
flexible circuit becomes too great. The principal competitors for
flexible circuits are Sheldahl (automotive), AdFlex (telecommunications),
M-Flex (computer) and Flex Circuits, Inc. (aerospace). For laminated
cable, the principal competitors are AMP and Fujikura Ltd. (a Japanese
company).
Backlog
The Company's backlog consists of orders for which a written
purchase order has been received. In situations where the order requires
an engineering effort, it will be included in backlog even though a
delivery schedule will not be finalized until this phase is completed. On
some major multi-year contracts, such as with Motorola, the customer's
forecast for a 13-week period is added to backlog at the end of each
quarter. The Company's standard purchase orders are cancelable, but
require the payment of certain costs upon cancellation. A certain portion
of the Company's backlog may be subject to cancellation without
significant penalty. The Company's backlog as of June 30, 1996 and June
30, 1997 was constant at approximately $23 million despite a 17% increase
in revenues, reflecting the Company's shorter manufacturing cycle times.
Due to the timing of orders, delivery intervals, product mix and the
possibility of customer changes in delivery schedules, the Company's
backlog at any particular date may not be indicative of actual sales for
any succeeding period.
Intellectual Property
The Company has acquired patents and it seeks patents on new
products and processes where it believes patents would be appropriate to
protect the Company's interests. Although the Company believes that
patents are an important part of its competitive position, it does not
believe that any single patent or group of patents is critical to its
<PAGE> 31
success. Due to the rapid technological change in its business, the
success of its business depends more on its design creativity and
manufacturing expertise than on patents and other intellectual property.
The Company owns 17 patents issued in the United States and has applied
for corresponding patents with certain relevant foreign patent offices.
Federal trademark registrations have been obtained for PALFlex, PALCore
and U-Flex and the Company has applied for registration of PALCoat. The
Company also relies on internal security measures and on confidentiality
agreements for protection of trade secrets and proprietary know-how.
There can be no assurance the Company's efforts to protect its
intellectual property will be effective to prevent misappropriation or
that others may not independently develop similar technology.
Under the terms of the Chinese joint venture agreement, the Company
transferred certain technology to Parlex Shanghai and has agreed to
provide it with additional technology and expertise as the joint venture's
capabilities and markets develop. Certain technology, including PALFlex,
is excluded from the arrangement.
Environmental Regulations
Flexible circuit manufacturing requires the use of metals and
chemicals. Water used in the manufacturing process must be treated to
remove metal particles and other contaminants before it can be discharged
into the municipal sanitary sewer system. The Company operates and
maintains water effluent treatment systems and uses approved laboratory
testing procedures to monitor the effectiveness of those systems at its
Methuen, Massachusetts facility. The Company operates those treatment
systems under effluent discharge permits issued by a number of
governmental authorities. Air emissions resulting from the Company's
manufacturing processes are regulated by permits issued to the Company by
government authorities. These permits must be renewed periodically and
are subject to revocation in the event of violations of environmental
laws. The Company believes that the waste treatment equipment at its
facility is currently in compliance with the requirements of environmental
laws in all material respects and that its air emissions are within the
limits established in the relevant permit. However, there can be no
assurance that violations will not occur in the future. The Company is
also subject to other environmental laws including those relating to the
storage, use and disposal of chemicals, solid waste and other hazardous
materials, as well as to work place health and safety and indoor air
quality emissions. Furthermore, environmental laws could become more
stringent or might apply to additional aspects of the Company's operations
over time, and the costs of complying with such laws could be substantial.
Compliance with state and federal laws did not have a material impact on
the Company's capital expenditures, earnings or competitive position in
fiscal 1997, nor is it expected to have a material impact in fiscal 1998.
Employees
As of September 13, 1997, the Company employed 573 people in the
United States including 482 in production, 71 in marketing, sales,
engineering, and customer support and 20 in administration. Of the 573
employees, 474 were direct employees of Parlex and 99 worked for interim
staffing agencies. Parlex Shanghai employs approximately 80 people. The
United States employees of Parlex are not represented by a collective
bargaining unit and the Company believes its relations with its workforce
are good.
<PAGE> 32
Facilities
The Company's executive offices and its product and process
development and primary flexible circuit manufacturing facilities are
located in a single 125,000 square feet facility in Methuen, Massachusetts
which the Company owns subject to no encumbrances. The facility currently
operates three shifts, six days a week. The Company plans to add
approximately 35,000 square feet to this facility. See "-Manufacturing
Processes."
The Company's laminated cable operations are housed in a single
34,000 square feet facility in Salem, New Hampshire, leased through 2007.
The Company intends to expand the facility to approximately 46,000 square
feet during fiscal 1998. The Salem, New Hampshire facility is
approximately nine miles from the Methuen facility.
Parlex Shanghai has a leased facility in Shanghai, China of
approximately 24,000 square feet. The Company is currently considering a
larger facility in order to support growth.
The Company is investigating the establishment of a small finishing
facility in Mexico and a laminated cable facility in Taiwan. No
commitments have been made with respect to these facilities.
Legal Proceedings
From time to time the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business.
The Company is not currently involved in any such legal proceedings.
MANAGEMENT
Executive Officers, Key Employees and Directors
The Company's executive officers, key employees and directors are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- --- ----------------------------------
<S> <C> <C>
Herbert W. Pollack 70 Chairman of the Board of Directors
and Treasurer
Peter J. Murphy 48 President, Chief Executive Officer and Director
Alfred R. Calvetti 54 Vice President and General Manager-
Laminated Cable Products
Jill Pollack Kutchin 45 Vice President-Corporate Affairs and Clerk
Steven M. Millstein 53 Vice President-Finance
Darryl J. McKenney 35 Vice President-Flexible Circuit Operations
<PAGE> 33
Lester Pollack 64 Director
Benjamin M. Rabinovici 75 Director
M. Joel Kosheff 59 Director
Sheldon Buckler 66 Director
Richard W. Hale 59 Director
</TABLE>
Herbert W. Pollack has served as Chairman of the Board and Treasurer
of the Company since it was founded in 1970. He was President of the
Company from 1970 to 1995, and Chief Executive Officer of the Company from
1970 to June 1997. Mr. Pollack is the brother of Lester Pollack and the
father of Jill Pollack Kutchin. Mr. Pollack is a Director of Watson
Technologies, Inc.
Peter J. Murphy has been President of the Company since July 1,
1995, and on July 1, 1997, was elected to the office of Chief Executive
Officer. He was Chief Operating Officer and Executive Vice President from
May 1994 to July 1995 and Vice President and General Manager of Flexible
Circuit Products from February 1993 to May 1994. Mr. Murphy initially
served as Assistant to the President from December 1992 to February 1993.
From 1988 to 1992, he was President of Teledyne Electro-Mechanisms, a
manufacturer of flexible circuits. Mr. Murphy is a Director of Nashua
Corporation. He has been a Director of the Company since 1994.
Alfred R. Calvetti joined the Company in July 1971 and has served in
a variety of technical and managerial positions. From December 1988 to
February 1993, he was Divisional Vice President and General Manager of
Laminated Cable Products. In February 1993, he became a Corporate Vice
President and General Manager of Laminated Cable Products.
Jill Pollack Kutchin joined the Company in January 1977 and served
as Manager-Marketing Administration until December 1983, when she became
Vice President-Corporate Affairs. Since November 1980, she has also been
Clerk of the Company. Ms. Kutchin is the daughter of Herbert W. Pollack.
Steven M. Millstein joined the Company in March 1977, serving
initially as Controller and from February 1979 to February 1988 as Vice
President-Controller. In February 1988, he became Vice President-Finance.
Darryl J. McKenney joined the Company in February 1993 as Director
of Engineering, Flexible Circuit Products. In March 1995, Mr. McKenney
became Director of Operations of Flexible Circuit Products and was
appointed Vice President of Flexible Circuit Operations in April 1997.
Prior to joining the Company, he was Vice President-Engineering for
Teledyne-Electro Mechanisms.
Lester Pollack is a managing director of Centre Partners Management
LLC and has been Senior Managing Director of Corporate Advisors, L.P.
since 1988, Managing Director of Lazard Freres & Co. LLC since 1986 and
Chief Executive Officer of Centre Partners L.P. since 1986. He is also a
Director of Firearms Training Systems, Inc., Sphere Drake Holdings, Ltd.,
SunAmerica, Inc., LaSalle Re Holdings Limited and Tidewater Inc. Lester
Pollack is the brother of Herbert W. Pollack. He has been a Director of
the Company since 1970.
<PAGE> 34
Benjamin M. Rabinovici was President of Tympanium Corporation, a
manufacturer of electronic products, from 1980 to 1996. He has been a
Director of the Company since 1970.
M. Joel Kosheff has been Principal of M.J. Kosheff Associates, a
financial consulting firm, since January 1989. He has been a Director of
the Company since 1989.
Sheldon Buckler has been Chairman of the Board of Commonwealth
Energy System Services since May 1995. He was employed by Polaroid
Corporation from 1964 until his retirement as Vice Chairman of the Board
of Directors in 1994. Dr. Buckler is a Director of Aseco Corporation,
Cerion Technology Corporation, Nashua Corporation and Spectrum Information
Technologies Corporation. He has been a Director of the Company since
February 1995.
Richard W. Hale has been President and Chief Executive Officer of
Watson Technologies, Inc., a manufacturer of electronic products, since
1996. In addition, he has been Chairman and Chief Executive Officer of
Hale Industries, Inc. since 1993. Prior to that time, he was Vice
President and Chief Operating Officer and a member of the Board of
Directors of M/A-Com, Inc. He has been a Director of the Company since
February 1995.
SELLING STOCKHOLDERS
The following table sets forth, to the knowledge of the Company, the
beneficial ownership of the Common Stock of the Company, as of September
24, 1997, of the Selling Stockholders and the number of shares being sold.
<TABLE>
<CAPTION>
Shares Shares to be
Beneficially Owned Beneficially Owned
Prior to Offering Number of After Offering (1)
------------------ Shares Being ------------------
Name Number Percent Offered Number Percent
- --------------------------- ------- ------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Herbert W. Pollack(2) 943,889 26.3% 75,000 793,889 17.1%
(Chairman of the Board of
Directors, Treasurer)
Sandra Pollack 307,600 8.6% 75,000 232,600 5.1%
<FN>
- --------------------
<F1> Assumes no exercise of the Underwriters' over-allotment option. If
the Underwriters' over-allotment is exercised in full, Mr. and Mrs.
Pollack's beneficial ownership after the offering would be 771,389
and 221,350 shares or 16.6% and 4.8%, respectively.
<F2> Includes 307,600 shares owned by Mr. Pollack's wife, Sandra Pollack,
in which he disclaims beneficial ownership.
</FN>
</TABLE>
<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
The description of the capital stock below is qualified in its
entirety by reference to the Company's Restated Articles of Organization
(the "Articles") and By-Laws (the "By-Laws").
Authorized and Outstanding Capital Stock
Upon the closing of this offering, the authorized capital stock of
the Company will consist of 10,000,000 shares of Common Stock, par value
$0.10 per share, and 1,000,000 shares of Preferred Stock, par value $1.00
per share. On September 24, 1997, there were 3,593,310 shares of Common
Stock issued and outstanding and no shares of Preferred Stock issued and
outstanding.
Common Stock
Holders of Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Therefore, holders of a majority of the Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election at any annual or special meeting of
stockholders.
Holders of Common Stock are entitled to receive ratably (based on
the number of shares of Common Stock that they hold) such dividends, if
any, as may be declared by the Board of Directors out of funds legally
available therefor. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive their pro
rata portion of the net assets of the Company available after the payment
of all creditors and liquidation preferences, if any. Holders of Common
Stock have no preemptive, subscription, conversion or redemption rights.
The outstanding shares of Common Stock are, and the shares offered by the
Company in this offering will be, when issued and fully paid for, validly
issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without further
stockholder action, to issue Preferred Stock in one or more classes or
series and, within the limitations established by law, to fix the voting
power, dividend rate, redemption rights or privileges, rights on
liquidation or dissolution, conversion rights and privileges, sinking or
purchase fund rights, or other preferences, privileges and restrictions,
of such class or series.
The voting and other rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the right of holders of any
Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing flexibility for important corporate
purposes, could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has
no present plans to issue any shares of Preferred Stock.
<PAGE> 36
Certain Articles Provisions
Pursuant to the Articles, the Board consists of seven Directors.
The Company is subject to the provisions of Chapter 156B, Section 50A, of
the Massachusetts General Laws ("Section 50A"), which along with the
Articles automatically divides the board of directors into three classes
which are elected for staggered terms of three years each. Pursuant to
Section 50A and the Articles, directors can be removed only for cause by
the affirmative vote of the holders of a majority of the voting power of
the then outstanding shares of capital stock of the Company generally
entitled to vote in the election of directors voting together as a single
class. Although Section 50A allows a corporation to elect not to have its
provisions apply, the Company has not so elected.
Massachusetts Anti-Takeover Laws
The Company is subject to the provisions of Chapter 110F of the
Massachusetts General Laws, the Business Combination Statute ("Chapter
110F"). Under Chapter 110F, a Massachusetts corporation with more than
200 stockholders of record may not engage in a "business combination" with
an "interested stockholder" for a period of three years after the date of
the transaction in which the person becomes an interested stockholder,
unless (i) the interested stockholder obtains the approval of the Board of
Directors prior to becoming an interested stockholder, (ii) the interested
stockholder acquires 90% of the outstanding voting stock of the
corporation (excluding shares held by certain affiliates of the
corporation) at the time it becomes an interested stockholder or (iii) the
business combination is approved by both the Board of Directors and the
holders of two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder). An "interested
stockholder" is a person who, together with affiliates and associates,
owns (or at any time within the prior three years did own) 5% or more of
the outstanding voting stock of the corporation. A "business combination"
includes a merger, a stock or asset sale, and other transactions resulting
in a financial benefit to the interested stockholder.
The Company is subject to the provisions of Chapter 110D of the
Massachusetts General Laws, ("Chapter 110D"), which provides that any
person or entity that acquires 20% or more of the Company's outstanding
voting stock (except in certain transactions) may not vote such stock
unless the other stockholders of the Company so authorize. Chapter 110D
specifically excludes situations where any person acquires the triggering
20% ownership "solely by virtue of a revocable proxy conferring the right
to vote." The Board of Directors may amend the By-Laws at any time to
prospectively exclude the Company from the application of this statute.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock of the Company
is Boston Equiserve.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
the Company and the Selling Stockholders have agreed to sell to each of
the Underwriters named below, and each of such Underwriters, for whom
Adams, Harkness & Hill, Inc. and Needham & Company, Inc. are acting as
<PAGE> 37
representatives (the "Representatives"), has severally agreed to purchase
from the Company and the Selling Stockholders, the respective numbers of
shares of Common Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
Number of Shares
Underwriter of Common Stock
- ----------- ----------------
<S> <C>
Adams, Harkness & Hill, Inc.
Needham & Company, Inc.
---------
Total 1,150,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the public offering price set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such
price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the
shares of Common Stock are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
Representatives.
The Company and the Selling Stockholders have granted the
Underwriters an option exercisable for 30 days after the date of this
Prospectus to purchase up to an aggregate of 172,500 additional shares of
Common Stock to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally
agreed, subject to certain conditions, to purchase approximately the same
percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 1,150,000 shares of
Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments in connection with the sale of the 1,150,000
shares of Common Stock offered hereby.
The Company has agreed not to offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock for a period of 90 days
after the date of this Prospectus without the prior written consent of
Adams, Harkness & Hill, Inc., except for the shares of Common Stock
offered hereby and except that the Company may issue securities pursuant
to the Company's stock plans. In addition, the Company's officers and
directors and the Selling Stockholders, who will hold an aggregate of
shares of Common Stock following the offering, for a period of
90 days after the date of this Prospectus, have agreed with the
Underwriters not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge, or grant any rights with respect to any shares
<PAGE> 38
of Common Stock owned beneficially by them, subject to certain limited
exceptions, other than as a bona fide gift to a person or entity who or
which agrees in writing to be bound by the foregoing restrictions, without
the prior written consent of Adams, Harkness & Hill, Inc.
In connection with the offering, the Underwriters may purchase and
sell the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions, "passive" market making
(discussed below) and purchases to cover syndicate short positions created
in connection with the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding
a decline in the market price of the Common Stock. Syndicate short
positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company
in the offering. The Underwriters also may impose a penalty bid, whereby
the syndicate may reclaim selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Stock sold in the
offering for their account if the syndicate repurchases the shares in
stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Common Stock, which
may be higher than the price that might otherwise prevail in the open
market. These activities, if commenced, may be discontinued at any time.
These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
The Representatives of the Underwriters have advised the Company
that the Underwriters do not intend to confirm sales to any account over
which they exercise discretionary authority.
In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Common Stock during the "cooling off" period immediately preceding the
commencement of sales in the offering. The Commission has, however,
adopted exemptions from these rules that permit passive market making
under certain conditions. These rules permit an Underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering
and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to these exemptions, certain Underwriters, selling group
members (if any), or their respective affiliates may engage in passive
market making in the Common Stock during the cooling off period.
The Company and the Selling Stockholders have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby is being
passed upon for the Company by Ropes & Gray, Boston, Massachusetts and
Kutchin & Rufo, P.C., Boston, Massachusetts. Edward D. Kutchin is a
shareholder in the professional corporation of Kutchin & Rufo, P.C. and
beneficially owns 36,315 shares of Common Stock in the Company. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
<PAGE> 39
EXPERTS
The consolidated financial statements of Parlex Corporation and
subsidiaries as of June 30, 1996 and 1997 and for each of the three years
in the period ended June 30, 1997 included and incorporated by reference
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is included and incorporated by
reference herein, and have been so included and incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information statements filed by the
Company may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission Regional Offices located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 7th Floor, New York, New York 10048. Copies of such materials may
also be obtained upon written request from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web Site at
http://www.sec.gov which contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The Common Stock of the Company is
traded on the Nasdaq National Market. Reports and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc. 1801 K Street, N.W., 8th Floor, Washington, D.C.
20006.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement
on Form S-2 (herein, together with all amendments and exhibits, referred
to as the "Registration Statement") under the Securities Act with respect
to the shares of its Common Stock being offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules
and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document are not
necessarily complete; with respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is
made to such exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its
entirety by such reference. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
<PAGE> 40
1. The Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.
2. All other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act subsequent to the date of
the original filing of the registration statement of which this
Prospectus is a part and prior to the time at which the
Registration Statement is declared effective.
The Company will provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon
the written or oral request of any such person, a copy of any or all of
the documents which are incorporated herein by reference, other than
exhibits to such information (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be
directed to the Company, 145 Milk Street, Methuen, Massachusetts 01844,
Attention: Investor Relations Office, telephone (978) 685-4341.
Any statement contained in a document or a portion thereof which is
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently
filed document or portion thereof which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
Any statement so modified shall not be deemed to constitute a part of this
Prospectus except as so modified, and any statement so superseded shall
not be deemed to constitute part of this Prospectus.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report..................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997......... F-3
Consolidated Statements of Income for the years ended
June 30, 1995, 1996 and 1997.................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1995, 1996 and 1997.............................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997.................................... F-6
Notes to Consolidated Financial Statements....................... F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
<PAGE> 41
To the Stockholders and Directors
of Parlex Corporation:
We have audited the accompanying consolidated balance sheets of Parlex
Corporation and its Subsidiaries as of June 30, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Parlex Corporation and its
Subsidiaries at June 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June
30, 1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
August 5, 1997
Boston, Massachusetts
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 386,608 $ 596,614
Accounts receivable--less allowance for
doubtful accounts of $80,000 in 1996
and $143,400 in 1997 7,453,333 9,029,388
Inventories 7,753,424 7,262,477
Refundable income taxes 17,794 --
Deferred income taxes 314,743 294,033
Other current assets 699,386 850,956
----------------------------
<PAGE> 42
Total current assets 16,625,288 18,033,468
----------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 468,864 468,864
Buildings 6,838,391 7,017,478
Machinery and equipment 22,321,826 22,823,785
Leasehold improvements and other 2,422,084 3,974,058
----------------------------
Total 32,051,165 34,284,185
Less accumulated depreciation and
amortization (19,396,046) (20,671,859)
----------------------------
Property, plant and equipment--net 12,655,119 13,612,326
----------------------------
OTHER ASSETS 381,649 588,098
----------------------------
TOTAL $ 29,662,056 $ 32,233,892
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 100,000 $ 500,000
Bank loan 400,668 500,000
Accounts payable 5,179,769 5,047,284
Accrued liabilities 1,797,223 2,150,228
Income taxes payable -- 244,404
----------------------------
Total current liabilities 7,477,660 8,441,916
----------------------------
LONG-TERM DEBT 3,650,000 2,500,000
----------------------------
OTHER NONCURRENT LIABILITIES 1,846,260 1,986,924
----------------------------
MINORITY INTEREST IN PARLEX SHANGHAI 1,232,691 1,516,609
----------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value--authorized
1,000,000 shares; none issued
Common stock, $.10 par value--authorized,
5,000,000 shares; issued, 2,582,659 and
3,798,750 shares in 1996 and 1997,
respectively 258,266 379,875
Additional paid-in capital 3,243,491 3,334,424
Retained earnings 12,991,313 15,111,769
Less treasury stock, at cost--210,000 shares
in 1996 and 1997 (1,037,625) (1,037,625)
----------------------------
Total stockholders' equity 15,455,445 17,788,443
----------------------------
TOTAL $ 29,662,056 $ 32,233,892
============================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 43
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Product sales $39,756,799 $47,102,025 $54,977,143
License fees and royalty income 494,500 155,000 109,710
-----------------------------------------
Total revenues 40,251,299 47,257,025 55,086,853
-----------------------------------------
COSTS AND EXPENSES:
Cost of products sold 32,946,050 40,307,894 44,136,738
Selling, general and administrative expenses 4,998,262 5,518,292 7,288,544
-----------------------------------------
Total costs and expenses 37,944,312 45,826,186 51,425,282
-----------------------------------------
OPERATING INCOME 2,306,987 1,430,839 3,661,571
OTHER INCOME, Net 88,288 90,588 155,604
INTEREST EXPENSE (154,974) (351,125) (436,008)
-----------------------------------------
INCOME FROM OPERATIONS BEFORE
INCOME TAXES 2,240,301 1,170,302 3,381,167
PROVISION FOR INCOME TAXES (754,413) (386,961) (1,249,202)
-----------------------------------------
INCOME BEFORE MINORITY INTEREST 1,485,888 783,341 2,131,965
MINORITY INTEREST -- 12,855 11,509
-----------------------------------------
NET INCOME $ 1,485,888 $ 770,486 $ 2,120,456
=========================================
NET INCOME PER SHARE $ .41 $ .21 $ .57
=========================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 3,651,052 3,674,730 3,716,080
=========================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 44
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994 2,521,859 $252,186 $2,930,620 $10,734,939 $(1,037,625)
Tax benefit arising from the
exercise of nonqualified stock
options -- -- 70,220 -- --
Issuance of stock (pre-split
basis) 57,550 5,755 225,476 -- --
Net income -- -- -- 1,485,888 --
--------------------------------------------------------------
BALANCE, JUNE 30, 1995 2,579,409 257,941 3,226,316 12,220,827 (1,037,625)
Issuance of stock (pre-split
basis) 3,250 325 17,175 -- --
Net income -- -- -- 770,486 --
--------------------------------------------------------------
BALANCE, JUNE 30, 1996 2,582,659 258,266 3,243,491 12,991,313 (1,037,625)
Stock dividend 1,186,311 118,631 (118,631) -- --
Tax benefit arising from the
exercise of nonqualified stock
options -- -- 114,309 -- --
Issuance of stock 29,780 2,978 95,255 -- --
Net income -- -- -- 2,120,456 --
--------------------------------------------------------------
BALANCE, JUNE 30, 1997 3,798,750 $379,875 $3,334,424 $15,111,769 $(1,037,625)
==============================================================
</TABLE>
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<PAGE> 45
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,485,888 $ 770,486 $ 2,120,456
----------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,438,974 1,678,150 1,899,325
(Gain) loss on sale of equipment (500) 13,652 (129,269)
Deferred income taxes 75,006 37,510 86,375
Deferred compensation 64,015 70,341 74,999
Minority interest -- 12,855 11,509
Changes in current assets and liabilities:
Accounts receivable--net (1,009,837) (681,780) (1,576,055)
Inventories (897,710) (1,669,348) 490,947
Refundable income taxes (206,669) 188,875 17,794
Other current assets (140,501) (257,520) (151,570)
Accounts payable and accrued liabilities 811,262 1,314,166 220,520
Income taxes payable (292,721) -- 358,713
----------------------------------------
Total adjustments (158,681) 706,901 1,303,288
----------------------------------------
Net cash provided by operating activities 1,327,207 1,477,387 3,423,744
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,851,360) (2,968,713) (2,619,074)
Increase in other assets (90,234) (122,146) (206,449)
Proceeds from sale of equipment 500 10,198 164,220
----------------------------------------
Net cash used for investing activities (2,941,094) (3,080,661) (2,661,303)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loan -- 400,668 99,332
Capital contributions to joint venture--minority interest -- 160,322 --
Borrowings (payments) under revolving credit agreement 1,550,000 1,450,000 (650,000)
Payments of other long-term debt (200,000) (200,000) (100,000)
Exercise of stock options 231,231 17,500 98,233
----------------------------------------
Net cash provided by (used for) financing activities 1,581,231 1,828,490 (552,435)
----------------------------------------
NET INCREASE (DECREASE) IN CASH (32,656) 225,216 210,006
CASH, BEGINNING OF YEAR 194,048 161,392 386,608
----------------------------------------
CASH, END OF YEAR $ 161,392 $ 386,608 $ 596,614
=========================================
SUPPLEMENTARY DISCLOSURE OF NONCASH
TRANSACTIONS:
Property and equipment contributed as capital by
joint venture partner $ -- $1,060,000 $ 277,000
=========================================
Property, plant and equipment acquired in exchange
for accounts receivable $ -- $ 400,000 $ --
=========================================
</TABLE>
<PAGE> 46
See notes to consolidated financial statements.
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--Parlex Corporation is a world leader in the design and
manufacture of flexible interconnect products. Parlex produces custom
flexible circuits and laminated cables utilizing proprietary processes
and patented technologies which are designed to satisfy the unique
requirements of a wide range of customers. Parlex provides its products
and engineering services to a variety of markets including automotive,
computer, military-aerospace, telecommunications, industrial control,
medical and consumer.
Basis of Consolidation--The consolidated financial statements include
the accounts of Parlex Corporation (the "Company"), its wholly owned
subsidiaries and its 50.1% investment in Parlex (Shanghai) Circuit Co.,
Ltd. (see Note 2) whose fiscal year end is March 31. This entity is
consolidated on a three-month time lag. Intercompany transactions have
been eliminated.
Foreign Currency Translation--The functional currency of the foreign
operation is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet
date. Results of operations are translated at average exchange rates
prevailing during each period. Translation adjustments were not
material at June 30, 1996 and 1997 and were included in minority
interest.
Inventories--Inventories of raw materials are stated at the lower of
first-in, first-out cost or market. Work in process represents costs
accumulated under a job-cost accounting system less the estimated cost
of shipments to date, in the aggregate not in excess of net realizable
value. At June 30, inventories consisted of:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Raw materials $2,419,744 $2,706,302
Work in process 5,333,680 4,556,175
------------------------
Total $7,753,424 $7,262,477
========================
</TABLE>
<PAGE> 47
Property, Plant and Equipment--Property, plant and equipment are stated
at cost and are depreciated using the straight-line method over their
estimated useful lives: buildings--40 years; machinery and equipment--
5-15 years; and leasehold improvements over the terms of the leases.
Revenue Recognition--Product sales are recognized upon shipment.
License fees and royalty income are recognized when earned and as
related costs are incurred.
Research and Development--Research and development costs are expensed as
incurred and amounted to $2,215,000, $2,380,000 and $2,717,000 for the
years ended June 30, 1995, 1996 and 1997, respectively. These amounts
are reflected in the Company's cost of products sold.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." This statement requires an asset and
liability approach to accounting for income taxes based upon the future
expected values of the related assets and liabilities. Deferred income
taxes are provided for items which are recognized in different years for
tax and financial reporting purposes.
Net Income Per Share--Net income per share has been computed based on
the weighted average number of common shares and common share
equivalents outstanding during the year.
Use of Estimates--The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the balance sheet
dates. Estimates include reserves for accounts receivable, useful lives
of properties, accrued liabilities including health insurance claims,
and deferred income taxes. Actual results could differ from those
estimates.
Fair Value of Financial Instruments--SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair
value of certain financial instruments. The carrying amounts of cash,
accounts receivable, accounts payable and accrued expenses approximate
fair value because of their short-term nature. The carrying amounts of
the Company's debt instruments approximate fair value.
Long-Lived Assets--During 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
This statement had no effect on the consolidated financial position and
results of operations of the Company.
Stock-Based Compensation--During 1997, the Company adopted the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require, the
recognition of compensation expense for the fair value of stock options
and other equity instruments issued to employees and nonemployee
<PAGE> 48
directors. The Company continues to account for stock-based
compensation in accordance with APB Opinion No. 25, using the intrinsic
value method. The difference between accounting for stock-based
compensation under APB Opinion No. 25 and SFAS No. 123 is disclosed in
Note 7.
New Accounting Pronouncements--In February 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per
Share," and SFAS No. 129, "Disclosure of Information About Capital
Structure." SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. SFAS No. 129 establishes
standards for disclosing information about an entity's capital structure
and applies to all entities. The Company will adopt both SFAS Nos. 128
and 129 in the second quarter of fiscal 1998. The implementation of
these standards is not expected to have a material effect on its
consolidated financial position and results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Both standards will be adopted by the Company during the
first quarter of fiscal 1999 and are not expected to have a material
effect on its consolidated financial position and results of operations.
2. JOINT VENTURE
In May 1995, the Company entered into an agreement to establish a
limited liability company in the form of a joint venture in the People's
Republic of China. The Company owns 50.1% of the joint venture. The
joint venture manufactures flexible printed circuits and commenced
operations in September 1995.
3. ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Payroll and related expenses $1,279,112 $1,421,872
Accrued health insurance 222,170 256,916
Other 295,941 471,440
------------------------
Total $1,797,223 $2,150,228
========================
<PAGE> 49
</TABLE>
4. INDEBTEDNESS
The Company's China joint venture has a short-term bank loan bearing
interest at 1.25% over Singapore Interbank Offer Rate ("SIBOR"). This
is guaranteed by the Company.
Long-term debt at June 30 consisted of:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Revolving Credit Agreement $3,650,000 $3,000,000
Industrial Revenue Development Bond 100,000 --
------------------------
Total long-term debt 3,750,000 3,000,000
Less current portion 100,000 500,000
------------------------
Long-term debt - net $3,650,000 $2,500,000
========================
</TABLE>
During 1997, the Company repaid its Industrial Revenue Development Bond
which it had with a bank. The bond carried a varying interest rate
which annually approximated 65% of prime.
On December 18, 1995, the Company renegotiated its unsecured Revolving
Credit Agreement (the "Agreement") (originally dated June 22, 1994)
making available up to a total of $5,000,000 through December 31, 1997.
On January 1, 1998, the Agreement converts to a term loan with principal
and interest payments due monthly over a thirty-six-month period to
December 31, 2000. Accordingly, the outstanding balance at June 30,
1997 is presented as long-term except for the current portion of
$500,000 payable during fiscal 1998. Borrowings under the Agreement are
at the bank's corporate base rate (8.50% at June 30, 1997), and carry an
annual commitment fee of 1/2% on the average daily unused portion of the
bank's commitment. Interest is payable monthly. At June 30, 1997, the
unused commitment amounted to $1,500,000.
In October 1996, the Company received an additional unsecured line of
credit of $2,000,000 to be used exclusively for the purchase of capital
equipment. Advances made pursuant to the line will be due and payable
in full on October 24, 1997 unless the Company elects to convert the
principal balance of the line into a term loan payable in 36 monthly
installments commencing November 1, 1997. The line bears interest at
prime. As of June 30, 1997, the unused commitment amounts to
$2,000,000.
The Agreement has restrictive covenants, which include restrictions on
payment of cash dividends and requirements as to tangible net worth,
<PAGE> 50
current ratio, working capital, debt service ratio, capital expenditures
limitation and the ratio of total liabilities to equity. Under the most
restrictive covenants, amounts available for dividends or other
distributions at June 30, 1997 approximated $4,303,000.
Interest paid during the years ended June 30, 1995, 1996 and 1997 was
approximately $97,000, $251,000 and $394,000, respectively.
5. Other Noncurrent Liabilities
Other noncurrent liabilities at June 30 consisted of:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred income taxes (Note 6) $ 980,124 $1,045,789
Deferred compensation 866,136 941,135
------------------------
$1,846,260 $1,986,924
========================
</TABLE>
The timing of deferred compensation payments cannot presently be
determined. Amounts, if any, which may be paid within one year are not
material.
6. INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current:
State $ (78,567) $ (57,943) $ (157,115)
Federal (600,840) (291,508) (1,005,712)
Deferred (75,006) (37,510) (86,375)
---------------------------------------
Total $(754,413) $(386,961) $(1,249,202)
=======================================
</TABLE>
A reconciliation of the statutory federal income tax rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<PAGE> 51
<S> <C> <C> <C>
Statutory federal income tax rate 34 % 34 % 34 %
State income taxes, net of federal tax benefit 4 3 3
Foreign Sales Corporation -- (1) (1)
Tax credits (4) -- (1)
Other -- (3) 2
------------------
Effective income tax rate 34 % 33 % 37 %
==================
</TABLE>
Deferred income tax assets and liabilities at June 30 are attributable
to the following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $1,326,252 $1,421,917
Prepaid expenses -- 29,807
------------------------
1,326,252 1,451,724
------------------------
Deferred tax assets:
Inventories 36,281 44,084
Allowance for doubtful accounts 31,991 46,760
Accruals 114,584 126,398
Self-insurance 87,920 101,831
Deferred compensation 346,128 376,128
State net operating loss and credit carryforwards 43,967 4,767
------------------------
660,871 699,968
------------------------
Net deferred tax liability $ 665,381 $ 751,756
========================
</TABLE>
Income tax payments of approximately $1,162,000, $445,000 and $751,500
were made in 1995, 1996 and 1997, respectively.
7. STOCKHOLDERS' EQUITY
On February 25, 1997, the Board of Directors approved a three-for-two
common stock split in the form of a stock dividend. Distribution of the
dividend was made on April 21, 1997 to shareholders of record at the
close of business on March 18, 1997. Per share amounts for all years
have been restated to reflect the stock split. The following
information with respect to the Company's option plans has also been
restated to reflect the stock split.
<PAGE> 52
The Company has incentive and nonqualified stock option plans covering
officers, key employees and directors who are not otherwise employees.
The options are generally exercisable commencing one year from the date
of grant and typically expire in either five or ten years, depending on
the plan. The option price for the incentive stock options and for the
directors' plan is fair market value at the date of grant. Nonqualified
stock options are granted at fair market value or at a price determined
by the Board of Directors, depending on the plan. In certain cases, the
Company may, at the option of the Board of Directors, reimburse the
employees for the tax cost associated with their options.
Effective August 20, 1996 the Company established the 1996 Outside
Directors' Stock Option Plan (the "1996 Plan"). The 1996 Plan provides
for the automatic grant of 1,500 options annually to each member of the
Board of Directors that is not an employee of the Company.
Discretionary grants of up to 2,250 options annually per director may
also be made at the discretion of the Board of Directors. All grants
are made at the market value of the stock on the date of the grant and
there are 150,000 shares available for grant under the 1996 Plan, of
which 7,500 were granted during the year.
At June 30, 1997, there were 388,128 shares reserved for future grants
for all of the above-mentioned plans.
The following is a summary of activity for all of the Company's stock
option plans:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise
Under Price Per Shares
Option Share Exercisable
------ --------- -----------
<S> <C> <C> <C>
July 1, 1994 357,639 $3.43 109,949
=======
Granted 38,250 8.26
Surrendered (18,750) 2.68
Exercised (86,325) 2.89
------------------
June 30, 1995 290,814 4.32 94,872
=======
Granted 39,750 5.84
Surrendered (9,375) 3.59
Exercised (4,875) 2.77
------------------
June 30, 1996 316,314 4.56 148,778
=======
<PAGE> 53
Granted 10,500 6.67
Surrendered (6,000) 3.30
Exercised (29,780) 4.70
------------------
June 30, 1997 291,034 $4.77 191,085
=================================
</TABLE>
The following table sets forth information regarding options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Exercise
Prices Outstanding Life (Years) Price Number Price
-------- ----------- ------------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
$ 2.17 1,500 0.1 $ 2.17 1,500 $ 2.17
2.67 62,721 1.3 2.67 62,721 2.67
4.00 15,000 1.6 4.00 11,250 4.00
4.17 53,375 1.9 4.17 36,681 4.17
4.59 75,000 1.9 4.59 56,250 4.59
5.67 22,500 7.2 5.67 9,750 5.67
5.84 35,438 3.7 5.84 6,933 5.84
6.67 10,500 7.7 6.67 -- 6.67
12.35 15,000 7.6 12.35 6,000 12.35
-----------------------------------------------------------
291,034 2.9 $ 4.77 191,085 $ 4.17
===========================================================
</TABLE>
As described in Note 1, the Company uses the intrinsic value method in
accordance with APB No. 25 to measure compensation expense associated
with grants of stock options to employees. Had the Company used the
fair value method to measure compensation, the Company's net income and
net income per share for the years ended June 30, 1997 and 1996 would
have been $2,029,904 or $.55 per share in 1997, and $752,847 or $0.21
per share in 1996.
The fair value of each stock option is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions in 1997 and 1996: an expected life of 2.5
years, expected volatility of 143%, a dividend yield of 0%, and a risk-
free interest rate of 6.2%. The weighted average fair value of options
granted in 1997 and 1996 was $5.71 and $4.43, respectively.
The option pricing model was designed to value readily tradable stock
options with relatively short lives. The options granted to employees
are not tradable and have contractual lives of ten years. However,
<PAGE> 54
management believes that the assumptions used and the model applies to
value the awards yields a reasonable estimate of the fair value of the
grants made under the circumstances.
8. SEGMENT AND MAJOR CUSTOMER
The Company operates within a single segment of the electronics industry
as a specialist in the interconnection and packaging of electronic
equipment with its product lines of flexible printed circuits, laminated
cable, and related assemblies.
Sales to several divisions of one customer represented 12%, 29% and 20%
of total revenues, in 1995, 1996 and 1997, respectively.
9. RENTAL COMMITMENTS
The Company leases certain property and equipment under agreements
generally with initial terms from three to five years with renewal
options. Rental expense for each of the years ended June 30, 1995, 1996
and 1997 approximated $153,000, $153,000 and $285,000, respectively.
Future payments under noncancelable operating leases are:
<TABLE>
<S> <C>
1998 $344,000
1999 344,000
2000 297,000
2001 213,000
2002 192,000
</TABLE>
10. BENEFIT PLANS
The Company has a qualified profit-sharing retirement plan to provide
benefits to eligible employees. Annual contributions to the plan are at
the discretion of the Board of Directors and are discretionary in
amounts. No contributions were made to the plan for the years ended
June 30, 1995, 1996 and 1997.
During fiscal 1995, the Company adopted a 401(k) Savings Plan (the
"Plan") covering all employees of the Company that have six consecutive
months of service and have attained the age of twenty-one. Matching
employer contributions can be made to the Plan at the discretion of the
Board of Directors. No matching contributions were made to the Plan for
the years ended June 30, 1995, 1996 and 1997.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands except
per share amounts):
<TABLE>
First Second Third Fourth
----- ------ ----- ------
1997 Quarters
<PAGE> 55
<S> <C> <C> <C> <C>
Revenues $12,807 $14,068 $13,225 $14,987
Gross profit 1,895 2,595 2,985 3,475
Net income 188 558 643 731
Net income per share .05 .15 .17 .19
1996 Quarters
Revenues $11,611 $11,685 $11,703 $12,258
Gross profit 1,316 1,539 1,820 2,274
Net income 24 91 196 460
Net income per share .01 .02 .05 .12
</TABLE>
All per share amounts have been restated to give effect to the three-
for-two stock dividend (see Note 7).
Parlex advances the technology of flexible interconnects
through innovative development projects.
[Photo depicting machinery employed in the manufacturing of PALFlex]
PALFlex(R) is an enabling technology that reduces manufacturing costs and
enhances performance.
[Photo of laminated cable product] [Photo of multi layer circuits]
High density laminated cables are a PALCore(R) is a cost-effective,
cost-effective solution for proprietary material used in the
automotive entertainment systems. production of multi-layer circuits.
=================================== ====================================
No person has been authorized
in connection with the offering
made hereby to give any information
or to make any representation not
contained in this Prospectus and, if 1,150,000 Shares
given or made, such information or
representation must not be relied
upon as having been authorized by
the Company, any Selling Stockholder
or any Underwriter. This Prospectus
does not constitute an offer to sell
or a solicitation of any offer to buy PARLEX CORPORATION
any of the securities offered hereby
to any person or by anyone in any
jurisdiction in which it is unlawful
to make such offer or solicitation.
Neither the delivery of this Prospectus
nor any sale made hereunder shall, Common Stock
under any circumstances, create any
<PAGE> 56
implication that the information
contained herein is correct as of any
date subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 8
Price Range of Common Stock 8 ----------
Dividend Policy 9 PROSPECTUS
Capitalization 9 ----------
Selected Consolidated Financial
Data 10
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 11
Business 15
Management 27
Selling Stockholders 28
Description of Capital Stock 29 Adams, Harkness & Hill, Inc.
Underwriting 31
Validity of Common Stock 32 Needham & Company, Inc.
Experts 32
Available Information 32
Additional Information 33
Incorporation of Certain
Information by Reference 33
Index to Consolidated Financial
Statements F-1
------------------- , 1997
=================================== ====================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates,
except the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers, Inc. ("NASD") filing fee and the Nasdaq
National Market listing fee. The Company shall be responsible for paying all
of the expenses associated with the issuance and distribution of the
securities being registered hereby.
<PAGE> 57
<TABLE>
<CAPTION>
Item
----
<S> <C>
SEC Registration Fee $ 7,915
NASD Filing Fee 3,112
Nasdaq National Market Listing Fee 17,500
Blue Sky Fees and Expenses 5,000
Transfer Agent and Registrar Fees 3,500
Accounting Fees and Expenses 100,000
Legal Fees and Expenses 100,000
Printing Expenses 60,000
Miscellaneous 27,973
--------
Total $325,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
The Company is subject to the provisions of Section 67 of Chapter 156B
of the Massachusetts General Laws which provides as follows:
"Indemnification of directors, officers, employees and other
agents of a corporation, and persons who serve at its request as
directors, officers, employees or other agents of another
organization, or who serve at its request in any capacity with respect
to any employee benefit plan, may be provided by it to whatever extent
shall be specified in or authorized by (i) the articles of
organization or (ii) a by-law adopted by the stockholders or (iii) a
vote adopted by the holders of a majority of the shares of stock
entitled to vote on the election of directors. Except as the articles
of organization or by-laws otherwise require, indemnification of any
persons referred to in the preceding sentence who are not directors of
the corporation may be provided by it to the extent authorized by the
directors. Such indemnification may include payment by the corporation
of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by the person indemnified
to repay such payment if he shall be adjudicated to be not entitled to
indemnification under this section which undertaking may be accepted
without reference to the financial ability of such person to make
repayment. Any such indemnification may be provided although the
person to be indemnified is no longer an officer, director, employee
or agent of the corporation or of such other organization or no longer
serves with respect to any such employee benefit plan.
No indemnification shall be provided for any person with respect
to any matter as to which he shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief
that his action was in the best interest of the corporation or to the
extent that such matter relates to service with respect to an employee
benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan.
<PAGE> 58
The absence of any express provision for indemnification shall
not limit any right of indemnification existing independently of this
section.
A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or other agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
other agent of another organization or with respect to any employee
benefit plan, against any liability incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability."
Article 6D of the Company's Articles, which provision is explicitly
non-exclusive, provides that (i) any past or present director or officer of
the Company is indemnified to the fullest extent permitted by law against
any expenses incurred in connection with any proceeding in which he may be a
party or in which he is otherwise involved as a result of his serving or
having served as an officer of the Company or at the request of the Company,
as a director, officer, employee or other agent of any other organization or
in any capacity with respect to any employee benefit plan, and provides that
(ii) the Company may under certain conditions pay the indemnification in
advance. This provision does not authorize indemnification where it has been
adjudicated that the director or officer did not act in good faith in the
reasonable belief that his action was in the best interests of the Company
or, to the extent that such matter relates to service with respect to an
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Moreover, in the event that an
action, suit or proceeding is comprised or settled so as to impose any
liability or obligation on the director or officer, the provision does not
authorize indemnification if the Company has obtained an opinion of counsel
that this director or officer did not act in good faith in the reasonable
belief that his action was in the best interests of the Company.
In addition, the directors and officers of the Company are insured
against liability for errors and omissions in their capacity as such by an
insurance policy for the Company with a $5 million limit.
Item 16. Exhibits and Financial Statement Schedules
The following is a list of exhibits filed as a part of this
registration statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.+
3.1 Restated Articles of Organization dated August 2, 1983* (filed as
Exhibit 3-A to the Company's Registration Statement on Form S-1,
file No. 2-85588).
<PAGE> 59
3.2 Articles of Amendment to Restated Articles of Organization, dated
August 2, 1983* (filed as Exhibit 3-B to the Company's Registration
Statement on Form S-1, file No. 2-85588).
3.3 Articles of Amendment to Restated Articles of Organization, dated
December 1, 1987* (filed as Exhibit 10-Q to Form 10-K for the fiscal
year ended June 30, 1988).
3.4 By-Laws of the Company and any amendments thereto, as currently in
effect* (filed as Exhibit 3-C to the Company's Registration
Statement on Form S-1, No. 2-85588).
5.1 Opinion of Ropes & Gray.+
5.2 Opinion of Kutchin & Rufo, PC.+
10.1 1985 Employees' Nonqualified Stock Option Plan, dated December 2,
1985* (filed as Exhibit 10-L to Form 10-K for the fiscal year ended
June 30, 1986).
10.2 Employment Agreement between Parlex Corporation and Herbert W.
Pollack, dated May 1, 1986* (filed as Exhibit 10-M to Form 10-K for
the fiscal year ended June 30, 1986).
10.3 1989 Outside Directors' Stock Option Plan* (filed as Exhibit 10-Z to
Form 10-K for the fiscal year ended June 30, 1991).
10.4 1989 Employees' Stock Option Plan* (filed as Exhibit 10-AA to Form
10-K for the fiscal year ended June 30, 1991).
10.5 Joint Venture Contract, Articles of Association, and Agreement of
Technology License and Technical Service dated May 29, 1995* (filed
as Exhibit 10-AH to Form 10-K for the fiscal year ended June 30,
1995). Confidential treatment has been granted for portions of this
exhibit.
10.6 Manufacturing and Sales Agreement between Samsung Electro-Mechanics
Co., Ltd. and Parlex Corporation dated September 29, 1994* (filed as
Exhibit 10-AK to Form 10-K for the fiscal year ended June 30, 1995).
Confidential treatment has been granted for portions of this
exhibit.
10.7 Employment Agreement between Parlex Corporation and Peter J. Murphy
dated June 26, 1996* (filed as Exhibit 10-AM to Form 10-K for the
fiscal year ended June 30, 1996).
10.8 License Agreement between Parlex Corporation and Polyclad Laminates,
Inc., effective June 1, 1996* (filed as Exhibit 10-AN to Form 10-K
for the fiscal year ended June 30, 1996). Confidential treatment
has been granted for portions of this exhibit.
10.9 Agreement between Parlex Corporation and Allied Signal Laminate
Systems, Inc., effective May 5, 1995* (filed as Exhibit 10-AO to
Form 10-K for the fiscal year ended June 30, 1996). Confidential
treatment has been granted for portions of this exhibit.
10.10 License Agreement between Parlex Corporation and Pucka Industrial
Co., Ltd., effective July 1, 1996* (filed as Exhibit 10-AP to Form
10-K for the fiscal year ended June 30, 1996). Confidential
treatment has been granted for portions of this exhibit.
10.11 Commercial Loan Agreement dated December 18, 1995* (filed as Exhibit
10-AQ to Form 10-K for the fiscal year ended June 30, 1996).
10.12 Agreement of Lease between PVP--Salem Associates, L.P. and Parlex
Corporation dated August 12, 1997* (filed as Exhibit 10-L to Form
10-K for the fiscal year ended June 30, 1997).
10.13 Employment Agreement between Parlex Corporation and Herbert W.
Pollack dated July 1, 1997* (filed as Exhibit 10-M to Form 10-K for
the fiscal year ended June 30, 1997).
10.14 Patent Assignment Agreement between Parlex Corporation and
Polyonics, Inc. dated June 16, 1997* (filed as Exhibit 10-N to Form
10-K for the fiscal year ended June 30, 1997).
<PAGE> 60
10.15 1996 Outside Director's Stock Option Plan* (filed as Exhibit 10-O to
Form 10-K for the fiscal year ended June 30, 1997).
23.1 Consent of Ropes & Gray (contained in its opinion filed as Exhibit
5.1 hereto).
23.2 Consent of Kutchin & Rufo, PC (contained in its opinion filed as
Exhibit 5.2 hereto).
23.3 Consent of Deloitte & Touche LLP.+
24 Power of Attorney (included in the signature page of this
Registration Statement).
- --------------------
<F*> Incorporated herein by reference.
<F+> Filed herewith.
</TABLE>
(b) Financial Statement Schedules
None.
Item 17. Undertakings
(a) The undersigned hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under "Item 15--Indemnification of Directors and Officers" above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
<PAGE> 61
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Methuen, Commonwealth of
Massachusetts, on this 26 day of September, 1997.
PARLEX CORPORATION
By: /s/ Peter J. Murphy
Peter J. Murphy
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Herbert W. Pollack and Peter J. Murphy and each of
them, with full power of substitution, to execute in the name and on behalf
of such person any amendment (including any post-effective amendment) to
this Registration Statement (or any other registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act) and to file the same, with exhibits thereto, and
other documents in connection therewith, making such changes in this
Registration Statement as the person(s) so acting deems appropriate, and
appoints each of such persons, each with full power of substitution,
attorney-in-fact to sign any amendment (including any post-effective
amendment) to this Registration Statement (or any other registration
statement for the same offering that is to be effective upon filing pursuant
to Rule 462(b) under the Securities Act) and to file the same, with exhibits
thereto, and other documents in connection therein.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Herbert W. Pollack Chairman of the Board and Treasurer September 26, 1997
Herbert W. Pollack
/s/ Peter J. Murphy Director, President and Chief Executive Officer September 26, 1997
Peter J. Murphy
<PAGE> 62
/s/ Lester Pollack Director September 25, 1997
Lester Pollack
/s/ Benjamin M. Rabinovici Director September 25, 1997
Benjamin M. Rabinovici
/s/ M. Joel Kosheff Director September 26, 1997
M. Joel Kosheff
/s/ Sheldon A. Buckler Director September 25, 1997
Sheldon A. Buckler
/s/ Richard W. Hale Director September 26, 1997
Richard W. Hale
/s/ Steven M. Millstein Principal Accounting and Financial Officer September 26, 1997
Steven M. Millstein
</TABLE>
PARLEX CORPORATION
1,332,500 Shares*
Common Stock
($0.10 par value per share)
--------------
Underwriting Agreement
__________ __, 1997
Adams, Harkness & Hill, Inc.
Needham & Company, Inc.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Adams, Harkness & Hill, Inc.
60 State Street
Boston, Massachusetts 02109
Dear Sirs:
<PAGE> 63
Parlex Corporation, a Massachusetts corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you and the several Underwriters named in Schedule I hereto (collectively,
the "Underwriters"), for whom you are acting as representatives (the
"Representatives") an aggregate of 1,000,000 shares (the "Company Firm Shares")
and, at the election of the Underwriters, up to 150,000 additional shares (the
"Company Optional Shares") of common stock of the Company, $0.10 par value per
share ("Common Stock"), and, the Selling Stockholders named in Schedule II
hereto (the "Selling Stockholders") propose, subject to the terms and
conditions stated herein, to sell to the Underwriters an aggregate of 150,000
shares (the "Selling Stockholder Firm Shares", and together with the Company
Firm Shares, the "Firm Shares") and, at the election of the Underwriters, up to
an additional 22,500 shares (the "Selling Stockholder Optional Shares," and
together with the Company Optional Shares, the "Optional Shares") of Common
Stock. The Firm Shares and the Optional Shares which the Underwriters elect to
purchase pursuant to Section 3 hereof are herein collectively called the
"Shares".
- ---------------------
* Includes 172,500 shares subject to an option to purchase additional
shares to cover over-allotments.
<PAGE> 1
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-2 (File No. 333-_____) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement including any pre-effective amendments
thereto and any post-effective amendments thereto, each in the form
heretofore delivered to you and, excluding exhibits thereto, but
including all documents incorporated by reference in the prospectus
contained therein, to you for each of the other Underwriters, have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement or document incorporated by reference therein has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has
been initiated or, to the Company's knowledge, threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the Act is
hereinafter called a "Preliminary Prospectus"); the various parts of the
Initial Registration Statement and the Rule 462(b) Registration
Statement, if any, including all exhibits thereto, including any exhibits
incorporated by reference in the Initial Registration Statement and the
Rule 462(b) Registration Statement, and including (i) the information
<PAGE> 64
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 6(a)
hereof and deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective or
the Rule 462(b) Registration Statement, if any, at the time it became
effective and (ii) the documents incorporated by reference in the
prospectus contained in the Initial Registration Statement at the time
such part of the Initial Registration Statement became effective, each as
amended at the time such part of such Initial Registration Statement
became effective, are hereinafter collectively called the "Registration
Statement"; such final prospectus, in the form first filed pursuant to
Rule 424(b) under the Act, is hereinafter called the "Prospectus"); and
any reference herein to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-2 under the Act, as of
the date of such Preliminary Prospectus or Prospectus, as the case may
be;
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain
<PAGE> 2
an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein. The Company
acknowledges that the statements set forth in the last paragraph on the
front cover page, in the penultimate two paragraphs on page 2 and under
the heading "Underwriting" in the Prospectus constitute the only
information relating to any Underwriter furnished in writing to the
Company by the Representatives specifically for inclusion in the
Registration Statement;
(c) The documents incorporated by reference in the Prospectus, when
they were filed with the Commission, conformed in all material respects
to the requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(d) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
<PAGE> 65
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through you expressly for use therein;
(e) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the rules and regulations
thereunder which have not been described or filed, or incorporated by
reference in the Registration Statement, as required; the contracts so
described in the Prospectus to which the Company or any of its
subsidiaries is a party have been duly authorized, executed and delivered
by the Company or its subsidiaries, constitute valid and binding
agreements of the Company or its subsidiaries and are enforceable against
and by the Company or its subsidiaries in accordance with their
respective terms, and are in full force and effect on the date hereof;
and neither the Company nor any of its subsidiaries, nor, to the best of
the
<PAGE> 3
Company's knowledge, any other party is in breach of or default
under any of such contracts;
(f) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, that is in each case material to
the Company and its subsidiaries taken as a whole, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock (other
than issuances of Common Stock pursuant to Company stock option and stock
purchase plans described in the Registration Statement and Prospectus) or
long-term debt of the Company or any of its subsidiaries or any material
adverse change, or any development that is reasonably likely to result in
a material adverse change, in or affecting the business, assets,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Prospectus;
(g) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
other properties and assets described in the Prospectus as owned by it,
in each case free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not
material to the business of the Company; any real property and buildings
held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to
<PAGE> 66
be made of such property and buildings by the Company and its
subsidiaries; the Company and its subsidiaries own or lease all such
properties as are necessary to its operations as now conducted or as
proposed to be conducted, except where the failure to so own or lease
would not result in a material adverse change in or affecting the
business, assets, management, financial position, stockholders' equity or
results of operations of the Company;
(h) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its respective jurisdiction of organization, each with
full power and authority (corporate and otherwise) to own its properties
and conduct its business as described in the Prospectus, and each has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction;
<PAGE> 4
(i) The Company has an authorized capitalization as set forth in
the Prospectus, and all the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Common Stock
contained in the Prospectus; all of the issued shares of capital stock of
each subsidiary of the Company (i) have been duly and validly authorized
and issued, are fully paid and non-assessable and (ii) except as
disclosed in the Prospectus, are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims; except as disclosed
in or contemplated by the Prospectus and the consolidated financial
statements of the Company, and the related notes thereto, included in the
Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations; and the description of the Company's stock option and stock
purchase plans and the options or other rights granted and exercised
thereunder set forth in the Prospectus accurately and fairly presents in
all material respects the information required to be shown with respect
to such plans, options and rights;
(j) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will
conform to the description of the Common Stock contained in the
Prospectus; no preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Shares by the
Company pursuant to this Agreement; no stockholder of the Company has any
right, which has not been waived, to require the Company to register the
sale of any shares of capital stock owned by such stockholder under the
Act in the public offering contemplated by this Agreement; and no further
<PAGE> 67
approval or authority of the stockholders or the Board of Directors of
the Company will be required for the issuance and sale of the Shares to
be sold by the Company as contemplated herein;
(k) The Company has full corporate power and authority to enter
into this Agreement; and this Agreement has been duly authorized,
executed and delivered by the Company, constitutes a valid and binding
obligation of the Company and is enforceable against the Company in
accordance with its terms;
(l) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other material agreement or material
instrument to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries is bound or to which any
of the property
<PAGE> 5
or assets of the Company or any of its subsidiaries is subject, nor
will such action result in any violation of the provisions of the
Articles of Organization or By-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc.
("NASD") in connection with the purchase and distribution of the Shares
by the Underwriters;
(m) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge,
threatened to which the Company or any of its subsidiaries is or may be a
party or of which property owned or leased by the Company or any of its
subsidiaries is or may be the subject, or related to environmental or
discrimination matters, which actions, suits or proceedings, would
reasonably be expected, individually or in the aggregate, to prevent or
adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the business, assets, management,
financial position, stockholders' equity or results of operations of the
Company; no labor disturbance by the employees of the Company or any of
its subsidiaries exists or, to the knowledge of the Company, is imminent
that would reasonably be expected to affect materially and adversely such
business, assets, management, financial position, stockholders' equity or
results of operations; and neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
<PAGE> 68
administrative agency or other governmental body, that would reasonably
be expected to affect materially and adversely such business, assets,
management, financial position, stockholders' equity or results of
operations;
(n) The Company and its subsidiaries possess all licenses,
certificates, authorizations or permits issued by the appropriate
governmental or regulatory agencies or authorities that are necessary to
enable them to own, lease and operate their respective properties and to
carry on their respective businesses as presently conducted except, where
the failure to possess such licenses, certificates, authorization or
permits would not reasonably be expected to affect materially and
adversely such business, assets, management financial position,
stockholders' equity or results of operations, and neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such license,
certificate, authority or permit which, singly or in the aggregate, would
reasonably be expected to materially and adversely affect the business,
assets, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries;
<PAGE> 6
(o) The Company and its subsidiaries (i) are in compliance in all
material respects with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, including without limitation those relating to occupational
safety and health, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants, including without limitation those
relating to the storage, handling or transportation of hazardous or toxic
materials (collectively, "Environmental Laws") and (ii) are in compliance
with all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, reasonably be expected
to have a material adverse effect on the Company and its subsidiaries,
taken as a whole. The Company, in its reasonable judgment, has concluded
that any costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties) would not, singly or in the aggregate, reasonably be
expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(p) Deloitte & Touche LLP, who have audited certain financial
statements of the Company, are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder;
(q) The consolidated financial statements and schedules of the
Company, and the related notes thereto, included or incorporated by
reference in the Registration Statement and the Prospectus present fairly
in all material respects the financial position of the Company as of the
<PAGE> 69
respective dates of such financial statements and schedules, and the
results of operations and cash flows of the Company for the respective
periods covered thereby; such statements, schedules and related notes
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis as certified by the independent
public accountants named in paragraph (p) above; no other financial
statements or schedules are required to be included in the Registration
Statement; and the selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Consolidated Financial
Data" fairly present in all material respects the information set forth
therein on the basis stated in the Registration Statement;
(r) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals and
governmental authorizations to conduct their business as now conducted;
the Company has no knowledge of any material infringement by the Company
of trademark, trade name rights, patent rights, copyrights, licenses,
trade secret or other similar rights of others; and there is no claim
<PAGE> 7
of infringement being made against the Company regarding trademark,
trade name, patent, copyright, license, trade secret or other similar
rights which would reasonably be expected to have a material adverse
effect on the business, assets, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(s) The Company and each of its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown as due thereon; and the Company has no
knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company or any of its subsidiaries which could
materially and adversely affect the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company;
(t) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company", as such terms are defined in the Investment Company Act of
1940, as amended (the "Investment Company Act");
(u) Each of the Company and its subsidiaries maintains insurance of
the types and in the amounts which it deems adequate for its business,
including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect;
(v) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
<PAGE> 70
foreign, federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof;
(w) The Company has not taken and will not take, directly or
indirectly through any of its directors, officers or controlling persons,
any action which is designed to or which has constituted or which might
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares; and
(x) The Common Stock of the Company has been registered pursuant to
Section 12(g) of the Exchange Act and the Company is not required to take
any further action for the inclusion of the Shares on the Nasdaq National
Market.
<PAGE> 8
2. Representations of the Selling Stockholders. Each of the Selling
Stockholders, severally and not jointly, represents and warrants to, and agrees
with, each of the Underwriters that:
(a) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the Power- of-Attorney and Custody Agreement (the "Custody
Agreement") hereinafter referred to, and for the sale and delivery of the
Shares to be sold by such Selling Stockholder hereunder, have been
obtained; and such Selling Stockholder has full right, power and
authority to enter into this Agreement and the Custody Agreement and to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(b) This Agreement and the Custody Agreement have each been duly
authorized, executed and delivered by such Selling Stockholder and each
such document constitutes a valid and binding obligation of such Selling
Stockholder, enforceable in accordance with its terms;
(c) No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency or body with
respect to such Selling Stockholder is required in connection with the
sale of the Shares by such Selling Stockholder or the consummation by
such Selling Stockholder of the transactions on his or its part
contemplated by this Agreement and the Custody Agreement, except such as
have been obtained under the Act or the rules and regulations thereunder
and such as may be required under state securities or Blue Sky laws or
the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares;
(d) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the performance by such Selling Stockholder of this
Agreement and the Custody Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its
<PAGE> 71
obligations under, or result in the acceleration of any obligation under,
any indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract, agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or
any of his or its properties is bound or affected, or violate or conflict
with any judgment, ruling, decree, order, statute, rule or regulation of
any court or other governmental agency or body applicable to such Selling
Stockholder;
(e) Such Selling Stockholder has, and at the First Time of Delivery
(as defined in Section 5 hereof) will have, good and valid title to the
Shares to be sold by such Selling Stockholder hereunder, free and clear
of all liens, encumbrances, equities or claims; and, upon delivery of
such Shares and payment therefor pursuant hereto,
<PAGE> 9
good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to each of the several
Underwriters who have purchased such Shares in good faith and without
notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code;
(f) Such Selling Stockholder will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock within 90
days after the date of the Prospectus otherwise than hereunder, or as a
bona fide gift or gifts to, or in trust for, a person or entity who or
which agrees in writing to be bound by this restriction or with your
written consent;
(g) Such Selling Stockholder has not taken and will not at any time
take, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result in, or which will constitute,
stabilization of the price of shares of Common Stock to facilitate the
sale or resale of any of the Shares; and
(h) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in
conformity with written information about such Selling Stockholder
furnished to the Company by such Selling Stockholder expressly for use
therein, such Preliminary Prospectus and the Registration Statement did,
and the Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus will, when they become
effective or are filed with the Commission, as the case may be, conform
in all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In addition to the foregoing representations, Herbert W. Pollack, a
Selling Stockholder, represents and warrants to, and agrees with, each of the
Underwriters that he has reviewed the Registration Statement and Prospectus
<PAGE> 72
and, although he has not independently verified the accuracy or completeness of
all the information contained therein, nothing has come to his attention that
would lead him to believe that on the Effective Date, the Registration
Statement contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date the
Prospectus contained and, at each Time of Delivery, contains any untrue
statement of a material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982
with respect to the transactions herein contemplated, each Selling Stockholder
agrees to deliver to you prior to or
<PAGE> 10
at the First Time of Delivery a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified
by Treasury Department regulations in lieu thereof).
Each of the Selling Stockholders represents and warrants that a
certificate in negotiable form representing all of the Shares to be sold by
such Selling Stockholder has been placed in custody under the Custody
Agreement, in the form heretofore furnished to you, duly executed and delivered
by such Selling Stockholder to the Custodian (as defined in the Custody
Agreement), and that such Selling Stockholder has duly executed and delivered a
power-of-attorney, in the form heretofore furnished to you and included in the
Custody Agreement (the "Power-of-Attorney"), appointing ______ and ______, and
each of them, as such Selling Stockholder's attorney-in-fact (the
"Attorney-in-Fact") with authority to execute and deliver this Agreement on
behalf of such Selling Stockholder, to determine (subject to the provisions of
the Custody Agreement) the purchase price to be paid by the Underwriters to
such Selling Stockholder as provided in Section 3 hereof, to authorize the
delivery of the Shares to be sold by such Selling Stockholder hereunder and
otherwise to act on behalf of such Selling Stockholder in connection with the
transactions contemplated by this Agreement and the Custody Agreement.
Each of the Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the
Attorneys-in-Fact by the Power-of-Attorney, are to that extent irrevocable.
Each of the Selling Stockholders specifically agrees that the obligations of
such Selling Stockholder hereunder shall not be terminated by operation of law,
whether by the death or incapacity of such Selling Stockholder or, in the case
of an estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event. If such Selling Stockholder or any such executor
or trustee should die or become incapacitated, or if any such estate or trust
should be dissolved, or if such corporation or partnership should be dissolved,
or if any other such event should occur, before the delivery of the Shares
<PAGE> 73
hereunder, certificates representing the Shares to be sold by such Selling
Stockholder shall be delivered by or on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and of the Custody
Agreement, and actions taken by the Attorneys-in-Fact pursuant to the
Powers-of-Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or not the
Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of
such death, incapacity, termination, dissolution or other event.
3. Shares Subject to Sale. (a) On the basis of the representations,
warranties and agreements of the Company and the Selling Stockholders contained
herein, and subject to the terms and conditions of this Agreement, (i) the
Company agrees to issue and sell the Company Firm Shares to the several
Underwriters, (ii) each of the Selling Stockholders agrees
<PAGE> 11
to sell its Selling Stockholder Firm Shares to the several Underwriters and
(iii) each of the Underwriters agrees, severally and not jointly, to purchase
from the Company and the Selling Stockholders, at a purchase price per share of
$_____, the respective number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares by a fraction, the numerator of which is the aggregate number of
Firm Shares to be purchased by such Underwriter as set forth opposite the name
of such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all the Underwriters and (b)
in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, (i) the Company agrees
to issue and sell the Optional Shares to the several Underwriters and (ii) each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at the purchase price per share set forth in clause (a) of this
Section 3, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by
a fraction, the numerator of which is the maximum number of Optional Shares
which such Underwriter is entitled to purchase as set forth opposite the name
of such Underwriter in Schedule I hereto and the denominator of which is the
maximum number of the Optional Shares which all of the Underwriters are
entitled to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent indicated
in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to 172,500 Optional
Shares at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering overallotments in the sale of the Firm Shares. Any
such election to purchase Optional Shares shall be made in proportion to the
maximum number of Optional Shares to be sold by the Company and each of the
Selling Stockholders. Any such election to purchase Optional Shares may be
exercised on one occasion by written notice from you to the Company, given
within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you
but in no event earlier than the First Time of Delivery or, unless you and the
Company otherwise agree in writing, earlier than two or later than three
business days after the date of such notice.
<PAGE> 74
4. Offering. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
5. Closing. Certificates in definitive form for the Shares to be
purchased by each Underwriter hereunder, and in such denominations and
registered in such names as Adams, Harkness & Hill, Inc. may request upon at
least forty-eight hours' prior notice to the Company and the Attorneys-in-Fact,
shall be delivered by or on behalf of the Company and each of the Selling
Stockholders to you for the account of such Underwriter, against payment by
such Underwriter or on its behalf of the purchase price therefor by wire
transfer of same
<PAGE> 12
day funds, all at the office of Adams, Harkness & Hill, Inc., 60 State Street,
Boston, Massachusetts 02109. The time and date of such delivery and payment
shall be, with respect to the Firm Shares, 9:30 a.m., Boston time, on _________
__, 1997 or such other time and date as you and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., Boston time, on
the date specified by you in the written notice given by you of the
Underwriters' election to purchase such Optional Shares, or at such other time
and date as you and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery,"
such time and date for delivery of the Optional Shares, if not the First Time
of Delivery, is herein called the "Second Time of Delivery," and each such time
and date for delivery is herein called a "Time of Delivery." Such certificates
will be made available for checking and packaging at least twenty four hours
prior to each Time of Delivery at such location as you may specify.
6. Covenants of the Company. The Company agrees with each of the
Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be reasonably disapproved by you promptly giving
reasonable notice thereof; to advise you, promptly after it receives
notice thereof, of the time when the Registration Statement, or any
amendment thereto, has been filed or becomes effective or any supplement
to the Prospectus or any amended Prospectus has been filed and to furnish
you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
<PAGE> 75
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
<PAGE> 13
(c) To furnish the Underwriters with copies of the Prospectus in
such quantities as you may from time to time reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issuance of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any events shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such same period to
amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge to
each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required by law to deliver a prospectus in connection with sales of any
of the Shares at any time nine months or more after the time of issue of
the Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than the forty-fifth (45th) day
following the end of the full fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement (as
defined in Rule 158(c)), an earning statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of any securities
of the Company which are substantially similar to the Shares, without
your prior written consent other than (i) the sale of the Shares to be
sold by the Company hereunder and (ii) the Company's issuance of shares
and the award of options under its stock plans in amounts not in excess
of the amount shown as available for grant in the Prospectus;
(f) Not to grant options to purchase shares of Common Stock which
would become exercisable during a period beginning from the date hereof
<PAGE> 76
and continuing to and including the date 90 days after the date of the
Prospectus;
(g) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flow of the Company
and its consolidated subsidiaries certified by independent public
accountants) and to make available (within the
<PAGE> 14
meaning of Rule 158(b) under the Act) as soon as practicable after
the end of each of the first three quarters of each fiscal year
(beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(h) During a period of five years from the effective date of the
Registration Statement, to furnish to you upon your request copies of all
reports or other communications (financial or other) furnished to
stockholders generally, and deliver to you as soon as they are available,
copies of any reports and financial statements furnished to or filed with
the Commission, the Nasdaq National Market or any national securities
exchange on which any class of securities of the Company is listed (such
financial statements to be on a combined or consolidated basis to the
extent the accounts of the Company and its subsidiaries are combined or
consolidated in reports furnished to its stockholders generally or to the
Commission);
(i) To use the net proceeds acquired by it from the sale of the
Shares in the manner specified in the Prospectus under the caption "Use
of Proceeds" and in a manner such that the Company will not become an
"investment company" as that term is defined in the Investment Company
Act; and
(j) Not to accelerate the vesting of any option issued under any
stock option plan such that any such option may be exercised within 90
days from the date of the Prospectus.
7. Covenants of the Selling Stockholders. Each Selling Stockholder agrees
to pay or cause to be paid all taxes, if any, on the transfer and sale of the
Shares to be sold by such Selling Stockholder hereunder and the fees and
expenses, if any, of counsel and accountants retained by such Selling
Stockholders. The Company agrees with the Selling Stockholder to pay all costs
and expenses incident to the performance of the obligations of the Selling
Stockholders under this Agreement (except as set forth above), including, but
not limited to, all expenses incident to the delivery of the certificates for
the Shares to be sold by such Selling Stockholder, the costs and expenses
incident to the preparation, printing and filing of the Registration Statement
(including all exhibits thereto) and the Prospectus and any amendments or
supplements thereto, the expenses of qualifying the Shares to be sold by the
Selling Stockholders under the state securities or Blue Sky laws, all filing
fees and the reasonable fees and expenses of counsel for the Underwriters
payable in connection with the review of the offering of the Shares by the
NASD, and the cost of furnishing to the Underwriters the required copies of the
<PAGE> 77
Registration Statement and Prospectus and any amendments or supplements
thereto; provided that each Selling Stockholder agrees to pay or cause to be
paid its pro rata share (based on the percentage which the number of Shares
sold by such Selling Stockholder bears to the total number of Shares sold) of
all underwriting discounts and commissions.
<PAGE> 15
8. Expenses. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants
in connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of reproducing any
Agreement among Underwriters, this Agreement, the Blue Sky Memorandum and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses and filing fees in connection with the
qualification of the Shares for offering and sale under state securities
laws as provided in Section 6(b) hereof and securing any required review
bythe NASD of the terms of the sale of the Shares, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and review and in connection with the Blue Sky survey, subject
to a maximum of $5,000; (iv) the cost of preparing stock certificates; (v) the
cost and charges of any transfer agent or registrar; and (vi) all other
costs and expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this Section. It is
understood, however, that, except as provided in this Section, Section 10
and Section 13 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
9. Conditions of Underwriters' Obligations. The obligations of the
Underwriters hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company and each
Selling Stockholder herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and each Selling Stockholder shall each
have performed all of their respective obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 6(a) hereof; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part
of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Hale and Dorr LLP, counsel to the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
<PAGE> 78
with respect to this Agreement, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request;
<PAGE> 16
(c) Ropes & Gray, counsel to the Company and special counsel to the
Selling Stockholders, shall have furnished to you their written opinion,
dated such Time of Delivery, in form and substance reasonably
satisfactory to you, with respect to the matters set forth in Annex I
hereto;
(d) Weingarten Schurgin Gagnebin & Hayes, intellectual property
counsel to the Company, shall have furnished to you their written
opinion, dated such time of delivery in form and substance reasonably
satisfactory to you, with respect to the matters set forth in Annex II
hereto;
(e) At 10:00 a.m., Boston time, on the effective date of the
Registration Statement and the effective date of the most recently filed
post-effective amendment to the Registration Statement and also at each
Time of Delivery, Deloitte & Touche LLP, shall have furnished to you a
letter or letters, dated the respective date of delivery thereof, in form
and substance reasonably satisfactory to you, to the effect set forth in
Annex III hereto;
(f) (i) Neither the Company nor any of its subsidiaries have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, that is in each case
material to the Company and its subsidiaries taken as a whole, otherwise
than as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus,
there shall not have been any change in the capital stock (other than
issuances of Common Stock pursuant to Company stock option and stock
purchase plans described in the Registration Statement and Prospectus) or
long-term debt of the Company or any change, or any development that is
reasonably likely to result in a material adverse change, in or affecting
the business, assets, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus, the effect
of which, in any such case described in clause (i) or (ii), is in your
judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) additional material governmental restrictions, not
in force and effect on the date hereof, shall have been imposed upon
trading in securities generally or minimum or maximum prices shall have
been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
<PAGE> 79
Exchange or in the over the counter market by the NASD, or a general
banking moratorium shall have been established by federal or New York
authorities, (ii) an
<PAGE> 17
outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated to
such an extent, as, in the judgment of the Representatives, to affect
materially and adversely the marketability of the Shares, or (iii) there
shall be any action, suit or proceeding pending or threatened, or there
shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or
any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the Representatives, has materially
and adversely affected the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Shares;
(h) The Shares to be sold by the Company at such Time of Delivery
shall have been accepted for quotation, subject to notice of issuance, on
the Nasdaq National Market System;
(i) Each director and officer of the Company and each Selling
Stockholder shall have executed and delivered to you agreements
in which such holder undertakes, for 90 days or, after the date of the
Prospectus, subject to certain exceptions stated therein, not to offer,
sell, contract to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exchangeable for, or any
rights to purchase or acquire, shares of Common Stock, without the prior
written consent of Adams, Harkness & Hill, Inc.; and
(j) The Company and each Selling Stockholder shall have furnished
or caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of such Selling Stockholder, respectively, in
their capacities as such, satisfactory to you, as to the accuracy of the
representations and warranties of the Company and of such Selling
Stockholder, respectively, herein at and as of such Time of Delivery, as
to the performance by the Company and of such Selling Stockholder,
respectively, of all of its or his obligations hereunder to be performed
at or prior to such Time of Delivery, and as to such other matters as you
may reasonably request and the Company shall have furnished or caused to
be furnished certificates as to the matters set forth in subsections (a)
and (f) of this Section, and as to such other matters as you may
reasonably request.
10. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter and each person, if any, who controls such
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
<PAGE> 80
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
<PAGE> 18
of the circumstances in which they were made, not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you expressly
for use therein.
(b) Each of the Selling Stockholders, severally and not jointly, will
indemnify and hold harmless each Underwriter and any person, if any, who
controls such Underwriter, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information about such Selling Stockholder
furnished to the Company by such Selling Stockholder expressly for use therein,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or each Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through you expressly for use therein; and will reimburse the
Company and the Selling Stockholder for any legal or other expenses reasonably
incurred by the Company or the Selling
<PAGE> 81
<PAGE> 19
Stockholder in connection with investigating or defending any such action or
claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party. No
indemnifying party shall be liable for any settlement of any action or claim
effected without its written consent, which consent shall not be unreasonably
withheld.
(e) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
<PAGE> 82
<PAGE> 20
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders, respectively,
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or any Selling Stockholder on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this subsection (e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (e) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Selling Stockholder shall be
liable for contribution under this Section 10 in circumstances where such
Selling Stockholder would not be required to provide indemnification if
indemnification were available. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 10 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriter under this Section
10 shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act.
(g) Notwithstanding anything to the contrary contained herein, the
aggregate liability of each Selling Stockholder under this Agreement shall not
exceed the total initial public offering price of the Shares sold by the
Selling Stockholder under this Agreement, less underwriters' discounts.
<PAGE> 83
<PAGE> 21
11. Termination. (a) If any Underwriter shall default in its obligation
to purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Stockholders that you have so
arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-tenth of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall
have the right to require each non-defaulting Underwriter to purchase the
number of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-tenth of the aggregate number of all the Shares
to be purchased at such Time of Delivery, or if the Company shall not exercise
the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter, the Company or any Selling Stockholder, except
for the expenses to be borne by the Company, any Selling Stockholder and the
Underwriters as provided in Section 8 hereof and the indemnity and contribution
agreements in Section 10 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
<PAGE> 84
<PAGE> 22
12. Survival. The respective indemnities, agreements, representations,
warranties and other statements of the Company, each Selling Stockholder and
the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company or any Selling Stockholder, or any
officer or director or controlling person of the Company or any Selling
Stockholder, and shall survive delivery of and payment for the Shares.
13. Expenses of Termination. If this Agreement shall be terminated
pursuant to Section 11 hereof, neither the Company nor any Selling Stockholder
shall then have any liability to any Underwriter except as provided in Section
8 and Section 10 hereof; but, if for any other reason this Agreement is
terminated (other than solely as a result of a failure to meet the conditions
set forth in paragraph (b) or clauses (i) or (ii) of paragraph (d) of
Section 9), the Company will reimburse the Underwriters through you for all
out-of-pocket expenses approved in writing by you, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so
delivered, but neither the Company nor any Selling Stockholder shall have
any further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Section 8 and Section 10 hereof.
14. Notice. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Adams, Harkness & Hill, Inc. on behalf of you as
the Representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the Representatives in care of Adams,
Harkness & Hill, Inc., 60 State Street, Boston, MA 02109, Attention: Joseph W.
Hammer; if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: President; and if to any Selling Stockholder
shall be delivered or sent by mail, telex or facsimile transmission to the
address of such Selling Stockholder set forth in Schedule II hereto; provided,
however, that any notice to an Underwriter pursuant to Section 10(d) hereof
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriter's Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company by you on request. Any such statements, requests, notices or agreements
shall take effect upon receipt thereof.
15. Miscellaneous. (a) This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Selling
Stockholders and, to the extent provided in Sections 10 and 12 hereof, the
officers and directors of the Company and each person who controls the Company,
any Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
<PAGE> 85
<PAGE> 23
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
(b) Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
(d) This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters, the
Company and the Selling Stockholders. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signors thereof.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE> 24
Any person executing and delivering this Agreement as Attorney-in-Fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in- Fact by each Selling Stockholder pursuant to a
validly existing and binding Power-of- Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
PARLEX CORPORATION
By:________________________________
Peter J. Murphy
President and Chief Executive Officer
SELLING STOCKHOLDERS
(Named in Schedule II to the Agreement)
By:_________________________
Name:
Title: Attorney-in-Fact
<PAGE> 86
Accepted as of the date
hereof at Boston, Massachusetts
ADAMS, HARKNESS & HILL, INC.
NEEDHAM & COMPANY, INC.
By:______________________________
(Adams, Harkness & Hill, Inc.
On behalf of each of
the Underwriters)
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Optional Shares
Total Number to be Purchased
of Firm Shares if Maximum
to be Purchased Option Exercised
-----------------------------------
<S> <C> <C>
Adams, Harkness & Hill, Inc...............................
Needham & Company, Inc....................................
--------- -------
TOTAL: 1,150,000 172,500
========= =======
</TABLE>
<PAGE> 26
SCHEDULE II
<TABLE>
<CAPTION>
<PAGE> 87
Total
Total Number of
Number of Optional
Firm Shares Shares to
to be Sold be Sold
------------------------
<S> <C> <C>
The Company 1,000,000 150,000
The Selling Stockholders:
Herbert W. Pollack................................ 75,000 11,250
Sandra Pollack.................................... 75,000 11,250
----------------------
TOTAL................................................... 1,150,000 172,500
======================
</TABLE>
<PAGE> 27
ANNEX I
Form of Ropes & Gray Opinion
1. The Company is a corporation duly incorporated, validly existing and
in good standing with the Secretary of State of The Commonwealth of
Massachusetts with corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus. The Company
is duly qualified to do business and is in good standing in each jurisdiction
within the United States in which it owns or leases real property or maintains
an office.
2. The authorized capitalization of the Company as of June 30, 1997 is as
set forth under the caption "Capitalization" in the Prospectus. All of the
issued and outstanding shares of capital stock have been duly authorized and
validly issued and are fully paid and nonassessable and have not been issued in
violation of any statutory preemptive right or, to such counsel's knowledge,
any other similar right. The Shares have been duly authorized and, when issued
and delivered in accordance with the Underwriting Agreement, will be validly
issued, fully paid and nonassessable and will conform in all material respects
to the description of the capital stock contained in the Prospectus.
3. Each domestic subsidiary of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization. All of the issued and outstanding shares of
capital stock of each such subsidiary (i) have been duly authorized and validly
issued and are fully paid and nonassessable and (ii) except as disclosed in the
Prospectus, are owned of record and, to such counsel's knowledge, beneficially
by the Company or another subsidiary of the Company, free and clear of all
liens, encumbrances, equities or claims other than those imposed by applicable
securities laws (such counsel being entitled to rely in respect of the opinion
in this clause upon opinions of local counsel and in respect of matters of fact
<PAGE> 88
upon certificates of officers of the Company and its subsidiaries, provided
that such counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates). Each domestic
subsidiary of the Company is duly qualified to do business and is in good
standing in each jurisdiction within the United States in which it owns or
leases real property or maintains an office.
4. The Company has the corporate power and authority to enter into the
Underwriting Agreement and the Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
5. The issuance and sale by the Company of the Shares and the performance
by the Company of its obligations under the Underwriting Agreement does not and
will not (i) violate the articles of organization or by-laws of the Company,
(ii) breach or result in a default under any agreement, indenture or other
instrument filed as an exhibit to the Registration Statement or any document
incorporated by reference into the Registration
<PAGE> I-1
Statement to which the Company is a party or by which it is bound, or to which
any of its properties is subject, or (iii) violate any existing Massachusetts
or federal law, rule, administrative regulation or any decree known to such
counsel of any court or any governmental agency or body having jurisdiction
over the Company or any of its properties, except that such counsel need
express no opinion as to state securities or "Blue Sky" laws or as to
compliance with the antifraud provisions of federal and state securities laws.
6. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States or The Commonwealth of Massachusetts is required for the issuance and
sale of the Shares by the Company or the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, except the
registration under the Act of the Shares.
7. The Company is not subject to regulation as an "investment company"
under the Investment Company Act of 1940, as amended.
8. The Shares have been authorized for inclusion on the Nasdaq National
Market System, subject to notice of issuance.
9. The documents incorporated by reference in the Prospectus (other than
the financial statements and related schedules therein, as to which such
counsel need express no opinion), when they were filed with the Commission,
complied as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
10. The Underwriting Agreement has been duly authorized, executed and
delivered by each of the Selling Stockholders (by such Selling Stockholder or
his or its duly authorized attorney-in-fact).
11. A Custody Agreement has been duly authorized, executed and delivered
by each of the Selling Stockholders and, pursuant to such Custody Agreement,
each Selling Stockholder has authorized its attorney-in-fact to carry out the
transactions contemplated in the Underwriting Agreement on its behalf and to
<PAGE> 89
deliver the Shares being sold by such Selling Stockholder pursuant to the
Underwriting Agreement.
12. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States or The Commonwealth of Massachusetts is required to be obtained by any
Selling Stockholder to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder in the manner provided in the Underwriting
Agreement and the Custody Agreement, other than as have been obtained or made
under the Act.
13. Immediately prior to the Closing, each Selling Stockholder was the
sole registered owner and, to our knowledge, the sole beneficial owner of the
Shares to be sold by such
<PAGE> I-2
Selling Stockholder. Upon payment by the Underwriters of the purchase price in
accordance with the Underwriting Agreement, and upon registration of the Shares
in the names of the Underwriters in the stock records of the Company (or in the
name of a nominee for DTC in such stock records, with appropriate entries to
the account of the Underwriters having been made in the records of DTC), the
Underwriters will have acquired all the rights in the Shares that such Selling
Stockholder had or had the power to transfer, free of any claim by any other
person that such person has a property interest in the Securities and that it
is a violation of such other person's rights for the Underwriters to hold,
transfer or deal with the Shares (assuming that the Underwriters are without
notice of any such claim).
Such counsel shall also state that in the course of the preparation by
the Company of the Registration Statement and the Prospectus, they have
participated in discussions with your representatives and those of the Company
and its independent accountants in which the business and affairs of the
Company and the contents of the Registration Statement and Prospectus were
discussed. Such counsel shall state that on the basis of information that such
counsel has gained in the course of such counsel's representation of the
Company in connection with its preparation of the Registration Statement and
Prospectus and such counsel's participation in the discussions referred to
above, such counsel believes that the Registration Statement, as of its
effective date, and the Prospectus, as of its date, complied as to form in all
material respects with the requirements of the Act and the published rules and
regulations of the Commission thereunder and such counsel does not know of any
legal or governmental proceedings pending to which the Company is a party or of
which any property of the Company is the subject that are required to be
described in the Registration Statement or Prospectus that are not so described
or of any contracts or any other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be described or
incorporated by reference in the Registration Statement or Prospectus that are
not filed, described or incorporated by reference as required. Further, such
counsel shall state that based on such information and participation, nothing
came to the attention of such counsel that caused such counsel to believe that
(i) the Registration Statement as of its effective date contained an untrue
statement of material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
that the Prospectus as of its date contained or as of such Time of Delivery
<PAGE> 90
contains any untrue statement of a material fact or omitted or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) it is
necessary to amend the Registration Statement. Such counsel need express no
opinion, however, as to the financial statements, including the notes and
schedules thereto, or any other financial or accounting information set forth
or referred to in the Registration Statement and Prospectus.
Such counsel may state that the limitations inherent in the independent
verification of factual matters and the character of the determinations
involved in such counsel's review are such that such counsel does not assume
any responsibility for the accuracy, completeness or fairness of the statements
made or the information contained in the Registration Statement and Prospectus
except for those made under the captions "Description of Capital Stock" and
<PAGE> I-3
"Underwriting", which accurately summarize in all material respects the
provisions of the laws and documents referred to therein.
Such counsel shall also include a statement in such opinion as to the
matters set forth in this paragraph. The Registration Statement has become
effective under the Act. To the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued by
the Commission nor has any proceeding been instituted or contemplated for that
purpose under the Act. The Prospectus has been filed with the Commission
pursuant to Rule 424(b) of the rules and regulations under the Act within the
time period required thereby.
<PAGE> I-4
ANNEX II
Matters to be Covered in the Opinion of
Weingarten Schurgin Gagnebin & Hayes
Such counsel are generally familiar with the technology used by the
Company and its subsidiaries in their businesses and the manner of its use
thereof and have read the Registration Statement and the Prospectus,
including particularly the portions of the Registration Statement and the
Prospectus referring to trademarks, trade names, patents, licenses, trade
secrets or other intellectual property rights and:
(i) such counsel have no reason to believe that the Registration
Statement or the Prospectus (A) contains any untrue statement of a
material fact with respect to trademarks, trade names, patents,
licenses, trade secrets or other intellectual property rights owned
or used by the Company or any of its subsidiaries, or the manner of
its use thereof, or any allegation on the part of any person that
the Company or any of its subsidiaries is infringing any trademarks,
trade names, patent rights, licenses, trade secrets or other
<PAGE> 91
intellectual property rights of any such person or (B) omits to
state any material fact relating to trademarks, trade names, patents,
licenses, trade secrets or other intellectual property rights owned
or used by the Company or any of its subsidiaries, or the manner of
its use thereof, or any allegation of which such counsel have
knowledge, that is required to be stated in the Registration Statement
or the Prospectus or is necessary to make the statements therein not
misleading;
(ii) to the best of such counsel's present knowledge and except
as set forth in the Prospectus under the captions "Risk Factors-
Intellectual Property" and "Business-Intellectual Property," there are no
legal or governmental proceedings pending relating to trademarks, trade
names, patent rights, licenses, trade secrets or other intellectual
property rights of the Company or any of its subsidiaries, and to
the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or others;
(iii) to the best of such counsel's present knowledge, the
Company and its subsidiaries duly and properly hold the patents, and
have duly and properly filed the patent applications, listed
in the Prospectus under the caption "Business-Intellectual Property";
(iv) such counsel have no present knowledge of any contracts or
other documents relating to the Company's or any of its subsidiaries'
trademarks, trade names, patents, licenses, trade secrets or other
intellectual property rights of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or described
as required;
<PAGE> II-1
(v) to the best of such counsel's present knowledge, neither the
Company nor any of its subsidiaries is infringing or otherwise
violating any trademarks, trade names, patents, licenses, trade
secrets or other intellectual property rights of others, and to the best
of such counsel's knowledge there are no infringements by others of any
of the Company's or any of its subsidiaries' trademarks, trade names,
patents, licenses, trade secrets or other intellectual property rights
which in the judgment of such counsel could affect materially the
use thereof by the Company or any of its subsidiaries; and
(vi) to the best of such counsel's present knowledge, the Company
owns or possesses sufficient licenses or other rights to use all
trademarks, trade names, patents, licenses, trade secrets or other
intellectual property rights necessary to conduct the business now
being or proposed to be conducted by the Company and its subsidiaries
as described in the Prospectus.
<PAGE> II-2
<PAGE> 92
ANNEX III
Pursuant to Section 9(e) of the Underwriting Agreement, Deloitte & Touche
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
pro forma financial information) examined by them and included or
incorporated by reference in the Registration Statement or the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act or the Exchange Act, if applicable, and the
related published rules and regulations thereunder; and, if applicable,
they have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the consolidated
interim financial statements, selected financial data, pro forma
financial information and/or condensed financial statements derived from
audited financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which have
been separately furnished to the Representatives;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus and/or included in the Company's Quarterly Reports on Form
10-Q incorporated by reference into the Prospectus as indicated in their
reports thereon, copies of which have been separately furnished to the
Representatives; and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and
the related published rules and regulations, nothing came to their
attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the Exchange Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
and included or incorporated by reference in Item 6 of the Company's
Annual Report on Form 10-K for the most recent fiscal year, agrees with
the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
<PAGE> III-1
<PAGE> 93
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus and/or included or
incorporated by reference in the Company's Quarterly Reports on
Form 10-Q incorporated by reference in the Prospectus do not comply
as to form in all material respects with the applicable accounting
requirements of the Exchange Act as it applies to Form 10-Q and the
related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus or
included in the Company's Quarterly Reports on Form 10-Q
incorporated by reference in the Prospectus, for them to be
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus or incorporated by reference to the Company's
Annual Report on Form 10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause (A)
and any unaudited income statement data and balance sheet items
included in the Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the basis for
the audited consolidated financial statements included in the
Prospectus or incorporated by reference to the Company's Annual
Report on Form 10-K for the most recent fiscal year;
<PAGE> III-2
<PAGE> 94
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus
do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published
rules and regulations thereunder or the pro forma adjustments have
not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest financial statements included or incorporated by reference
in the Prospectus) or any increase in the combined long-term debt
of the Company and its subsidiaries, or any decreases in combined
net current assets or net assets or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included or incorporated by reference in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus
to the specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating profit or the
total or per share amounts of consolidated net income or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with the comparable period of the preceding year and with any other
period of corresponding length specified by the representatives,
except in each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in
Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives, and have compared certain of such
amounts, percentages and financial information with the accounting
records of the Company and its subsidiaries and have found them to be in
agreement.
<PAGE> III-3
<PAGE> 95
Exhibit 5.1
September 29, 1997
Parlex Corporation
145 Milk Street
Methuen, Massachusetts 01844
Re: Parlex Corporation
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-2 (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, for the offer and sale by Parlex Corporation, a Massachusetts
corporation (the "Company"), of up to 1,150,000 shares of the Company's
Common Stock, $.10 par value (the "Shares"). The Shares are to be sold
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into among the Company and Adams, Harkness & Hill, Inc. and Needham
& Company, Inc., as representatives of the underwriters named therein.
We have acted as counsel for the Company in connection with its
proposed issuance and sale of the Shares. For purposes of this opinion, we
have examined and relied upon such documents, records, certificates and
other instruments as we have deemed necessary.
We express no opinion as to the applicability of compliance with or
effect of Federal law or the law of any jurisdiction other than The
Commonwealth of Massachusetts.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized and, when the Shares have been issued and sold and the
Company has received the consideration in accordance with the terms of the
Underwriting Agreement, the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Validity of Common Stock".
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Very truly yours,
<PAGE> 96
/s/ Ropes & Gray
Exhibit 5.2
September 29, 1997
Parlex Corporation
145 Milk Street
Methuen, Massachusetts 01844
Re: Parlex Corporation
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-2 (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, for the offer and sale by Parlex Corporation, a Massachusetts
corporation (the "Company"), of up to 1,150,000 shares of the Company's
Common Stock, $.10 par value (the "Shares"). The Shares are to be sold
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into among the Company and Adams, Harkness & Hill, Inc. and Needham
& Company, Inc., as representatives of the underwriters named therein.
We have acted as counsel for the Company in connection with its
proposed issuance and sale of the Shares. For purposes of this opinion, we
have examined and relied upon such documents, records, certificates and
other instruments as we have deemed necessary.
We express no opinion as to the applicability of compliance with or
effect of Federal law or the law of any jurisdiction other than the
Commonwealth of Massachusetts.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized and, when the Shares have been issued and sold and the
Company has received the consideration in accordance with the terms of the
Underwriting Agreement, the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Validity of Common Stock".
<PAGE> 97
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Very truly yours,
/s/ Kutchin & Rufo, P.C.
Kutchin & Rufo, P.C.
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Parlex Corporation
and Subsidiaries on Form S-2 of our report dated August 5, 1997, appearing
in and incorporated by reference in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
September 26, 1997
<PAGE> 98
