SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 0-12942
PARLEX CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-2464749
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
145 Milk Street, Methuen, Massachusetts 01844
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 978-685-4341
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of exchange on
Title of each Class which registered
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Common Stock ($.10 par value) Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
The aggregate market value of shares of the Registrant's Common Stock,
par value $.10 per share, held by non-affiliates of the Registrant at
September 24, 1997 as computed by reference to the closing price of such
stock was approximately $47,757,717.
The number of shares of the Registrant's Common Stock, par value $.10
per share, outstanding at September 24, 1997 was 3,593,310 shares.
Documents Incorporated By Reference
Portions of the definitive proxy statement to be filed with the
Commission within 120 days after the close of the fiscal year are
incorporated by reference into Part III of this report.
Part I
Item 1. Business.
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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
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) Circuit
Co., Ltd. ("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.
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
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
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.
* 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.
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
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
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
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<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>
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.
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
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Delco AMP Foxboro
Delphi Compaq Hewlett Packard
Motorola EMC Pitney Bowes
Siemens Thomas & Betts Texas Instruments
Military/Aerospace Telecommunications
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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
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
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.
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
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.
Item 2. Properties.
- -------------------
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 "Item 1-Business-
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.
Item 3. Legal Proceedings.
- --------------------------
The Company has no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
This item is inapplicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------------------------------------------------------------------------------
(a) Price Range of Common Stock
The Company's Common Stock is listed on the Nasdaq National Market,
under the symbol "PRLX". The following table sets forth the reported high and
low sale prices for the Common Stock for the periods indicated. The
information reflects the Company's declaration of a three-for-two split of its
Common Stock effected as a 50% stock dividend on April 21, 1997.
<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
(b) Approximate Number of Holders of Common Stock
As of September 24, 1997, there were approximately 87 holders of record
of the Common Stock.
(c) Dividends
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).
Item 6. Selected Consolidated Financial Data.
- ---------------------------------------------
</TABLE>
<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 (1) $ 0.09 $ 0.29 $ 0.41 $ 0.21 $ 0.57
===============================================
Weighted average number of common and
common equivalent shares outstanding (1) 3,466 3,466 3,651 3,675 3,716
<FN>
<F1> Information reflects the Company's declaration of a three-for-two
split of Common Stock effected as a 50% stock dividend on April 21,
1997.
</FN>
</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
</TABLE>
Item 7. 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,
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>
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.
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.
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.
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, 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
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.
CERTAIN FACTORS THAT MAY AFFECT
FUTURE OPERATING RESULTS
This Report contains certain forward-looking statements that involve
risks and uncertainties. When used in this Report, the words "believes,"
"expects," "anticipates," "intends," "estimates," "should," "will likely" and
similar expressions are intended to identify such forward-looking statements.
The cautionary statements made in this Report should be read as being
applicable to all related forward-looking statements wherever they appear
herein. The Company's actual results could differ materially from those
discussed here. Important factors that could cause or contribute to such
differences include those 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.
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 intends in the future to
expand 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.
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
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.
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. 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.
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.
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.
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.
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.
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
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.
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.
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT
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
----------------------------
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.
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.
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
<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>
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>
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
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
========================
</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,
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
---- ---- ----
<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.
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
=======
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,
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
<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).
Item 9. Changes in and Disagreements with Accountants on Accounting
- -------------------------------------------------------------------
and Financial Disclosure.
-------------------------
This item is inapplicable.
Part III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
The information required by this Item is incorporated by reference from
the information under the captions "Election of Directors", "Board of
Directors Meetings and Committees of the Board", "Executive Officers" and
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive proxy statement to be filed with the Commission within
120 days of June 30, 1997.
Item 11. Executive Compensation.
- --------------------------------
The information required by this Item is incorporated by reference from
the information under the captions "Compensation of Executive Officers" and
"Board of Directors Meetings and Committees of the Board", in the Company's
definitive proxy statement to be filed with the Commission within 120 days of
June 30, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The information required by this Item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement to be filed
with the Commission within 120 days of June 30, 1997.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
This Item is not applicable.
Part IV
Item 14. Exhibits, Financial (a) Documents filed as a part
Statement Schedules, of this Form 10-K.
And Reports on 1. Financial Statements.
Form 8-K. ---------------------
The Financial Statements
listed in the accompanying
table of contents to
Consolidated Financial
Statements are filed as a
part of this Form 10-K.
2. Financial Statement Schedules.
------------------------------
Schedules are omitted because
of the absence of conditions
under which they are required
or because the required
information is included in
the Consolidated Financial
Statements or notes thereto.
3. Exhibits.
---------
The exhibits listed below are
either filed herewith or, if
not filed, are incorporated by
reference from the filings
noted in parentheses.
(3)(A) Restated Articles of
Organization, as amended;
(dated August 2, 1983),
(filed as exhibits 3-A and 3-B
to the Company's Registration
Statement on Form S-1, file
No. 2-85588, and incorporated
herein by reference).
(3)(B) 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)(C) By-laws; (filed as exhibit 3-C
to the Company's Registration
Statement on Form S-1, file No.
2-85588, and incorporated
herein by reference).
(10)(A) 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)(B) 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)(C) 1989 Outside Directors' Stock
Option Plan*; (filed as
exhibit 10-Z to Form 10-K for
the fiscal year ended June
30, 1991).
(10)(D) 1989 Employees' Stock Option
Plan*; (filed as exhibit 10-AA
to Form 10-K for the fiscal
year ended June 30, 1991).
(10)(E) 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)(F) 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)(G) 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)(H) 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)(I) 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)(J) 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)(K) 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)(L) Agreement of Lease between PVP
- Salem Associates, L.P. and
Parlex Corporation dated August
12, 1997; Filed herewith.
(10)(M) Employment Agreement between
Parlex Corporation and
Herbert W. Pollack dated July
1, 1997*; Filed herewith.
(10)(N) Patent Assignment Agreement
between Parlex Corporation
and Polyonics, Inc. dated
June 16, 1997; Filed herewith.
(10)(O) 1996 Outside Directors' Stock
Option Plan;* Filed herewith.
(21) Subsidiaries of the
Registrant; Filed herewith.
(23) Independent Auditors'
Consent; Filed herewith.
(24) Power of Attorney; Filed
herewith.
(27) Financial Data Schedule; Filed
herewith.
- --------------------
* Indicates management contract or compensatory plan or arrangement.
(B) Reports on Form 8-K.
--------------------
The Company filed no reports
on Form 8-K with the Commission
during the quarter ended
June 30, 1997.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Parlex Corporation
/s/ Herbert W. Pollack
_____________________________________________________________
Herbert W. Pollack, Chairman
Date: September 29, 1997
_______________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Steven M. Millstein
_____________________________________________________________
Steven M. Millstein, Principal Accounting
and Financial Officer
Date: September 29, 1997
-------------------------------------------------------
*/s/ Sheldon A. Buckler
- -------------------------------------------------------------
Sheldon A. Buckler, Director
*/s/ Richard W. Hale
- -------------------------------------------------------------
Richard W. Hale, Director
*/s/ M. Joel Kosheff
- -------------------------------------------------------------
M. Joel Kosheff, Director
*/s/ Peter J. Murphy
- -------------------------------------------------------------
Peter J. Murphy, Director and Chief Executive Officer
*/s/ Lester Pollack
- -------------------------------------------------------------
Lester Pollack, Director
*/s/ Benjamin M. Rabinovici
- -------------------------------------------------------------
Benjamin M. Rabinovici, Director
/s/ Steven M. Millstein
- -------------------------------------------------------------
* by Steven M. Millstein, Attorney-in-Fact
Date: September 29, 1997
-------------------------------------------------------
As of the date of submission of this filing, no annual report or proxy
material with respect to the fiscal year ended June 30, 1997, has been sent
to the security holders. Such annual report and proxy material will be
submitted to the Commission at the time it is furnished to the security
holders.
EXHIBIT 10-L
AGREEMENT OF LEASE
------------------
FOR AND IN CONSIDERATION of the mutual covenants herein contained, the
parties hereto do hereby agree as follows:
1. Incorporated Terms. The following terms are incorporated by
reference into this Agreement:
(a) DATE OF LEASE:
August 12, 1997
(b) NAME AND ADDRESS OF LANDLORD:
PVP - SALEM ASSOCIATES, L.P.
c/o Paul V. Profeta & Associates, Inc.
769 Northfield Avenue
West Orange, New Jersey 07052
(c) NAME AND ADDRESS OF TENANT:
PARLEX CORPORATION
7 Industrial Way
Salem, New Hampshire 03079
(d) DESCRIPTION OF DEMISED PREMISES:
Units 3,4,5 and 7 of the building commonly known as 7 Industrial
Way, Salem, New Hampshire, consisting of approximately 34,000
square feet and shown cross-hatched on the Plot Plan Rider.
(e) TERM OF LEASE:
Ten (10) years, commencing July 1, 1997 and expiring June 30,
2007, subject to such rights of termination and expiration as are
otherwise set forth in this Lease, including, without limitation,
the right of early termination set forth in Section 40 hereof.
(f) PERMITTED USE:
Manufacture and assembly of electronic components and equipment
only and for no other purpose whatsoever.
(g) SECURITY DEPOSIT:
See Section 34
(h) BROKER:
None.
(i) RIDERS TO LEASE:
Annual Base Rent Rider
Plot Plan Rider
Extension Option Rider
Real Estate Tax Rider
Operating Expense Rider
Available Space Rider
Termination of Lease Rider
Rules and Regulations Rider
(j) PROPORTIONATE SHARE:
46.26%
(k) NAME AND ADDRESS OF TENANT'S COUNSEL:
Edward D. Kutchin, Esq.
Kutchin & Rufo, P.C.
One Liberty Square
Boston, MA 02110
2. Description of Demised Premises. Landlord hereby leases to Tenant
and Tenant hereby hires from Landlord, the premises described in Section
1(d) (the "Demised Premises" or the "Premises"). The Demised Premises are
part of a multi-tenant building (the "Building") located on the land (the
"Land") shown on the Plot Plan Rider (the Land and Building and other
improvements thereon, collectively, the "Property"). Landlord reserves the
right to install pipes, wiring, shafts, vents, conduits and the like through
the Premises and Tenant shall not be entitled to any reduction of Annual
Base Rent by reason thereof. Without limiting the foregoing, Landlord
agrees that in exercising its rights under the immediately preceding
sentence it shall use good faith efforts to minimize interference with
Tenant's use and occupancy of the Premises.
3. Term. The term of the Lease (the "Term") shall commence on the
date set forth in Section 1(e) (the "Commencement Date") and terminate on
the date set forth in Section 1(e) (the "Expiration Date"), except as
hereinafter provided.
The first Lease Year shall be the period commencing on the
Commencement Date and ending twelve calendar months thereafter, provided,
however, that if the Commencement Date is not the first day of a month, the
first Lease Year shall commence on the Commencement Date and end twelve
calendar months from the last day of the month in which the Commencement
Date occurs. Each succeeding twelve calendar month period thereafter shall
be a Lease Year.
4. Annual Base Rent; Additional Rent. (a) As of the Commencement
Date the Tenant shall pay to the Landlord at the address set forth in Par.
1(b), or to such other person or at such other place as the Landlord may
from time to time designate in a written notice to Tenant, WITHOUT PREVIOUS
DEMAND THEREFOR AND WITHOUT COUNTERCLAIM, DEDUCTION OR SET-OFF OF ANY NATURE
WHATSOEVER EXCEPT AS OTHERWISE HEREINAFTER EXPRESSLY SET FORTH, the annual
base rent ("Annual Base Rent") set forth on the Annual Base Rent Rider
attached hereto. Annual Base Rent shall be payable in monthly installments
as set forth on the Annual Base Rent Rider in advance on or before the first
day of each month during the term of the Lease. If the Commencement Date
shall be other than the first day of a calendar month, Tenant shall pay
Landlord on the Commencement Date the proportionate amount of Annual Base
Rent for the balance of such month. The first full monthly installment of
Annual Base Rent shall be paid by Tenant on the execution of this Lease,
together with the Security Deposit in the amount set forth in Par. 1(g).
(b) Tenant shall also pay to Landlord Tax Rent and Expense Rent in
accordance with the Real Estate Tax Rider and Operating Expense Rider
attached hereto.
(c) All other sums other than Annual Base Rent payable by Tenant
under this Lease, including, but not limited to Tax Rent, Expense Rent,
Service Fees, Default Interest (as said terms are hereinafter defined),
insurance costs, utility charges, Landlord's reasonable attorneys' fees and
court costs, maintenance and repair costs and any other charges or costs due
from Tenant in accordance with the terms of this Lease, shall be deemed to
be "Additional Rent" regardless to whom such sums may be payable. EXCEPT AS
OTHERWISE HEREINAFTER EXPRESSLY SET FORTH, ADDITIONAL RENT SHALL BE PAYABLE
WITHOUT COUNTERCLAIM, DEDUCTION OR SET-OFF OF ANY NATURE WHATSOEVER. In the
event of Tenant's failure to make timely payment of any item of Additional
Rent, Landlord shall have available to it all rights and remedies provided
by this Lease and by law as for non-payment of Annual Base Rent. The term
"Rent" in the Lease means Annual Base Rent and Additional Rent. Acceptance
and/or negotiation by Landlord of Tenant's check for any portion of Rent due
shall not be construed to be a waiver of the balance of the Rent due.
(d) In addition to, and not in lieu of or substitution for, the Tax
Rent referred to in Section 4(b) hereof, Tenant shall pay before delinquency
any and all taxes, assessments, impositions, excises, fees and other charges
levied, assessed or imposed by governmental or quasi-governmental authority
upon Tenant or its business operation, or based upon the use or occupancy of
the Premises, or upon Tenant's leasehold interest, trade fixtures,
furnishings, equipment, leasehold improvements, alterations, changes and
additions made by Tenant, merchandise and personal property of any kind
owned, installed or used by Tenant in, from or upon the Premises. Tenant
shall pay, when due and payable, any sales tax, or other tax, assessment,
imposition, excise or other charge now or hereafter levied, assessed or
imposed upon or against this Lease or any Rent or other sums paid or to be
paid hereunder, or Tenant's or Landlord's interest in this Lease or any Rent
or other sums paid or to be paid hereunder, including, without limitation,
any use tax and/or occupancy tax imposed, assessed or levied by the Federal
Government or any department, bureau, agency or division thereof and/or by
the state, county or municipality in which the Property is located and/or by
any other governmental or quasi-governmental authority having jurisdiction.
Should the appropriate taxing authority require that any tax, assessment,
imposition, excise or other charge referred to in this Section 4(d) be
collected by Landlord or Landlord's agent for or on behalf of such taxing
authority, then such tax, assessment, imposition, excise or other charge
shall be paid by Tenant to Landlord or Landlord's agent in monthly
installments as Additional Rent in accordance with the terms of any notice
from Landlord or Landlord's agent to such effect. The taxes, assessments,
impositions, excises, fees and other charges described in this Section 4(d)
shall be the obligation of Tenant and not Landlord or Landlord's agent. If
any tax, assessment, imposition, excise, fee or other charge covered by this
Section 4(d) is imposed on Landlord or Landlord's agent, then, Tenant shall
pay the same to Landlord, as Additional Rent hereunder, within ten (10) days
after receipt of each bill therefor. Notwithstanding the foregoing, it is
the express intent and understanding of the parties that Tenant shall not be
required to pay for the same item twice; therefore, Tenant's obligation
under this Section 4(d) shall not include any component of the Tax Rent.
5. Net Lease. It is the intention of Landlord and Tenant that this
is a net lease and that the Annual Base Rent shall be absolutely net to
Landlord and that Tenant shall be solely responsible for and pay all costs
for the use, operation, maintenance, care and repair of the Demised Premises
and its Proportionate Share of the same with respect to the Property.
6. Insurance. (a) Throughout the Term, Tenant shall procure and
maintain, at its expense, a policy of comprehensive public liability
insurance, including contractual liability coverage and automobile liability
insurance on all owned, non-owned and hired vehicles used in connection with
the Demised Premises (which automobile liability insurance can be secondary
coverage), insuring Landlord, PVP-Salem Corp., Paul V. Profeta personally,
Paul V. Profeta & Associates, Inc. (Landlord's managing agent) any party
holding a mortgage on the Property ("Landlord's Mortgagee") and Tenant
against such liability as Tenant is obligated to indemnify Landlord against
pursuant to Section 24 hereof. The initial amount of such insurance shall
be at least $5,000,000 in combined single limit with respect to injury or
death in any one accident, and at least $5,000,000 for damage to property.
Such amount shall be subject to periodic increase in accordance with
commercially reasonable standards, provided, Landlord shall not so increase
said amount more than once every three years. However, the amount of such
insurance shall not limit Tenant's liability hereunder.
(b) Each insurance policy shall name as certificate holders and
additional insureds Landlord, PVP-Salem Corp., Paul V. Profeta personally,
Paul V. Profeta & Associates, Inc., and any Landlord's Mortgagee, as their
respective interests may appear, except that the foregoing designation shall
not be required with respect to Tenant's workers' compensation insurance.
Each policy shall contain standard mortgagee endorsement clauses. All
insurance policies shall be maintained with insurance companies authorized
to transact insurance business in the state in which the Property is located
and holding a "General Policyholder's Rating" of A-VIII or better, as set
forth in the most current issue of "Best's Insurance Guide". The original
all risk insurance policy (or copy thereof certified by the insurer) and
certificates evidencing other insurance Tenant is required to maintain
hereunder shall be deposited with Landlord no later than ten (10) days after
the date of execution hereof. Evidence of renewals of all policies shall be
deposited with Landlord not less than thirty (30) days prior to the end of
the term of each such policy. Original and renewal policies or certificates
authenticated by the insurer or its authorized representative shall be
accompanied by proof of installment payments of the premiums as made by
Tenant. Such insurance shall not be subject to cancellation except after at
least thirty (30) days prior written notice to Landlord and Landlord's
Mortgagee by nationally reputable overnight delivery service that obtains
written receipts of delivery (e.g., Federal Express, UPS), and any loss
shall be payable notwithstanding any act or negligence of Tenant or
Landlord. If Tenant furnishes insurance hereunder under a blanket policy,
such blanket policy shall contain an endorsement that names Landlord, PVP
Salem Corp., Paul V. Profeta and Associates, Inc., Paul V. Profeta,
individually, and any other designee of Landlord as certificate holders and
additional named insured, references the Premises and guarantees a minimum
limit available for the Premises equal to the insurance amounts required in
this Lease. In the event Tenant fails to procure, maintain and/or pay for
the insurance required by this Lease, at the times and for the durations
specified in this Lease, which failure continues uncured for ten (10) days
after written notice thereof from Landlord to Tenant, Landlord shall have
the right, but not the obligation, at any time and from time to time, and
without further notice, to procure such insurance and/or pay the premiums
for such insurance, in which event, Tenant shall repay Landlord, within
fifteen (15) days of demand by Landlord (which demand shall be accompanied
by receipts or other evidence of the amount paid by Landlord), as Additional
Rent, all sums so paid by Landlord (including, but not limited to, insurance
brokerage fees and/or insurance consulting fees) together with interest
thereon at the Default Interest rate provided in this Lease and any
reasonable costs or expenses incurred by Landlord in connection therewith,
without prejudice to any other rights and remedies of Landlord under this
Lease.
(c) Tenant agrees that no insurance obtained by Tenant with respect
to the Property or this leasehold shall be written by Princeton Insurance
Company or any subsidiary or affiliate thereof.
(d) Tenant shall obtain for each insurance policy procured by it
regarding the Property or any property located thereon, an appropriate
clause therein or endorsement thereto pursuant to which each such insurance
company waives its subrogation rights against Landlord, PVP-Salem Corp.,
Paul V. Profeta & Associates, Inc., Paul V. Profeta personally and Tenant.
If waiver of subrogation shall not be obtainable except at additional
charge, Tenant shall pay the insurer's additional charge therefor. Each
policy evidencing the insurance to be carried by Tenant under this Lease
shall contain a clause that such policy and the coverage evidenced thereby
shall be primary with respect to any policies carried by Landlord, and that
any coverage carried by Landlord shall be excess insurance. Insurance
proceeds payable under Tenant's policies shall be totally exhausted in
satisfaction of any claim before any proceeds resulting from Landlord's
policies may be utilized.
(e) Tenant shall comply with the reasonable requirements of any
insurance policy carried by Landlord or Tenant covering the Property or the
Premises, all reasonable requirements of the issuer of any such policy, and
the applicable regulations and requirements of the National Board of Fire
Underwriters, any applicable local board of fire underwriters, and any other
body exercising a similar function, except if such compliance would
materially and adversely affect Tenant's ability to utilize the Premises for
the use described in Section 1(f) hereof. If the premiums for any insurance
policy maintained by Landlord applicable to the Property exceed the rate
that would have been applicable for the permitted use of Tenant as a result
of the failure by Tenant to comply with such requirements, or as a result of
or in connection with the use to which the Premises are put by Tenant if
said use is other than that expressly set forth in Section 1(f) of this
Lease, or due to any Alterations or improvements made by Tenant and/or the
methods or processes employed by Tenant and/or materials used by Tenant on
or about the Premises or Property, Tenant shall reimburse Landlord for such
excess within ten (10) days after Landlord's request therefor, as Additional
Rent. In the event Tenant's use and occupancy of the Demised Premises
causes any additional charge or increase in the insurance premiums on the
Property in excess of those rates which would normally be imposed for
insuring a Building of similar construction, and if said use and occupancy
is other than that expressly set forth in Section 1(f) of this Lease, then
and in that event, Tenant shall pay the amount of such additional charge or
increase in the insurance premiums upon Landlord's demand therefor.
7. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all light, power, natural gas, fuel, oil, sewer
service, sprinkler stand-by service, water, telephone, refuse disposal and
other utilities and services supplied to the Demised Premises. Landlord
shall not be liable to Tenant, and Tenant's obligations under the Lease
shall not be abated, in the event of any interruption or inadequacy of any
utility or service supplied to the Demised Premises or Building, except to
the extent that any such interruption or inadequacy is caused by the
negligence or deliberate wrongful acts of Landlord.
8. Use of Demised Premises. (a) The Demised Premises may only be
used for the use set forth in Section 1(f). The Demised Premises shall not
be used for retail sales or any other retail use whatsoever. No part of the
Demised Premises may be used for warehousing or storage of any hazardous
materials or so-called "red-labeled" materials or substances, except in
accordance with all relevant law, rules, regulations and ordinances of all
governmental authorities having jurisdiction.
(b) Notwithstanding anything to the contrary in this Lease, Tenant
shall not use or permit the Demised Premises to be used for (i) any unlawful
purpose; (ii) in violation of the Building's zoning code designation as the
same shall be in force from time to time during the term hereof; (iii) in
violation of any certificate of occupancy covering the Demised Premises;
(iv) any use which may constitute a public or private nuisance or make
voidable any insurance in force relating to the Demised Premises; or (v) any
purpose which creates or produces noxious odors, smoke, fumes, emissions,
noise or vibrations or disturbs any other tenant of the Building in said
tenant's peaceful enjoyment of the Property or said tenant's premises
therein.
(c) Tenant shall not cause or permit any overloading of the floors of
the Building. Tenant shall not install any equipment or other items upon or
through the roof, or cause openings to be made in the roof, without
Landlord's prior written consent, which consent Landlord shall not be
unreasonably withheld. It shall be reasonable for Landlord to withhold its
consent from any installation, work or improvement which would adversely
affect the integrity of the roof or the enforceability of any roof warranty.
(d) No storage of any goods, equipment or materials shall be
permitted outside the Building.
9. Existing Conditions. Landlord represents and warrants to Tenant
that to the best of Landlord's knowledge as of the date of execution hereof,
Landlord is not in receipt of any notices of outstanding violations of any
laws, ordinances, orders, rules, regulations and other governmental
requirements relating to the use, condition and occupancy of the Premises or
Property, including the Americans With Disabilities Act, all handicapped
access related requirements, and all rules, orders, regulations and
requirements of the Board of Fire Underwriters or insurance service office,
or any similar body having jurisdiction over the Premises. TENANT ACCEPTS
THE DEMISED PREMISES IN ITS "AS IS" CONDITION AS OF THE DATE HEREOF. Except
as otherwise herein provided, Tenant acknowledges that Landlord has not made
any representation as to the condition of the Demised Premises or the
suitability of the Demised Premises for Tenant's intended use.
10. Maintenance and Repairs. (a) Tenant, at its cost and expense,
shall keep, maintain and take good care of the Premises and shall make all
repairs to the interior non-structural portions of the Premises, including
the ceilings, walls, doors, windows, window treatments, lighting and
flooring, which are necessary or desirable to keep the Premises in good
order and repair. Upon Tenant's request, fluorescent lamps, ballasts and
incandescent bulbs shall be replaced by Landlord at Tenant's expense.
(b) In making the aforesaid repairs and/or any Alterations, as said
term is defined in Section 11 hereof, Tenant shall utilize its own employees
or contractors reasonably satisfactory to Landlord.
(c) Landlord shall keep, maintain and, if necessary, replace the roof
and structural portions of the Building and the plumbing and electrical
service lines furnished by Landlord to the Premises and the heating,
ventilation and air conditioning systems which were installed by Landlord
and which service the Premises, in good order, condition and repair, and
shall keep, maintain and, if necessary, replace all portions of the
Property's common areas, exterior lighting, parking areas, sidewalks and
landscaped areas in an attractive and clean condition free of dirt and
rubbish, and clear the drives, parking areas, walkways and sidewalks of
accumulations of snow and ice. Any and all reasonable costs, expenses and
fees incurred by Landlord in fulfilling its obligations under the
immediately preceding sentence, shall be deemed, and shall be added to,
"expenses" as said term is defined in the Operating Expense Rider attached
hereto.
(d) Tenant shall not commit or suffer, and shall use all reasonable
precaution to prevent waste, damage or injury to the Premises, Building or
Property and the equipment thereon.
(e) Tenant shall use its best efforts to notify Landlord immediately
by telephone of any damage, leak, suspicious smell or condition Tenant
discovers or becomes aware of at or about the Premises or Property.
(f) If requested by Landlord, to facilitate snow removal work, Tenant
and its employees and invitees shall park vehicles only in areas designated
by Landlord or shall not park in any parking areas while snow removal work
is in progress.
(g) In the event that Landlord shall fail to provide any utilities or
services which the Landlord is required to provide under this Lease or shall
fail to perform any other obligation which Landlord is required to perform
under this Lease, including, without limitation, any maintenance obligation,
where such failure materially adversely affects the use and occupancy by the
Tenant of the Premises or the Tenant's operations therein, and if such
failure shall continue for more than fifteen (15) days after notice thereof
from Tenant without Landlord commencing to cure such failure and thereafter
pursuing such cure to completion with all diligence, then, without
limitation to Tenant's other rights and remedies provided hereunder or at
law or in equity, during the pendency of such failure Tenant may, but shall
not be obligated to, cure such failure on behalf of the Landlord and the
Landlord shall reimburse the Tenant for the reasonable cost of curing the
same within fifteen (15) days of Tenant's demand therefor.
11. Alterations and Improvements. (a) Except as otherwise
hereinafter expressly set forth, Tenant shall not make any alterations,
additions or improvements to the Demised Premises, whether structural or
non-structural (the "Alterations"), without Landlord's prior written
consent, which consent with respect to non-structural alterations only shall
not be unreasonably withheld. In no event shall Alterations reduce the size
or cubic content of the Building or reduce the value of the Demised Premises
or Building. Tenant shall submit to Landlord detailed plans and
specifications stamped by Tenant's architect or licensed engineer for all
proposed Alterations. In the event any such Alteration is structural in
nature or involves or impacts upon the electrical, plumbing or HVAC systems
of the Premises and/or Property, Tenant shall reimburse Landlord for all
reasonable, third-party, out-of-pocket expenses incurred by Landlord in
connection with Landlord's review thereof. Prior to the commencement of any
Alterations, Tenant shall also provide to Landlord for Landlord's prior
approval the identity of the contractor Tenant proposes to employ to
construct the Alterations, which approval shall not be unreasonably
withheld. All Alterations shall be accomplished in accordance with the
following conditions:
(1) Tenant and its contractor shall execute an agreement in
form reasonably satisfactory to Landlord indemnifying Landlord for any
damage to the Building caused by the contractor and its
subcontractors.
(2) Tenant shall procure all governmental permits and
authorizations for the Alterations, and obtain and provide to
Landlord an official certificate of occupancy and/or compliance
upon completion of the Alterations, if appropriate.
(3) Tenant shall arrange for extension of the general liability
insurance provided for in Section 6(a) to apply to the
construction of the Alterations. Further, Tenant shall procure
and maintain or cause its contractors and other agents to
procure and maintain Builders Risk Casualty Insurance in the
amount of the full replacement cost of the Alterations and
statutory Workers Compensation Insurance covering persons
employed in connection with the work. All such insurance shall
conform to the requirements of Section 6(b).
(4) Tenant shall construct the Alterations in a good and
workmanlike manner utilizing materials of first class quality
and in compliance with all laws and governmental regulations.
(b) Within thirty (30) days of completion of the Alterations, if the
Alterations as actually performed and constructed are different than the
Alterations as depicted on the plans and specifications therefor, Tenant
shall provide Landlord with "as built" sepia transparency plans (or the
equivalent thereof) of the Alterations.
(c) Except for Tenant's fixtures, furniture, machinery, equipment and
personal property, including any HVAC equipment installed by Tenant, all
Alterations shall be the property of Landlord and shall remain on the
Demised Premises upon termination of the Lease, or, if Landlord so requires,
a portion of or all Alterations shall be removed by Tenant on or prior to
the termination of the Lease and Tenant shall restore the Demised Premises
substantially to its condition prior to such Alterations, reasonable wear
and tear excepted.
(d) Tenant shall not install antennas, communication towers,
satellite dishes or any other equipment on the roof, exterior walls or
window sills of the Building. Tenant shall not install cable television in
the Premises or penetrate the wall of the Building with cables, conduits and
exhaust vents or fans, without Landlord's prior approval, which shall not be
unreasonably withheld. It shall be reasonable for Landlord to withhold its
consent from any Alteration or other work or improvement which would
adversely affect the integrity of the roof or the enforceability of any roof
warranty.
(e) It is agreed that Tenant may make non-structural, interior
Alterations to the Premises without Landlord's prior consent, but subject to
all of the other provisions of this Lease which govern Alterations, if the
aggregate cost of such non-structural, interior Alterations does not exceed
$10,000.00 and if such non-structural, interior Alterations do not affect
the electric system of the Property and/or the HVAC system of the Property
and/or the plumbing system of the Property and/or the structural system of
the Property and/or the Property's fenestration and/or the exterior doors of
the Premises and/or any of the hallways or Common Areas of the Property.
12. Covenant Against Liens. Tenant shall not have any right to
subject Landlord's interest in the Property to any mechanic's lien or any
other lien whatsoever. If any mechanic's lien or other lien, charge or
order for payment of money shall be filed as a result of the act or omission
of Tenant, at its sole cost and expense, Tenant shall cause such lien,
charge or order to be discharged or appropriately bonded within twenty (20)
days after notice from Landlord thereof, and Tenant shall indemnify and save
Landlord harmless from all liabilities and costs resulting therefrom.
13. Signs. Except as otherwise hereinafter expressly set forth,
Tenant shall not place any signs on the Property without Landlord's prior
written approval of its design, location and manner of installation, which
consent shall not be unreasonably withheld. In no event shall any sign be
installed on the roof or above the parapet height of the Building. Tenant
shall remove its signs upon termination of this Lease and restore the
Property substantially to its condition prior to installation of the signs,
reasonable wear and tear excepted. Without limiting the foregoing, Landlord
acknowledges that in connection with Tenant's present use and occupancy of
the Premises under the Prior Lease (as said term is defined in Section 38
hereof), Tenant has installed one or more signs on the Property. To the
extent such signs exist as of the date of execution hereof, Landlord agrees
that such signs may remain upon the Property during the Term of this Lease,
provided, Tenant, at its cost and expense shall repair such signs as
necessary and shall remove such signs upon the expiration or termination of
the Term of this Lease and shall repair all damage caused by such removal.
14. Compliance With Law. Tenant shall take all action to conform to
and comply with all laws, orders, regulations and/or requirements of any
governmental authority now or hereafter applicable to Tenant's use or
occupancy of the Premises, including, without limitation, the federal
Occupational Safety and Health Act, and/or laws, orders, regulations or
requirements relating to Alterations to the Premises. Tenant shall obtain
all permits necessary for Tenant's occupancy or use of the Demised Premises.
15. Environmental Law Compliance. (a) Tenant agrees that it shall,
at its sole cost and expense, fulfill, observe and comply with all of the
terms and provisions of all other federal, state and local environmental
laws now in effect or hereinafter enacted, as any of the same may be amended
from time to time, and all rules, regulations, ordinances, orders and
directives issued or promulgated pursuant thereto or in connection therewith
with respect to Tenant's use of the Demised Premises.
(b) Tenant agrees to comply with the provisions or recommendations of
any federal, state or local environmental law, regulation or recommendation
applicable to Tenant or Tenant's use or occupancy of the Premises, or the
materials or methods used by Tenant. Tenant shall comply with any laws
requiring trash recycling, or, if Tenant's failure to comply continues
uncured after notice from Landlord, Tenant shall pay to Landlord upon
Landlord's demand, as Additional Rent hereunder, any and all fines, fees,
service charges and/or increased trash removal costs incurred by, or
assessed or levied against, Landlord or the Property, as a result of
Tenant's failure to so fully comply.
(c) Except in accordance with all applicable laws, rules,
regulations, ordinances and codes, Tenant agrees not to use the Premises or
any other portion of the Property for the purpose of storing, handling,
transferring, transporting, producing, refining or processing "hazardous
substances" as such term is defined in any federal, state or local law or
regulation applicable to Tenant, the Premises or Tenant's use or occupancy,
and not to release, spill, leak, pump, emit, pour, empty or dump any such
"hazardous substances" onto the Premises or any other portion of the
Property, or any adjacent property, or into the sewer or other waste
disposal system serving the Property, or any water course on or near the
Property or any dumpster servicing the Property, no matter where located.
(d) Landlord warrants and represents that to the best of Landlord's
knowledge, the Property is free of asbestos containing materials. Without
limiting the foregoing, in the event asbestos containing material or
hazardous substances are found to be present in the Building, Tenant agrees
to vacate the Premises if requested by Landlord to permit removal of such
materials or substances and this Lease shall not be terminated as a result
thereof, except as hereinafter expressly set forth. If the asbestos
containing material or hazardous substance found to be present in the
Building was not introduced into the Building by Tenant or Tenant's
servants, agents, employees or contractors, and if, in connection with the
removal of such materials or substances, Tenant must vacate all or a portion
of the Premises, then, Tenant shall be entitled to an equitable abatement or
reduction of Base Annual Rent and Additional Rent for the period of such
vacation, said abatement or reduction to be based upon that portion of the
Premises vacated by Tenant.
(e) Any fine, penalty, surcharge or service charge resulting from
Tenant's failure to comply in accordance with this paragraph shall be paid
by Tenant as Additional Rent within ten (10) days after notice thereof from
Landlord.
(f) Tenant shall indemnify, defend and hold harmless Landlord from
all fines, suits, procedures, cleanup costs, claims and actions of any kind
arising out of or in any way connected with any spills or discharges of
hazardous substances or wastes at the Demised Premises which occur during
the Term or elsewhere on the Property which are caused by Tenant, and from
all fines, suits, procedures, claims and actions of any kind arising out of
Tenant's failure to provide all information, make all submissions and take
all actions required by any governmental agency or quasi-governmental
agency.
(g) Tenant shall have no responsibility for any environmental
conditions which predate its original use and occupancy of the Premises or
which are caused by any person or entity other than Tenant or Tenant's
employees or agents. Landlord shall indemnify, defend and hold Tenant
harmless from all fines, suits, procedures, cleanup costs, claims and
actions of any kind, including, reasonable attorneys' fees and costs,
arising out of or in any way connected with any release, dumping, spills or
discharges of hazardous substances or wastes caused by Landlord or
Landlord's employees or agents.
(h) Landlord's and Tenant's obligations under this Section shall
survive the expiration of this Lease.
16. Landlord's Access. Landlord and its representatives may enter
the Demised Premises at all reasonable times upon reasonable prior notice to
Tenant (or at any time in the event of emergency) for the purpose of
inspecting the Demised Premises, or making any repairs, replacements or
improvements or to show the Demised Premises to prospective purchasers,
investors, encumbrancers, tenants or other parties, or for any other
reasonable purpose Landlord deems necessary. During the final twelve (12)
months of the Term, Landlord may place customary "For Sale" or "For Lease"
signs on the Demised Premises. Landlord shall repair any damage to the
property of Tenant caused by or resulting from Landlord's inspection of the
Premises, showing of the Premises or repairs, replacements or improvements
improperly performed by Landlord.
17. Assignment and Subletting. (a) Tenant shall not assign or
encumber Tenant's interest in this Lease, or sublet any portion of the
Demised Premises, or grant concessions or licenses with respect to the
Demised Premises, without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed. If Landlord does not respond
to Tenant's request for consent to any particular assignment or subletting
within twenty (20) days of Landlord's receipt of all information reasonably
requested by Landlord to evaluate said assignment or subletting, Landlord
shall be deemed to have consented to said particular assignment or
subletting. The foregoing shall not be construed to impose an obligation
upon Landlord not to unreasonably withhold or delay its consent with respect
to any other provision of this Lease where Tenant is required to obtain
Landlord's consent. Except as expressly permitted by Section 17(b) directly
below, the change of any ownership or beneficial interest of Tenant,
including, without limitation, the transfer of any legal or beneficial
interest in any stock, partnership interest, limited liability company
interest or limited liability partnership interest of Tenant, or the
admission of any new principal to any tenant entity, shall be deemed to be
an assignment of this Lease requiring Landlord's consent. The foregoing
shall not apply to the sale of stock of any publicly traded company.
(b) Upon prior written notice to Landlord, Tenant may assign this
Lease or sublet the Demised Premises without Landlord's consent, (i) to any
corporation which controls, is controlled by or is under common control with
Tenant, or (ii) to any corporation resulting from the merger of or
consolidation with Tenant or (iii) to any entity which purchases all or
substantially all of the assets of Tenant's laminated cable division, which
is, as of the date of execution hereof, situated in the Premises, provided
in any such event such assignee or sublessee shall assume all of Tenant's
obligations under this Lease, and such assignee or sublessee shall then have
a net worth at least equal to $5,000,000. If the net worth is less than
$5,000,000 then Tenant shall guarantee all the obligations of this Lease.
(c) If Tenant desires to assign this Lease or sublet all or any
portion of the Demised Premises, Tenant shall submit to Landlord a written
request for Landlord's approval thereof, setting forth the name, principal
business address, and nature of business of the proposed assignee or
sublessee; method of business operation, number of employees and expected
daily visitor traffic to the Premises; copies of the assignee's or
sublessee's last three years' independent certified public accountant-
prepared financial statements, three bank references; three business
references; and the details of the proposed assignment or subletting,
including a copy of the proposed assignment or sublease instrument and plans
for any Alterations required for the proposed assignee or sublessee. There
shall also be furnished to Landlord a description of (i) the manner in which
the proposed assignee's or subtenant's use of the Premises would not
conflict with or negatively impact other tenants of the Property; and (ii)
the manner in which the proposed assignee's or subtenant's use would not
negatively affect the Premises, Building, Property and other tenants.
Tenant shall also furnish any other information reasonably requested by
Landlord. Tenant's written request to Landlord for Landlord's consent to
such assignment or subletting shall also contain a written option to
Landlord to terminate this Lease as of the effective date of such proposed
assignment or sublease. In the event of a proposed sublease of less than a
substantial portion of the Demised Premises, Landlord shall have the right
to terminate this Lease with respect to the portion of the Demised Premises
to be sublet, and this Lease shall continue with respect to the remaining
portion of the Demised Premises. Landlord may enter into a direct lease
with the proposed assignee or sublessee, if Landlord so elects. Landlord's
acceptance of rent from a proposed assignee or sublessee shall not be
construed to constitute its consent to an attempted assignment or
subletting.
(d) In the event of a permitted assignment or subletting, Tenant
shall remit to Landlord as Additional Rent each month during the remainder
of the Term one-half of any rent or other sums received by Tenant from its
assignee or sublessee in excess of the Annual Base Rent and other charges
paid by Tenant allocable to the Demised Premises or portion thereof sublet,
as the case may be.
(e) No assignment or subletting hereunder, whether or not with
Landlord's consent (whether or not such consent is required hereunder),
shall release Tenant from any obligations under this Lease, and Tenant shall
continue to be primarily liable hereunder. If Tenant's assignee or
sublessee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing its remedies against the assignee or sublessee as
long as Landlord has made reasonable efforts to resolve the dispute with the
assignee or sublessee. Consent to one assignment or subletting shall not be
deemed a consent to any subsequent assignment or subletting. Landlord may
consent to subsequent assignments or sublettings or modifications of this
Lease, all without notice to Tenant and Tenant shall not be relieved of
liability under this Lease.
(f) Within fifteen (15) days of Tenant's receipt of an invoice
therefor, Tenant shall pay to Landlord, as Additional Rent hereunder, in
advance all reasonable costs, including reasonable legal fees, which
Landlord shall incur in reviewing any proposed assignment or subletting,
and/or architectural review fees to review any plans for Alterations in
connection with an assignment or subletting, provided, however, that
Landlord agrees that such costs and fees shall not exceed $1,000.00 per
proposed assignment or per proposed sublease.
(g) Tenant shall not assign this Lease or sublet any portion of the
Premises to a current or former tenant or occupant of the Building or to any
prospective tenant who has previously communicated its space requirements to
Landlord, or any entity in any way related to any of the foregoing.
(h) Intentionally Omitted.
(i) By executing this Lease Tenant agrees that the foregoing
requirements for assigning this Lease or subletting the Premises are
reasonable and necessary for Landlord to properly manage the Property.
(j) The acceptance by Landlord of the proposed assignee's or
subtenant's check and/or depositing such check in Landlord's account shall
not be construed as Landlord's consent to such proposed assignee or
subtenant.
18. Casualty. If the Building is damaged by fire or other casualty,
and (i) the insurance proceeds actually received by Landlord on account of
such damage are sufficient to pay for the necessary repairs, (ii) Landlord's
Mortgagee permits Landlord to utilize the insurance proceeds to repair such
damage, and (iii) Landlord represents that the Building can be substantially
repaired within six (6) months after the date of such casualty, this Lease
shall remain in effect and Landlord shall substantially repair the damage
within six (6) months after the date of such casualty, subject to delays
beyond Landlord's control. If any of the foregoing conditions requiring
Landlord to repair the Building is not met, Landlord, by notice to Tenant
given within one hundred twenty days of the date of casualty, said time
period to be strictly of the essence, may elect either to (i) terminate this
Lease; or (ii) repair the damage as soon as reasonably possible, in which
event this Lease shall remain in full force and effect (but Tenant shall
then have the right to terminate this Lease if the Property cannot be
substantially repaired within six (6) months after the date of casualty).
Tenant's notification of termination pursuant to the immediately preceding
sentence, if any, shall be required within thirty (30) days after the date
of said notice of election from Landlord. Time shall be strictly of the
essence with regard to Tenant's notification of termination. If, for any
reason whatsoever, Landlord has not received Tenant's aforesaid written
notification of termination within the aforesaid thirty (30) day period,
then, Tenant shall automatically and irrevocably be deemed to have waived
its said right of termination and Landlord's notice of election shall be
deemed accepted and approved by Tenant. If this Lease shall remain in full
force and effect following a casualty, and if said casualty or the repair
and/or restoration of the damage caused thereby shall render the Premises
untenantable, in whole or in part, then and in those events, there shall be
an equitable abatement of Annual Base Rent and Additional Rent based upon
the portion of the Premises rendered untenantable, from the date the
Premises (or said portion thereof) became untenantable until the date that
the Premises (or said portion thereof) becomes tenantable. Tenant waives
the protection of any law which grants a tenant the right to terminate a
lease in the event of the destruction of a leased property, and agrees that
the provisions of this paragraph shall govern in the event of any
destruction of the Premises and/or Building and/or Property. Landlord shall
not be required to repair improvements or alterations to the Property made
by Tenant, except to the extent, if any, that any insurance proceeds
received by Landlord specifically compensate Landlord for the value of any
such improvements or alterations.
19. Condemnation. If more than twenty-five (25%) percent of the Land
and/or Building shall be taken under the power of eminent domain or sold
under the threat thereof ("Condemnation") and Tenant's use of the Demised
Premises is materially adversely affected, this Lease shall terminate on the
date on which title to the Demised Premises or portion thereof shall vest in
the condemning authority. If more than 25% of the Demised Premises is taken
by Condemnation and Tenant's use of the remainder of the Demised Premises,
as determined by Tenant in good faith, shall not be reasonably adequate for
the operation of its business thereof, then, Tenant shall have the option of
terminating this Lease on the date on which title to the condemned portion
shall vest in the condemning authority; provided, that Tenant must exercise
said option by written notice to Landlord within thirty (30) days of the
date that Tenant first receives notice of the Condemnation. Time shall be
strictly of the essence with regard to Tenant's notice of termination. If,
for any reason whatsoever, Landlord has not received Tenant's aforesaid
written notice within said thirty (30) day period, Tenant shall be deemed to
have conclusively elected to continue this Lease with respect to that
portion of the Demised Premises not taken. With respect to any Condemnation
which does not result in the termination of this Lease, this Lease shall
remain in effect as to the portion of the Demised Premises not taken,
Landlord shall restore the improvements not taken as nearly as reasonably
practicable to their condition prior to the Condemnation as soon as
reasonably practicable following receipt of all condemnation proceeds or
awards, and the Annual Base Rent shall be reduced proportionately in
accordance with the reduction in the square foot area of the Demised
Premises following the Condemnation. Landlord shall be entitled to receive
the entire award in any Condemnation proceeding relating to the Demised
Premises, except that Tenant may assert a separate claim to an award for its
moving expenses and relocation expenses and for fixtures and personal
property installed by Tenant at its expense, provided Tenant's claim does
not in any way interfere with or diminish Landlord's award. It is
understood that Tenant shall have no claim against Landlord for the value of
the unexpired Term of this Lease or any options granted under this Lease.
Landlord shall not be required to restore improvements or alterations to the
Demised Premises made by Tenant, except to the extent, if any, that any
condemnation award received by Landlord specifically compensates Landlord
for the value of any such improvements or alterations.
20. Surrender of Demised Premises. Upon termination of the Lease,
Tenant shall surrender the Demised Premises to Landlord broom clean, and in
good order and condition, except for ordinary wear and tear, and damage by
casualty which Tenant was not obligated to remedy under Section 18. Tenant
shall remove its machinery and equipment and repair any damage to the
Demised Premises caused by such removal. Tenant shall not remove any power
wiring or power panels, lighting or lighting fixtures, wall coverings,
blinds or other window coverings, carpets or other floor coverings, heaters
or air conditioners or fencing or gates, except if installed by Tenant and
required by Landlord to be removed from the Demised Premises. All personal
property of Tenant remaining on the Demised Premises after Tenant's
surrender of the Premises shall be deemed abandoned and at Landlord's
election may either be retained by Landlord or may be removed from the
Demised Premises at Tenant's expense. Any item required by Landlord to be
removed by Tenant which Tenant fails to remove from the Premises may be
removed by Landlord and the reasonable cost of removal may be deducted from
the Security Deposit. Said deduction from the Security Deposit shall not be
deemed a waiver of any other right Landlord may have hereunder or under law.
The foregoing shall not be construed to prohibit Tenant from removing its
movable trade fixtures and non-structural improvements, including, HVAC
purchased and installed at Tenant's expense, it being understood and agreed
that such movable trade fixtures and non-structural improvements, including,
HVAC purchased and installed at Tenant's expense, shall be removed by
Tenant, at Tenant's cost and expense, at or prior to the expiration or
earlier termination of the Term of this Lease. Any damage to the Premises
and/or the Property caused by said removal shall be repaired by Tenant at
its cost and expense.
If during the last one hundred eighty (180) days of the Term, Tenant
shall have removed all or substantially all of Tenant's property and all of
its personnel from the Premises, Landlord may at any time thereafter enter,
alter, renovate and redecorate the Premises without any reduction or
abatement of the Tenant's Rent or incurring any liability for any
compensation to Tenant or adverse effect on this Lease or Tenant's
obligations hereunder. If Landlord commences alterations, renovations or
redecorations to the Premises, Tenant shall not thereafter occupy the
Premises.
21. Holdover. In the event Tenant remains in possession of the
Demised Premises after the expiration of the term of this Lease (the
"Holdover Period"), in addition to any damages to which Landlord may be
entitled or other remedies Landlord may have by law, Tenant shall pay to
Landlord a rental for the Holdover Period at the rate of twice the sum of
(i) the Annual Base Rent payable during the last lease year of the term,
plus (ii) all items of Additional Rent and other charges with respect to the
Demised Premises payable by Tenant during the last lease year of the Term.
Nothing herein contained shall be deemed to give Tenant any right to remain
in possession of the Demised Premises after the expiration of the Term of
this Lease. The sum due to Landlord hereunder shall be payable by Tenant
upon demand.
22. Events of Default; Remedies. (a)(1) Tenant shall be in default
upon the occurrence of one or more of the following events (an "Event of
Default"): (i) Tenant fails to pay any installment of Annual Base Rent,
Additional Rent or any other sum of money required to be paid by Tenant
hereunder within seven (7) days of the date when due, provided, however,
that solely with respect to the first occurrence of such failure to pay
within any twelve (12) month period, Landlord shall give Tenant written
notice of such failure and Tenant shall not be deemed in default unless
Tenant fails to cure such failure within five (5) business days of said
notice; it being expressly understood and agreed that Landlord shall not be
required to give any notice of failure to pay with respect to the second
occurrence of nonpayment within any twelve (12) month period or with respect
to any subsequent occurrences of nonpayment within said twelve (12) month
period; (ii) Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease within the Non-Monetary Grace Period (as said
term is hereinafter defined) (provided that if more than the Non-Monetary
Grace Period is required to complete such performance, Tenant shall not be
in default if Tenant commences such performance within said Non-Monetary
Grace Period and thereafter diligently pursues its completion); (iii) Tenant
abandons the Demised Premises for thirty (30) days or more; or (iv) Tenant
makes an assignment for the benefit of creditors, or if a petition for
adjudication of bankruptcy or for reorganization is filed by or against
Tenant and is not dismissed within ninety (90) days, or if a receiver or
trustee is appointed for a substantial part of Tenant's property and such
appointment is not vacated within ninety (90) days; or (v) Tenant assigns
all or any portion of its interest in this Lease, sublets all or any portion
of the Premises or transfers or allows the transfer of any legal interest or
beneficial interest in Tenant, except as otherwise expressly permitted by
Section 17 of this Lease.
(2) With respect to any particular failure by Tenant to perform
any of Tenant's non-monetary obligations under this Lease, the "Non-
Monetary Grace Period" shall be a period of thirty (30) days from the
date of written notice of said particular failure from Landlord,
provided, however, if said particular failure (i) threatens or
jeopardizes the integrity of the structure of the Building or any one
or more of the electrical, plumbing, mechanical and/or HVAC systems of
the Building or (ii) adversely affects the ability of any other tenant
or occupant of the Building to enjoy said tenant's or occupant's
premises at the Building or (iii) jeopardizes or threatens the safety,
health or welfare of any occupants of the Building or of any other
parties lawfully entitled to be upon the Property or Building,
including, without limitation, Landlord's agents, employees and
contractors or (iv) gives rise to the existence of an emergency
situation, then and in any of said events, the Non-Monetary Grace
Period shall be a period of ten (10) days after written notice of said
particular failure from Landlord.
(b) On the occurrence of an Event of Default, without limiting any
other right or remedy Landlord may have, Landlord may without notice or
demand:
(i) Declare the entire amount of unpaid Annual Base Rent and
Additional Rent for the balance of the Term immediately due and
payable.
(ii) Terminate this Lease and Tenant's right to possession of
the Demised Premises by any lawful means, in which event Tenant shall
immediately surrender possession of the Demised Premises to Landlord.
At its option, Landlord may occupy the Demised Premises or cause the
Demised Premises to be redecorated, altered, divided, consolidated
with other adjoining property, or otherwise prepared for reletting,
and may relet the Demised Premises or any part thereof for a term or
terms to expire prior to, at the same time or subsequent to the
original Expiration Date, and receive the rent therefor, applying the
sums received first to the payment of such reasonable expenses as
Landlord may have incurred in connection with the recovery of
possession, preparing for reletting and the reletting itself,
including brokerage and attorneys' fees, and then to the payment of
damages in amounts equal to the rent hereunder and to the cost and
expense of performance of the other covenants of Tenant under this
Lease. Tenant agrees to pay to Landlord damages equal to the rent and
other sums payable by Tenant under this Lease, reduced by the net
proceeds of the reletting, if any, as ascertained from time to time.
In reletting the Premises, Landlord may grant commercially reasonable
rent concessions, and Tenant shall not be entitled to any credit
therefor. Tenant shall not be entitled to any surplus resulting from
any reletting. If Landlord elects to occupy the Premises or any part
thereof, there shall be allowed against Tenant's obligation for rent
during the period of Landlord's occupancy, the reasonable value of
such occupancy, not to exceed in any event the rent payable hereunder
for such portion of the Premises. Such occupancy shall not be
construed as a release of Tenant's liability hereunder.
(iii) Permit Tenant to remain in possession of the Demised
Premises, in which event this Lease shall continue in effect.
Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to receive the rent as
it becomes due under this Lease.
(iv) Pursue any other remedy now or hereafter available under
the laws of the jurisdiction in which the Demised Premises is located.
(c) The remedies available to Landlord herein specified are not
intended to be exclusive and are not intended to prevent Landlord from
exercising any other remedy or means of redress to which Landlord may be
lawfully entitled. In addition to other remedies provided in this Lease,
Landlord shall be entitled to restraint by injunction of any violation or
threatened violation by Tenant of any of the provisions of this Lease.
Landlord's exercise of any right or remedy shall not prevent Landlord from
exercising any other right or remedy. Except as otherwise herein expressly
set forth, Landlord shall not be obligated to give Tenant any notice of an
Event of Default in order to enforce its remedies hereunder.
(d) To the extent permitted by law, Tenant, for itself and any person
claiming through or under Tenant, waives any equity or right of redemption
provided by any law.
(e) Tenant agrees to pay as Additional Rent, upon Landlord's demand
therefor, all reasonable attorneys' fees, court costs and other reasonable
expenses incurred by Landlord in the enforcement of any of the obligations
or agreements of Tenant under this Lease.
(f) Landlord shall use good faith efforts to relet the Premises and
to otherwise mitigate damages caused by Tenant's defaults.
23. Service Fee; Interest; Legal Fees. (a) Tenant's failure to make
prompt and timely payment of Annual Base Rent, Additional Rent and/or any
other payments required under this Lease may cause Landlord to incur
unanticipated costs, which are impractical to ascertain. Therefore, if
Landlord does not receive any payment of Annual Base Rent, Additional Rent
or other sums due from Tenant to Landlord within five (5) days after it
becomes due, Tenant shall pay Landlord as Additional Rent a service fee
equal to five (5%) percent of the overdue amount (the "Service Fee"). This
service fee shall be in addition to reasonable costs incurred by Landlord in
enforcing this Lease and in addition to the Default Interest set forth
below. Landlord agrees that solely with respect to the first incident of
non-payment/late payment within any twelve (12) month period during the Term
of this Lease, Landlord shall not impose the Service Fee unless such non-
payment/late payment is not cured within five (5) days of written notice
thereof from Landlord to Tenant (which written notice shall be deemed
sufficient if transmitted by hand delivery to the Premises or by facsimile
or otherwise delivered in accordance with Section 35 hereof). The foregoing
shall not be construed to require Landlord to give any notice of any nature
whatsoever with respect non-payment or late payment of Rent; nor shall the
foregoing be construed to limit any of Landlord's rights under Section 22 of
this Lease. The foregoing is intended solely to limit Landlord's right to
impose the Service Fee and then only with respect to the first incident of
non-payment/late payment within any twelve (12) month period.
(b) Any amount owed by Tenant to Landlord which is not paid when due
shall bear interest at the rate of eighteen (18%) percent per annum
("Default Interest") from the due date of such amount. The payment of
Default Interest on such amounts shall not extend the due date of any amount
owed. If the interest rate specified in this Lease shall exceed the rate
permitted by law, the Default Interest shall be deemed to be the maximum
legal interest rate permitted by law.
24. Indemnification. (a) Tenant shall indemnify and hold harmless
Landlord, PVP-Salem Corp., Paul V. Profeta & Associates, Inc. and Paul V.
Profeta personally from and against all liability, claims or costs,
including reasonable legal fees and court costs, arising from (i) Tenant's
use of the Demised Premises; (ii) any breach of this Lease by Tenant; (iii)
any negligent or wrongful act or omission of Tenant; (iv) any injury to
person or damage to property occurring on or about the Demised Premises; (v)
any injury to person or damage to property occurring on the Property
resulting from any negligence or misconduct of Tenant or any of its
employees or agents; or (vi) any injury to the person of, or damage to the
property of, any employee, servant, agent, guest, invitee, assignee,
sublessee, customer or contractor of Tenant occurring on or about any part
of the Premises or, occurring on or about any part of the Property, but then
solely to the extent caused by the negligence or wrongful act of Tenant,
except to the extent that any such liability, claim or cost arises as a
result of Landlord's negligence or deliberate wrongful acts. Tenant shall
defend Landlord, PVP-Salem Corp., Paul V. Profeta & Associates, Inc. and
Paul V. Profeta personally against any such claim of a third party, with
counsel reasonably acceptable to Landlord, provided, that counsel provided
by Tenant's insurer shall be deemed acceptable to Landlord. The obligation
of Tenant under this Section 24 shall survive expiration or earlier
termination of the Term of this Lease.
(b) Except as otherwise in this Lease provided, Landlord shall
indemnify and hold Tenant harmless from and against all liability, claims or
costs, including reasonable fees and court costs, arising from (i) any
breach of this Lease by Landlord; or (ii) any negligent or deliberate
wrongful act or omission of Landlord; or (iii) any injury to person or
damage to property occurring on or about the Premises or Property to the
extent caused by Landlord's negligence or deliberate wrongful acts, except
to the extent that any such liability, claim or cost arises as a result of
Tenant's negligence or deliberate wrongful acts. Landlord shall defend
Tenant against any such claim of a third party with counsel reasonably
acceptable to Tenant, provided, that counsel provided by Landlord's insurer
shall be deemed acceptable to Tenant. The obligation of Landlord under this
Section 24 shall survive expiration or earlier termination of the Term of
this Lease.
25. Landlord's Right to Cure Tenant's Default. If Tenant fails to
make any payment or perform any act on its part to be made or performed,
which failure continues uncured beyond any applicable notice and/or cure
period otherwise provided in this Lease, if any, then Landlord, without
waiving or releasing Tenant from such obligation, may make such payment or
perform such act on Tenant's part, and the costs incurred by Landlord in
connection with such payment or performance, together with Default Interest
thereon, shall be paid by Tenant to Landlord as Additional Rent within five
(5) days of Landlord's demand therefor.
26. Waiver of Liability. Landlord shall not be liable for any injury
or damage to the business, equipment, merchandise or other property of
Tenant or any of Tenant's employees or invitees or any other person on or
about the Property, resulting from any cause, including, but not limited to:
(i) fire, steam, electricity, water, gas or rain; (ii) leakage, obstruction
or other defects of pipes, sprinklers, wires, plumbing, air conditioning,
boilers or lighting fixtures; or (iii) condition of the Property, except to
the extent that any such injury or damage results from Landlord's negligence
or deliberate wrongful acts.
27. Force Majeure. If either party (the "performing party") is
unable to perform any of its obligations or to supply or is delayed in
supplying any service expressly or impliedly to be supplied or is unable to
make or is delayed in making any repair, additions, alterations or
decorations, or is unable to supply or is delayed in supplying any equipment
or fixtures, or is unable to provide access to the Premises, Building and/or
Property, due to events beyond the performing party's control, the time
provided to the performing party for performing such obligations shall be
extended by a period of time equal to the duration of such events, and the
other party hereto shall not be entitled to any claim against the performing
party by reason thereof, and the obligation of the other party hereto to pay
rent and perform all its other obligations under this Lease shall not be
affected, impaired or excused thereby. Events beyond the performing party's
control include, but are not limited to, acts of God, war, civil commotion,
labor disputes, strikes, casualty, labor or material shortages, government
regulation or restriction, weather conditions, or utility power surge,
outage or interruption. Notwithstanding anything to the contrary herein, it
is expressly understood that the foregoing provisions of this Section 26
shall not apply to, and shall not excuse or postpone, Tenant's obligations
under this Lease to pay Annual Base Rent, Additional Rent and/or any other
amount, cost, fees or charge due and payable by Tenant under this Lease.
(b) Landlord shall not be liable to Tenant nor shall Tenant be
entitled to any abatement or reduction of rent, in the event of the
suspension, interruption, failure or inadequacy of any of the services to be
provided by Landlord pursuant to this Lease, to the extent that such
suspension, interruption, failure or inadequacy is caused by malfunction,
accident, breakdown, repairs, replacement, strikes, inability to obtain
supplies, governmental regulations or restrictions, actions of utility
companies or any other cause beyond Landlord's reasonable control.
28. Notice of Landlord's Default. Tenant shall give to Landlord and
any ground lessor and/or Landlord's Mortgagee whose name and address have
been furnished to Tenant, written notice of any failure by Landlord to
perform any of Landlord's obligations under this Lease. Except as may be
otherwise expressly set forth in this Lease, Landlord shall not be in
default under this Lease unless Landlord (or such ground lessor or
Landlord's Mortgagee) fails to cure such non-performance within thirty (30)
days after receipt of Tenant's notice. If more than thirty (30) days are
required to cure such non-performance, Landlord shall not be in default if
such cure is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
29. Landlord's Liability Limited. If the Landlord or any successor
in interest or assignee of Landlord shall be an individual, tenancy in
common, joint tenancy, general or limited partnership, limited liability
company, limited liability partnership, joint venture, trust or other
entity, there shall be no personal liability of such individual, tenancy in
common, joint tenancy, general or limited partnership, limited liability
company, limited liability partnership, joint venture, trust or other
entity, or parties to the tenancy in common, joint tenancy, general or
limited partnership, limited liability company, limited liability
partnership, or joint venture or other entity, or the trustees or
beneficiaries of the trust, in connection with this Lease. Tenant agrees to
look solely to the interest of Landlord in the Property for the collection
of any judgment or other judicial process requiring the payment of money by
Landlord in the event of any default or breach by Landlord with respect to
this Lease or in any way relating to the Demised Premises. No other assets
of Landlord or any principal, agent or employee of Landlord shall be subject
to levy, execution or other procedures for the satisfaction of Tenant's
remedies.
30. Estoppel Statement; Financial Statement. (a) Upon Landlord's
reasonable request, Tenant shall execute, acknowledge and deliver to
Landlord a written statement certifying: (i) the Commencement Date; (ii)
the Expiration Date; (iii) that this Lease is in full force and effect (if
such is the case) and unmodified (or if modified, stating the
modifications); (iv) the last date of payment of the Annual Base Rent,
Additional Rent and other charges and the time period covered by each
payment; (v) that Landlord is not in default under this Lease (or, if
Landlord is claimed to be in default, stating the nature of the default);
and (vi) such other matters as may be reasonably required by Landlord,
Landlord's Mortgagee or any prospective mortgage lender. Tenant shall
deliver such statement to Landlord within fifteen (15) days after Landlord's
request. Any such statement may be given to and relied upon by Landlord's
Mortgagee, any prospective mortgage lender or other encumbrancer of the
property or any prospective purchaser of the Property.
(b) Within twenty (20) days after Landlord's request, Tenant shall
deliver to Landlord certified true copies of Tenant's most recent Form 10-Q
and most recent Form 10-K, or, if Tenant is not then a publicly traded
company, such financial statements prepared by an independent certified
public accountant as are reasonably required to verify the net worth of
Tenant. Any such statement may be given by Landlord to any Landlord's
Mortgagee or prospective encumbrancer of the Property. Tenant represents to
Landlord that each such financial statement shall be a true and accurate
statement as of the date of such statement, which may be relied upon by
Tenant, Tenant's Mortgagee and any prospective encumbrancer of the Property.
31. Quiet Enjoyment. (a) Landlord covenants and warrants to Tenant
that Landlord has full right and lawful authority to enter into this Lease
for the Term of this Lease, including any Extension Term provided in the
Extension Option Rider hereto. Landlord further covenants and warrants to
Tenant that Landlord is lawfully seized of the Leased Premises and has good
and marketable title thereto, subject to existing tenancies and all liens,
encroachments, encumbrances, restrictions, conditions, reservations,
easements and other matters of record and subject further to the lien of
real estate taxes due but not yet payable.
(b) Landlord covenants that as long as Tenant pays the Annual Base
Rent and Additional Rent and performs its other obligations under this
Lease, Tenant shall peaceably and quietly have, hold and enjoy the Demised
Premises for the term provided by this Lease without hinderance or
interruption by Landlord or any other person or persons lawfully or
equitably claiming by, through or under Landlord, subject to the provisions
of this Lease.
(c) Landlord reserves to itself such access and utility easements
over, under and across the Demised Premises as may be required by Landlord
from time to time in connection with the ownership, use or operation of any
other property of Landlord or any affiliated party of Landlord. No such
easement shall materially interfere with Tenant's use of the Demised
Premises or adversely affect Tenant's business operations at the Premises.
32. Subordination; Attornment. (a) Subject to, and in accordance
with, the terms provided in Section 32(b) - 32(d) below, this Lease is
subject and subordinate to any ground lease or mortgage which may now or
hereafter encumber the Property, and any renewals, modifications,
consolidations, replacements or extensions thereof.
(b) The provisions of this Section 32(b) shall apply only to Parlex
Corporation and only so long as Parlex Corporation uses and occupies the
Premises. With respect to any party which holds a mortgage on the Property
as of the date of execution hereof ("existing mortgagee"), within ten (10)
days of the date of execution of this Lease by both Landlord and Tenant,
Landlord shall request that said existing mortgagee enter into a
subordination, non-disturbance and attornment agreement ("SNDA") with
Landlord and Parlex Corporation, which SNDA shall, inter alia, contain a
provision which states that in the event of the foreclosure of said existing
mortgagee's mortgage, said existing mortgagee will recognize this Lease and
will not disturb Parlex Corporation in its possession of the Premises, nor
disturb Tenant's right to enjoyment of the terms, conditions and covenants
under the Lease, unless Parlex Corporation has committed an act of default
which, under the terms of this Lease, would permit Landlord to terminate
this Lease (the foregoing provision is hereinafter referred to as the "Non-
disturbance Provision"). If, within forty-five (45) days of the execution
of this Lease by Landlord and Tenant, Landlord's existing mortgagee delivers
(or causes to be delivered) to Landlord and Parlex Corporation, a form of
SNDA which contains the Non-disturbance Provision as hereinabove
specifically described, which form said mortgagee is prepared to enter into,
then and in that event, Landlord shall have no further obligation with
respect to obtaining a SNDA from said existing mortgagee and Parlex
Corporation shall have no right to terminate this Lease or modify its
obligations hereunder, even if said SNDA is thereafter not entered into
(unless the reason said SNDA is not entered into is Landlord's or said
existing mortgagee's refusal to execute same, provided, that the foregoing
shall not be construed to require either Landlord or said existing mortgagee
to agree to any modifications to said existing mortgagee's form of SNDA).
If, within forty-five (45) days of the execution of this Lease by Landlord
and Tenant, Landlord's existing mortgagee does not deliver (or cause to be
delivered) to Landlord and Parlex Corporation a form of SNDA which contains
the Non-disturbance Provision as hereinabove specifically described, which
form said mortgagee is prepared to enter into, then and in that event,
Parlex Corporation may elect to terminate this Lease by written notice to
Landlord, provided such written notice is received by Landlord no later than
the fifty-fifth (55th) day following the date of execution of this Lease by
Landlord and Tenant. Time shall be strictly of the essence with regard to
Tenant's notice of termination. If such written notice of termination is
not received by Landlord on or before said fifty-fifth (55th) day, Parlex
Corporation shall automatically and conclusively be deemed to have
irrevocably waived the right of termination set forth in this Section 32(b).
(c) The provisions of this Section 32(c) shall apply only to Parlex
Corporation and only so long as Parlex Corporation uses and occupies the
Premises. With respect to any future mortgagee of the Property, Landlord
shall request that said future mortgagee enter into a SNDA with Landlord and
Parlex Corporation, which SNDA shall contain a Non-disturbance Provision, as
hereinabove specifically described, which form said mortgagee is prepared to
enter into. If, within forty-five (45) days of the date on which said
future mortgagee first acquires its mortgage on the Property, said future
mortgagee delivers (or causes to be delivered) to Landlord and Parlex
Corporation a form of SNDA which contains the Non-disturbance Provision, as
hereinabove specifically described, which form said mortgagee is prepared to
enter into, then and in that event, Landlord shall have no further
obligation with respect to obtaining a SNDA from said future mortgagee and
Parlex Corporation shall have no right to terminate this Lease or modify its
obligations hereunder, even if said SNDA is thereafter not entered into
(unless the reason said SNDA is not entered into is Landlord's or said
future mortgagee's refusal to execute same, provided, that the foregoing
shall not be construed to require either Landlord or said future mortgagee
to agree to any modifications to said future mortgagee's form of SNDA). If,
within said forty-five (45) day period Landlord's future mortgagee does not
deliver (or cause to be delivered) to Landlord and Parlex Corporation a form
of SNDA which contains the Non-disturbance Provision, then and in that
event, Parlex Corporation may elect to terminate this Lease by written
notice to Landlord, provided such written notice is received by Landlord no
later than the tenth (10th) day following the expiration of said forty-five
(45) day period. Time shall be strictly of the essence with regard to
Tenant's notice of termination. If such written notice of termination is
not received by Landlord on or before said tenth (10th) day, Parlex
Corporation shall automatically and conclusively be deemed to have
irrevocably waived the right of termination set forth in this Section 32(c).
(d) The provisions of this Section 32(d) apply to all individuals and
entities other than Parlex Corporation, who/which may at any time during the
term hereof be deemed the Tenant hereunder. With respect to any existing or
future mortgagee of the Property, Landlord shall use good-faith efforts to
have said mortgagee enter into a SNDA with Landlord and any such individual
or entity. Landlord shall not be required to make more than one good faith
effort from each mortgagee. It is expressly understood and agreed that the
respective rights and obligations of the parties hereunder shall in no way
whatsoever be nullified, canceled, diminished, limited, enlarged, expanded
or otherwise modified or affected by the refusal of one or more of such
mortgagees to enter into a subordination, non-disturbance and attornment
agreement and/or by the requirement by one or more of said mortgagees that
the parties utilize said mortgagee's particular form of subordination, non-
disturbance and attornment agreement.
(e) If Landlord's interest in the Property is acquired by any ground
lessor, Landlord's Mortgagee, or purchaser at a foreclosure sale, Tenant
shall attorn to the transferee of or successor to Landlord's interest in the
Property and recognize such transferee or successor as landlord under this
Lease. Such transferee or successor shall not be liable for any act or
omission of any prior landlord, or be subject to any offsets or defenses
which Tenant might have against any prior landlord, or be bound by any Rent
which Tenant might have paid for more than the current month to any prior
landlord, or be liable for any security deposit under this Lease unless
actually transferred to such transferee or successor.
(f) Tenant agrees that this Lease shall be modified in accordance
with the reasonable request of any institutional Landlord's Mortgagee,
provided no such modification changes the business terms of this Lease.
(g) The foregoing provisions shall be self-operative and no further
instrument or act on the part of Tenant shall be necessary to effect the
same. Tenant shall nevertheless sign and deliver any document necessary or
appropriate to evidence the subordination, attornment or agreement above
provided within twenty (20) days after Landlord's request therefor. Tenant
further agrees to execute and/or deliver within twenty (20) days after
Landlord's request therefor any other documents reasonably required by
Landlord's Mortgagee in connection with the financing or refinancing of the
Property, or insuring the Property.
33. Brokerage. Each party represents to the other that it did not
deal with any real estate broker in connection with this Lease, other than
the real estate broker (if any) whose identity is set forth in Section 1(h).
The commission of such broker (if any) shall be paid by the party as set
forth in Section 1(h). Each party shall indemnify and hold the other
harmless from any claim for a commission or other fee made by any broker
with whom the indemnifying party has dealt, other than the broker identified
in Section 1(h).
34. Security Deposit. Pursuant to the Prior Lease, as said term is
hereinafter defined, Tenant has deposited with Landlord the sum of
$15,744.13 to be held as the security deposit under said Prior Lease (the
"Prior Security"). Tenant hereby expressly agrees that on the Commencement
Date the Prior Security shall be deemed returned to Tenant pursuant to the
Prior Lease and immediately thereafter redeposited with Landlord. The Prior
Security shall be held by Landlord as the security deposit under this Lease
(the "Security Deposit"). Landlord shall have the right to use the Security
Deposit to cure any default of Tenant hereunder, including, but not limited
to,payment of Annual Base Rent, Additional Rent, Service Fees or other debts
of Tenant due Landlord, or repair or restoration of the Demised Premises.
If Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within twenty (20) days after Landlord's
demand therefor. Provided Tenant has fully complied with all of the terms
of this Lease, Landlord shall return the Security Deposit to Tenant without
interest on the date thirty (30) days after the surrender of the Demised
Premises by Tenant. Landlord may deliver the Security Deposit to the
purchaser or other transferee of Landlord's interest in the Property in the
event the Property is sold or otherwise transferred, and, upon written
notice of said transfer with copies of the documentation evidencing said
transfer (which written notice is joined in, or verified by, said purchaser
or transferee), Landlord shall be discharged from any further liability with
respect to the Security Deposit.
35. Notices. (a) All notices in connection with this Lease or the
Demised Premises shall be in writing and shall be sent by reliable overnight
delivery service which requires a signed delivery slip (e.g., Federal
Express). Notices to Landlord shall be delivered to the address specified
in Section 1(b). Notices to Tenant shall be delivered to 145 Milk Street,
Methuen, MA 01844. All notices shall be effective upon delivery or
attempted delivery (provided such attempted delivery occurs on a business
day) in accordance with this provision. Either party may change its notice
address upon written notice to the other party given in accordance with this
provision.
(b) Without limiting the foregoing, whenever in this Lease Landlord
is required or desires to give notice to Tenant, such notice shall be deemed
given by Landlord if such notice is sent to Tenant by the office of (i)
Landlord, (ii) Paul V. Profeta & Associates, Inc. or (iii) Landlord's
Counsel. As used herein, Landlord's Counsel shall mean any attorney who is
a member of or associated with the firm of Lasser Hochman, L.L.C, 75
Eisenhower Parkway, Roseland, New Jersey or such other attorney or law firm
as Landlord may notify Tenant of by notice given in accordance with this
Section 35.
36. Memorandum of Lease. Tenant shall not record this Lease or any
memorandum thereof.
37. INTENTIONALLY OMITTED.
38. No Other Agreements. (a) THIS LEASE SETS FORTH ALL THE
PROMISES, INDUCEMENTS, AGREEMENTS, CONDITIONS AND UNDERSTANDINGS, BETWEEN
LANDLORD AND TENANT RELATIVE TO THE DEMISED PREMISES AND THERE ARE NO
PROMISES, AGREEMENTS, CONDITIONS OR UNDERSTANDINGS, EITHER ORAL OR WRITTEN,
EXPRESSED OR IMPLIED, BETWEEN THEM OTHER THAN AS HEREIN SET FORTH. WITHOUT
LIMITING THE FOREGOING, NO PRIOR DRAFTS OF THIS LEASE OR LETTERS OR OTHER
COMMUNICATIONS, WRITTEN OR ORAL, BETWEEN PRINCIPALS, AGENTS OR EMPLOYEES OF
LANDLORD OR TENANT SHALL BE EFFECTIVE TO CONSTITUTE A MODIFICATION OF THIS
LEASE. THIS LEASE MAY BE MODIFIED ONLY BY A WRITING EXECUTED BY THE
AUTHORIZED SIGNATORIES OF LANDLORD AND TENANT. IN NO EVENT WHATSOEVER SHALL
THIS LEASE BE DEEMED MODIFIED OR ALTERED IN ANY MANNER BY EITHER VERBAL OR
WRITTEN COMMUNICATION BETWEEN TENANT AND LANDLORD'S AGENTS OR EMPLOYEES.
(b) Without limiting the foregoing, the parties expressly agree that
any and all prior leases and agreements, whether oral or written, expressed
or implied, relating to Tenant's use and occupancy of the Demised Premises
or any portion thereof, including, without limitation, a Lease Agreement
executed on or about July 8, 1992 between AHB Realty Corporation, as
Landlord, and Tenant ("Prior Lease") shall be and hereby are declared null
and void as of the Commencement Date hereunder and all of said prior leases
and agreements and the tenancies created thereby shall be and hereby are
terminated as of said Commencement Date. As of said Commencement Date, all
obligations of Landlord and Tenant under the Prior Lease shall cease and
from and after said date the Prior Lease shall be void. Simultaneously with
the execution of this Lease, Landlord and Tenant shall execute a Termination
of Lease Agreement relating to the Prior Lease in the form attached hereto
as Termination of Lease Rider. Said Termination of Lease Rider shall
provide, inter alia, for full and final cross-releases between Landlord and
Tenant relating to all claims, demands, actions and causes of action
(collectively, "Claims") which either party (the "claiming party") may have
against the other party arising out of or relating to the Prior Lease, to
the extent such Claims are known to the claiming party on or prior to the
date of execution of this Lease. Without limiting the foregoing, Landlord
and Tenant agree that as of the execution of this Lease, the Option to Renew
set forth in Section 1.3 of the Prior Lease is irrevocably rendered null and
void and of no force and effect.
39. Miscellaneous. (a) The failure of either party to insist on
strict performance of any provision of this Lease, or to exercise any right
contained herein, shall not be construed as a waiver of such provision or
right in any other instance.
(b) The captions in this Lease are intended to assist the parties in
reading this Lease and are not a part of the provisions of this Lease.
Whenever required by the context of this Lease, the singular shall include
the plural and the plural shall include the singular. The masculine,
feminine and neuter genders shall each include the other.
(c) Tenant acknowledges that it has been represented, or has had the
opportunity to be represented, in the negotiation and execution of this
Lease by independent legal counsel selected by Tenant of its own free will
and Tenant has had the opportunity to discuss the provisions of this Lease
with said counsel. In the construction of this Lease or any of the terms
and provisions thereof, no inference shall be drawn against Landlord as a
result of the fact that the Lease was drawn by Landlord's counsel.
(d) The laws of the state in which the Property is located shall
govern this Lease.
(e) If Tenant is a corporation, partnership or other entity, each
person signing this Lease on behalf of Tenant represents that he has full
authority to do so and that this Lease binds the corporation, partnership or
other entity, as the case may be.
(f) This Lease is binding upon any party who legally acquires any
rights or interest in this Lease from Landlord or Tenant; provided, however,
Landlord shall have no obligation to Tenant's successor unless the interest
of Tenant's successor in this Lease is acquired in accordance with Section
17. The term "Landlord" as used in this Lease means only the owner, for the
time being, or the mortgagee in possession, for the time being, of the
Property, so that in the event of any sale of the Property, the said
Landlord shall be and hereby is entirely freed and relieved of any liability
for performance of all covenants and obligations of Landlord set forth in
this Lease.
(g) The submission of this Lease to Tenant shall not be deemed to be
an offer and shall not bind either party until duly executed by Landlord and
Tenant.
(h) This Lease may be executed in counterparts, and, when all
counterpart documents are executed, the counterparts shall constitute a
single binding instrument.
(i) A determination by a court of competent jurisdiction that any
provision of this Lease or any part thereof is illegal or unenforceable
shall not invalidate the remainder of this Lease or such provision, which
shall continue to be in effect.
(j) Intentionally Omitted.
(k) Except as otherwise herein expressly set forth, the parties
intend that whenever Landlord's consent or approval is expressly or
impliedly required by any provision of this Lease, the consent or approval
may be granted or withheld arbitrarily in Landlord's sole discretion.
(l) Any delay by Landlord in billing Tenant for sums due under this
Lease shall not constitute a waiver of Landlord's right to receive such sums
from Tenant notwithstanding that this Lease may have theretofore been
terminated or expired.
(m) Subject to the conditions hereinafter set forth, Tenant and its
employees and invitees shall have the right, in common with Landlord and
other tenants of the Property and their employees and invitees, to use the
parking areas provided by Landlord on the Property for the parking of
passenger automobiles, except for those areas, if any, designated
"Excepted". Tenant shall only park in the areas provided for Tenant's use.
Tenant's parking shall not be reserved and shall be limited to vehicles no
larger than standard sized passenger automobiles, passenger vans, sport
utility vehicles or single axle or light pickup vehicles. Tenant shall not
cause large trucks, non-passenger vans, motor homes, mobile homes or
trailers or other large vehicles to be parked within the parking areas.
Vehicles shall be parked only in striped parking spaces and not in
driveways, access roads, fire zones, loading areas or other locations not
specifically designated for parking. Landlord shall have the right to
assign parking spaces for the exclusive use of Tenant and/or other tenants
of the Property and/or Landlord and their employees and invitees, and Tenant
and its employees and invitees shall not park their vehicles in parking
spaces allocated to others by Landlord. Landlord shall not be required to
keep parking spaces clear of unauthorized vehicles or to otherwise supervise
the use of the parking areas. Landlord shall not be responsible for any
damage to or theft of any vehicles in the parking areas. Landlord may issue
parking permits, install a gate system or impose any other system as
Landlord deems necessary for the use of the parking areas. Provided the
following do not substantially adversely affect Tenant's permitted use of
the Premises and the operation of its business at the Premises as
contemplated by this Lease, Landlord reserves the right from time to time
(i) to change or reduce the parking areas, roads and driveways; and (ii) to
make any alterations or repairs that it deems necessary to the parking
areas, roads or driveways, and to temporarily revoke or modify the parking
rights granted to Tenant without any abatement or reduction of rent by
reason thereof. Landlord may designate fire zones in the parking area,
handicapped parking spaces, loading zones (limited duration parking) and no
parking zones, and Tenant shall not be entitled to any reduction or
abatement of rent. Landlord may require Tenant to furnish it with the
automobile license numbers assigned to vehicles of Tenant and its employees
and invitees and to notify Landlord of any changes thereof. Upon notice to
Tenant, Landlord may limit parking spaces to visitors. In the event Tenant
or any of its employees or invitees violates Landlord's parking regulations,
Tenant agrees that Landlord may tow the violating motor vehicles at the
expense of the vehicle owner, including charges for towing, storage and
damage to the vehicle which may occur.
(n) Intentionally Omitted.
(o) Provided the following does not substantially adversely affect
Tenant's permitted use of the Premises and the operation of its business at
the Premises as contemplated by this Lease, Landlord reserves the right to
suspend any of the services agreed to be supplied by Landlord hereunder when
reasonably necessary by reason of accident or for repairs, alterations,
replacements or improvements necessary or desirable in the reasonable
judgment of Landlord for as long as shall be reasonably required by reason
thereof, and, except as may be otherwise expressly set forth in this Lease,
Landlord shall not be liable to Tenant and Tenant shall not be entitled to
any abatement or reduction of Rent by reason thereof.
(p) Tenant shall observe the rules and regulations set forth in the
Rules and Regulations Rider attached hereto, and such other reasonable rules
and regulations as Landlord may from time to time adopt, on prior written
notice to Tenant. Landlord shall not be obligated to enforce the rules and
regulations against any tenant, and Landlord shall not be liable for
violation of same by any tenant, or any of its employees or invitees.
(q) Notwithstanding anything to the contrary herein, with respect to
the parking spaces located in the front of the Building, but not the parking
spaces at the sides or rear of the Building, Tenant agrees that it and its
employees, servants, agents, contractors, licensees and invitees shall
utilize only those parking spaces located in front of the Premises and not
any parking spaces located in any other portion of the front of the
Building.
(r) If at any time during the Term hereof a dispute shall arise as to
any amount or sum of money to be paid by one party to the other party under
the provisions hereof, the party against whom the obligation to pay the
money is asserted shall have the right to make payment "under protest" which
payment shall not be regarded as a voluntary payment, and there shall
survive the right on the part of such party to institute suit for recovery
of such sum. If it shall be adjudged that there was no legal obligation on
the part of such party to pay such sum or any part thereof, such party shall
be entitled to recover from the other party such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
(s) If at any time a dispute shall arise between the parties hereto
as to any work to be performed by either of them under the provisions
hereof, the party against whom the obligation to perform the work is
asserted may perform such work and pay the cost thereof "under protest",
performance of such work in no event to be regarded as a voluntary
performance, and there shall survive the right on the part of such party to
institute suit for recovery for the reasonable cost of such work. If it
shall be adjudged that there was no legal obligation on the part of such
party to perform such work or any party thereof, such party shall be
entitled to recover from the other party the reasonable cost of such work or
the reasonable cost of so much thereof as such party was not legally
required to perform under this Lease.
(t) In the event of any litigation or other adversarial proceeding
between Landlord and Tenant under, or relating to, the provisions of this
Lease, the prevailing party, by final court order, judgment or decree, shall
be entitled to recover from the non-prevailing party all of the prevailing
party's reasonable costs and expenses including, without limitation,
reasonable legal fees, incurred in such litigation or other proceeding.
(u) The provisions of Sections 39(t), 39(u) and 39(v) shall survive
the expiration or earlier termination of the Term hereof.
(v) Upon execution hereof, Landlord and Tenant shall execute a Notice
of Lease pursuant to the provisions of New Hampshire R.S.A. 477:7-a, in a
form reasonably satisfactory to Landlord and Tenant.
40. Right of Early Termination. (a) Tenant shall have a one time
only right to terminate this Lease, such termination to be effective as of
11:59 p.m. of the last day of the seventh Lease Year of the Term hereof (the
"Early Termination Date"), provided, Tenant satisfies each and every one of
the following conditions:
1. Tenant shall give Landlord written notice of Tenant's
election to exercise the right of termination set forth in this
Section 40(a) ("Notice of Termination"), which Notice of Termination
must be received by Landlord (i) no earlier than the first day of the
sixth (6th) Lease Year of the Term hereof and (ii) no later than the
last day of the sixth (6th) Lease Year of the Term hereof. Time shall
be strictly of the essence with respect to delivery of the Notice of
Termination. If, for any reason whatsoever, Landlord receives the
Notice of Termination prior to the first day of the sixth (6th) Lease
Year, said Notice of Termination shall conclusively be deemed null and
void and of no force and effect. If, for any reason whatsoever,
Landlord fails to receive the Notice of Termination on or before the
last day of the sixth (6th) Lease Year of the Term hereof, Tenant's
right to terminate as set forth in this Section 40(a) shall
automatically and irrevocably lapse and be null and void.
2. Tenant shall not be in material default under the terms of
this Lease on the date Landlord receives the Notice of Termination and
on the Early Termination Date. This condition may be waived by
Landlord at its sole discretion and may not be used by Tenant as a
means to negate the effectiveness of Tenant's exercise of the right to
terminate.
3. The Notice of Termination shall be accompanied by a check,
made payable to Landlord, in an amount equal to three (3) monthly
installments of Rent, at the rate of Rent in effect for the sixth
(6th) Lease Year of the Term hereof, which amount shall be due and
payable as an early termination fee, in addition to, and not in lieu
of or substitution of, all Annual Base Rent, Additional Rent and/or
other charges due and owing from Tenant to Landlord through the Early
Termination Date. As used in this paragraph, the term "Rent" shall
include Annual Base Rent, Tax Rent, Expense Rent, Additional Rent and
any and all other items included within the definition of Rent as set
forth in Section 4(c) hereof.
(b) If Landlord receives a timely and proper written Notice of
Termination and if Tenant otherwise satisfies all of the conditions
hereinbefore set forth in Section 40(a), then, the parties shall perform
their respective obligations and enjoy their respective rights under this
Lease through the Early Termination Date, the term of this Lease shall
terminate at 11:59 p.m. on the Early Termination Date as if said date were
the date initially set forth for the termination of the Term of this Lease
and on or before 11:59 p.m. of the Early Termination Date, Tenant shall
vacate and surrender the Premises to Landlord in the condition required by
this Lease for surrender of the Premises upon expiration of the Term. Upon
Landlord's receipt of such a timely and proper written Notice of
Termination, and Tenant's satisfaction of all of the conditions hereinbefore
set forth in Section 40(a), and Tenant's vacation and surrender of the
Premises as aforesaid, all obligations of the parties under this Lease shall
cease and thereafter this Lease shall be void, except to the extent that any
provision of this Lease expressly provides that a particular obligation of
either Landlord or Tenant shall survive the expiration or termination of the
Term hereof.
THE RIDERS ENUMERATED IN SECTION 1(I) ARE ATTACHED HERETO AND MADE A
PART OF THIS LEASE AS FULLY AS IF SET FORTH HEREIN AT LENGTH. THE TERMS
USED IN THE RIDER HAVE THE SAME MEANINGS AS SET FORTH IN THE LEASE. THE
PROVISIONS OF A RIDER SHALL PREVAIL OVER ANY PROVISIONS OF THE LEASE WHICH
ARE INCONSISTENT OR CONFLICT WITH THE PROVISIONS OF THE RIDER.
IN WITNESS WHEREOF, the parties hereby have duly executed this Lease
as of the date set forth in Section 1(a).
LANDLORD:
WITNESS: PVP-SALEM ASSOCIATES, L.P.
BY: PVP-SALEM CORP.,
Its General Partner
______________________________ By: /s/ Paul V. Profeta
___________________________
PAUL V. PROFETA,
President
TENANT:
ATTEST: PARLEX CORPORATION
______________________________ By: /s/ Peter J. Murphy
___________________________
Its: President
__________________________
ANNUAL BASE RENT RIDER
----------------------
Date of Lease: August 12, 1997
Landlord: PVP-Salem Associates, L.P.
Tenant: Parlex Corporation
Property: Portion of 7 Industrial Way, Salem, N.H.
1. Annual Base Rent. The Annual Base Rent payable by Tenant to
Landlord for each and every Lease Year of the Term shall be as follows:
For the first Lease Year of the Term hereof, the Annual Base Rent
shall be $192,100.00 per annum, payable in equal monthly installments of
$16,008.33 per month. For each particular Lease Year from, after and
including the second Lease Year of the Term hereof, through, to and
including the tenth Lease Year of the Term hereof (said particular Lease
Year being hereinafter in this paragraph referred to as the "Lease Year in
Question"), Annual Base Rent shall be an annual amount equal to the product
of (i) $192,100.00 multiplied by (ii) a fraction, the numerator of which
shall be the Index (as hereinafter defined) existing on the first day of the
Lease Year In Question and the denominator of which shall be the Index
existing as of the Commencement Date; provided, however, that in no event
whatsoever shall the Annual Base Rent for the Lease Year In Question be less
than $192,100.00. As used herein, the term "Index" shall mean and shall
refer to the Consumer Price Index, All Urban Consumers (CPI-U) for the
Boston -- Lawrence -- Salem, MA -- NH Area, all items (1982-84 = 100) of the
United State Bureau of Labor Statistics, United States Department of Labor.
In the event that as of any relevant date the Index is no longer published
or issued, such other index as in Landlord's reasonable judgment provides a
basis for wage negotiations shall be used and employed in the place and
stead thereof. Without limiting the foregoing, in the event that the level
of the Index for the first day of the Lease Year In Question is not known as
of said first day, Tenant shall continue to pay Annual Base Rent at the rate
in effect immediately prior to the commencement of the Lease Year In
Question until the Index for the first day of the Lease Year In Question
becomes available. Thereafter, Landlord shall determine the proper Annual
Base Rent payable during the Lease Year In Question, which shall apply
retroactively from and after the first day of the Lease Year In Question.
To the extent that Tenant shall have paid less than the full and proper
amount of Annual Base Rent from and after the first day of the Lease Year In
Question, said deficiency shall be paid to Landlord within fifteen (15) days
of Landlord's demand therefor.
Initials:
/s/ PVP
_____________________
Landlord
/s/ PJM
_____________________
Tenant
EXTENSION OPTION RIDER
----------------------
Date of Lease: August 12, 1997
Landlord: PVP-Salem Associates, L.P.
Tenant: Parlex Corporation
Property: Portion of 7 Industrial Way, Salem, N.H.
1. Grant of Option. So long as Tenant has not theretofore exercised
its right of early termination as set forth in Section 40 hereof, and
subject to all of the provisions of this Rider, Landlord hereby grants to
Tenant the option (the "Option") to extend the Term following the expiration
of the original term hereof (the "Initial Term") for an additional term of
ten (10) years (the "Extension Term").
2. Exercise of Option. The Option shall be exercised only by written
notice (the "Extension Notice") delivered to Landlord in accordance with
Section 35 of the Lease at least one (1) year before the expiration of the
Initial Term. No verbal communication by Tenant with Landlord or any of its
principals, agents or employees of exercise of this Option shall be an
effective exercise of this Option. Time shall be of the essence with
respect to delivery of the Extension Notice and if, for any reason
whatsoever, Landlord fails to receive the Extension Notice within the
specified time period, the Option shall automatically and irrevocably lapse,
be null and void and Tenant shall have no further right to extend the Term.
3. Conditions Precedent to Option. The Option shall be exercisable
by Tenant and the Lease shall continue for the Extension Term on all of the
foregoing conditions:
(a) At the time Landlord receives the Extension Notice and at the
commencement of the Extension Term, Tenant shall not then be in material
default under any of the provisions of the Lease. This condition may be
waived by Landlord at its sole discretion and may not be used by Tenant as a
means to negate the effectiveness of Tenant's Extension Notice.
(b) At the time Landlord receives the Extension Notice and at the
commencement of the Extension Term, the Tenant named in Section 1(c) of the
Lease shall not have assigned the Lease or sublet any portion of the Demised
Premises.
4. Extension Term Provisions. The Extension Term shall be on all of
the same terms and conditions set forth in the Lease and applicable to the
Initial Term, including provisions relating to the payment of Additional
Rent, except that the Annual Base Rent for the Extension Term shall be
determined in the following manner:
(a) The Annual Base Rent for the first Lease Year of the Extension
Term shall be the then current market rental rate for comparable industrial
space in Salem, New Hampshire (the "Fair Market Rental"), provided, however,
that in no event whatsoever shall the Annual Base Rent for the first Lease
Year of the Extension Term be less than the Annual Base Rent for the last
Lease Year of the Initial Term. If the Fair Market Rental as determined by
Landlord is not greater than the Annual Base Rent for the last Lease Year of
the Initial Term, then, the Annual Base Rent for the first Lease Year of the
Extension Term shall conclusively be deemed to be equal to the Annual Base
Rent for the last Lease Year of the Initial Term, and Landlord shall provide
notice to that effect to Tenant. If, in Landlord's opinion, the Fair Market
Rental is greater than the Annual Base Rent for the last Lease Year of the
Initial Term, then, Landlord shall set forth its opinion of the Fair Market
Rental in a written notice from Landlord to Tenant ("Notice of Rent
Determination") given within sixty (60) days following Landlord's actual
receipt of the Extension Notice from Tenant, If Tenant does not wish to
accept the Fair Market Rental as set forth in Landlord's Notice of Rent
Determination, then, Tenant shall give Landlord written notice of such non-
acceptance ("Tenant's Notice of Non-Acceptance") within twenty (20) days
after Tenant's receipt of Landlord's Notice of Rent Determination; said
twenty (20) day period being strictly of the essence. If Tenant notifies
Landlord that Tenant accepts Landlord's determination of the Fair Market
Rental, or, if, for any reason whatsoever, Landlord fails to receive a
timely and proper Notice of Non-Acceptance, then, Tenant shall
automatically, conclusively, and irrevocably be deemed to have accepted and
agreed to the Fair Market Rental set forth in Landlord's Notice of Rent
Determination. If Tenant delivers a timely and proper Notice of Non-
Acceptance to Landlord, then, Tenant shall automatically, conclusively and
irrevocably be deemed to have withdrawn and nullified its prior exercise of
the Option to extend the Term of this Lease for the Extension Term, unless
said Notice of Non-Acceptance expressly contains a demand to submit the
determination of the Fair Market Rental to the appraisal process described
below.
(b) If Tenant's timely and proper Notice of Non-Acceptance contains a
demand to submit the determination of the Fair Market Rental to appraisal,
then, within twenty (20) days of said proper and timely demand, Landlord and
Tenant shall each retain a reputable appraiser with at least ten (10) years
experience in appraising industrial buildings in Salem, New Hampshire. Each
party shall bear the cost of its appraiser. Each party shall direct its
appraiser to render his/her opinion of the Fair Market Rental within thirty
(30) days of the date of his/her selection. Each party's appraiser shall
prepare a written report setting forth said appraiser's opinion of the Fair
Market Rental. In the event that the Fair Market Rentals determined by the
two appraisers shall not differ by more than five (5%) percent of the lower
appraisal, then the Fair Market Rental shall be deemed to be the average of
the two appraisals and said average shall be final, conclusive and binding
on Landlord and Tenant. If the Fair Market Rentals determined by the two
appraisers shall differ by more than such five (5%) percent amount, then,
the two (2) appraisers shall select a third appraiser with at least ten (10)
years experience in appraising industrial buildings in Salem, New Hampshire,
with Landlord and Tenant each to pay one half (1/2) of the cost of such
third appraiser. Said third appraiser's sole function shall be to select as
the Fair Market Rental either the Fair Market Rental determined by
Landlord's appraiser or the Fair Market Rental determined by Tenant's
appraiser. Said third appraiser shall have no right to average the
appraisals of Landlord's appraiser and Tenant's appraiser or otherwise
select as the Fair Market Rental any amount other that determined by
Landlord's appraiser or that determined by Tenant' appraiser. So long as
the third appraiser proceeds as aforesaid, the determination of the Fair
Market Rental by the third appraiser shall be binding and conclusive on
Landlord and Tenant and shall be set forth in an Amendment to Lease which
Landlord and Tenant shall both promptly execute. The third (3rd) appraiser
shall be instructed to submit his or her appraisal report within thirty (30)
days after the date of his or her engagement.
(c) For each particular Lease Year of the Extension Term from, after
and including the second Lease Year of the Extension Term hereof, through,
to and including the tenth Lease Year of the Extension Term hereof (said
particular Lease Year being hereinafter in this paragraph referred to as the
"Lease Year in Question"), Annual Base Rent shall be an annual amount equal
to the product of (i) Fair Market Rental multiplied by (ii) a fraction, the
numerator of which shall be the Index (as hereinafter defined) existing on
the first day of the Lease Year In Question and the denominator of which
shall be the Index existing as of the first day of the first Lease Year of
the Extension Term; provided, however, that in no event whatsoever shall the
Annual Base Rent for the Lease Year In Question be less than the Fair Market
Rental. As used herein, the term "Index" shall mean and shall refer to the
Consumer Price Index, All Urban Consumers (CPI-U) for the Boston -- Lawrence
- -- Salem, MA -- NH Area, all items (1982-84 = 100) of the United State
Bureau of Labor Statistics, United States Department of Labor. In the event
that as of any relevant date the Index is no longer published or issued,
such other index as in Landlord's reasonable judgment provides a basis for
wage negotiations shall be used and employed in the place and stead thereof.
Without limiting the foregoing, in the event that the level of the Index for
the first day of the Lease Year In Question is not known as of said first
day, Tenant shall continue to pay Annual Base Rent at the rate in effect
immediately prior to the commencement of the Lease Year In Question until
the Index for the first day of the Lease Year In Question becomes available.
Thereafter, Landlord shall determine the proper Annual Base Rent payable
during the Lease Year In Question, which shall apply retroactively from and
after the first day of the Lease Year In Question. To the extent that
Tenant shall have paid less than the full and proper amount of Annual Base
Rent from and after the first day of the Lease Year In Question, said
deficiency shall be paid to Landlord within fifteen (15) days of Landlord's
demand therefor.
(d) If Tenant's Notice of Non-Acceptance does not contain a demand to
submit the determination of the Fair Market Rental to the appraisal process
described above, then, Tenant shall automatically, conclusively and
irrevocably be deemed to have withdrawn and nullified its prior exercise of
the Option to extend the Term of this Lease for the Extension Term; the Term
of this Lease shall expire upon the last day of the Initial Term; and Tenant
shall have no further option of any nature whatsoever to extend the Term
beyond said last day of said Initial Term.
(e) Tenant shall have no option to further extend the Term beyond the
Extension Term herein provided.
Initials:
/s/ PVP
_____________________
Landlord
/s/ PJM
_____________________
Tenant
REAL ESTATE TAX RIDER
---------------------
Date of Lease: August 12, 1997
Landlord: PVP-Salem Associates, L.P.
Tenant: Parlex Corporation
Property: Portion of 7 Industrial Way, Salem, N.H.
Tenant shall pay as Additional Rent, Tenant's Proportionate Share, as
defined in Par. 1(j) of the Lease, of all real estate taxes assessed against
the Property for any tax fiscal year which occurs wholly or partially during
the Term of this Lease (such Additional Rent is hereinbefore and hereinafter
called the "Tax Rent"). The term "real estate taxes" shall mean (i) any
tax, assessment or other governmental charge of any kind, which at any time
during the Term may be levied, assessed, or imposed upon, or become due and
payable with respect to, or against the Property and/or the Building or any
part of either; (ii) any assessment for public betterment or improvements
levied, assessed or imposed upon or against the Property; (iii) any
reasonable legal fees, court costs, appraisal fees and other costs incurred
by Landlord in connection with contesting the assessed valuation of the
Property for real estate tax purposes; (iv) any tax levied, assessed or
imposed at any time upon or against the receipt of income or rents and/or
the use or occupancy of all or any portion of the Building and/or Land,
including, without limitation, any so-called "occupancy tax" or so-called
"use tax"; and (v) any other tax, levy, assessment or charge replacing or
supplementing in whole or in part any tax, levy, assessment or charge
included within clause (i) through (iv) directly above. Real estate taxes
for any tax fiscal year beginning before the Commencement Date or
terminating after the Expiration Date shall be apportioned so that Tenant
shall pay only such portion of the real estate taxes as shall be
attributable to the portion of such tax fiscal year occurring during the
Term of this Lease. The term "real estate taxes" shall not include income
taxes, estate taxes, or inheritance taxes. Tenant shall pay 100% of any
increase in tax assessment attributable to improvements or alterations to
the Building and/or Premises made by or for Tenant specially.
If a tax, levy or assessment for public improvements is levied against
the Property, and if Landlord elects to pay such assessment in installments,
then, Tenant shall pay its Proportionate Share of the installments payable
during or attributable to the Term, together with any interest due as a
result of the installment payments. Any installment which relates partially
to a period during the Term hereof and partially to a period outside the
Term hereof shall be appropriately prorated.
Tenant shall pay its Tax Rent, as Additional Rent in monthly
installments on the first day of each month on an estimated basis as
determined by Landlord. Landlord may adjust such estimate at any time and
from time to time based upon Landlord's reasonable anticipation of the real
estate taxes which may be assessed against the Property. Within a
reasonable time after the real estate taxes for any tax fiscal year shall be
fixed by the appropriate governmental authorities, Landlord shall deliver to
Tenant a statement setting forth the actual real estate taxes assessed
against the Property for such tax fiscal year, the amount paid by Tenant as
Tax Rent on account thereof, Tenant's Share of such real estate taxes, and
the amount due to or from Tenant, together with a copy of the actual tax
bill. If Tenant has paid less than the actual amount due, Tenant shall pay
the difference to Landlord within fifteen (15) days after Landlord's request
therefor as Additional Rent. Any amount paid by Tenant which exceeds the
actual amount due shall be credited to the next succeeding payments due as
Tax Rent hereunder, unless the Term has then expired in which event such
excess amount shall be refunded to Tenant forthwith.
Tenant shall have a period of fifteen (15) days after receipt
Landlord's statement of Tax Rent due to object to Landlord's billing. Such
objection shall be in writing and delivered to Landlord within fifteen (15)
days of Tenant's receipt of such bill, and shall be accompanied by payment
in full of the Tax Rent. Tenant shall then have a period of thirty (30)
days to review the records of Landlord with respect to the real estate taxes
of the Property. During said review, Landlord shall make available to
Tenant evidence of Landlord's payment of real estate taxes. In the event
Tenant does not give such notice on a timely basis, or make such
investigation on a timely basis, Tenant's right to object to the Tax Rent
shall be deemed waived and Landlord's statement of Tax Rent deemed approved
by Tenant. Time shall be of the essence with respect to Tenant's notice of
objection and review of Landlord's records. Without limiting the foregoing,
if Tenant's review of Landlord's records relating to real estate taxes for
any particular period of the Term hereof demonstrates to the satisfaction of
Landlord and Tenant that Tenant has paid more than Tenant's Proportionate
Share of all real estate taxes for said period, then, the excess amount paid
by Tenant shall be utilized by Tenant as a credit against its obligation to
pay Annual Base Rent and/or Additional Rent for any period after the date of
said review.
Initials:
/s/ PVP
_____________________
Landlord
/s/ PJM
_____________________
Tenant
OPERATING EXPENSE RIDER
-----------------------
Date of Lease: August 12, 1997
Landlord: PVP-Salem Associates, L.P.
Tenant: Parlex Corporation
Property: Portion of 7 Industrial Way, Salem, N.H.
Tenant shall pay as Additional Rent Tenant's Proportionate Share, as
defined in Par. 1(j) of the Lease, of all operating expenses of the Property
for any calendar year which occurs wholly or partially during the Term of
this Lease (such Additional Rent is hereinbefore and hereinafter called the
"Expense Rent"). The term "expenses" shall mean (i) all of Landlord's
Insurance Costs (as hereinafter defined); (ii) any and all reasonable and
necessary costs incurred by Landlord in providing the services described in
Landlord's Services Rider and (iii) any and all reasonable and necessary
costs incurred by Landlord in connection with the operation, maintenance,
care and repair of the Property, including, but not limited to, gardening
and landscaping; snow removal; repairing, resurfacing or repaving the
parking areas, roads or driveways on the Property; repairing, resurfacing or
repaving the walkways, entrances or exits on the Property; repairing leaks
to the roof, walls, windows and basement of the Building; repairing or
replacing the drainage on the Property; inspecting, repairing or resurfacing
the roof; repairing, adjusting or replacing parts of the HVAC equipment;
electrical repairs or replacements; plumbing repairs or replacements; common
area, restroom and/or hallway repairs or replacements; commissions and
consulting fees in connection with the placement of insurance (provided,
that if such insurance relates to the Property, as well as other properties,
then, such commissions and consulting fees shall be equitably allocated
between the Property and such other properties); direct wages, fringe
benefits and payroll taxes of all employees specifically required to provide
services to the Property; labor and materials for repairs and replacements
for the Building and other improvements on the Property; trash removal;
service contracts provided the same are competitively bid on an annual
basis; fuel oil; painting; security; elevator inspection, maintenance and
repair; telephonic expenses solely as reasonable and necessary for the
operation of the Property; common area and parking lot utilities; signage
and directory costs; professional fees to the extent they are related to the
operation and/or management of the Property; administrative expenses;
management fees; and alterations and improvements made by reason of
governmental requirements unless such alterations or improvements are
required as a result of another tenant's specific use of its premises at the
Property. The costs of cleaning the Common Areas and utilities serving the
Common Areas only shall be included in "expenses". Notwithstanding anything
to the contrary herein, it is agreed that all costs incurred by Landlord for
any item that would be characterized as a capital improvement under
generally accepted accounting principles shall be amortized on a straight
line basis over the useful life of said capital improvement. During each
year of the Term hereof only said portion of said costs as are allocable to
said year together with interest on said costs, from the date said costs
were incurred, at the rate of Prime plus one (1%) percent per annum, shall
be included in "expenses". If the Commencement Date is other than the first
day of a calendar year, or the Expiration Date is prior to the last day of a
calendar year, the Expense Rent shall be apportioned so that Tenant shall
pay only such portion of the expenses of the Property attributable to such
calendar year occurring during the Term of this Lease.
As used herein, the term "Landlord's Insurance Costs" shall mean any
and all premiums and other costs incurred by Landlord in order to obtain
and/or maintain one or more of the following policies of insurance for the
Property or any part thereof: (i) insurance covering all risk of physical
loss or damage to the Building in the full amount of its replacement value
(including agreed amount endorsement), but in no event less than the amount
required by any mortgagee of the Property ("Landlord's Mortgagee") (such
policy shall provide protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
special extended perils, including demolition and increased cost of
construction, water damage, sprinkler leakage, and any other perils which
Landlord or Landlord's Mortgagee deems reasonably necessary or which
Landlord's Mortgagee requires); (ii) rental income insurance in an amount
equal to one year's Annual Base Rent and all Additional Rent; (iii)
insurance against loss or damage by boiler or machinery or internal
explosion or breakdown of boilers, equipment or electrical appurtenances, in
an amount required by Landlord or any Landlord's Mortgagee; (iv) flood
hazard insurance in the amount of the full replacement cost of the Building,
or if such amount of insurance is not obtainable, in the maximum amount
which is obtainable if such flood hazard insurance is required by Landlord's
Mortgagee; and (iv) comprehensive public liability insurance, including
contractual liability coverage; plus any deductible amount provided for
under any of the foregoing policies in the event of loss.
Tenant shall pay its Expense Rent as Additional Rent in monthly
installments on the first day of each month on an estimated basis as
reasonably determined by Landlord. Landlord may adjust such estimate at any
time and from time to time based upon Landlord's experience and anticipation
of costs, provided such adjustments are not made more than twice in any
Lease Year. After the end of each calendar year during the Term, Landlord
shall deliver to Tenant a statement setting forth the actual expenses of the
Property for such calendar year, the amount paid by Tenant as Expense Rent
on account thereof, Tenant's Share of such expenses, and the amount due to
or from Tenant. If Tenant has paid less than the actual amount due, Tenant
shall pay the difference to Landlord within fifteen (15) days after
Landlord's request therefor as Additional Rent. Any amount paid by Tenant
which exceeds the amount due shall be credited to the next succeeding
payments due as Expense Rent hereunder, unless the Term has then expired in
which event such excess amount shall be refunded to Tenant.
Tenant shall have a period of fifteen (15) days after receipt
Landlord's statement of Expense Rent due to object to Landlord's billing.
Such objection shall be in writing and delivered to Landlord within fifteen
(15) days of Tenant's receipt of such bill and shall be accompanied by
payment in full of the Expense Rent. Tenant shall then have a period of
thirty (30) days to review the records of Landlord with respect to the
expenses of the Property. In the event Tenant does not give such notice on
a timely basis, or make such investigation on a timely basis, Tenant's right
to object to the Expense Rent shall be deemed waived and Landlord's
statement of Expense Rent deemed approved by Tenant. Time shall be of the
essence with respect to Tenant's notice. Without limiting the foregoing, if
Tenant's review of Landlord's records relating to expenses for any
particular period of the Term hereof demonstrates to the satisfaction of
Landlord and Tenant that Tenant has paid more than Tenant's Proportionate
Share of expenses for said period, then, the excess amount paid by Tenant
shall be utilized by Tenant as a credit against its obligation to pay Annual
Base Rent and/or Additional Rent for any period after the date of said
review.
Notwithstanding anything to the contrary herein, the following shall
not be deemed "expenses": (i) costs incurred by Landlord to repair or
remedy defects in the initial construction of the Building; (ii) costs
incurred by Landlord to construct an improvement to the Building which is
intended to benefit only a specific tenant of the Building; and (iii) costs
incurred by Landlord, which would otherwise be "expenses" under this Rider,
which costs are reimbursed to Landlord by insurance carriers or contractors.
Initials:
/s/ PVP
_____________________
Landlord
/s/ PJM
_____________________
Tenant
AVAILABLE SPACE RIDER
---------------------
Date of Lease: August 12, 1997
Landlord: PVP-Salem Associates, L.P.
Tenant: Parlex Corporation
Property: Portion of 7 Industrial Way, Salem, N.H.
1. The Enco Space. Subject to all of the provisions of this Rider,
Tenant agrees that it shall add to the Demised Premises that portion of the
Building presently occupied by Enco Manufacturing Company (the "Enco
Space"), at such time as the Enco Space becomes vacant and available for
lease during the Term hereof, provided that the Enco Space becomes available
for occupancy on or before December 1, 1998. Landlord represents that the
Enco Space contains approximately 12,000 square feet. Without limiting the
foregoing, Landlord shall use best faith efforts to terminate the current
lease for the Enco Space and cause the present tenant thereof to vacate same
and remove all its possessions as soon as possible after the date of
execution hereof.
2. Notice of Availability. Landlord shall notify Tenant that the
Enco Space will become vacant and ready for occupancy in the condition
hereinafter provided by this Rider (the "Space Notice"). This Space Notice
shall set forth the date on which Landlord anticipates being able to deliver
possession of the Enco Space to Tenant and the amount by which the Annual
Base Rent for the Demised Premises shall be increased. Said increase in
Annual Base Rent shall be determined by Landlord by dividing the Annual Base
Rent in effect on the date of the Space Notice by 34,000 and then
multiplying the quotient so determined by 12,000 (subject to any increase in
Annual Base Rent that Landlord may be entitled to if the Space Notice is
sent in one particular Lease Year and the date on which Tenant first
occupies the Enco Space occurs in a subsequent Lease Year).
From and after the Possession Date, as said term is defined in Section
3 of this Available Space Rider, all references in the Lease to the term
Annual Base Rent, including, without limitation, all references to said term
in the Annual Base Rent Rider, shall be deemed references to the Annual Base
Rent as increased by this Section 2 of this Available Space Rider. Without
limiting the foregoing, it is expressly understood and agreed that from and
after the Possession Date, the annual increases in Annual Base Rent provided
for in the Annual Base Rent Rider shall apply to the entire Annual Base
Rent, including that portion allocable to the Enco Space.
3. Condition of Enco Space, Delivery of Possession. The Enco Space
shall not be deemed ready for occupancy, nor in compliance with the
provisions of this Rider, until and unless Landlord is ready and able to
deliver same to Tenant in the following condition: broom clean, with all
personal property, trade fixtures, machinery and equipment removed
therefrom; all sprinkler, electrical, plumbing and HVAC systems which
service the Enco Space in good working order; and all interior walls and
floors in good condition, without any holes or similar damage. Except as
hereinabove set forth, Tenant shall accept the Enco Space in its "as is"
condition on the Possession Date (as said term is hereinafter defined), and
except for Landlord's obligations under the immediately preceding sentence,
all alterations and improvements to the Enco Space, if any, shall be made at
Tenant's expense, subject always, however, to all the terms and provisions
of this Lease relating to alterations, modifications and improvements of the
Demised Premises. So long as the Enco Space is then ready for occupancy,
the term "Possession Date" shall mean the earlier of (i) the thirty-first
(31st) day following the date Tenant receives the Space Notice and (ii) the
first day Tenant commences to use and occupy the Enco Space. If, however,
the Enco Space is not then ready for occupancy, the Possession Date shall be
postponed until the day on which the Enco Space becomes ready for occupancy
as provided for herein. Without limiting the foregoing, it is agreed that
Tenant shall not be responsible for any environmental or other pre-existing
dangerous or illegal conditions existing at the Enco Space prior to the
Possession Date.
4. Not an Option. It is not the intent of Landlord and Tenant to
grant Tenant any option hereunder. Rather, it is the express intent of
Landlord and Tenant hereunder to require (i) Landlord to deliver the Enco
Space and (ii) Tenant to accept the Enco Space, subject always to the terms
and provisions of this Rider. Notwithstanding anything to the contrary
herein, Landlord, at its sole discretion, may elect not to deliver the Enco
Space to Tenant on the Possession Date, in which case the Enco Space shall
not become part of the Demised Premises, if, as of the Possession Date, one
or more of the following conditions exists:
(a) Tenant is in material default with respect to any of its
obligations under this Lease; or
(b) The Tenant named in Section 1(c) of the Lease shall have
theretofore assigned this Lease or sublet any portion of the Premises.
It is expressly understood and agreed that Landlord, in its sole and
absolute discretion, may elect to deliver the Enco Space to Tenant on the
Possession Date notwithstanding the existence of one or more of said
conditions, in which event Tenant shall accept the Enco Space and said Enco
Space shall thereupon become part of the Demised Premises.
5. Enco Space Provisions. (a) From and after the Possession Date
the Lease shall be deemed amended to include the Enco Space as part of the
Demised Premises and the terms "Premises" and "Demised Premises" as used in
this Lease shall thereafter be deemed to include the Enco Space. From and
after the Possession Date, all of the terms and conditions set forth in the
Lease shall be applicable to the Enco Space as if same were originally part
of the Premises, except the Annual Base Rent shall be as set forth in
Landlord's Space Notice and Tenant's Proportionate Share shall be increased
to 62.59%, which percentage Landlord represents shall be Tenant's true,
correct and accurate Proportionate Share after the Possession Date.
(b) At any time after the Possession Date, Tenant shall execute and
deliver to Landlord an agreement confirming the addition of the Enco Space
to the Demised Premises, and setting forth the square foot area of the Enco
Space, the Possession Date, the Annual Base Rent for the Enco Space and the
aggregate Annual Base Rent for the Demised Premises (including the Enco
Space) on the Possession Date, and such other matters as Landlord shall
reasonably request or require.
6. No Violations. Landlord represents and warrants to Tenant that to
the best of Landlord's knowledge on the date of execution hereof, Landlord
is not in receipt of any notices of outstanding violations of any
ordinances, orders, rules, regulations, and other governmental requirements
relating to the use, condition and occupancy of the Enco Space, including
the Americans With Disabilities Act, all handicapped access related
requirements and all rules, orders, regulations and requirements of the
Board of Fire Underwriters or insurance service office, or any similar body
having jurisdiction over the Enco Space.
7. Rent Concession. Notwithstanding anything to the contrary herein,
Tenant shall not be obligated to pay any Annual Base Rent or Additional Rent
for the Enco Space for the first thirty (30) days following the Possession
Date.
Initials:
/s/ PVP
_____________________
Landlord
/s/ PJM
_____________________
Tenant
TERMINATION OF LEASE RIDER
--------------------------
TERMINATION OF LEASE, by and between PVP-SALEM ASSOCIATES, L.P., as
Landlord, and PARLEX CORPORATION, as Tenant.
BACKGROUND
----------
A. On or about July 8, 1992, AHB Realty Corporation, as Landlord and
Tenant entered into an Agreement of Lease (the "Lease" for the purposes of
this Rider only) for certain premises located at 7 Industrial Way, Salem,
New Hampshire (the "Premises" for the purposes of this Rider only). The
term of the Lease expired June 30, 1997.
B. Landlord is the successor-in-interest to AHB Realty Corporation.
Tenant and Landlord now wish to enter into a new lease ("New Lease") for the
Premises.
C. Each party (hereinafter in this paragraph the "first party") is
prepared to enter into the New Lease if and only if the other party agrees
to formally terminate the Lease and release the first party and all of the
first party's predecessors-in-interest from all presently known claims
thereunder.
AGREEMENT
---------
FOR AND IN CONSIDERATION of the foregoing premises and in further
consideration of the covenants and agreements hereinafter set forth, the
parties agree as follows:
1. The Lease shall be and hereby is terminated as of 11:59 P.M. on
the date ("Termination Date") immediately preceding the Commencement Date of
the New Lease.
2. Effective as of the Commencement Date of the New Lease, Tenant
shall and hereby does irrevocably, unconditionally, fully and finally
release Landlord and all of Landlord's predecessors-in-interest from any and
all claims, demands, actions and causes of action (collectively, "Claims")
which Tenant may have against Landlord and/or any or all of Landlord's
predecessors-in-interest as a result of or in connection with the Lease or
Tenant's use and occupancy of the Premises at all times prior to the
Commencement Date of the New Lease, no matter how or under what theory of
liability such claims arise, to the extent such Claims are presently known
to Tenant.
3. Effective as of the Commencement Date of the New Lease, Landlord
shall and hereby does irrevocably, unconditionally, fully and finally
release Tenant and all of Tenant's predecessors-in-interest from any and all
Claims which Landlord may have against Tenant and/or any or all of Tenant's
predecessors-in-interest as a result of or in connection with the Lease or
Tenant's use and occupancy of the Premises at all times prior to the
Commencement Date of the New Lease, no matter how or under what theory of
liability such claims arise, to the extent such Claims are presently known
to Landlord.
4. Each party (hereinafter in this Section the "first party")
acknowledges that the other party (hereinafter in this Section the "second
party") would not enter into the New Lease unless the first party executed
and delivered to the second party this instrument, including the release
provisions set forth in Sections 2 and 3 above. The first party agrees that
the execution by the second party of the New Lease is sufficient
consideration to the first party for granting of said release. The first
party agrees that it shall not seek any additional consideration from the
second party or any of the second party's predecessors-in-interest for the
granting of said release.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals this 12th day of August, 1997.
LANDLORD:
WITNESS: PVP-SALEM ASSOCIATES, L.P.
BY: PVP-SALEM CORP.,
Its General Partner
______________________________ By: /s/ Paul V. Profeta
___________________________
PAUL V. PROFETA,
President
TENANT:
ATTEST: PARLEX CORPORATION
______________________________ By: /s/ Peter J. Murphy
___________________________
Its: President
__________________________
RULES AND REGULATIONS RIDER
---------------------------
Date of Lease: August 12, 1997
Landlord: PVP-Salem Associates, L.P.
Tenant: Parlex Corporation
Property: Portion of 7 Industrial Way, Salem, N.H.
Landlord hereby promulgates the following Rules and Regulations with
respect to the Property:
1. The roads, driveways, parking areas, sidewalks, entrances,
elevators, stairways and halls shall not be obstructed by any tenant or used
for any purpose other than for ingress to and egress from such tenant's
Premises. No tenant shall store any of its property outside of its
Premises.
2. No tenant shall use or keep any foul or noxious gas or substance
in its Premises, or permit its Premises to be used in a manner offensive or
objectionable to Landlord in its sole judgment or other tenants of the
Building by reason of noise, odors or vibrations. No animals or birds shall
be kept on the Property.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside of its Premises or the Building or on the inside of its Premises
which is visible from the outside of the premises without the prior written
consent of the Landlord, except as provided in the Lease.
4. Except as currently existing, no tenant shall lay linoleum or
other similar floor coverings so that the same shall come in direct contact
with the floor of its Premises, and if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt
shall be first fixed to the floor by a paste or other material that may
easily be removed with water; the use of cement or other similar adhesive
material is expressly prohibited. Carpeting without padding shall have jute
backing and shall be installed only with quick release cement.
5. Tenant shall not install any additional locks or change the locks
on any of the entrance doors or interior doors of its Premises.
6. Tenant shall not install any window coverings other than venetian
blinds as specified by Landlord, without Landlord's consent, which shall not
be unreasonably withheld.
7. No tenant shall place a load upon any floor of its Premises
exceeding the floor load per square foot area which it was designed to carry
and which is allowed by law. Landlord reserves the right to prescribe the
weight and position of all safes, office machines, other machines and
mechanical equipment. Such installations shall be placed in locations in
the Premises and in such manner sufficient to absorb and prevent vibration,
noise and annoyance.
8. Freight, furniture, equipment, supplies, merchandise and bulky
matter shall be delivered to and removed from the Premises only through the
entrances and corridors designated by Landlord, and only during the hours
and in the manner prescribed by Landlord. Any damage that occurs to the
Premises, Building and/or Property due to such deliveries shall be repaired
by Landlord at Tenant's sole cost and expense. All amounts due and owing by
Tenant to Landlord pursuant to the immediately preceding sentence shall be
deemed Additional Rent under this Lease and shall be paid by Tenant to
Landlord within fifteen (15) days of Landlord's invoice therefor.
9. No tenant shall bring or keep in its Premises any inflammable,
combustible or explosive fluid, material, chemical or substance, or cause
any odors of cooking or other processes, or any objectionable odors to
permeate in or emanate from its Premises.
10. Tenant shall not install any item of equipment in its Premises,
Building and/or Property which creates a harmonics problem which interferes
with other equipment in the Building, or creates a power factor of less than
90%.
Initials:
/s/ PVP
_____________________
Landlord
/s/ PJM
_____________________
Tenant
EXHIBIT 10-M
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT (the "Agreement") made as of the first day of July, 1997 by
and between Parlex Corporation, a Massachusetts corporation (the "Company"),
and Herbert W. Pollack of Lexington, Massachusetts (the "Employee").
In consideration of the mutual promises herein contained, the Company
and the Employee hereby agree as follows:
1. Employment
----------
The Company hereby employs the Employee, and the Employee hereby
accepts employment by the Company to render such services in connection with
the business of the Company as the Company may from time to time request.
However, the services to be rendered shall be consistent with the level of
responsibility that the Employee has previously held and shall be performed
only at the Company's headquarters or at such other location that is
acceptable to the Employee. The term of the Employee's employment hereunder
shall begin on July 1, 1997 and shall end on June 30, 2000.
2. Compensation
------------
In consideration of all services to be rendered by the Employee during
the term of this Agreement, the Company shall pay to the Employee during the
term of his employment hereunder compensation at the rate of eighteen
thousand two hundred and twenty dollars ($18,220.00) per month, payable on
the last business day of each calendar month or at such other times as the
Company and the Employee shall agree.
3. Death Benefit
-------------
If the Employee dies during the term of employment hereunder, the
Company agrees to pay to the Designated Beneficiary (as hereinafter defined)
the compensation provided in section 2 for the remaining term of this
Agreement. The Company shall also continue to pay the Designated
Beneficiary for a period of twenty-four (24) months after June 30, 2000 an
amount equal to seventy-five percent (75%) of the rate of compensation per
month payable to the Employee pursuant to section 2 hereof at the time of
the Employee's death.
For purposes of this Agreement, the term "Designated Beneficiary"
shall be the person or persons designated in a writing filed by the Employee
with the Company or, upon the death of the Employee without having made such
a designation, the Employee's estate.
4. Fringe Benefits
---------------
In addition to the compensation provided for in section 2 above, while
this Agreement is in effect Employee shall be entitled to receive all fringe
benefits and perquisites customarily extended to officers and key employees
of the Company, including but not limited to, profit sharing, bonus, stock
option, health and life insurance. The Company agrees to continue medical,
hospital and life insurance benefits for the Employee for a period of 24
months after completion of the term of the Agreement with co-payments to be
made by the Employee subject to and on a basis consistent with the terms and
conditions of such plans during the term of this Agreement. If the Employee
dies during the term of the Agreement, the Company shall continue to provide
medical and hospital benefits for his spouse for a period of 24 months
beginning with the first month after the Employee's death with co-payments
to be made by his spouse as provided herein.
5. Further Covenants
-----------------
5.1 The Employee agrees that all knowledge and information of a
secret or confidential nature with respect to the business of the Company
possessed or acquired by him will be held in confidence and will not, either
during or after his employment by the Company, be disclosed, published, or
made use of without the consent of the Company unless and until such
knowledge and information shall have ceased to be secret or confidential as
evidenced by general public knowledge.
5.2 The Employee agrees that all inventions, developments, patents,
and patent applications relating to the business of the Company made,
conceived, or obtained by him either alone or in conjunction with others
during the term of his employment by the Company shall be the sole property
of the Company. The Employee agrees to promptly disclose and assign to the
Company all such inventions, developments, patents, and patent applications,
and, at the request of the Company to promptly execute and deliver any
documents and take any other action which the Company deems necessary or
advisable in order to vest in it all rights to such inventions,
developments, patents, and patent applications.
5.3 The Employee agrees that at the termination of his employment by
the Company he will promptly deliver to the Company all technical data,
drawings, memoranda, customer lists, and other documents in his possession
or control which relate to the business of the Company.
5.4 The Employee agrees that so long as he is employed by the Company
hereunder, and for a period of twelve (12) months after he ceases to be
employed by the Company, he will not, directly or indirectly, own, operate,
or manage or participate in the ownership, operation, or management of, or
be connected in any matter (whether as owner, employee, or otherwise) with,
any business in competition with that of the Company anywhere in the United
States; provided, however, the Employee shall not be deemed to be in
violation of this subsection 5.4 solely by reason of his ownership of not
more than two percent (2%) of the equity of any corporation whose stock is
regularly traded on a national securities exchange or in the over-the-
counter market. In the event the Company terminates the Employee's
employment with the Company during the term of this Agreement and said
termination was not for cause (as said term is defined herein), then and in
that event only the post termination provisions of this Section 5.4 shall
not apply. For purposes of this Agreement, the term "cause" shall mean that
the Employee shall have breached or failed to perform his obligations and
job responsibilities in accordance with the terms and conditions of this
Agreement or his job description, shall demonstrate negligence,
inefficiency, gross misconduct, dishonesty, or insubordination in the
execution of his duties as an employee of the Company, or upon conviction of
a felony or any crime involving moral turpitude.
5.5 The Employee agrees that so long as he is employed by the Company
hereunder and for a period of twelve (12) months after he ceases to be
employed by the Company, he will not, directly or indirectly, through one or
more persons, offer employment to any employee of the Company, assist in the
hiring of any employee of the Company by any other person, or encourage any
employee of the Company to terminate his or her employment by the Company.
In the event the Company terminates the Employee's employment with the
Company during the term of this Agreement and said termination was not for
cause (as said term is defined in Section 5.4 above), then and in that event
only the post termination provisions of this Section 5.5 shall not apply.
5.6 The Employee agrees that the remedy at law for the breach of any
of the provisions of this section 5 will be inadequate and that the Company
shall be entitled to injunctive or other equitable relief, in addition to
any other remedy it may have, without having to prove actual damage to the
Company because of any breach hereunder by him.
6. Change of Control
-----------------
In the event of a Change of Control (as defined herein), the Company
shall, in the sole discretion of the Employee, pay to the Employee in a lump
sum, an amount equal to the aggregate amount accrued to the deferred
compensation account, including interest, held by the Company for Employee
since May of 1982 and all compensation to be paid to Employee under the
terms of this Agreement through June 30, 2000. The payment shall be made to
Employee within 30 days after receipt of written notice from Employee
exercising his rights under this provision. For purposes of this section,
the term "Change of Control" means the happening of any of the following:
(i) when any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Act") (other than the Company or a
subsidiary or any employee benefit plan (including its trustee) of either
the Company or a subsidiary) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities; or (ii) the occurrence of a
transaction requiring stockholder approval for the acquisition of the
Company by an entity other than the Company or its subsidiary through
purchase of assets, or by merger, or otherwise or (iii) if, as a result of,
or in connection with, any tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were directors of
the Company before such transaction shall cease to constitute a majority of
the Board of Directors of the Company or of any successor institution. For
purposes of this Section, the term "person" shall exclude all persons who
are currently officers or directors of the Company, or spouses, or spouses,
blood relatives or stepchildren of such officers or directors, and trusts
for the benefit of any such persons, and the estates of any such persons.
7. Attachment; assignability
-------------------------
The right of the Employee or his Designated Beneficiary to any payment
hereunder shall not be subject in any manner to attachment or other legal
process for the debts of the Employee or such Designated Beneficiary, and
the right to any such payment shall not be subject to anticipation,
alienation, sale, transfer, assignment, or encumbrance.
8. Severability
------------
The provisions of this Agreement shall be severable, and the
invalidity of any portion of this Agreement shall not affect the validity of
any other portion hereof.
9. Successors
----------
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns, and the Employee, his executors,
administrators, and personal representatives.
10. Governing Law
-------------
This Agreement shall be construed and interpreted in accordance with
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its behalf by an officer thereof thereunto duly authorized and
has caused its seal to be hereunto affixed and duly attested, and the
Employee has hereunto set his hand and seal, as of the day and year first
above written.
ATTEST: PARLEX CORPORATION:
______________________________ By: /s/ Peter J. Murphy
____________________________
Peter J. Murphy, President
EMPLOYEE:
/s/ Herbert W. Pollack
_______________________________
Herbert W. Pollack
EXHIBIT 10-N
PATENT ASSIGNMENT AGREEMENT
This Agreement is made and effective as of June 16, 1997 between
Polyonics Corporation, a Massachusetts corporation having a principal place
of business at 112 Parker Street, Newburyport, Massachusetts 01950
(hereinafter referred to as Polyonics), and Parlex Corporation, a
Massachusetts corporation having a principal place of business at 145 Milk
Street, Methuen, MA 01844 (hereinafter referred to as Parlex).
Introduction
------------
The parties have entered into a License Agreement dated May 21, 1990
as amended on or about December 23, 1996 and April 25, 1997 under certain
patents of Polyonics, and now desire to transfer ownership of those patents
from Polyonics to Parlex on the terms and conditions set forth herein.
In consideration of the mutual obligations set forth herein the
parties agree as follows:
1. Polyonics hereby sells and assigns to Parlex all right, title and
interest throughout the United States, its territories and all foreign
countries, in and to the United States patents identified in Schedule A
hereto and in and to the inventions disclosed therein, and all reissues,
certificates of reexamination and extensions thereof, any corresponding
foreign patents and any United States and foreign patents which claim
priority or depend from or are dominated by any patent licensed under the
License Agreement as amended.
2. Concurrently with execution of this Agreement, Polyonics shall
execute a patent assignment in the form attached hereto as Exhibit A for
recording by Parlex in the United States Patent and trademark Office.
3. Upon execution of this Agreement by both parties, Parlex shall pay
to Polyonics the sum of ten thousand dollars ($10,000.00) as full and entire
consideration for the Assignment herein.
4. Parlex hereby grants back to Polyonics a worldwide nonexclusive
license under the patents identified in Schedule A to make use, sell or
dispose of products using this technology but with no rights to grant
additional sub licenses thereunder with respect to printed circuit products
or constituents thereof. The licenses heretofore granted by Polyonics to
Morton International which expires October 31, 1997 and to DuPont
Corporation shall continue in full force and effect pursuant to the terms
thereof.
5. Polyonics represents and warrants that the patents identified in
section 1 hereof are all of the patents applicable to the License Agreement
as amended and that there are no other United States or foreign patents
applicable to the License Agreement as amended or to this Assignment
Agreement.
6. Parlex shall have the sole right to determine whether or not to
make maintenance fee payments on any or all of the patents listed on
Schedule A. However, if Parlex elects not to prosecute or maintain any of
the aforesaid patents, Parlex shall notify Polyonics of its election at
least sixty (60) days in advance of any deadline for prosecuting or
maintaining such patent application or patent, and Polyonics shall upon such
notice have the right to assume the ongoing prosecution or maintenance of
such patent application or patent at the election and expense of Polyonics,
and to have such patent application or patent reassigned to Polyonics.
Polyonics shall notify Parlex of the election at least thirty (30) days
following receipt of such notice from Parlex. Promptly following an
election by Polyonics to assume prosecution or maintenance of such patent
application or patent, Parlex shall assign to Polyonics without any further
payment by Polyonics the entire right, title and interest in such patent
application or patent and execute such assignment documents as are deemed
appropriate by Polyonics to record the assignment in the Patent and
Trademark Office or other applicable government agency.
7. The License Agreement as amended shall remain in force to the
extent not superseded by this Assignment Agreement.
8. This Assignment Agreement shall inure to the benefit of any
successors and assigns of Parlex.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed as of the effective date set forth above.
PARLEX CORPORATION POLYONICS CORPORATION
/s/ Peter J. Murphy /s/ Thomas F. Burke
______________________________ _______________________________
Name Name
Title: President President
______________________ Title: _______________________
patent
A S S I G N M E N T
-------------------
WHEREAS, POLYONICS CORPORATION, a Massachusetts corporation, having a
principal place of business at 112 Parker Street, Newburyport, Massachusetts
01950 (hereinafter Assignor), is the sole and exclusive owner of the entire
right, title and interest in and to certain United States patents as
identified in Schedule A attached hereto and in and to the inventions
disclosed therein; and
WHEREAS, PARLEX CORPORATION, a Massachusetts corporation, having its
principal place of business at 145 Milk Street, Methuen, Massachusetts 01844
(hereinafter Assignee) is desirous of acquiring the right, title and
interest in and to said United States patents identified in Schedule A
hereto and in and to the inventions disclosed therein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby assign
unto Assignee, its successors and assigns, all right, title and interest
throughout the United States, its territories and all foreign countries; in
and to the United States patents identified in Schedule A hereto and in and
to the inventions disclosed therein; and all reissues, certificates of
reexamination and extensions thereof; together with all rights of action and
recovery for past infringement thereof; for the full term or terms for which
any and all such patents may be granted; as fully and entirely as the same
would have been held and enjoyed by Assignor had this Assignment not been
made.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed
by its duly authorized officer this 16th day of June, 1997.
POLYONICS CORPORATION
By /s/ Thomas F. Burke
____________________________
Name: Thomas F. Burke
Title: President
Commonwealth of Massachusetts )
)
County of Essex )
Subscribed and sworn to before me this 16th day of June, 1997.
__________________________
Notary Public
My Commission Expires:
patent
SCHEDULE A
----------
To Assignment dated June 16, 1997 between POLYONICS CORPORATION and
PARLEX CORPORATION.
U.S. ISSUED
-----------
Patent No. Date of Issue
---------- -------------
4,725,504 February 16, 1988
4,806,395 February 21, 1989
4,832,799 May 23, 1989
4,868,071 September 19, 1989
4,894,124 January 16, 1990
4,950,553 August 21, 1990
4,992,144 February 12, 1991
5,015,517 May 14, 1991
5,066,545 November 19, 1991
5,322,976 June 21, 1994
5,478,462 December 26, 1995
EXHIBIT 10-O
["THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933."] DATED: AUGUST 20,
1996
PARLEX CORPORATION
1996 OUTSIDE DIRECTORS' STOCK OPTION PLAN
1. PURPOSE.
--------
This Non-Qualified Stock Option Plan shall be known as the 1996
Outside Directors' Stock Option Plan (the "Plan"). The purpose of the Plan
is to enhance the ability of Parlex Corporation (the "Company") (i) to
attract and retain as Directors of the Company knowledgeable and experienced
persons of the highest caliber who are not employees of the Company, (ii) to
reinforce the mutuality of interests between members of the Board of
Directors and the stockholders of the Company, and (iii) to enable members
of the Board of Directors to participate in the long-term success and growth
of the Company.
2. RIGHTS TO BE GRANTED.
---------------------
Under this Plan, options (the "Option" or "Options") are granted that
give an optionee the right for a specified time period to purchase a
specified number of shares of Common Stock, par value $0.10, of the Company
(the "Common Stock"). The option price is determined in each instance in
accordance with the terms of this Plan.
3. ADMINISTRATION.
---------------
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board shall have authority, not inconsistent with the
express provisions of the Plan (a) to grant Options in accordance with the
Plan to such directors as are eligible to receive Options; (b) to prescribe
the form or forms of instruments evidencing Options and any other
instruments required under the Plan and to change such forms from time to
time; (c) to adopt, amend and rescind rules and regulations for the
administration of the Plan; and (d) to interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in
connection with the Plan. Such determinations of the Board shall be
conclusive and shall bind all parties. Subject to Section 17, the Board
shall also have the authority, both generally and in particular instances,
to waive compliance by a director with any obligation to be performed by him
under an Option and to waive any condition or provision of an Option.
4. STOCK SUBJECT TO PLAN.
----------------------
Subject to adjustment as provided in Section 16 below, the maximum
number of shares of Common Stock, par value $0.10 per share, reserved and
available for distribution under the Plan shall be 100,000 shares. Such
shares may be authorized and unissued shares or may be shares previously
issued and thereafter reacquired by the Company. If an Option granted under
the Plan shall expire or terminate for any reason without having been
exercised, in whole or in part, the unpurchased shares subject to such
Option shall again be available for subsequent option grants under the Plan.
5. ELIGIBILITY.
------------
Options may be granted pursuant to this Plan only to non-employee
members of the Board of Directors of the Company (an "Outside Director").
6. GRANT OF OPTIONS.
-----------------
(a) Effective as of August 20, 1996, (the "Initial Grant Date")
and on the date of each annual meeting of stockholders thereafter
beginning with the 1997 Annual Meeting of Stockholders ("Annual Grant
Date"), each person (the "Optionee") who is an Outside Director of the
Company shall automatically be granted, without further action by the
Board, an Option to purchase one thousand (1,000) shares of the
Company's Common Stock. The date upon which each option grant is to be
automatically made hereunder is referred to herein as the "Date of
Grant". Anything in this Plan to the contrary notwithstanding, the
effectiveness of this Plan and of the grant of all Options hereunder
is in all respects subject to, and this Plan and Options granted under
it shall be of no force and effect unless and until, and no Option
granted hereunder shall in any way vest or become exercisable in any
respect unless and until, the approval of the Plan by the affirmative
vote of a majority of the Company's shares present (in person or by
proxy) and entitled to vote at a meeting of stockholders at which the
Plan is presented for approval. In the event that such approval as
aforesaid has not been received on or before January 1, 1997, then in
such event this Plan and any options granted hereunder shall be null
and void, and upon the occurrence of such approval as aforesaid, the
Plan and such Options shall be effective as of the date of the Board
of Directors' approval of the Plan.
(b) During the term of the Plan, each member of the Company's
Board of Directors who is not an employee of the Company and becomes a
member of the Board of Directors after August 20, 1996, shall receive,
on the first Annual Grant Date following the date on which he became a
member of the Board, an Option to purchase the number of shares of
Common Stock equal to the product of 1,000 and a fraction, the
numerator of which is the number of days during the year preceding
such Annual Grant Date that such Director served as a member of the
Board and the denominator of which is 365.
(c) In addition to the specific option grants referred to in
subsections (a) and (b) above, the Company's Board of Directors may
award Options on an annual basis to purchase up to one thousand five
hundred (1,500) shares of the Company's Common Stock to Outside
Directors in recognition of extraordinary efforts and contributions to
the Board. Except for the specific Options referred to in subsections
(a),(b), and (c) above, no other Options shall be granted under this
Plan.
(d) No fractional shares shall be granted under the terms of
this Plan.
(e) If at any time there are insufficient shares available
under the Plan to grant the Options prescribed by this Section 6, the
number of shares for which Options shall be granted shall be prorated
equally among the Outside Directors entitled to receive such Options.
7. FORM OF OPTION AGREEMENT.
-------------------------
Each Option granted under the provisions of this Plan shall be
evidenced by an Option Agreement in such form not inconsistent with the Plan
as may be specified by the Board of Directors.
8. OPTION PRICE.
-------------
The purchase price of the stock covered by an Option granted pursuant
to this Plan shall be the Market Price (as defined below) as determined on
the date when the Options are initially granted to the Outside Director.
For purposes of this Plan, the Market Price shall be the closing sale price
of a share of Common Stock as listed on the NASDAQ National Market System on
the date of grant (or the last closing sale price of the next business day
in the event there were no such trades on the date of grant).
9. METHOD OF EXERCISE OF OPTION.
-----------------------------
(a) Subject to the terms and conditions of this Plan and the
Option Agreement, an Option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written
notice to the Company, stating the number of shares with respect to
which the Option is being exercised, accompanied by payment in full
for such shares, which payment may be in whole or in part in shares of
the Common Stock of the Company already owned by the person or persons
exercising the Option, valued at the Market Price determined in
accordance with the provisions of Section 8; provided, however, that
there shall be no such exercise at any one time as to fewer than one
hundred (100) shares or all of the remaining shares then purchasable
by the person or persons exercising the Option, if fewer than one
hundred (100) shares.
(b) In the event of a Change of Control (as defined herein),
all Options outstanding (whether or not then exercisable) as of the
date of such Change in Control shall automatically become vested and
fully exercisable, but in no event shall they be exercised later than
the specified expiration date of the option. For purposes of the
Plan, the term "Change of Control" means the happening of any of the
following: (i) when any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the"Act")
(other than the Company or a subsidiary or any employee benefit plan
(including its trustee) of either the Company or a subsidiary) becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly of securities of the Company representing 30
percent or more of the combined voting power of the Company's then
outstanding securities; or (ii) the occurrence of a transaction
requiring stockholder approval for the acquisition of the Company by
an entity other than the Company or its subsidiary through purchase of
assets, or by merger, or otherwise; or (iii) if, as a result of, or in
connection with, any tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were
directors of the Company before such transaction shall cease to
constitute a majority of the Board of Directors of the Company or of
any successor institution. For purposes of this Section (i) above,
the term "person" shall exclude all persons who are currently officers
or directors of the Company, or spouses, blood relatives or
stepchildren of such officers or directors, and trusts for the benefit
of any such persons, and the estates of any such persons.
10. OPTION PERIOD.
--------------
Each Option and all rights thereunder shall expire ten years from the
day on which the Option is granted, subject to earlier termination as
provided in the Plan.
11. EXERCISE OF OPTIONS.
--------------------
Each Option granted under the Plan shall become exercisable one (1)
year from the date of the grant of such Option. Upon any exercise of an
Option, the Optionee shall specify for which Option or portion thereof he
wishes to exercise up to the full amount which have become exercisable as of
that date. To the extent that an Option is not exercised by an Optionee
when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable until the expiration of the
exercise period.
12. NONTRANSFERABILITY OF OPTIONS.
------------------------------
No Option granted under the Plan shall be assignable or transferable
by the person to whom it is granted, either voluntarily or by operation of
law, except by will or the laws of descent and distribution. During the
life of the Optionee, the Option shall be exercisable only by such person.
13. TERMINATION OF OPTION RIGHTS.
-----------------------------
(a) In the event an Optionee ceases to be a member of the Board
of Directors of the Company for any reason other than death or
disability, any then unexercised Options granted to such Optionee
shall, to the extent not then exercisable, immediately terminate and
become void, and any Options which are then exercisable but have not
been exercised at the time the Optionee so ceases to be a member of
the Board of Directors may be exercised, to the extent they are then
exercisable, by the Optionee within a period of thirty (30) days
following such time the Optionee so ceases to be a member of the Board
of Directors, but in no event later than the expiration date of the
Option.
(b) In the event that an Optionee ceases to be a member of the
Board of Directors of the Company by reason of his or her disability
or death, any Option granted to such Optionee shall be immediately and
automatically accelerated and become fully vested and all unexercised
Options shall be exercisable by the Optionee (or by the Optionee's
personal representative, heir or legatee, in the event of death)
during the period ending one hundred eighty (180) days after the date
the Optionee so ceases to be a member of the Board of Directors, but
in no event later than the expiration date of the Option.
14. GENERAL RESTRICTIONS.
---------------------
(a) The Company may require any person to whom an Option is
granted, as a condition of exercising such Option, to give written
assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the
Option for his or her own account for investment and not with any
present intention of selling or otherwise distributing the same, and
to such other effects as the Company deems necessary or appropriate in
order to comply with federal and applicable state securities laws.
The certificates for any shares of stock acquired under the Plan may
include any legend which the Company deems appropriate to reflect any
restrictions on transfer.
(b) Each Option shall be subject to the requirement that if, at
any time, counsel to the Company shall determine that the listing,
registration or qualification of the shares subject to such Option
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance or
purchase of shares thereunder, such Option may not be exercised, in
whole or in part, unless such listing, registration, qualification,
consent or approval shall have been effected or obtained on conditions
acceptable to the Company. Nothing herein shall be deemed to require
the Company to apply for or to obtain such listing, registration or
qualification.
(c) No member of the Board, nor any officer or employee of the
Company acting on behalf of the Board or the Company, shall be
personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members
of the Board and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such
action, determination or interpretation.
15. RIGHTS AS A STOCKHOLDER AND DIRECTOR.
-------------------------------------
(a) The holder of an Option shall have no rights as a
stockholder with respect to any shares covered by the Option until the
date of issue of a stock certificate to him for such shares. No
adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
(b) Neither the Plan, nor the granting of an Option nor any
other action taken pursuant to the Plan, shall constitute or be
evidence of any agreement or understanding, express or implied, that
the director has a right to continue as a director for any period of
time, or at any particular rate of compensation.
16. ADJUSTMENTS TO OPTIONS.
-----------------------
In the event that the outstanding shares of Common Stock of the
Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any reorganization,
merger, consolidation, recapitalization, or reclassification, or in the
event of a stock split, stock dividend, combination of shares or
subdivision, an automatic adjustment shall be made in the number and kind of
shares as to which outstanding Options or portions thereof then unexercised
shall be exercisable and in the available shares under the Plan, to the end
that the proportionate interest of the option holder shall be maintained as
it existed before the occurrence of such event. Such adjustment to
outstanding Options shall be made without change in the total price
applicable to the unexercised portion of such Options and a corresponding
adjustment in the applicable option price per share shall be made. No such
adjustment shall be made which would, within the meaning of any applicable
provisions of the Act, constitute a modification, extension or renewal of
any option or a grant of additional benefits to the holder of an option.
17. AMENDMENT OF THE PLAN.
----------------------
The Board of Directors may at any time alter, amend, modify, suspend
or terminate the Plan; provided however, that except as provided in Section
9(b) above, no alteration, amendment, modification, suspension or
termination shall be made, without approval by the affirmative vote of a
majority of the Company's shares present (in person or by proxy) and
entitled to vote at a meeting of stockholders, which would:
(a) increase the maximum number of shares for which Options may be
granted under the Plan;
(b) change the option exercise price (except as provided in Section
16);
(c) change the designation of the class of persons eligible to
participate in the Plan;
(d) otherwise materially increase benefits accruing to option
holders under the Plan; or
(e) impair the rights of a participant under an Option previously
granted to him, without the participant's consent.
Notwithstanding the foregoing, in no event may the Plan be amended
more than once every six months. It is the intention that the Plan and the
operation thereof qualify for the exemption provisions contained in Rule
16b-3 adopted by the Securities and Exchange Commission under the Act, as
amended, as in effect from time to time or any successor rule ("Rule"). To
the extent that the implementation or operation of any provision hereof does
not comply with the requirements of the Rule as applicable to the Plan, such
provision shall be inoperative or shall be interpreted, to the extent
practicable, to apply in a manner not inconsistent with the requirements of
the Rule.
18. TAXES.
------
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan shall be subject to the Optionee's
satisfaction of all applicable federal, state and local income and
employment tax withholding requirements.
19. EFFECTIVE DATE AND DURATION OF THE PLAN.
----------------------------------------
(a) Effective Date. The effectiveness of this Plan and of the
grant of all options hereunder is in all respects subject to approval
by the Company's stockholders, all as more fully set forth in Section
6 above.
(b) Termination. Unless sooner terminated as provided herein,
the Plan shall terminate upon the date on which all shares available
for issuance under the Plan shall have been issued pursuant to the
exercise of options granted under the Plan.
EXHIBIT 21
PARLEX CORPORATION
Listing of Subsidiaries
-----------------------
Parlex International Corporation
Incorporated - Commonwealth of Massachusetts
Organized as a Foreign Sales Corporation
January 8, 1985
Parlex (Shanghai) Circuit Co., Ltd.
Incorporated in Shanghai, China
Date of Incorporation - May 29, 1995
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-10250, 33-39646, 33-39648, 33-88470, 33-88472 and 333-18869 of
Parlex Corporation and Subsidiaries on Form S-8 of our report dated August
5, 1997, appearing in this Annual Report on Form 10-K of Parlex Corporation
for the year ended June 30, 1997.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
September 26, 1997
EXHIBIT 24
POWER OF ATTORNEY
-----------------
We, the undersigned, officers and directors of Parlex Corporation,
hereby severally constitute Herbert W. Pollack and Steven M. Millstein, and
each of them singly, our true and lawful attorneys, with full power
indicated below, to sign for us the Report on Form 10-K of Parlex
Corporation for the fiscal year ended June 30, 1997 and any required
amendments thereto, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys to said Report and any and all such
amendments.
Witness our hands on the dates set forth below:
Dated: August 20, 1997
/s/ Sheldon A. Buckler
______________________________ Director
Sheldon A. Buckler
/s/ Richard W. Hale
______________________________ Director
Richard W. Hale
/s/ M. Joel Kosheff
______________________________ Director
M. Joel Kosheff
/s/ Peter J. Murphy
______________________________ Director
Peter J. Murphy
/s/ Lester Pollack
______________________________ Director
Lester Pollack
/s/ Herbert W. Pollack
______________________________ Director
Herbert W. Pollack
/s/ Benjamin Rabinovici
______________________________ Director
Benjamin Rabinovici
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 596,614
<SECURITIES> 0
<RECEIVABLES> 9,172,788
<ALLOWANCES> 143,400
<INVENTORY> 7,262,477
<CURRENT-ASSETS> 18,033,468
<PP&E> 34,284,185
<DEPRECIATION> 20,671,859
<TOTAL-ASSETS> 32,233,892
<CURRENT-LIABILITIES> 8,441,916
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<INTEREST-EXPENSE> 436,008
<INCOME-PRETAX> 3,381,167
<INCOME-TAX> 1,249,202
<INCOME-CONTINUING> 2,120,456
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<EXTRAORDINARY> 0
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<NET-INCOME> 2,120,456
<EPS-PRIMARY> .57
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