<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 2000
REGISTRATION NO. 333-33836
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PARLEX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2464749
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</TABLE>
ONE PARLEX PLACE
METHUEN, MASSACHUSETTS 01844
(978) 685-4341
(Address of principal executive offices, including zip code)
<TABLE>
<S> <C>
MR. HERBERT W. POLLACK MR. PETER J. MURPHY
Chairman President and Chief Executive Officer
Parlex Corporation Parlex Corporation
One Parlex Place One Parlex Place
Methuen, Massachusetts 01844 Methuen, Massachusetts 01844
(978) 685-4341 (978) 685-4341
</TABLE>
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENTS FOR SERVICE)
------------------------------
Please send copies of all communications to:
<TABLE>
<S> <C> <C>
KEITH F. HIGGINS, ESQ. EDWARD D. KUTCHIN, ESQ. KEVIN M. DENNIS, ESQ.
Ropes & Gray Kutchin & Rufo, P.C. ANDREW F. VILES, ESQ.
One International Place 175 Federal Street Goodwin, Procter & Hoar LLP
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Exchange Place
(617) 951-7000 (617) 542-3000 Boston, Massachusetts 02109
(617) 951-7050 (Fax) (617) 542-3001 (Fax) (617) 570-1000
(617) 523-1231 (Fax)
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effectiveness of the Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement under the earlier effective
registration statement for the same offering. / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 24, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
1,400,000 SHARES
[LOGO]
COMMON STOCK
------------------
We are offering 1,250,000 shares of our common stock and the selling
stockholders identified in this prospectus under "Selling Stockholders" on page
44 are offering an additional 150,000 shares. We will not receive any of the
proceeds from the sale of shares being offered by the selling stockholders.
Our common stock is quoted on the Nasdaq National Market under the symbol
"PRLX." The last reported sale price for our common stock on May 23, 2000 was
$22.375 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE SEE THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF FACTORS
YOU SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price................................... $ $
Underwriting Discount................................... $ $
Proceeds to Parlex...................................... $ $
Proceeds to the Selling Stockholders.................... $ $
</TABLE>
The underwriters have an option to purchase 210,000 additional shares of our
common stock from us at the public offering price, less the underwriting
discount, to cover any over-allotments of shares.
------------------------
ADAMS, HARKNESS & HILL, INC. NEEDHAM & COMPANY, INC.
Prospectus dated , 2000.
<PAGE>
TOP OF THE PAGE HEADING: "PARLEX INTERCONNECTS A WORLD OF APPLICATIONS"
The page will include photographs of the following Parlex products:
- Single-sided and double-sided flexible circuits
- Polymer thick film flexible circuit
- Laminated cable
- Flexible interconnect hybrid with surface mounted components
The page will also include photographs of the following end products:
- Automobile
- Network server
- Cellular handset
- Medical monitoring equipment
- Personal digital assistant
The layout of the page will be arranged as a collage of our products
intermingled with the end products listed above.
Our logo will appear in the bottom right corner of the page.
<PAGE>
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Price Range of Common Stock................................. 13
Dividend Policy............................................. 14
Capitalization.............................................. 14
Unaudited Pro Forma Consolidated Condensed Financial
Statements................................................ 15
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 29
Management.................................................. 42
Selling Stockholders........................................ 44
Underwriting................................................ 45
Legal Matters............................................... 47
Experts..................................................... 47
Additional Information...................................... 48
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
PALCore-Registered Trademark-, PALFlex-Registered Trademark-,
PALCoat-Registered Trademark-, U-Flex-Registered Trademark-, and
Polysolder-Registered Trademark- and the logo of Parlex are registered
trademarks of Parlex. PALCon-TM-, AutoNet-TM-, HSI+-TM- and Pemacs-TM- are
trademarks of Parlex. This prospectus also contains trademarks and trade names
of other companies.
Unless the context otherwise requires, references in this prospectus to
"Parlex," "we," "us" and "our" refer to Parlex Corporation and its subsidiaries.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS, THE NOTES TO THOSE
STATEMENTS AND THE OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS.
PARLEX CORPORATION
We are a leading provider of flexible interconnect solutions to the
automotive, telecommunications and networking, diversified electronics,
aerospace and computer markets. Our product offerings, which we believe are the
broadest of any company in the flexible interconnect industry, include flexible
circuits, laminated cable, flexible interconnect hybrid circuits, prototype
flexible circuits and flexible interconnect assemblies. We supply products to
some of the leading original equipment manufacturers in our target markets,
including Motorola, Siemens, Nortel Networks, Symbol Technologies, Honeywell and
Hewlett-Packard. We operate seven manufacturing facilities, which are located in
China, Mexico, the United Kingdom and the United States.
Flexible interconnect products provide electrical connection between
components in electronic systems and are increasingly used as a platform for the
attachment of electronic devices such as capacitors, resistors, integrated
circuits and connectors. The advantages of using flexible interconnects instead
of alternative technologies such as rigid printed circuits include three-
dimensional packaging, superior thermal qualities and reduced size and weight.
These advantages are increasingly valuable as electronic devices become smaller,
more portable and more complex. The IPC, an international trade organization,
estimates that worldwide sales of flexible circuits alone in 1998 were
approximately $2.8 billion.
We have strong relationships with our customers and work closely with them
throughout the product design phase. Our creative engineering expertise, coupled
with our ability to advance the technology of manufacturing processes and
materials, allows us to provide our customers with a comprehensive range of
flexible interconnect solutions. Once a design is completed, we use our
proprietary materials and processes, including PALFlex-Registered Trademark-,
PALCoat-Registered Trademark-, U-Flex-Registered Trademark-, PALCon-TM-,
PALCore-Registered Trademark- HP and Polysolder-Registered Trademark- to produce
a flexible interconnect that meets our customers' requirements for
functionality, cost and reliability.
In recent years our growth has supported an expansion of our manufacturing
operations to better accommodate our customers' geographic and cost
requirements. In 1995, we established Parlex (Shanghai) Circuit Co., Ltd., or
Parlex Shanghai, a joint venture in China designed to serve the Asian market for
flexible circuits as well as to produce products more cost-effectively for North
American customers. We opened an interconnect assembly and finishing facility in
Mexico, which began shipments of product in fiscal 1999. In fiscal 1999, we also
increased the size of our manufacturing facilities in Massachusetts, New
Hampshire and China. Our total manufacturing space is now approximately 320,000
square feet. Additionally, we have established distribution and customer support
capabilities in Singapore and France.
In April 1999, we acquired the Dynaflex division of CCIR of California
Corp., a subsidiary of Hadco Corporation. Dynaflex, which is located in San
Jose, California, produces a full range of flexible circuits in limited
quantities with short lead times, as required for the manufacture of prototype
products.
4
<PAGE>
In March 2000, we acquired Poly-Flex Circuits, Inc. and Poly-Flex Circuits
Limited, wholly-owned subsidiaries of Cookson Group plc. This acquisition
further diversified our product offerings by providing us with polymer thick
film and surface mount assembly capabilities. As a result of this acquisition,
we now have flexible interconnect solutions for the growing home appliance and
radio frequency identification markets, which will further diversify our target
markets. Poly-Flex has manufacturing facilities in Cranston, Rhode Island and
the United Kingdom.
Our strategy is to be the flexible interconnect supplier of choice for
customers in our target markets. The key elements of our strategy include:
- Developing innovative processes and materials to enhance the opportunity
for growth within our target markets;
- Offering the broadest range of products in the flexible interconnect
industry to serve virtually all of our customers' flexible interconnect
needs;
- Developing strategic relationships with key customers in target industries
to achieve greater insight into our customers' entire range of flexible
interconnect requirements;
- Diversifying our customer base across specific markets to help mitigate
the effects of economic cycles in any one industry; and
- Continuing to expand our global presence.
We were incorporated in Massachusetts in 1970. Our principal executive
offices are at One Parlex Place, Methuen, Massachusetts 01844, and our telephone
number is (978) 685-4341. Our Web site address is WWW.PARLEX.COM. The
information contained on our Web site is not incorporated by reference in this
prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by:
Parlex................................................... 1,250,000 shares
The Selling Stockholders................................. 150,000 shares
Common stock to be outstanding after the offering.......... 6,069,284 shares
Use of proceeds............................................ To repay debt of approximately
$24.2 million, of which approximately
$20.1 million was incurred in connection
with our Poly-Flex acquisition, and for
general corporate purposes, including
working capital
Nasdaq National Market symbol.............................. PRLX
</TABLE>
The number of shares of common stock that will be outstanding after this
offering excludes 361,057 shares of common stock issuable upon the exercise of
stock options outstanding at May 12, 2000 at a weighted average exercise price
of $18.15 per share. Of these, 123,182 shares of common stock are subject to
immediately exercisable stock options at a weighted average exercise price of
$11.90 per share.
All of the information in this prospectus assumes no exercise of the
underwriters' overallotment option.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data is derived from and
qualified in its entirety by our financial statements. You should read this
summary financial data together with "Management Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes appearing elsewhere in this prospectus.
We acquired Poly-Flex Circuits, Inc. and Poly-Flex Circuits Limited on
March 1, 2000. The pro forma statement of operations data reflect our
acquisition of Poly-Flex as if it had occurred on the first day of the period
presented.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
JUNE 30,
FISCAL YEAR ENDED 1999
JUNE 30,
--------------------------------------- PRO
1997 1998 1999(1) FORMA(1)(2)
----------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Total revenues....... $55,087 $60,275 $67,047 $ 92,842
Cost of products
sold............... 44,137 47,304 52,785 72,081
------- ------- ------- --------
Gross profit......... 10,950 12,971 14,262 20,761
Selling, general and
administrative
expenses........... 7,288 8,272 9,715 14,517
------- ------- ------- --------
Operating income..... 3,662 4,699 4,547 6,244
Income from
operations before
income taxes and
minority
interest........... 3,381 5,130 4,681 4,936
Net income........... $ 2,120 $ 3,157 $ 3,020 $ 3,173
Net income per share:
Basic.............. $ 0.59 $ 0.73 $ 0.65 $ 0.68
Diluted............ $ 0.57 $ 0.71 $ 0.63 $ 0.67
Weighted average
shares outstanding:
Basic.............. 3,569 4,296 4,662 4,662
Diluted............ 3,715 4,466 4,771 4,771
<CAPTION>
MARCH 26, 2000
-----------------------------
ACTUAL AS ADJUSTED(5)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...............................................................
Total assets..................................................................
Current portion of long-term debt.............................................
Long-term debt, less current portion..........................................
Stockholders' equity..........................................................
<CAPTION>
<S> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Total revenues....... $46,945 $70,021 $85,090 $ 85,090
Cost of products
sold............... 37,684 53,171 65,387 65,387
------- ------- ------- --------
Gross profit......... 9,261 16,850 19,703 19,703
Selling, general and
administrative
expenses........... 6,686 8,762 12,303 12,303
------- ------- ------- --------
Operating income..... 2,575 8,088 7,400 7,400
Income from
operations before
income taxes and
minority
interest........... 2,781 7,724 6,014 7,102
Net income........... $ 1,682 $ 4,600 $ 3,568 $ 4,221
Net income per share:
Basic.............. $ 0.36 $ 0.96 $ 0.74 $ 0.73
Diluted............ $ 0.35 $ 0.94 $ 0.73 $ 0.72
Weighted average
shares outstanding:
Basic.............. 4,645 4,805 4,805 5,770
Diluted............ 4,772 4,884 4,884 5,848
CONSOLIDATED BALANCE
Working capital...... $21,650 $ 28,280
Total assets......... 97,614 101,244
Current portion of lo 4,596 1,596
Long-term debt, less 19,835 435
Stockholders' equity. 50,122 76,152
</TABLE>
- ------------------------------
(1) Includes Dynaflex beginning April 30, 1999.
(2) Adjusted to reverse historical depreciation and amortization and record an
increase in net depreciation and amortization of $469,000, to reverse a
management fee for corporate overhead expenses of $1.0 million allocated by
Poly-Flex's prior parent, to reverse historical interest expense and record
an increase in net interest expense of $797,000, and to record the income
tax effects of these pro forma adjustments assuming a 40% statutory tax
rate.
(3) Adjusted to reverse historical depreciation and amortization and record an
increase in net depreciation and amortization of $352,000, to reverse a
management fee for corporate overhead expenses of $773,000 allocated by
Poly-Flex's prior parent, to reverse historical interest expense and record
an increase in net interest expense of $651,000, and to record the income
tax effects of these pro forma adjustments assuming a 40% statutory tax
rate.
(4) Adjusted to give effect to the repayment with the net proceeds of this
offering of $20.1 million of debt incurred in connection with the Poly-Flex
acquisition, as if it had occurred on the first day of the period presented.
(5) Adjusted to give effect to the sale of 1,250,000 shares of common stock by
us at an assumed public offering price of $22.375 per share and the
application of the estimated net proceeds from this sale to repay
$22.4 million of debt, including $20.1 million of debt incurred in
connection with the Poly-Flex acquisition.
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE INVESTING IN
OUR COMMON STOCK. THE FACTORS DISCUSSED BELOW MAY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.
OUR OPERATING RESULTS FLUCTUATE AND MAY FAIL TO SATISFY THE EXPECTATIONS OF
PUBLIC MARKET ANALYSTS AND INVESTORS, CAUSING OUR STOCK PRICE TO DECLINE.
Our operating results have fluctuated significantly in the past and we
expect our results to continue to fluctuate in the future. Our results may
fluctuate due to a variety of factors, including the timing and volume of orders
from customers, the timing of introductions of and market acceptance of new
products, changes in prices of raw materials, variations in production yields
and general economic trends. It is possible that in some future periods our
results of operations may not meet or exceed the expectations of public market
analysts and investors. If this occurs, the price of our common stock is likely
to decline.
OUR QUARTERLY RESULTS DEPEND UPON A SMALL NUMBER OF LARGE ORDERS RECEIVED IN
EACH QUARTER, SO THE LOSS OF ANY SINGLE LARGE ORDER COULD HARM QUARTERLY RESULTS
AND CAUSE OUR STOCK PRICE TO DROP.
A substantial portion of our sales in any given quarter depends on obtaining
a small number of large orders for products to be manufactured and shipped in
the same quarter in which the orders are received. Although we attempt to
monitor our customers' needs, we often have limited knowledge of the magnitude
or timing of future orders. It is difficult for us to reduce spending on short
notice on operating expenses such as fixed manufacturing costs, development
costs and ongoing customer service. As a result, a reduction in orders, or even
the loss of a single large order, for products to be shipped in any given
quarter could have a material adverse effect on our quarterly operating results.
This, in turn, could cause our stock price to decline.
BECAUSE WE SELL A SUBSTANTIAL PORTION OF OUR PRODUCTS TO A LIMITED NUMBER OF
CUSTOMERS, THE LOSS OF A SIGNIFICANT CUSTOMER OR A SUBSTANTIAL REDUCTION IN
ORDERS BY ANY SIGNIFICANT CUSTOMER WOULD HARM OUR OPERATING RESULTS.
Historically we have sold a substantial portion of our products to a limited
number of customers. Our 20 largest customers based on sales accounted for
approximately 71% of our total revenue in fiscal 1997, 64% in fiscal 1998, 63%
in fiscal 1999 and 69% in the first nine months of fiscal 2000. Sales to several
divisions of Motorola alone accounted for approximately 20% of our total revenue
in fiscal 1997, 23% in fiscal 1998, 15% in fiscal 1999 and 10% in the first nine
months of fiscal 2000.
We expect that a limited number of customers will continue to account for a
high percentage of our total revenues in the foreseeable future. As a result,
the loss of a significant customer or a substantial reduction in orders by any
significant customer would cause our revenues to decline and have an adverse
effect on our operating results.
IF WE ARE UNABLE TO RESPOND EFFECTIVELY TO THE EVOLVING TECHNOLOGICAL
REQUIREMENTS OF CUSTOMERS, OUR PRODUCTS MAY NOT BE ABLE TO SATISFY THE DEMANDS
OF EXISTING AND PROSPECTIVE CUSTOMERS AND WE MAY LOSE REVENUES AND MARKET SHARE.
The market for our products is characterized by rapidly changing technology
and continuing process development. The future success of our business will
depend in large part upon our ability to maintain and enhance our technological
capabilities. We will need to develop and market products that meet changing
customer needs, and successfully anticipate or respond to
7
<PAGE>
technological changes on a cost-effective and timely basis. There can be no
assurance that the materials and processes that we are currently developing will
result in commercially viable technological processes, or that there will be
commercial applications for these technologies. In addition, we may not be able
to make the capital investments required to develop, acquire or implement new
technologies and equipment that are necessary to remain competitive. It is also
possible that the flexible interconnect industry could encounter competition
from new technologies in the future that render flexible interconnect technology
less competitive or obsolete. If we fail to keep pace with technological change,
our products may become less competitive or obsolete and we may lose customers
and revenues.
A SIGNIFICANT DOWNTURN IN ANY OF THE SECTORS IN WHICH WE SELL PRODUCTS COULD
RESULT IN A REVENUE SHORTFALL.
We sell our flexible interconnect products principally to the automotive,
telecommunications and networking, diversified electronics, aerospace and
computer markets. Although we serve a variety of markets to avoid a dependency
on any one sector, a significant downturn in any of these market sectors could
cause a material reduction in our revenues, which could be difficult to replace.
IF WE FAIL TO EXPAND OUR MANUFACTURING CAPACITY, WE COULD LOSE EXISTING AND
POTENTIAL CUSTOMERS AND DAMAGE OUR COMPETITIVE POSITION.
Our long-term competitive position depends in part on our ability to
increase and adapt our manufacturing capacity. In fiscal 1999, limited capacity
at our Methuen, Massachusetts and Salem, New Hampshire facilities prevented us
from accepting customer orders we otherwise would have fulfilled. During fiscal
1999 we expanded our production capacity in our facilities in Massachusetts, New
Hampshire and Shanghai, China. We are currently capacity constrained in our
Shanghai, China facility, although we are addressing this by currently adding
capacity in this facility as well as in our Empalme, Mexico facility. We must
continue to expand our manufacturing capacity to accommodate additional customer
demand, increased sales volumes and changing customer needs. In addition to
expanding our existing facilities, we may open new facilities to expand our
manufacturing capacity and increase our global presence. Such an expansion would
likely require significant capital expenditures and other expenses and any new
facilities may not operate profitability in the short term or at all. Any
failure to complete our expansions on schedule and within budget could have a
material adverse effect on our revenues and our competitive position.
WE RELY ON A LIMITED NUMBER OF SUPPLIERS, AND ANY INTERRUPTION IN OUR PRIMARY
SOURCES OF SUPPLY, OR ANY SIGNIFICANT INCREASE IN THE PRICES OF MATERIALS,
CHEMICALS OR COMPONENTS, WOULD HAVE AN ADVERSE EFFECT ON OUR SHORT-TERM
OPERATING RESULTS.
We purchase the bulk of our raw materials, process chemicals and components
from a limited number of outside sources. In fiscal 1999, we purchased
approximately 60% of our materials from DuPont and Sheldahl, our two largest
suppliers. We operate under tight manufacturing cycles with a limited inventory
of raw materials. As a result, although there are alternative sources of the
materials that we purchase from our existing suppliers, any unanticipated
interruption in supply from DuPont or Sheldahl, or any significant increase in
the prices of materials, chemicals or components, would have an adverse effect
on our short-term operating results.
IF OUR RECENTLY ACQUIRED BUSINESS DOES NOT GENERATE THE REVENUES WE EXPECT, HAS
UNEXPECTED SIGNIFICANT LIABILITIES, OR IS NOT SUCCESSFULLY INTEGRATED INTO OUR
EXISTING OPERATIONS, WE MAY NOT REAP THE ANTICIPATED BENEFITS OF THE ACQUISITION
AND OUR OPERATING RESULTS MAY SUFFER.
We recently acquired Poly-Flex Circuits, Inc. and Poly-Flex Circuits Limited
in order to further diversify our product offerings and target markets, to help
support our existing customer base and
8
<PAGE>
to help attract and retain new customers. The Poly-Flex business may not
generate the revenues or profits we expect, or we may find that the business has
previously unknown or undisclosed liabilities.
We may have difficulties in assimilating the operations, technologies,
products and personnel of the Poly-Flex business into our existing business.
Integration could require capital expenditures which exceed our expectations. In
addition, efforts to integrate the business could divert our attention from
other aspects of our operations. If we fail to integrate the Poly-Flex business
effectively in a timely and non-disruptive manner, key employees of that
business may leave, which could further complicate our integration efforts and
jeopardize the anticipated benefits of the acquisition.
IF WE ACQUIRE ADDITIONAL BUSINESSES, THESE ACQUISITIONS WILL INVOLVE FINANCIAL
UNCERTAINTIES AS WELL AS PERSONNEL CONTINGENCIES, AND MAY BE RISKY AND DIFFICULT
TO INTEGRATE.
We have completed two acquisitions in the past year and we may acquire
additional businesses that could complement or expand our business. Acquired
businesses may not generate the revenues or profits that we expect and we may
find that they have unknown or undisclosed liabilities. In addition, if we do
make acquisitions, we will face a number of other risks and challenges,
including:
- The difficulty of integrating dissimilar operations or assets;
- Potential loss of key employees of the acquired business;
- Assimilation of new employees who may not contribute or perform at the
levels we expect;
- Diversion of management time and resources; and
- Additional costs associated with obtaining any necessary financing.
These factors could hamper our ability to receive the anticipated benefits
from any acquisitions we may pursue, and could adversely affect our financial
condition and our stock price.
IF WE CANNOT OBTAIN ADDITIONAL FINANCING WHEN NEEDED, WE MAY NOT BE ABLE TO
EXPAND OUR OPERATIONS AND INVEST ADEQUATELY IN RESEARCH AND DEVELOPMENT, WHICH
COULD CAUSE US TO LOSE CUSTOMERS AND MARKET SHARE.
The development and manufacturing of flexible interconnects is capital
intensive. To remain competitive, we must continue to make significant
expenditures for capital equipment, expansion of operations and research and
development. We expect that substantial capital will be required to expand our
manufacturing capacity and fund working capital for anticipated growth. We may
need to raise additional funds either through borrowings or further equity
financings. We may not be able to raise additional capital on reasonable terms,
or at all. If we cannot raise the required funds when needed, we may not be able
to satisfy the demands of existing and prospective customers and may lose
revenue and market share.
THE ADDITIONAL EXPENSES AND RISKS RELATED TO OUR EXISTING INTERNATIONAL
OPERATIONS, AS WELL AS ANY EXPANSION OF OUR GLOBAL OPERATIONS, COULD ADVERSELY
AFFECT OUR BUSINESS.
We own a 50.1% equity interest in a joint venture in China, which
manufactures and sells flexible circuits. We also operate a facility in Mexico
for use in the finishing, assembly and testing of flexible circuit and laminated
cable products. We recently acquired a facility in the United Kingdom where we
currently manufacture polymer thick film flexible circuits and polymer thick
film flexible circuits with surface mounted components and intend to introduce
production of laminated cable
9
<PAGE>
within the next year. We will continue to explore appropriate expansion
opportunities as demand for our products increases.
Manufacturing and sales operations outside the United States carry a number
of risks inherent in international operations, including:
- Imposition of governmental controls, regulatory standards and
compulsory licensure requirements;
- Compliance with a wide variety of foreign and U.S. import and 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.
International expansion may require significant management attention, which
could negatively affect our business. We may also incur significant costs to
expand our existing international operations or enter new international markets,
which could increase operating costs and reduce our profitability.
WE FACE SIGNIFICANT COMPETITION, WHICH COULD MAKE IT DIFFICULT FOR US TO ACQUIRE
AND RETAIN CUSTOMERS.
We face 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 our competitors are larger
than we are and have greater financial resources. New competitors could also
enter our markets. Our competitors may be able to duplicate our strategies, or
they may develop enhancements to, or future generations of, products that could
offer price or performance features that are superior to our products.
Competitive pressures could also necessitate price reductions, which could
adversely affect our operating results. In addition, some of our competitors are
based in foreign countries and have cost structures and prices based on foreign
currencies. Accordingly, currency fluctuations could cause our dollar-priced
products to be less competitive than our competitors' products priced in other
currencies.
We will need to make a continued high level of investment in product
research and development and research, sales and marketing and ongoing customer
service and support in order to remain competitive. We may not have sufficient
resources to be able to make these investments. Moreover, we may not be able to
make the technological advances necessary to maintain our competitive position
in the flexible interconnect market.
IF WE ARE UNABLE TO ATTRACT, RETAIN AND MOTIVATE KEY PERSONNEL, WE MAY NOT BE
ABLE TO DEVELOP, SELL AND SUPPORT OUR PRODUCTS AND OUR BUSINESS MAY LACK
STRATEGIC DIRECTION.
We are dependent upon key members of our management team. In addition, our
future success will depend in large part upon our continuing ability to attract,
retain and motivate highly qualified managerial, technical and sales personnel.
Competition for such personnel is intense, and there can be no assurance that we
will be successful in hiring or retaining such personnel. We currently maintain
a key person life insurance policy in the amount of $1.0 million on each of
Herbert W.
10
<PAGE>
Pollack and Peter J. Murphy. If we lose the service of Messrs. Pollack or Murphy
or one or more other key individuals, or are unable to attract additional
qualified members of the management team, our ability to implement our business
strategy may be impaired. If we are unable to attract, retain and motivate
qualified technical and sales personnel, we may not able to develop, sell and
support our products.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR COMPETITIVE POSITION
COULD BE HARMED AND OUR REVENUES COULD BE ADVERSELY AFFECTED.
We rely on a combination of patent and trade secret laws and non-disclosure
and other contractual agreements to protect our proprietary rights. We own 18
patents issued and have two patent applications pending in the United States and
have several corresponding foreign patent applications pending. Our existing
patents may not effectively protect our intellectual property and could be
challenged by third parties, and our future patent applications, if any, may not
be approved. In addition, other parties may independently develop similar or
competing technologies. Competitors may attempt to copy aspects of our products
or to obtain and use information that we regard as proprietary. If we fail to
adequately protect our proprietary rights, our competitors could offer similar
products using materials, processes or technologies developed by us, potentially
harming our competitive position and our revenues.
IF WE BECOME INVOLVED IN A PROTRACTED INTELLECTUAL PROPERTY DISPUTE, OR ONE WITH
A SIGNIFICANT DAMAGES AWARD OR WHICH REQUIRES US TO CEASE SELLING SOME OF OUR
PRODUCTS, WE COULD BE SUBJECT TO SIGNIFICANT LIABILITY AND THE TIME AND
ATTENTION OF OUR MANAGEMENT COULD BE DIVERTED.
Although no claims have been asserted against us for infringement of the
proprietary rights of others, we may be subject to a claim of infringement in
the future. An intellectual property lawsuit against us, if successful, could
subject us to significant liability for damages and could invalidate our
proprietary rights. A successful lawsuit against us could also force us to cease
selling, or redesign, products that incorporate the infringed intellectual
property. We could also be required to obtain a license from the holder of the
intellectual property to use the infringed technology. We might not be able to
obtain a license on reasonable terms, or at all. If we fail to develop a
non-infringing technology on a timely basis or to license the infringed
technology on acceptable terms, our revenues could decline and our expenses
could increase.
We may in the future be required to initiate claims or litigation against
third parties for infringement of our proprietary rights or to determine the
scope and validity of our proprietary rights or the proprietary rights of
competitors. Litigation with respect to patents and other intellectual property
matters could result in substantial costs and divert our management's attention
from other aspects of our business.
MARKET PRICES OF TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE, AND OUR STOCK
PRICE MAY BE VOLATILE AS WELL.
From time to time the U.S. stock market has experienced significant price
and trading volume fluctuations, and the market prices for the common stock of
technology companies in particular have been extremely volatile. In the past,
broad market fluctuations that have affected the stock price of technology
companies have at times been unrelated or disproportionate to the operating
performance of these companies. Any significant fluctuations in the future might
result in a material decline in the market price of our common stock.
Following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. If we were to become involved
11
<PAGE>
in this type of litigation, we could incur substantial costs and diversion of
management's attention, which could harm our business, financial condition and
operating results.
THE COSTS OF COMPLYING WITH EXISTING OR FUTURE ENVIRONMENTAL REGULATIONS, AND OF
CURING ANY VIOLATIONS OF THESE REGULATIONS, COULD INCREASE OUR OPERATING
EXPENSES AND REDUCE OUR PROFITABILITY.
We are 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, our
products. We cannot predict the nature, scope or effect of future regulatory
requirements to which our operations might be subject or the manner in which
existing or future laws will be administered or interpreted. Future regulations
could be applied to materials, product or activities that have not been subject
to regulation previously. The costs of complying with new or more stringent
regulations, or with more vigorous enforcement of these regulations, could be
significant.
Environmental laws require us 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 our processes. Violations
of these requirements could result in financial penalties and other enforcement
actions. We could also be required to halt one or more portions of our
operations until a violation is cured. Although we attempt to operate in
compliance with these environmental laws, we may not succeed in this effort at
all times. The costs of curing violations or resolving enforcement actions that
might be initiated by government authorities could be substantial.
WE HAVE BROAD DISCRETION TO DETERMINE HOW TO USE THE FUNDS WE RAISE FROM OUR
SALE OF COMMON STOCK AND MAY USE THOSE FUNDS IN WAYS THAT MAY NOT IMPROVE OUR
OPERATING RESULTS OR INCREASE OUR MARKET VALUE.
We intend to use a portion of our net proceeds from this offering to repay
debt of approximately $24.2 million, of which approximately $20.1 million was
incurred in connection with our Poly-Flex acquisition. We have not allocated our
remaining net proceeds from this offering for a particular purpose and may apply
it to general corporate purposes, including acquisitions, investments and
working capital requirements. We will have significant discretion as to the use
of our net proceeds from the offering and you will not have the opportunity, as
part of your investment decision, to assess whether we are using our proceeds
appropriately. We may use our net proceeds from this offering in ways that
ultimately may not improve our operating results or increase our market value.
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates forward-looking statements that
are subject to a number of risks and uncertainties. All statements, other than
statements of historical facts included or incorporated in this prospectus,
regarding our strategy, future operations, financial position and estimated
revenues, projected costs, prospects, plans and objectives of management are
forward-looking statements. When used in this prospectus, the words "will,"
"believe," "anticipate," "intend," "estimate," "expect," "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee future results, levels of activity, performance or achievements and
you should not place undue reliance on our forward-looking statements. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic investments.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in "Risk Factors" and elsewhere in this prospectus.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from our sale of 1,250,000
shares of common stock will be approximately $26.0 million, based on an assumed
offering price to the public of $22.375 per share and after deducting the
underwriting discount and estimated offering expenses payable by us. We will not
receive any proceeds from the sale of shares of common stock by the selling
stockholders.
We expect to use a portion of the net proceeds from this offering to repay
debt of approximately $24.2 million, of which approximately $20.1 million was
incurred in connection with our Poly-Flex acquisition (including approximately
$430,000 of transaction costs incurred to date). Of this debt, $15.0 million
currently bears interest at 7.69% per annum and matures in March 2005, $4.0
million currently bears interest at 7.69% per annum and matures in
December 2001, and $5.2 million currently bears interest at 9.5% per annum and
matures in December 2001. We will use the balance of the net proceeds for
general corporate purposes, including working capital. Pending these uses, the
net proceeds from this offering will be invested in interest-bearing,
investment-grade securities.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"PRLX." The following table sets forth, for the periods indicated, the high and
low intraday sale prices for our common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1998
First Quarter............................................. $24.00 $13.88
Second Quarter............................................ $31.25 $11.44
Third Quarter............................................. $19.50 $11.25
Fourth Quarter............................................ $21.50 $12.75
FISCAL YEAR ENDED JUNE 30, 1999
First Quarter............................................. $16.50 $ 8.19
Second Quarter............................................ $12.25 $ 8.00
Third Quarter............................................. $13.50 $ 9.38
Fourth Quarter............................................ $15.75 $ 9.25
FISCAL YEAR ENDED JUNE 30, 2000
First Quarter............................................. $19.50 $12.88
Second Quarter............................................ $28.69 $14.13
Third Quarter............................................. $38.81 $20.88
Fourth Quarter (through May 23, 2000)..................... $33.00 $19.00
</TABLE>
On May 23, 2000, the closing sale price of our common stock as reported on
the Nasdaq National Market was $22.375 per share and there were 100 holders of
record of our common stock.
13
<PAGE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends. Future cash dividends,
if any, will be determined by our Board of Directors and will be based on our
earnings, capital, financial condition and other factors that the Board deems
relevant. Our credit agreement permits us to pay cash dividends to the extent
such payment would not cause us to violate financial covenants contained in the
credit agreement.
CAPITALIZATION
The following table sets forth our short-term debt and capitalization as of
March 26, 2000 on an actual basis and on an as adjusted basis to reflect the
application of the estimated net proceeds from our sale of 1,250,000 shares of
our common stock at an assumed public offering price of $22.375 per share, after
deducting the underwriting discount and estimated offering expenses payable by
us. The information in the as adjusted column reflects the repayment of debt of
approximately $22.4 million, of which approximately $20.1 million was incurred
in connection with our acquisition of Poly-Flex, with our proceeds from this
offering.
This information excludes 361,246 shares of common stock issuable upon the
exercise of outstanding stock options as of March 26, 2000 at a weighted average
exercise price of $18.14 per share. Of these, 123,371 shares of common stock
were subject to immediately exercisable stock options at a weighted average
exercise price of $11.89 per share.
<TABLE>
<CAPTION>
MARCH 26, 2000
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 4,596 $ 1,596
Long-term debt, less current portion........................ 19,835 435
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares issued (actual and as adjusted)... -- --
Common stock, $0.10 par value; 10,000,000 shares
authorized; 5,029,095 shares issued (actual);
6,279,095 shares issued (as adjusted)................... 503 628
Additional paid-in capital................................ 24,774 50,679
Retained earnings......................................... 25,889 25,889
Accumulated other comprehensive income.................... (6) (6)
Less treasury stock, at cost--210,000 shares.............. (1,038) (1,038)
------- -------
Total stockholders' equity.............................. 50,122 76,152
------- -------
Total capitalization.................................... $74,553 $78,183
======= =======
</TABLE>
14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On March 1, 2000 we completed the purchase of all of the stock of Poly-Flex
Circuits Limited, a company incorporated in the United Kingdom, and Poly-Flex
Circuits, Inc., a Rhode Island corporation, from Cookson Group plc. We paid
Cookson approximately $19.7 million in cash at the closing.
We have accounted for the Poly-Flex acquisition under the purchase method of
accounting. The following unaudited pro forma consolidated condensed financial
statements for the fiscal year ended June 30, 1999 and for the nine months ended
March 26, 2000 give effect to our acquisition of Poly-Flex. We have derived them
from the application of pro forma adjustments to our historical consolidated
financial statements and to those of Poly-Flex. We have not included a pro forma
balance sheet as of March 26, 2000 since the acquisition occurred on March 1,
2000 and, as such, is reflected in the historical balance sheet. The unaudited
pro forma consolidated condensed statements of operations data give effect to
the Poly-Flex acquisition as if it had occurred on July 1, 1998.
You should read these unaudited pro forma consolidated condensed financial
statements in conjunction with our historical consolidated financial statements
and the notes to these financial statements. The pro forma financial information
is for informational purposes only and does not purport to represent what our
results of operations or financial position would have actually been had we
acquired Poly-Flex as of July 1, 1998.
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1999
---------------------------------------------------------------------------------------------------
COMBINED ADJUSTMENTS PRO FORMA
PRO FORMA FOR PRO FORMA FOR THIS AS
PARLEX POLY-FLEX ADJUSTMENTS TRANSACTION OFFERING(5)(6) ADJUSTED
-------------- -------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenues........... $67,047 $25,795 $92,842 $92,842
Cost of products sold.... 52,785 18,869 $ 427 (1) 72,081 72,081
------- ------- ------- ------- -------
Gross profit............. 14,262 6,926 (427) 20,761 20,761
Selling, general and
administrative
expenses............... 9,715 4,760 42 (1) 14,517 14,517
Management fees.......... 1,031 (1,031)(2)
------- ------- ------- ------- -------
Operating income......... 4,547 1,135 562 6,244 6,244
Interest expense....... 226 653 797 (3) 1,676 (1,450) 226
Other (income), net.... (360) (8) (368) (368)
Income from operations
before income taxes and
minority interest...... 4,681 490 (235) 4,936 6,386
Provision for (benefit
from) income taxes..... 964 196 (94)(4) 1,066 580 1,646
Minority interest...... 697 0 697 697
------- ------- ------- ------- ---------- -------
Net income............... $ 3,020 $ 294 $ (141) $ 3,173 $ 870 $ 4,043
======= ======= ======= ======= ========== =======
Net income per share:
Basic.................. $ 0.65 $ 0.68 $ 0.72
======= ======= =======
Diluted $ 0.63 $ 0.67 $ 0.70
======= ======= =======
Weighted average shares
outstanding:
Basic.................. 4,662 5,626 (7)
Diluted................ 4,771 5,735 (7)
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations.
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 26, 2000
-----------------------------------------------------------------------------------------------
POLY-FLEX COMBINED ADJUSTMENTS PRO FORMA
THROUGH DATE PRO FORMA FOR PRO FORMA FOR THIS AS
PARLEX OF ACQUISITION ADJUSTMENTS TRANSACTION OFFERING(5)(6) ADJUSTED
------------- -------------- ------------- ------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Total revenues........ $ 70,021 $15,069 $85,090 $ 85,090
Cost of products
sold................ 53,171 11,896 $ 320 (1) 65,387 65,387
-------- ------- ----- ------- -----------
Gross profit.......... 16,850 3,173 (320) 19,703 19,703
Selling, general and
administrative
expenses............ 8,762 3,509 32 (1) 12,303 12,303
------- -----------
Management fees....... 773 (773 ) (2)
-------- ------- -----
Operating income
(loss).............. 8,088 (1,109) 421 7,400 7,400
Interest expense.... 368 437 651 (3) 1,456 $ (1,088) 368
Other (income),
net................. (4) (66) (70) (70)
Income from operations
before income taxes
and minority
interest............ 7,724 (1,480) (230) 6,014 7,102
Provision for
(benefit from)
income taxes........ 2,175 (586) (92) (4) 1,497 435 1,932
Minority interest... 949 0 949 949
-------- ------- ----- ------- ---------- -----------
Net income (loss)..... $ 4,600 $ (894) $(138) $ 3,568 $ (653) $ 4,221
======== ======= ===== ======= ========== ===========
Net income per share:
Basic............... $ 0.96 $ 0.74 $ 0.73
======== ======= ===========
Diluted............. $ 0.94 $ 0.73 $ 0.72
======== ======= ===========
Weighted average
shares outstanding:
Basic............... 4,805 5,770 (7)
Diluted............. 4,884 5,848 (7)
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations.
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED JUNE 30, 1999
The unaudited pro forma consolidated condensed statement of operations for
the year ended June 30, 1999 gives effect to our acquisition of Poly-Flex as if
it had occurred on July 1, 1998.
(1) We have adjusted the results of operations to reverse historical
depreciation and amortization of $1.6 million and record depreciation and
amortization expense of $2.1 million for the year ended June 30, 1999 based
on preliminary allocation of purchase price. The useful life of assets and
goodwill to calculate depreciation and amortization is approximately
7 years and 10 years, respectively.
(2) The historical Poly-Flex financial statements include certain allocations
from the prior parent for executive salaries, health and group insurance and
pension costs applicable to the Poly-Flex business, and an allocated
management fee for corporate overhead expenses. The allocated management fee
of $1.0 million has been eliminated. Management believes that such charge is
related solely to the companies operating as part of a group of companies of
the parent and would not have been incurred had the companies operated on a
stand-alone basis.
(3) We have adjusted interest expense to reverse historical interest expense of
$653,000 representing allocated interest from the prior parent, and to
record $1.5 million of additional interest related to the approximately
$20.1 million increase in debt to finance the Poly-Flex acquisition.
Interest expense was calculated assuming a current interest rate of 7.25%.
(4) We have calculated the income tax effects of the pro forma adjustments for
deprecation and amortization, interest, and the allocated management fee
assuming a 40% statutory tax rate.
(5) We have adjusted interest expense and the related income tax effect assuming
that the proceeds of this offering will repay $20.1 million of debt incurred
in connection with the Poly-Flex acquisition.
(6) Adjustments for this offering assume the repayment of $20.1 million of debt
incurred in connection with the Poly-Flex acquisition with the net proceeds
from the sale of 964,255 shares of our common stock (out of 1,250,000 shares
being offered in this offering) at a per share price of $22.375, after
deducting the underwriting discount and estimated offering expenses on a pro
rata basis. Interest income of $254,000 may have been earned on the excess
proceeds from the sale of 1,250,000 shares of our common stock at the same
per share price, after repayment of the Poly-Flex debt, assuming a 7% annual
rate of return. This interest income is not included in adjustments for this
offering.
(7) We have increased the number of shares by 964,255 shares of our common stock
and have applied the net proceeds of the sale of these shares, after
deducting the underwriting discount and estimated offering expenses, to
repay $20.1 million of debt incurred in connection with the Poly-Flex
acquisition.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR
THE NINE-MONTHS ENDED MARCH 26, 2000
The unaudited pro forma consolidated condensed statement of operations for
the nine-months ended March 26, 2000 gives effect to our acquisition of
Poly-Flex as if it had occurred on July 1, 1998.
(1) We have adjusted the results of operations to reverse historical
depreciation and amortization of $1.2 million and record depreciation and
amortization expense of $1.5 million for the nine-months ended March 26,
2000 based on preliminary allocation of purchase price. The useful life of
assets and goodwill to calculate depreciation and amortization is
approximately 7 years and 10 years, respectively.
(2) The historical Poly-Flex financial statements include certain allocations
from the prior parent for executive salaries, health and group insurance and
pension costs applicable to the Poly-Flex business, and an allocated
management fee for corporate overhead expenses. The allocated management fee
of $773,000 has been eliminated. Management believes that such charge is
related solely to the companies operating as part of a group of companies of
the parent and would not have been incurred had the companies operated on a
stand-alone basis.
(3) We have adjusted interest expense to reverse historical interest expense of
$437,000 representing allocated interest from the prior parent, and to
record $1.1 million of additional interest related to the $20.1 million
increase in debt to finance the Poly-Flex acquisition. Interest expense was
calculated assuming a current interest rate of 7.25%.
(4) We have calculated the income tax effects of the pro forma adjustments for
deprecation and amortization, interest, and the allocated management fee
assuming a 40% statutory tax rate.
(5) We have adjusted interest expense and the related income tax effect assuming
that the proceeds of this offering will repay $20.1 million of debt incurred
in connection with the Poly-Flex acquisition.
(6) Adjustments for this offering assume the repayment of $20.1 million of debt
incurred in connection with the Poly-Flex acquisition with the net proceeds
from the sale of 964,255 shares of our common stock (out of 1,250,000 shares
being offered in this offering) at a per share price of $22.375, after
deducting the underwriting discount and estimated offering expenses on a pro
rata basis. Interest income of $191,000 may have been earned on the excess
proceeds from the sale of 1,250,000 shares of our common stock at the same
per share price, after repayment of the Poly-Flex debt, assuming a 7% annual
rate of return. This interest income is not included in adjustments for this
offering.
(7) We have increased the number of shares by 964,255 shares of our common stock
and have applied the net proceeds of the sale of these shares, after
deducting the underwriting discount and estimated offering expenses, to
repay $20.1 million of debt incurred in connection with the Poly-Flex
acquisition.
19
<PAGE>
ALLOCATION OF PURCHASE PRICE
For the purposes of allocating purchase price to the assets acquired and the
liabilities assumed, we have preliminarily allocated purchase price as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 3,285
Inventory, primarily raw materials.......................... 2,283
Prepaid expenses............................................ 180
Property, plant and equipment............................... 16,867
Goodwill.................................................... 186
--------
Total assets.............................................. 22,801
Accounts payable and accrued expenses....................... 2,551
--------
Total purchase price...................................... $ 20,250
========
</TABLE>
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data along
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes to those statements and other
financial information included or incorporated by reference in this prospectus.
The consolidated balance sheet data at June 30, 1995, 1996, 1997, 1998 and 1999
and the consolidated statement of income data for the five fiscal years ended
June 30, 1999 have been derived from our consolidated financial statements,
which have been audited by Deloitte & Touche LLP. We have derived the
consolidated statement of income data for the nine months ended March 28, 1999
and March 26, 2000 and the consolidated balance sheet data at March 26, 2000
from unaudited consolidated financial statements that include, in the opinion of
our management, all adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of that information. The
historical results presented are not necessarily indicative of future results.
21
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Total revenues............................ $40,251 $47,257 $55,087
Cost of products sold..................... 32,946 40,308 44,137
------- ------- -------
Gross profit.............................. 7,305 6,949 10,950
Selling, general and administrative
expenses.................................. 4,998 5,518 7,288
------- ------- -------
Operating income.......................... 2,307 1,431 3,662
Income from operations before income taxes
and minority interest..................... 2,240 1,170 3,381
Net income................................ $ 1,486 $ 770 $ 2,120
======= ======= =======
Net income per share:
Basic................................... $ 0.41 $ 0.22 $ 0.59
======= ======= =======
Diluted................................. $ 0.40 $ 0.21 $ 0.57
======= ======= =======
Weighted average shares outstanding:
Basic................................... 3,651 3,556 3,569
Diluted................................. 3,762 3,675 3,715
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, ---------------------------
--------------------------- MAR. 28, MAR. 26,
1998 1999(1) 1999 2000
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Total revenues............................ $60,275 $67,047 $46,945 $70,021
Cost of products sold..................... 47,304 52,785 37,684 53,171
------- ------- ------- -------
Gross profit.............................. 12,971 14,262 9,261 16,850
Selling, general and administrative
expenses.................................. 8,272 9,715 6,686 8,762
------- ------- ------- -------
Operating income.......................... 4,699 4,547 2,575 8,088
Income from operations before income taxes
and minority interest..................... 5,130 4,681 2,781 7,724
Net income................................ $ 3,157 $ 3,020 $ 1,682 $ 4,600
======= ======= ======= =======
Net income per share:
Basic................................... $ 0.73 $ 0.65 $ 0.36 $ 0.96
======= ======= ======= =======
Diluted................................. $ 0.71 $ 0.63 $ 0.35 $ 0.94
======= ======= ======= =======
Weighted average shares outstanding:
Basic................................... 4,296 4,662 4,645 4,805
Diluted................................. 4,466 4,771 4,772 4,884
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $ 8,466 $ 9,148 $ 9,592 $26,286 $18,762
Total assets.............................. 24,517 29,662 32,234 56,181 63,521
Current portion of long-term debt......... 200 501 1,000 432 619
Long-term debt, less current portion...... 2,300 3,650 2,500 1,166 1,632
Stockholders' equity...................... 14,667 15,455 17,788 41,591 45,333
<CAPTION>
MARCH 26, 2000
---------------------------
AS
ACTUAL ADJUSTED(2)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $21,650 $ 28,280
Total assets.............................. 97,614 101,244
Current portion of long-term debt......... 4,596 1,596
Long-term debt, less current portion...... 19,835 435
Stockholders' equity...................... 50,122 76,152
</TABLE>
- ------------------------------
(1) Includes Dynaflex beginning April 30, 1999.
(2) Adjusted to give effect to the sale of 1,250,000 shares of common stock by
us at an assumed public offering price of $22.375 per share and the
application of the estimated net proceeds from this sale to repay
$22.4 million of debt, including $20.1 million of debt associated with the
Poly-Flex acquisition.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THOSE
DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading supplier of flexible interconnects principally for sale to
the automotive, telecommunications and networking, diversified electronics,
aerospace and computer markets. We believe that our development of innovative
materials and processes provides us with a competitive advantage in the markets
in which we compete. During the past three years, we have invested approximately
$23.9 million in property and equipment and approximately $9.6 million in
research and development to develop materials and enhance our manufacturing
processes. We believe that these expenditures will help us to meet increased
customer demand for our products, and enable us to continue to be a
technological leader in the flexible interconnect industry. Our research and
development expenses are included in our cost of products sold.
We formed a Chinese joint venture, Parlex Shanghai, in 1995 to better serve
customers that have production facilities in Asia and to more cost effectively
manufacture products for worldwide distribution. We own 50.1% of the equity
interest in Parlex Shanghai. Accordingly, Parlex Shanghai's results of
operations, cash flows and financial position are included in our consolidated
financial statements.
RECENT ACQUISITIONS
On April 30, 1999, we acquired the Dynaflex division of CCIR of California
Corp., an indirect wholly-owned subsidiary of Hadco Corporation, for
approximately $2.7 million. Dynaflex, located in San Jose, California, is a
prototype and quick-turn facility. This acquisition gives us a West Coast
presence and a greatly improved rapid prototype and quick-turnaround capability.
Quick-turnaround capability permits production of a small number of flexible
interconnects upon short notice. This service often leads to large volume orders
at our other manufacturing facilities.
On March 1, 2000, we acquired Poly-Flex Circuits, Inc. and Poly-Flex
Circuits Limited, wholly-owned subsidiaries of Cookson Group plc, for a purchase
price of approximately $19.7 million. This purchase price is subject to
adjustment based upon final determination of Poly-Flex's net assets and earnings
before income taxes. This acquisition further diversified our product offerings
by providing us with polymer thick film and surface mount assembly capabilities.
Poly-Flex has manufacturing facilities in Cranston, Rhode Island and the United
Kingdom.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected items in
our statements of income as a percentage of total revenue. You should read the
table and the discussion below in conjunction with our Consolidated Financial
Statements and the Notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, --------------------
-------------------------------- MAR. 28, MAR. 26,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold......................... 80.1 78.5 78.7 80.0 75.9
----- ----- ----- ----- -----
Gross profit.................................. 19.9 21.5 21.3 20.0 24.1
Selling, general and administrative
expenses.................................... 13.2 13.7 14.5 14.2 12.5
----- ----- ----- ----- -----
Operating income.............................. 6.6 7.8 6.8 5.5 11.6
Income from operations before income taxes and
minority interest........................... 6.1 8.5 7.0 5.9 11.0
Net income.................................... 3.8% 5.2% 4.5% 3.6% 6.6%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED MARCH 26, 2000 COMPARED WITH NINE MONTHS ENDED MARCH 28, 1999
TOTAL REVENUES. Our total revenues were $70.0 million in the nine months
ended March 26, 2000, an increase of 49% from $46.9 million in the nine months
ended March 28, 1999. Revenues were generated primarily from product sales.
Revenues grew in each of our principal product lines--flexible circuits,
laminated cable, flexible interconnect hybrid circuits and flexible interconnect
assemblies. Sales were strong in all markets, with the largest growth coming
from the telecommunications and networking sector. Our revenues for the nine
months ended March 26, 2000 also included Poly-Flex's shipments, following our
acquisition of Poly-Flex on March 1, 2000.
COST OF PRODUCTS SOLD. Cost of products sold was $53.2 million, or 75.9% of
total revenues, for the first nine months of fiscal 2000, versus $37.7 million,
or 80.0% of total revenues for the comparable period in the prior year. Our
gross margins improved as a result of various factors, including the shift of
more automotive products to our proprietary PALFlex-Registered Trademark-
technology, which can produce a higher performance flexible circuit at a cost
lower than using conventional materials. We also sent more product to our
facility in Mexico for its cost-effective finishing and assembly processes.
Dynaflex satisfied our customers' prototype demands, allowing other facilities
to concentrate on larger production orders, which contributed to enhanced
operating efficiency. Dynaflex did not operate at a profitable level but we do
not consider its losses for the nine-month period ended March 26, 2000 material
to our overall results. In addition, during the nine months ended March 28,
1999, we incurred substantial costs associated with the start up of our Mexican
facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $8.8 million, or 12.5% of total revenues, for the
first nine months of fiscal 2000, and $6.7 million for the comparable period in
the prior year, or 14.2% of total revenues for that period. The increase in
expenses resulted primarily from the inclusion of the Dynaflex operations, which
we purchased in April 1999, an increase in sales commissions associated with
increased sales, the March 2000 expenses of Poly-Flex, and an increase in our
401(k) contributions.
OTHER INCOME AND INTEREST EXPENSE AND PROVISION FOR TAXES. Other income was
$5,000 for first nine months of fiscal 2000, compared to $378,000 for the
comparable period in the prior year.
Interest expense was $368,000 for the first nine months of fiscal 2000,
compared to $173,000 for the comparable period in the prior year. The increase
was due to the larger amount of
24
<PAGE>
borrowings required to finance our Poly-Flex acquisition and our increased
working capital requirements and capital expenditure needs.
We provided for an effective tax rate of nearly 28% in the first nine months
of fiscal 2000, versus a 24% effective tax rate for the comparable period in the
prior year. The increase in the anticipated effective tax rate resulted from a
reduced amount of available tax credits and a greater proportion of our income
being earned in higher tax jurisdictions.
COMPARISON OF YEARS ENDED JUNE 30, 1999, 1998 AND 1997
TOTAL REVENUES. Total revenues rose to $67.0 million in fiscal 1999, an
increase of 11% from the $60.3 million reported in fiscal 1998. Revenues rose 9%
in fiscal 1998 from the $55.1 million reported in fiscal 1997. In each of the
periods, revenues grew in each of our principal product lines. We have been
developing new, innovative products that continue to gain acceptance in the
marketplace and have been a prime factor in our continued growth. The increase
in total revenues in each year was primarily attributable to an increase in the
volume of units shipped.
Total revenues included licensing and royalty fees of $674,000 in fiscal
1999, $227,000 in fiscal 1998 and $110,000 in fiscal 1997. Although we intend to
continue our practice of developing materials and processes that we can license
to third parties, we do not expect that licensing and royalty revenues will
represent a significant portion of total revenues in the near term.
COST OF PRODUCTS SOLD. Cost of products sold was $52.8 million in fiscal
1999, $47.3 million in fiscal 1998, and $44.1 million in fiscal 1997. As a
percentage of total revenues, cost of products sold was 78.7% in fiscal 1999,
78.5% in fiscal 1998 and 80.1% in fiscal 1997. The increase in fiscal 1999 is
the result of some unanticipated losses in the manufacturing of flexible
circuits associated with automotive applications that occurred in the quarter
ended September 27, 1998. Product shipped to our Mexican facility was returned
because of an unexpected delay in qualifying the site for finishing operations.
As a result, the product was contaminated during unplanned storage and shipment
back to our Methuen, Massachusetts facility. These circuits required extensive
rework, and we discarded a significant quantity of them. The cost of products
sold as a percentage of total revenues for the remainder of fiscal 1999 was
77.1%.
In fiscal 1998, we began assigning production to the facility most
economically suited to manufacture a particular type of product, which resulted
in lower costs as a percentage of sales. We were able to expand this strategy in
fiscal 1999, as our purchase of Dynaflex gave us a facility well-suited to the
production of flexible interconnect prototypes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $9.7 million in fiscal 1999, $8.3 million in fiscal
1998, and $7.3 million in fiscal 1997. As a percentage of total revenues,
selling, general and administrative expenses were 14.5% in fiscal 1999, 13.7% in
fiscal 1998, and 13.2% in fiscal 1997.
The increases in expenses in both absolute dollars and as a percentage of
total revenues in each of the periods was a result of an expansion in our
business. We have increased our internal sales personnel, added new field
offices, paid increased sales commissions due to increased sales, and increased
our contributions to our 401(k) plan. Once our full complement of selling and
administrative personnel is in place, we believe that selling, general and
administrative expenses as a percentage of revenues will decrease as revenues
increase.
OTHER INCOME AND INTEREST EXPENSE AND PROVISION FOR TAXES. Other income of
$360,000 in fiscal 1999 and $684,000 in fiscal 1998 was comprised, for the most
part, of interest income. In fiscal 1997, other income of $156,000 was
principally the result of a gain on the sale of equipment.
25
<PAGE>
Interest expense was $226,000 in fiscal 1999 versus $254,000 in fiscal 1998
and $436,000 in fiscal 1997. The reduction in expense over the past two years is
attributable to a lower level of average borrowings outstanding under our
revolving credit facility. Interest rates during the period remained relatively
constant.
Our effective tax rate in fiscal 1999 was 21% versus 30% in fiscal 1998 and
37% in fiscal 1997. In the 1999 and 1998 fiscal years, we benefited from the
income generated by the Chinese joint venture. This income was not subject to
tax until fiscal 1999, and from that time on has been subject only to one half
the tax that would otherwise be assessed, which is a rate significantly lower
than U.S. rates. We also benefited from an increase in foreign sales, the income
from which is subject to a lower rate of tax.
QUARTERLY RESULTS OF OPERATIONS
The following tables present selected unaudited quarterly consolidated
financial information for each of the eight quarters in the two-year period
ended March 26, 2000 and such information as a percentage of total revenues for
each period. In our management's opinion, this information has been prepared on
the same basis as the consolidated financial statements and related notes
appearing elsewhere in this prospectus and includes all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the financial
results. Although results from period to period may vary, the first quarter of
each fiscal year is impacted by a plant shutdown of flexible circuit operations
to perform maintenance operations, environmental inspections, facility
modification and equipment installation. Results of operations for any previous
quarters are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
JUNE 30, SEPT. 27, DEC. 27, MAR. 28, JUNE 30, SEPT. 26, DEC. 26, MAR. 26,
1998 1998 1998 1999 1999(1) 1999 1999 2000(2)
---------- --------- -------- -------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues................... $18,079 $15,492 $15,354 $16,099 $20,103 $20,366 $24,384 $25,271
Gross profit..................... 3,898 2,440 2,834 3,987 5,002 4,702 5,782 6,366
Selling, general and
administrative expenses........ 2,463 2,114 2,004 2,567 3,030 2,571 3,061 3,129
Operating income................. 1,435 326 830 1,420 1,972 2,131 2,721 3,236
Net income....................... $ 1,019 $ 199 $ 540 $ 944 $ 1,337 $ 1,340 $ 1,556 $ 1,704
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
JUNE 30, SEPT. 27, DEC. 27, MAR. 28, JUNE 30, SEPT. 26, DEC. 26, MAR. 26,
1998 1998 1998 1999 1999(1) 1999 1999 2000(2)
---------- --------- -------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit..................... 21.6 15.8 18.5 24.8 24.9 23.1 23.7 25.2
Selling, general and
administrative expenses........ 13.6 13.6 13.1 15.9 15.1 12.6 12.6 12.4
Operating income................. 7.9 2.1 5.4 8.8 9.8 10.5 11.2 12.8
Net income....................... 5.6% 1.3% 3.5% 5.9% 6.7% 6.6% 6.4% 6.7%
</TABLE>
- ------------------------------
(1) Includes the operations of Dynaflex beginning April 30, 1999.
(2) Includes the operations of Poly-Flex beginning March 1, 2000.
Total revenues and gross profit in the quarters ended September 27, 1998 and
December 27, 1998 were adversely affected due to problems associated with
production start-up at our Mexican facility. Product shipped to our Mexican
facility was returned because of an unexpected delay in qualifying the site for
finishing operations. As a result, the product was contaminated during unplanned
storage and shipment back to our Methuen, Massachusetts facility. These circuits
required extensive rework, and we discarded significant quantities of them.
LIQUIDITY AND CAPITAL RESOURCES
At March 26, 2000, our working capital was $21.7 million, up $2.9 million,
from $18.8 million at June 30, 1999. In the nine months ended March 26, 2000, we
had net income of $4.6 million,
26
<PAGE>
depreciation and amortization of $3.1 million and other non-cash charges of
$1.0 million. We used these monies, together with $1.6 million from maturing
investments, $209,000 from the exercise of stock options and $25.1 million
borrowed under our credit facility, to purchase Poly-Flex for approximately
$20.1 million, which amount includes $430,000 of an estimated $600,000 in
related expenses in addition to the $19.7 million purchase price, to fund
additional working capital requirements of $4.4 million and capital expenditures
of $7.1 million, and to pay debt of $2.9 million.
In fiscal 1999, we had net income of $3.0 million, as well as depreciation
and amortization of $2.9 million and other non-cash charges of $1.0 million,
thus adding $6.9 million to cash flow. Cash flow was reduced by $1.9 million
relating to increased working capital, resulting in a positive cash flow from
operations of $5.0 million. We used these monies, together with $5.2 million
from maturing investments and available cash from the beginning of the year, to
purchase approximately $13.0 million in property and equipment and to pay the
approximately $2.7 million cash purchase price for the Dynaflex acquisition.
On March 1, 2000 we entered into a new credit facility consisting of a
$15.0 million revolving line of credit and a $15.0 million term loan, each
subject to a right of setoff that our lender has against our deposits or other
property in its possession or control. We borrowed $20.1 million in connection
with our Poly-Flex acquisition, all of which we intend to repay with our
proceeds from this offering. Borrowings under both the revolving line of credit
and the term loan bear interest at either our lender's prime rate (9.5% at
May 23, 2000) or LIBOR (6.19% at May 23, 2000) plus a margin that varies from
1.5% to 2.0%. As of May 23, 2000, we had borrowed $9.2 million under our
revolving line of credit and $15.0 million under the term loan facility. No
further advances of principal will be made under this credit facility after
December 31, 2001. We are required to repay our revolving line of credit
borrowing in forty-five equal monthly installments, the first being due on
January 1, 2002, and our term loan in twenty quarterly installments of $750,000,
the first being due on June 1, 2000. We must also pay, quarterly in arrears and
commencing on June 1, 2000, a fee of one-quarter of one percent per annum on the
unused portion of our revolving line of credit. Our credit facility requires
compliance with a number of covenants, including restrictions on payment of
dividends, making of loans, investment in securities and changes in control, and
financial covenants.
We believe that our cash on hand, our anticipated cash flow from operations,
and the amount available under our revolving credit facility, together with the
net proceeds of this offering, should be sufficient to meet our anticipated
needs for at least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards,
or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts and for hedging activities. We will adopt SFAS No. 133 during fiscal
2001. We have not completed an evaluation of the effects of adopting SFAS No.
133 on our consolidated financial position, results of operations and financial
statement disclosures.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements. We
will adopt SAB No. 101 as required in the fourth quarter of fiscal 2000 and are
evaluating the effect that SAB No. 101 may have on our consolidated financial
statements.
27
<PAGE>
MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.
We are exposed to market risks, which include changes in U.S. and foreign
interest rates and fluctuations in exchange rates.
We maintain a portion of our cash and cash equivalents in financial
instruments with purchased maturities of three months or less. These financial
instruments are subject to interest rate risk and will decline in value if
interest rates decrease. Due to the short duration of these financial
instruments, an immediate decrease in interest rates would not have a material
adverse effect upon our financial position.
We also have a revolving credit line and a term loan that bears interest, at
our choice, at our lender's prime rate or LIBOR plus a margin that varies from
1.5% to 2.0%. Both the prime and LIBOR rates are affected by changes in market
interest rates. We owed approximately $24.2 million as of May 23, 2000. We have
the option to repay borrowings at anytime without penalty, other than breakage
fees in the case of prepayment of LIBOR rate borrowings, and therefore believe
that our market risk is not material.
The remainder of our long-term debt bears interest at fixed rates and is
therefore not subject to market risk.
Sales of Parlex Shanghai and Poly-Flex Circuits Limited are typically
denominated in the local currency, which is also each company's functional
currency. This creates exposure to changes in exchange rates. The changes in the
Chinese/U.S. and U.K./U.S. exchange rates may positively or negatively impact
our sales, gross margins and retained earnings. Based upon the current volume of
transactions in China and the United Kingdom and the stable nature of the
exchange rate between China and the U.S. and the United Kingdom and the U.S., we
do not believe the market risk is material. We do not engage in regular hedging
activities to minimize the impact of foreign currency fluctuations. Parlex
Shanghai had net assets as of December 26, 1999, which were reported in our
financial statements for the quarter ended March 26, 2000, of approximately
$7.2 million. Poly-Flex Circuits Limited had net assets as of March 26, 2000 of
approximately $4.7 million. We believe that a 10% change in exchange rates would
not have a significant impact upon Parlex Shanghai's or Poly-Flex Circuits
Limited's financial position, results of operation or outstanding debt. As of
December 26, 1999, Parlex Shanghai had outstanding debt of $1.3 million. As of
March 26, 2000, Poly-Flex Circuits Limited had no outstanding debt.
28
<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of flexible interconnect solutions to the
automotive, telecommunications and networking, diversified electronics,
aerospace and computer markets. Our product offerings, which we believe are the
broadest of any company in the flexible interconnect industry, include flexible
circuits, laminated cable, flexible interconnect hybrid circuits, prototype
flexible circuits and flexible interconnect assemblies.
Our objective is to be the supplier of choice for key customers in markets
where cost-effective flexible interconnects provide added value to our
customers' products. We believe that our creative engineering expertise, our
ability to advance the technology of manufacturing processes and materials and
our broad product portfolio allow us to provide the lowest cost solution that
meets the performance requirements of our customers.
We have a long history of providing flexible interconnect solutions to some
of the leading original equipment manufacturers, or OEMs, in our target markets,
including Motorola, Siemens, Nortel Networks, Symbol Technologies, Honeywell and
Hewlett-Packard. We have a global presence and operate seven manufacturing
facilities, which are located in China, Mexico, the United Kingdom and the
United States.
INDUSTRY BACKGROUND
Over the past two decades, electronic systems have become smaller, lighter
and more complex, while demands for increased performance at lower costs have
increased dramatically. The demand for more portable electronic packaging has
also increased. As two-dimensional rigid printed circuit boards, a conventional
form of electronic interconnect packaging, limit the options available to design
engineers, the demand for three-dimensional, flexible interconnect solutions has
increased. In addition to their improved packaging and performance
characteristics, they offer superior heat dissipation characteristics compared
to rigid circuits, making flexible interconnects attractive for use in advanced,
high-speed electronics. The IPC, an international trade organization, estimates
that worldwide sales of flexible circuits alone in 1998 were approximately $2.8
billion.
Flexible interconnects provide electrical connection between components in
electronic systems and are increasingly used as a platform to support the
attachment of electronic devices. Flexible interconnects offer several
advantages over rigid printed circuit boards and ceramic hybrid circuits,
particularly for small, complex electronic systems:
- Their ability to physically bend or flex and their three-dimensional shape
permit them to accommodate packaging contours and motion in a manner that
traditional two-dimensional rigid printed circuit boards cannot;
- They provide improved heat dissipation and signal integrity as compared to
printed circuit boards; and
- They permit the use of primary substrates for component attachment, as
well as connectors, cables and other interconnection devices, with reduced
size, weight and expense.
29
<PAGE>
We consider the following trends important in understanding the flexible
interconnect industry:
MINIATURIZATION, PORTABILITY AND COMPLEXITY OF ELECTRONIC PRODUCTS
High-performance electronic products, such as cellular phones and personal
digital assistants, continue to become more compact, portable and contain
greater functionality. The complexity of these new products requires flexible
interconnects with smaller size, lighter weight, greater circuit and component
density, better heat dissipation properties, higher frequencies and increased
reliability. As electronic products become increasingly sophisticated,
electronic interconnect suppliers will require greater engineering expertise and
investment in manufacturing and process technology to produce high-quality
electronic interconnect products on time, in volume and at acceptable cost.
SHORTER PRODUCT LIFE CYCLES AND TIME-TO-MARKET PRESSURE
Rapid technological advances have significantly shortened the life cycle of
complex electronic products and increased pressure to develop and introduce new
products quickly. These time-to-market challenges have in turn increased OEMs'
emphasis on the development, design, engineering, prototype development and
ramp-to-volume capabilities of their suppliers.
GLOBALIZATION AND REDUCTION OF MANUFACTURING COSTS
Customers continue to demand increased electronic performance at lower
prices. Leading OEMs who often manufacture products in multiple geographic
regions are relying more on suppliers with global sourcing capabilities. Local
sourcing can help to shorten the manufacturer's supply chain and provide
regionally competitive pricing. OEMs also increasingly demand that their
suppliers provide infrastructure for local delivery of engineering,
manufacturing and sales support.
INCREASED OUTSOURCING
To avoid delays in new product introductions, reduce manufacturing costs and
avoid logistical complexities, OEMs are increasingly turning to suppliers
capable of producing electronic interconnect products from development, design,
quick-turn prototype and pre-production through volume production and assembly.
The accelerated time-to-market and ramp-to-volume needs of manufacturers have
resulted in increased collaboration with qualified suppliers capable of
providing a broad and integrated offering. Many OEMs now seek to use a small
number of technically qualified, strategically located suppliers capable of
providing both quick-turn prototype and pre-production quantities as well as
cost-competitive volume production quantities.
PROLIFERATION OF ELECTRONICS AND CREATION OF NEW PRODUCT APPLICATIONS
The markets for electronic products are growing as a result of technological
change, increasing demands for a wider variety of electronic product features
and more powerful and less expensive electronic components. Because of this
growth, new markets for flexible interconnects are being created and new
applications for flexible interconnects are emerging within existing markets.
OUR SOLUTION
We combine creative engineering design capabilities with innovative
manufacturing processes and materials to provide our customers with a complete
and cost-effective flexible interconnect solution. We believe that our processes
and technologies allow us to produce superior flexible interconnect solutions at
a lower cost than our competitors. In addition, because we are able to produce a
broad range of flexible interconnects ranging from low-cost laminated cable to
more
30
<PAGE>
expensive high-performance multilayer and rigid-flexible interconnects, we are
able to provide our customers with a product that most efficiently meets their
demands for functionality.
Our solution begins with the product design phase, in which our engineers
typically work closely with customers to develop a technically advanced flexible
interconnect design. Although our customers generally provide the initial
engineering guidelines for a particular interconnect, our 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 at an early
stage, before time and money are spent on manufacturing, that the design can be
produced efficiently and cost-effectively.
Once the design is completed, we apply our experience with innovative
materials and manufacturing processes to produce a flexible interconnect
solution that meets our customer's functionality and cost objectives. We have
developed materials and processes that provide customers improved performance at
a lower production cost. In addition, we provide a dedicated quick-turn
capability for producing prototype flexible interconnects and supporting our
customers' needs for limited quantities of flexible interconnects on short
notice. We believe that we are the only volume manufacturer of flexible
interconnects to offer this valuable service in a dedicated facility. When
customers come to us for prototype development of a flexible interconnect, we
believe that we enjoy a competitive advantage in pursuing the subsequent volume
production of that flexible interconnect. Over the past several years we have
gained substantial experience in producing products in high volume, and we
believe this expertise is a key factor in our ability to provide customers with
cost-effective, flexible interconnect solutions.
We believe that our capability to supply worldwide a broad range of products
with a diverse mix of performance characteristics will enable us to capture
additional market share in the flexible interconnect industry. We are 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 a variety of products and services, we can provide design and
manufacturing solutions for our customers while reducing their time-to-market
and product development costs.
OUR STRATEGY
Our objective is to be the flexible interconnect supplier of choice for
customers in our target markets. Our strategy to achieve this objective includes
the following key elements:
DEVELOP INNOVATIVE PROCESSES AND MATERIALS
We believe that our ability to develop innovative processes and materials
enhances our opportunity for growth within our target markets. We intend to
continue to focus our development efforts on proprietary flexible materials and
processes that have a broad range of applications. These materials and processes
enable us to produce, at reduced cycle times, cost-effective flexible
interconnects that are reliable and improve product performance. Our
PALFlex-Registered Trademark-, PALCoat-Registered Trademark-, U-
Flex-Registered Trademark-, PALCore-Registered Trademark- HP,
Polysolder-Registered Trademark- and AutoNet-TM- technologies are examples of
some of our innovative materials and manufacturing processes.
OFFER THE BROADEST RANGE OF PRODUCTS AND SERVICES IN THE FLEXIBLE INTERCONNECT
INDUSTRY
We offer product lines that service virtually all of our customers' flexible
interconnect needs. We are not aware of another company in the flexible
interconnect industry that provides a broader range of products and services.
Our product line includes flexible and rigid-flexible circuits from one to 24
layers, laminated cable, flexible interconnect hybrid circuits, flexible
interconnect assemblies and, with our recent Poly-Flex acquisition, surface
mount assembly capabilities. We offer products using a variety of materials,
including adhesiveless and adhesive-based polyimide, polyester, and polymer
thick film technologies. This wide product range enables us to remain the
flexible
31
<PAGE>
interconnect supplier of choice to our customers even when their functional
requirements change. For example, when a major automotive customer increased the
number of electronic signals required for performance beyond the capability of a
double-sided circuit, our PALCore-Registered Trademark- HP product met the
customer's enhanced functionality and cost objectives. Conversely, another
customer's design had the desired performance but was too costly in a highly
competitive market. We redesigned this customer's flexible circuit to eliminate
expensive shield layers by using HSI+-TM-, our patented high-speed screening
process.
DEVELOP STRATEGIC RELATIONSHIPS WITH KEY CUSTOMERS
We seek to develop strategic relationships with key customers in targeted
industries. As a value-added strategic partner with our customers, we work with
a customer's technology roadmap to design and develop cost-effective flexible
interconnect solutions. We believe that these relationships are most effective
when we provide a significant portion of a customer's flexible interconnect
needs. Through these strategic relationships, we achieve greater visibility into
our customers' entire range of flexible interconnect requirements. As a result
of our relationships with key customers, we developed
PALFlex-Registered Trademark-, PALCore-Registered Trademark- and HSI+-TM- with
the knowledge that successful development would result in immediate market
acceptance.
DIVERSIFY CUSTOMER BASE ACROSS SPECIFIC MARKETS
We seek to serve a variety of markets to help mitigate the effects of
economic cycles in any one industry. Our business units are aligned to specific
market segments to better understand and service customers within particular
industries. In addition, we believe our diversification among the major segments
provides greater insight into emerging technological requirements. For example,
we applied our proprietary knowledge of shielding requirements in the computer
industry to gain a competitive advantage in the telecommunications and
networking market.
EXPAND GLOBAL PRESENCE
We believe that our customers will increasingly require service and support
on a global basis. To address these requirements, we have continued to expand
our global presence in emerging markets and throughout the world. We now have
facilities in Asia, Europe, and the east and west coasts of North America. In
1995 we established a joint venture in China to serve the emerging flexible
circuit market in China and throughout Asia and to produce specified products
more cost-effectively for North America's customers. In May 1998, we leased a
facility in Mexico that performs the finishing and, in some instances, assembly
operations for flexible interconnects manufactured at our other facilities. In
April 1999, we purchased a facility in San Jose, California to produce low to
medium volumes of flexible circuits and provide our customers with quick-turn
and prototyping services. This facility also supports several customers who use
Parlex Shanghai for high volume production. In addition, we have developed, and
plan to continue to develop, strategic relationships and alliances that we
believe are necessary for the success of our international business. We have
increased our distribution capabilities by establishing a presence in Singapore
and France to serve key customers in Asia and Europe. Our recent acquisition of
Poly-Flex, which has manufacturing facilities in Rhode Island and the United
Kingdom, positions us to further expand our presence in Europe. We will continue
to explore appropriate expansion opportunities as demand for our solutions
increases.
OUR MARKETS
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:
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<PAGE>
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 cable 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 AND NETWORKING
The telecommunications and networking market includes infrastructure
equipment and subscriber equipment submarkets. 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 such as handsets and battery
assemblies. Tight packaging and the need to reduce weight have driven the demand
for flexible interconnects in this submarket. Laminated cable and single- and
double-sided flexible circuits are generally used in subscriber equipment.
DIVERSIFIED ELECTRONICS
The diversified electronics market, which we define to include medical
electronics, encompasses many applications. Virtually any electronic device
which requires tight packaging, light weight or high reliability is a product
that could incorporate flexible interconnects. Typical applications include
electronic scales, industrial controls, metering devices, scanners, sensors and
medical monitoring equipment.
AEROSPACE
Aerospace electronics were at one time the primary applications for flexible
circuitry. Because of product complexity and space restrictions, aerospace
applications often require multilayer rigid-flexible circuits. Typical
applications are navigation systems, flight controls, displays, communications
equipment and munitions. Although overall spending in this segment has
decreased, we believe that procurement of flexible interconnects will continue
to experience modest growth. We believe that the trend toward "smart" military
systems will continue to drive demand for flexible interconnects in this
segment.
COMPUTER
Demand for flexible circuits and laminated cable in the computer 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, personal digital assistants, mass storage devices and
peripheral equipment such as scanners, printers and docking stations.
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<PAGE>
APPLIANCES
The home appliance market is beginning to make the transition from
electro-mechanical controls to electronic controls containing intelligence and
display. Over time, appliances are expected to become more technologically
advanced. The utility and ease of use and repair associated with flexible
interconnects make them especially suitable for these applications.
RADIO FREQUENCY IDENTIFICATION (RFID)
The emerging identification and tracking market is based upon next
generation identification tags consisting of a radio frequency semiconductor
attached to an antenna. Advancing technology at lower prices, increasing
cooperation among industry participants and high volume applications such as
automated fuel payment, electronic ticketing, baggage handling and parcel
tracking are expected to be the growth drivers for this market. Market
researchers have estimated that the compound annual growth rate for the
shipments of RFID systems will be approximately 27% between 2000 and 2002. The
size, cost and performance requirements demanded by this market are expected to
drive the use of flexible circuits and assemblies in these applications.
OUR PRODUCTS
Our current flexible interconnect products include flexible circuits,
laminated cable, flexible interconnect hybrid circuits and flexible interconnect
assemblies. We manufacture our products, which are designed by us, our customers
or jointly, to our customers' application-specific requirements. Lead times for
the design and manufacture of our products generally range from one week for
some products to three months for more sophisticated products.
FLEXIBLE CIRCUITS
Flexible circuits, which consist of conductive patterns that are etched or
printed onto 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, screening, photo imaging,
etching, plating and finishing. Flexible circuits can be produced in single or
multiple layers. We produce a wide range of flexible circuits including:
- SINGLE-SIDED FLEXIBLE CIRCUITS, which have a conductive pattern only on
one side. Single-sided flexible circuits are usually both cheaper and more
flexible than double-sided flexible circuits. Through our proprietary
high-speed interconnect screening technology, HSI+-TM-, which eliminates
the need for a separate shield layer, we can produce single-sided flexible
circuits that provide the same functionality as double-sided flexible
circuits at a lower cost. We manufacture single-sided circuitry in both
the United States and at Parlex Shanghai, where substantially all of our
production to date has been single-sided.
- DOUBLE-SIDED FLEXIBLE CIRCUITS, which have conductive patterns or
materials on both sides that are interconnected by a drilled and
copper-plated hole. Double-sided flexible circuits can provide either more
functionality than a single-sided flexible circuit by containing
conductive patterns on both sides, or can provide greater shielding than a
single-sided flexible circuit by having a conductive pattern on one side
and a layer of shielding material on the other.
- MULTILAYER AND RIGID-FLEXIBLE CIRCUITS, which consist of layers of
circuitry that are stacked and then 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 printed circuit board
material, the product becomes a rigid-flexible circuit. We have
manufactured these circuits with up to 40 layers in prototype programs and
24 layers in production.
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<PAGE>
- POLYMER THICK FILM FLEXIBLE CIRCUITS, which are flexible circuits
manufactured using a technology that uses a low-cost thick film polyester
dielectric substrate and a silver screen-printed conductive pattern. These
circuits are made with an additive process involving the high-speed screen
printing of conductive traces utilizing internally developed ink systems.
We are able to produce multilayer circuits using proprietary dielectric
materials and double-sided circuits using proprietary printed through-hole
technologies. Polymer thick film flexible circuits are used in low-cost,
low-temperature, low-power interconnect applications.
LAMINATED CABLE
Laminated cable, which consist of flat or round wire laminated to a flexible
substrate material, provide connections between electronic sub-systems and
replace conventional wire harnesses. We manufacture laminated cable in an
efficient, proprietary roll process. Substantially all of the laminated cable
that we produce uses flat wire. Approximately 70% of the laminated cable that we
produce is insulated with polyester material, allowing for maximum flexibility,
while the remainder is insulated with polyimide material for its enhanced
performance at elevated temperatures. Our laminated cable is capable of handling
both power (high current) and signal (low current).
Improving the process by which laminated cable is manufactured can increase
functionality and lower the cost of production. To this end, we have developed
U-Flex-Registered Trademark-, a proprietary technique that forms flat wire into
a u-shape, followed by an injection molding process that enables the u-shaped
end to function as a connector. This technique improves electrical performance
and eliminates the need for a separate costly connector. We have also developed
Pemacs-TM- shielding, which adds a specially designed silver ink to laminated
cable to meet stringent electronic shielding requirements without compromising
flexibility. We have worked closely with a connector manufacturer to develop
PALCon-TM-. This new low-cost connector is designed specifically for flexible
interconnects and offers automotive manufacturers easy installation at
competitive pricing.
FLEXIBLE INTERCONNECT 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 we manufacture flexible interconnect hybrid circuits, which take
advantage of the lower cost of laminated cable and the technology of flexible
circuits by combining them into a single interconnect. On some products, we
apply our HSI+-TM- process to the flexible interconnect hybrid circuit in order
to provide signal clarity and shielding.
FLEXIBLE INTERCONNECT ASSEMBLIES
Both flexible circuits and laminated cable 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 attaching components such as
capacitors, resistors or integrated circuits onto a flexible circuit using
surface mount assembly. We attach surface mount components to both copper and
polymer thick film circuits with either solder paste or our patented
Polysolder-Registered Trademark- conductive adhesive. We can place a full range
of electronic devices, from passive components to computing devices, on our
flexible interconnects.
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The following table sets forth representative applications in which our
products are used:
<TABLE>
<S> <C>
FLEXIBLE CIRCUITS
Single-Sided Automotive Displays
Batteries for Cell Phones
Printers
Personal Digital Assistants
Data Storage
Double-Sided Engine Control Units
Laptop Computers
Cellular Phones (Including Batteries)
Engine Sensors
Multilayer and Rigid-Flexible Engine Control Units
Computer Networks
Network Switching Systems
Aircraft Displays
Automotive Transmission Systems
Polymer Thick Film Business Phones
Disposable Medical Devices
LAMINATED CABLE Postage Meters
Automotive Sound Systems
Notebook Computers
Industrial Controls
Electronic Scales
FLEXIBLE INTERCONNECT HYBRID CIRCUITS Total Vehicle Interconnection
Printers
Sensors
Scanning Devices
Night Vision Systems
FLEXIBLE INTERCONNECT ASSEMBLIES Aircraft Identification Systems
Sensors
Scanning Devices
Batteries for Portable Products
Disk Drives
Night Vision Systems
</TABLE>
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<PAGE>
NEW PROCESS AND MATERIAL TECHNOLOGIES
An important part of our strategy is development of new processes and
materials for use in our products. Our proprietary processes and materials
include:
PALFLEX-REGISTERED TRADEMARK-. PALFlex-Registered Trademark- is both an
adhesiveless polyimide-based material and a manufacturing process that we
believe provides superior performance at a lower cost than traditional
copper-clad materials. PALFlex-Registered Trademark- provides additional cost
benefits by allowing us to combine several material manufacturing steps with
circuit manufacturing and eliminating several major process steps. We developed
PALFlex-Registered Trademark- for high volume automotive applications and are
now adapting it for use across a number of other product lines. Because
PALFlex-Registered Trademark- is produced in roll form and the copper thickness
can be controlled to tight tolerances, we believe that it may serve as the
foundation for products in the emerging high density substrate market. We
shipped our first product incorporating the current version of
PALFlex-Registered Trademark- in fiscal 1998.
PALCOAT-REGISTERED TRADEMARK-. Working closely with a materials
manufacturer and an equipment manufacturer we developed
PALCoat-Registered Trademark-, a new material for coating the outside of
flexible circuits. PALCoat-Registered Trademark- 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 now commercially
available. PALCoat-Registered Trademark- entered volume production in fiscal
1999.
PALCORE-REGISTERED TRADEMARK- HP. PALCore-Registered Trademark- HP is a
low-cost multilayer flexible material that is designed to minimize the
difference between the cost of materials used in flexible circuits and those
used in conventional rigid circuits. We have applied for patents on our latest,
more flexible version of PALCore-Registered Trademark- HP, which entered
production in January 2000.
POLYSOLDER-REGISTERED TRADEMARK-. Polysolder-Registered Trademark- is both
a patented lead-free, conductive adhesive used to attach electronic components
onto flexible interconnects and a patented manufacturing process that enables
the attachment of electronic devices onto substrates at low temperatures.
Polysolder-Registered Trademark- has been used in the production of polymer
thick film flexible circuit assemblies for several years. We plan to apply the
Polysolder-Registered Trademark- process to etched flexible circuits and
laminated cable. This technology will enable us to use polyester, instead of the
more expensive polyimide, as a substrate in the production of these flexible
interconnect assemblies.
RFID FLIP CHIP ATTACHMENT PROCESS. We have developed a low-cost process
that we believe will be an enabling technology in the RFID market. Our
high-speed flip chip attachment process is up to ten times faster at placing
semiconductors on low-cost materials than conventional process alternatives.
This process allows us to meet our customer's goals for cost and reliability.
This process entered production in September 1999.
AUTONET-TM-. AutoNet-TM- is a proprietary flexible interconnect designed
specifically to meet the emerging needs of the automotive industry. As each
generation of vehicles incorporates greater electronic content, interconnection
becomes both more important and more difficult. AutoNet-TM- draws upon our
flexible interconnect process and materials technology to provide a
cost-effective interconnect for placement in the headliners, trunks and doors of
automobiles. AutoNet-TM- is designed to replace traditional wire harnesses and
is lighter, smaller, more reliable and provides shielding necessary to control
the emission of electronic signals. We believe that the potential market for
AutoNet-TM- is substantial and will develop over the next few years.
OUR CUSTOMERS
Our customers are a diverse group of OEMs that serve a variety of
industries. In fiscal 1999, we sold products to approximately 700 accounts,
counting divisions within certain major customers as separate accounts. Our
largest 20 customers based on sales accounted for approximately 71% of total
revenues in fiscal 1997, 64% in fiscal 1998, 63% in fiscal 1999 and 69% in the
first nine months
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of fiscal 2000. Sales to several divisions of Motorola in the aggregate
comprised approximately 20% of our total revenues in fiscal 1997, 23% in fiscal
1998, 15% in fiscal 1999 and 10% in the first nine months of fiscal 2000. Our
other major end-customers include: Siemens, Nortel Networks, Symbol
Technologies, Honeywell, Hewlett-Packard, Dell Computer, Lexmark, General
Dynamics, Delphi, Visteon, Pitney Bowes and Kulicke & Soffa Industries.
SALES AND CUSTOMER SERVICE
We have organized our sales and customer service into business units that
are tied to the following markets: automotive, telecommunications and
networking, diversified electronics, aerospace and computer. Our sales managers
focus on a specific industry and develop targeted customers within that
industry. Our sales managers draw upon the expertise of our engineering staff as
an integral part of the sales process, and upon customer service representatives
to support their customers' day-to-day requirements. Sales managers coordinate
the efforts of a network of 16 independent manufacturers' representative
organizations worldwide. In fiscal 1999 and the first nine months of fiscal
2000, manufacturers' representative organizations accounted for approximately
63% of total revenues.
The sales process involves extensive coordination between a customer's
design engineers and our design and engineering staff. Our sales managers then
work closely with our applications engineers to prepare a feasibility study to
assess the cost of producing the interconnect solution to the customer's
specifications. This process often involves multiple design and manufacturing
iterations to identify the lowest cost solution that meets the customer's
specifications.
Sales managers lead our efforts to become the preferred supplier to target
customers. The managers' ability to understand the quality, cost, delivery,
technology and service objectives of target customers is critical to our goal of
achieving the highest level of customer satisfaction. To develop strategic
relationships with target customers, our employees participate in joint
training, engineering seminars, manufacturing intern programs and as members of
customers' problem solving teams. We often have access to a customer's materials
resource planning schedule, which allows us to better forecast that customer's
near and mid-term requirements.
To complement the independent manufacturers' representative organizations
with which we work, we have direct sales and customer support offices in
Raleigh-Durham, North Carolina, and San Diego, California. Through these offices
we provide applications engineering, logistical support and coordination of
activities with our customers. We expect to open additional sales and customer
support offices in the U.S. and Europe. We have agreements with distribution
companies in Singapore and France to provide forward stocking and inventory
coordination for regional customers. These relationships enable us to provide
customers with service comparable to that of a local provider.
Under the terms of our Chinese joint venture agreement, Parlex Shanghai has
agreed that it will sell its products outside China only through us. In turn, we
have agreed that we will sell flexible circuits in China only through the joint
venture.
MANUFACTURING
We believe that our manufacturing expertise in a number of specialized
areas, together with our investment in process research and development and
equipment, have contributed to our position as an industry leader. A significant
amount of our production equipment is proprietary, including cable laminators,
precision cable slitters and roll plating, roll etching and automatic punching
equipment.
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Our computer-aided manufacturing system takes the customer's design and
programs the various steps that will be required to manufacture the particular
product. The manufacturing process varies a great deal from product to product.
Although there is no standard process, significant elements of production are
highlighted below:
<TABLE>
<S> <C> <C>
POLYMER THICK FILM
ETCHED FLEXIBLE CIRCUIT FLEXIBLE CIRCUIT LAMINATED CABLE
- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
Drilling Convert/Condition Substrate Lamination
Plating Screen Print Slitting
Developing Diecut Conductor Forming
Etching Conductive Adhesive Injection Molding
Lamination Surface Mount/Flip Chip Shielding
Assembly
Electrical Testing Electrical Testing Laser Skiving
Assembly Assembly
</TABLE>
We recently completed a major expansion of our production capacity. In
fiscal 1999, we added 60,000 square feet to our Methuen, Massachusetts facility,
12,000 square feet to our Salem, New Hampshire facility and 10,000 square feet
to our Shanghai, China facility. Additionally, we purchased over $7.5 million of
new equipment in fiscal 1999. Our acquisition of Dynaflex gave us a full
complement of flexible circuit manufacturing equipment and a 19,000 square foot
facility. Although some of our operations were capacity constrained in fiscal
1999, we believe that we now have sufficient capacity to meet forecast growth in
U.S. operations for the next several years. We are currently adding additional
capacity in Shanghai and Mexico and we intend to continue to expand capacity to
meet the needs of our growing customer base.
Six of our manufacturing facilities are certified to the international
standard ISO 9002. Three of our facilities are certified to the automotive
standard QS 9002.
MATERIALS AND MATERIALS MANAGEMENT
We aggressively attempt to control our cost of purchased materials and our
level of inventories through long-term relationships with our suppliers. Our
goal is to attain a competitive price from suppliers and foster a shared vision
towards advancing technology.
We purchase raw materials, process chemicals and various components from
multiple outside sources. We often make 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 to provide shorter lead times and reduced inventory levels. In many
cases our customers approve, and often specify, sources of supply.
We qualify our suppliers through a vendor rating system that limits the
number of suppliers to those that can provide the best total value and quality.
We monitor each supplier's quality, delivery, service and technology so that the
materials we receive meet our objectives.
COMPETITION
Our business is highly competitive. We compete 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. We
believe that we compete favorably on all of these competitive factors, but
believe that our competitive strength is in our ability to apply technology to
reduce cost. We compete against
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<PAGE>
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.
INTELLECTUAL PROPERTY
We have acquired patents and we seek patents on new products and processes
where we believe patents would be appropriate to protect our interests. Although
patents are an important part of our competitive position, we do not believe
that any single patent or group of patents is critical to our success. We
believe that, due to the rapid technological change in the flexible interconnect
business, our success depends more on design creativity and manufacturing
expertise than on patents and other intellectual property. We own 18 patents
issued, and have two patent applications pending, in the United States and have
several corresponding foreign patent applications pending. We have obtained
federal trademark registrations for PALFlex-Registered Trademark-,
PALCore-Registered Trademark-, U-Flex-Registered Trademark-,
PALCoat-Registered Trademark- and Polysolder-Registered Trademark-, and have one
trademark application pending. We also rely on internal security measures and on
confidentiality agreements for protection of trade secrets and proprietary
know-how. We cannot be sure that our efforts to protect our intellectual
property will be effective to prevent misappropriation or that others may not
independently develop similar technology.
Under the terms of our Chinese joint venture agreement, we transferred
specified technology to Parlex Shanghai and have agreed to provide it with
additional technology and expertise as the joint venture's capabilities and
markets develop. PALFlex-Registered Trademark- is excluded from the arrangement.
In January 2000, we sold two U.S. patents for PALCore-Registered Trademark-,
a low-cost multilayer material, to Polyclad Laminates, Inc., a subsidiary of
Cookson Electronics, for approximately $1.3 million. We had previously licensed
PALCore-Registered Trademark- to Isola Laminate Systems Corp. (f/k/a Allied
Signal Laminate Systems) and will transfer royalties received in connection with
the license to Polyclad Laminates, Inc. as part of the sale. We have retained a
perpetual, royalty-free, non-exclusive license to use the
PALCore-Registered Trademark- material in our products. We also hold a patent,
which we have not licensed to anyone, which covers the process of using
PALCore-Registered Trademark- in the production of flexible interconnects.
ENVIRONMENTAL REGULATIONS
Flexible interconnect 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. We operate and maintain water effluent
treatment systems and use approved laboratory testing procedures to monitor the
effectiveness of these systems at our Methuen, Massachusetts facility. We
operate this treatment system under a effluent discharge permit issued by the
local governmental authority. Air emissions resulting from our manufacturing
processes are regulated by permits issued by government authorities. These
permits must be renewed periodically and are subject to revocation in the event
of violations of environmental laws. We believe that the waste treatment
equipment at our facility is currently in compliance with the requirements of
environmental laws in all material respects and that our air emissions are
within the limits established in the relevant permit. However, violations may
occur in the future. We are 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 our operations over time, and
the costs of complying with such laws could be substantial. Compliance with
local, state and federal laws did not have a material impact on our capital
expenditures, earnings or competitive position in fiscal 1999. We estimate that
capital expenditures in fiscal 2000 and 2001 associated with environmental
compliance will be $550,000.
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EMPLOYEES
As of May 1, 2000, we employed approximately 900 people in the United
States. Of these employees, 800 were direct employees of Parlex and 100 worked
for interim staffing agencies. In addition, we employed approximately 200 people
in Mexico and approximately 130 people in the United Kingdom and Parlex Shanghai
employed approximately 560 people in China. We are not party to any collective
bargaining agreement and we believe our relations with our employees are good.
FACILITIES
Our facilities at March 26, 2000 are:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET LEASED/OWNED DESCRIPTION
- -------- ----------- ------------ -----------
<S> <C> <C> <C>
Methuen, Massachusetts 185,000 Owned Corporate headquarters, product
and process development and
flexible circuit manufacturing
Cranston, Rhode Island 55,500 Owned Polymer thick film and surface
mount assembly operations
Salem, New Hampshire 46,000 Leased (lease expires Laminated cable manufacturing
in January 2007)
Newport, Isle of 40,000 Leased (lease expires Polymer thick film and surface
Wight, United Kingdom in November 2009) mount assembly operations
Shanghai, China 37,000 Leased (lease expires Single- and double-sided flexible
in August 2002) circuit manufacturing
Empalme, Sonora, 19,000 Leased (lease expires Finishing and assembly operations
Mexico in January 2005)
San Jose, California 19,000 Leased (lease expires Prototype and quick-turn
in December 2000) operations
</TABLE>
LEGAL PROCEEDINGS
From time to time we are involved in litigation relating to claims arising
out of our operations in the normal course of business. We are not currently
involved in any material legal proceedings.
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MANAGEMENT
The following table sets forth information about our directors and executive
officers as of March 26, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Herbert W. Pollack................... 72 Chairman of the Board of Directors
Peter J. Murphy...................... 51 President, Chief Executive Officer and Director
Robert A. Rieth...................... 58 Senior Vice President and Chief Financial Officer
Alfred R. Calvetti................... 56 Vice President and General Manager--Laminated Cable
Products
Jill Pollack Kutchin................. 47 Vice President--Corporate Affairs and Clerk
Darryl J. McKenney................... 37 Vice President and General Manager--Flexible Circuit
Products
Steven M. Millstein.................. 56 Vice President and Treasurer
Sheldon Buckler...................... 68 Director
Richard W. Hale...................... 62 Director
M. Joel Kosheff...................... 62 Director
Lester Pollack....................... 66 Director
Benjamin M. Rabinovici............... 78 Director
</TABLE>
Herbert W. Pollack has served as Chairman of the Board of Parlex since it
was founded in 1970. He was President of Parlex from 1970 to 1995, Chief
Executive Officer from 1970 to June 1997 and Treasurer from 1970 to March 2000.
Mr. Pollack is the brother of Lester Pollack and the father of Jill Pollack
Kutchin.
Peter J. Murphy has been President of Parlex since July 1, 1995, and on
July 1, 1997, was elected to the office of Chief Executive Officer. He was Chief
Operating Officer and Executive Vice President from May 1994 to July 1995 and
Vice President and General Manager of Flexible Circuit Products from February
1993 to May 1994. Mr. Murphy initially served as Assistant to the President from
December 1992 to February 1993. From 1988 to 1992, he was President of Teledyne
Electro-Mechanisms, a manufacturer of flexible circuits. Mr. Murphy is a
Director of Nashua Corporation. He has been a Director of Parlex since 1994.
Robert A. Rieth joined Parlex in March 2000 as Senior Vice President and
Chief Financial Officer. From 1997 to 1999, Mr. Rieth was Chief Executive
Officer of Wyle Laboratories, Inc., a provider of testing and engineering
services for the aerospace and electronics industry. From 1971 to 1997, he was a
Corporate Vice President, Group Executive for Financial Management and President
of a subsidiary of Teledyne, Inc., an electronics, metals and consumer
electronics conglomerate.
Alfred R. Calvetti joined Parlex in July 1971 and has served in a variety of
technical and managerial positions. From December 1988 to February 1993, he was
Divisional Vice President and General Manager of Laminated Cable Products. In
February 1993, he became a Corporate Vice President and General Manager of
Laminated Cable Products.
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Jill Pollack Kutchin joined Parlex in January 1977 and served as
Manager--Marketing Administration until December 1983, when she became Vice
President--Corporate Affairs. Since November 1980, she has also been Clerk of
Parlex. Ms. Kutchin is the daughter of Herbert W. Pollack.
Darryl J. McKenney joined Parlex in February 1993 as Director of
Engineering, Flexible Circuit Products. In March 1995, Mr. McKenney became
Director of Operations of Flexible Circuit Products and was appointed Vice
President of Flexible Circuit Operations in April 1997. In August 1999 he became
a Corporate Vice President and General Manager of Flexible Circuit Products.
Prior to joining Parlex, he was Vice President--Engineering for Teledyne-Electro
Mechanisms.
Steven M. Millstein joined Parlex in March 1977, serving initially as
Controller and from February 1979 to February 1988 as Vice
President--Controller. Mr. Millstein served as Vice President--Finance from
February 1988 to March 2000 when he became Vice President and Treasurer.
Sheldon Buckler has been Chairman of the Board of NSTAR, a gas and electric
utility holding company, since May 1995. He was employed by Polaroid Corporation
from 1964 until his retirement as Vice Chairman of the Board of Directors in
1994. Dr. Buckler is a Director of Lord Corporation, Micrologic Corporation,
Nashua Corporation and Micro Component Technology, Inc. He has been a Director
of Parlex since February 1995.
Richard W. Hale has been President and Chief Executive Officer of VXI
Corporation, a manufacturer of electronic products for the telephone and
computer industry, since April 1998. He was President and Chief Executive
Officer of Watson Technologies, Inc., a manufacturer of electronic products,
from 1996 to March 1998. In addition, he has been Chairman and Chief Executive
Officer of Hale Industries, Inc., a private investment firm, since 1993. Prior
to that time, he was Vice President and Chief Operating Officer and a member of
the Board of Directors of M/A-Com, Inc. He has been a Director of Parlex since
February 1995.
M. Joel Kosheff has been Principal of M.J. Kosheff Associates, a financial
consulting firm, since January 1989. He has been a Director of Parlex since
1989.
Lester Pollack has been Managing Director of Centre Partners Management LLC,
a private investment firm, since 1986 and was a Managing Director of Lazard
Freres & Co. LLC, from 1986 to 1998. He is also the Chairman of the Board of
Directors of Firearms Training Systems, Inc., and a Director of LaSalle Re
Holdings Limited, Nationwide Credit Inc., Bank Leumi USA and Tidewater Inc.
Lester Pollack is the brother of Herbert W. Pollack. He has been a Director of
Parlex since 1970.
Benjamin M. Rabinovici has been Chairman of the Board of ASD Company, a
manufacturer of electronic products, since July 1999. He was President of
Tympanium Corporation, a manufacturer of electronic products, from 1980 to March
1996. He has been a Director of Parlex since 1970.
43
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common shares as of May 23, 2000 by the selling stockholders.
Except as otherwise indicated in the footnotes to the table, each of the
stockholders has sole voting and investment power with respect to the shares of
common stock listed as being beneficially owned. The address for each of the
selling stockholders is c/o Parlex Corporation, One Parlex Place, Methuen,
Massachusetts 01844. None of the selling stockholders owns any options to
acquire shares of our common stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE
OFFERING SHARES OFFERING
--------------------- OF PERCENT OF ---------------------
NUMBER PERCENT OF COMMON HOLDINGS NUMBER PERCENT OF
OF BENEFICIAL STOCK BEING OF BENEFICIAL
SELLING STOCKHOLDER SHARES OWNERSHIP OFFERED OFFERED SHARES OWNERSHIP
- ------------------- -------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Herbert W. Pollack(1)......................... 769,914 16.0% 75,000 9.7% 619,914 10.2%
Sandra Pollack(2)............................. 769,914 16.0% 75,000 9.7% 619,914 10.2%
</TABLE>
- ------------------------------
(1) Herbert W. Pollack is the husband of Sandra Pollack and the Chairman of the
Board of Parlex. Until March 2000, Mr. Pollack also served as Parlex's
Treasurer. Shares shown to be beneficially owned by Mr. Pollack include
230,400 shares of common stock owned by Mrs. Pollack, as to which
Mr. Pollack disclaims beneficial ownership.
(2) Sandra Pollack is the wife of Herbert W. Pollack. Shares shown to be
beneficially owned by Mrs. Pollack include 539,514 shares of common stock
owned by Mr. Pollack, as to which Mrs. Pollack disclaims beneficial
ownership.
44
<PAGE>
UNDERWRITING
Parlex, the selling stockholders and the underwriters for the offering named
below have entered into an underwriting agreement with respect to the shares
being offered. Subject to various conditions, each underwriter has severally
agreed to purchase the number of shares indicated in the following table. Adams,
Harkness & Hill, Inc. and Needham & Company, Inc. are the representatives of the
underwriters.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
- ------------ ----------------
<S> <C>
Adams, Harkness & Hill, Inc................................
Needham & Company, Inc.....................................
---------
Total................................................ 1,400,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 210,000
shares from us. They may exercise that option for 30 days. If any shares are
purchased pursuant to this option, the underwriters will severally purchase
shares in approximately the same proportion as set forth in the table above. The
underwriters may exercise this option only to cover over-allotments in
connection with the sale of the 1,400,000 shares of our common stock offered
hereby.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by Parlex and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY US STOCKHOLDERS
--------------------------- ---------------------------
UNDERWRITING DISCOUNTS AND COMMISSIONS NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
- -------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share.................................... $ $ $ $
Total........................................ $ $ $ $
</TABLE>
Under the terms and conditions of the underwriting agreement, if the
underwriters purchase any of the shares offered, they are committed to take and
pay for all of the shares offered.
The underwriters propose to offer the shares of our common stock in part
directly to the public at the public offering price set forth on the cover page
of this prospectus, and in part to securities dealers at the public offering
price less a concession not in excess of $ per share. The underwriters
may allow, and dealers may reallow, a concession not in excess of $ per
share to brokers and dealers. After the shares of common stock are released for
sale to the public, the representatives may vary from time to time the public
offering price and other selling terms.
The total proceeds before expenses we expect to receive from this offering,
after deducting the underwriting discount, will be approximately $26.4 million,
assuming no exercise of the over-allotment option. We estimate that the expenses
of this offering payable by us, exclusive of the underwriting discount, will be
$400,000.
We have agreed not to offer, sell, contract to sell, or otherwise dispose of
any shares of common stock for a period of 90 days after the date of this
prospectus without the prior written consent of Adams, Harkness & Hill, Inc.,
except for the shares of common stock offered hereby and except that we may
issue securities pursuant to our stock plans. In addition, our officers and
directors and the selling stockholders, who will hold an aggregate of 1,078,233
shares of common stock following the offering, for a period of 90 days after the
date of this prospectus, have agreed with the underwriters not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge,
45
<PAGE>
or grant any rights with respect to any shares of common stock owned
beneficially by them, subject to certain limited exceptions, without the prior
written consent of Adams, Harkness & Hill, Inc.
In connection with the offering, the underwriters may purchase and sell the
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions, "passive" market making and purchases to cover
syndicate short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock.
Syndicate short positions involve the sale by the underwriters of a greater
number of shares of common stock than they are required to purchase from us in
the offering. The underwriters also may impose a penalty bid, whereby the
syndicate may reclaim selling concessions allowed to syndicate members or other
broker-dealers in respect of the common stock sold in the offering for their
account if the syndicate repurchases the shares in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the common stock, which may be higher than the price that might
otherwise prevail in the open market. These activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
In general, the rules of the Securities and Exchange Commission will
prohibit the underwriters from making a market in the common stock during the
"cooling off" period immediately preceding the commencement of sales in the
offering. The SEC has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain underwriters, selling
group members (if any), or their respective affiliates may engage in passive
market making in the common stock during the cooling off period.
Parlex and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
46
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby is being passed
upon for Parlex by Ropes & Gray, Boston, Massachusetts and Kutchin & Rufo, P.C.,
Boston, Massachusetts. Edward D. Kutchin is a shareholder in the professional
corporation of Kutchin & Rufo, P.C. and beneficially owns 144,974 shares of our
common stock. Legal matters in connection with the offering will be passed upon
for the underwriters by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Parlex Corporation as of June 30, 1998 and 1999
and for each of the three fiscal years in the period ended June 30, 1999
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The combined financial statements of Poly-Flex Circuits, Inc. and Poly-Flex
Circuits Limited, incorporated in this prospectus by reference from Parlex
Corporation's Report on Form 8-K/A dated May 23, 2000 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, (which report expresses an unqualified
opinion, refers to the report of other auditors, and includes an explanatory
paragraph as to the basis of presentation) and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
47
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement with respect to the common stock offered hereby. This prospectus,
which is part of the registration statement, does not contain all of the
information included in the registration statement or the exhibits and schedules
which are part of the registration statement.
We also file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file with
the SEC at the SEC's public reference facility at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13(th) Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1900, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at HTTP://WWW.SEC.GOV.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus. Information that we file subsequently with the
SEC will automatically update and supersede information incorporated by
reference in this prospectus. We incorporate by reference the documents listed
below and any future filings we will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
1. Our Annual Report on Form 10-K for the fiscal year ended June 30, 1999
as filed with the SEC on October 1, 1999, except for Part II, Item 8,
Financial Statements, which have been updated and are included in this
prospectus;
2. Our Quarterly Report on Form 10-Q for the quarters ended September 26,
1999, December 26, 1999 and March 26, 2000 as filed with the SEC on
November 10, 1999, February 2, 2000, and May 10, 2000, respectively, and
on Forms 10-Q/A for the quarter ended March 26, 2000 as filed with the
SEC on May 19, 2000 and May 23, 2000;
3. Our Current Reports on Form 8-K as filed with the SEC on February 3,
2000, March 15, 2000 and May 12, 2000 and on Form 8-K/A as filed with the
SEC on May 23, 2000;
4. Our Proxy Statement as filed with the SEC on October 29, 1999; and
5. Our Registration Statement on Form 8-A as filed with the SEC on October
29, 1984, including any amendment or report filed for the purpose of
updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Parlex Corporation
One Parlex Place
Methuen, Massachusetts 01844
Attention: Clerk
(978) 685-4341
48
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PARLEX CORPORATION
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
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 (the "Company") as of June 30, 1998 and 1999,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended June 30, 1999.
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, 1998 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1999,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
August 24, 1999 (March 1, 2000 as to Note 14)
F-2
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,824,233 $ 1,175,889
Short-term investments.................................... 6,789,469 1,606,953
Accounts receivable--less allowance for doubtful accounts
of $255,000 in 1999 and $252,000 in 1998................ 11,145,750 14,053,046
Inventories............................................... 9,346,657 10,943,457
Refundable income taxes................................... 323,626 129,790
Deferred income taxes..................................... 372,725 559,084
Other current assets...................................... 1,706,367 1,585,435
------------ ------------
Total current assets.................................. 35,508,827 30,053,654
============ ============
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 468,864 468,864
Buildings................................................. 7,724,022 7,796,488
Machinery and equipment................................... 27,200,755 30,756,650
Leasehold improvements and other.......................... 2,270,658 2,929,101
Construction in progress.................................. 4,390,805 13,844,489
------------ ------------
Total................................................. 42,055,104 55,795,592
Less accumulated depreciation and amortization............ (22,031,645) (23,915,018)
------------ ------------
Property, plant and equipment--net.................... 20,023,459 31,880,574
------------ ------------
OTHER ASSETS................................................ 649,198 1,586,383
------------ ------------
TOTAL....................................................... $ 56,181,484 $ 63,520,611
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 121,158 $ 619,206
Bank loan................................................. 310,577 --
Accounts payable.......................................... 6,437,169 8,080,085
Accrued liabilities....................................... 2,353,800 2,592,655
------------ ------------
Total current liabilities............................. 9,222,704 11,291,946
============ ============
LONG-TERM DEBT.............................................. 1,165,751 1,631,782
------------ ------------
OTHER NONCURRENT LIABILITIES................................ 2,247,444 2,611,942
------------ ------------
MINORITY INTEREST IN PARLEX SHANGHAI........................ 1,954,472 2,651,711
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value--authorized, 1,000,000
shares; none issued
Common stock, $.10 par value--authorized, 10,000,000
shares; issued, 4,991,149 and 4,850,649 shares in 1999
and 1998, respectively.................................. 485,065 499,115
Additional paid-in capital................................ 23,872,745 24,568,566
Retained earnings......................................... 18,268,743 21,288,296
Accumulated other comprehensive income.................... 2,185 14,878
Less treasury stock, at cost--210,000 shares in 1999 and
1998.................................................... (1,037,625) (1,037,625)
------------ ------------
Total stockholders' equity............................ 41,591,113 45,333,230
------------ ------------
TOTAL....................................................... $ 56,181,484 $ 63,520,611
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Product sales..................................... $54,977,143 $60,048,336 $66,372,800
License fees and royalty income................... 109,710 226,835 674,483
----------- ----------- -----------
Total revenues................................ 55,086,853 60,275,171 67,047,283
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold............................. 44,136,738 47,304,136 52,784,488
Selling, general and administrative expenses...... 7,288,544 8,271,704 9,715,341
----------- ----------- -----------
Total costs and expenses...................... 51,425,282 55,575,840 62,499,829
----------- ----------- -----------
OPERATING INCOME.................................... 3,661,571 4,699,331 4,547,454
OTHER INCOME, Net................................... 155,604 683,776 359,748
INTEREST EXPENSE.................................... (436,008) (253,509) (226,378)
----------- ----------- -----------
INCOME FROM OPERATIONS BEFORE INCOME TAXES.......... 3,381,167 5,129,598 4,680,824
PROVISION FOR INCOME TAXES.......................... (1,249,202) (1,539,514) (964,032)
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST..................... 2,131,965 3,590,084 3,716,792
MINORITY INTEREST................................... (11,509) (433,110) (697,239)
----------- ----------- -----------
NET INCOME.......................................... $ 2,120,456 $ 3,156,974 $ 3,019,553
=========== =========== ===========
BASIC INCOME PER SHARE.............................. $ .59 $ .73 $ .65
=========== =========== ===========
DILUTED INCOME PER SHARE............................ $ .57 $ .71 $ .63
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------------- PAID-IN RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK INCOME
---------- --------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996.............. 2,582,659 $258,266 $ 3,243,491 $12,991,313 $(1,037,625) $ (162)
Comprehensive income:
Net income..................... -- -- -- 2,120,456 -- --
Foreign currency translation
adjustment................... -- -- -- -- -- (4,591)
Comprehensive income.............
Stock dividend................... 1,186,311 118,631 (118,631) -- -- --
Tax benefit arising from the
exercise of stock options...... -- -- 114,309 -- -- --
Exercise of stock options........ 29,780 2,978 95,255 -- -- --
---------- -------- ----------- ----------- ----------- -------
BALANCE, JUNE 30, 1997............. 3,798,750 379,875 3,334,424 15,111,769 (1,037,625) (4,753)
Comprehensive income:
Net income..................... -- -- -- 3,156,974 -- --
Other comprehensive income:
Foreign currency translation
adjustment................. -- -- -- -- -- --
Unrealized gain on short-term
investments................ -- -- -- -- -- --
Other comprehensive income..... -- -- -- -- -- 6,938
Comprehensive income.............
Tax benefit arising from the
exercise of stock options...... -- -- 97,702 -- -- --
Stock offering, net of
expenses....................... 1,000,000 100,000 20,281,799 -- -- --
Exercise of stock options........ 51,899 5,190 158,820 -- -- --
---------- -------- ----------- ----------- ----------- -------
BALANCE, JUNE 30, 1998............. 4,850,649 485,065 23,872,745 18,268,743 (1,037,625) 2,185
Comprehensive income:
Net income..................... -- -- -- 3,019,553 -- --
Other comprehensive income:
Foreign currency translation
adjusment.................. -- -- -- -- -- --
Unrealized gain on short-term
investments................ -- -- -- -- -- --
Other comprehensive income..... 12,693
Comprehensive income.............
Exercise of stock options........ 140,500 14,050 604,853 -- -- --
Tax benefit arising from the
exercise of stock options...... -- -- 90,968 -- -- --
---------- -------- ----------- ----------- ----------- -------
BALANCE, JUNE 30, 1999............. 4,991,149 $499,115 $24,568,566 $21,288,296 $(1,037,625) $14,878
========== ======== =========== =========== =========== =======
<CAPTION>
COMPREHENSIVE
INCOME
(LOSS) TOTAL
-------------- ------------
<S> <C> <C>
BALANCE, JULY 1, 1996.............. $ 15,455,283
Comprehensive income:
Net income..................... $ 2,120,456 2,120,456
Foreign currency translation
adjustment................... (4,591) (4,591)
-----------
Comprehensive income............. $ 2,115,865
===========
Stock dividend................... --
Tax benefit arising from the
exercise of stock options...... 114,309
Exercise of stock options........ 98,233
------------
BALANCE, JUNE 30, 1997............. 17,783,690
Comprehensive income:
Net income..................... $ 3,156,974 3,156,974
-----------
Other comprehensive income:
Foreign currency translation
adjustment................. (3,254) (3,254)
Unrealized gain on short-term
investments................ 10,192 10,192
-----------
Other comprehensive income..... 6,938
-----------
Comprehensive income............. $ 3,163,912
===========
Tax benefit arising from the
exercise of stock options...... 97,702
Stock offering, net of
expenses....................... 20,381,799
Exercise of stock options........ 164,010
------------
BALANCE, JUNE 30, 1998............. 41,591,113
Comprehensive income:
Net income..................... $ 3,019,553 3,019,553
-----------
Other comprehensive income:
Foreign currency translation
adjusment.................. 20,999 20,999
Unrealized gain on short-term
investments................ (8,306) (8,306)
-----------
Other comprehensive income..... 12,693
-----------
Comprehensive income............. $ 3,032,246
===========
Exercise of stock options........ 618,903
Tax benefit arising from the
exercise of stock options...... 90,968
------------
BALANCE, JUNE 30, 1999............. $ 45,333,230
============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 2,120,456 $ 3,156,974 $ 3,019,553
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property, plant and
equipment and other assets......................... 1,899,325 2,426,831 2,943,092
Gain on sale of equipment............................ (129,269) (68,573) --
Amortization on investments available for sale....... -- 49,761 --
Gain on sale of investments available for sale....... -- (8,133) (8,306)
Deferred income taxes................................ 86,375 98,640 93,580
Deferred compensation................................ 74,999 83,188 84,559
Tax benefit arising from the exercise of stock
options............................................ 114,309 97,702 90,968
Minority interest.................................... 11,509 433,110 697,239
Changes in current assets and liabilities:
Accounts receivable--net........................... (1,576,055) (2,116,362) (2,529,600)
Inventories........................................ 490,947 (2,084,180) (1,612,413)
Refundable income taxes............................ 17,794 (323,626) 193,836
Other current assets............................... (151,570) (855,411) 120,931
Accounts payable and accrued liabilities........... 220,520 1,593,457 1,881,732
Income taxes payable............................... 244,404 (244,404) --
------------ ------------ ------------
Total adjustments................................ 1,303,288 (918,000) 1,955,618
------------ ------------ ------------
Net cash provided by operating activities........ 3,423,744 2,238,974 4,975,171
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Parlex-Dynaflex subsidiary................... -- -- (2,620,000)
Maturities (purchases) of investments available for sale,
net.................................................... -- (6,820,905) 5,182,517
Additions to property, plant and equipment............... (2,619,074) (8,462,521) (12,834,228)
Decrease (increase) in other assets...................... (206,449) (86,841) 84,833
Proceeds from sale of equipment.......................... 164,220 77,800 --
------------ ------------ ------------
Net cash used for investing activities........... (2,661,303) (15,292,467) (10,186,878)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common shares--net......... -- 20,381,799 --
Proceeds from bank loan.................................. 99,332 -- --
Payment of bank loan..................................... -- (189,423) (310,577)
Issuance of long-term debt............................... -- 1,000,000 --
Borrowings (payments) under revolving-credit agreement... (650,000) (3,000,000) 600,000
Payments of other long-term debt......................... (100,000) (72,020) (366,001)
Exercise of stock options................................ 98,233 164,010 618,903
------------ ------------ ------------
Net cash provided by (used for) financing
activities..................................... (552,435) 18,284,366 542,325
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... -- (3,254) 21,038
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... 210,006 5,227,619 (4,648,344)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 386,608 596,614 5,824,233
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 596,614 $ 5,824,233 $ 1,175,889
============ ============ ============
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS:
Property and equipment contributed as capital by joint
venture partner........................................ $ 277,000 $ -- $ --
============ ============ ============
Property, plant and equipment acquired in exchange for
accounts receivable and inventory...................... $ -- $ -- $ 344,000
============ ============ ============
Property and equipment purchased under capital lease and
long-term debt......................................... $ -- $ 358,930 $ 730,080
============ ============ ============
Liabilities assumed in Parlex-Dynaflex acquisition....... $ -- $ -- $ 140,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Parlex Corporation ("Parlex" or the "Company") is a provider of
flexible interconnect solutions to the automotive, telecommunications and
networking, diversified electronics, aerospace and computer markets. Parlex's
product offerings include flexible circuits, laminated cable, flexible
interconnect hybrid circuits, prototype flexible circuits and flexible
interconnect assemblies.
BASIS OF CONSOLIDATION--The consolidated financial statements include the
accounts of Parlex, 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 foreign operations
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.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include short-term
highly liquid investments purchased with remaining maturities of three months or
less.
SHORT-TERM INVESTMENTS--The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At June 30, 1999 and 1998, the Company had
categorized all securities as "available-for-sale," since the Company may
liquidate these investments currently. In calculating realized gains and losses,
cost is determined using specific identification. SFAS No. 115 requires that
unrealized gains and losses on available-for-sale securities be excluded from
earnings and reported in a separate component of stockholders' equity.
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>
1998 1999
---------- -----------
<S> <C> <C>
Raw materials............................................... $3,413,657 $ 3,746,245
Work in process............................................. 5,933,000 7,197,212
---------- -----------
Total....................................................... $9,346,657 $10,943,457
========== ===========
</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 to 15 years; and
leasehold improvements over the terms of the lease.
REVENUE RECOGNITION--Product sales are recognized upon shipment. License
fees and royalty income are recognized when earned.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in
F-7
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements. The Company will adopt SAB No. 101 as required in the
fiscal fourth quarter of 2000 and are evaluating the effect that SAB No. 101 may
have on the consolidated financial statements.
RESEARCH AND DEVELOPMENT--Research and development costs are expensed as
incurred and amounted to $2,717,000, $3,123,000 and $3,760,000 for the years
ended June 30, 1997, 1998 and 1999, respectively. These amounts are reflected in
the Company's cost of products sold.
INCOME TAXES--The Company accounts for income taxes in accordance with 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.
INCOME PER SHARE--Basic income per share is calculated on the weighted
average number of common shares outstanding during the year. Diluted income per
share is calculated on the weighted average number of common shares and common
share equivalents resulting from options outstanding except where such items
would be antidilutive.
A reconciliation between shares used for computation of basic and dilutive
income per share is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Shares of basic computation............................... 3,569,052 4,295,706 4,661,790
Effect of dilutive stock options.......................... 145,987 169,821 109,084
--------- --------- ---------
Shares for dilutive computation........................... 3,715,039 4,465,527 4,770,874
========= ========= =========
</TABLE>
For the years ended June 30, 1998 and 1999 potential common shares are not
included in the per-share calculations for those shares that are antidilutive.
Antidilutive potential shares not included in per-share calculations for 1998
and 1999 were approximately 73,542 and 87,250, respectively. There were no
antidilutive shares for the year ended June 30, 1997.
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 property, plant, and equipment,
goodwill, 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 because of the relative consistency of
interest rates since its issuance.
F-8
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL--Goodwill associated with the allocation of the purchase price over
the fair value of the assets received and liabilities assumed in connection with
the business acquisition is being amortized on a straight-line basis over its
expected life of 10 years. The Company evaluates the carrying value of goodwill
based upon current and anticipated undiscounted cash flows attributable to
discrete operations, and recognizes an impairment when it is probable that such
estimated future net income and/or cash flows will be less than the carrying
value of goodwill. Measurement of the amount of impairment, if any, is based
upon the difference between carrying value and estimated fair value.
RECLASSIFICATIONS--Certain prior period amounts have been reclassified to
conform to the current year presentation.
STOCK-BASED COMPENSATION--The Company accounts for stock-based compensation
in accordance with Accounting Principles Board ("APB") Opinion No. 25, using the
intrinsic value method as permitted by 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 difference
between accounting for stock-based compensation under APB Opinion No. 25 and
SFAS No. 123 is disclosed in Note 8.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS--During 1999, the Company adopted
the disclosure provisions of 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. The following components
and changes in balances of accumulated other comprehensive income are as
follows:
<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY UNREALIZED OTHER
TRANSLATION GAINS ON COMPREHENSIVE
ADJUSTMENTS INVESTMENTS INCOME
----------- ----------- -------------
<S> <C> <C> <C>
Balance, July 1, 1996................................. $ (162) $ -- $ (162)
Change in balance................................... (4,591) -- (4,591)
------- ------ -------
Balance, June 30, 1997................................ (4,753) -- (4,753)
Change in balance................................... (3,254) 10,192 6,938
------- ------ -------
Balance, June 30, 1998................................ (8,007) 10,192 2,185
Change in balance................................... 20,999 (8,306) 12,693
------- ------ -------
Balance, June 30, 1999................................ $12,992 $1,886 $14,878
======= ====== =======
</TABLE>
F-9
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A summary of the changes in unrealized gains in short-term investments is as
follows for the years ended June 30:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains on short-term investments:
Unrealized holding gains arising during the year.......... $ -- $18,325 $ --
Less reclassification adjustment for gains realized in net
income.................................................. -- (8,133) (8,306)
------- ------- -------
Net unrealized gains on short-term investments.............. $ -- $10,192 $(8,306)
======= ======= =======
</TABLE>
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS (CONTINUED)--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. The Company
organizes itself as one segment reporting to the chief operating decision-maker.
Revenue consists of product sales, license fees and royalty income.
FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS
No. 133 will be adopted by the Company during fiscal year 2001. The Company has
not completed an evaluation of the effects of adopting SFAS No. 133 on its
consolidated financial position, results of operations and financial statement
disclosures.
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. CASH AND SHORT-TERM INVESTMENTS
A summary of the Company's investments available for sale by major security
type at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITY TYPE COST GAINS LOSSES VALUE
- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Corporate debt securities..................... $1,605,067 $1,886 $ -- $1,606,953
========== ====== ========= ==========
</TABLE>
All corporate debt securities at June 30, 1999 have contractual maturities
of less than one year.
F-10
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
3. CASH AND SHORT-TERM INVESTMENTS (CONTINUED)
A summary of the Company's investments available for sale by major security
type at June 30, 1998 was as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITY TYPE COST GAINS LOSSES VALUE
- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate debt securities................... $12,150,064 $23,588 $(12,892) $12,160,760
U.S. Government obligations................. 500,034 -- (504) 499,530
----------- ------- -------- -----------
$12,650,098 $23,588 $(13,396) $12,660,290
=========== ======= ======== ===========
</TABLE>
The fair value of debt securities at June 30, 1998, by contractual maturity,
was as follows:
<TABLE>
<S> <C>
Due in one year or less (including approximately $5,800,000
classified as cash equivalents)........................... $10,943,337
Due in one to five years.................................... 1,716,953
-----------
$12,660,290
===========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Payroll and related expenses................................ $1,489,205 $1,828,682
Accrued health insurance.................................... 202,353 182,479
Other....................................................... 662,242 581,494
---------- ----------
Total....................................................... $2,353,800 $2,592,655
========== ==========
</TABLE>
5. INDEBTEDNESS
The Company's China joint venture had a short-term bank loan bearing
interest at 1.25% over the Singapore Interbank Offer Rate ("SIBOR"). During
1999, this loan was paid in full.
Long-term debt at June 30 consisted of:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Revolving credit agreement.................................. $ -- $ 600,000
Capital lease obligations................................... 286,909 930,988
China joint venture bank note............................... 1,000,000 720,000
---------- ----------
Total long-term debt........................................ 1,286,909 2,250,988
Less current portion........................................ 121,158 619,206
---------- ----------
Long-term debt--net......................................... $1,165,751 $1,631,782
========== ==========
</TABLE>
F-11
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
5. INDEBTEDNESS (CONTINUED)
On November 12, 1997, the Company renegotiated its unsecured Revolving
Credit Agreement (the "Agreement") (originally dated June 22, 1994) making
available up to a total of $10,000,000 through September 30, 2000. On
October 1, 2000, the Agreement converts to a term loan with principal and
interest payments due monthly over a sixty-month period to September 30, 2005.
Borrowings under the Agreement are at the bank's corporate base rate (7.75% at
June 30, 1999), and carry an annual commitment fee of .25% on the average daily
unused portion of the bank's commitment. Interest is payable monthly. At
June 30, 1999, $600,000 was outstanding and the unused commitment amounted to
$9,400,000.
The Agreement has restrictive covenants related to tangible net worth,
current ratio, working capital, debt service ratio, and the ratio of total
liabilities to equity.
The Company's China joint venture bank note bears interest at 6.5% and is
payable in installments through 2001.
The maturities for long-term debt at June 30, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 619,206
2001........................................................ 709,845
2002........................................................ 365,616
2003........................................................ 286,321
2004........................................................ 120,000
Thereafter.................................................. 150,000
----------
$2,250,988
==========
</TABLE>
Interest paid during the years ended June 30, 1997, 1998 and 1999 was
approximately $394,000, $115,000 and, $236,000, respectively.
Approximately $335,000 and $1,065,000 of equipment is recorded under capital
leases at June 30, 1998 and 1999, respectively. Accumulated amortization on the
capital lease equipment approximated $63,000 and $118,000 at June 30, 1998 and
1999, respectively.
6. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at June 30 consisted of:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Deferred income taxes (Note 7).............................. $1,223,121 $1,503,060
Deferred compensation....................................... 1,024,323 1,108,882
---------- ----------
$2,247,444 $2,611,942
========== ==========
</TABLE>
The timing of deferred compensation payments cannot presently be determined.
Amounts, if any, which may be paid within one year are not material.
F-12
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
7. INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ---------
<S> <C> <C> <C>
Current:
State............................................... $ (157,115) $ (172,771) $(132,271)
Federal............................................. (1,005,712) (1,268,103) (697,590)
Foreign............................................. -- -- (40,591)
Deferred.............................................. (86,375) (98,640) (93,580)
----------- ----------- ---------
Total................................................. $(1,249,202) $(1,539,514) $(964,032)
=========== =========== =========
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34% 34% 34%
State income taxes, net of federal tax benefit.............. 3 2 1
Foreign income--not subject to taxation..................... -- (5) (9)
Foreign sales corporation................................... (1) (1) (3)
Tax credits................................................. (1) (1) (1)
Other....................................................... 2 1 (1)
-- -- --
Effective income tax rate................................... 37% 30% 21%
== == ==
</TABLE>
Income before income taxes consisted of:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Domestic............................................... $3,294,622 $4,169,556 $3,150,969
Foreign................................................ 86,545 960,042 1,529,855
---------- ---------- ----------
Total.................................................. $3,381,167 $5,129,598 $4,680,824
========== ========== ==========
</TABLE>
The Company's China joint venture was exempt from income taxes for the two
years ended December 31, 1998. For the next three years, the China joint venture
is eligible for a 50% reduction in the statutory income tax rate of 15%.
Accordingly, income tax of 7.5% was recorded for the three months ended
March 31, 1999, which, as disclosed in Note 1, is the fiscal year end for the
China joint venture.
F-13
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
7. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities at June 30 are attributable to
the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $1,597,409 $1,919,950
Prepaid expenses.......................................... 29,918 29,394
---------- ----------
1,627,327 1,949,344
---------- ----------
Deferred tax assets:
Inventories............................................... 63,730 80,621
Allowance for doubtful accounts........................... 63,341 76,849
Accruals.................................................. 110,148 168,643
Self-insurance............................................ 79,836 72,054
Deferred compensation..................................... 409,404 443,227
Tax credit carryforwards.................................. 50,472 163,974
---------- ----------
776,931 1,005,368
---------- ----------
Net deferred tax liability.................................. $ 850,396 $ 943,976
========== ==========
</TABLE>
Deferred taxes have not been recorded on undistributed earnings of the China
joint venture (approximately $1,161,000) because such amounts are considered
permanently invested.
Income tax payments of approximately $751,500, $1,557,000 and $605,000 were
made in 1997, 1998 and 1999, respectively.
8. STOCKHOLDERS' EQUITY
The Board of Directors is authorized to establish one or more series of
preferred stock and to fix and determine the number and conditions of preferred
shares, including dividend rates, redemption and/or conversion provisions, if
any, preference and voting rights. At June 30, 1999, the Board of Directors has
not authorized any series of preferred stock.
In October 1997, the Company sold 1,000,000 shares of its common stock in an
underwritten public offering. Proceeds to the Company totaled $20.4 million, net
of expenses associated with the offering. The proceeds are being used to expand
manufacturing facilities and purchase capital equipment. A portion of the
proceeds was also used to repay all the outstanding indebtedness under the
Company's Revolving Credit Agreement.
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.
F-14
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
During 1997, 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 who 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. There
are 150,000 shares available for grant under the 1996 Plan, of which 7,500 were
granted during the year for a total of 22,500 shares granted under the 1996 Plan
at June 30, 1999.
At June 30, 1999, there were 243,133 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, 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
Granted................................................... 95,750 18.50
Surrendered............................................... (1,315) 5.13
Exercised................................................. (51,899) 3.16
-------- ------ -------
June 30, 1998............................................... 333,570 8.96 199,375
Granted................................................... 52,500 12.79
Surrendered............................................... (1,940) 12.49
Exercised................................................. (140,500) 4.41
-------- ------ -------
June 30, 1999............................................... 243,630 $12.38 105,244
======== ====== =======
</TABLE>
F-15
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth information regarding options outstanding at
June 30, 1999:
<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>
$2.67................ 22,500 0.15 $ 2.67 22,500 $2.67
4.17................. 750 0.15 4.17 750 4.17
5.67................. 22,500 5.15 5.67 18,000 5.67
5.84................. 25,880 1.7 5.84 17,432 5.84
6.67................. 9,750 5.99 6.67 8,250 6.67
10.00................ 7,500 9.43 10.00 -- --
12.35................ 15,000 6.64 12.35 9,000 12.35
13.25................ 45,000 4.16 13.25 -- --
15.50................ 7,500 8.43 15.50 7,500 15.50
18.75................ 87,250 3.14 18.75 21,812 18.75
------- ------- -------
$2.67--18.75............... 243,630 $ 12.38 105,244 $9.11
======= =======
</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 diluted income per share
would have been $2,029,904 or $.55 per share in 1997, $2,944,591 or $.66 per
share in 1998 and $2,606,350 or $.55 per share in 1999.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model. Key assumptions used to apply this
pricing model are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Average risk-free interest rate............................. 6.2% 5.2% 5.5%
Expected life of option grants.............................. 2.5 years 2.5 years 2.5 years
Expected volatility of underlying stock..................... 143% 72% 69%
Expected dividend rate...................................... None None None
</TABLE>
The weighted-average fair value of options granted in 1997, 1998 and 1999
was $5.71, $8.34 and $5.76, 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 applied to value the awards yield a
reasonable estimate of the fair value of the grants made under the
circumstances.
F-16
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
9. 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, 1997, 1998 and
1999.
The Company has a 401(k) Savings Plan (the "Plan") covering all employees of
the Company who 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. The Company contributed $90,000 and
$172,000 to the Plan for the years ended June 30, 1998 and 1999, respectively.
No matching contributions were made to the Plan for the year ended June 30,
1997.
10. COMMITMENTS AND CONTINGENCIES
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, 1997, 1998 and 1999 approximated $576,000,
$742,000 and $869,000, respectively. Future payments under noncancelable
operating leases are:
<TABLE>
<S> <C>
2000.. $725,000
2001.. 693,000
2002.. 387,000
2003.. 260,000
2004.. 260,000
</TABLE>
From time to time, the Company is subject to various legal proceedings and
claims, either asserted or unasserted, which arise in the ordinary course of
business. While the outcome of these claims cannot be predicted with certainty,
management is not aware of any current legal matters that will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
11. BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL OPERATIONS
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. The Company organizes itself as one segment reporting to the chief
operating decision-maker. Revenue consists of product sales, license fees, and
royalty income.
Sales to several divisions of one customer represented 20%, 23% and 15% of
total revenues in 1997, 1998 and 1999, respectively.
F-17
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
11. BUSINESS SEGMENT, MAJOR CUSTOMER AND INTERNATIONAL OPERATIONS (CONTINUED)
Summarized information relating to international operations is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States..................................... $48,434,514 $48,521,029 $46,785,650
Canada............................................ 2,443,000 6,311,000 10,671,000
China............................................. 1,037,298 1,793,030 1,929,250
Other............................................. 3,172,041 3,650,112 7,661,383
----------- ----------- -----------
Total revenues from unaffiliated customers.......... $55,086,853 $60,275,171 $67,047,283
=========== =========== ===========
The principal product group sales were:
Flexible circuits................................. $41,492,550 $44,378,680 $49,625,163
Laminated cables.................................. 13,484,593 15,669,656 16,747,637
----------- ----------- -----------
Product sales....................................... $54,977,143 $60,048,336 $66,372,800
=========== =========== ===========
Long-lived assets:
United States..................................... $12,476,319 $18,843,351 $31,110,693
=========== =========== ===========
China............................................. $ 1,724,105 $ 1,829,306 $ 2,356,264
=========== =========== ===========
</TABLE>
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998 QUARTERS
Revenues.............................................. $13,717 $14,184 $14,296 $18,078
Gross profit.......................................... 3,178 2,869 3,027 3,897
Net income............................................ 728 587 823 1,019
Net income per share:
Basic............................................... .19 .14 .18 .22
Diluted............................................. .18 .13 .17 .21
1999 QUARTERS
Revenues.............................................. $15,492 $15,354 $16,099 $20,102
Gross profit.......................................... 2,441 2,834 3,987 5,001
Net income............................................ 199 540 944 1,337
Net income per share:
Basic............................................... .04 .12 .20 .28
Diluted............................................. .04 .11 .20 .28
</TABLE>
13. PURCHASE OF PARLEX-DYNAFLEX
On April 30, 1999, the Company established a wholly owned subsidiary and
purchased the assets of Dynaflex, a business which produces custom flexible
circuits. The acquisition has been
F-18
<PAGE>
PARLEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
13. PURCHASE OF PARLEX-DYNAFLEX (CONTINUED)
accounted for as a purchase business combination and the results of
Parlex-Dynaflex are included in the consolidated results of the Company since
the purchase date, April 30, 1999. The cost of acquisition was $2,620,000, plus
$140,000 of liabilities assumed, and the purchase price has been allocated to
acquired accounts receivable, inventory, property, plant and equipment and
accounts payable. Approximately $1,200,000 has been recorded as goodwill which
reflects the excess of purchase price over the fair value of assets and
liabilities acquired. Goodwill is reported within other assets on the
consolidated balance sheets and is being amortized on a straight-line basis over
ten years. The results of operations of Dynaflex were not significant to the
Company in either 1999 or 1998. Accordingly, pro forma information has not been
presented.
14. SUBSEQUENT EVENT
On March 1, 2000, pursuant to a Stock Purchase Agreement dated as of
January 21, 2000, by and among the Company and Cookson Group plc and Cookson
Investment, Inc. (together, "Cookson"), the Company completed its acquisition of
the stock of two Cookson wholly-owned subsidiaries, Poly-Flex Circuits Limited
and Poly-Flex Circuits, Inc., for $19,650,000 in cash. In connection with the
acquisition, the Company entered into a loan agreement (the "Loan Agreement")
dated March 1, 2000, with Fleet National Bank. The Loan Agreement provided for
two credit facilities consisting of a $15,000,000 revolving credit facility,
which replaced the Company's existing revolving credit facility, and a
$15,000,000 term loan. All amounts outstanding under the revolving credit
facility are payable on December 31, 2001. The $15,000,000 term loan is payable
in twenty consecutive quarterly installments in amounts equal to $750,000 for
the first nineteen installments and the unpaid principal balance for the final
installment. Interest accrues on the loans made under the credit facilities at
the Company's option at either Fleet National Bank's prime rate or the LIBOR
base rate plus a margin ranging from 1.5% to 2.0%. Total amounts outstanding
under the term loan and revolving credit facility as of March 1, 2000 totaled
$15,000,000 and $5,240,000 respectively.
F-19
<PAGE>
PARLEX PROVIDES A WORLD OF FLEXIBLE INTERCONNECT SOLUTIONS
This page will include photographs of Parlex manufacturing facilities in the
following locations:
- Methuen, Massachusetts
- Cranston, Rhode Island
- San Jose, California
- Salem, New Hampshire
- Newport, Isle of Wight, United Kingdom
- Empalme, Sonora, Mexico
- Shanghai, People's Republic of China
The layout of the page will be arranged as a collage of our facilities
superimposed over an image of a globe.
Each facility photograph will include a caption at the bottom of the picture
identifying that facility's location.
Our logo will appear in the bottom right corner of the page.
<PAGE>
1,400,000 SHARES
[LOGO]
COMMON STOCK
------------------
PROSPECTUS
------------------
ADAMS, HARKNESS & HILL, INC.
NEEDHAM & COMPANY, INC.
------------------------
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated amounts of expenses to be
borne by us in connection with the offering described in this Registration
Statement. All amounts are estimates except the SEC registration fee and the
NASD Regulation filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 12,539
NASD Regulation filing fee.................................. $ 5,250
Nasdaq National Market fee.................................. $ 16,100
Printing fees and expenses.................................. $ 75,000
Legal fees and expenses..................................... $150,000
Accounting fees and expenses................................ $100,000
Blue Sky fees and expenses.................................. $ 10,000
Transfer agent and registrar fees........................... $ 5,000
Miscellaneous expenses...................................... $ 26,111
--------
Total Expenses............................................ $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are subject to the provisions of Section 67 of Chapter 156B of the
Massachusetts General Laws which provides as follows:
"Indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its
request in any capacity with respect to any employee benefit plan, may be
provided by it to whatever extent shall be specified in or authorized by
(i) the articles of organization or (ii) a by-law adopted by the
stockholders or (iii) a vote adopted by the holders of a majority of the
shares of stock entitled to vote on the election of directors. Except as the
articles of organization or by-laws otherwise require, indemnification of
any persons referred to in the preceding sentence who are not directors of
the corporation may be provided by it to the extent authorized by the
directors. Such indemnification may include payment by the corporation of
expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding, upon receipt
of an undertaking by the person indemnified to repay such payment if he
shall be adjudicated to be not entitled to indemnification under this
section which undertaking may be accepted without reference to the financial
ability of such person to make repayment. Any such indemnification may be
provided although the person to be indemnified is no longer an officer,
director, employee or agent of the corporation or of such other organization
or no longer serves with respect to any such employee benefit plan
No indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the corporation or to the extent that such matter relates
to service with respect to an employee benefit plan, in the best interests
of the participants or beneficiaries of such employee benefit plan.
The absence of any express provision for indemnification shall not limit
any right of indemnification existing independently of this section.
II-1
<PAGE>
A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or other
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or other agent of another
organization or with respect to any employee benefit plan, against any
liability incurred by him in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to indemnify
him against such liability."
Article 6D of our Articles, which provision is explicitly non-exclusive,
provides that (i) any past or present director or officer of Parlex is
indemnified to the fullest extent permitted by law against any expenses incurred
in connection with any proceeding in which he may be a party or in which he is
otherwise involved as a result of his serving or having served as an officer of
Parlex or at our request, as a director, officer, employee or other agent of any
other organization or in any capacity with respect to any employee benefit plan,
and provides that (ii) we may under certain conditions pay the indemnification
in advance. This provision does not authorize indemnification where it has been
adjudicated that the director or officer did not act in good faith in the
reasonable belief that his action was in our best interests or, to the extent
that such matter relates to service with respect to an employee benefit plan, in
the best interests of the participants or beneficiaries of such employee benefit
plan. Moreover, in the event that an action, suit or proceeding is comprised or
settled so as to impose any liability or obligation on the director or officer,
the provision does not authorize indemnification if we have obtained an opinion
of counsel that this director or officer did not act in good faith in the
reasonable belief that his action was in our best interests.
In addition, our directors and officers are insured against liability for
errors and omissions in their capacity as such by an insurance policy for Parlex
with a $5.0 million limit.
For the undertaking with respect to indemnification, see Item 17 herein.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1 Underwriting Agreement
5.1 Opinion of Ropes & Gray re: validity of shares
5.2 Opinion of Kutchin & Rufo, P.C. re: validity of shares
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Audit Plc
23.5 Consent of Ropes & Gray (included in the opinion filed as
Exhibit 5.1)
23.6 Consent of Kutchin & Rufo, P.C. (included in the opinion
filed as Exhibit 5.2)
24.1 * Power of Attorney
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(b) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such officer, director or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether or not such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Methuen, The Commonwealth of Massachusetts, on this
24th day of May, 2000.
<TABLE>
<S> <C> <C>
PARLEX CORPORATION
BY: /S/ HERBERT W. POLLACK
-----------------------------------------
Herbert W. Pollack, Chairman
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HERBERT W. POLLACK Chairman of the Board of May 24, 2000
------------------------------------------- Directors
Herbert W. Pollack
* Senior Vice President and Chief May 24, 2000
------------------------------------------- Financial Officer (Principal
Robert A. Rieth Financial and Accounting
Officer)
* President, Chief Executive May 24, 2000
------------------------------------------- Officer and Director
Peter J. Murphy (Principal Executive Officer)
* Director May 24, 2000
-------------------------------------------
Sheldon A. Buckler
* Director May 24, 2000
-------------------------------------------
Richard W. Hale
* Director May 24, 2000
-------------------------------------------
M. Joel Kosheff
* Director May 24, 2000
-------------------------------------------
Lester Pollack
* Director May 24, 2000
-------------------------------------------
Benjamin M. Rabinovici
*By: /s/ HERBERT W. POLLACK
-------------------------------------------
Herbert W. Pollack
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER TITLE OF EXHIBIT
- ------ ----------------
<S> <C>
1.1 Underwriting Agreement
5.1 Opinion of Ropes & Gray re: validity of shares
5.2 Opinion of Kutchin & Rufo, P.C. re: validity of shares
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Audit Plc
23.5 Consent of Ropes & Gray (included in the opinion filed as
Exhibit 5.1)
23.6 Consent of Kutchin & Rufo, P.C. (included in the opinion
filed on Exhibit 5.2)
24.1* Power of Attorney
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 1.1
PARLEX CORPORATION
1,610,000 Shares*
Common Stock
($0.10 par value per share)
----------------------
Underwriting Agreement
________, 2000
Adams, Harkness & Hill, Inc.
Needham & Company, Inc.
c/o Adams, Harkness & Hill, Inc.
60 State Street
Boston, Massachusetts 02109
Dear Sirs:
Parlex Corporation, a Massachusetts corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you (collectively, the "Underwriters") an aggregate of 1,250,000 shares (the
"Company Firm Shares") and, at the election of the Underwriters, up to 210,000
additional shares (the "Optional Shares") of common stock of the Company, $0.10
par value per share ("Common Stock"), and the Selling Stockholders named in
Schedule II hereto (the "Selling Stockholders") propose, subject to the terms
and conditions stated herein, to sell to the Underwriters an aggregate of
150,000 shares (the "Selling Stockholder Firm Shares", and together with the
Company Firm Shares, the "Firm Shares") of Common Stock. The Firm Shares and the
Optional Shares which the Underwriters elect to purchase pursuant to Section 3
hereof are herein collectively called the "Shares."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-33836)
(the "Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement including any pre-effective amendments thereto and any
post-effective amendments thereto, each in the form heretofore delivered to you
and, excluding exhibits thereto, but including all documents incorporated by
reference in the prospectus contained therein, delivered to you for each of the
other Underwriters, have been declared effective by the Commission in such form;
other than a registration statement, if any, increasing the size of the offering
(a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial
- --------
* Includes 210,000 shares subject to an option to purchase additional
shares to cover over-allotments.
<PAGE>
Registration Statement or document incorporated by reference therein has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or, to the
Company's knowledge, threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission under the
Act is hereinafter called a "Preliminary Prospectus"); the various parts of the
Initial Registration Statement and the Rule 462(b) Registration Statement, if
any, including all exhibits thereto, including any exhibits incorporated by
reference in the Initial Registration Statement and the Rule 462(b) Registration
Statement, and including (i) the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 6(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective or the Rule 462(b) Registration Statement, if any, at the time it
became effective and (ii) the documents incorporated by reference in the
prospectus contained in the Initial Registration Statement at the time such part
of the Initial Registration Statement became effective, each as amended at the
time such part of such Initial Registration Statement became effective, are
hereinafter collectively called the "Registration Statement"; such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is
hereinafter called the "Prospectus"; and any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of such Preliminary Prospectus or Prospectus, as
the case may be;
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use therein. The Company acknowledges that
the statements set forth [IN THE THIRD TO LAST PARAGRAPH ON PAGE 3 AND UNDER THE
HEADING "UNDERWRITING" IN THE PROSPECTUS] constitute the only information
relating to any Underwriter furnished in writing to the Company by any
Underwriter specifically for inclusion in the Registration Statement;
(c) The documents incorporated by reference in the Prospectus,
when they were filed with the Commission, conformed in all material respects to
the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder, and
none of such documents contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
2
<PAGE>
(d) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto and as of the applicable filing date and the applicable
Time of Delivery as to the Prospectus and any amendment or supplement thereto
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or, in the case of the Registration Statement or
any amendment thereto, necessary to make the statements therein not misleading
and, in the case of the Preliminary Prospectus, the Prospectus or any supplement
thereto, necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through you expressly for use therein;
(e) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the rules and regulations thereunder
which have not been described or filed or incorporated by reference in the
Registration Statement, as required; the contracts so described in the
Prospectus to which the Company or any of its subsidiaries is a party have been
duly authorized, executed and delivered by the Company or its subsidiaries,
constitute valid and binding agreements of the Company or its subsidiaries and
are enforceable against and by the Company or its subsidiaries in accordance
with their respective terms, and are in full force and effect on the date
hereof; and neither the Company nor any of its subsidiaries, nor, to the best of
the Company's knowledge, any other party is in breach of or default under any of
such contracts;
(f) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, that is in each case material to the Company and its subsidiaries
taken as a whole, otherwise than as set forth or contemplated in the Prospectus;
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in the
capital stock (other than issuances of Common Stock pursuant to Company stock
option and stock purchase plans described in the Registration Statement and
Prospectus) or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development that is reasonably likely to result
in a material adverse change, in or affecting the business, assets, management,
financial position, stockholders' equity or results of operations of the Company
and its subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(g) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
other properties and assets
3
<PAGE>
described in the Prospectus as owned by it, in each case free and clear of all
liens, charges, encumbrances or restrictions, except such as are described in
the Prospectus or are not material to the business of the Company; any real
property and buildings held under lease by the Company and its subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries; the
Company and its subsidiaries own or lease all such properties as are necessary
to its operations as now conducted or as proposed to be conducted, except where
the failure to so own or lease would not result in a material adverse change in
or affecting the business, assets, management, financial position, stockholders'
equity or results of operations of the Company;
(h) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of organization, each with full power and
authority (corporate and otherwise) to own its properties and conduct its
business as described in the Prospectus, and each has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction;
(i) The Company has an authorized capitalization as set forth
in the Prospectus, and all the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Common Stock contained or
incorporated by reference in the Prospectus; all of the issued shares of capital
stock of each subsidiary of the Company (i) have been duly and validly
authorized and issued, are fully paid and non-assessable and (ii) except as
disclosed in the Prospectus, are owned directly by the Company, free and clear
of all liens, encumbrances, equities or claims; except as disclosed in or
contemplated by the Prospectus and the consolidated financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase any securities
or obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations; and the description of the Company's stock option and
stock purchase plans and the options or other rights granted and exercised
thereunder set forth in the Prospectus accurately and fairly presents in all
material respects the information required to be shown with respect to such
plans, options and rights;
(j) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued and fully paid and non-assessable and will conform to the
description of the Common Stock contained or incorporated by reference in the
Prospectus; no preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Shares by the Company
4
<PAGE>
pursuant to this Agreement; no stockholder of the Company has any right, which
has not been waived, to require the Company to register the sale of any shares
of capital stock owned by such stockholder under the Act in the public offering
contemplated by this Agreement; and no further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Shares to be sold by the Company as contemplated
herein;
(k) The Company has full corporate power and authority to
enter into this Agreement; and this Agreement has been duly authorized, executed
and delivered by the Company, constitutes a valid and binding obligation of the
Company and is enforceable against the Company in accordance with its terms;
(l) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other material agreement or material instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result in
any violation of the provisions of the Articles of Organization or By-laws of
the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws or the bylaws and rules of the
National Association of Securities Dealers, Inc. ("NASD") in connection with the
purchase and distribution of the Shares by the Underwriters;
(m) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened to
which the Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is or may be
the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings, would reasonably be expected, individually or in
the aggregate, to prevent or adversely affect the transactions contemplated by
this Agreement or result in a material adverse change in the business, assets,
management, financial position, stockholders' equity or results of operations of
the Company; no labor disturbance by the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent that would
reasonably be expected to affect materially and adversely such business, assets,
management, financial position, stockholders' equity or results of operations;
and neither the Company nor any of its subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body,
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administrative agency or other governmental body, that would reasonably be
expected to affect materially and adversely such business, assets, management,
financial position, stockholders' equity or results of operations;
(n) The Company and its subsidiaries possess all licenses,
certificates, authorizations or permits issued by the appropriate governmental
or regulatory agencies or authorities that are necessary to enable them to own,
lease and operate their respective properties and to carry on their respective
businesses as presently conducted except, where the failure to possess such
licenses, certificates, authorization or permits would not reasonably be
expected to affect materially and adversely such business, assets, management
financial position, stockholders' equity or results of operations, and neither
the Company nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such license, certificate,
authority or permit which, singly or in the aggregate, would reasonably be
expected to materially and adversely affect the business, assets, management,
financial position, stockholders' equity or results of operations of the Company
and its subsidiaries;
(o) The Company and its subsidiaries (i) are in compliance in
all material respects with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, including, without limitation, those relating to occupational safety and
health, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants, including, without limitation, those relating to the storage,
handling or transportation of hazardous or toxic materials (collectively,
"Environmental Laws") and (ii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, reasonably be
expected to have a material adverse effect on the Company and its subsidiaries,
taken as a whole. The Company, in its reasonable judgment, has concluded that
any costs or liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties) would not, singly or in the aggregate, reasonably
be expected to have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(p) Deloitte & Touche LLP, who have audited certain financial
statements of the Company, are independent public accountants as required by the
Act and the rules and regulations of the Commission thereunder;
(q) The consolidated financial statements and schedules of the
Company, and the related notes thereto, included or incorporated by reference in
the Registration Statement and the Prospectus present fairly in all material
respects the financial position of the Company as of the respective dates of
such financial statements and schedules, and the results of
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operations and cash flows of the Company for the respective periods covered
thereby; such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis as certified by the independent public accountants named in paragraph (p)
above; no other financial statements or schedules are required to be included in
the Registration Statement; and the selected financial data set forth in the
Prospectus under the captions "Capitalization" and "Selected Consolidated
Financial Data" fairly present in all material respects the information set
forth therein on the basis stated in the Registration Statement;
(r) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct their business as now conducted; the Company has no
knowledge of any material infringement by the Company of trademark, trade name
rights, patent rights, copyrights, licenses, trade secret or other similar
rights of others; and there is no claim of infringement being made against the
Company regarding trademark, trade name, patent, copyright, license, trade
secret or other similar rights which would reasonably be expected to have a
material adverse effect on the business, assets, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(s) The Company and each of its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the Company
or any of its subsidiaries which could materially and adversely affect the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company;
(t) The Company is not an "investment company" or an
"affiliated person" of, or "Promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended (the "Investment Company Act");
(u) Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts which it deems adequate for its
business, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect;
(v) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any foreign, federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof;
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(w) The Company has not taken and will not take, directly or
indirectly through any of its directors, officers or controlling persons, any
action which is designed to or which has constituted or which might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares; and
(x) The Common Stock of the Company has been registered
pursuant to Section 12(g) of the Exchange Act and the Company is not required to
take any further action for the inclusion of the Shares on the Nasdaq National
Market.
2. REPRESENTATIONS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders, severally and not jointly, represents and warrants to, and agrees
with, each of the Underwriters that:
(a) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of-Attorney and Custody Agreement (the "Custody
Agreement") hereinafter referred to, and for the sale and delivery of the Shares
to be sold by such Selling Stockholder hereunder, have been obtained; and such
Selling Stockholder has full right, power and authority to enter into this
Agreement and the Custody Agreement and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder hereunder;
(b) This Agreement and the Custody Agreement have each been
duly authorized, executed and delivered by such Selling Stockholder and each
such document constitutes a valid and binding obligation of such Selling
Stockholder, enforceable in accordance with its terms;
(c) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body with
respect to such Selling Stockholder is required in connection with the sale of
the Shares by such Selling Stockholder or the consummation by such Selling
Stockholder of the transactions on his or its part contemplated by this
Agreement and the Custody Agreement, except such as have been obtained under the
Act or the rules and regulations thereunder and such as may be required under
state securities or Blue Sky laws or the by-laws and rules of the NASD in
connection with the purchase and distribution by the Underwriters of the Shares;
(d) The sale of the Shares to be sold by such Selling
Stockholder hereunder and the performance by such Selling Stockholder of this
Agreement and the Custody Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or violation of any
of the terms or provisions of, or constitute a default under, or give any party
a right to terminate any of its obligations under, or result in the acceleration
of any obligation under, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract, agreement or instrument to which such Selling
Stockholder is a
8
<PAGE>
party or by which such Selling Stockholder or any of his or its properties is
bound or affected, or violate or conflict with any judgment, ruling, decree,
order, statute, rule or regulation of any court or other governmental agency or
body applicable to such Selling Stockholder;
(e) Such Selling Stockholder has, and at the First Time of
Delivery (as defined in Section 5 hereof) will have, good and valid title to the
Shares to be sold by such Selling Stockholder hereunder, free and clear of all
liens, encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares, free and
clear of all liens, encumbrances, equities or claims, will pass to each of the
several Underwriters who have purchased such Shares in good faith and without
notice of any such lien, encumbrance, equity or claim or any other adverse claim
within the meaning of the Uniform Commercial Code;
(f) Such Selling Stockholder will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock within 90 days
after the date of the Prospectus otherwise than hereunder, or as a bona fide
gift or gifts to, or in trust for, a person or entity who or which agrees in
writing to be bound by this restriction or with your written consent;
(g) Such Selling Stockholder has not taken and will not at any
time take, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result in, or which will constitute,
stabilization of the price of shares of Common Stock to facilitate the sale or
resale of any of the Shares; and
(h) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information about such Selling Stockholder furnished to the Company by
such Selling Stockholder expressly for use therein, such Preliminary Prospectus
and the Registration Statement did, and the Prospectus and any further
amendments or supplements to the Registration Statement and the Prospectus will,
when they become effective or are filed with the Commission, as the case may be,
conform in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In addition to the foregoing representations, Herbert W. Pollack, a
Selling Stockholder, represents and warrants to, and agrees with, each of the
Underwriters that he has reviewed the Registration Statement and Prospectus and,
although he has not independently verified the accuracy or completeness of all
the information contained therein, nothing has come to his attention that would
lead him to believe that (i) on the Effective Date, the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, (ii) on the Effective Date the
Prospectus contained and, at each Time of
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Delivery, contains any untrue statement of a material fact or omitted or omits
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, each Selling
Stockholder agrees to deliver to you prior to or at the First Time of Delivery a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
Each of the Selling Stockholders represents and warrants that a
certificate in negotiable form representing all of the Shares to be sold by such
Selling Stockholder has been placed in custody under the Custody Agreement, in
the form heretofore furnished to you, duly executed and delivered by such
Selling Stockholder to the Custodian (as defined in the Custody Agreement), and
that such Selling Stockholder has duly executed and delivered a
power-of-attorney, in the form heretofore furnished to you and included in the
Custody Agreement (the "Power-of-Attorney"), appointing Herbert W. Pollack and
Peter J. Murphy, and each of them, as such Selling Stockholder's
attorney-in-fact (the "Attorney-in-Fact") with authority to execute and deliver
this Agreement on behalf of such Selling Stockholder, to determine (subject to
the provisions of the Custody Agreement) the purchase price to be paid by the
Underwriters to such Selling Stockholder as provided in Section 3 hereof, to
authorize the delivery of the Shares to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement and the Custody
Agreement.
Each of the Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the
Attorneys-in-Fact by the Power-of-Attorney, are to that extent irrevocable. Each
of the Selling Stockholders specifically agrees that the obligations of such
Selling Stockholder hereunder shall not be terminated by operation of law,
whether by the death or incapacity of such Selling Stockholder or, in the case
of an estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by the
occurrence of any other event. If such Selling Stockholder or any such executor
or trustee should die or become incapacitated, or if any such estate or trust
should be dissolved, or if such corporation or partnership should be dissolved,
or if any other such event should occur, before the delivery of the Shares
hereunder, certificates representing the Shares to be sold by such Selling
Stockholder shall be delivered by or on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and of the Custody
Agreement, and actions taken by the Attorneys-in-Fact pursuant to the
Powers-of-Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or
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<PAGE>
not the Custodian, the Attorneys-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other event.
3. SHARES SUBJECT TO SALE.
(a) On the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders contained herein, and
subject to the terms and conditions of this Agreement, (i) the Company agrees to
issue and sell the Company Firm Shares to the several Underwriters, (ii) each of
the Selling Stockholders agrees to sell its Selling Stockholder Firm Shares to
the several Underwriters and (iii) each of the Underwriters agrees, severally
and not jointly, to purchase from the Company and the Selling Stockholders, at a
purchase price per share of $[____], the respective number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the aggregate number of Firm Shares to be purchased by all the
Underwriters; and
(b) In the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, (i) the
Company agrees to issue and sell the Optional Shares to the several Underwriters
and (ii) each of the Underwriters agrees, severally and not jointly, to purchase
from the Company, at the purchase price per share set forth in clause (a) of
this Section 3, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction, the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares which all of the Underwriters are entitled to
purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 210,000 Optional Shares at the purchase price per share set
forth in the paragraph above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares may
be exercised on one occasion by written notice from you to the Company, given
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event (i) earlier than the First Time of Delivery or, (ii) unless you and the
Company otherwise agree in writing, earlier than two or later than three
business days after the date of such notice.
4. OFFERING. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
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5. CLOSING. Certificates in definitive form for the Shares to be
purchased by each Underwriter hereunder, and in such denominations and
registered in such names as Adams, Harkness & Hill, Inc. may request upon at
least forty-eight hours' prior notice to the Company and the Attorneys-in-Fact,
shall be delivered by or on behalf of the Company and each of the Selling
Stockholders to you for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price therefor by wire transfer of
same day funds, all at the office of Adams, Harkness & Hill, Inc., 60 State
Street, Boston, Massachusetts 02109. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., Boston time, on
_________, 2000 or such other time and date as you and the Company may agree
upon in writing, and, with respect to the Optional Shares, 9:30 a.m., Boston
time, on the date specified by you in the written notice given by you of the
Underwriters' election to purchase such Optional Shares, or at such other time
and date as you and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery,"
such time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery," and each such time and
date for delivery is herein called a "Time of Delivery." Such certificates will
be made available for checking and packaging at least twenty four hours prior to
each Time of Delivery at such location as you may specify.
6. COVENANTS OF THE COMPANY. The Company agrees with each of the
Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act, to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be reasonably disapproved by you promptly giving reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when the Registration Statement, or any amendment thereto, has been filed or
becomes effective or any supplement to the Prospectus or any amended Prospectus
has been filed and to furnish you copies thereof; to advise you, promptly after
it receives notice thereof, of the issuance by the Commission of any stop order
or of any order preventing or suspending the use of any Preliminary Prospectus
or Prospectus, of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) Promptly, from time to time, to take such action as you
may reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete
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<PAGE>
the distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus
in such quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of nine
months after the time of issuance of the Prospectus in connection with the
offering or sale of the Shares and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during such same
period to amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required by law to deliver a
prospectus in connection with sales of any of the Shares at any time nine months
or more after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the full fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement (as defined in
Rule 158(c)), an earning statement of the Company and its subsidiaries (which
need not be audited) complying with Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of any securities of
the Company which are substantially similar to the Shares, without your prior
written consent other than (i) the sale of the Shares to be sold by the Company
hereunder and (ii) the Company's issuance of shares and the award of options
under its stock plans in amounts not in excess of the amount shown as available
for grant in the Prospectus;
(f) Not to grant options to purchase shares of Common Stock
which would become exercisable during a period beginning from the date hereof
and continuing to and including the date 90 days after the date of the
Prospectus;
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(g) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flow of the Company and
its consolidated subsidiaries certified by independent public accountants) and
to make available (within the meaning of Rule 158(b) under the Act) as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of the
Company and its subsidiaries for such quarter in reasonable detail;
(h) During a period of five years from the effective date of
the Registration Statement, to furnish to you upon your request copies of all
reports or other communications (financial or other) furnished to stockholders
generally, and deliver to you as soon as they are available, copies of any
reports and financial statements furnished to or filed with the Commission, the
Nasdaq National Market or any national securities exchange on which any class of
securities of the Company is listed (such financial statements to be on a
combined or consolidated basis to the extent the accounts of the Company and its
subsidiaries are combined or consolidated in reports furnished to its
stockholders generally or to the Commission);
(i) To use the net proceeds acquired by it from the sale of
the Shares in the manner specified in the Prospectus under the caption "Use of
Proceeds" and in a manner such that the Company will not become an "investment
company" as that term is defined in the Investment Company Act; and
(j) Not to accelerate the vesting of any option issued under
any stock option plan such that any such option may be exercised within 90 days
from the date of the Prospectus.
7. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
agrees to pay or cause to be paid all taxes, if any, on the transfer and sale of
the Shares to be sold by such Selling Stockholder hereunder and the fees and
expenses, if any, of counsel and accountants retained by such Selling
Stockholders. The Company agrees with the Selling Stockholder to pay all costs
and expenses incident to the performance of the obligations of the Selling
Stockholders under this Agreement (except as set forth above), including, but
not limited to, all expenses incident to the delivery of the certificates for
the Shares to be sold by such Selling Stockholder, the costs and expenses
incident to the preparation, printing and filing of the Registration Statement
(including all exhibits thereto) and the Prospectus and any amendments or
supplements thereto, the expenses of qualifying the Shares to be sold by the
Selling Stockholders under the state securities or Blue Sky laws, all filing
fees and the reasonable fees and expenses of counsel for the Underwriters
payable in connection with the review of the offering of the Shares by the NASD,
and the cost of furnishing to the Underwriters the required copies of the
Registration Statement and Prospectus and any amendments or supplements thereto;
provided that each Selling Stockholder agrees to pay or cause to be paid its pro
rata share (based on the percentage which the number of Shares sold by such
Selling
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Stockholder bears to the total number of Shares sold) of all underwriting
discounts and commissions.
8. EXPENSES. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of reproducing any
Agreement among Underwriters, this Agreement, the Blue Sky Memorandum and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses and filing fees in connection with the
qualification of the Shares for offering and sale under state securities laws as
provided in Section 6(b) hereof and securing any required review by the NASD of
the terms of the sale of the Shares, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and review
and in connection with the Blue Sky survey, subject to a maximum of $5,000; (iv)
the cost of preparing stock certificates; (v) the cost and charges of any
transfer agent or registrar; and (vi) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, Section 10 and Section 13 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company and each
Selling Stockholder herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and each Selling Stockholder shall each
have performed all of their respective obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
6(a) hereof, no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to your reasonable satisfaction;
(b) Goodwin, Procter & Hoar LLP, counsel to the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to this Agreement, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request;
15
<PAGE>
(c) Ropes & Gray, counsel to the Company and special counsel
to the Selling Stockholders, shall have furnished to you their written opinion,
dated such Time of Delivery, in form and substance reasonably satisfactory to
you, with respect to the matters set forth in Annex I hereto;
(d) Weingarten Schurgin Gagnebin & Hayes, intellectual
property counsel to the Company, shall have furnished to you their written
opinion, dated such time of delivery in form and substance reasonably
satisfactory to you, with respect to the matters set forth in Annex II hereto;
(e) At 10:00 a.m., Boston time, on the effective date of the
Registration Statement and the effective date of the most recently filed
post-effective amendment to the Registration Statement and also at each Time of
Delivery, Deloitte & Touche LLP, shall have furnished to you a letter or
letters, dated the respective date of delivery thereof, in form and substance
reasonably satisfactory to you, to the effect set forth in Annex III hereto;
(f) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, that is in each case material to the Company and its
subsidiaries taken as a whole, otherwise than as set forth or contemplated in
the Prospectus, and (ii) since the respective dates as of which information is
given in the Prospectus, there shall not have been any change in the capital
stock (other than issuances of Common Stock pursuant to Company stock option and
stock purchase plans described in the Registration Statement and Prospectus) or
long-term debt of the Company or any change, or any development that is
reasonably likely to result in a material adverse change, in or affecting the
business, assets, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in your judgment so material and adverse as
to make it impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares being delivered at such Time of Delivery on the terms
and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred
any of the following: (i) additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been established
by federal or New York authorities, (ii) an outbreak of major hostilities or
other national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have accelerated
or escalated to such an extent, as, in the judgment
16
<PAGE>
of the Underwriters, to affect materially and adversely the marketability of the
Shares, or (iii) there shall be any action, suit or proceeding pending or
threatened, or there shall have been any development or prospective development
involving particularly the business or properties or securities of the Company
or any of its subsidiaries or the transactions contemplated by this Agreement,
which, in the judgment of the Underwriters, has materially and adversely
affected the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Shares;
(h) The Shares to be sold by the Company at such Time of
Delivery shall have been accepted for quotation, subject to notice of issuance,
on the Nasdaq National Market System;
(i) Each director and officer of the Company and each Selling
Stockholder shall have executed and delivered to you agreements in which such
holder undertakes, for 90 days or, after the date of the Prospectus, subject to
certain exceptions stated therein, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into or exchangeable for, or any rights to purchase or acquire, shares of Common
Stock, without the prior written consent of Adams, Harkness & Hill, Inc.; and
(j) The Company and each Selling Stockholder shall have
furnished or caused to be furnished to you at such Time of Delivery certificates
of officers of the Company and of such Selling Stockholder, respectively, in
their capacities as such, satisfactory to you, as to the accuracy of the
representations and warranties of the Company and of such Selling Stockholder,
respectively, herein at and as of such Time of Delivery, as to the performance
by the Company and of such Selling Stockholder, respectively, of all of its or
his obligations hereunder to be performed at or prior to such Time of Delivery,
and as to such other matters as you may reasonably request and the Company shall
have furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (f) of this Section, and as to such other matters
as you may reasonably request.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or, in the case of
the Registration Statement or any amendment thereto, necessary to make the
statements therein not misleading and, in the case of the Preliminary
Prospectus, the Prospectus or any supplement thereto, necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, and will
17
<PAGE>
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein.
(b) Each of the Selling Stockholders, severally and not
jointly, will indemnify and hold harmless each Underwriter and any person, if
any, who control's such Underwriter, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or, in the case of the Registration Statement or any amendment thereto,
necessary to make the statements therein not misleading and, in the case of the
Preliminary Prospectus, the Prospectus or any supplement thereto, necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information about such Selling Stockholder furnished to
the Company by such Selling Stockholder expressly for use therein, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred.
(c) Each Underwriter will indemnify and hold harmless the
Company and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company or each Selling Stockholder may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or, in the case of the Registration Statement or any amendment thereto,
necessary to make the statements therein not misleading and, in the case of the
Preliminary Prospectus, the Prospectus or any supplement thereto, necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or
18
<PAGE>
supplement in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through you expressly for use therein; and
will reimburse the Company and the Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or the Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of; or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party. No indemnifying party shall be liable for
any settlement of any action or claim effected without its written consent,
which consent shall not be unreasonably withheld.
(e) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling
19
<PAGE>
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Stockholders, respectively, bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or any Selling Stockholder on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Selling Stockholder
shall be liable for contribution under this Section 10 in circumstances where
such Selling Stockholder would not be required to provide indemnification if
indemnification were available. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling
Stockholders under this Section 10 shall be in addition to any liability which
the Company and the Selling Stockholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriter under this Section 10 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company or any Selling Stockholder within the
meaning of the Act.
(g) Notwithstanding anything to the contrary contained herein,
the aggregate liability of each Selling Stockholder under this Agreement shall
not exceed the total initial
20
<PAGE>
public offering price of the Shares sold by the Selling Stockholder under this
Agreement, less underwriters' discounts.
11. TERMINATION.
(a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six (36) hours after such default by any Underwriter you do not arrange
for the purchase of such Shares, then the Company and the Selling Stockholders
shall be entitled to a further period of thirty-six (36) hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Stockholders that you have so
arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone such Time of Delivery for a period of not more than seven (7) days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-tenth of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-tenth of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Company shall
not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon
21
<PAGE>
terminate, without liability on the part of any non-defaulting Underwriter, the
Company or any Selling Stockholder, except for the expenses to be borne by the
Company, any Selling Stockholder and the Underwriters as provided in Section 8
hereof and the indemnity and contribution agreements in Section 10 hereof, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
12. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, each Selling Stockholder and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company or any Selling Stockholder, or any officer or
director or controlling person of the Company or any Selling Stockholder, and
shall survive delivery of and payment for the Shares.
13. EXPENSES OF TERMINATION. If this Agreement shall be terminated
pursuant toe Section 11 hereof, neither the Company nor any Selling Stockholder
shall then have any liability to any Underwriter except as provided in Section 8
and Section 10 hereof; but, if for any other reason this Agreement is terminated
(other than solely as a result of a failure to meet the conditions set forth in
paragraph (b) or clauses (i) or (ii) of paragraph (d) of Section 9), the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but neither the Company nor
any Selling Stockholder shall have any further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Section 8 and
Section 10 hereof.
14. NOTICE. In all dealings hereunder, you shall act on behalf of each
of the Underwriters, and the parties hereto shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of any Underwriter
made or given by you jointly or by Adams, Harkness & Hill, Inc. on behalf of you
as the Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you. as the Underwriters in care of Adams, Harkness &
Hill, Inc., 60 State Street, Boston, MA 02109, Attention: Joseph W. Hammer; if
to the Company shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: President; and if to any Selling Stockholder shall be
delivered or sent by mail, telex or facsimile transmission to the address of
such Selling Stockholder set forth in Schedule II hereto; provided, however,
that any notice to an Underwriter pursuant to Section 10(d) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriter's Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
by you on request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
22
<PAGE>
15. MISCELLANEOUS.
(a) This Agreement shall be binding upon, and inure solely to
the benefit of, the Underwriters, the Company and the Selling Stockholders and,
to the extent provided in Sections 10 and 12 hereof, the officers and directors
of the Company and each person who controls the Company, any Selling Stockholder
or any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
(b) Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
(c) This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
(d) This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination, upon request, but without warranty on
your part as to the authority of the signors thereof.
23
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-Fact by each Selling Stockholder pursuant to a validly
existing and binding Power-of-Attorney which authorizes such Attorney-in-Fact to
take such action.
Very truly yours,
PARLEX CORPORATION
By:
-----------------------------------------
Peter J. Murphy, President and Chief
Executive Officer
SELLING STOCKHOLDERS
(Named in Schedule II to the Agreement)
By:
-----------------------------------------
Peter J. Murphy, Attorney-in-Fact
Accepted as of the date hereof at Boston,
Massachusetts
ADAMS, HARKNESS & HILL, INC.
NEEDHAM & COMPANY, INC.
By:
-----------------------------------------
(Adams, Harkness & Hill, Inc. on behalf
of each of the Underwriters)
24
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Optional Shares
Total Number to be Purchased
of Firm Shares if Maximum
to be Purchased Option Exercised
--------------- ----------------
<S> <C> <C>
Adams, Harkness & Hill, Inc.....
Needham & Company, Inc..........
TOTAL...........................
</TABLE>
25
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Total Number Total Number
of Firm Shares of Optional
to be Sold Shares to be Sold
-------------- -----------------
<S> <C> <C>
The Company........................... 1,250,000 210,000
The Selling Stockholders:
Herbert W. Pollack............... 75,000 -
Sandra Pollack................... 75,000 -
TOTAL................................. 1,400,000 210,000
</TABLE>
26
<PAGE>
ANNEX I
Form of Ropes & Gray Opinion
1. The Company is a corporation duly incorporated, validly existing and
in good standing with the Secretary of State of The Commonwealth of
Massachusetts with corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus. The Company
is duly qualified to do business and is in good standing in each jurisdiction
within the United States in which it owns or leases real property or maintains
an office.
2. The authorized capitalization of the Company as of [DECEMBER 26,
1999] is as set forth under the caption "Capitalization" in the Prospectus. All
of the issued and outstanding shares of capital stock have been duly authorized
and validly issued and are fully paid and nonassessable and have not been issued
in violation of any statutory preemptive right or, to such counsel's knowledge,
any other similar right. The Shares have been duly authorized and, when issued
and delivered in accordance with the Underwriting Agreement, will be validly
issued, fully paid and nonassessable and will conform in all material respects
to the description of the capital stock contained in the Prospectus.
3. Each domestic subsidiary of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization. All of the issued and outstanding shares of
capital stock of each such subsidiary (i) have been duly authorized and validly
issued and are fully paid and nonassessable and (ii) except as disclosed in the
Prospectus, are owned of record and, to such counsel's knowledge, beneficially
by the Company or another subsidiary of the Company, free and clear of all
liens, encumbrances, equities or claims other than those imposed by applicable
securities laws. Each domestic subsidiary of the Company is duly qualified to do
business and is in good standing in each jurisdiction within the United States
in which it owns or leases real property or maintains an office. Such counsel is
entitled to rely in respect of the opinions in the second sentence of paragraph
2 above and this entire paragraph 3 upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company and its
subsidiaries, provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and certificates.
4. The Company has the corporate power and authority to enter into the
Underwriting Agreement and the Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
5. The issuance and sale by the Company of the Shares and the
performance by the Company of its obligations under the Underwriting Agreement
does not and will not (i) violate the articles of organization or by-laws of the
Company, (ii) breach or result in a default under any agreement, indenture or
other instrument filed as an exhibit to the Registration Statement or any
document incorporated by reference into the Registration Statement to which the
I-1
<PAGE>
Company is a party or by which it is bound, or to which any of its properties is
subject, or (iii) violate any existing Massachusetts or federal law, rule or
administrative regulation or any decree known to such counsel of any court or
any governmental agency or body having jurisdiction over the Company or any of
its properties, except that such counsel need express no opinion as to state
securities or "Blue Sky" laws or as to compliance with the anti-fraud provisions
of federal and state securities laws.
6. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States or The Commonwealth of Massachusetts is required for the issuance and
sale of the Shares by the Company or the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, except the registration
under the Act of the Shares.
7. The Company is not subject to regulation as an "investment company"
under the Investment Company Act of 1940, as amended.
8. The Shares have been authorized for inclusion on the Nasdaq National
Market System, subject to notice of issuance.
9. The documents incorporated by reference in the Prospectus (other
than the financial statements and related schedules therein, as to which such
counsel need express no opinion), when they were filed with the Commission,
complied as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
10. The Underwriting Agreement has been duly authorized, executed and
delivered by each of the Selling Stockholders (by such Selling Stockholder or
his or its duly authorized attorney-in-fact).
11. A Custody Agreement has been duly authorized, executed and
delivered by each of the Selling Stockholders and, pursuant to such Custody
Agreement, each Selling Stockholder has authorized its attorney-in-fact to carry
out the transactions contemplated in the Underwriting Agreement on its behalf
and to deliver the Shares being sold by such Selling Stockholder pursuant to the
Underwriting Agreement.
12. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States or The Commonwealth of Massachusetts is required to be obtained by any
Selling Stockholder to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder in the manner provided in the Underwriting Agreement
and the Custody Agreement, other than as have been obtained or made under the
Act.
13. Immediately prior to the First Time of Delivery, each Selling
Stockholder was the sole registered owner and, to our knowledge, the sole
beneficial owner of the Shares to be
I-2
<PAGE>
sold by such Selling Stockholder. Upon payment by the Underwriters of the
purchase price in accordance with the Underwriting Agreement, and upon
registration of the Shares in the names of the Underwriters in the stock records
of the Company (or in the name of a nominee for DTC in such stock records, with
appropriate entries to the account of the Underwriters having been made in the
records of DTC, the Underwriters will have acquired all the rights in the Shares
that such Selling Stockholder had or had the power to transfer, free of any
claim by any other person that such person has a property interest in the Shares
and that it is a violation of such other person's rights for the Underwriters to
hold, transfer or deal with the Shares (assuming that the Underwriters are
without notice of any such claim).
Such counsel shall also state that in the course of the preparation by
the Company of the Registration Statement and the Prospectus, they have
participated in discussions with your representatives and those of the Company
and its independent accountants in which the business and affairs of the Company
and the contents of the Registration Statement and Prospectus were discussed.
Such counsel shall state that on the basis of information that such counsel has
gained in the course of such counsel's representation of the Company in
connection with its preparation of the Registration Statement and Prospectus and
such counsel's participation in the discussions referred to above, such counsel
believes that the Registration Statement, as of its effective date, and the
Prospectus, as of its date, complied as to form in all material respects with
the requirements of the Act and the published rules and regulations of the
Commission thereunder and such counsel does not know of any legal or
governmental proceedings pending to which the Company is a party or of which any
property of the Company is the subject that are required to be described in the
Registration Statement or Prospectus that are not so described or of any
contracts or any other documents of a character required to be filed as an
exhibit to the Registration Statement or required to be described or
incorporated by reference in the Registration Statement or Prospectus that are
not filed, described or incorporated by reference as required. Further, such
counsel shall state that based on such information and participation, nothing
came to the attention of such counsel that caused such counsel to believe that
(i) the Registration Statement as of its effective date contained an untrue
statement of material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
that the Prospectus as of its date contained or as of such Time of Delivery
contains any untrue statement of a material fact or omitted or omits to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) it is
necessary to amend the Registration Statement. Such counsel need express no
opinion, however, as to the financial statements, including the notes and
schedules thereto, or any other financial or accounting information set forth or
referred to in the Registration Statement and Prospectus.
Such counsel may state that the limitations inherent in the independent
verification of factual matters and the character of the determinations involved
in such counsel's review are such that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the statements made
or the information contained in the Registration Statement and Prospectus except
for those made under the caption "Underwriting," which accurately
I-3
<PAGE>
summarize in all material respects the provisions of the laws and documents
referred to therein.
Such counsel shall also include a statement in such opinion as to the
matters set forth in this paragraph. The Registration Statement has become
effective under the Act. To the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued by
the Commission nor has any proceeding been instituted or contemplated for that
purpose under the Act. The Prospectus has been filed with the Commission
pursuant to Rule 424(b) of the rules and regulations under the Act within the
time period required thereby.
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<PAGE>
ANNEX II
Matters to be Covered in the Opinion of
Weingarten Schurgin Gagnebin & Hayes
Such counsel are generally familiar with the technology used by the
Company and its subsidiaries in their businesses and the manner of its use
thereof and have read the Registration Statement and the Prospectus, including
particularly the portions of the Registration Statement and the Prospectus
referring to trademarks, trade names, patents, licenses, trade secrets or other
intellectual property rights and:
(i) such counsel have no reason to believe that the Registration
Statement or the Prospectus (A) contains any untrue statement of a material fact
with respect to trademarks, trade names, patents, licenses, trade secrets or
other intellectual property rights owned or used by the Company or any of its
subsidiaries, or the manner of its use thereof, or any allegation on the part of
any person that the Company or any of its subsidiaries is infringing any
trademarks, trade names, patent rights, licenses, trade secrets or other
intellectual property rights of any such person or (B) omits to state any
material fact relating to trademarks, trade names, patents, licenses, trade
secrets or other intellectual property rights owned or used by the Company or
any of its subsidiaries, or the manner of its use thereof, or any allegation of
which such counsel have knowledge, that is required to be stated in the
Registration Statement or the Prospectus or is necessary to make the statements
therein not misleading;
(ii) to the best of such counsel's present knowledge and except as set
forth in the Prospectus under the captions "Risk Factors - If we become involved
in a protracted intellectual property dispute, or one with a significant damages
award or which requires us to cease selling some of our products, we could be
subject to significant liability and the time and attention of our management
could be diverted" and "Business - Intellectual Property," there are no legal or
governmental proceedings pending relating to trademarks, trade names, patent
rights, licenses, trade secrets or other intellectual property rights of the
Company or any of its subsidiaries, and to the best of such counsel's knowledge
no such proceedings are threatened or contemplated by governmental authorities
or others;
(iii) to the best of such counsel's present knowledge, the Company and
its subsidiaries duly and properly hold the patents, and have duly and properly
filed the patent applications, listed in the Prospectus under the caption
"Business-Intellectual Property";
(iv) such counsel have no present knowledge of any contracts or other
documents relating to the Company's or any of its subsidiaries' trademarks,
trade names, patents, licenses, trade secrets or other intellectual property
rights of a character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or the
Prospectus that are not filed or described as required;
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<PAGE>
(v) to the best of such counsel's present knowledge, neither the
Company nor any of its subsidiaries is infringing or otherwise violating any
trademarks, trade names, patents, licenses, trade secrets or other intellectual
property rights of others, and to the best of such counsel's knowledge there are
no infringements by others of any of the Company's or any of its subsidiaries'
trademarks, trade names, patents, licenses, trade secrets or other intellectual
property rights which in the judgment of such counsel could affect materially
the use thereof by the Company or any of its subsidiaries; and
(vi) to the best of such counsel's present knowledge, the Company owns
or possesses sufficient licenses or other rights to use all trademarks, trade
names, patents, licenses, trade secrets or other intellectual property rights
necessary to conduct the business now being or proposed to be conducted by the
Company and its subsidiaries as described in the Prospectus.
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<PAGE>
ANNEX III
Pursuant to Section 9(e) of the Underwriting Agreement, Deloitte &
Touche LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, pro forma financial
information) examined by them and included or incorporated by reference in the
Registration Statement or the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act or the Exchange
Act, if applicable, and the related published rules and regulations thereunder;
and, if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
consolidated interim financial statements, selected financial data, pro forma
financial information and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been separately
furnished to the Underwriters;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus and/or included
in the Company's Quarterly Reports on Form 10-Q incorporated by reference into
the Prospectus as indicated in their reports thereon, copies of which have been
separately furnished to the Underwriters; and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that caused
them to believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus and included or
incorporated by reference in Item 6 of the Company's Annual Report on Form 10-K
for the most recent fiscal year, agrees with the corresponding amounts (after
restatements where applicable) in the audited consolidated financial statements
for such five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
III-1
<PAGE>
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards, consisting
of a reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute books
of the Company and its subsidiaries since the date of the latest audited
financial statements included or incorporated by reference in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible for
financial and accounting matters and such other inquiries and procedures as may
be specified in such letter, nothing came to their attention that caused them to
believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by reference in the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Exchange Act as it applies to Form 10-Q and the
related published rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows included
in the Prospectus or included in the Company's Quarterly Reports on Form 10-Q
incorporated by reference in the Prospectus, for them to be conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the corresponding items
in the unaudited consolidated financial statements from which such data and
items were derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding amounts in
the audited consolidated financial statements included in the Prospectus or
incorporated by reference to the Company's Annual Report on Form 10-K for the
most recent fiscal year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement data and
balance sheet items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the basis for the
audited consolidated financial statements included in the Prospectus or
incorporated by reference to the Company's Annual Report on Form 10-K for the
most recent fiscal year;
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<PAGE>
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and upon conversions
of convertible securities, in each case which were outstanding on the date of
the latest financial statements included or incorporated by reference in the
Prospectus) or any increase in the combined long-term debt of the Company and
its subsidiaries, or any decreases in combined net current assets or net assets
or other items specified by the Underwriters, or any increases in any items
specified by the Underwriters, in each case as compared with amounts shown in
the latest balance sheet included or incorporated by reference in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to the
specified date referred to in Clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or per share amounts
of consolidated net income or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters, in each case as compared
with the comparable period of the preceding year and with any other period of
corresponding length specified by the Underwriters, except in each case for
decreases or increases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures referred
to in paragraphs (iii) and (vi) above, they have carried out certain specified
procedures, not constituting an examination in accordance with generally
accepted auditing standards, with respect to certain amounts, percentages and
financial information specified by the Underwriters which are derived from the
general accounting records of the Company and its subsidiaries, which appear in
the Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Underwriters, and have compared certain
of such amounts, percentages and financial information with the accounting
records of the Company and its subsidiaries and have found them to be in
agreement.
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<PAGE>
Exhibit 5.1
[ROPES & GRAY LETTERHEAD]
May 23, 2000
Parlex Corporation
One Parlex Place
Methuen, Massachusetts 01844
Re: PARLEX CORPORATION
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, for the
offer and sale by Parlex Corporation, a Massachusetts corporation (the
"Company"), of up to 1,460,000 shares of the Company's Common Stock, $.10 par
value (the "Shares"). The Shares are to be sold pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into among the Company,
the stockholders of the Company named on Schedule II thereto and Adams, Harkness
& Hill, Inc. and Needham & Company, Inc.
We have acted as counsel for the Company in connection with its
proposed issuance and sale of the Shares. For purposes of this opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability of, compliance with or
effect of Federal law or the law of any jurisdiction other than The Commonwealth
of Massachusetts.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and, when the Shares have been issued and sold and the Company
has received the consideration in accordance with the terms of the Underwriting
Agreement, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters."
<PAGE>
Parlex Corporation -2- May 23, 2000
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Very truly yours,
/s/ Ropes & Gray
<PAGE>
Exhibit 5.2
[KUTCHIN & RUFO, P.C. LETTERHEAD]
May 23, 2000
Parlex Corporation
One Parlex Place
Methuen, Massachusetts 01844
Re: PARLEX CORPORATION
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, for the
offer and sale by Parlex Corporation, a Massachusetts corporation (the
"Company"), of up to 1,460,000 shares of the Company's Common Stock, $.10 par
value (the "Company Shares") and for the offer and sale by the Selling
Stockholders (as defined in the next sentence) of an aggregate of 150,000 shares
of the Company's Common Stock, $.10 par value (the "Shares"). The Shares are to
be sold pursuant to an underwriting agreement (the "Underwriting Agreement") to
be entered into among the Company, the stockholders of the Company named on
Schedule II thereto (the "Selling Stockholders") and Adams, Harkness & Hill,
Inc. and Needham & Company, Inc.
We have acted as counsel for the Company and the Selling Stockholders
in connection with the proposed issuance and sale of the Company Shares, and the
sale by the Selling Stockholders of the Shares. For purposes of this opinion, we
have examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability of compliance with or
effect of Federal law or the law of any jurisdiction other than the Commonwealth
of Massachusetts.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized, validly issued, fully paid and non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Legal Matters."
<PAGE>
Parlex Corporation
May 23, 2000
Page 2
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Very truly yours,
s/ Kutchin & Rufo, P.C.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-33836 on Form S-3 of Parlex Corporation of our report dated August 24,
1999 (March 1, 2000 as to Note 14) appearing in the Prospectus, which is part
of this Registration Statement, and to the reference to us under the headings
"Selected Consolidated Financial Data" and "Experts" in such Prospectus. We
also consent to the incorporation by reference in this Registration Statement
of our report dated May 18, 2000 related to the combined financial statements
of Poly-Flex Circuits, Inc. and Poly-Flex Circuits Limited (which report
expresses an unqualified opinion, refers to the report of other auditors and
includes an explanatory paragraph as to the basis of presentation) appearing
in Form 8-K/A of Parlex Corporation dated May 23, 2000.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 24, 2000
<PAGE>
Exhibit 23.2
KPMG AUDIT PLC
DUKES KEEP TEL+44 (0) 23 8020 2000
MARSH LANE FAX +44 (0) 23 8020 2001
SOUTHAMPTON S014 3EX DX 2034 SOUTHAMPTON
UNITED KINGDOM
The Board of Directors
Parlex Corporation
One Parlex Place Our ref Consent S-3
Methuen
Massachusetts 01844 Contact Tony Cottam
023 80202050
23 May 2000
Dear Sirs
We consent to the incorporation by reference in the registration statement
(No. 333-33836) on Form S-3 of Parlex Corporation of our report dated 18 May
2000 with respect to the balance sheet of Poly-Flex Circuits Limited as of 31
December 1999 and the related profit and loss account and cash flow statement
for the year ended 31 December 1999, which report appears in the Form 8-K/A
of Parlex Corporation dated 23 May 2000.
Yours faithfully
/s/ KPMG Audit Plc
KPMG AUDIT PLC
