<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-00213
PROSPECTUS
PARK ELECTROCHEMICAL CORP.
[LOGO] $100,000,000 5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2006
500,000 SHARES OF COMMON STOCK
The Notes are convertible at the option of the holder at any time prior to
maturity, unless previously redeemed or repurchased, into Common Stock, $.10
par value per share (the "Common Stock"), of Park Electrochemical Corp. (the
"Company") at a conversion price of $42.188 per share, subject to adjustment
in certain events. Interest on the Notes will be payable semi-annually on
March 1 and September 1 of each year, commencing September 1, 1996, and the
Notes will mature on March 1, 2006.
Prior to March 1, 1999, the Notes are not redeemable at the option of the
Company. At any time on or after such date, the Notes are redeemable at the
option of the Company, in whole or in part, at the redemption prices set forth
herein plus accrued interest. See "Description of Notes--Optional Redemption
by the Company." No sinking fund is provided for the Notes. In the event that
a Fundamental Change (as defined) occurs, each holder of Notes will have the
right, subject to certain conditions and restrictions, to require the Company
to repurchase all outstanding Notes, in whole or in part, owned by such holder
at the repurchase prices set forth herein plus accrued interest. See
"Description of Notes--Repurchase at Option of Holders Upon a Fundamental
Change." The Notes will be subordinated in right of payment to all existing
and future Senior Indebtedness (as defined). See "Description of Notes--
Subordination."
The Notes will be represented by one or more global registered certificates
(the "Global Notes"), registered in the name of a nominee of The Depository
Trust Company, as Depositary (the "Depositary"). Ownership of interests in the
Global Notes will be shown on, and the transfer thereof will be effected only
through, records maintained by the Depositary or its nominee for such Global
Notes and on the records of its participants or persons that hold through its
participants. Except as otherwise described under "Description of Notes--Book
Entry, Delivery and Form," owners of beneficial interests in the Global Notes
will not be entitled to receive Notes in definitive form and will not be
considered the holders thereof. Settlement for the Notes will be made in
immediately available funds. The Notes will trade in the Depositary's Same-Day
Funds Settlement System, and secondary market trading activity for the Notes
will therefore settle in immediately available funds. See "Description of
Notes--Settlement and Payment."
Contemporaneously with the offering of the Notes, 500,000 shares of Common
Stock are being offered hereby by Jerry Shore (the "Selling Shareholder"), the
Chairman of the Board, Chief Executive Officer and President of the Company.
The Company will not receive any proceeds of such sale of the shares of Common
Stock offered hereby. Following the completion of the offering of the shares
of Common Stock, the Selling Shareholder will beneficially own approximately
9.7% of the outstanding shares of Common Stock.
The Common Stock of the Company is listed on the New York Stock Exchange,
Inc. (the "NYSE") and trades under the symbol "PKE." On February 22, 1996, the
last reported sale price of the Common Stock on the NYSE Composite Tape was
$33 3/4 per share. See "Price Range of Common Stock and Dividends." The Notes
have been approved for listing on the NYSE under the symbol "PKE06."
The offerings of the Notes and the Common Stock are not contingent upon each
other.
FOR A DESCRIPTION OF THE MATERIAL RISKS RELATING TO THE PURCHASE OF THE NOTES
OR COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 9.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price Underwriting Discounts Proceeds to Company
to Public and Commissions or to Selling Shareholder
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................ 100%(1) 2.75%(2) 97.25%(1)(3)
- ------------------------ --------------------- ----------------------- ----------------------------
Total(4)................ $100,000,000(1) $2,750,000(2) $97,250,000(3)
- ------------------------ --------------------- ----------------------- ----------------------------
Per Share of Common
Stock.................. $33.75 $.93(5) $32.82(6)
- ------------------------ --------------------- ----------------------- ----------------------------
Total................... $16,875,000 $465,000(5) $16,410,000(6)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from February 28, 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $500,000.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
$15,000,000 additional principal amount of Notes on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $115,000,000,
$3,162,500 and $111,837,500, respectively. See "Underwriting."
(5) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(6) Before deducting expenses payable by the Selling Shareholder estimated at
$20,000.
----------------
The Notes and shares of Common Stock offered by this Prospectus are offered
by the Underwriters subject to prior sale, withdrawal, cancellation or
modification of the offers without notice, to delivery to and acceptance by
the Underwriters and to certain further conditions. It is expected that
delivery of the Notes offered hereby will be made in book-entry form through
the facilities of The Depository Trust Company, and delivery of the shares of
Common Stock offered hereby will be made at the offices of Lehman Brothers
Inc., New York, New York, on or about February 28, 1996.
----------------
LEHMAN BROTHERS
NEEDHAM & COMPANY, INC.
ROBERTSON, STEPHENS & COMPANY
February 22, 1996
<PAGE>
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
AND THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549
at prescribed rates. The Common Stock is listed on the NYSE. Reports and other
information concerning the Company may be inspected at the office of the NYSE,
20 Broad Street, New York, New York.
A Registration Statement on Form S-3 relating to the Notes and shares of
Common Stock offered hereby has been filed by the Company with the Commission.
This Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth or incorporated by reference in the
Registration Statement and the exhibits thereto. For further information with
respect to the Company and the Notes and shares of Common Stock offered
hereby, reference is made to such Registration Statement and exhibits and the
documents incorporated by reference in such Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission,
each such statement being qualified in all respects by such reference. A copy
of the Registration Statement may be inspected without charge at the
Commission's principal offices in Washington D.C., and copies of all or any
part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have heretofore been filed by the Company with
the Commission pursuant to the Exchange Act are incorporated by reference
herein and shall be deemed to be part hereof: (1) Annual Report on Form 10-K
for the fiscal year ended February 26, 1995; (2) Quarterly Reports on Form 10-
Q for the fiscal quarters ended May 28, 1995, August 27, 1995, and November
26, 1995; (3) Amendment No. 1 on Form 10-Q/A to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 28, 1995, filed with the
Commission on August 23, 1995 solely to correct an EDGAR format error; (4)
Current Report on Form 8-K, dated January 23, 1996; (5) description of the
Company's Common Stock, par value $.10 per share, contained in the Company's
Registration Statement on Form 8-A, filed with the Commission on April 6, 1984
pursuant to Section 12(b) of the Exchange Act; and (6) description of the
Company's Preferred Stock Purchase Rights contained in Amendment No. 1 on Form
8-A/A to the Company's Registration Statement on Form 8-A, filed with the
Commission on August 10, 1995 pursuant to Section 12(b) of the Exchange Act.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Notes and
shares of Common Stock offered hereby shall be deemed to be incorporated by
reference in this
2
<PAGE>
Registration Statement and to be a part hereof from the respective dates of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request from such person, a copy of any and all of the documents that have
been incorporated by reference in this Prospectus, other than exhibits to such
documents not specifically incorporated by reference. Written or telephone
requests for such documents should be directed to Park Electrochemical Corp.,
5 Dakota Drive, Lake Success, New York 11042 (Telephone (516) 354-4100),
Attention: Mr. Paul R. Shackford, Chief Financial Officer.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) included or
incorporated by reference in this Prospectus. See "Risk Factors." Unless
otherwise indicated, all information in this Prospectus (1) has been adjusted
to give effect to the Company's two-for-one stock split in the form of a stock
dividend, which was paid on August 15, 1995 to shareholders of record at the
close of business on July 24, 1995, and (2) assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting." The Company's fiscal
year is the 52- or 53-week period ending the Sunday nearest to the last day of
February. Unless the context otherwise indicates, reference to the "Company" or
"Park" means Park Electrochemical Corp. and its subsidiaries.
THE COMPANY
Park is a leading designer and producer for the global market of advanced
electronic materials used to fabricate complex multilayer printed circuit
boards and other electronic interconnect systems, such as backplanes, PC cards
and semiconductor packaging systems. The Company's multilayer printed circuit
materials include copper-clad laminates, prepregs and semi-finished multilayer
printed circuit board panels. Multilayer printed circuit boards and
interconnect systems are used in virtually all advanced electronic equipment to
direct, sequence and control electronic signals between semiconductor devices
(such as microprocessors and memory and logic devices) and passive components
(such as resistors and capacitors). Examples of end uses of the Company's
printed circuit materials range from supercomputers to laptops and from
satellite switching equipment to cellular phones.
According to The Institute for Interconnecting and Packaging Electronic
Circuits, an international trade organization for the printed circuit and
interconnect industry (the "IPC"), in 1994 the worldwide market for all printed
circuit boards was approximately $21.2 billion and the worldwide market for
multilayer printed circuit boards was approximately $9.6 billion. Based upon
IPC data, the Company estimates that, in 1994 the worldwide market for all
printed circuit materials was approximately $3.7 billion and the worldwide
market for multilayer printed circuit materials was approximately $1.4 billion.
The Company estimates that the annual worldwide market for multilayer printed
circuit materials is currently approximately $1.5 billion to $1.6 billion.
The Company believes it offers the most diverse advanced printed circuit
materials product line in the industry designed to address a wide array of end-
use applications and performance requirements. The Company's product line has
been developed internally and through long-term development projects with its
principal suppliers. The Company focuses its research and development efforts
on the most demanding product requirements and on developing industry leading
product technology to meet these requirements. Park founded the modern day
printed circuit industry in 1957 by inventing a composite material consisting
of an epoxy resin substrate reinforced with fiberglass cloth which was
laminated together with sheets of thin copper foil. This laminate system is
still used to construct the large majority of today's advanced printed circuit
boards. The Company has introduced its entire current electronic materials
product line within the last five years and believes it continues to be one of
the industry's technological leaders.
As a result of its leading edge products, extensive technical and engineering
service support and responsive manufacturing capabilities, the Company expects
to continue to take advantage of several industry trends. These trends include
the increasing global demand for electronic products and technology, the
increasing complexity of electronic products, the increasingly advanced
electronic materials required for interconnect performance and
manufacturability, the consolidation of the printed circuit board fabrication
industry and the time-to-market and time-to-volume pressures requiring closer
collaboration with materials suppliers. The Company's customers include the
leading independent printed circuit board fabricators and major electronic
equipment manufacturers in the computer, telecommunications, transportation,
aerospace and instrumentation industries. The Company has developed long-term
relationships with the larger, more technologically advanced and better
capitalized customers which are committed to building long-term relationships
with their suppliers.
4
<PAGE>
The Company believes that it is one of the world's largest manufacturers of
multilayer printed circuit materials and the market leader in North America and
Southeast Asia. It also believes that it is the only significant independent
manufacturer of multilayer printed circuit materials in the world. The Company
was the first manufacturer in the printed circuit materials industry to
establish manufacturing presences in the three major global markets of North
America, Europe and Asia, with facilities established in Europe in 1969 and
Southeast Asia in 1986. Park is expanding its global manufacturing facilities
to satisfy demand from existing customers and to add new select customers which
the Company has been unable to serve due to capacity constraints.
The Company believes it has achieved its leading position by following its
basic operating principles: customer responsiveness; quest for perfect quality;
and technological innovation. The Company's strategy includes the following
specific components: (i) sustaining, enhancing and developing relationships
with the more advanced printed circuit board fabricators and electronic
equipment manufacturers; (ii) in its quest for perfect quality product,
producing the highest quality advanced printed circuit materials to maximize
the performance and manufacturability of increasingly complex interconnect
systems; (iii) developing more advanced high performance electronic materials
products and technology capable of meeting the needs of future advanced
interconnect systems; and (iv) pursuing strategic acquisitions of related
electronic materials businesses, product lines or technologies that will
strengthen the Company's leadership position in the electronic materials
industry.
The Company is incorporated in the State of New York. Its corporate offices
are located at 5 Dakota Drive, Lake Success, New York 11042. Its telephone
number is (516) 354-4100.
THE OFFERING OF NOTES
Notes Offered....................... $100,000,000 principal amount of 5 1/2%
Convertible Subordinated Notes due 2006
(the "Notes") to be issued under an
indenture (the "Indenture") as more fully
described under "Description of Notes."
The Company has granted to the
Underwriters an option for 30 days to
purchase up to an additional $15,000,000
principal amount of Notes, solely to
cover over-allotments, if any.
Maturity............................ March 1, 2006
Interest............................ Interest on the Notes is payable on the
principal amount thereof at the rate
stated on the cover page of this
Prospectus, semi-annually on each March 1
and September 1, commencing September 1,
1996.
Conversion Rights................... The Notes are convertible at the option
of the holder at any time prior to
maturity, unless previously redeemed or
repurchased, into the Company's Common
Stock at a conversion price of $42.188
per share, subject to adjustment under
certain conditions. See "Description of
Notes--Conversion."
Optional Redemption................. The Notes are not redeemable at the
option of the Company prior to March 1,
1999. At any time on or after such date,
the Notes will be redeemable on at least
5
<PAGE>
15 days' notice at the option of the
Company, in whole or in part, at any
time, initially at 102.75% and thereafter
at prices declining to 100% on March 1,
2001, together with accrued interest. See
"Description of Notes--Optional
Redemption by the Company."
Repurchase at Option of Holders
Upon a Fundamental Change.......... If a Fundamental Change (as defined in
the Indenture) occurs, each holder of
Notes will have the right, subject to
certain conditions and restrictions, to
require the Company to repurchase all
outstanding Notes, in whole or in part,
owned by such holder, at the repurchase
prices set forth herein, plus accrued
interest. The term "Fundamental Change"
means the occurrence of any transaction
or event in connection with which all or
substantially all of the Common Stock
shall be exchanged for, be converted
into, be acquired for, or constitute
solely the right to receive,
consideration which is not all or
substantially all common stock which is
(or, upon consummation of or immediately
following such transaction or event, will
be) listed on a United States national
securities exchange or approved for
quotation on the Nasdaq National Market
or any similar United States system of
automated dissemination of quotation of
securities prices. See "Description of
Notes--Repurchase at Option of Holders
Upon a Fundamental Change."
Subordination....................... The Notes are subordinate in right of
payment to all existing and future Senior
Indebtedness (as defined in the
Indenture) of the Company (which for this
purpose means Park Electrochemical Corp.
and excludes its subsidiaries). As of
November 26, 1995, the Company had no
outstanding obligations or liabilities
which would have constituted Senior
Indebtedness. The Indenture contains no
limitation on the incurrence of Senior
Indebtedness or other liabilities by the
Company or the incurrence of indebtedness
by the Company's subsidiaries. See "Risk
Factors--Subordination" and "Description
of Notes-- Subordination."
Global Notes........................ The Notes will be represented by one or
more Global Notes, registered in the name
of a nominee of The Depository Trust
Company, as Depositary. Accordingly,
ownership of interests in such Global
Notes will be shown on, and the transfer
thereof will be effected only through,
records maintained by the Depositary or
its nominee for the Notes and on the
records of institutions that have
accounts with the Depositary
("participants") or persons that hold
such interests through participants.
6
<PAGE>
See "Description of Notes--Book-Entry,
Delivery and Form."
Listing.............................
The Notes have been approved for listing
on the NYSE under the symbol "PKE06."
Use of Proceeds..................... The net proceeds from the sale of the
Notes will be used for general corporate
purposes, which may include acquisitions
of businesses, product lines or
technologies that expand or complement
the Company's electronic materials
business, capital expenditures and
working capital requirements. Although
there are currently no agreements or
understandings with respect to any such
acquisition, the Company seeks to be able
to respond to opportunities as they
arise. There can be no assurance that the
Company will be able to identify or to
consummate any such acquisition in the
foreseeable future. See "Use of
Proceeds."
THE OFFERING OF COMMON STOCK
Common Stock Offered................
500,000 shares
Common Stock Outstanding(1)......... 11,544,064 shares
Common Stock to Be Owned by the
Selling Shareholder After the 1,125,612 shares
Offering(2)........................
Use of Proceeds..................... The Company will not receive any of the
proceeds from the sale of the shares of
Common Stock offered hereby.
NYSE Symbol.........................
PKE
- --------
(1) As of November 26, 1995. Excludes 658,224 shares of Common Stock reserved
for issuance on the exercise of options granted or to be granted pursuant
to certain employee compensation and benefit plans.
(2) The amount shown represents beneficial ownership.
The Company believes that Jerry Shore will remain the Company's largest
shareholder upon the completion of the sale of his shares of Common Stock
offered hereby.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 27, FEBRUARY 26, NOVEMBER 27, NOVEMBER 26,
1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $175,176 $208,410 $253,022 $186,398 $227,215
Gross profit............ 26,031 40,235 56,105 40,541 51,323
Profit from operations.. 3,166 14,305 26,110 18,565 25,524
Earnings before income
taxes.................. 3,075 12,845 27,501 19,373 27,207
Net earnings............ 2,265 8,062 17,345 12,205 17,857
Earnings per common
share:
Primary............... $.25 $1.01 $1.59 $1.14 $1.52
Fully diluted......... $.25 $ .84 $1.52 $1.08 $1.51
Weighted average number
of common shares
outstanding:
Primary............... 9,068 7,986 10,858 10,666 11,763
Fully diluted......... 9,068 11,454 11,570 11,560 11,801
Ratio of earnings to
fixed charges(1)....... 1.83 4.89 24.55 49.14
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 26, 1995
-----------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities.......................... $ 42,545 $139,295
Working capital......................................... 59,755 156,505
Total assets............................................ 192,606 292,606
Long-term debt.......................................... -- 100,000
Stockholders' equity.................................... 128,610 128,610
</TABLE>
- --------
(1) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated earnings before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred and the
portion of rental expense under leases deemed by the Company to be
representative of the interest factor.
(2) As adjusted to reflect the sale of the Notes offered hereby and receipt of
the estimated net proceeds therefrom, assuming no exercise of the
Underwriters' overallotment option.
8
<PAGE>
RISK FACTORS
CYCLICALITY OF ELECTRONICS INDUSTRY
The Company's business is dependent on printed circuit board fabricators and
electronic equipment manufacturers. The electronics industry is cyclical and
has experienced recurring downturns, which have often reduced demand for, and
prices of, electronic materials. Over the past two to three years, the
electronics industry has been experiencing significant growth, but there can
be no assurance that such growth will continue. No assurance can be given that
the Company's business, financial condition and results of operations will not
be materially adversely affected if downturns or changes in any particular
market segment of the electronics industry occur in the future, especially if
all of the market segments in which the Company participates experience
downturns at the same time.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are affected by a number of factors,
including, without limitation, product prices, process yields, timing of
expenditures in anticipation of future sales, economic conditions in the
electronics industry, the mix of products sold, the timing of orders from
major customers and scheduled maintenance-related shutdowns of facilities. As
a result, the Company's results of operations may fluctuate significantly from
period to period. Operating results can also be influenced by acquisitions and
development and introduction of new products. Results of operations in any
period should not be considered indicative of the results to be expected for
any future period. See "--Acquisitions," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Consolidated Financial Statements and the Notes to
Consolidated Financial Statements.
TECHNOLOGICAL CHANGE
Rapid technological advances in semiconductors have demanded increased
performance from printed circuit boards, packaging systems and related
materials. These advances have placed increasingly rigorous demands on the
electrical, thermal, chemical and mechanical properties of the electronic
materials manufactured by the Company and used in printed circuit board
production. Technological change in the printed circuit board industry is
rapid and continuous and will continue to require increased technological and
manufacturing capability and expertise. There is no assurance that the Company
will be able to maintain its current technological position. The introduction
of new technologies could require the Company to increase substantially its
capital expenditures. In addition, the printed circuit board industry served
by the Company could in the future encounter competition from new technologies
which could reduce the number of circuit boards required in electronic
equipment or render existing technology less competitive or obsolete.
COMPETITION
The electronic materials industry is characterized by intense competition
and ongoing consolidation. The Company's electronic materials business
competes worldwide in the market for materials used in the production of
complex multilayer printed circuit boards. The Company's competitors in this
market are primarily divisions or subsidiaries of very large, diversified,
multinational manufacturers, which are substantially larger and have greater
financial resources than the Company and, to a lesser degree, smaller regional
producers. In addition, electronic equipment manufacturers with captive
printed circuit board manufacturing operations may seek orders in the open
market to fill excess capacity, thereby increasing price competition. See
"Business--Competition."
AVAILABILITY OF MATERIALS; CONCENTRATION OF SUPPLIERS
The principal materials used in the manufacture of the Company's electronic
materials products are specially manufactured copper foil, fiberglass cloth
and synthetic reinforcements, and specially formulated resins and chemicals.
There are a limited number of qualified suppliers of these materials,
substitutes for these materials are not readily available, and, in the recent
past, there have been shortages in the market for certain of these
9
<PAGE>
materials. While the Company has not experienced significant problems in the
delivery of these materials and considers its relationships with its suppliers
to be strong, a disruption of the supply of material from one of the Company's
principal suppliers or an inability to obtain essential materials could
materially adversely affect the business, financial condition and results of
operations of the Company. Significant increases in the cost of materials
purchased by the Company could also have a material adverse effect on the
Company's business, financial condition and results of operations if the
Company were unable to pass such price increases through to its customers. See
"Business--Materials and Sources of Supply."
CUSTOMER CONCENTRATION
The Company's customer base is concentrated in part because, for many years,
the Company has implemented a strategy of developing long-term relationships
with a select group of customers. During the nine months ended November 26,
1995, the Company's ten largest customers accounted for approximately 46% of
net sales. One of these customers, a large domestic manufacturing concern,
accounted for approximately 17% of the Company's net sales during this period.
See Note 12 of Notes to Consolidated Financial Statements. At its current
level of sales, the Company expects that sales to a relatively small number of
customers will continue to account for a significant portion of its net sales
for the foreseeable future. The loss of, or a significant decline in orders
from, one of the Company's key customers could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Strategy," "Business--Customers and End Markets" and "Business--
Products and Services."
VARIABILITY OF CUSTOMER REQUIREMENTS; ABSENCE OF CUSTOMER ORDER COMMITMENTS
The level and timing of orders placed by the Company's customers vary due to
a number of factors, including their inventory management, changes in their
manufacturing strategies and variations relating to demand for their products.
The Company typically does not obtain long-term purchase orders or
commitments. It relies primarily on continual communication with its customers
to anticipate the future volume of purchase orders. A variety of conditions,
both specific to the individual customer and generally affecting the
customer's industry, could cause a customer to reduce or delay orders that
were previously anticipated by the Company. Reductions or delays in orders by
a significant customer or group of customers could have a material adverse
effect on the Company's business, financial condition and results of
operations.
CAPACITY; CAPITAL INTENSIVE BUSINESS
Certain of the Company's manufacturing facilities for electronic materials
have been operating in excess of their designed capacity. In order for the
Company to continue to achieve its sales growth objectives from increased
product output, the Company must expand its electronic materials manufacturing
capacity. The Company expects to commence commercial operation of expansions
in Newburgh, New York and Tempe, Arizona during the early part of its next
fiscal year. The Company also may invest in one or more additional expansions
of its manufacturing capacity during its next fiscal year. There can be no
assurance that the Company will be able to expand its manufacturing capacity
in a timely manner or that the cost of such expansion will not exceed
management's estimates. In addition, the Company's expansion of its
manufacturing capacity will increase the Company's fixed costs, and the future
profitability of the Company will depend on its ability to utilize its
manufacturing capacity in an effective manner.
The Company's electronic materials business is capital intensive. In the
three fiscal years ended February 26, 1995 and the nine months ended November
26, 1995, the Company has expended a total of approximately $35.3 million and
$18.7 million, respectively, for the purchase of property, plant and equipment
for its electronic materials business. In order to remain competitive, the
Company must continue to make significant investments in capital equipment and
expansion of operations. However, there can be no assurance that additional
capital will be available when needed by the Company or that such capital will
be available on terms acceptable to the
10
<PAGE>
Company. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Manufacturing."
ACQUISITIONS
The Company may use all or a portion of the proceeds of the sale of the
Notes to acquire businesses, product lines or technologies that expand or
complement those of the Company. There are currently no agreements or
understandings with respect to any such acquisition. Although the Company
believes that integration of acquired businesses, product lines or
technologies will result in long-term growth and profitability, there is no
assurance that the Company will successfully identify, negotiate, finance or
complete any such acquisition or successfully integrate or operate any
acquired business, product line or technology. Furthermore, the integration
and management of an acquired company or business may strain the Company's
management resources and technical, financial and operating systems. In
addition, implementation of acquisitions can result in large one-time charges
and costs. There can be no assurance that a given acquisition, if consummated,
would not materially adversely affect the Company's business, financial
condition and results of operations.
INTERNATIONAL OPERATIONS
Sales by the Company's foreign operations accounted for approximately 26%,
22%, 24% and 30% of net sales in fiscal years 1993, 1994 and 1995 and in the
nine months ended November 26, 1995, respectively. International operations
are subject to certain risks, including unexpected changes in regulatory
requirements, exchange rates, tariffs and other barriers, political and
economic instability and potentially adverse tax consequences. There can be no
assurance that some or all of these factors will not have a material adverse
effect on the Company's business, financial condition and results of
operations in the future. A portion of the sales and costs of the Company's
foreign operations are denominated in currencies other than the U.S. dollar
and, accordingly, the Company's business, financial condition and results of
operations may be affected by fluctuations in currency exchange rates. With
respect to international sales that are denominated in U.S dollars, increases
in the value of the U.S. dollar relative to foreign currencies can increase
the effective price of, and reduce demand for, the Company's products relative
to competitive products priced in such foreign currencies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Manufacturing."
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent upon certain key management and technical
personnel. There is intense competition for qualified employees among
companies in the electronic materials industry, and the loss of certain of the
Company's employees or an inability to continue to attract and motivate highly
skilled employees could adversely affect the Company's business, financial
condition and results of operations.
INTELLECTUAL PROPERTY
The Company's future success depends in part upon its intellectual property.
Although the Company seeks to protect its intellectual property through a
combination of contract provisions, trade secret protections, copyrights and
patents, there can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
of its technology or that the independent development by others of similar
technology will not occur. See "Business--Patents and Trademarks."
ENVIRONMENTAL MATTERS
The Company's production processes require the use, storage, treatment and
disposal of certain materials which are considered hazardous under applicable
federal and state laws and the Company is subject to a variety of regulatory
requirements relating to the handling of such materials and the release of
emissions and effluents into the environment. The Company believes it
maintains an effective and comprehensive materials handling and environmental
compliance program. However, any inadvertent mishandling of materials,
improper release of
11
<PAGE>
emissions or effluents or similar incident could result in costly
administrative or legal proceedings, or remediation. Other possible
developments, such as the enactment or adoption of even more stringent
environmental laws and regulations, could result in substantial additional
costs to the Company. See "Business--Environmental Matters."
SUBORDINATION
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness (as defined in the Indenture) of
the Company. As a result of such subordination, in the event of bankruptcy,
liquidation or reorganization of the Company, or upon the acceleration of any
Senior Indebtedness, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
the Notes. The Company expects from time to time to incur indebtedness
constituting Senior Indebtedness. Creditors, including trade creditors, of the
Company's subsidiaries generally will have a claim against the assets of the
particular subsidiaries of the Company in the event of bankruptcy, liquidation
or reorganization of the Company and its subsidiaries which ranks ahead of the
claim of the holders of the Notes against such assets. The Indenture does not
prohibit or limit the incurrence of additional indebtedness by the Company or
its subsidiaries. The incurrence of additional indebtedness by the Company or
its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Notes. As of November 26, 1995, the Company had no
outstanding liabilities or obligations which would have constituted Senior
Indebtedness. In addition, as of November 26, 1995, subsidiaries of the
Company had outstanding an aggregate of approximately $56 million of
liabilities (excluding intercompany liabilities, deferred taxes on income and
commitments, contingencies and other liabilities of the types not required to
be reflected as liabilities on the balance sheets of such subsidiaries
prepared in accordance with generally accepted accounting principles). See
"Description of Notes--Subordination."
In addition, the Notes are obligations exclusively of the Company and not of
any of its subsidiaries. The Company's cash flow and ability to service debt,
including the Notes, may be dependent on the earnings of its subsidiaries and
the distribution of those earnings to the Company, or on other payments of
funds by the subsidiaries to the Company. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts due pursuant to the Notes or to make any funds available
therefor, whether by dividends, loans or other payments. In addition, the
payment of dividends and the making of loans and advances to the Company by
its subsidiaries may be subject to statutory, contractual or other
restrictions, are dependent on the earnings of those subsidiaries and are
subject to various business considerations. Any right of the Company to
receive assets of one of its subsidiaries upon the liquidation or
reorganization of such subsidiary (and the consequent right of the holders of
the Notes to participate in these assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except
to the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company and would
be subject to judicial powers to subordinate the Company's claim against such
subsidiary to that of other creditors of such subsidiary in certain cases. See
"Description of Notes--Subordination."
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Fundamental Change (as defined in the Indenture), each holder of
Notes will have certain rights, at the holder's option, to require the Company
to repurchase all or a portion of such holder's Notes. If a Fundamental Change
were to occur, there can be no assurance that the Company would have
sufficient funds to pay the repurchase price for all Notes tendered by the
holders thereof. Future credit agreements or other agreements relating to
other indebtedness (including Senior Indebtedness) to which the Company
becomes a party may contain restrictions on such repurchases. In the event a
Fundamental Change occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
repurchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent, or repay such
borrowings, the Company would remain prohibited from
12
<PAGE>
purchasing Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture, which may, in
turn, constitute a default under the terms of other indebtedness that the
Company may incur from time to time. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. See "Description of Notes--Repurchase at Option of Holders Upon a
Fundamental Change."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and By-
Laws, the Company's Shareholder Rights Plan and certain provisions of the New
York Business Corporation Law could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. Such provisions
could diminish the opportunities for a shareholder to participate in tender
offers, including tender offers at a price above the market value of the
Common Stock at the time of any such tender offer. Such provisions may also
inhibit increases in the market price of the Common Stock that could result
from takeover attempts. In addition, the Board of Directors of the Company,
without further shareholder approval, may issue Preferred Stock, with such
terms as the Board of Directors may determine, that could have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock could adversely affect the voting power of the holders of
Common Stock, including the loss of voting control to others. The Company
intends, consistent with its legal obligations to the shareholders, to
maintain the Company's status as an independent business and believes such
independence is in the best interests of the Company and its shareholders. See
"Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes
are estimated to be $96,750,000 ($111,337,500 if the Underwriter's over-
allotment option is exercised in full) after deducting the estimated
underwriting discounts and commissions and expenses of the offering payable by
the Company. The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Shareholder. See "Selling Shareholder."
The net proceeds from the sale of the Notes will be used for general
corporate purposes, which may include acquisitions of other businesses,
product lines or technologies that expand or complement the Company's
electronic materials business, capital expenditures and working capital
requirements. Although there are currently no agreements or understandings
with respect to any such acquisition, the Company seeks to be able to respond
to opportunities as they arise. The Company is undertaking the offering of the
Notes at this time in part because it believes that the availability of the
net proceeds of such offering will better enable the Company to pursue any
such acquisition opportunities. There can be no assurance that the Company
will successfully identify, negotiate, finance or complete any such
acquisition in the foreseeable future. See "Risk Factors--Acquisitions."
Capital expenditures for which the net proceeds could be used include
additional expansions of the Company's manufacturing facilities for advanced
electronic materials, including expansions in which the Company intends to
invest during its next fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Pending such uses, the Company intends to invest the net proceeds
in investment-grade, interest-bearing investments.
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed and trades on the NYSE (trading symbol
PKE). The Common Stock also trades on the Midwest Stock Exchange. The
following table sets forth, for each of the quarterly periods indicated, the
high and low sales prices for the Common Stock, as reported on the NYSE
Composite Tape, and dividends declared on the Common Stock, in each case after
giving effect to the Company's two-for-one stock split in the form of a stock
dividend, which was paid in August 1995.
<TABLE>
<CAPTION>
STOCK PRICE
----------------- DIVIDENDS
HIGH LOW DECLARED
-------- -------- ---------
<S> <C> <C> <C>
FISCAL YEAR ENDED FEBRUARY 27, 1994
First Quarter..................................... 8 1/4 5 3/4 $.04
Second Quarter.................................... 7 15/16 7 5/16 $.04
Third Quarter..................................... 9 1/16 7 3/8 $.04
Fourth Quarter.................................... 13 1/2 8 5/16 $.04
FISCAL YEAR ENDED FEBRUARY 26, 1995
First Quarter..................................... 15 7/16 12 15/16 $.04
Second Quarter.................................... 17 3/8 12 13/16 $.04
Third Quarter..................................... 17 7/8 14 11/16 $.06
Fourth Quarter.................................... 17 11/16 13 5/8 $.06
FISCAL YEAR ENDING MARCH 3, 1996
First Quarter..................................... 20 1/16 16 7/8 $.06
Second Quarter.................................... 31 1/2 17 1/8 $.06
Third Quarter..................................... 34 1/8 28 $.08
Fourth Quarter (through February 22, 1996)........ 37 7/8 28 3/8 $.08
</TABLE>
On February 22, 1996, the last reported sale price of the Common Stock on
the NYSE Composite Tape was $33 3/4 per share.
As of January 31, 1996, there were approximately 2,400 holders of record of
the Common Stock.
On December 12, 1995, the Company's Board of Directors declared a cash
dividend of $.08 per share payable February 6, 1996 to holders of record on
January 9, 1996. The Company expects, for the immediate future, to continue to
pay regular cash dividends. The Company's Board of Directors reserves the
right to change the dividend rate on the Common Stock at any time and from
time to time.
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at November 26, 1995 and as adjusted to reflect the sale of
$100,000,000 principal amount of the Notes offered hereby.
<TABLE>
<CAPTION>
NOVEMBER 26, 1995
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Short-term debt....................................... $ -- $ --
Long-term debt
5 1/2% Convertible Subordinated Notes due 2006...... -- 100,000
Stockholders' equity:
Preferred stock, $1 par value--500,000 shares autho-
rized; none issued................................. -- --
Common stock, $.10 par value--30,000,000 shares
authorized;
13,580,018 shares issued........................... 1,358 1,358
Additional paid-in capital.......................... 50,814 50,814
Retained earnings................................... 87,775 87,775
Currency translation adjustments.................... 1,744 1,744
Pension liability adjustment........................ (972) (972)
Unrealized losses on investments.................... (17) (17)
---------- ----------
140,702 140,702
Less treasury stock, at cost; 2,035,954 shares...... (12,092) (12,092)
---------- ----------
Total stockholders' equity........................ 128,610 128,610
---------- ----------
Total capitalization............................ $ 128,610 $ 228,610
========== ==========
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain consolidated summary financial data
of the Company, which should be read in conjunction with, and is qualified by
reference to, the more detailed information contained in the Consolidated
Financial Statements and Notes thereto included herein. The data as of and for
the years ended February 27, 1994 and February 26, 1995 are derived from the
Company's consolidated financial statements, which have been audited by Ernst
& Young LLP, independent auditors. The data as of and for the years ended
March 3, 1991, March 1, 1992 and February 28, 1993 are derived from the
Company's consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The data for the nine months
ended November 27, 1994 and November 26, 1995 are unaudited, but in the
opinion of management include all adjustments necessary for a fair
presentation of the Company's financial condition as of those dates and its
results of operations for those periods. The results of operations for the
nine months ended November 26, 1995 should not be considered an indication of
the results of operations which may be expected for the full year.
STATEMENT OF EARNINGS DATA:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------ ------------------
MAR. 3, MAR. 1, FEB. 28, FEB. 27, FEB. 26, NOV. 27, NOV. 26,
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $163,982 $165,287 $175,176 $208,410 $253,022 $186,398 $227,215
Cost of sales........... 141,278 141,717 149,145 168,175 196,917 145,857 175,892
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 22,704 23,570 26,031 40,235 56,105 40,541 51,323
Selling, general and ad-
ministrative........... 21,385 21,250 22,865 25,930 29,995 21,976 25,799
-------- -------- -------- -------- -------- -------- --------
Profit from operations.. 1,319 2,320 3,166 14,305 26,110 18,565 25,524
-------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest expense....... (2,735) (2,649) (2,058) (2,407) (431) (417) --
Other income, net...... 4,323 2,252 1,967 947 1,822 1,225 1,683
-------- -------- -------- -------- -------- -------- --------
Total other income (ex-
pense)................ 1,588 (397) (91) (1,460) 1,391 808 1,683
-------- -------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. 2,907 1,923 3,075 12,845 27,501 19,373 27,207
Income tax provision.... 1,018 608 810 4,783 10,156 7,168 9,350
-------- -------- -------- -------- -------- -------- --------
Earnings before extraor-
dinary gain............ 1,889 1,315 2,265 8,062 17,345 12,205 17,857
Extraordinary gain--net
of taxes............... 290 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings............ $ 2,179 $ 1,315 $ 2,265 $ 8,062 $ 17,345 $ 12,205 $ 17,857
======== ======== ======== ======== ======== ======== ========
Primary earnings per
common share:
Earnings before ex-
traordinary gain...... $ .19 $ .15 $ .25 $ 1.01 $ 1.59 $ 1.14 $ 1.52
Extraordinary gain..... .03 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings--primary.. $ .22 $ .15 $ .25 $ 1.01 $ 1.59 $ 1.14 $ 1.52
======== ======== ======== ======== ======== ======== ========
Fully diluted earnings
per common share:
Earnings before ex-
traordinary gain...... $ .19 $ .15 $ .25 $ .84 $ 1.52 $ 1.08 $ 1.51
Extraordinary gain..... .03 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings--fully di-
luted................. $ .22 $ .15 $ .25 $ .84 $ 1.52 $ 1.08 $ 1.51
======== ======== ======== ======== ======== ======== ========
Weighted average number of
common shares outstanding:
Primary................ 9,846 9,056 9,068 7,986 10,858 10,666 11,763
======== ======== ======== ======== ======== ======== ========
Fully diluted.......... 9,846 9,056 9,068 11,454 11,570 11,560 11,801
======== ======== ======== ======== ======== ======== ========
Dividends per common
share.................. $ .16 $ .16 $ .16 $ .16 $ .20 $ .14 $ .20
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges (1)...... 1.74 1.52 1.83 4.89 24.55 49.14
======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
<CAPTION>
MAR. 3, MAR. 1, FEB. 28, FEB. 27, FEB. 26, NOV. 27, NOV. 26,
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and marketable se-
curities............... $ 42,802 $ 36,880 $ 32,768 $ 38,053 $ 45,910 $ 46,246 $ 42,545
Working capital......... 56,790 51,737 45,811 45,867 55,035 54,183 59,755
Total assets............ 135,759 130,734 129,009 140,750 162,051 156,690 192,606
Long-term debt.......... 33,420 33,439 33,957 32,861 23 9 --
Stockholders' equity.... 63,676 62,275 60,700 61,454 112,048 106,216 128,610
</TABLE>
- -------
(1) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated earnings before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred and
the portion of rental expense under leases deemed by the Company to be
representative of the interest factor.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Park is a leading designer and producer for the global market of advanced
electronic materials used to fabricate complex multilayer printed circuit
boards and other electronic interconnect systems, such as backplanes, PC cards
and semiconductor packaging systems. The Company's customers for its advanced
printed circuit materials include the leading independent circuit board
fabricators and large electronic equipment manufacturers in the computer,
telecommunications, transportation, aerospace and instrumentation industries.
The Company's electronic materials operations accounted for more than 84% of
net sales worldwide and more than 95% of operating profit in each of the last
three fiscal years and in the nine-month period ended November 26, 1995. The
Company's foreign electronic materials operations accounted for an average of
approximately 24% of net sales worldwide for the last three fiscal years and
approximately 30% for the nine-month period ended November 26, 1995.
The Company's sales growth during the last three fiscal years has been led
by strong growth in sales by its United States and Singapore electronic
materials operations. More recently, increased sales by the Company's European
operations have also contributed to this growth. The Company's ongoing efforts
to expand its higher technology, higher margin product lines have contributed
to the growth of the Company's sales of electronic materials during this
period.
The Company has also improved the manufacturing efficiencies of its
electronic materials business since the beginning of its 1993 fiscal year.
These improvements have been the result of consolidating functions, reducing
manufacturing waste and improving yields, improving the overall productivity
of the Company's workforce, and redesigning product in order to reduce
material costs.
Sales volume of its electronic materials has increased during each of the
last three fiscal years. However, growth of the Company's electronic materials
business has been constrained during its 1996 fiscal year by the Company's
available manufacturing capacity despite the approximate doubling of the
capacity of the Company's Singapore manufacturing facility at the end of its
1995 fiscal year. The Company is currently expanding its manufacturing
capacity in Newburgh, New York and Tempe, Arizona, and expects to commence
commercial operations in both locations during the early part of its 1997
fiscal year. While the Company's capital budget for its 1997 fiscal year has
not yet been finalized, the Company is considering further expansions of its
electronic materials operations, particularly in the United States and
Southeast Asia.
The following table sets forth certain consolidated statements of earnings
information as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 27, FEBRUARY 26, NOVEMBER 27, NOVEMBER 26,
1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 85.1 80.7 77.8 78.3 77.4
----- ----- ----- ----- -----
Gross profit............ 14.9 19.3 22.2 21.7 22.6
Selling, general and ad-
ministrative........... 13.1 12.4 11.9 11.7 11.4
----- ----- ----- ----- -----
Profit from operations.. 1.8 6.9 10.3 10.0 11.2
----- ----- ----- ----- -----
Other income (expense):
Interest expense...... (1.2) (1.2) (0.2) (0.2) 0.0
Other income, net..... 1.2 0.5 0.8 0.6 0.8
----- ----- ----- ----- -----
Total other income
(expense).......... 0.0 (0.7) 0.6 0.4 0.8
----- ----- ----- ----- -----
Earnings before income
taxes.................. 1.8 6.2 10.9 10.4 12.0
Income taxes............ 0.5 2.3 4.0 3.9 4.1
----- ----- ----- ----- -----
Net earnings............ 1.3% 3.9% 6.9% 6.5% 7.9%
===== ===== ===== ===== =====
</TABLE>
17
<PAGE>
NINE MONTHS ENDED NOVEMBER 26, 1995 COMPARED WITH NINE MONTHS ENDED NOVEMBER
27, 1994
The Company's electronic materials business was responsible for the
improvement in the Company's results of operations for the nine-month period
ended November 26, 1995. The United States and Asian markets for sophisticated
printed circuit materials were strong during this period, and the Company's
electronic materials operations located in these regions performed well as a
result. While the market in Europe for sophisticated printed circuit materials
has not been as strong as in the United States or Asia, it improved over the
comparable period of the prior fiscal year, and the Company's European
operations benefitted from this improvement.
During the nine-month period ended November 26, 1995, the Company's
electronic materials business incurred raw material cost increases and
additional costs associated with the Company's ongoing major expansion
projects in Newburgh, New York and Tempe, Arizona. In addition, the electronic
materials business experienced temporary inefficiencies caused by operating
certain facilities at levels in excess of their designed manufacturing
capacity. These cost increases and temporary operating inefficiencies
adversely affected the Company's gross margins. However, the Company was able
to offset such effects by improving its overall operating efficiencies, in
part, by consolidating functions, by continuing to reduce manufacturing waste
and improve yields, and by improving the overall productivity of its
workforce. In addition, the Company redesigned product in order to reduce
material costs. The Company was also able to offset these cost increases and
inefficiencies through its ongoing efforts to expand its higher technology,
higher margin product lines.
Operating results of the Company's plumbing and industrial components
business were not significant during the nine-month period ended November 26,
1995.
Results of Operations
Sales for the nine-month period ended November 26, 1995 increased 22% to
$227.2 million from $186.4 million for last fiscal year's comparable period.
Sales of the electronic materials business for the nine-month period ended
November 26, 1995 were $199.9 million, or 88% of total sales worldwide,
compared with $161.2 million, or 86% of total sales worldwide, for the last
fiscal year's comparable period. This 24% increase in sales of electronic
materials was principally the result of higher volume of electronic materials
shipped and an increase in sales of higher technology products. Sales of the
plumbing and industrial components business for the nine-month period ended
November 26, 1995 increased 8% to $27.4 million from $25.2 million for last
fiscal year's comparable period.
The Company's foreign electronic materials operations accounted for $68.0
million of sales, or 30% of the Company's total sales worldwide, during the
nine-month period ended November 26, 1995 compared with $43.9 million of
sales, or 24% of total sales worldwide, during last fiscal year's comparable
period. Sales by the Company's foreign operations during the nine-month period
ended November 26, 1995 increased 55% from last fiscal year's comparable
period. While sales by each of the Company's foreign operations were higher in
the nine-month period ended November 26, 1995 compared with the comparable
period in the prior fiscal year, the increase in sales by foreign operations
was principally due to an increase in sales by the Company's Singapore
operations. The expansion of the Company's Singapore manufacturing facility
was completed at the end of the Company's 1995 fiscal year.
The gross margin for the Company's worldwide operations was 22.6% during the
nine-month period ended November 26, 1995 compared with 21.7% for last fiscal
year's comparable period. The improvement in the gross margin was attributable
to the increase in sales volume over the prior fiscal year's comparable
period, the continuing growth in sales of higher technology, higher margin
products and improved operating efficiencies. This improvement was offset in
part by higher raw material costs, costs associated with the start-up of the
new facilities in Newburgh, New York and Tempe, Arizona, and inefficiencies
caused by operating certain facilities at levels in excess of designed
capacity.
18
<PAGE>
Selling, general and administrative expenses, measured as a percentage of
sales, were 11.4% during the nine-month period ended November 26, 1995
compared with 11.7% during last fiscal year's comparable period. This
reduction was a function of the partially fixed nature of the selling, general
and administrative expenses relative to the increase in sales.
For the reasons set forth above, profit from operations for the nine-month
period ended November 26, 1995 increased 37% to $25.5 million from $18.6
million for last fiscal year's comparable period.
Interest expense for the nine-month period ended November 26, 1995 was
minimal compared with $0.4 million during last fiscal year's comparable
period. During the first quarter of the prior fiscal year, the Company called
its 7 1/4% Convertible Subordinated Debentures for redemption; as a result,
nearly all of such Debentures outstanding at the beginning of the prior fiscal
year were converted into Common Stock during that fiscal year's first quarter,
which eliminated the Company's long-term debt and the associated interest
expense. Other income, principally investment income, increased 37% to $1.7
million for the nine-month period ended November 26, 1995 from $1.2 million
for last fiscal year's comparable period. The increase in investment income,
relative to the same period during the prior fiscal year, was attributable to
the increase in the prevailing interest rates during the current period and to
the increase in cash available for investment.
The Company's effective income tax rate for the nine-month period ended
November 26, 1995 was 34.4% compared with 37.0% for last fiscal year's
comparable period. This decrease in the effective tax rate for the current
fiscal year's first nine months was primarily the result of favorable foreign
tax rate differentials.
Net earnings for the nine-month period ended November 26, 1995 increased 47%
to $17.9 million from $12.2 million for last fiscal year's comparable period.
Primary and fully diluted earnings per share increased to $1.52 and $1.51,
respectively, for the nine-month period ended November 26, 1995 from $1.14 and
$1.08, respectively, for last fiscal year's comparable period. This increase
in earnings and earnings per share was primarily attributable to the increase
in the profit from operations, the effects of the conversion of the Debentures
and the lower effective tax rate.
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994
The electronic materials business in the United States and Singapore
continued its strong growth in the fiscal year ended February 26, 1995 which
significantly improved the Company's operating results during that fiscal
year. As a result of this growth, enhanced operating efficiencies and
continued emphasis on higher technology products, the operating profits of the
electronic materials business were sufficient to offset the impact of rising
raw material costs and pricing pressures. The Company's European electronic
materials operations also improved during the 1995 fiscal year as a result of
strengthening in the European market for the Company's products.
The Company focused its capital investments during the 1995 fiscal year
principally on its electronic materials business for the purpose of enhancing
capability and expanding capacity. The Company also continued to invest in its
electronic materials business' leading edge technology and product development
efforts. The expansion of the Company's Singapore facility was completed at
the end of the Company's 1995 fiscal year.
During the second half of the 1995 fiscal year, the Company's plumbing
hardware business returned to modest profitability. The Company's advanced
composite business' performance improved during the 1995 fiscal year under its
new management team as it refocused its products towards non-military
applications, such as wireless communications. The Company's specialty
adhesive tape business performed well during the 1995 fiscal year, with
increased sales and earnings due in part to focusing towards high-technology,
high-margin products.
Results of Operations
Sales for the fiscal year ended February 26, 1995 increased 21% to $253.0
million from $208.4 million for the fiscal year ended February 27, 1994. Sales
of the electronic materials operations for the 1995 fiscal year were $218.3
million, or 86% of total sales worldwide, compared with $182.6 million, or 88%
of total sales worldwide,
19
<PAGE>
for the 1994 fiscal year. This 20% increase in sales of electronic materials
was principally the result of higher volume of electronic materials shipped.
Sales of the plumbing and industrial component business for the 1995 fiscal
year increased 34% to $34.7 million from $25.9 million for the 1994 fiscal
year, principally due to increased volume.
The Company's foreign electronic materials operations accounted for $61.9
million of sales, or 24% of the Company's total sales worldwide, during the
1995 fiscal year compared with $46.5 million, or 22% of total sales worldwide,
during the fiscal 1994 year. Sales by the Company's foreign operations during
the 1995 fiscal year increased 33% from the 1994 fiscal year. While sales by
the Company's foreign operations were higher in the 1995 fiscal year at each
of the Company's foreign operations compared with the 1994 fiscal year, the
increase in sales by foreign operations was principally due to increased sales
of the Company's Singapore operations.
The gross margin for the Company's worldwide operations was 22.2% for the
1995 fiscal year compared with 19.3% for the 1994 fiscal year. The gross
margin improved as a result of operating efficiencies, attributable in part to
the increase in sales volume and reduced manufacturing waste.
Selling, general and administrative expenses, measured as a percentage of
sales, were 11.9% during the 1995 fiscal year compared with 12.4% during the
1994 fiscal year. This reduction was a function of the partially fixed nature
of the selling, general and administrative expenses relative to the increase
in sales.
For the reasons set forth above, profit from operations for the 1995 fiscal
year increased 83% to $26.1 million from $14.3 million for the 1994 fiscal
year.
During the 1995 fiscal year, interest expense decreased 82% to $0.4 million
from $2.4 million during the 1994 fiscal year. This expense was attributable
to interest on the Company's 7 1/4% Convertible Subordinated Debentures and,
to a lesser extent, on loans carried by certain of the Company's foreign
subsidiaries. The decrease in this expense was due to the call for redemption
of such Debentures, nearly all of which were converted into Common Stock by
May 31, 1994. Other income, principally investment income, increased 92% to
$1.8 million during the 1995 fiscal year from $0.9 million during the 1994
fiscal year. This increase in investment income occurred because the average
rate of interest earned by the Company during the 1995 fiscal year was higher
than during the 1994 fiscal year and because the Company had more cash
available for investment. The Company's cash reserves were invested primarily
in short-term taxable instruments and government securities.
The Company's effective income tax rate for the 1995 fiscal year was 36.9%
compared with 37.2% for the 1994 fiscal year. The effective tax rate for the
1995 fiscal year decreased due to the impact of foreign net operating losses
without tax benefit and favorable foreign tax rate differentials, offset in
part by a reduction in general business credits.
The Company's net earnings increased 115% in the 1995 fiscal year to $17.3
million from $8.1 million during the 1994 fiscal year. Primary and fully
diluted earnings per share increased to $1.59 and $1.52, respectively, for the
1995 fiscal year compared with $1.01 and $.84, respectively, for the 1994
fiscal year. The increase in net earnings and earnings per share was
attributable principally to the increase in profit from operations and the
effects of the conversion of Debentures into Common Stock.
FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993
The significant improvement in the Company's profitability during the 1994
fiscal year was due primarily to increased sales volume and a significant
increase in the operating profits of the Company's United States based
electronic materials operations. Increased sales volume, improved yields and
more effective and efficient resource utilization, particularly at the United
States based electronic materials operations, more than offset continuing
price pressures. Market shrinkage and price pressures in the 1994 fiscal year
adversely affected the Company's European electronic materials operations. The
Company's Singapore based electronic materials operations were also affected
by price pressures.
20
<PAGE>
During the 1994 fiscal year, the Company continued its significant
investment in the machinery and equipment of its electronic materials business
for the purpose of enhancing capability and expanding capacity. The Company
also continued to invest in the electronic materials business' leading edge
technology and product development efforts.
The plumbing and industrial components business reported lower sales and an
increased operating loss in the 1994 fiscal year compared with the 1993 fiscal
year. As previously reported, during the 1994 fiscal year, the Company's
internal accounting staff discovered financial and accounting errors and
irregularities at its composite business. After a thorough internal
investigation, the Company restated its previously reported financial
statements and took corrective action to address the financial and accounting
problems, including the dismissal of certain senior management.
Results of Operations
Sales for the fiscal year ended February 27, 1994 increased 19% to $208.4
million from $175.2 million for the fiscal year ended February 28, 1993. Sales
of the electronic materials business for the 1994 fiscal year were $182.6
million, or 88% of total sales worldwide, compared with $147.4 million, or 84%
of total sales worldwide, for the 1993 fiscal year. This 24% increase was
principally the result of higher volume of electronic materials shipped. Sales
of the plumbing and industrial components business for the 1994 fiscal year
decreased 7% to $25.9 million from $27.8 million for the 1993 fiscal year.
The Company's foreign electronic materials operations accounted for $46.5
million of sales, or 22% of total sales worldwide, during the 1994 fiscal year
compared with $46.3 million, or 26% of total sales worldwide, during the 1993
fiscal year.
The gross margin for the Company's worldwide operations was 19.3% for the
1994 fiscal year compared with 14.9% for the 1993 fiscal year. The improvement
in the gross margin was the result of increased sales volume of the Company's
United States based electronic materials operations, enhanced operating
efficiency, and improved yields.
Selling, general and administrative expenses, measured as a percentage of
sales, were 12.4% during the 1994 fiscal year compared with 13.1% during the
1993 fiscal year. This reduction was due to the partially fixed nature of the
selling, general and administrative expenses relative to the increase in
sales.
For the reasons set forth above, profit from operations for the 1994 fiscal
year increased 352% to $14.3 million from $3.2 million for the 1993 fiscal
year.
During the 1994 fiscal year, interest expense increased 17% to $2.4 million
from $2.1 million during the 1993 fiscal year. This expense was attributable
to interest on the Company's 7 1/4% Convertible Subordinated Debentures and,
to a lesser extent, on loans carried by certain of the Company's foreign
subsidiaries. The increase in interest expense was principally attributable to
the reduction in interest capitalized to property, plant and equipment during
the 1994 fiscal year compared with the 1993 fiscal year. Other income
decreased 52% to $0.9 million during the 1994 fiscal year from $2.0 million
during the 1993 fiscal year. Investment income, which was the principal
component of other income, decreased 42% to $0.9 million during the 1994
fiscal year compared with $1.6 million during the 1993 fiscal year. This
reduction in investment income occurred because the average rate of interest
earned by the Company during the 1994 fiscal year was lower than that earned
during the 1993 fiscal year. The Company's cash reserves were invested
primarily in short-term taxable instruments and government securities. Also
included in other income for the 1993 fiscal year was a $0.3 million gain
derived from foreign currency transactions.
The Company's effective income tax rate for the 1994 fiscal year was 37.2%
compared with 26.3% for the 1993 fiscal year. The effective tax rate for the
1994 fiscal year increased due to the reductions in general business credits,
the reduced impact of favorable foreign tax rate differentials, and the
adjustment in the 1993 fiscal year
21
<PAGE>
of federal and state income tax accruals. These increases were partially
offset by the reduced impact of state and local taxes and foreign net
operating losses without tax benefit.
The Company's net earnings increased 256% in the 1994 fiscal year to $8.1
million from $2.3 million during the 1993 fiscal year. Primary and fully
diluted earnings per share increased to $1.01 and $.84, respectively, for the
1994 fiscal year compared with $.25 for both primary and fully diluted
earnings per share for the 1993 fiscal year. The increase in net earnings and
earnings per share was attributable to the increase in profit from operations,
offset in part by the higher effective tax rate.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited consolidated statements of
earnings information for each quarter in the 1995 fiscal year and the first
three quarters of the 1996 fiscal year. In the opinion of the Company's
management, this information includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the unaudited
quarterly results set forth herein. The operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 26,
1995 FISCAL YEAR ENDED MARCH 3, 1996
------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $62,769 $58,795 $64,834 $66,624 $75,412 $69,937 $81,866
Gross profit............ 13,247 12,520 14,774 15,564 17,717 15,209 18,397
Profit from operations.. 5,776 5,579 7,210 7,545 8,860 7,579 9,085
Net earnings............ 3,670 3,756 4,779 5,140 6,024 5,366 6,467
The following table sets forth certain consolidated statements of earnings
information as a percentage of net sales for the quarterly periods indicated:
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 26, FISCAL YEAR ENDED MARCH 3,
1995 1996
------------------------------- --------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 21.1 21.3 22.8 23.4 23.5 21.7 22.5
Profit from operations.. 9.2 9.5 11.1 11.3 11.7 10.8 11.1
Net earnings............ 5.8 6.4 7.4 7.7 8.0 7.7 7.9
</TABLE>
The Company's sales historically are lower in the second quarter of each
fiscal year than in its other fiscal quarters, principally due to normal shut-
downs of the Company's manufacturing facilities for preventive maintenance and
shut-downs of many of the Company's customers for portions of that quarter.
LIQUIDITY AND CAPITAL RESOURCES
At November 26, 1995, the Company's cash and temporary investments were
$42.5 million compared with $45.9 million at February 26, 1995, the end of the
Company's 1995 fiscal year. The decrease in the Company's cash and investment
position at November 26, 1995 was attributable principally to investments in
property, plant and equipment, as discussed below. The Company's working
capital was $59.8 million at November 26, 1995 compared with $55.0 million at
February 26, 1995. The increase at November 26, 1995 compared with
February 26, 1995 was due to an increase in receivables and inventories,
offset in part by higher payables. The increase in receivables at November 26,
1995 compared with February 26, 1995 was due to increased sales; the increase
in inventories for the same period was due to increased sales and to higher
purchases of raw materials to ensure adequate supply of such materials. The
Company's current ratio (the ratio of current assets to current liabilities)
was 2.1 to 1 at November 26, 1995 compared with 2.3 to 1 at February 26, 1995.
22
<PAGE>
During the nine months ended November 26, 1995, the Company generated funds
from operations of $17.2 million and expended $19.0 million for the purchase
of property, plant and equipment. Cash provided by net earnings before
depreciation and amortization of $24.7 million was reduced by a net increase
in non-cash working capital items, resulting in $17.2 million of cash provided
from operating activities. A significant portion of the current fiscal year's
capital expenditures relate to installation of additional capacity at new
electronic materials facilities in Newburgh, New York and Tempe, Arizona.
These expansions will increase the Company's capacity and capability for the
production of sophisticated printed circuit materials. Expenditures for
property, plant and equipment were $10.3 million, $9.6 million, and $17.5
million in the 1993, 1994 and 1995 fiscal years, respectively. The Company
expects the level of capital expenditures in the 1997 fiscal year to be in the
same range as in the 1996 fiscal year. While the Company's capital budget for
the 1997 fiscal year has not yet been finalized, the Company is currently
considering further expansions of its electronic materials operations,
particularly in the United States and Southeast Asia.
At November 26, 1995 the Company had no long-term debt. The Company believes
its financial resources will be sufficient, for the foreseeable future, to
provide for continued investment in property, plant and equipment and for
general corporate purposes. Such resources, including the proceeds from the
Notes offered hereby, would also be available for appropriate acquisitions and
other expansions of the Company's business.
BUSINESS
GENERAL
Park is a leading designer and producer for the global market of advanced
electronic materials used to fabricate complex multilayer printed circuit
boards and other electronic interconnect systems, such as backplanes, PC cards
and semiconductor packaging systems. The Company's multilayer printed circuit
materials include copper-clad laminates, prepregs and semi-finished multilayer
printed circuit board panels. The Company has long-term relationships with its
major customers, which include leading independent printed circuit board
fabricators and major electronic equipment manufacturers. Multilayer printed
circuit boards and interconnect systems are used in virtually all advanced
electronic equipment to direct, sequence and control electronic signals
between semiconductor devices (such as microprocessors and memory and logic
devices) and passive components (such as resistors and capacitors). Examples
of end uses of the Company's printed circuit materials range from
supercomputers to laptops and from satellite switching equipment to cellular
phones. The Company has developed long-term relationships with major customers
as a result of its leading edge products, extensive technical and engineering
service support and responsive manufacturing capabilities. Park is expanding
its worldwide manufacturing facilities to satisfy demand from existing
customers and to add new select customers not previously served due to
capacity constraints.
Park was founded on March 31, 1954 by Jerry Shore, the Company's Chairman of
the Board, Chief Executive Officer and largest shareholder. Park founded the
modern day printed circuit industry in 1957 by inventing a composite material
consisting of an epoxy resin substrate reinforced with fiberglass cloth which
was laminated together with sheets of thin copper foil. This epoxy-glass
copper-clad laminate system is still used to construct the large majority of
today's advanced printed circuit product. In 1962, the Company invented the
first multilayer printed circuit materials system used to construct multilayer
printed circuit boards. The Company also pioneered vacuum lamination and many
other manufacturing technologies used in the industry today. The Company has
introduced its entire current electronic materials product line within the
last five years and believes it continues to be one of the industry's
technological leaders. In addition, the Company was the first manufacturer in
the printed circuit materials industry to establish manufacturing presences in
the three major global markets of North America, Europe and Asia, with
facilities established in Europe in 1969 and Southeast Asia in 1986. The
Company believes it is one of the world's largest manufacturers of multilayer
printed circuit materials and believes it is the market leader in North
America and Southeast Asia.
23
<PAGE>
INDUSTRY BACKGROUND AND OVERVIEW
The electronic materials manufactured by the Company and its competitors are
used to construct and fabricate complex multilayer printed circuit boards and
other advanced electronic interconnect systems. Multilayer printed circuit
materials consist of prepregs and copper-clad laminates, as well as semi-
finished multilayer printed circuit board panels. Prepregs are chemically and
electrically engineered plastic resin systems which are reinforced with a
specialized fiberglass cloth or other reinforcement materials. These resin
systems are usually based upon an epoxy chemistry. One or more plies of
prepreg are laminated together to form an insulating dielectric substrate to
support the copper circuitry patterns of a multilayer printed circuit board.
Copper-clad laminates consist of one or more plies of prepreg laminated
together with specialty thin copper foil on the top and bottom. The Company
supplies both copper-clad laminates and prepregs to its customers, which use
these products as a system to construct multilayer printed circuit boards.
The following is a diagram of a copper-clad laminate used to fabricate
multilayer printed circuit boards:
- --------------------------------------------------------------------------------
DIAGRAM OF COPPER-CLAD LAMINATE
USED TO FABRICATE MULTILAYER PRINTED CIRCUIT BOARDS
- --------------------------------------------------------------------------------
Copper foil (A)
[ART] Prepreg (B)
Copper foil (A)
SIDE VIEW
- --------------------------------------------------------------------------------
A. Copper foil, specially formed in thin sheets which may vary from .0030 inch
to .0002 inch in thickness, normally has a thinckness of .0014 inch or .0007
inch.
B. One or more plies of prepreg are laminated with each other (and laminated
with the copper foil on the top and bottom) to form the insulating
dielectric substrate support structure for copper circuitry. Prepreg is an
engineered plastic resin system (e.g., and epoxy system) which is
impregnated into and reinforced by a specially manufactured fiberglass cloth
product or other woven or non-woven reinforcing fiber. This insulating
dielectric substrate is .030 inch to .002 inch in thickness or less in some
cases.
- --------------------------------------------------------------------------------
The printed circuit board fabricator processes copper-clad laminates to form
the inner layers of a multilayer printed circuit board. The fabricator
photoimages these laminates with a dry film or liquid photoresist. After
development of the photoresist, the copper surfaces of the laminate are etched
to form the circuit pattern. The fabricator then assembles these etched
laminates by inserting one or more plies of dielectric prepreg between each of
the inner layer etched laminates and also between an inner layer etched
laminate and the outer layer copper plane, and then laminating the entire
assembly in a press. Prepreg serves as the insulator between the multiple
layers of copper circuitry patterns found in the multilayer circuit board. The
fabricator drills through holes or vias in the multilayer assembly and then
plates the through holes or vias to form conductors between the multiple
layers of circuitry patterns. The outer two layers of copper foil are then
imaged and etched to form the finished multilayer printed circuit board. The
completed multilayer board is a three-dimensional interconnect system with
electronic signals traveling in the horizontal planes of multiple layers of
copper circuitry patterns, as well as the vertical plane through the plated
through holes or vias.
24
<PAGE>
The following is a diagram of the constituents of a multilayer printed
circuit board:
- --------------------------------------------------------------------------------
DIAGRAM OF CONSTITUENTS OF MULTILAYER PRINTED CIRCUIT BOARD
SIMPLE 6-LAYER CIRCUIT BOARD CONSTRUCTION
Copper foil (B)
Prepreg (C)
[ART] Etched copperclad laminate (D)
Multilayer Prepreg (C)
configuration (A) Etched copperclad laminate (D)
Prepreg (C)
Copper foil (B)
SIDE VIEW
- --------------------------------------------------------------------------------
A. This multilayer configuration is assembled in a lamination press. The
printed circuit board fabricator drills vertical holes or vias through the
multilayer board and plates these through holes or vias to form vertical
conductor paths. These through holes or vias combine with the conductor paths
on the horizontal circuitry planes to create a three-dimensional electronic
interconnect system. After the through holes or vias have been formed, the
fabricator photoimages and forms circuitry patterns on the outer copper foil
layers, completing the multilayer circuit board.
B. Copper foil is purchased by the printed circuit board fabricator from a
specialty copper foil manufacturer.
C. One or more plies of prepreg are "layed up" together. These individual
plies of prepreg are supplied to the printed circuit board fabricator by
multilayer printed circuit materials manufacturers, such as the Company.
When the multilayer configuration is laminated, these plies of prepreg form
an insulating dielectric substrate supporting and separating the multiple
inner and outer planes of copper circuitry.
D. An etched copper-clad laminate on which the printed circuit fabricator has
already photoimaged and formed the inner layer circuitry pattersn, typically
through a "subtractive" etching process--The broken thick lines of the outer
edges of these inner layers in the diagram represent the etched copper
circuitry patterns. The copperclad laminate is supplied to the printed
circuit board fabricator by multilayer printed circuit materials
manufacturers, such as the Company.
- --------------------------------------------------------------------------------
The multilayer printed circuit materials industry is highly competitive and
has experienced consolidation in recent years. The Company believes there are
approximately ten significant multilayer printed circuit materials
manufacturers in the world. Many of these competitors have developed or are
developing significant presences in the three major markets of North America,
Europe and Asia. The industry's significant multilayer materials manufacturers
are primarily divisions or subsidiaries of very large, diversified
multinational manufacturers. Park believes it is the only significant
independent manufacturer of multilayer printed circuit materials in the world.
25
<PAGE>
The Company believes that the ongoing globalization of the multilayer printed
circuit materials industry will make it increasingly difficult for the
remaining smaller regional manufacturers to remain competitive.
According to the IPC, in 1994, the worldwide market for all printed circuit
boards was approximately $21.2 billion and the worldwide market for multilayer
printed circuit boards was approximately $9.6 billion. Based upon IPC data,
the Company estimates that, in 1994, the worldwide market for all printed
circuit materials was approximately $3.7 billion and the worldwide market for
multilayer printed circuit materials was approximately $1.4 billion. The
Company estimates that the annual worldwide market for multilayer printed
circuit materials is currently approximately $1.5 billion to $1.6 billion.
INDUSTRY TRENDS
Increasing Demand for Electronic Products and Technology. The global market
for advanced electronic products is growing as a result of technological
change and frequent new product introductions. This growth is principally
attributable to increased sales and more complex electronic content of newer
products, such as cellular phones, pagers, personal computers and portable
computing devices, and greater use of electronics in other products, such as
automobiles. Further, large, almost completely untapped markets for advanced
electronics equipment have emerged in such areas as India and China and other
areas of the Pacific Rim.
Increasing Complexity of Electronic Products. Semiconductor manufacturers
have introduced successive generations of more powerful microprocessors and
memory and logic devices. Electronic equipment manufacturers have designed
these advanced semiconductors into more compact and often portable products.
High performance computing devices in these smaller portable platforms require
greater reliability, closer tolerances, higher component and circuit density
and increased overall complexity. As a result, the interconnect industry has
developed smaller, lighter, faster and more cost-effective interconnect
systems, including advanced multilayer printed circuit boards and new types of
semiconductor packaging systems such as ball-grid arrays ("BGAs") and multi-
chip modules ("MCMs").
More Advanced Materials Required for Interconnect Performance and
Manufacturability. Advanced interconnect systems require higher technology
printed circuit materials to insure the performance of the electronic system
and to improve the manufacturability of the interconnect platform. The growth
of the market for more advanced printed circuit materials has outpaced the
market growth for standard printed circuit materials in recent years.
Performance--Printed circuit board fabricators and electronic equipment
manufacturers require advanced printed circuit materials that have
increasingly higher temperature tolerances and more advanced electrical
properties in order to support high speed computing in a miniaturized and
often portable environment.
Today's more advanced interconnect and packaging systems are subject to
higher temperature environments during the assembly process and during
systems operations. Higher technology assembly processes, such as surface
mount technology, direct-chip attach and gold wire bonding, subject these
advanced interconnect systems to a greater number of higher temperature
heat cycles than lower technology assembly processes. The utilization of
high density device packaging and advanced high speed microprocessors
subject the interconnect system to higher operating temperature
environments. In addition, many complex printed circuit boards and
interconnect systems are installed in hostile high temperature environments
such as under-the-hood automotive and advanced aerospace applications. To a
significant extent, the ability of the interconnect system to perform in
higher temperature environments is a function of the printed circuit
materials utilized to construct the printed circuit board or interconnect
system. See "--Products and Services."
Advanced wireless communications equipment, as well as next generation
high speed computer chips and microprocessors, require printed circuit
boards and interconnect systems that operate at higher
26
<PAGE>
speeds and higher frequencies with minimal signal loss and distortion.
These high frequency operations often must be accomplished with a limited
low power source, particularly in the case of portable equipment. In order
for the interconnect systems to support higher speed, higher frequency
signals with limited power usage, these systems must employ printed circuit
materials that have more advanced electrical properties. Electronic
equipment manufacturers must utilize advanced materials that are engineered
for low loss electrical properties and also for specific dielectric and
impedance characteristics in order to support these higher frequency
signals.
Manufacturability--With the very high density circuit demands of
miniaturized high performance interconnect systems, the uniformity, purity,
consistency, performance predictability, dimensional stability and
production tolerances of printed circuit materials have become successively
more critical. High density printed circuit boards and interconnect systems
often involve higher layer count multilayer circuit boards where the
multiple planes of circuitry and dielectric insulating substrates are very
thin (dielectric insulating substrate layers may be .002 inch or less) and
the circuit line and space geometries in the circuitry plane are very
narrow (.003 inch or less). In addition, advanced surface mount
interconnect systems are typically designed with very small pad sizes and
very narrow plated through holes or vias which electrically connect the
multiple layers of circuitry planes. High density interconnect systems must
utilize printed circuit materials whose dimensional characteristics and
purity are consistently manufactured to very high tolerance levels in order
for the printed circuit board fabricator to attain and sustain acceptable
production yields.
Consolidation of the Printed Circuit Board Industry. The printed circuit
board industry, which historically has been very fragmented, is undergoing a
consolidation led by the larger, more technologically advanced and better
capitalized independent printed circuit board fabricators. According to BPA
(Technology & Management) Ltd., an interconnect industry analyst and
consulting firm, the number of printed circuit board fabricators in the United
States has decreased from approximately 1,900 in 1986 to approximately 700 in
1992. Management believes that this consolidation is primarily due to the
substantial capital investment and the engineering and manufacturing expertise
required to remain technologically competitive. In addition, large electronic
equipment manufacturers are outsourcing an increasing portion of their printed
circuit fabrication operations to these more sophisticated independent printed
circuit board fabricators. The IPC estimates that the percentage in dollars of
the United States market captured by independent printed circuit board
fabricators increased from 66% in 1991 to 83% in 1994.
Time-to-Market and Time-to-Volume Pressures Require Closer Collaboration
with Materials Suppliers. Shorter product life cycles and competitive
pressures have induced electronic equipment manufacturers to bring new
products to market and increase production volume to commercial levels more
quickly. These trends have highlighted the importance of front-end engineering
of electronic products and have increased the level of collaboration among
system designers, fabricators and printed circuit materials suppliers. As the
complexity of electronic products increases, materials suppliers must provide
greater technical support to interconnect systems fabricators on a timely
basis regarding manufacturability and performance of new materials systems.
STRATEGY
Management believes that the Company is well positioned to take advantage of
trends in the electronic and printed circuit materials industry. The Company
founded the modern day printed circuit industry, and management believes the
Company has remained at the forefront of the industry in technology and
innovation. The Company was the first manufacturer of advanced multilayer
printed circuit materials to establish manufacturing presences in the three
major global markets of North America, Europe and Asia and believes it is the
market leader in both North America and Southeast Asia. The Company believes
it has achieved this level of success by consistently following its basic
operating principles: customer responsiveness; quest for perfect quality; and
technological innovation. The Company believes that its operating principles
are widely held among its work force and that the ongoing commitment of its
employees to these principles is key to the Company's future success. While
the Company has benefited from the recent rapid growth and accelerating
technology trends of the electronic equipment industry, management believes
the commitment of its employees to the
27
<PAGE>
Company's basic principles has enabled the Company to achieve its current
leadership position in the industry. The Company's strategy is to maintain and
enhance its commitment to its basic operating principles and to identify
future opportunities in the electronic materials industry.
The specific components of the Company's strategy include:
.SUSTAINING, ENHANCING AND DEVELOPING RELATIONSHIPS WITH SELECT CUSTOMERS
The Company intends to continue to sustain, enhance and develop long-
term relationships with select customers through broad-based technical
support and service, as well as manufacturing proximity and
responsiveness at multiple levels of the customer's organization. The
Company focuses on developing a thorough understanding of its
customer's business, product lines, processes and technological
challenges. The Company seeks customers which are industry leaders
committed to maintaining and improving their industry leadership
positions and which are committed to long-term relationships with their
suppliers. The Company seeks business opportunities with the more
advanced printed circuit fabricators and electronic equipment
manufacturers which are interested in the full value of products and
services provided by their suppliers.
The Company believes its proactive and timely support in assisting
its customers with the integration of advanced materials technology
into new product designs further strengthens its relationships with its
customers. The product cycle for many of the Company's customers'
interconnect products is now less than one year, and these condensed
product cycles have placed time-to-market and time-to-volume pressures
on its customers to introduce successively more advanced interconnect
systems. Introduction and utilization of more advanced materials
technology is necessary for the Company's customers to maintain their
leading edge positions.
Once a new product has been introduced by a customer, the Company
employs its materials technology and its extensive manufacturing
experience to assist the customer with its time-to-volume requirements.
On short notice, the Company deploys teams of experienced engineering
and technical personnel to solve the customer's design, process or
production problems. The Company believes that its superior technical
service is an increasingly integral part of the value it provides to
its customers.
The Company's emphasis on service and close relationships with its
customers is reflected in its relatively short lead times. The Company
has designed its manufacturing processes and service organizations to
provide the customer with its printed circuit materials products on a
just-in-time basis. According to the IPC, average lead times for
printed circuit materials orders in the United States were
approximately 24 days for the three months ended in October 1995.
During this same period, the Company's average lead times were less
than five days.
The Company has located its advanced printed circuit materials
manufacturing operations in strategic locations intended to serve
specific regional markets. By situating its facilities in close
geographical proximity to its customers, the Company is able to rapidly
adjust its manufacturing processes to meet customers' new requirements
and respond quickly to customers' technical needs. The Company has full
technical staffs based at each of its manufacturing locations, which
allows the rapid dispatch of technical personnel to a customer's
facility to assist the customer in quickly solving design, process,
production or manufacturing problems. This regional manufacturing
approach has enhanced the Company's ability to develop closer
relationships at all levels with its customers.
The Company currently is expanding its New York State operations to
increase its production capacity for advanced printed circuit materials
principally for the United States market. The Company is also in the
process of expanding its Tempe, Arizona operations to provide enhanced
capability and capacity to produce high density, semi-finished
multilayer panels and interconnect systems. These expansions are
intended to allow the Company to better service its existing customers
and to permit the Company to develop relationships with new select
customers which the Company has been unable
28
<PAGE>
to serve due to capacity constraints. The Company is considering
further expansions of its electronic materials operations, particularly
in the United States and Southeast Asia. The Company believes that its
markets will continue to become more globalized, and that customers
will come under additional pressure to develop and produce advanced
products more quickly. As a result, management believes that the
Company's established capabilities in the customer's region will become
increasingly more valuable to its customers.
.QUEST FOR PERFECT QUALITY PRODUCT
The Company believes that the commitment of its employees to strive
for perfect product quality and its advanced manufacturing technology
have earned it a reputation as the producer of the highest quality
advanced printed circuit and interconnect system materials.
As the trend toward electronic equipment miniaturization and higher
density printed circuit boards continues, surface mount pads will
continue to get smaller, vias and line and space widths will continue
to get narrower and the dielectric insulating substrate layers will
continue to get thinner. These design trends will require printed
circuit materials that have much tighter tolerances and perform in a
highly consistent and predictable fashion under a wide variety of
conditions. The pressures being exerted on interconnect system
technology have heightened the importance of the quality, consistency,
purity and predictability of the printed circuit materials product. The
Company believes that these factors will become even more important in
the future, and the Company intends to continue its quest for perfect
quality.
.NEW MATERIALS PRODUCT TECHNOLOGY
All of the Company's current electronic materials products have been
introduced since 1990, and the Company intends to continue to introduce
new, more advanced products into the interconnect materials market.
Management believes there is an industry trend requiring advanced
printed circuit boards and interconnect systems to be capable of
performing and operating in higher temperature environments. See "--
Industry Trends--More Advanced Materials Required for Interconnect
Performance and Manufacturability." In response to this trend, the
Company has focused a significant portion of its development efforts
toward new printed circuit materials with advanced thermal
capabilities. Because of the Company's emphasis on higher technology
products, the average temperature performance of its printed circuit
materials is substantially higher than that of the industry. A number
of the Company's high temperature products also have advanced
electrical capabilities providing higher frequency signal transmission.
The Company's United States high temperature performance materials
sales grew an average of 52% per year during the last three fiscal
years. The Company is in the process of introducing two new high-
temperature products which are currently being field tested with
certain customers.
Industry trends toward miniaturization and high density circuitry
have created the need for very thin laminates used to construct
multilayer boards with very thin insulating dielectric substrate layers
separating the multiple layers of copper circuitry pattern planes. The
manufacture of very thin materials requires enhanced and different
manufacturing disciplines where tolerances are extremely tight and
purity requirements are very demanding. According to IPC data, the
average thickness of laminates shipped in the United States during the
first eleven months of the 1995 calendar year was approximately .017
inch. During that same period, the average thickness of laminates
shipped by the Company in the United States market was approximately
.009 inch, or approximately one half the thickness of the industry
average. The Company also routinely manufactures high quality laminate
product with thicknesses of .002 inch and less.
The Company intends to continue to invest in the development of more
advanced high performance products capable of meeting the needs of
future advanced electronic interconnect systems and devices. The
Company believes its broad based high performance product line will
become an increasingly significant competitive advantage in the future.
29
<PAGE>
.STRATEGIC ACQUISITIONS
The Company sees substantial overlap of its technology, management
and manufacturing skills in the electronic materials industry. The
Company also believes that many technologies within the larger
electronic materials industry are in the process of converging. For
instance, advanced materials which were formerly used to fabricate
printed circuit boards are now in development for use in the
semiconductor packaging arena. As technology accelerates and converges,
the Company believes that the printed circuit interconnect system will
eventually become more integrated with the semiconductor device and
that the semiconductor device and the interconnect system will
ultimately be designed as one integrated electronics system. The
Company believes it can benefit from its leadership position in this
environment by broadening its base within the larger electronic
materials industry through strategic acquisitions of related electronic
materials businesses, product lines or technologies.
PRODUCTS AND SERVICES
The Company produces a broad line of advanced printed circuit materials used
to fabricate complex multilayer printed circuit boards and other electronic
interconnect systems, including backplanes, PC cards and semiconductor
packaging systems. For information concerning the construction of printed
circuit materials, including copper-clad laminates and prepregs, see "--
Industry Background and Overview." The Company also manufactures semi-finished
multilayer printed circuit board panels for a select group of customers. The
Company believes it currently offers the most diverse advanced printed circuit
materials product line in the industry, which addresses a wide array of end-
use applications and performance requirements.
The Company's product line has been developed internally and through long-
term development projects with its principal suppliers. The Company has
designed its product line with a focus on the higher performance, higher
technology end of the materials spectrum. All of the Company's existing
electronic materials products have been introduced since 1990.
There are several key technical properties of printed circuit materials
which affect the performance capabilities of the printed circuit board or
interconnect system and ultimately the electronic equipment end product. These
properties include glass transition temperature ("Tg"), dielectric constant,
dissipation factor and coefficient of thermal expansion.
The Tg of the printed circuit material is essentially the temperature to
which the product can be heated for a sustained period of time without
undergoing accelerated expansion. Tg essentially represents the temperature
above which a printed circuit material substrate cannot be elevated for a
sustained period of time without causing the circuit board or interconnect
system to fail or become unreliable. Printed circuit materials which have Tg
properties of 150(degrees)C or higher are generally considered high-
performance materials, while materials which have Tg properties below
150(degrees)C are considered to be non-high performance materials. Because of
the Company's emphasis on higher technology products, the average temperature
performance of its printed circuit materials is substantially higher than that
of the industry.
The dielectric constant and dissipation factor of the material relates to
its electronic signal transmission properties and capabilities. Generally,
more advanced interconnect applications require higher speed, higher
30
<PAGE>
frequency interconnect products manufactured from materials which have
advanced engineered electrical properties that typically include lower
dielectric constants and dissipation factors. Examples of products that
utilize higher frequency signals are the latest generations of advanced
microprocessors and wireless communications equipment.
The coefficient of thermal expansion relates to the material's expansion
rates at elevated temperatures. Because the substrate interconnect material
and the semiconductor package must expand at similar rates in heated
environments to prevent the semiconductor package from separating from the
interconnect system, the coefficient of thermal expansion is critical for
advanced high temperature packaging applications.
The Company currently offers a wide array of high performance products.
These products include high-temperature modified epoxies, bismaleimide
triazine epoxies ("BT epoxy"), non-MDA polyimides, enhanced polyimides, high
performance epoxy Thermount(R) materials, cyanate esters and PTFE materials.
In addition, the Company is in the process of introducing two new high
performance products which are currently being field tested with select
customers.
The table below lists a mix of the Company's product line, along with
certain end-use applications and the operating and performance characteristics
of the individual products.
<TABLE>
<CAPTION>
SELECT PRODUCT DESCRIPTIONS(1)
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
GLASS
TRANSITION DIELECTRIC
PRODUCT GENERIC TEMPERATURE CONSTANT
DESIGNATION DESCRIPTION APPLICATIONS ("TG")(2) (3)
N4000-2 Multi-functional High Density 140(degrees) C (DSC) 4.5
Epoxy Multilayers, Surface
Mount Technology, PC
Cards, MCMs.
N4000-6 High Performance High Density 180(degrees) C (DSC) 4.5
Epoxy Multilayers, Backplanes,
PC Cards, MCMs, Direct
Chip Attach, Wire
Bonding Substrates,
Under Hood Automotive.
N4000-6T High Performance High Density 180(degrees) C (TMA) 4.1
Epoxy Multilayers, Backplanes,
Thermount(R) (4) High Speed CPU Boards,
MCMs, Telecommunications
Interconnects.
N4000-10(5) Multi-functional High Density 155(degrees) C (TMA) 4.7
Epoxy Multilayers, Surface
Mount Technology, PC
Cards, MCMs, Under Hood
Automotive, Backplanes,
Direct Chip Attach, Wire
Bonding.
N4000-13(5) Enhanced Hybrid Telecommunications 190(degrees) C (TMA) 3.9
Formula Interconnects, High
Speed CPU Boards, MCMs,
BGAs, High Density
Multilayers, Backplanes.
N5000 Bismaleimide High Density 180(degrees) C (TMA) 4.1
Triazine Epoxy Multilayers, BGAs, MCMs,
High Density Surface
Mount, Direct Chip
Attach,
Telecommunications
Interconnects.
N7000-1 Non-MDA High Density 260(degrees) C (TMA) 4.5
Polyimide Multilayers, Backplanes,
Burn-in Boards,
Avionics, MCMs, Wire
Bonding Substrates, High
Temperature
Instrumentation,
Telecommunications
Interconnects.
</TABLE>
31
<PAGE>
SELECT PRODUCT DESCRIPTIONS(1)
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
GLASS
TRANSITION DIELECTRIC
PRODUCT GENERIC TEMPERATURE CONSTANT
DESIGNATION DESCRIPTION APPLICATIONS ("TG") (2) (3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N7000-2 Enhanced High Density Multilayers, Backplanes, 220(degrees)C (TMA) 4.5
Polyimide Burn-in Boards, Avionics, MCMs, Wire
Bonding Substrates, High Temperature
Instrumentation, Telecommunications
Interconnects.
N8000 Cyanate Ester High Density Multilayers, Backplanes, 250(degrees)C (TMA) 3.6
Burn-in Boards, High Speed CPU Boards,
MCMs, BGAs, Wire Bonding Substrates,
Telecommunications Interconnects.
Metclad PTFE PTFE Copper-Clad Microwave, High Frequency Wireless (See note (See note
Copper-Clad Substrates with Communications. 6 below) 6 below)
Laminates (6) Ground Planes
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company's entire printed circuit material product line consists of
non-standard products which are unique to the Company and have been
introduced since 1990. For comparison purposes, standard FR-4 product
used to manufacture single and double sided printed circuit boards and
lower technology, lower density multilayer boards has a Tg of
125(degrees)C. The Company does not manufacture standard FR-4 lower
technology product, except in limited special situations in response
to key customer requests.
(2) DSC and TMA are temperature measurement methods.
(3) Dielectric constant at 1mhz with 50% resin content.
(4) "Thermount" is a registered trademark of E.I. duPont de Nemours & Co.
("DuPont"). N4000-6T is a high temperature epoxy resin system
reinforced with a Thermount(R) non-woven aramid fiber product
developed by DuPont.
(5) N4000-10 and N4000-13 are products recently developed by the Company.
These products are currently being field tested with certain customers
and are slated for market introduction in 1996.
(6) PTFE Copper-Clad substrates with metal ground planes are very high
technology products manufactured by the Company's Metclad, S.A. unit
in France. This product is used for microwave and satellite
transmissions. PTFE does not have a "Tg" or glass transition
temperature, but the material melts at 398(degrees)C. The dielectric
constant of the PTFE product is customized by the Company in the range
of 2.2 through 10.6.
32
<PAGE>
In addition to prepreg and copper-clad laminate printed circuit materials
products, the Company also manufactures semi-finished multilayer printed
circuit board panels as a value-added service for a limited number of its key
customers. Production of the Company's semi-finished multilayer product
involves several additional manufacturing steps beginning with the
photoimaging and etching of the copper-clad laminate product into the
circuitry patterns specified by the customer. These etched laminates form the
inner layers of the multilayer circuit board. The etched inner layers are then
laminated into a multilayer assembly with insulating dielectric prepreg
inserted between the multiple etched inner layers and outer layer copper
planes. The outer planes of copper foil are left in unprocessed "blank" form
and the product is delivered to the customer at this stage in the process. The
fabricator customer then drills and plates the through holes or vias and
finishes the outer layers of circuitry patterns to complete the product.
CUSTOMERS AND END MARKETS
The Company's customers for its advanced electronic materials include the
leading independent printed circuit board fabricators and major electronic
equipment manufacturers in the computer, telecommunications, transportation,
aerospace and instrumentation industries.
The Company seeks to align itself with the larger, more technologically-
advanced and better capitalized independent printed circuit board fabricators
and major electronic equipment manufacturers which are industry leaders
committed to maintaining and improving their industry leadership positions and
to building long-term relationships with their suppliers. The Company's recent
growth is a function of its strategy of building relationships with key
customers which are positioned for aggressive growth and market leadership,
rather than a result of adding new customer accounts. Ninety percent of the
Company's top twenty customers in the first nine months of its 1996 fiscal
year have done business with the Company during the last four fiscal years.
Recently, due to capacity constraints, the Company's policy has been to
decline initiating relationships with new customers that might compromise its
ability to respond to needs of existing customers. Although the Company
maintains ongoing discussions with potential new customers, the Company has
been reluctant to commence doing business with these new customers until
additional manufacturing capacity is in place. The Company is currently in the
process of installing new capacity at facilities in Newburgh, New York and
Tempe, Arizona. The Company is considering expanding its operations in one or
more additional locations during the next fiscal year. As the additional
capacity from these expansions comes on line, the Company expects to continue
its growth with existing customers and will evaluate opportunities for
establishing new customer relationships.
During the nine months ended November 26, 1995, the Company's ten largest
customers accounted for approximately 46% of its net sales. During such
period, approximately 17% of the Company's net sales were made to a large
United States based manufacturing concern which services the global
transportation industry. This concern has purchased a significant amount of
product from the Company for more than three years, and the Company believes
its relations with this customer are strong and that this customer will
continue to make significant purchases of printed circuit materials product
from the Company in the immediate future. No other single customer accounted
for 10% or more of the net sales of the Company during the first nine months
of the 1996 fiscal year or in any of the three prior fiscal years.
MANUFACTURING
The Company founded the modern day printed circuit industry in 1957 at its
first printed circuit materials manufacturing facility in Stamford,
Connecticut. The Company developed and manufactured the first multilayer
printed circuit materials at this facility in 1962. The Company also pioneered
vacuum lamination and many other manufacturing technologies used in the
printed circuit materials industry today. Vacuum lamination significantly
enhances the dimensional stability of copper-clad laminate printed circuit
materials used in manufacturing multilayer printed circuit boards. The
dimensional stability characteristics of laminates used in the fabrication of
high density multilayer printed circuit boards are critical.
33
<PAGE>
The process for manufacturing multilayer printed circuit materials is
capital intensive and requires sophisticated equipment as well as clean room
environments. The key steps in the Company's manufacturing process include:
the impregnation of specially designed fiberglass cloth with a resin system
and the partial curing of that resin system; the assembling of laminates
consisting of single or multiple plies of prepreg and copper foil in a clean-
room environment; the vacuum lamination of the copper-clad laminate assemblies
under simultaneous exposure to heat, pressure and vacuum; and the finishing of
the laminates to customer specifications.
Prepreg is manufactured in a treater. A treater is a roll-to-roll continuous
machine which sequences specially designed fiberglass cloth or other
reinforcement fabric into a resin tank and then sequences the resin-coated
cloth through a series of ovens which partially cure the resin system into the
cloth. This partially cured product or prepreg is then sheeted or paneled and
packaged by the Company for sale to customers, or used by the Company to
construct its copper-clad laminates.
The Company manufactures copper-clad laminates by first setting up in a
clean room an assembly of one or more plies of prepreg stacked together with a
sheet of specially manufactured copper foil on the top and bottom sides of the
assembly. This assembly is then inserted into a large, multiple opening vacuum
lamination press, together with a large quantity of other laminate assemblies.
The laminate assemblies are then laminated under simultaneous exposure to
heat, pressure and vacuum. After the press cycle is complete, the laminates
are removed from the press and sheeted, paneled and finished to customer
specifications. The product is then inspected and packaged for shipment to the
customer.
The Company manufactures multilayer printed circuit materials at eight fully
integrated facilities located in the United States, Europe and Southeast Asia.
The Company opened its California facility in 1965, its United Kingdom
facility in 1969, its first Arizona and France facilities in 1984, its
Singapore facility in 1986 and its second Arizona and France facilities in
1992. The Company services the North American market principally through its
United States manufacturing facilities, the European market principally
through its manufacturing facilities in the United Kingdom and France, and the
Asian market principally through its Singapore manufacturing facility. The
Company has located its manufacturing facilities in its important markets. By
maintaining full technical and engineering staffs at each of its manufacturing
facilities, the Company is able to deliver fully-integrated products and
services on a timely basis.
The Company has experienced recent capacity constraints and is in the
process of adding new capacity in Newburgh, New York and Tempe, Arizona, at
which it expects to commence commercial operation during the early part of its
next fiscal year. The Company is considering expanding its operations in one
or more additional locations during the next fiscal year, particularly in the
United States and Southeast Asia.
34
<PAGE>
The following table describes the Company's multilayer printed circuit
materials manufacturing facilities. All of these facilities are used for
manufacturing, engineering and product development, except for the facility
located in Lannemezan, France, which is principally a product research and
development facility. All of the Company's printed circuit materials
manufacturing facilities are ISO 9002 certified.
ELECTRONIC MATERIALS MANUFACTURING FACILITIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR APPROXIMATE
LOCATION OPENED USE SIZE (SQ. FT.)
- -----------------------------------------------------------------------------------
<C> <C> <S> <C>
Walden, NY 1971 Multilayer Circuit Materials 51,000
Newburgh, NY (1) 1996 Multilayer Circuit Materials 57,000
Fullerton, CA 1984 Multilayer Circuit Materials 95,000
Anaheim, CA 1965 Multilayer Circuit Materials 26,000
Tempe, AZ (2) 1984 Semifinished High Technology 86,000
Multilayer Circuit Materials
Tempe, AZ 1992 High Performance Multilayer 38,000
Circuit Materials; Product Development
Mirebeau, France 1984 Multilayer Circuit Materials 81,000
Lannemezan, France 1992 High Technology Circuit Materials, 29,000
including PTFE and Ultra-Thin Copper
Materials; Product Development
Skelmersdale, U.K. 1969 Multilayer Circuit Materials 54,000
Singapore 1986 Multilayer Circuit Materials 58,000
</TABLE>
- -------------------------------------------------------------------------------
(1) The Company expects to commence commercial operations at this facility
during the early part of its next fiscal year.
(2) Includes an expansion of approximately 19,000 sq. ft. at which the
Company expects to commence commercial operations during the early part
of its next fiscal year.
MATERIALS AND SOURCES OF SUPPLY
The principal materials used in the manufacture of the Company's electronic
products are specially manufactured copper foil, fiberglass cloth and
synthetic reinforcements, and specially formulated resins and chemicals. The
Company attempts to develop and maintain close working relationships with
suppliers of those materials who have dedicated themselves to complying with
the Company's stringent specifications and technical requirements. While the
Company's philosophy is to work with a limited number of suppliers, the
Company has identified alternate sources of supply for each of these
materials. However, there are a limited number of qualified suppliers of these
materials, substitutes for these materials are not readily available, and, in
the recent past, the industry has experienced shortages in the market for
certain of these materials. While the Company has not experienced significant
problems in the delivery of these materials and considers its relationships
with its suppliers to be strong, a disruption of the supply of material from
one of the Company's principal suppliers or an inability to obtain essential
materials could materially adversely affect the business, financial condition
and results of operations of the Company. Significant increases in the cost of
materials purchased by the Company could also have a material adverse effect
on the Company's business, financial condition and results of operations if
the Company were unable to pass such price increases through to its customers.
COMPETITION
The multilayer printed circuit materials industry is characterized by
intense competition and ongoing consolidation. The Company's competitors are
primarily divisions or subsidiaries of very large, diversified
35
<PAGE>
multinational manufacturers which are substantially larger and have greater
financial resources than the Company and, to a lesser degree, smaller regional
producers. Because the Company focuses on the higher technology segment of the
electronic materials market, technological innovation, quality and service, as
well as price, are significant competitive factors.
The Company believes that there are approximately ten significant multilayer
printed circuit materials manufacturers in the world, and many of these
competitors have or are developing significant presences in the three major
global markets of North America, Europe and Asia. The Company believes that
the multilayer printed circuit materials industry is rapidly becoming more
global and that the remaining smaller regional manufacturers will find it
increasingly difficult to remain competitive. The Company believes that it is
currently one of the world's largest multilayer printed circuit materials
manufacturers and the market leader in North America and Southeast Asia. The
Company further believes it is the only significant independent manufacturer
of multilayer printed circuit materials in the world today.
The markets in which the Company's electronic materials operations compete
are characterized by rapid technological advances, and the Company's position
in these markets depends largely on its continued ability to develop
technologically advanced and highly specialized products. Although the Company
believes it is an industry technology leader and directs a significant amount
of its time and resources toward maintaining its technological competitive
advantage, there is no assurance that the Company will be technologically
competitive in the future, or that the Company will continue to develop new
products that are technologically competitive.
PLUMBING AND INDUSTRIAL COMPONENTS OPERATIONS
The Company's operations also include its plumbing hardware, advanced
composites and specialty adhesive tape businesses. The plumbing hardware
business has not performed well in recent years and the Company is evaluating
its options with respect to that business. The advanced composite business
designs and manufactures reinforced engineered plastics used in the wireless
communications industry, as well as aerospace and commercial markets. Although
the Company is not satisfied with the growth or profitability levels of its
advanced composite business, the Company is encouraged by the product and
market opportunities being developed by this business. In addition, there are
product, manufacturing and market synergies between the advanced composite
business and the Company's printed circuit materials business which the
Company finds attractive. The specialty adhesive tape business, which, among
other things, designs and manufactures products used in the manufacture and
assembly of printed circuit boards and electronic interconnect systems, has
performed well in recent periods. This business is currently developing
advanced electronic assembly products.
PATENTS AND TRADEMARKS
The Company holds several patents and trademarks or licenses thereto. In the
Company's opinion, some of these patents and trademarks are important to its
products. Generally, however, the Company does not believe that an inability
to obtain new, or to defend existing, patents and trademarks would have a
material adverse effect on the Company.
EMPLOYEES
At November 26, 1995, the Company had approximately 2,030 employees. Of
these employees, 1,690 were engaged in the Company's electronic materials
operations, 320 in its plumbing and industrial components operations and 20
consisted of executive personnel and general administrative staff.
Approximately 10% of the Company's employees, all of whom are engaged in
plumbing and industrial components operations, are subject to collective
bargaining agreements. Management considers its labor relations to be
satisfactory.
36
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to stringent environmental regulation of its use,
storage, treatment and disposal of hazardous materials and the release of
emissions and effluents into the environment. The Company believes that it
currently is in substantial compliance with the applicable federal, state and
local environmental laws and regulations to which it is subject and that
continuing compliance therewith will not have a material effect on its capital
expenditures, earnings or competitive position. The Company does not currently
anticipate making material capital expenditures for environmental control
facilities for its existing manufacturing operations during the remainder of
its current fiscal year or its succeeding fiscal year. However, developments
such as the enactment or adoption of even more stringent environmental laws
and regulations, could conceivably result in substantial additional costs to
the Company.
The Company and certain of its subsidiaries have been named by the
Environmental Protection Agency (the "EPA") or a comparable state agency under
the Comprehensive Environmental Response, Compensation and Liability Act (the
"Superfund Act") or similar state law as potentially responsible parties for a
number of hazardous waste disposal sites or other potentially contaminated
areas. Under the Superfund Act and similar state laws, all parties who may
have contributed any waste to a hazardous waste disposal site or contaminated
area identified by the EPA or comparable state agency are jointly and
severally liable for the cost of cleanup unless the EPA or such agency agrees
otherwise. Generally, these sites are locations at which numerous persons
disposed of hazardous waste. In the case of the Company's subsidiaries,
generally the waste was removed from their manufacturing facilities and
disposed at the waste sites by various companies which contracted with the
subsidiaries to provide waste disposal services. Neither the Company nor any
of its subsidiaries have been accused of or charged with any wrongdoing or
illegal acts in connection with any such sites. The Company believes it
maintains a very effective and comprehensive environmental compliance program.
Management believes the ultimate disposition of known environmental matters
will not have a material adverse effect upon the Company.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its properties is subject.
MANAGEMENT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME TITLE(S) AGE
---- -------- ---
<S> <C> <C>
Jerry Shore......................... Chairman of the Board, Chief 70
Executive Officer, President and
a Director
Brian E. Shore...................... President Elect and a Director 44
E. Philip Smoot..................... Executive Vice President and a 58
Director
Paul R. Shackford................... Vice President, Chief Financial 45
Officer, Secretary and Treasurer
</TABLE>
Jerry Shore has been the Chief Executive Officer and a Director of the
Company since it was founded in 1954.
Brian Shore has served as a Director of the Company since 1983. On January
31, 1996, he was elected President of the Company, effective March 4, 1996,
the first day of the Company's next fiscal year. He has served as Executive
Vice President of the Company since May 1994. He served as Vice President of
the Company from January 1993 until May 1994. He also served as General
Counsel of the Company from April 1988 until April 1994.
37
<PAGE>
Mr. Smoot became President of a subsidiary of the Company in 1981 and was
elected a Vice President of the Company in 1985 and Executive Vice President
in 1988. He has been a Director since 1988. Mr. Smoot is responsible for the
Company's worldwide electronic materials operations.
Mr. Shackford became Vice President, Chief Financial Officer, Secretary and
Treasurer of the Company in August 1995. Prior to that time, he served as
Executive Vice President, Chief Financial Officer and Assistant Secretary of
Equitable Bag Co., Inc. ("Equitable") from January 1993 and also as Treasurer
from June 1993 and as Secretary from June 1994. From January 1991 to December
1992, he was Vice President--Finance and Chief Financial Officer of Equitable.
There are no family relationships between the directors or executive
officers of the Company, except that Brian Shore is the son of Jerry Shore.
The term of office of each executive officer of the Company expires upon the
election and qualification of his successor.
SELLING SHAREHOLDER
The sale of the shares of Common Stock offered by Jerry Shore would be the
first significant sale of shares by him since 1964. Mr. Shore founded the
Company on March 31, 1954. Mr. Shore intends to remain a significant
shareholder of the Company and, in connection with the sale of the shares of
Common Stock offered hereby, has agreed with the Underwriters not to offer for
sale, sell or otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the disposition or
purchase by any person at any time in the future of), any shares of Common
Stock (other than the shares of Common Stock being offered hereby), without
the prior written consent of Lehman Brothers Inc., for a period of one year
from the date of this Prospectus, subject to certain exceptions for gifts of
shares of Common Stock and shares of Common Stock which have been pledged to
secure one or more loans. The Company believes that Mr. Shore will remain the
Company's largest shareholder upon completion of the sale of his shares of
Common Stock offered hereby.
The following table sets forth, as of December 31, 1995 and as adjusted to
reflect the sale of shares of Common Stock offered hereby, certain information
regarding the beneficial ownership of Common Stock by the Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
COMMON STOCK OFFERING COMMON STOCK OFFERING
---------------------------- ----------------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Jerry Shore--Chairman of
the Board, Chief
Executive Officer,
President and a
Director............... 1,625,612(1) 14.0% 1,125,612(1) 9.7%
</TABLE>
- --------
(1) Includes 65,000 shares of Common Stock which Jerry Shore may acquire
pursuant to options, and excludes 112,410 shares owned by a member of
Jerry Shore's family, of which he disclaims beneficial ownership.
DESCRIPTION OF NOTES
The Notes are to be issued under an indenture to be dated as of February 1,
1996 (the "Indenture"), between the Company and The Chase Manhattan Bank,
N.A., as trustee (the "Trustee"). The Indenture will be substantially in the
form filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following descriptions of certain provisions of the
Indenture are intended as summaries only and are qualified in their entirety
by reference to the Indenture, including the definitions therein of certain
terms, which is incorporated herein by reference. As used in this "Description
of Notes," the term "Company" means only Park Electrochemical Corp. and not
its subsidiaries.
38
<PAGE>
GENERAL
The Notes will represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "--Subordination," and convertible into Common Stock as
described under "--Conversion." The Notes will be limited to $100,000,000
aggregate principal amount ($115,000,000 if the over-allotment option is
exercised in full), will be issued in fully registered form only in
denominations of $1,000 or any multiple thereof and will mature on March 1,
2006, unless earlier redeemed at the option of the Company, converted into
Common Stock at the option of the holder or repurchased by the Company at the
option of the holder upon a Fundamental Change (as defined in the Indenture).
The Notes will bear interest from February 28, 1996 at the annual rate set
forth on the cover page hereof, payable semi-annually on March 1 and September
1, commencing on September 1, 1996, to holders of record at the close of
business on the preceding February 15 and August 15, respectively (other than
with respect to a Note or portion thereof called for redemption on a
redemption date, or repurchased in connection with a Fundamental Change on a
repurchase date, during the period from a record date to (but excluding) the
next succeeding interest payment date, in which case accrued interest shall be
payable (unless such Note or portion thereof is converted) to the holder of
the Note or portion thereof redeemed or repurchased). Interest will be
computed on the basis of a 360-day year composed of twelve 30-day months.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. As described below
under "--Book-Entry, Delivery and Form," the Notes will be represented by one
or more Global Notes registered in the name of or held by The Depository Trust
Company ("Depositary") or its nominee. Payments of principal of and premium,
if any, and interest on the Global Notes will be made in immediately available
funds to the Depositary or its nominee, as the case may be, as the registered
holder of such Global Notes. See "--Settlement and Payment."
The Indenture will not contain any restrictions on the payment of dividends
or the repurchase of securities of the Company or any financial covenants. The
Indenture will contain no covenants or other provisions to afford protection
to holders of Notes in the event of a highly leveraged transaction or a change
in control of the Company except to the extent described under "--Repurchase
at Option of Holders Upon a Fundamental Change."
CONVERSION
The holders of Notes will be entitled at any time through the close of
business on the final maturity date of the Notes, subject to prior redemption
or repurchase, to convert any Notes or portions thereof (in denominations of
$1,000 or multiples thereof) into Common Stock of the Company, at the
conversion price set forth on the cover page of this Prospectus, subject to
adjustment as described below. Except as described below, no adjustment will
be made on conversion of any Notes for interest accrued thereon or for
dividends on any Common Stock issued on conversion of the Notes. On conversion
of a Note, accrued and unpaid interest on the principal amount of the Note
being converted shall be deemed to be paid through receipt of such number of
shares of Common Stock issued on such conversion as shall have a current
market value (determined as provided in the Indenture) equal to the amount of
such accrued and unpaid interest. If Notes not called for redemption are
converted after a record date for the payment of interest and prior to the
next succeeding interest payment date, such Notes must be accompanied by funds
equal to the interest payable on such succeeding interest payment date on the
principal amount so converted. The Company will not be required to issue
fractional shares of Common Stock upon conversion of Notes and, in lieu
thereof, will pay a cash adjustment based upon the market price of the Common
Stock on the last business day prior to the date of conversion. In the case of
Notes called for redemption, conversion rights will expire at the close of
business on the business day preceding the date fixed for redemption, unless
the Company defaults in payment of the redemption price, in which case the
conversion right will terminate at the close of business on the date such
default is cured.
39
<PAGE>
The right of conversion attaching to any Note may be exercised by delivery
(a) if such Note is represented by a Global Note, by book-entry transfer to
the conversion agent (which will initially be the Trustee) through the
facilities of the Depositary, or (b) if definitive Notes have been issued, at
the specified office of a conversion agent, accompanied, in either case, by a
duly signed and completed notice of conversion, together with any funds that
may be required as described in the preceding paragraph. The conversion date
shall be the date on which the Note, the duly signed and completed notice of
conversion, and any funds that may be required as described in the previous
paragraph shall have been so delivered. A holder delivering a Note for
conversion will not be required to pay any taxes or duties payable in respect
of the issue or delivery of Common Stock upon conversion, but will be required
to pay any tax or duty which may be payable in respect of any transfer
involved in the issue or delivery of the Common Stock in a name other than the
holder of the Note. Certificates representing shares of Common Stock will not
be issued or delivered unless all taxes and duties, if any, payable by the
holder have been paid.
The initial conversion price of $42.188 per share of Common Stock will be
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights or warrants to purchase Common Stock; (iv) the
dividend or other distribution to all holders of Common Stock of shares of
capital stock of the Company (other than Common Stock) or evidences of
indebtedness of the Company or assets (including securities, but excluding
those rights, warrants, dividends and distributions referred to above or paid
exclusively in cash); (v) a dividend or other distribution consisting
exclusively of cash to all holders of Common Stock in an aggregate amount
that, combined with (A) all such all-cash distributions made within the
preceding 12 months in respect of which no adjustment has been made plus (B)
any cash and the fair market value of other consideration payable in respect
of any tender offers by the Company or any of its subsidiaries for Common
Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 15% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such dividend or other distribution; and (vi) the purchase of Common Stock
pursuant to a tender offer made by the Company or any of its subsidiaries
which involves an aggregate consideration that together with (X) any cash and
the fair market value of any other consideration payable in any other tender
offer made by the Company or any of its subsidiaries for Common Stock expiring
within 12 months preceding such tender offer in respect of which no adjustment
has been made plus (Y) the aggregate amount of any such all-cash dividends and
other distributions referred to in clause (v) above to all holders of Common
Stock within the 12 months preceding the expiration of such tender offer in
respect of which no adjustments have been made pursuant to clause (v) above,
exceeds 15% of the Company's market capitalization on the expiration of such
tender offer.
Subject to the rights of holders of Notes described below under "Repurchase
at Option of Holders Upon a Fundamental Change," in the case of (i) any
reclassification or change of the Common Stock or (ii) a consolidation, merger
or combination involving the Company or a sale or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, in each case as a result of which holders of
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or
been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance (assuming, in a case in
which the Company's stockholders may exercise rights of election, that a
holder of Notes would not have exercised any rights of election as to the
stock, other securities or other property or assets receivable in connection
therewith and received per share the kind and amount received per share by a
plurality of non-electing shares).
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have
40
<PAGE>
received a distribution subject to United States income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock. See "Certain Federal Income
Tax Considerations."
The Company from time to time may, to the extent permitted by law, reduce
the conversion price of the Notes by any amount in any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction, if the Board of Directors has made a determination that such
decrease would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in
the conversion price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
See "Certain Federal Income Tax Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% of the conversion price then
in effect; provided that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes will not be redeemable at the option of the Company prior to March
1, 1999. At any time on or after that date, the Notes may be redeemed at the
Company's option on at least 15 but not more than 60 days' notice, as a whole
or, from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to the
date fixed for redemption; provided that if a redemption date is an interest
payment date, the semi-annual payment of interest becoming due on such date
shall be payable to the holder of record as of the relevant record date.
If redeemed during the 12-month period beginning March 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999.............................. 102.75%
2000.............................. 101.25%
2001 and thereafter............... 100.00%
</TABLE>
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Note is to
be redeemed in part only, a new Note or Notes in an aggregate principal amount
equal to the unredeemed principal portion thereof will be issued. If a portion
of a holder's Notes is selected for partial redemption and such holder
converts a portion of such Notes, such converted portion shall be deemed to be
taken from the portion selected for redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A FUNDAMENTAL CHANGE
The Indenture will provide that if a Fundamental Change (as defined in the
Indenture) occurs, each holder of Notes shall have the right, at the holder's
option, to require the Company to repurchase all of such holder's Notes, or
any portion thereof that is an integral multiple of $1,000, on the date (the
"repurchase date") that is 40 calendar days after the date of the Company
Notice (as defined in the Indenture), for cash at a price (expressed as a
percentage of the principal amount) equal to (i) 103% if the repurchase date
is during the 12-month period beginning March 1, 1996, (ii) 102% if the
repurchase date is during the 12-month period beginning March 1, 1997, (iii)
101% if the repurchase date is during the 12-month period beginning March 1,
1998 and thereafter at the
41
<PAGE>
redemption price set forth under "--Optional Redemption by the Company" which
would be applicable to a redemption at the option of the Company on the
repurchase date, together with accrued interest, if any (the "repurchase
price"). In each case, the Company shall also pay accrued interest on the
repurchased Notes to, but excluding, the repurchase date; provided that, if
such repurchase date is March 1 or September 1, then the interest payable on
such date shall be paid to the holder of record of the Note on the next
preceding February 15 or August 15.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, be converted into, be acquired for, or constitute
solely the right to receive, consideration (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) which is not all or
substantially all common stock which is (or, upon consummation of or
immediately following such transaction or event, will be) listed on a United
States national securities exchange or approved for quotation on the Nasdaq
National Market or any similar United States system of automated dissemination
of quotation of securities prices.
Within 15 calendar days after the occurrence of a Fundamental Change, the
Company will be obligated to mail to all holders of record of the Notes a
notice (the "Company Notice") of the occurrence of such Fundamental Change and
of the repurchase right arising as a result thereof. The Company must deliver
a copy of the Company Notice to the Trustee and cause a copy or a summary of
such notice to be published in a newspaper of general circulation in The City
of New York. To exercise the repurchase right, a holder of Notes must deliver,
on or before the 30th day after the date of the Company Notice, irrevocable
written notice to the Company (or an agent designated by the Company for such
purpose) and the Trustee of the holder's exercise of such right together with
the Notes (if such Note is represented by a Global Note, by book-entry
transfer to the conversion agent through the facilities of the Depositary)
with respect to which the right is being exercised, duly endorsed for
transfer. The submission of such notice together with such Notes pursuant to
the exercise of a repurchase right will be irrevocable on the part of the
holder (unless the Company fails to repurchase the Notes on the repurchase
date) and the right to convert such Notes will expire upon such submission.
The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act which may then be applicable in
connection with the repurchase rights of holders of Notes in the event of a
Fundamental Change. The repurchase rights of the holders of Notes could
discourage a potential acquirer of the Company. The Fundamental Change
repurchase feature, however, is not the result of management's knowledge of
any specific effort to obtain control of the Company by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by management to
adopt a series of anti-takeover provisions.
The Company could, in the future, enter into certain transactions, including
certain recapitalizations of the Company, that would not constitute a
Fundamental Change, but that would substantially increase the amount of Senior
Indebtedness outstanding at such time. The payment of the Fundamental Change
repurchase price on the Notes is subordinated to the prior payment of Senior
Indebtedness as described under "--Subordination" below.
SUBORDINATION
The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate to the prior payment in full of all Senior Indebtedness
(as defined). During the continuance beyond any applicable grace period of any
default in the payment of principal, premium, interest or any other payment
due on any Senior Indebtedness, no payment of principal of or premium, if any,
or interest on the Notes (including, but not limited to, the redemption price
or repurchase price with respect to the Notes) shall be made by the Company.
Moreover, in the event of any acceleration of the Notes because of an Event of
Default, the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full of all obligations in respect of such Senior
42
<PAGE>
Indebtedness before the holders of the Notes are entitled to receive any
payment or distribution in respect thereof. The Indenture will further require
that the Company promptly notify holders of Senior Indebtedness if payment of
the Notes is accelerated because of an Event of Default. In addition, upon any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, and premium,
if any, and interest on the Notes is to be subordinated to the extent provided
in the Indenture in right of payment to the prior payment in full of all
Senior Indebtedness.
By reason of the subordination provisions described above, in the event of
the Company's liquidation or dissolution, holders of Senior Indebtedness may
receive more, ratably, and holders of the Notes may receive less, ratably,
than the other creditors of the Company. Such subordination will not prevent
the occurrence of an Event of Default under the Indenture.
Subject to the qualifications described below, the term "Senior
Indebtedness" means the principal of, and premium, if any, and interest on
(including any interest accruing after the filing of a petition by or against
the Company under any bankruptcy law), and any other payment due pursuant to,
any of the following, whether outstanding on the date of the Indenture or
thereafter incurred or created:
(a) All indebtedness of the Company for money borrowed (including, but
not limited to, any indebtedness secured by a security interest, mortgage
or other lien on the assets of the Company which is (i) given to secure all
or part of the purchase price of property subject thereto, whether given to
the vendor of such property or to another, or (ii) existing on property at
the time of acquisition thereof);
(b) All indebtedness of the Company evidenced by notes, debentures, bonds
or other securities (including but not limited to those which are
convertible or exchangeable for securities of the Company);
(c) All indebtedness of the Company due and owing with respect to letters
of credit (including, but not limited to, reimbursement obligations with
respect thereto);
(d) All lease obligations of the Company which are capitalized on the
books of the Company in accordance with generally accepted accounting
principles and all lease obligations of the Company under any lease or
related document (including a purchase agreement) which provides that the
Company is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual value
of the leased property to the landlord and the obligations of the Company
under such lease or related document to purchase or to cause a third party
to purchase such leased property;
(e) All indebtedness consisting of commitment or standby fees due and
payable to lending institutions with respect to credit facilities available
to the Company;
(f) All indebtedness consisting of obligations of the Company due and
payable under interest rate and currency swaps, floors, caps or other
similar arrangements intended to fix interest rate obligations or hedge
foreign currency exposure;
(g) All indebtedness of others of the kinds described in any of the
preceding clauses (a), (b), (c), (e) or (f) and all lease obligations of
the kind described in the preceding clause (d) assumed by or guaranteed in
any manner by the Company or in effect guaranteed by the Company through an
agreement to purchase, contingent or otherwise, and all obligations of the
Company under such guarantee or other arrangements;
(h) All amounts due to the Trustee under Section 8.6 of the Indenture;
and
(i) All renewals, extensions, refundings, deferrals, amendments or
modifications of indebtedness of the kinds described in any of the
preceding clauses (a), (b), (c), (e), (f), (g) or (h) and all renewals or
extensions of lease obligations of the kinds described in any of the
preceding clauses (d) or (g);
unless in the case of any particular indebtedness, lease, renewal, extension,
refunding, amendment, modification or supplement, the instrument, lease or
other document creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, lease, renewal,
extension, refunding, amendment, modification or supplement is not superior in
right of payment to, or on a parity with, the Notes.
43
<PAGE>
Notwithstanding the foregoing, Senior Indebtedness shall not include (i) any
indebtedness or lease obligations of any kind of the Company to any subsidiary
of the Company, a majority of the voting stock of which is owned, directly or
indirectly, by the Company, and (ii) indebtedness for trade payables or
constituting the deferred purchase price of assets or services incurred in the
ordinary course of business.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of holders of Senior Indebtedness of the Company or their
representative or representatives to the extent necessary to make payment in
full of all Senior Indebtedness of the Company remaining unpaid, after giving
effect to any concurrent payment or distribution, or provision therefor, to or
for the holders of Senior Indebtedness of the Company.
The Notes are obligations of the Company. Because the operations of the
Company currently are conducted through subsidiaries, the cash flow and the
consequent ability to service debt, including the Notes, of the Company, may
be dependent upon the earnings of its subsidiaries and the distribution of
those earnings to, or upon loans, or other payments of funds by those
subsidiaries to, the Company. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the Notes or to make any funds available therefor, whether by
dividends, loans or other payments. In addition, the payment of dividends and
the making of loans and advances to the Company by its subsidiaries may be
subject to statutory or contractual restrictions, are dependent upon the
earnings of those subsidiaries and are subject to various business
considerations.
Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders
of the Notes to participate in these assets) will be effectively subordinated
to the claims of that subsidiary's creditors (including trade creditors),
except to the extent that the Company is itself recognized as a creditor of
such subsidiary, in which case the claims of the Company would still be
subordinate to any security interests in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company and would
be subject to judicial power to subordinate the Company's claim to those of
other creditors of such subsidiary in certain cases.
As of November 26, 1995, the Company had no outstanding obligations or
liabilities which would have constituted Senior Indebtedness. In addition, as
of November 26, 1995, subsidiaries of the Company had outstanding an aggregate
of approximately $56 million of liabilities (excluding intercompany
liabilities, deferred taxes on income and commitments, contingencies and other
liabilities of the types not required to be reflected as liabilities on the
balance sheets of such subsidiaries prepared in accordance with generally
accepted accounting principles). The amounts of Senior Indebtedness and such
liabilities of subsidiaries may change in the future. The Indenture will not
limit the amount of additional indebtedness, including Senior Indebtedness,
which the Company can create, incur, assume or guarantee, nor will the
Indenture limit the amount of indebtedness or other liabilities which any
subsidiary of the Company can create, incur, assume or guarantee.
The Company will be obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will be senior to those of holders of the
Notes in respect of all funds collected or held by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default will be defined in the Indenture as being default in
payment of the principal of, or premium, if any, on the Notes, whether or not
such payment is prohibited by the subordination provisions of the Indenture;
default for 30 days in payment of any installment of interest on the Notes,
whether or not such payment is prohibited by the subordination provisions of
the Indenture; default by the Company for 60 days after
44
<PAGE>
notice in the observance or performance of any other covenants in the
Indenture; default in the payment of the repurchase price in respect of the
Notes on the repurchase date therefor, whether or not such payment is
prohibited by the subordination provisions of the Indenture; failure of the
Company or any Significant Subsidiary (as defined in the Indenture) to make
any payment at maturity, including any applicable grace period, in respect of
indebtedness, which term as used in the Indenture means obligations (other
than non-recourse obligations) of, or guaranteed or assumed by, the Company or
any Significant Subsidiary for borrowed money in excess of $25,000,000 and
continuance of such failure for 60 days after notice; a default with respect
to any Indebtedness, which default results in the acceleration of Indebtedness
in an amount in excess of $25,000,000 without such Indebtedness having been
discharged or such acceleration having been cured, waived, rescinded or
annulled for 60 days after notice; or certain events involving bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary. The
Indenture provides that the Trustee may withhold notice to the holders of the
Notes of any default (except in payment of principal, premium, if any, or
interest with respect to the Notes) if the Trustee considers it in the
interest of the holders of the Notes to do so.
The Indenture will provide that if any Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in
principal amount of the Notes then outstanding may declare the principal of
and premium, if any, on the Notes to be due and payable immediately, but if
the Company shall cure all defaults (except the nonpayment of interest and
premium, if any, on and principal of any Notes which shall have become due by
acceleration) and certain other conditions are met, such declaration may be
canceled and past defaults may be waived by the holders of a majority in
principal amount of Notes then outstanding.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
The Indenture will provide that the Company shall promptly notify the
Trustee of the occurrence of any Event of Default and shall annually provide
the Trustee with a certificate stating whether or not the Company knows the
existence of any default or Event of Default.
MODIFICATIONS OF THE INDENTURE
The Indenture will contain provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the holders of all Notes,
except that no such modification shall (i) extend the fixed maturity of any
Note, reduce the rate or extend the time for payment of interest thereon,
reduce the principal amount thereof or premium, if any, thereon, reduce any
amount payable upon redemption or repurchase thereof, change the obligation of
the Company to repurchase any Note upon the happening of a Fundamental Change
in a manner adverse to the holders of the Notes, impair or affect the right of
a holder to institute suit for the payment thereof, change the currency in
which the Notes are payable, impair the right to convert the Notes into Common
Stock subject to the terms set forth in the Indenture, or modify the
provisions of the Indenture with respect to the subordination of the Notes in
a manner adverse to the holders of the Notes, without the consent of the
holder of each Note so affected, or (ii) reduce the aforesaid percentage of
Notes, without the consent of the holders of all of the Notes outstanding.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled
date of redemption.
45
<PAGE>
BOOK-ENTRY, DELIVERY AND FORM
Upon issuance, the Notes will be represented by a Global Note or Notes. Each
Global Note will be deposited with, or on behalf of, the Depositary and
registered in the name of a nominee of the Depositary. Except under the
limited circumstances described below, Global Notes will not be exchangeable
for definitive certificated Notes.
Ownership of beneficial interests in a Global Note will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") or persons that may hold interests through participants. In
addition, ownership of beneficial interests by participants in such Global
Note will be evidenced only by, and the transfer of that ownership interest
will be effected only through, records maintained by the Depositary or its
nominee for such Global Note. Ownership of beneficial interests in such Global
Note by persons that hold through participants will be evidenced only by, and
the transfer of that ownership interest within such participant will be
effected only through, records maintained by such participant. The Depositary
has no knowledge of the actual beneficial owners of the Notes. Beneficial
owners will not receive written confirmation from the Depositary of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the participants through which the beneficial owners entered
the transaction. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in such Global Note.
Payment of principal of and premium, if any, and interest on Notes
represented by a Global Note registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered holder of the Global Note representing such
Notes. The Company has been advised by the Depositary that upon receipt of any
payment of principal of or premium, if any, or interest on a Global Note, the
Depositary will immediately credit, on its book-entry registration and
transfer system, accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown in the records of the Depositary. Payments by
participants to owners of beneficial interests in a Global Note held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the sole
responsibility of such participants, subject to any statutory or regulatory
requirements as may be in effect from time to time.
None of the Company, the Trustee or any other agent of the Company or the
Trustee will have any responsibility or liability for any aspect of the
records of the Depositary, any nominee or any participant relating to, or
payments made on account of, beneficial interests in a Global Note or for
maintaining, supervising or reviewing any of the records of the Depositary,
any nominee or any participant relating to such beneficial interests.
A Global Note is exchangeable for definitive Notes registered in the name
of, and a transfer of a Global Note may be registered to, any person other
than the Depositary or its nominee, only if:
(a) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Note or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange
Act; or
(b) the Company in its sole discretion determines that such Global Note
shall be exchangeable for definitive Notes in registered form.
Any Global Note that is exchangeable pursuant to the preceding sentence will
be exchangeable in whole for definitive Notes in registered form, of like
tenor and of an equal aggregate principal amount as the Global Note, in
denominations of $1,000 and integral multiples thereof. Such definitive Notes
will be registered in the name or names of such persons as the Depositary
shall instruct the Trustee. The principal, premium, if any, and interest with
respect to definitive Notes will be payable, the transfer of the definitive
Notes will be registrable, the definitive Notes will be exchangeable, and the
definitive Notes may be presented for conversion, at the office or
46
<PAGE>
agency of the Company maintained for such purposes, which shall initially be
the Corporate Trust Office of the Trustee located in the Borough of Manhattan,
The City of New York. In addition, payment of interest on definitive Notes
may, at the option of the Company, be made by check mailed to the address of
the person entitled thereto as it appears in the Note register. Interest
payable to any holder of such Notes having an aggregate principal amount in
excess of $5,000,000 shall, at the election of such holder in writing to the
Trustee at least 10 days prior to the date of payment, be paid by wire
transfer in immediately available funds.
The Company will not be required (i) to issue, register the transfer of or
exchange any Note during a period beginning at the opening of business 15 days
before the date of the mailing of a notice of redemption and ending at the
close of business on the date of such mailing, or (ii) to register the
transfer of or exchange any Note selected for redemption in whole or in part,
except the unredeemed portion of Notes being redeemed in part.
Except as provided above, owners of beneficial interests in Global Notes
will not be entitled to receive physical delivery of Notes in definitive form
and will not be considered the holders thereof for any purpose under the
Indenture, and no Global Note shall be exchangeable except for another Global
Note of like denomination and tenor to be registered in the name of the
Depositary or its nominee. Accordingly, each person owning a beneficial
interest in such Global Note must rely on the procedures of the Depositary
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a
holder under the Global Note.
The Company understands that, under existing industry practices, in the
event that the Company requests any action of holders, or an owner of a
beneficial interest in such Global Note desires to give or take any action
that a holder is entitled to give or take under the Notes, the Depositary
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its participants and by the NYSE, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depositary's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to the Depositary and its
participants are on file with the Securities and Exchange Commission.
SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. So
long as the Notes are represented by a Global Note or Notes, all payments of
principal, premium, if any, and interest will be made by the Company in
immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the Notes
are represented by a Global Note or Notes registered in the name of the
Depositary or its nominee, the Notes will trade in the Depositary's Same-Day
Funds Settlement System, and secondary market trading activity in the Notes
will therefore be required by the Depositary to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on the trading activity in the
Notes.
47
<PAGE>
GOVERNING LAW
The Indenture and Notes will be governed by and construed in accordance with
the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank, N.A., the Trustee under the Indenture, has been
appointed by the Company as the initial paying agent, conversion agent and
registrar with regard to the Notes. The Company and its subsidiaries may
maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide the Company
with banking and financial services in the ordinary course of their business.
In case an Event of Default shall occur (and shall not be cured) and holders
of the Notes have notified the Trustee, the Trustee will be required to
exercise its powers with the degree of care and skill of a prudent person in
the conduct of such person's own affairs. Subject to such provisions, the
Trustee is under no obligation to exercise any of its rights or powers under
the Indenture at the request of any of the holders of Notes, unless they shall
have offered to the Trustee security and indemnity satisfactory to it.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
Company's Restated Certificate of Incorporation and By-laws and the Rights
Agreement (as defined below), included as exhibits to the Registration
Statement of which this Prospectus forms a part, and to the New York Business
Corporation Law ("BCL").
The Company has two classes of authorized capital stock: Common Stock, par
value $.10 per share, of which the Company is authorized to issue 30,000,000
shares, and Preferred Stock, par value $1.00 per share, of which the Company
is authorized to issue 500,000 shares.
COMMON STOCK
At November 26, 1995, approximately 11,544,064 shares of Common Stock were
outstanding, and options to purchase an aggregate of approximately 523,068
shares of Common Stock were also outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, including the
election of directors. The holders of Common Stock are not entitled to
cumulative voting rights with respect to the election of directors and, as a
consequence, the holders of more than 50% of the shares can elect all of the
directors being elected in any election. Under New York law, the approval of
the holders of two-thirds of all outstanding stock is required to effect a
merger of the Company or the disposition of all or substantially all the
Company's assets. A majority vote is sufficient for certain other actions that
require the vote or concurrence of shareholders.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor, subject to the prior payment
of all dividends due on any outstanding Preferred Stock. Upon liquidation or
dissolution of the Company, the holders of Common Stock are entitled to
receive, pro rata, all assets remaining available for distribution to
shareholders, subject to any rights of the holders of any outstanding
Preferred Stock. The shares of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. The Common Stock
currently outstanding is, and the Common Stock to be issued upon conversion of
the Notes will be, fully paid and, except as described in the next sentence,
non-assessable. Section 630 of the BCL provides that in the event no shares of
the Company are listed on a national securities exchange or regularly quoted
in an over-the-counter market by one or more members of a national or an
affiliated securities association, the ten largest shareholders of the Company
are jointly and severally liable for all debts, wages or salaries due and
owing to any of its laborers, servants or employees for services performed by
them for the Company.
The Common Stock is listed and trades on the NYSE under the symbol "PKE".
The Common Stock also trades on the Midwest Stock Exchange.
48
<PAGE>
The Transfer Agent and Registrar for the Common Stock is Registrar &
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016.
PREFERRED STOCK AND PREFERRED STOCK PURCHASE RIGHTS
The Preferred Stock is issuable in such series and with such designations,
full or limited voting rights, redemption provisions, dividend rates,
liquidation and conversions rights and other preferences and limitations as
may be determined by the Board of Directors, without shareholder approval. No
shares of Preferred Stock have been issued and, as described below, one series
of Preferred Stock has been established.
The Board of Directors effected a distribution of one preferred stock
purchase right (collectively the "Rights") per outstanding share of Common
Stock held of record on February 15, 1989 or issued thereafter and prior to
the Distribution Date (as defined below). Each Right entitles the holder
thereof to purchase from the Company one one-hundredth (1/100th) of a share of
Series A Preferred Stock of the Company, $1.00 par value per share (the
"Series A Preferred Stock"), at a price of $75.00 (the "Purchase Price") per
each one one-hundredth of such share. The description and terms of the Rights
are set forth in an Amended and Restated Rights Agreement, dated as of July
12, 1995 (the "Rights Agreement"), between the Company and Registrar and
Transfer Company, as Rights Agent. The provisions of the Rights Agreement are
incorporated herein by reference, and the statements made below are qualified
in their entirety by such reference. Capitalized terms not defined herein have
the respective meanings provided in the Rights Agreement.
Until the Distribution Date (as defined in the Rights Agreement), the Rights
are not exercisable and shall be evidenced only by certificates representing
the shares of Common Stock. The term "Distribution Date" means the earlier of
(i) the tenth day after the date of the first public announcement by the
Company or a Person that such Person, other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or any Subsidiary of
the Company or certain other persons (including the Selling Shareholder) alone
or together with Affiliates and Associates (an "Acquiring Person"), has become
the Beneficial owner of 15% (or 25% in the case of the Selling Shareholder and
certain other persons) or more of the then outstanding shares of Common Stock
or (ii) the tenth Business Day (or such later date as may be determined by the
Board of Directors prior to such time as any Person becomes an Acquiring
Person) after the date of the commencement of, or public announcement of the
intent to commence, a tender or exchange offer by any Person, other than the
Company, any Subsidiary of the Company and certain other persons (including
the Selling Shareholder), for 15% or more of the then outstanding shares of
Common Stock.
In the event that any Person should become an Acquiring Person, each holder
of a Right, other than the Rights of an Acquiring Person (which will become
void), shall thereafter have a right to receive, upon exercise thereof at a
price equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a share of Series A Preferred Stock for which a Right is
then exercisable, and in lieu of shares of Series A Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of
one one-hundredths of a share of Series A Preferred Stock for which a Right is
then exercisable and (y) dividing that product by 50% of the then current per
share market price of the Common Stock of the Company. If after a Person
becomes an Acquiring Person, the Company engages or becomes obligated to
engage in any of certain business combination transactions as specified in the
Rights Agreement, the Company will take all action to ensure that, and will
not consummate any such business combination, unless the terms of such
transaction provide that, each holder of a Right, other than Rights of an
Acquiring Person (which will become void), shall have the right to receive,
upon the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a share of Series A
Preferred Stock for which a Right is then exercisable, and in lieu of shares
of Series A Preferred Stock, such number of shares of common stock of the
other party to such transaction as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one one-
hundredths of a share of Series A Preferred Stock for which a Right is then
exercisable and (B) dividing that product by 50% of the then current per share
market price of the shares of common stock of the other party.
49
<PAGE>
The Rights Agreement provides that the Board of Directors may amend the
Rights Agreement or redeem the Rights prior to the time any person becomes an
Acquiring Person. In addition, after any Person becomes an Acquiring Person,
but before any Person becomes the beneficial owner of 50% or more of the
Common Stock outstanding, the Board of Directors may exchange all or part of
the Rights for shares of Common Stock at a one-for-one exchange ratio.
The Rights (and the Rights Certificates, if issued) shall expire on July 12,
2005 (the "Final Expiration Date"), unless earlier redeemed or exchanged by
the Company as provided in the Rights Agreement. If shares of Series A
Preferred Stock are issued, holders of shares of Series A Preferred Stock are
entitled to cumulative quarterly dividends equal to 5% of the liquidation
value of $100.00 per share of the Series A Preferred Stock in preference to
any dividends paid to holders of the Common Stock. Holders of shares of Series
A Preferred Stock are not entitled to vote on any matter, except as otherwise
provided by law. Upon liquidation, holders of shares of Series A Preferred
Stock are entitled to a liquidation preference equal to the greater of $100.00
per share or 100 times the amount distributable per share of Common Stock.
CERTAIN BY-LAW PROVISIONS
The Company's By-Laws contain a provision that provides that special
meetings of shareholders of the Company may be called by the Chairman of the
Board of Directors, the President or the Secretary of the Company at the
request of shareholders owning of record at least 80% of the outstanding
shares of stock entitled to vote at the special meeting. Another provision
provides that at any special meeting of shareholders any director or directors
may be removed from office only for cause.
In addition, the Company's By-Laws contain provisions requiring that advance
notice be delivered to the Company of any business to be brought by a
shareholder before an annual meeting of shareholders and providing for certain
procedures to be followed by shareholders in bringing business before an
annual meeting or nominating persons for election to the Board of Directors.
Generally, such advance notice provisions require the shareholder to give
written notice to the Company's Secretary not less than 60 days nor more than
90 days prior to the anniversary date of the immediately preceding annual
meeting of shareholders, or if the annual meeting is called for a date not
within 30 days before or after the anniversary date, notice by the shareholder
must be received not later than the close of business on the tenth day
following the earlier of the day on which public notice of the date of the
annual meeting was mailed or the date public disclosure of such date was made.
The notice from the shareholder must set forth specific information regarding
any shareholder business and director nominee, as described in the By-Laws.
NEW YORK ANTI-TAKEOVER LAW
Section 912 of the BCL regulates "business combinations," a term covering a
broad range of transactions between "resident domestic corporations" (as
defined, which term would include the Company) and an interested shareholder,
which is defined as any person beneficially owning 20% or more of the
outstanding voting stock of the resident domestic corporation or any affiliate
or associate of such person. Under the statute, a resident domestic
corporation may not engage in any business combination with any interested
shareholder, unless (a) if the business combination is to occur within five
years of the date the shareholder acquired 20% or more ownership, either the
business combination or the stock acquisition was approved by the Board of
Directors, prior to the date the interested shareholder first attained 20%
ownership (the "Stock Acquisition Date"), or (b) the business combination is
approved by a majority of outstanding voting stock (not including shares owned
by the interested shareholder), which approval may not be effectively given
until at least five years after the Stock Acquisition Date, or (c) the
business combination occurs after five years after the interested
shareholder's Stock Acquisition Date and the consideration paid to the non-
interested shareholders meets certain conditions imposed by Section 912. The
restrictions imposed by Section 912 will not apply to a corporation that
amends its by-laws by the affirmative vote of a majority of its outstanding
voting stock (not including shares owned by the interested shareholder) to
"opt out" of Section 912; however, an amendment will not be effective for 18
months after the vote and will not apply to any business combination where the
Stock Acquisition Date precedes the amendment. At this time, the Company will
not seek to "opt out" of Section 912 and, therefore, the restrictions imposed
by Section 912 will apply to the Company.
50
<PAGE>
LIMITATIONS ON CHANGES IN CONTROL
Certain of the provisions described above could have the effect of delaying,
deferring or preventing a change in control of the Company or the removal of
existing management or discouraging other persons from making a tender offer
for, or acquisitions of, shares of the Common Stock. This could have the
incidental effect of inhibiting changes in management and also may affect the
market price of the Common Stock .
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material United States
federal income tax considerations relevant to initial holders of the Notes and
shares of Common Stock issuable upon conversion of the Notes. This discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service ("IRS") rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. This discussion does not
purport to deal with all aspects of federal income taxation that may be
relevant to a particular investor's decision to purchase the Notes or acquire
shares of Common Stock on conversion of Notes, and it is not intended to be
wholly applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, persons that will hold the
Notes as a position in a "straddle" or as part of a hedging or "conversion"
transaction for tax purposes, tax-exempt organizations and non-United States
holders of Notes, may be subject to special rules. In addition, this
discussion is limited to persons who purchase the Notes pursuant to this
Prospectus, who hold the Notes or shares of Common Stock issued on conversion
of the Notes as a "capital asset" within the meaning of Section 1221 of the
Code and who are United States holders of Notes. For purposes of this
discussion, United States holders of Notes are holders of Notes who are (i)
citizens or residents of the United States, (ii) domestic corporations, or
(iii) otherwise subject to U.S. federal income taxation on a net income basis
in respect of income and gain from the Notes and Common Stock. A non-United
States holder of Notes is any holder of Notes that is not a United States
holder of Notes.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE SHARES OF COMMON
STOCK ISSUABLE ON CONVERSION OF THE NOTES. PURCHASERS OF SHARES OF COMMON
STOCK IN THE OFFERING SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF SUCH SHARES OF COMMON STOCK.
PAYMENTS OF INTEREST
Interest on a Note will generally be taxable to a holder as ordinary income
at the time it is paid or accrued in accordance with the holder's method of
accounting for tax purposes.
CONVERSION OF NOTES INTO COMMON STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of Common Stock. However, cash paid in
lieu of a fractional share of Common Stock will result in taxable gain (or
loss), which will be capital gain (or loss), to the extent that the amount of
such cash exceeds (or is exceeded by) the portion of the adjusted basis of the
Note allocable to such fractional share. The adjusted basis of shares of
Common Stock received on conversion (other than shares of Common Stock
received as payment of accrued interest) will equal the adjusted basis of the
Note converted, reduced by the portion of adjusted basis allocated to any
fractional share of Common Stock exchanged for cash. The adjusted basis of
shares of Common Stock received as payment of accrued interest will equal the
amount of such accrued interest. The holding period of an investor in the
Common Stock received on conversion will include the period during which the
converted Notes were held. Any interest deemed paid to a holder of Notes in
connection with a conversion will be taxable as ordinary income.
51
<PAGE>
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion." Section 305 of the Code
and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company's current earnings and profits
as of the end of the taxable year to which such constructive distribution
relates and/or accumulated earnings and profits, if and to the extent that
certain adjustments in the conversion price that may occur in limited
circumstances (particularly an adjustment to reflect a taxable dividend to
holders of Common Stock) increase the proportionate interest of a holder of
Notes in the fully diluted Common Stock, whether or not such holder ever
exercises its conversion privilege. Moreover, if there is not a full
adjustment to the conversion price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders of
outstanding Common Stock in the assets or earnings and profits of the Company,
then such increase in the proportionate interest of the holders of the Common
Stock generally will be treated as a distribution to such holders, taxable as
ordinary income (subject to a possible dividends received deduction in the
case of corporate holders) to the extent of the Company's current earnings and
profits as of the end of the taxable year to which constructive distribution
relates and/or accumulated earnings and profits.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of sections 1276 through 1278 of the Code. Under the market
discount rules, if a holder of a Note purchases it at market discount (i.e.,
at a price below its stated redemption price at maturity) in excess of a
statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized
or the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount
on a Note may be taxable to an investor to the extent of appreciation at the
time of certain otherwise non-taxable transactions, such as gifts. Any accrued
market discount not previously taken into income prior to a conversion of a
Note, however, should (under Treasury Regulations not yet issued) carry over
to the Common Stock received on conversion and be treated as ordinary income
upon a subsequent disposition of such Common Stock to the extent of any gain
recognized on such disposition. In addition, absent an election to include
market discount in income as it accrues, a holder of a market discount debt
instrument may be required to defer a portion of any interest expense that
otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such debt instrument until the holder disposes of the debt
instrument in a taxable transaction.
DISTRIBUTIONS ON COMMON STOCK
Distributions on the Common Stock into which Notes have been converted will
be taxable as dividends to the extent of the Company's current and/or
accumulated earnings and profits, as determined under United States federal
income tax principles. Such dividends may be eligible for the dividends-
received deduction in the case of holders which are domestic corporations,
subject to applicable limitations.
To the extent that the amount of any distribution exceeds the Company's
current and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of capital, causing a
reduction in the adjusted basis of the Common Stock (thereby increasing the
amount of gain, or decreasing the amount of loss, to be recognized by the
investor on a subsequent disposition of the Common Stock), and the balance in
excess of adjusted basis will be taxed as capital gain.
DISPOSITION OF NOTES OR COMMON STOCK
Subject to the discussion above under "--Conversion of Notes into Common
Stock," each holder of Notes generally will recognize gain or loss upon the
sale, redemption, repurchase, retirement or other disposition of those Notes
measured by the difference (if any) between (i) the amount of cash and the
fair market value of any property received (except to the extent that such
cash or other property is attributable to the payment of accrued
52
<PAGE>
interest not previously included in income, which amount will be taxable as
ordinary income) and (ii) the holder's adjusted tax basis in those Notes
(including any market discount previously included in income by the holder).
Each holder of Common Stock into which the Notes are converted, in general,
will recognize gain or loss upon the sale or other disposition of the Common
Stock measured under rules similar to those described in the preceding
sentence for the Notes. Special rules may apply to redemptions of Common Stock
which may result in different treatment. Any such gain or loss recognized on
the sale, redemption, repurchase, retirement or other disposition of a Note or
share of Common Stock should be capital gain or loss (except as discussed
under "--Market Discount" above), and would be long-term capital gain or loss
if the Note or the Common Stock had been held for more than one year at the
time of the sale or exchange. An investor's initial basis in a Note will be
the cash price paid therefor. Any payment of interest received by a holder in
connection with a redemption, repurchase, retirement or other disposition will
be taxed as ordinary income.
BACKUP WITHHOLDING
A holder of Notes or Common Stock may be subject to "back-up withholding" at
a rate of 31% with respect to certain "reportable payments," including
interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes. These back-up withholding rules apply if the
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to back-up withholding, or (v) does not
certify its foreign or other exempt status. A holder who does not provide the
Company with its correct TIN also may be subject to penalties imposed by the
IRS. Any amount withheld from a payment to a holder under the back-up
withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS. Back-up
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemption from back-up withholding is properly
established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments" required to be reported by the
Company under U.S. Treasury Regulations for each calendar year and the amount
of tax withheld, if any, with respect to such payments.
UNDERWRITING
Lehman Brothers Inc., Needham & Company, Inc. and Robertson, Stephens &
Company LLC (the "Underwriters"), have severally agreed, subject to the terms
and conditions of the Underwriting Agreement for the Notes (the "Notes
Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to each Underwriter, the aggregate principal amount of Notes
set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT OF NOTES
------------ ---------------
<S> <C>
Lehman Brothers Inc.......................................... $ 33,334,000
Needham & Company, Inc....................................... 33,333,000
Robertson, Stephens & Company LLC............................ 33,333,000
------------
Total...................................................... $100,000,000
============
</TABLE>
The Underwriters have severally agreed, subject to the terms and conditions
of the Underwriting Agreement for the shares of Common Stock (the "Common
Stock Underwriting Agreement"; together with the Notes Underwriting Agreement,
the "Underwriting Agreements"), to purchase from the Selling Shareholder, and
the
53
<PAGE>
Selling Shareholder has agreed to sell to each Underwriter, the aggregate
number of shares of Common Stock set forth opposite the name of such
Underwriter below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Lehman Brothers Inc......................................... 166,700
Needham & Company, Inc...................................... 166,650
Robertson, Stephens & Company LLC........................... 166,650
-------
Total..................................................... 500,000
=======
</TABLE>
In the Underwriting Agreements, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Notes offered hereby (other than those offered pursuant to the over-allotment
option described below) or all of the shares of Common Stock offered hereby,
as the case may be, if any such securities are purchased. In the event of
default by any Underwriter, each Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting Underwriters
may be increased or such Underwriting Agreement may be terminated.
The offering of the Notes and the offering of the shares of Common Stock are
not contingent upon each other.
The Company has been advised that the Underwriters propose to offer the
Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus and to certain selected dealers (which may
include the Underwriters) at such public offering price less a concession not
to exceed 1.65% of the principal amount of such Notes. The Underwriters may
allow and such dealers may reallow a concession not to exceed .25% of the
principal amount of such Notes to certain other dealers. After the initial
offering of the Notes to the public, the public offering price, the concession
to selected dealers and the reallowance to other dealers may be changed.
The Company and the Selling Shareholder have been advised that the
Underwriters propose to offer the shares of Common Stock offered hereby to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain selected dealers (which may include the
Underwriters) at such public offering price less a concession not to exceed
$.55 per share. The Underwriters may allow and such dealers may reallow a
concession not to exceed $.10 per share to certain other dealers. After the
initial offering of the shares of Common Stock to the public, the public
offering price, the concession to selected dealers and the reallowance to
other dealers may be changed.
The Notes are a new issue of securities. The Notes have been approved for
listing on the NYSE. The Company has been advised by the Underwriters that
they intend to make a market in the Notes but are not obligated to do so and
may discontinue market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Notes.
The Company has granted the Underwriters an option to purchase, in the
aggregate, up to an additional $15,000,000 principal amount of Notes at the
initial public offering price less underwriting discounts and commissions,
solely to cover over-allotments. Such option may be exercised at any time
until 30 days after the date of this Prospectus. To the extent that the
Underwriters exercise such option, each Underwriter will be committed, subject
to certain conditions, to purchase an additional amount of Notes proportionate
to such Underwriter's initial commitment as indicated in the table above.
The Company has agreed in the Notes Underwriting Agreement, and the Company
and the Selling Shareholder have agreed in the Common Stock Underwriting
Agreement, to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Company has agreed not to register for sale, offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which is
designed to, or which could be expected to result in the disposition or
purchase by any person at any time in the future of), any debt securities of
the Company with maturities longer than one
54
<PAGE>
year (other than the Notes being offered hereby) or any shares of Common
Stock, any securities convertible into or exercisable or exchangeable for
Common Stock, or any rights to acquire Common Stock, without the prior written
consent of Lehman Brothers Inc., for a period of 90 days from the date of this
Prospectus; provided, however, that such restriction shall not affect the
ability of the Company or its subsidiaries to take any such actions (i) in
connection with any employee benefit or incentive plan of the Company or (ii)
in connection with the offering of the Notes made hereby or the conversion
thereof. The Selling Shareholder has agreed not to offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which is
designed to, or which could be expected to result in the disposition or
purchase by any person at any time in the future of), any shares of Common
Stock (other than shares of the Common Stock being offered hereby), without
the prior written consent of Lehman Brothers Inc., for a period of one year
from the date of this Prospectus, subject to certain exceptions for gifts of
shares of Common Stock and shares of Common Stock which have been pledged to
secure one or more loans. In addition, certain of the Company's other officers
and directors have agreed not to offer for sale, sell or otherwise dispose of
(or enter into any transaction or device which is designed to, or which could
be expected to result in the disposition or purchase by any person at any time
in the future of), any shares of Common Stock for a period of 90 days from the
date of this Prospectus, without the prior written consent of Lehman Brothers
Inc.
LEGAL MATTERS
The validity of the Notes and the shares of Common Stock offered by this
Prospectus is being passed on for the Company by the Law Offices of Brian W
Pusch, New York, New York, special counsel to the Company. Brian W. Pusch owns
760 shares of Common Stock. Certain legal matters are being passed on for the
Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.
EXPERTS
The consolidated financial statements of Park Electrochemical Corp. as of
February 26, 1995 and February 27, 1994 and for the two years then ended
included in the Registration Statement of which this Prospectus forms a part,
and the financial statement schedule for the two years then ended incorporated
by reference in the Registration Statement of which this Prospectus forms a
part, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports accompanying such consolidated financial statements and
such financial statement schedule. The consolidated financial statements of
Park Electrochemical Corp. for the year ended February 28, 1993 included in
the Registration Statement of which this Prospectus forms a part, and the
financial statement schedule for the year then ended incorporated by reference
in the Registration Statement of which this Prospectus forms a part, have been
audited by Deloitte & Touche LLP, independent auditors, as set forth in their
reports accompanying such financial statements and such financial statement
schedule and, in the case of such consolidated financial statements, include
the financial statements of certain wholly-owned subsidiaries of the Company
which have been audited by Arthur Andersen, independent auditors, as set forth
in their reports accompanying such financial statements. Such consolidated
financial statements and such financial statement schedules are included and
incorporated herein in reliance on such reports given on the authority of such
firms as experts in accounting and auditing.
55
<PAGE>
PARK ELECTROCHEMICAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors............................................ F- 2
Consolidated Balance Sheets................................................ F- 7
Consolidated Statements of Earnings........................................ F- 8
Consolidated Statements of Stockholders' Equity............................ F- 9
Consolidated Statements of Cash Flows...................................... F-10
Notes to Consolidated Financial Statements................................. F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Park Electrochemical Corp. Lake
Success, New York
We have audited the accompanying consolidated balance sheets of Park
Electrochemical Corp. and subsidiaries as of February 27, 1994 and February
26, 1995 and the related consolidated statements of earnings, stockholders'
equity, and cash flows for the years then ended. 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, the 1994 and 1995 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Park Electrochemical Corp. and subsidiaries as of February 27, 1994 and
February 26, 1995, and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
April 17, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Park Electrochemical Corp. Lake
Success, New York
We have audited the accompanying consolidated statements of earnings,
stockholders' equity, and cash flows of Park Electrochemical Corp. and
subsidiaries for the year ended February 28, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit. We did not
audit the financial statements relating to certain wholly-owned subsidiaries,
which statements reflect total net sales constituting 9.8% of consolidated
total net sales for the fiscal year ended February 28, 1993. Such financial
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for such
subsidiaries, is based solely on the reports of such other auditors.
We conducted our audit 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 audit and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, such
consolidated financial statements present fairly, in all material respects,
the results of operations and cash flows of Park Electrochemical Corp. and
subsidiaries for the year ended February 28, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 14, the accompanying consolidated financial statements
for the year ended February 28, 1993 have been restated.
Deloitte & Touche LLP
New York, New York
May 7, 1993
(October 8, 1993 as to Note 14)
F-3
<PAGE>
REPORT OF AUDITORS
Board of Directors and Shareholders
Park Electrochemical Corp.
Lake Success, New York
We have audited the balance sheet of New England Laminates (UK) Limited (a
wholly-owned United Kingdom subsidiary of Park Electrochemical Corp.) as of
February 28, 1993 and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements
(which are not presented separately herein) are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of New England Laminates (UK) Limited as of
February 28, 1993 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen
Chartered Accountants and Registered Auditors
Manchester, England
May 1, 1993
F-4
<PAGE>
REPORT OF AUDITORS
Board of Directors and Shareholders
Park Electrochemical Corp.
Lake Success, New York
We have audited the balance sheet of Tweedbank P.C.B. Supplies Limited (a
wholly-owned United Kingdom subsidiary of Park Electrochemical Corp.) as of
February 28, 1993 and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements
(which are not presented separately herein) are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Tweedbank P.C.B. Supplies Limited as of
February 28, 1993 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen
Chartered Accountants and Registered Auditors
Manchester, England
May 1, 1993
F-5
<PAGE>
REPORT OF AUDITORS
Board of Directors and Shareholders
Park Electrochemical Corp.
Lake Success, New York
We have audited the balance sheet of Technocharge Limited (a wholly-owned
United Kingdom subsidiary of Park Electrochemical Corp.) as of February 28,
1993 and the related statements of operations, shareholders' equity, and cash
flows for the year then ended. These financial statements (which are not
presented separately herein) are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Technocharge Limited as of February 28,
1993 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Arthur Andersen
Chartered Accountants and Registered Auditors
Manchester, England
May 1, 1993
F-6
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26, NOVEMBER 26,
1994 1995 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 14,135 $ 30,803 $ 20,153
Marketable securities (Note 2)......... 23,918 15,107 22,392
Accounts receivable, less allowance for
doubtful accounts of $2,673 in fiscal
1994, $2,490 in fiscal 1995 and $1,986
in fiscal 1996........................ 28,904 33,172 45,367
Inventories (Note 3)................... 16,144 16,181 24,770
Prepaid expenses and other current
assets (Note 7)....................... 2,738 3,057 3,844
-------- -------- --------
Total current assets.................. 85,839 98,320 116,526
Property, plant and equipment--at cost,
less accumulated depreciation and
amortization (Note 4).................. 51,398 61,427 74,187
Other assets (Notes 6, 7 and 10)........ 3,513 2,304 1,893
-------- -------- --------
Total................................. $140,750 $162,051 $192,606
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans payable..................... $ 78 $ -- $ --
Accounts payable....................... 24,443 24,616 36,255
Accrued liabilities (Note 5)........... 12,487 15,844 16,180
Income taxes payable................... 2,964 2,825 4,336
-------- -------- --------
Total current liabilities............. 39,972 43,285 56,771
Long-term debt (Note 6)................. 32,861 23 --
Deferred income taxes (Note 7).......... 4,772 5,243 5,773
Deferred pension liability (Note 10).... 1,691 1,452 1,452
Commitments and contingencies (Notes 10
and 11)................................
Stockholders' equity (Notes 6, 8, 9, 10
and 15):
Preferred stock, $1 par value per
share--authorized, 500,000 shares;
issued, none.......................... -- -- --
Common stock, $.10 par value per
share--authorized, 15,000,000 shares
in fiscal 1994 and 1995 and 30,000,000
shares in fiscal 1996; issued,
10,407,650 shares in fiscal 1994 and
13,580,018 shares in fiscal 1995 and
1996.................................. 1,041 1,358 1,358
Additional paid-in capital............. 17,444 50,728 50,814
Retained earnings...................... 57,098 72,216 87,775
Currency translation adjustments....... 177 1,545 1,744
Pension liability adjustment........... (1,148) (972) (972)
Unrealized losses on investments....... -- (139) (17)
-------- -------- --------
74,612 124,736 140,702
Less treasury stock, at cost, 2,301,284
shares in fiscal 1994, 2,136,416
shares in fiscal 1995, and 2,035,954
shares in fiscal 1996................. (13,158) (12,688) (12,092)
-------- -------- --------
Total stockholders' equity............ 61,454 112,048 128,610
-------- -------- --------
Total................................. $140,750 $162,051 $192,606
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS ENDED NINE MONTHS ENDED
-------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 27, FEBRUARY 26, NOVEMBER 27, NOVEMBER 26,
1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $175,176 $208,410 $253,022 $186,398 $227,215
Cost of sales........... 149,145 168,175 196,917 145,857 175,892
-------- -------- -------- -------- --------
Gross profit............ 26,031 40,235 56,105 40,541 51,323
Selling, general and
administrative......... 22,865 25,930 29,995 21,976 25,799
-------- -------- -------- -------- --------
Profit from operations.. 3,166 14,305 26,110 18,565 25,524
-------- -------- -------- -------- --------
Other income (expense):
Interest expense (Note
6)..................... (2,058) (2,407) (431) (417) --
Other income, net
(Note 2)............. 1,967 947 1,822 1,225 1,683
-------- -------- -------- -------- --------
Total other income
(expense).......... (91) (1,460) 1,391 808 1,683
-------- -------- -------- -------- --------
Earnings before income
taxes.................. 3,075 12,845 27,501 19,373 27,207
Income tax provision
(Note 7)............... 810 4,783 10,156 7,168 9,350
-------- -------- -------- -------- --------
Net earnings............ $ 2,265 $ 8,062 $ 17,345 $ 12,205 $ 17,857
======== ======== ======== ======== ========
Earnings per common
share
(Notes 9 and 15):
Primary............... $ .25 $ 1.01 $ 1.59 $ 1.14 $ 1.52
======== ======== ======== ======== ========
Fully diluted......... $ .25 $ .84 $ 1.52 $ 1.08 $ 1.51
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY PENSION UNREALIZED TREASURY STOCK
----------------- PAID-IN RETAINED TRANSLATION LIABILITY LOSSES ON -------------------
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS ADJUSTMENT INVESTMENTS SHARES AMOUNT
---------- ------ ---------- -------- ----------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1992.. 10,354,902 $1,036 $16,795 $49,498 $ 2,590 $ (365) $ -- 1,304,670 $ (7,279)
Net earnings............ 2,265
Exchange rate changes... (2,481)
Change in pension
liability adjustment... (33)
Stock options
exercised.............. (63) (33,750) 188
Cash dividends.......... (1,451)
Purchase of treasury
stock.................. 2 --
---------- ------ ------- ------- ------- ------- ----- --------- --------
Balance, February 28,
1993................... 10,354,902 1,036 16,732 50,312 109 (398) -- 1,270,922 (7,091)
Net earnings............ 8,062
Exchange rate changes... 68
Change in pension
liability adjustment... (750)
Stock options
exercised.............. 184 (87,250) 499
Conversion of
debentures............. 52,748 5 528
Cash dividends.......... (1,276)
Purchase of treasury
stock.................. 1,117,612 (6,566)
---------- ------ ------- ------- ------- ------- ----- --------- --------
Balance, February 27,
1994................... 10,407,650 1,041 17,444 57,098 177 (1,148) -- 2,301,284 (13,158)
Net earnings............ 17,345
Exchange rate changes... 1,368
Change in pension
liability adjustment... 176
Market revaluation...... (139)
Stock options
exercised.............. 696 (212,700) 1,220
Conversion of
debentures............. 3,172,368 317 32,588
Cash dividends.......... (2,227)
Purchase of treasury
stock.................. 47,832 (750)
---------- ------ ------- ------- ------- ------- ----- --------- --------
Balance, February 26,
1995................... 13,580,018 1,358 50,728 72,216 1,545 (972) (139) 2,136,416 (12,688)
(Unaudited):
Net earnings............ 17,857
Exchange rate changes... 199
Market revaluation...... 122
Stock options
exercised.............. 86 (100,476) 596
Cash dividends.......... (2,298)
Purchase of treasury
stock.................. 14 --
---------- ------ ------- ------- ------- ------- ----- --------- --------
Balance, November 26,
1995................... 13,580,018 $1,358 $50,814 $87,775 $ 1,744 $ (972) $ (17) 2,035,954 $(12,092)
========== ====== ======= ======= ======= ======= ===== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED NINE MONTHS ENDED
-------------------------------------- -------------------------
FEBRUARY 28, FEBRUARY 27, FEBRUARY 26, NOVEMBER 27, NOVEMBER 26,
1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings.......... $ 2,265 $ 8,062 $ 17,345 $ 12,205 $ 17,857
Adjustments to
reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and
amortization......... 7,840 8,733 8,951 6,557 6,820
Provision for doubtful
accounts receivable.. 1,904 (3) (44) -- --
(Gain) loss on sale of
marketable
securities........... (180) (61) 17 17 (51)
Provision for deferred
income taxes......... (1,025) (52) 355 641 831
Accrued interest in
connection with
Debenture
conversion........... -- -- 389 389 --
Other, net............ 220 282 (89) (194) --
Changes in operating
assets and
liabilities:
(Increase) in
accounts
receivable.......... (1,154) (2,773) (3,536) (96) (12,145)
(Increase) decrease
in inventories...... (1,100) (1,908) 249 (2,328) (8,590)
Decrease (increase)
in prepaid expenses
and other current
assets.............. 784 89 (77) (541) (834)
(Increase) decrease
in other assets..... (2,138) 164 25 4 (249)
Increase (decrease)
in accounts
payable............. 544 5,265 (620) 1,783 11,754
Increase in accrued
liabilities......... 810 3,247 3,719 2,209 248
Increase (decrease)
in income taxes
payable............. 633 1,007 277 (495) 1,511
--------- --------- -------- -------- --------
Net cash provided by
operating
activities......... 9,403 22,052 26,961 20,151 17,152
--------- --------- -------- -------- --------
Cash flows from
investing activities:
Purchases of property,
plant and equipment,
net.................. (10,301) (9,627) (17,523) (10,787) (19,029)
Purchases of
marketable
securities........... (288,213) (200,404) (11,161) (11,018) (20,206)
Proceeds from sales of
marketable
securities........... 293,584 200,309 19,827 19,034 13,094
--------- --------- -------- -------- --------
Net cash used in
investing
activities......... (4,930) (9,722) (8,857) (2,771) (26,141)
--------- --------- -------- -------- --------
Cash flows from
financing activities:
Repayments of
borrowings........... (1,402) (64) (84) (93) (3)
Dividends paid........ (1,451) (1,276) (2,227) (1,541) (2,298)
Proceeds from exercise
of stock options..... -- 683 1,499 638 682
Purchase of treasury
stock................ -- (6,566) (750) -- --
Other................. 3 -- (100) (100) 2
--------- --------- -------- -------- --------
Net cash used in
financing
activities......... (2,850) (7,223) (1,662) (1,096) (1,617)
--------- --------- -------- -------- --------
Increase (decrease) in
cash and cash
equivalents before
effect of exchange
rate changes.......... 1,623 5,107 16,442 16,284 (10,606)
Effect of exchange rate
changes on cash and
cash equivalents...... (544) 22 226 (58) (44)
--------- --------- -------- -------- --------
Increase (decrease) in
cash and cash
equivalents........... 1,079 5,129 16,668 16,226 (10,650)
Cash and cash
equivalents, beginning
of period............. 7,927 9,006 14,135 14,135 30,803
--------- --------- -------- -------- --------
Cash and cash
equivalents, end of
period................ $ 9,006 $ 14,135 $ 30,803 $ 30,361 $ 20,153
========= ========= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation--The consolidated financial statements
include the accounts of Park Electrochemical Corp. ("Park") and its
subsidiaries (collectively, the "Company"), all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated.
b. Accounting Period--The Company's fiscal year is the 52 or 53 week period
ending the Sunday nearest to the last day of February. Fiscal years 1993, 1994
and 1995 ended on February 28, 1993, February 27, 1994 and February 26, 1995,
respectively. Each fiscal year presented included 52 weeks.
c. Marketable Securities--All marketable securities are classified as
available-for-sale and carried at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
Realized gains and losses, amortization of premiums and discounts, and
interest and dividend income are included in other income. The cost of
securities sold is based on the specific identification method.
d. Inventories--Inventories are stated at the lower of cost (first-in,
first-out method) or market.
e. Depreciation and Amortization--Depreciation and amortization are computed
principally by the straight- line method over the estimated useful lives of
the related assets or, with respect to leasehold improvements, the term of the
lease, if shorter.
f. Income Taxes--Deferred income taxes are provided for temporary
differences in the reporting of certain items, primarily depreciation, for
income tax purposes as compared to financial accounting purposes.
United States ("U.S.") Federal income taxes have not been provided on the
undistributed earnings (approximately $10,700,000 at February 26, 1995) of the
Company's foreign subsidiaries, since it is management's practice and intent
to reinvest such earnings in the operations of these subsidiaries.
g. Foreign Currency Translation--Assets and liabilities of foreign
subsidiaries using currencies other than the U.S. dollar as their functional
currency are translated into U.S. dollars at year-end exchange rates and
income and expense items are translated at average exchange rates for the
period. Gains and losses resulting from translation are recorded as currency
translation adjustments in stockholders' equity.
h. Deferred Charges--Preoperating and start-up costs incurred in connection
with new manufacturing facilities are deferred and included in other assets
and amortized on a straight-line basis over five years.
Costs incurred in connection with the issuance of debt financing are
deferred and included in other assets and amortized on a straight-line basis
over the respective debt repayment period.
i. Consolidated Statements of Cash Flows--The Company considers all money
market securities and investments with maturities at the date of purchase of
90 days or less to be cash equivalents.
Supplemental cash flow information:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................... $2,002,000 $2,352,000 $ 42,000
Income taxes........................... 1,072,000 3,960,000 9,712,000
</TABLE>
j. Interim Financial Statements--The consolidated balance sheet and
statement of stockholders' equity as of November 26, 1995 and the consolidated
statements of earnings and cash flows for the nine-month periods
F-11
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ended November 27, 1994 and November 26, 1995 have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position at November 26, 1995, and the results of operations and
cash flows for the nine-month periods ended November 27, 1994 and November 26,
1995, have been made. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
2. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
February 27, 1994:
U.S. Treasury and other govern-
ment securities............... $18,912,000 $ -- $130,000 $18,782,000
U.S. corporate debt securi-
ties.......................... 3,000,000 -- -- 3,000,000
Other debt securities.......... 2,000,000 -- -- 2,000,000
----------- ------- -------- -----------
Total debt securities.......... 23,912,000 -- 130,000 23,782,000
Equity securities.............. 145,000 -- 9,000 136,000
----------- ------- -------- -----------
$24,057,000 -- $139,000 $23,918,000
=========== ======= ======== ===========
February 26, 1995:
U.S. Treasury and other
government securities......... $12,019,000 $ -- $235,000 $11,784,000
U.S. corporate debt
securities.................... 3,000,000 -- 5,000 2,995,000
----------- ------- -------- -----------
Total debt securities.......... 15,019,000 -- 240,000 14,779,000
Equity securities.............. 303,000 25,000 -- 328,000
----------- ------- -------- -----------
$15,322,000 $25,000 $240,000 $15,107,000
=========== ======= ======== ===========
</TABLE>
The Company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective February 28, 1994. The cumulative
effect of the adoption of SFAS No. 115 was not significant.
The gross realized gains on sales of available-for-sale securities totaled
$301,000 and $76,000 for 1993 and 1994, respectively, and the gross realized
losses totaled $121,000, $15,000 and $17,000 for 1993, 1994 and 1995,
respectively. The net of tax adjustment to unrealized holding losses included
as a separate component of stockholders' equity totaled $139,000 in 1995.
The amortized cost and estimated fair value of the debt and marketable
equity securities at February 26, 1995 by contractual maturity are shown
below:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less........................... $11,002,000 $10,910,000
Due after one year through three years............ 4,017,000 3,869,000
----------- -----------
15,019,000 14,779,000
Equity securities................................. 303,000 328,000
----------- -----------
$15,322,000 $15,107,000
=========== ===========
</TABLE>
F-12
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY NOVEMBER 26,
27, 1994 26, 1995 1995
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................ $ 4,727,000 $ 5,215,000 $11,025,000
Work-in-process...................... 3,479,000 2,997,000 4,854,000
Finished goods....................... 7,581,000 7,446,000 8,145,000
Manufacturing supplies............... 357,000 523,000 746,000
----------- ----------- -----------
$16,144,000 $16,181,000 $24,770,000
=========== =========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26,
1994 1995
------------ ------------
<S> <C> <C>
Land, buildings and improvements............... $ 17,460,000 $ 21,353,000
Machinery, equipment, furniture and fixtures... 88,463,000 103,822,000
------------ ------------
105,923,000 125,175,000
Less accumulated depreciation and
amortization.................................. 54,525,000 63,748,000
------------ ------------
$ 51,398,000 $ 61,427,000
============ ============
</TABLE>
Depreciation and amortization expense relating to property, plant and
equipment amounted to $7,148,000, $8,188,000 and $8,501,000 for fiscal 1993,
1994 and 1995, respectively. Interest expense capitalized to property, plant
and equipment amounted to $508,000 and $109,000 for fiscal 1993 and 1994,
respectively.
5. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26,
1994 1995
------------ ------------
<S> <C> <C>
Payroll and commissions.......................... $ 3,112,000 $ 4,641,000
Taxes, other than income taxes................... 1,191,000 1,230,000
Other............................................ 8,184,000 9,973,000
----------- -----------
$12,487,000 $15,844,000
=========== ===========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26,
1994 1995
------------ ------------
<S> <C> <C>
7 1/4% Convertible Subordinated Debentures..... $32,852,000 $ --
Other.......................................... 71,000 29,000
----------- -------
32,923,000 29,000
Less current portion (included in accrued
liabilities).................................. 62,000 6,000
----------- -------
$32,861,000 $23,000
=========== =======
</TABLE>
On June 12, 1986, the Company issued $35,000,000 principal amount of 7 1/4%
Convertible Subordinated Debentures maturing on June 15, 2006 with interest
payable semiannually on June 15 and December 15 of each year. The Debentures
were unsecured, subordinated to bank loans payable and other long-term debt
and were convertible at any time prior to maturity, or earlier redemption,
into shares of the Company's common stock at
F-13
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$10.35 per share. The Company had the option to redeem the Debentures at
specified prices, plus accrued interest. On April 5, 1994, the Company
announced that it had elected to redeem the Debentures on May 31, 1994. (Prior
to that announcement, during the 1991 fiscal year, the Company had
repurchased, in the open market, an aggregate of $1,602,000 principal amount
of Debentures.) Including conversions prior to the call for redemption,
$33,381,000 principal amount of Debentures were converted into 3,225,116
shares of the Company's common stock. The remaining $17,000 principal amount
of Debentures not converted into common stock were redeemed on May 31, 1994.
The $720,000 unamortized balance of deferred issuance costs incurred in
connection with this financing was transferred from other assets to additional
paid-in capital.
As a result of the conversion and redemption of the Debentures, virtually
all of the Company's long-term debt and associated interest expense has been
eliminated. Furthermore, $792,000 of accrued interest expense and costs
related to the conversion of these Debentures was reclassified to additional
paid-in capital during fiscal 1995. If the conversion of substantially all the
debentures had occurred as of the beginning of the 1995 fiscal year, the
primary earnings per share for fiscal 1995 would have approximated the fully
diluted earnings per share for that period.
Foreign lines of credit totaled $5,500,000 at February 26, 1995 all of which
remains available to the subsidiaries.
7. INCOME TAXES
The income tax provision includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal............................. $ 1,650,000 $4,300,000 $ 8,798,000
State and local..................... 185,000 535,000 1,003,000
----------- ---------- -----------
1,835,000 4,835,000 9,801,000
Deferred:
Federal............................. (475,000) 396,000 50,000
State and local..................... (160,000) (145,000) 40,000
Foreign............................. (390,000) (303,000) 265,000
----------- ---------- -----------
(1,025,000) (52,000) 355,000
----------- ---------- -----------
$ 810,000 $4,783,000 $10,156,000
=========== ========== ===========
</TABLE>
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------
1993 1994 1995
----- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal tax rate......................... 34.0% 35.0% 35.0%
Tax accruals no longer required......................... (16.3) -- --
Foreign net operating losses without tax benefit........ 34.1 4.6 .5
Foreign tax rate differentials.......................... (21.9) (.9) (2.0)
State and local taxes, net of Federal benefit........... 8.0 2.0 2.5
General business credits................................ (11.0) (2.8) (.5)
Other, net.............................................. (.6) (.7) 1.4
----- ---- ----
26.3% 37.2% 36.9%
===== ==== ====
</TABLE>
F-14
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has foreign net operating loss carryforwards of approximately
$19,600,000 which was primarily acquired through a business combination, none
of which relates to goodwill or other intangible assets. Approximately
$8,500,000 of the foreign tax net operating loss carryforwards expire in
varying amounts from 1996 through 1999; the remainder have an indefinite
expiration.
At February 27, 1994 and February 26, 1995 current deferred tax assets of
$962,000 and $1,099,000, respectively, which are primarily attributable to
reserves not currently deductible for tax purposes, are included in other
current assets. Long-term deferred tax assets of $339,000 and $319,000 are net
of valuation reserves of approximately $8,300,000 and $6,200,000 at February
27, 1994 and February 26, 1995, respectively, which are primarily attributable
to foreign net operating loss carryforwards, are included in other assets. The
long-term deferred tax liabilities consist primarily of timing differences
relating to depreciation.
8. STOCKHOLDERS' EQUITY
a. Stock Options--Under the stock option plans approved by the Company's
stockholders, key employees may be granted options to purchase shares of
common stock exercisable at prices not less than the fair market value at the
date of grant. Options become exercisable 25% one year from the date of grant,
with an additional 25% exercisable each succeeding year. The options expire 10
years from the date of grant.
On July 14, 1992, the Company's stockholders approved the adoption of a 1992
stock option plan (the "1992 Plan") pursuant to which options to acquire
600,000 shares of the Company's common stock are available for grant to key
employees. The purchase price for common stock to be acquired, upon the
exercise of options, will be no less than 100% of the fair market value of
such stock at the date the options are granted. The 1992 Plan will expire in
March 2002.
Information with respect to the Company's stock option plans follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
RANGE OF ---------------------
EXERCISE PRICES GRANTED EXERCISABLE
--------------- -------- -----------
<S> <C> <C> <C>
Balance, March 1, 1992............... $3.70 -$ 8.59 379,850 175,852
Options becoming exercisable......... 5.50 - 6.81 -- 54,200
Granted.............................. 6.63 - 7.43 78,018 --
Exercised............................ 3.70 (33,750) (33,750)
Canceled............................. 5.50 - 6.81 (2,700) (952)
-------- --------
Balance, February 28, 1993........... 5.50 - 8.59 421,418 195,350
Options becoming exercisable......... 5.50 - 7.43 -- 73,104
Granted.............................. 7.38 - 7.44 181,300 --
Exercised............................ 5.50 - 8.59 (87,250) (87,250)
Canceled............................. 5.50 - 7.43 (24,000) (7,600)
-------- --------
Balance, February 27, 1994........... 5.50 - 8.59 491,468 173,604
Options becoming exercisable......... 5.50 - 7.44 -- 112,682
Granted.............................. 13.13 - 17.00 139,600 --
Exercised............................ 5.50 - 8.59 (112,700) (112,700)
Canceled............................. 5.50 - 13.13 (13,650) (6,526)
-------- --------
Balance, February 26, 1995........... $5.50 -$17.00 504,718 167,060
======== ========
</TABLE>
At February 26, 1995, 254,832 stock options were available for future grant
under the plans.
F-15
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
b. Dividends--During fiscal 1995, the Company declared and paid cash
dividends of $.20 per share, aggregating $2,227,000.
c. Treasury Stock--The Company repurchased 12 shares and 24 shares of its
common stock under authorizations of the Board of Directors during fiscal 1994
and 1995, respectively.
On March 9, 1993, in a privately negotiated transaction with an unaffiliated
third party, the Company repurchased 1,117,600 shares of its common stock for
$6,566,000. The purchase was made outside the Company's stock repurchase
program.
Pursuant to a grant approved by the Company stockholders dated July 24,
1985, an officer of the Company exercised options on November 22, 1994 to
purchase 100,000 shares of the Company's common stock. As permissible under
the terms of the option agreement, the exercise price was paid by surrendering
47,808 shares of the Company's common stock (which was held as a long-term
investment by the officer) to the Company, valued at $15.6875 per share, the
market price at that time.
d. Shareholders' Rights Plan--On February 2, 1989, the Company adopted a
shareholders' rights plan designed to protect shareholder interests in the
event the Company is confronted with coercive or unfair takeover tactics.
Under the terms of the plan, each shareholder of record on February 15, 1989
received one right for each share of common stock owned at that date. In the
event that a person has acquired, or has the right to acquire, 30% or more of
the then outstanding common stock of the Company or tenders for 20% or more of
the outstanding common stock of the Company (in either event, an "acquiring
person"), such rights will become exercisable, unless the Board of Directors
otherwise determines. Upon becoming exercisable as aforesaid, each right will
entitle the holder thereof to purchase one one-hundredth of a share of Series
A Preferred Stock for $30. In addition, each holder of an unexercised
exercisable right, other than an acquiring person, shall have the right to
purchase one share of the principal voting security of the acquiring person
for each right held by such holder at a purchase price per share equal to 50%
of the then market price per share of such acquiring person's securities.
Under certain circumstances, each unexercised exercisable right may instead
entitle the holder thereof to purchase one or fewer shares of the Company's
common stock at a 50% discount of the then market price. The Company may
redeem the rights for a nominal consideration at any time. Unless redeemed or
exercised earlier, all rights expire on February 15, 1999.
On July 12, 1995 the Company amended the shareholders' rights plan; see Note
15.
e. Reserved Common Shares--At February 26, 1995, 759,550 shares of common
stock were reserved for issuance upon exercise of stock options.
9. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based on the weighted average
number of common shares outstanding during the period. For fiscal year 1993,
the assumed conversion of the Company's 7 1/4% Convertible Subordinated
Debentures (after elimination of related interest expense and amortization of
deferred debt issuance costs, net of income tax effect) was not considered in
the calculation of the fully diluted earnings per share, as the effect was
antidilutive.
The weighted average number of common shares used to compute earnings per
share are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------- ---------------------
NOV. 27, NOV. 26,
1993 1994 1995 1994 1995
--------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Primary............. 9,068,000 7,986,000 10,858,000 10,666,000 11,763,000
========= ========== ========== ========== ==========
Fully diluted....... 9,068,000 11,454,000 11,570,000 11,560,000 11,801,000
========= ========== ========== ========== ==========
</TABLE>
F-16
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS
a. Profit Sharing Plan--Park and certain of its subsidiaries have a
noncontributory profit sharing retirement plan covering their regular full-
time employees. The plan may be modified or terminated at any time, but in no
event may any portion of the contributions revert to the Company. The
Company's contributions under the plan amounted to $708,000, $1,513,000 and
$2,297,000 for fiscal 1993, 1994 and 1995, respectively. Contributions are
discretionary and may not exceed the amount allowable as a tax deduction under
the Internal Revenue Code.
b. Pension Plans--A subsidiary of the Company has two pension plans covering
its union employees. The pension plans are noncontributory defined benefit
plans. The Company's funding policy is to contribute annually the amounts
necessary to satisfy the Internal Revenue Service's funding standards.
In accordance with SFAS No. 87, the Company records its unfunded pension
liability related to its two defined benefit pension plans, which amounted to
$1,691,000 and $1,452,000 at February 27, 1994 and February 26, 1995,
respectively. The effect on the Company's consolidated financial statements in
recording the liability is to recognize an asset (included in "Other Assets")
of $543,000 and $480,000 at February 27, 1994 and February 26, 1995,
respectively, and to record a reduction of stockholders' equity of $1,148,000
and $972,000 at February 27, 1994 and February 26, 1995, respectively.
Pension cost includes the following components:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the
period................................... $ 41,000 $ 48,000 $ 65,000
Interest cost on projected benefit
obligation............................... 247,000 276,000 279,000
Return on plan assets--actual............. (94,000) (40,000) (24,000)
Net amortization and deferral............. (5,000) (39,000) 9,000
-------- -------- --------
Net periodic pension cost................. $189,000 $245,000 $329,000
======== ======== ========
</TABLE>
The funded status of the pension plans follows:
<TABLE>
<CAPTION>
FEBRUARY 27, FEBRUARY 26,
1994 1995
------------ ------------
<S> <C> <C>
Accumulated benefit obligation (including vested
benefit obligation of $3,816,000 and
$3,665,000, respectively)...................... $ 3,816,000 $3,671,000
=========== ==========
Projected benefit obligation.................... $ 3,816,000 $3,671,000
Plan assets at fair value....................... 1,983,000 1,997,000
----------- ----------
Excess of projected benefit obligation over plan
assets......................................... 1,833,000 1,674,000
Unrecognized net loss........................... (1,152,000) (976,000)
Unrecognized prior service cost................. (301,000) (268,000)
Unrecognized initial net obligation being
amortized over 15 years........................ (238,000) (208,000)
----------- ----------
Accrued pension liability....................... $ 142,000 $ 222,000
=========== ==========
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 7% and 8.25% for fiscal 1994 and 1995, respectively, and the assumed
long-term rate of return on plan assets was 8% for both fiscal years.
Projected wage increases are not applicable as benefits pursuant to the plans
are based upon years of service without regard to levels of compensation.
At February 26, 1995, plan assets were invested in U.S. government
securities, discounted bank notes and equity securities.
F-17
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
a. Lease Commitments--The Company conducts certain of its operations from
leased facilities which include several manufacturing plants, warehouses and
offices, and land leases. The leases on facilities are for terms of up to 10
years, the latest of which expires in 2000. Many of the leases contain renewal
options for periods ranging from 1 to 15 years and require the Company to pay
real estate taxes and other operating costs. The latest land lease expiration
is 2013 and this land lease contains renewal options of up to 35 years.
These noncancelable operating leases have the following payment schedule:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ----------
<S> <C>
1996.............................. $1,779,000
1997.............................. 1,320,000
1998.............................. 1,313,000
1999.............................. 726,000
2000.............................. 441,000
Thereafter........................ 1,264,000
----------
$6,843,000
==========
</TABLE>
Rental expense, inclusive of real estate taxes and other costs, amounted to
$1,755,000, $2,142,000 and $2,226,000 for fiscal 1993, 1994 and 1995,
respectively.
b. Environmental Contingencies--The Company and certain of its subsidiaries
have been named by the Environmental Protection Agency (the "EPA") or a
comparable state agency under the Comprehensive Environmental Response,
Compensation and Liability Act (the "Superfund Act") or a similar state law as
potentially responsible parties for a number of hazardous waste disposal sites
or other potentially contaminated areas. Under the Superfund Act and similar
state laws, all parties who may have contributed any waste to a hazardous
waste disposal site or contaminated area identified by the EPA or a comparable
state agency are jointly and severally liable for the cost of cleanup unless
the EPA or such agency agrees otherwise. Generally, these sites are locations
at which numerous persons dispose hazardous waste. In the case of the
Company's subsidiaries, generally the waste was removed from their
manufacturing facilities and disposed at waste sites by various companies
which contracted with the subsidiaries to provide waste disposal services.
Neither the Company nor any of its subsidiaries have been accused of or
charged with any wrongdoing or illegal acts in connection with any such sites.
The Company believes it maintains an effective and comprehensive environmental
compliance program.
Included in cost of sales are charges for actual expenditures and accruals,
based on estimates, for certain environmental matters described above. The
Company accrues estimated costs associated with known environmental matters,
when such costs can be estimated. Management believes the ultimate disposition
of known environmental matters will not have a material adverse effect upon
the liquidity, capital resources, business or consolidated financial position
of the Company. However, one or more of such environmental matters could have
a significant negative impact on the Company's consolidated financial results
for a particular reporting period.
12. BUSINESS SEGMENTS
The Company has two major business segments: electronics and plumbing and
industrial components. The Company's electronic materials and circuitry
products are marketed primarily to large computer and electronics original
equipment manufacturers ("OEMs") and to major independent printed circuit
board manufacturers that
F-18
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are located throughout the United States, Canada, Europe and the Far East. The
Company's plumbing and industrial components customers, the majority of which
are located in the United States, include OEMs, hardware and plumbing
wholesalers, home improvement centers and aerospace and defense manufacturers.
Financial information concerning the Company's business segments follows
(all amounts stated in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers:
Electronics.................................. $147,419 $182,559 $218,288
Plumbing and industrial components........... 27,757 25,851 34,734
-------- -------- --------
Net sales.................................. $175,176 $208,410 $253,022
======== ======== ========
Operating profit(1):
Electronics.................................. $ 6,292 $ 18,597 $ 28,710
Plumbing and industrial components........... (555) (1,244) 1,226
-------- -------- --------
Total operating profit..................... 5,737 17,353 29,936
-------- -------- --------
General corporate expense...................... (2,571) (3,048) (3,826)
-------- -------- --------
Interest expense............................... (2,058) (2,407) (431)
Other income, net.............................. 1,967 947 1,822
-------- -------- --------
Total other income (expense)............... (91) (1,460) 1,391
-------- -------- --------
Earnings before income taxes............... $ 3,075 $ 12,845 $ 27,501
======== ======== ========
Identifiable assets(2):
Electronics.................................. $ 85,880 $ 91,786 $104,478
Plumbing and industrial components........... 11,318 9,516 12,588
-------- -------- --------
97,198 101,302 117,066
Corporate assets............................... 31,811 39,448 44,985
-------- -------- --------
Total assets............................... $129,009 $140,750 $162,051
======== ======== ========
Depreciation and amortization:
Electronics.................................. $ 6,955 $ 7,910 $ 8,133
Plumbing and industrial components........... 782 737 793
-------- -------- --------
7,737 8,647 8,926
Corporate depreciation....................... 103 86 25
-------- -------- --------
Total depreciation and amortization........ $ 7,840 $ 8,733 $ 8,951
======== ======== ========
Capital expenditures:
Electronics.................................. $ 9,758 $ 9,193 $ 16,302
Plumbing and industrial components........... 618 266 1,472
-------- -------- --------
10,376 9,459 17,774
Corporate capital expenditures............... 17 23 30
-------- -------- --------
Total capital expenditures................. $ 10,393 $ 9,482 $ 17,804
======== ======== ========
</TABLE>
- --------
(1) Operating profit is comprised of total operating revenues, less costs and
expenses other than interest expense, general corporate expense and income
taxes.
(2) Identifiable assets consist of those assets which are used by the
segments. Corporate identifiable assets consist primarily of cash, cash
equivalents and marketable securities.
F-19
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sales to customers under common control, which were mostly attributed to the
electronics segment, were 15.6%, 25.3% and 21.8% of the Company's consolidated
sales for fiscal 1993, 1994 and 1995, respectively. Intersegment sales and
sales between geographic areas were not significant.
Financial information regarding the Company's foreign operations, which are
conducted substantially in the United Kingdom, France and Singapore, follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Sales to unaffiliated customers................. $46,347 $46,491 $61,919
Sales to U.S. affiliates(1)..................... -- -- 2,992
------- ------- -------
$46,347 $46,491 $64,911
======= ======= =======
Operating income (loss)......................... $(2,942) $(3,252) $ 1,531
======= ======= =======
Income (loss) before income taxes............... $(2,989) $(3,242) $ 1,535
======= ======= =======
Identifiable assets............................. $37,031 $38,477 $44,150
======= ======= =======
</TABLE>
- --------
(1) Sales to U.S. affiliates are accounted for at cost and are eliminated in
consolidation.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1994:
Net sales...................................... $49,229 $47,318 $54,063 $57,800
Gross profit................................... 8,031 8,902 10,378 12,924
Net earnings................................... 892 1,588 2,177 3,405
Earnings per common share:
Primary...................................... $ .11 $ .20 $ .27 $ .43
Fully diluted................................ $ .11 $ .18 $ .23 $ .33
Weighted average common shares outstanding:
Primary...................................... 8,004 7,966 7,966 8,010
Fully diluted................................ 8,004 11,456 11,456 11,456
FISCAL 1995:
Net sales...................................... $62,769 $58,795 $64,834 $66,624
Gross profit................................... 13,247 12,520 14,774 15,564
Net earnings................................... 3,670 3,756 4,779 5,140
Earnings per common share:
Primary...................................... $ .39 $ .33 $ .42 $ .45
Fully diluted................................ $ .34 $ .33 $ .41 $ .44
Weighted average common shares outstanding:
Primary...................................... 9,416 11,344 11,374 11,432
Fully diluted................................ 11,464 11,544 11,658 11,610
</TABLE>
F-20
<PAGE>
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per common share is computed separately for each quarter.
Therefore, the sum of such quarterly per share amounts may differ from the
total for the years.
14. RESTATEMENT
On September 20, 1993, the Company announced that its internal accounting
staff had recently uncovered financial and accounting errors and
irregularities at FiberCote Industries, Inc. ("FiberCote"), its advanced
composites subsidiary. On the basis of the Company's investigation of such
financial and accounting errors and irregularities, the Company had determined
to restate the audited consolidated financial statements. The adjustments
involved the write-off of certain improperly recorded receivables and the
recognition of previously unrecorded liabilities at FiberCote. The
consolidated financial statements have been restated to reverse the
overstatements of net earnings in the following amounts:
<TABLE>
<CAPTION>
FISCAL YEAR 1993
----------------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
Earnings before income taxes, as previously reported.... $3,370
Adjustments............................................. (295)
------
Earnings before income taxes, as restated............... $3,075
======
Net earnings, as previously reported.................... $2,460
Adjustments............................................. (195)
------
Net earnings, as restated............................... $2,265
======
Earnings per common share primary and fully diluted, as
previously reported.................................... $ 0.27
Adjustments to earnings................................. (0.02)
------
Earnings per common share primary and fully diluted, as
restated............................................... $ 0.25
======
</TABLE>
15. SUBSEQUENT EVENTS
On July 12, 1995 the Company's Board of Directors voted a two-for-one stock
split in the form of a 100% common stock dividend. The stock dividend was
distributed on August 15, 1995 to shareholders of record on July 24, 1995. All
share and per share data for prior periods have been retroactively restated to
reflect the stock split. In addition, on July 12, 1995 the Company's
shareholders approved an increase in the number of authorized shares of common
stock from 15,000,000 to 30,000,000.
On July 12, 1995 the Company amended its shareholders' rights plan. Among
other things, these amendments lowered the threshold for triggering the rights
to 15% of the outstanding stock (subject to limited exceptions), increased the
exercise price of the rights to $75 per share, and added a provision which
will enable shareholders other than an acquiring person to purchase shares of
Common Stock at half the market price if the 15% threshold is crossed.
Further, the amendments add a provision which permits the Company to exchange
exercisable rights for shares of Common Stock and extend the term of the
shareholders' rights plan to 2005.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON, OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFER-
ENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
OR INCORPORATED BY REFERENCE HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGIS-
TERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Prospectus Summary....................................................... 4
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 13
Price Range of Common Stock and Dividends................................ 14
Capitalization........................................................... 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 37
Selling Shareholder...................................................... 38
Description of Notes..................................................... 38
Description of Capital Stock............................................. 48
Certain Federal Income Tax Considerations................................ 51
Underwriting............................................................. 53
Legal Matters............................................................ 55
Experts.................................................................. 55
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
PARK ELECTROCHEMICAL CORP.
$100,000,000
5 1/2% CONVERTIBLE SUBORDINATED
NOTES DUE 2006
500,000 SHARES OF
COMMON STOCK
-----------------
PROSPECTUS
February 22, 1996
-----------------
LEHMAN BROTHERS
NEEDHAM & COMPANY, INC.
ROBERTSON, STEPHENS & COMPANY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
