-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BAqUr+Iz51el7FoqjJN+eilZYZ5krwf52Ndxv2mMiHxK4yVF5Wb2sclLt8NOR84B y3O0t0nKk9IJ1k4ots8Bpg== 0000910647-96-000163.txt : 19961002 0000910647-96-000163.hdr.sgml : 19961002 ACCESSION NUMBER: 0000910647-96-000163 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961001 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARLEX CORP CENTRAL INDEX KEY: 0000724988 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 042464749 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12942 FILM NUMBER: 96637593 BUSINESS ADDRESS: STREET 1: 145 MILK ST CITY: METHUEN STATE: MA ZIP: 01844 BUSINESS PHONE: 5086854341 10-K 1 BODY OF 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended June 30, 1996 OR _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission File No. 0-12942 PARLEX CORPORATION (Exact Name of Registrant as Specified in its Charter) Massachusetts 04-2464749 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 145 Milk Street, Methuen, Massachusetts 01844 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 508-685-4341 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Name of exchange on Title of each Class which registered ------------------- ------------------- Common Stock ($.10 par value) NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of shares of the Registrant's Common Stock, par value $.10 per share, held by non-affiliates of the Registrant at September 1, 1996 as computed by reference to the closing price of such stock was approximately $13,910,530. The number of shares of the Registrant's Common Stock, par value $.10 per share, outstanding at September 1, 1996 was 2,372,034 shares. Documents Incorporated By Reference Portions of the definitive proxy statement to be filed with the Commission within 120 days after the close of the fiscal year are incorporated by reference into Part III of this report. Page 1 of Part I Item 1. Business - ----------------- Parlex Corporation ("Parlex" or the "Company") designs and fabricates products for use in the interconnection of components in electronic equipment. The product line includes a wide range of flexible circuits and laminated cable including circuit and cable assemblies incorporating a variety of components. Flexible circuits consist of copper conductive patterns on flexible substrate materials while laminated cables are a series of interconnect wires laminated between flexible material. The interconnects may incorporate any number of components (integrated circuits, connectors, stiffeners, resistors, capacitors, etc.) and may be a single layer or up to 24 layers of circuitry. These products are designed into a wide variety of electronic markets; automotive, computer, telecommunication, medical, aerospace and consumer applications. Specific products that include flexible circuits and laminated cable include notebook computers, disk drives, automotive engine controllers, automotive audio systems, cellular telephones, telephone switching equipment, printers, postage meters, electronic scales, pagers, and a variety of military electronics. The Company is a recognized industry leader and utilizes proprietary technology in order to market its product. Parlex holds a variety of patents and will continue to protect its intellectual property in order to enhance its market position worldwide. The thrust of Parlex's technology is to allow customers to achieve smaller, lighter, more technologically advanced products at lower overall costs. This is achieved through three dimensional packaging, which eliminates costly connectors and jumpers between more traditional rigid circuits. The flexible circuit and laminated cable industry is estimated to be over $2 billion worldwide. Parlex supports the North American market directly while the Asian and European markets are addressed through strategic alliances. In September 1995, Parlex commenced operations of a joint venture company in China, Parlex (Shanghai) Circuits Co., Ltd. The joint venture will eventually become the main avenue for pursuing the market in Asia. The Company has adopted a strategy of growth through partnerships with a number of major customers. Parlex's goal is to provide total customer satisfaction to these companies and the Company expects to receive the dominant share of their flexible circuit and laminated cable business. These customers enjoy leadership positions throughout all of the previously mentioned markets thus providing some insulation from fluctuating demand cycles in any one segment. Flexible Printed Circuits - ------------------------- Printed circuits are etched copper patterns made on or bonded within insulating material, which conduct electrical current between electronic components. Flexible circuits can bend or fold, without damage to the metallic pattern or the insulating material, thus permitting interconnection and assembly of components and subsystems in almost any geometric arrangement. The Company attempts to focus upon those applications requiring state-of-the-art technology. Therefore, the Company depends on technical innovation and engineering expertise in order to obtain business. A major initiative is to protect intellectual property in order to ensure the Company maintains its leadership position in the industry. To this end, the Company has been awarded 5 patents over the past several years. These patents are summarized below: U.S. Patent # 5,362,534-2 - PALCore multilayer flexible and multilayer rigid flex circuits for low cost, high volume application. U.S. Patent # 5,362,534-1 - Double treated epoxy coated copper foil for low cost, high volume multilayer flexible circuits, rigid flex circuits and rigid circuit boards. U.S. Patent # 5,334,800 - A low cost, impedance matched shielding process for high speed circuits which provides maximum clarity of electronic signals while meeting FCC and customer shielding requirements for commercial applications. U.S. Patent # 5,450,286 - A low cost process for attaching flexible circuits to a metalized plate used to dissipate heat generated by components assembled on flexible circuits and to facilitate customer manufacturing requirements. U.S. Patent # 5,376,232 - A process to manufacture flexible and rigid circuits that would substantially reduce the amount of waste which must be environmentally treated. Additionally, a number of these patents have been awarded recognition in Asia and Europe. Custom Laminated Cable - ---------------------- These products consist of multiple conductive metallic round wires or flat strips laminated in parallel between layers of insulation material. Custom laminated cable is sold in rolls, usually of 100 feet or more, as well as in assemblies. Technology plays a vital role since this product line utilizes proprietary manufacturing processes, which reduce cost and provide technical advantages to the customer. Examples are listed below: U Flex[REGISTERED TRADEMARK] is a technique of injection molding plastic to the exposed end of a laminated cable thus eliminating the requirement for connectors. Pemacs - A low cost laminated cable process which meets all FCC and customer shielding requirements without compromising flexibility. In all of its product lines, Parlex continues to jointly develop advanced technologies by working closely with its core customers and key suppliers. These relationships, combined with an aggressive approach to removing cost from the production process, has enabled the Company to become more competitive in all segments of its available market. Raw Materials - ------------- The Company has multiple sources for most materials used in its production processes. The Company believes that alternate sources are available for all materials used by it. Sales and Marketing - ------------------- The Company's products are sold to electronic equipment manufacturers both in the United States and in certain foreign countries. Sales in most parts of the United States are made through a network of independent manufacturers' representative organizations, complemented by the efforts of sales, engineering, and management employees of the Company. In addition, certain customers are handled directly as "house accounts". In fiscal 1996, sales through manufacturers' representative organizations accounted for approximately 42% of sales, and sales to "house accounts" were approximately 58% of sales. Approximately 5%, 7%, and 4% of product sales in fiscal years 1996, 1995, and 1994, respectively, consisted of foreign sales to Canada, parts of Europe, and the Middle East. As part of its marketing efforts, the Company conducts technical seminars at major customer or potential customer locations, at industry trade meetings, and its own offices. The Company also publishes technical papers in addition to utilizing conventional advertising and promotional methods. The Company's products are custom-made to a user's specifications. These specifications are developed either solely by the customer or through the design efforts of the customer working together with the Company's design and engineering staff. The Company's application engineers do a feasibility study and provide cost estimates to prepare a quotation in response to a customer's request. Sales are made pursuant to purchase orders. Customers - --------- In fiscal 1996, the Company's products were sold to approximately 350 customers, including as separate customers different divisions of certain major companies. In 1996, 1995, and 1994, sales to several divisions of Motorola comprised 29%, 12%, and 11% of the Company's overall shipments, respectively. In 1994, AST Research Inc. also accounted for 10% of the overall sales of the Company's overall shipments. The top twenty (20) customers (including Alliant Tech Systems, Lockheed Sanders, Motorola, Texas Instruments, and Pitney Bowes) accounted for approximately 66% of sales in fiscal year 1996. In fiscal 1996, the Company's sales for military and aerospace applications accounted for approximately 26% of sales, while sales for industrial applications, primarily for computer, computer peripheral, automotive and communications applications, accounted for 74% of sales. This compares to 32% and 68% of sales in fiscal 1995 for military/aerospace and industrial applications, respectively. See Management's Discussion and Analysis of Financial Condition and Results of Operations. Backlog of Orders - ----------------- The backlog at June 30, 1996 was $23 million, as compared to $22 million at June 30, 1995. The current backlog is scheduled for shipment during fiscal year 1997. Customers may cancel unfilled orders, subject to cancellation charges (unless waived by the Company). Competition - ----------- The fields in which the Company operates are highly competitive and are characterized by rapid change due to technological developments. The Company competes with a number of other companies in each of its product areas. Some of these competitors are larger, more established companies with greater financial resources than the Company. The principal elements of competition are price, quality, engineering capability, service, and timeliness of delivery. The Company believes that it is reasonably competitive in each of these areas. Research and Development - ------------------------ Virtually all the Company's products are designed and manufactured to customers' specifications. The Company's research and development activities are related to advancing its design and manufacturing technology as well as developing new materials to be used. Historically, the Company has supported such activities, in part, by selectively accepting orders which require the Company to advance its design or manufacturing expertise. The Company finances on its own the development and implementation of new process techniques that allow for the undertaking of more complex, state-of-the-art product applications, or processes that will reduce cost. The total cost of research and development activities in fiscal 1996, 1995, and 1994 was approximately $2,380,000, $2,215,000, and $1,767,000, respectively. These amounts are reflected in the Company's cost of sales and not as separate research and development expenses. The Company anticipates that it will continue to support research and development activities at current levels. Employees - --------- As of June 30, 1996 the Company had approximately 500 employees. The Company considers its employee relations to be good. None of the Company's employees is covered by a collective bargaining agreement. Environmental Quality - --------------------- The Company believes that it is in compliance with all federal, state and local laws relating to the protection of the environment. Item 2. Properties - ------------------ The Company's offices and principal manufacturing facilities are located in a 120,000 square foot building in Methuen, Massachusetts. The first portion of the building was constructed in 1970; the most recent addition (70,000 square feet) was built in 1982. The building is owned by the Company. Approximately 105,000 square feet are used for manufacturing, and approximately 15,000 square feet are used for engineering, sales, executive and other administrative activities. The Company leases approximately 34,000 square feet of additional space in Salem, New Hampshire which is being used primarily for manufacturing by the Laminated Cable Division. The joint venture company leases a 28,000 square foot facility in Shanghai which is used for all manufacturing and administrative functions. The Company believes that its property and equipment are in good operating condition and are adequate for existing and immediately foreseeable needs. Item 3. Legal Proceedings - ------------------------- The Company has no material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- This item is inapplicable. PART II Item 5. Market for Registrant's Common Equity - --------------------------------------------- and Related Stockholder Matters ------------------------------- (a) Price Range of Common Stock The Company's Common Stock is traded in the over-the-counter market and is quoted on NASDAQ-NMS (National Market System), which provides transactional price quotations on the same basis as a stock exchange.
1996 ---- Quarter High Low ------- First 13 1/2 9 1/4 Second 11 1/4 7 1/4 Third 10 7 1/2 Fourth 15 1/4 8 1/4 1995 ---- Quarter High Low ------- First 9 1/4 5 1/2 Second 15 1/2 8 1/4 Third 18 3/4 11 1/4 Fourth 16 1/4 9 1/2
(b) Approximate Number of Holders of Common Stock
Approximate Number of Holders of Record Title Of Class (as of June 30, 1996) - -------------- --------------------------------------- Common Stock, $.10 par value 102 * * Beneficial holders approximate 800
(c) Dividends The Company has never paid cash dividends on its Common Stock. Payment of dividends is solely within the discretion of the Company's Board of Directors. Under the terms of the Industrial Revenue Bond and the Revolving Credit Agreement, there are covenants regarding the amount available for dividends; the amount at June 30, 1996 was limited to $2,745,000. The Company does not intend to pay any cash dividends in the foreseeable future. Item 6. Selected Consolidated Financial Data - --------------------------------------------
Years Ended June 30, 1996 1995 1994 1993 1992 (In thousands, except per share date) Income Statement Data: Total Revenues $47,257 $40,251 $34,926 $31,392 $28,703 ------- ------- ------- ------- ------- Costs and Expenses: Costs of Sales 40,308 32,946 29,150 26,636 24,980 Selling, General and Administrative Expenses 5,518 4,998 4,637 4,432 4,376 Interest Expense 351 155 110 134 124 Other (Income) Expense (90) (88) 22 (62) (208) ------- ------- ------- ------- ------- 46,087 38,011 33,919 31,140 29,272 ------- ------- ------- ------- ------- Income (Loss) before Income Taxes 1,170 2,240 1,007 252 (569) Credit (Provision) for Income Taxes (387) (754) - 50 184 ------- ------- ------- ------- ------- Income (Loss) before Minority Interest 783 1,486 1,007 302 (385) Minority Interest 13 - - - - ------- ------- ------- ------- ------- Net Income (Loss) $ 770 $ 1,486 $ 1,007 $ 302 $ (385) ======= ======= ======= ======= ======= Net Income (Loss)per share of Common Stock (based on weighted average number of common and common equivalent shares outstanding) $ .31 $ .61 $ .44 $ .13 $ (.17) ------- ------- ------- ------- ------- Balance Sheet Data: Working Capital $ 9,148 $ 8,466 $ 6,704 $5,257 $ 5,148 Total Assets 29,662 24,517 20,845 18,906 18,370 Long-Term Debt 3,650 2,300 950 500 1,250 Stockholders' Equity 15,455 14,667 12,880 11,848 11,586
Item 7. Management's Discussion and Analysis of - ------------------------------------------------ Financial Condition and Results of Operations --------------------------------------------- Results of Operations For the Past Three Fiscal Years - ----------------------------------------------------- Total revenue in fiscal year 1996 was $47,257,025, or 17% higher than the $40,251,299 reported in the prior year. Revenues were generated principally from product sales, while some were derived from licensing and royalty fees. The increase in revenue resulted principally from the Company's further penetration into the various commercial markets, as evidenced by the fact that commercial sales constituted 74% of the Company's overall sales in fiscal year 1996, as compared to 68% and 61% in fiscal years 1995 and 1994, respectively. Several years ago, the Company, by design, altered its sales and marketing strategies for the express purpose of broadening its commercial customer base, and becoming less dependent on the vagaries and pricing pressures of the military-aerospace sector. In concert with this objective, the Company began developing products that would be more compatible with the requirements of the markets it is attempting to serve. In September 1995, Parlex (Shanghai) Circuit Co., Ltd., the Chinese joint venture, commenced operations (see Notes 1 and 2 to Consolidated Financial Statements). The sales from this venture, while not significant, also contributed to the increase over the previous year. In fiscal year 1995, sales were $40,251,299, or 15% greater than the $34,926,468 reported in fiscal year 1994. Again, the improvement resulted from additional commercial sales, which more than offset the softness in demand in the military-aerospace sector. The revenue in 1996 included income of $155,000 that was earned through licensing and royalty fees; these monies were associated with the transfer of technical know-how for a limited variation of the Company's flexible circuit product line with a firm situated in Taiwan. All agreements are structured in a manner whereby the Company is adequately protected from the licensee competing in the markets or for customers which Parlex wishes to serve. In 1995, $494,500 of income was derived through these sources. The monies were associated with the transfer of technology with two firms in Asia and a payment from a prior agreement with a firm located in Israel. In 1994, no funds were generated from these sources. The Company's products are manufactured on a job order basis to customer specifications. Customers submit requests for quotations on each job, and the Company prepares bids based on its own cost estimates. The Company attempts to reflect the impact on changing costs when establishing prices. The cost of sales as a percentage of revenue was 85% in 1996 versus 82% and 83% in fiscal years 1995 and 1994, respectively. The increase in the cost of sales percentage was substantially attributable to a previously reported major contract for a flexible circuit utilized in the automotive market. This contract, which commenced manufacturing in the fourth quarter of fiscal year 1995, also represented the largest production order in the Company's history. Although the Company was making consistent progress in reducing costs throughout most of last year, it wasn't until the month of March 1996 when the Company overcame a number of the technical issues that were impacting upon the yields and costs in this program, thus enabling the Company to realize a nominal profit from this contract during the last four months of the year. It is believed, with the introduction of new equipment and production processes scheduled to be completed near the end of the first half of fiscal year 1997, that improved margins should follow. The ratio of selling, general and administrative expenses to revenue was 12% for fiscal years 1996 and 1995, and 13% in fiscal year 1994. Interest expense for 1996, 1995, and 1994 was $351,125, $154,974, and $109,621, respectively. The increase in expense the past two years was due primarily to finance capital expenditures that aggregated nearly $3,000,000 in 1996 and $2,900,000 in 1995. In 1996, the Company also expended over $700,000 in the Chinese joint venture that commenced operations in September 1995. In 1996 and 1995, the working capital needs of the Company also increased due to the additional sales being achieved. Other income of $90,588 this year and $88,288 last year was comprised entirely of items of a miscellaneous nature. In 1994, the Company incurred $21,870 in miscellaneous expenses that resulted primarily from incurred losses on the disposition of various pieces of equipment. In 1996, the effective tax rate was 33% versus 34% in 1995. In 1994, the effective tax rate was 0% since the Company was able to recognize the benefit of available net operating loss carryforwards. Liquidity and Capital Resources - ------------------------------- Although the Company was successful in generating nearly $1,500,000 in positive cash flow from operating activities, the Company, during 1996, borrowed an additional $1,450,000, and guaranteed an additional $400,000 in borrowings by the Chinese joint venture, to satisfy obligations associated with the capital expenditures of $2,968,713, the commencement of operations of the Chinese joint venture, Parlex (Shanghai) Circuit Co., Ltd., and the need for additional working capital requirements. In December 1995, the Company negotiated a $5,000,000 unsecured line of credit under its revolving credit facility that expires December 31, 1997. At June 30, 1996, the unused commitment amounted to $1,350,000. The Company is presently in the process of negotiating a $2,000,000 line of credit that will be used to finance additional capital equipment requirements. The two lines of credit, together with the anticipated positive cash flow from operations, should be adequate to satisfy the Company's foreseeable needs. Deferred compensation payments cannot presently be determined. Amounts, if any, which may be paid within one year are not material and should have little impact upon the Company's cash position. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act - -------------------------------------------------------------------------- of 1995 ------- This report contains certain forward-looking statements. The Company's actual results of operations may differ significantly from those contemplated by such forward-looking statements as a result of various factors beyond its control, including, but not limited to, economic conditions in the electronics industry, particularly in the principal industry sectors served by the Company, changes in customer requirements and in the volume of sales to principal customers, competition and technological change. Item 8. Financial Statements and Supplementary Data - --------------------------------------------------- See the table of contents to the Consolidated Financial Statements included in this report; also see Note 11 to Consolidated Financial Statements. Item 9. Changes in and Disagreements with Accountants on Accounting - ------------------------------------------------------------------- and Financial Disclosure ------------------------ This item is inapplicable. Part III -------- Item 10. thru Item 13. - ---------------------- To be incorporated by reference to Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the end of the Registrant's fiscal year ended June 30, 1996. Part IV ------- Item 14. Exhibits, Financial (a) Documents filed as a part Statements Schedules of this Form 10-K. And Reports on 1. Financial Statements. Form 8-K. The Financial Statements listed in the accompanying table of contents to Consolidated Financial Statements are filed as a part of this Form 10-K. 2. Financial Statement Schedules. Schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the Consolidated Financial Statements or notes thereto. 3. Exhibits. The exhibits listed below are either filed or are deemed to be filed as part of this annual report. (3) Restated Articles of Organization (dated August 2, 1983), Articles of Amendment, and by-laws (filed as exhibits 3-A, 3-B, and 3-C to the Company's Registration Statement on Form S-1, file No. 2-85588, and incorporated herein by reference). (10)(A) Previously filed, but no longer applicable - See exhibit 10-M below. (10)(B) Previously filed, but no longer applicable. (10)(C) Previously filed, but no longer applicable - See exhibit 10-AA below. (10)(D) Previously filed, but no longer applicable - see exhibit 10-AA below. (10)(E) Previously filed, but no longer applicable - see exhibit 10-AA below. (10)(F) Employees' Profit Sharing Retirement Plan (filed as exhibit 10-F to the Company's Registration Statement on Form S-1, file No. 2-85588, and incorporated herein by reference). (10)(G) Material Contracts in connection with industrial revenue development bond financing, including Bond Purchase and Guaranty Agreement, Loan and Security Agreement and Mortgage, Indenture of Trust, and Series A Bond Supplemental Agreement (all filed as exhibit 10-G to the Company's Registration Statement on Form S-1, file No. 2-85588, and incorporated herein by reference). (10)(H) Previously filed, but no longer applicable - see exhibit 10-AA below. (10)(I) Amendment to Employees' Profit Sharing Retirement Plan, dated March 1985; (filed as exhibit 10-I to Form 10-K for the fiscal year ended June 30, 1985). (10)(J) Previously filed, but no longer applicable - see exhibit 10-AF below. (10)(K) Previously filed, but no longer applicable. (10)(L) Nonqualified Stock Option Plan, dated December 2, 1985 (filed as exhibit 10-L to Form 10-K for the fiscal year ended June 30, 1986). (10)(M) Employment Agreement between Parlex Corporation and Mr. Herbert W. Pollack, dated May 1, 1986; (filed as exhibit 10-M to Form 10-K for the fiscal year ended June 30, 1986). (10)(N) Amendment and Restatement to Employees' Profit Sharing Retirement Plan, dated December 1, 1986; (filed as exhibit 10-N to Form 10-K for the fiscal year ended June 30, 1987). (10)(O) Previously filed, but no longer applicable - see exhibit 10-AF below. (10)(P) Previously filed, but no longer applicable. (10)(Q) Restated Articles of Organization, dated December 1, 1987; (filed as exhibit 10-Q to Form 10-K for the fiscal year ended June 30, 1988). (10)(R) Amendment to Employees' Profit Sharing Retirement Plan, dated August 27, 1987; (filed as exhibit 10-R to Form 10-K for the fiscal year ended June 30, 1988). (10)(S) Previously filed, but no longer applicable. (10)(T) Previously filed, but no longer applicable - see exhibit 10-AF below. (10)(U) Amendments to Parlex Corporation Profit Sharing Retirement Plan; (filed as exhibit 10-U to Form 10-K for the fiscal year ended June 30, 1990). (10)(V) Amendments to Parlex Corporation Profit Sharing Retirement Plan; (filed as exhibit 10-U to Form 10-K for the fiscal year ended June 30, 1990). (10)(W) Previously filed, but no longer applicable - see exhibit 10-AF below. (10)(X) Previously filed, but no longer applicable. (10)(Y) Previously filed, but no longer applicable - see exhibit 10-AA below. (10)(Z) 1989 Outside Directors' Stock Option Plan; (filed as exhibit 10-Z to Form 10-K for the fiscal year ended June 30, 1991). (10)(AA) 1989 Employees' Stock Option Plan; (filed as exhibit 10-AA to Form 10-K for the fiscal year ended June 30, 1991). (10)(AB) Previously filed, but no longer applicable. (10)(AC) Previously filed, but no longer applicable - see exhibit 10-AF below. (10)(AD) Lease agreement - Parlex Corporation dated July 8, 1992; (filed as exhibit 10-AD to Form 10-K for the fiscal year ended June 30, 1993). (10)(AE) Amendment to Parlex Corporation Profit Sharing Retirement Plan dated May 26, 1993; (filed as exhibit 10-AE to Form 10-K for the fiscal year ended June 30, 1993). (10)(AF) Revolving Credit and Loan Agreement dated June 22, 1994; (filed as Exhibit 10-AF to Form 10-K for the fiscal year ended June 30, 1994). (10)(AG) Employment Agreement between Parlex Corporation and Mr. Peter J. Murphy dated May 24, 1994; (filed as Exhibit 10-AG to Form 10-K for the fiscal year ended June 30, 1994). (10)(AH) Chinese Joint Venture Contract, Articles of Association, and Transfer of Technology Agreement dated May 29, 1995; (filed as Exhibit 10-AH to Form 10-K fiscal year ended June 30, 1995). Confidential treatment has been requested for portions of this exhibit. (10)(AI) Development and Supply Agreement between Motorola Inc. and Parlex Corporation dated April 13, 1993; (filed as Exhibit 10-AI to Form 10-K fiscal year ended June 30, 1995). Confidential treatment has been requested for portions of this exhibit. (10)(AJ) Central Trust of China Agreement dated June 5, 1995; (filed as Exhibit 10-AJ to Form 10-K for the fiscal year ended June 30, 1995). Confidential treatment has been requested for portions of this exhibit. (10)(AK) License Agreement between Samsung Electro-Mechanics Co., Ltd. and Parlex Corporation dated September 29, 1994; (filed as Exhibit 10-AK to Form 10-K for the fiscal year ended June 30, 1995). (10)(AL) Employment Agreement between Parlex Corporation and Mr. Herbert W. Pollack dated July 1, 1994; (filed as Exhibit 10-AL to Form 10-K for the fiscal year ended June 30, 1995). (10)(AM) Employment Agreement between Parlex Corporation and Peter J. Murphy dated June 26, 1996; see Exhibit Index. (10)(AN) License Agreement between Parlex Corporation and Polyclad Laminates, Inc., effective June 1, 1996; see Exhibit Index. Confidential treatment has been requested for portions of this exhibit. (10)(AO) License grant between Parlex Corporation and Allied Signal Laminate Systems, Inc., effective May 5, 1995; see Exhibit Index. Confidential treatment has been requested for portions of this exhibit. (10)(AP) License Agreement between Parlex Corporation and Pucka Industrial Co., Ltd., effective July 1, 1996; see Exhibit Index. Confidential treatment has been requested for portions of this exhibit. (10)(AQ) Revolving Credit and Loan Agreement dated December 18, 1995; See Exhibit Index. (21) Subsidiaries of the Registrant; See Exhibit Index. (23) Independent Auditors' Consent; See Exhibit Index. (24) Powers of Attorney; See Exhibit Index. (B) Reports on Form 8-K The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the quarter ended June 30, 1996. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Parlex Corporation */S/ Herbert W. Pollack - ----------------------------------------------------------- Herbert W. Pollack, Chairman and Chief Executive Officer Date: September 27, 1996 - ----------------------------------------------------------- Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. */S/ Steven M. Millstein - ----------------------------------------------------------- Steven M. Millstein, Principal Accounting and Financial Officer Date: September 27, 1996 ----------------------------------------------------- */s/ Sheldon A. Buckler - ----------------------------------------------------------- Sheldon A. Buckler, Director */s/ Richard W. Hale - ----------------------------------------------------------- Richard W. Hale, Director */s/ M. Joel Kosheff - ----------------------------------------------------------- M. Joel Kosheff, Director */s/ Peter J. Murphy - ----------------------------------------------------------- Peter J. Murphy, Director */s/ Lester Pollack - ----------------------------------------------------------- Lester Pollack, Director */s/ Benjamin M. Rabinovici - ----------------------------------------------------------- Benjamin M. Rabinovici, Director */S/ Steven M. Millstein - ----------------------------------------------------------- * by Steven M. Millstein, Attorney-in-Fact Date: September 27, 1996 ----------------------------------------------------- As of the date of submission of this filing, no annual report or proxy material with respect to the fiscal year ended June 30, 1996 has been sent to the security holders. Such annual report and proxy material will be submitted to the Commission at the time it is furnished to the security holders. EXHIBIT INDEX
Exhibit Description Page - ------- ----------- ---- 10-AM Employment Agreement between Parlex 30 Corporation and Peter J. Murphy dated June 26, 1996. 10-AN License Agreement between Parlex Corporation 37 and Polyclad Laminates, Inc., effective June 1, 1996. 10-AO License grant between Parlex Corporation 45 and Allied Signal Laminate Systems, Inc., effective May 5, 1995. 10-AP License Agreement between Parlex Corporation 60 and Pucka Industrial Co., Ltd., effective July 1, 1996. 10-AQ Revolving Credit and Loan Agreement dated 72 December 18, 1995. 21 Subsidiaries of the Registrant 95 23 Independent Auditors' Consent 96 24 Powers of Attorney 97 27 Financial Data Schedule 98
INDEPENDENT AUDITORS' REPORT To the Stockholders and Directors of Parlex Corporation: We have audited the accompanying consolidated balance sheets of Parlex Corporation and its Subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Parlex Corporation and its Subsidiaries at June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Boston, Massachusetts August 2, 1996 PARLEX CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS -- ANNUAL REPORT (FORM 10-K) YEAR ENDED JUNE 30, 1996 - ------------------------------------------------------------------------------ CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of June 30, 1996 and 1995 For Each of the Years Ended June 30, 1996, 1995 and 1994: Consolidated Statements of Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto. PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND 1995 - ------------------------------------------------------------------------------
ASSETS 1996 1995 ----------- ----------- CURRENT ASSETS: Cash $ 386,608 $ 161,392 Accounts receivable -- less allowance for doubtful accounts of $80,000 in 1996 and $73,000 in 1995 7,453,333 7,171,553 Inventories 7,753,424 6,084,076 Refundable income taxes 17,794 206,669 Deferred income taxes 314,743 263,150 Other current assets 699,386 441,866 --------------------------- Total current assets 16,625,288 14,328,706 --------------------------- PROPERTY, PLANT AND EQUIPMENT: Land 468,864 468,864 Buildings 6,838,391 6,629,301 Machinery and equipment 22,321,826 21,140,403 Leasehold improvements and other 2,422,084 737,863 --------------------------- Total 32,051,165 28,976,431 Less accumulated depreciation and amortization (19,396,046) (19,047,539) --------------------------- Property, plant and equipment -- net 12,655,119 9,928,892 --------------------------- OTHER ASSETS 381,649 259,503 --------------------------- TOTAL $29,662,056 $24,517,101 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 100,000 $ 200,000 Bank loan 400,668 -- Accounts payable 5,179,769 3,405,642 Accrued liabilities 1,797,223 2,257,184 --------------------------- Total current liabilities 7,477,660 5,862,826 --------------------------- LONG-TERM DEBT 3,650,000 2,300,000 --------------------------- OTHER NONCURRENT LIABILITIES 1,846,260 1,686,816 --------------------------- MINORITY INTEREST IN PARLEX SHANGHAI 1,232,691 -- --------------------------- STOCKHOLDERS' EQUITY: Common stock, $.10 par value -- authorized, 5,000,000 shares; issued, 2,582,659 and 2,579,409 shares in 1996 and 1995, respectively 258,266 257,941 Additional paid-in capital 3,243,491 3,226,316 Retained earnings 12,991,313 12,220,827 Less treasury stock, at cost -- 210,000 shares in 1996 and 1995 (1,037,625) (1,037,625) --------------------------- Total stockholders' equity 15,455,445 14,667,459 --------------------------- TOTAL $29,662,056 $24,517,101 ===========================
See notes to consolidated financial statements. PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED JUNE 30, 1996, 1995 AND 1994 - ------------------------------------------------------------------------------
1996 1995 1994 REVENUES: Product sales $47,102,025 $39,756,799 $34,926,468 License fees and royalty income 155,000 494,500 -- ------------------------------------------- Total revenues 47,257,025 40,251,299 34,926,468 ------------------------------------------- COSTS AND EXPENSES: Cost of products sold 40,307,894 32,946,050 29,150,173 Selling, general and administrative expenses 5,518,292 4,998,262 4,637,556 ------------------------------------------- Total costs and expenses 45,826,186 37,944,312 33,787,729 OPERATING INCOME 1,430,839 2,306,987 1,138,739 OTHER INCOME (EXPENSE) 90,588 88,288 (21,870) INTEREST EXPENSE (351,125) (154,974) (109,621) ------------------------------------------- INCOME FROM OPERATIONS BEFORE INCOME TAXES 1,170,302 2,240,301 1,007,248 PROVISION FOR INCOME TAXES (386,961) (754,413) -- ------------------------------------------- INCOME BEFORE MINORITY INTEREST 783,341 1,485,888 1,007,248 MINORITY INTEREST 12,855 -- -- ------------------------------------------- NET INCOME $ 770,486 $ 1,485,888 $ 1,007,248 =========================================== NET INCOME PER SHARE $ .31 $ .61 $ .44 =========================================== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 2,449,820 2,434,035 2,310,788 ===========================================
See notes to consolidated financial statements. PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996, 1995 AND 1994 - ------------------------------------------------------------------------------
Additional Common Stock Paid-in Retained Treasury Shares Amount Capital Earnings Stock BALANCE, JULY 1, 1993 2,517,359 $251,736 $2,906,575 $ 9,727,691 $(1,037,625) Tax benefit arising from the exercise of nonqualified stock options -- -- 6,776 -- -- Issuance of stock 4,500 450 17,269 -- -- Net income -- -- -- 1,007,248 -- ------------------------------------------------------------- BALANCE, JUNE 30, 1994 2,521,859 252,186 2,930,620 10,734,939 (1,037,625) Tax benefit arising from the exercise of nonqualified stock options -- -- 70,220 -- -- Issuance of stock 57,550 5,755 225,476 -- -- Net income -- -- -- 1,485,888 -- ------------------------------------------------------------- BALANCE, JUNE 30, 1995 2,579,409 257,941 3,226,316 12,220,827 (1,037,625) Issuance of stock 3,250 325 17,175 -- -- Net income -- -- -- 770,486 -- ------------------------------------------------------------- BALANCE, JUNE 30, 1996 2,582,659 $258,266 $3,243,491 $12,991,313 $(1,037,625) =============================================================
See notes to consolidated financial statements. PARLEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996, 1995 AND 1994 - ------------------------------------------------------------------------------
1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 770,486 $ 1,485,888 $ 1,007,248 ----------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,678,150 1,438,974 1,422,162 (Gain) loss on sale of equipment 13,652 (500) 31,480 Deferred income taxes 37,510 75,006 (365,423) Deferred compensation 70,341 64,015 83,414 Minority interest 12,855 -- -- Changes in current assets and liabilities: Accounts receivable--net (681,780) (1,009,837) (1,494,103) Inventories (1,669,348) (897,710) (163,677) Refundable income taxes 188,875 (206,669) -- Other current assets (257,520) (140,501) (10,882) Accounts payable and accrued liabilities 1,314,166 811,262 735,954 Income taxes payable -- (292,721) 369,716 ----------------------------------------- Total adjustments 706,901 (158,681) 608,641 ----------------------------------------- Net cash provided by operating activities 1,477,387 1,327,207 1,615,889 ----------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (2,968,713) (2,851,360) (1,521,490) Increase in other assets (122,146) (90,234) (10,755) Proceeds from sale of equipment 10,198 500 3,850 ----------------------------------------- Net cash used for investing activities (3,080,661) (2,941,094) (1,528,395) ----------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank loan 400,668 -- -- Capital contributions to joint venture--minority interest 160,322 -- -- Borrowings (payments) under revolving credit agreement 1,450,000 1,550,000 (25,000) Payments of other long-term debt (200,000) (200,000) (200,000) Exercise of stock options 17,500 231,231 17,719 ----------------------------------------- Net cash provided by (used for) financing activities 1,828,490 1,581,231 (207,281) ----------------------------------------- NET INCREASE (DECREASE) IN CASH 225,216 (32,656) (119,787) CASH, BEGINNING OF YEAR 161,392 194,048 313,835 ----------------------------------------- CASH, END OF YEAR $ 386,608 $ 161,392 $ 194,048 ========================================= SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS: Property and equipment contributed as capital by joint venture partner $ 1,060,000 $ -- $ -- ========================================= Property, plant and equipment acquired in exchange for accounts receivable $ 400,000 $ -- $ -- =========================================
See notes to consolidated financial statements. PARLEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996, 1995 AND 1994 - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation -- The consolidated financial statements include the accounts of Parlex Corporation (the "Company"), its wholly owned subsidiaries and its 50.1% investment in Parlex (Shanghai) Circuit Co., Ltd. (see Note 2) whose fiscal year end is March 31. Intercompany transactions have been eliminated. Inventories -- Inventories of raw materials are stated at the lower of first-in, first-out cost or market. Work in process represents costs accumulated under a job-cost accounting system less the estimated cost of shipments to date, in the aggregate not in excess of net realizable value. At June 30, inventories consisted of:
1996 1995 Raw materials $2,419,744 $1,867,370 Work in process 5,333,680 4,216,706 ------------------------- Total $7,753,424 $6,084,076 =========================
Property, Plant and Equipment -- Property, plant and equipment are stated at cost and are depreciated over their estimated useful lives using the straight-line method. Preferred Stock -- The Company has 1,000,000 shares of $1.00 par value preferred stock authorized. No shares were issued at June 30, 1996 or 1995. Revenue Recognition -- Product sales are recognized upon shipment. License fees and royalty income are recognized when earned and as related costs are incurred. Research and Development -- Research and development costs are expensed as incurred and amounted to $2,380,000, $2,215,000 and $1,767,000 for the years ended June 30, 1996, 1995 and 1994, respectively. These amounts are reflected in the Company's cost of products sold. Income Taxes --The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach to accounting for income taxes based upon the future expected values of the related assets and liabilities. Deferred income taxes are provided for items which are recognized in different years for tax and financial reporting purposes. Net Income Per Share -- Net income per share has been computed based on the weighted average number of common shares and common share equivalents outstanding during the year. Use of Estimates -- The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates. Estimates include reserves for accounts receivable, useful lives of properties, accrued liabilities including health insurance claims and deferred income taxes. Actual results could differ from those estimates. Fair Value of Financial Instruments -- SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. The carrying amounts of cash, accounts payable and accrued expenses approximate fair value because of their short-term nature. The carrying amounts of the Company's debt instruments approximate fair value. New Accounting Standards -- In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company intends to adopt SFAS No. 121 in 1997. The Company is presently evaluating the impact, if any, that this statement will have on its consolidated financial position and results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which will be effective for the Company beginning July 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock-based compensation awards to employees and directors, and will disclose the required pro forma effect on net income and net income per share in its June 30, 1997 consolidated financial statements. 2. JOINT VENTURE In May 1995, the Company entered into an agreement to establish a limited liability company in the form of a joint venture in the People's Republic of China. The Company owns 50.1% of the joint venture. The joint venture manufactures flexible printed circuits and commenced operations in September 1995. 3. ACCRUED LIABILITIES Accrued liabilities at June 30 consisted of:
1996 1995 Payroll and related expenses $ 993,947 $ 999,954 Accrued health insurance 222,170 213,798 Customer deposit -- 545,295 Other 581,106 498,137 ------------------------ Total $1,797,223 $2,257,184 ========================
4. INDEBTEDNESS The Company's China joint venture has a short-term bank loan bearing interest at 1.25% over Singapore Interbank Offer Rate ("SIBOR"). Long-term debt at June 30 consisted of:
1996 1995 Revolving Credit Agreement $3,650,000 $2,200,000 Industrial Revenue Development Bond 100,000 300,000 ------------------------ Total long-term debt 3,750,000 2,500,000 Less current portion 100,000 200,000 ------------------------ Long-term debt -- net $3,650,000 $2,300,000 ========================
The Company has an Industrial Revenue Development Bond with a bank, at a varying interest rate, which annually approximates 65% of prime (8.25% at June 30, 1996). Interest and principal are payable quarterly. Buildings owned by the Company are pledged as collateral. The net book value of such buildings is approximately $3,560,000 at June 30, 1996. On December 12, 1995, the Company renegotiated its unsecured Revolving Credit Agreement (the "Agreement") (dated June 22, 1994) making available up to a total of $5,000,000 through December 31, 1997. On January 1, 1998, at the Company's option, the Company may convert the Agreement to a term loan with principal and interest payments due monthly over a thirty-six-month period to December 31, 2000. Borrowings under the Agreement are at the bank's corporate base rate (8.25% at June 30, 1996), and carry an annual commitment fee of 1/2% on the average daily unused portion of the bank's commitment. Interest is payable monthly. At June 30, 1996, the unused commitment amounted to $1,350,000. The Industrial Revenue Development Bond and the Agreement have restrictive covenants, which include restrictions on payment of cash dividends and requirements as to tangible net worth, current ratio, working capital, and the ratio of total liabilities to equity. Under the most restrictive covenants, amounts available for dividends or other distributions and capital expenditures at June 30, 1996 approximated $2,745,000 and $4,710,000, respectively. Interest paid during the years ended June 30, 1996, 1995 and 1994 was approximately $251,000, $97,000 and $63,000, respectively. Long-term debt due during the years ending June 30, 1997 and 1998 is $100,000 and $3,650,000, respectively. 5. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities at June 30 consisted of:
1996 1995 Deferred income taxes (Note 6) $ 980,124 $ 891,021 Deferred compensation 866,136 795,795 ----------------------- $1,846,260 $1,686,816 =======================
The timing of deferred compensation payments cannot presently be determined. Amounts, if any, which may be paid within one year are not material. 6. INCOME TAXES The provision for income taxes consisted of:
1996 1995 1994 Current: State $ (57,943) $ (78,567) $ (9,000) Federal (291,508) (600,840) (126,000) Deferred (37,510) (75,006) (285,000) Benefit of net operating loss carryforwards -- -- 420,000 ------------------------------------- Total $(386,961) $(754,413) $ -- =====================================
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
1996 1995 1994 Statutory federal income tax rate 34 % 34 % 34 % State income taxes, net of federal tax benefit 3 4 4 Tax credits -- (4) -- Utilization of net operating loss carryforwards -- -- (42) Other (4) -- 4 ----------------------- Effective income tax rate 33 % 34 % -- % =======================
Deferred income tax assets and liabilities at June 30 are attributable to the following:
1996 1995 Deferred tax liabilities: Depreciation $1,326,252 $1,209,013 Prepaid expenses -- 27,988 ------------------------- 1,326,252 1,237,001 ------------------------- Deferred tax assets: Inventories 36,281 40,912 Allowance for doubtful accounts 31,991 29,157 Accruals 114,584 110,893 Self-insurance 87,920 85,519 Deferred compensation 346,128 317,992 State net operating loss and credit carryforwards 43,967 24,657 ------------------------- 660,871 609,130 ------------------------- Net deferred tax liability $ 665,381 $ 627,871 =========================
Income tax payments of approximately $445,000, $1,162,000 and $12,300 were made in 1996, 1995 and 1994, respectively. 7. STOCK OPTIONS The Company has incentive and nonqualified stock option plans covering officers, key employees and directors who are not otherwise employees. The options are generally exercisable commencing one year from the date of grant and typically expire in either five or ten years, depending on the plan. The option price for the incentive stock options and for the directors plan is fair market value at the date of grant. Nonqualified stock options are granted at fair market value or at a price determined by the Board of Directors, depending on the plan. In certain cases, the Company may, at the option of the Board of Directors, reimburse the employees for the tax cost associated with their options. At June 30, 1996, there were 221,750 shares reserved for future grants. Information concerning the Company's stock option plans is as follows:
Shares Under Option Option Prices Exercisable July 1, 1993 142,775 $3.25 -- $ 4.00 49,263 ====== Granted 110,000 6.00 -- 6.88 Surrendered (9,850) 3.25 -- 4.00 Exercised (4,500) 3.25 -- 4.00 ------- June 30, 1994 238,425 3.25 -- 6.88 73,299 ====== Granted 25,500 6.25 -- 18.50 Surrendered (12,500) 3.25 -- 6.25 Exercised (57,550) 3.25 -- 6.25 ------- June 30, 1995 193,875 3.25 -- 18.50 63,248 ====== Granted 26,500 8.75 Surrendered (6,250) 3.25 -- 6.25 Exercised (3,250) 3.25 -- 6.25 ------- June 30, 1996 210,875 99,185 ======= ======
8. SEGMENT, MAJOR CUSTOMER AND FOREIGN SALES INFORMATION The Company operates within a single segment of the electronics industry as a specialist in the interconnection and packaging of electronic equipment with its product lines of flexible printed circuits, laminated cable, and related assemblies. Sales to several divisions of one customer represented 29% and 12% of total revenues, in 1996 and 1995, respectively. In 1994, sales to two customers represented 11% and 10% of total revenues. 9. RENTAL COMMITMENTS The Company leases certain property and equipment under agreements generally with initial terms from three to five years with renewal options. Rental expense for each of the years ended June 30, 1996, 1995 and 1994 was approximately $153,000. Future payments under noncancelable operating leases are: 1997 $285,708 1998 132,708 1999 132,708 2000 73,763 2001 20,670 Thereafter -- -------- $645,557 ========
10. BENEFIT PLANS The Company has a qualified profit-sharing retirement plan to provide benefits to eligible employees. Annual contributions to the plan are at the discretion of the Board of Directors and are discretionary in amount. No contributions were made to the plan for the years ended June 30, 1996, 1995 or 1994. During fiscal 1995, the Company adopted a 401(k) Savings Plan (the "Plan") covering all employees of the Company that have six consecutive months of service and have attained the age of twenty- one. Matching employer contributions can be made to the Plan at the discretion of the Board of Directors. No matching contribution was made to the Plan for the years ended June 30, 1996 and 1995. 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data are as follows (in thousands except per share amounts):
1996 Quarters First Second Third Fourth Revenues $11,611 $11,685 $11,703 $12,258 Gross profit 1,316 1,539 1,820 2,274 Net income 24 91 196 459 Net income per share .01 .04 .08 .18 1995 Quarters Revenues $ 9,417 $ 9,982 $10,031 $10,821 Gross profit 1,801 1,999 1,745 1,760 Net income 373 472 241 400 Net income per share .16 .19 .10 .16
Gross profit in the fourth quarter of 1995 includes the effects of start-up costs of approximately $400,000 associated with a major contract. Also during this quarter, the Company adjusted its annual effective tax rate to 34% from 40% which it had previously provided during the first three quarters of the year. This reduction resulted principally from changes in the estimation of tax credits earned during the year. The adjustment had the effect of increasing fourth quarter net income by approximately $107,000 (4 cents per share). * * * * * * EX-10 2 EX 10-AM, EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- AGREEMENT (the "Agreement") made as of the 26th day of June, 1996, by and between Parlex Corporation, a Massachusetts corporation (the "Company"), and Peter J. Murphy of Bedford, New Hampshire (the "Employee"). In consideration of the mutual promises herein contained, the Company and the Employee hereby agree as follows: 1. Employment ---------- The Company hereby employs the Employee, and the Employee hereby accepts employment by the Company to render such services in connection with the business of the Company as the Company may from time to time request. The term of the Employee's employment hereunder shall begin on July 1, 1996 and shall end on June 30, 1999. 2. Compensation ------------ 2.1 In consideration of all services to be rendered by the Employee during the term of this Agreement, the Company shall pay to the Employee during the term of his employment hereunder compensation at the rate of eight thousand twenty-one dollars ($8,021.00) twice a month, payable in accordance with Company's current policy for senior management. 2.2 The amount of compensation provided in subsection 2.1 above may be reviewed from time to time by the Compensation Committee of the Board of Directors of the Company in its sole discretion. 3. Death Benefit ------------- If the Employee dies during the term of employment hereunder, this Agreement shall terminate and all obligations of Company to Employee shall terminate except that Company agrees to pay to the Designated Beneficiary (as hereinafter defined) on a monthly basis for a period of twenty-four (24) months beginning with the first month after Employee's death, an amount equal to seventy-five percent (75%) of the rate of compensation payable per month to Employee, at the time of Employee's death, pursuant to subsection 2.1 above. For purposes of this Agreement, the term "Designated Beneficiary" shall be the person or persons designated in a writing filed by the Employee with the Company or, upon the death of the Employee without having made such a designation, the Employee's estate. 4. Fringe Benefits --------------- In addition to the compensation provided for in section 2 above, while this Agreement is in effect Employee shall be entitled to receive all fringe benefits and perquisites customarily extended to officers and key employees of the Company, including but not limited to, profit sharing, bonus, stock option, health and life insurance. 5. Further Covenants ----------------- 5.1 The Employee agrees that all knowledge and information of a secret or confidential nature with respect to the business of the Company possessed or acquired by him will be held in confidence and will not, either during or after his employment by the Company, be disclosed, published, or made use of except when in the ordinary course of business the disclosure is in the best interest of the Company or unless and until such knowledge and information shall have ceased to be secret or confidential as evidenced by general public knowledge. 5.2 The Employee agrees that all inventions, developments, patents, and patent applications relating to the business of the Company made, conceived, or obtained by him either alone or in conjunction with others during the term of his employment by the Company shall be the sole property of the Company. The Employee agrees to promptly disclose and assign to the Company all such inventions, developments, patents, and patent applications, and, at the request of the Company to promptly execute and deliver any documents and take any other action which the Company deems necessary or advisable in order to vest in it all rights to such inventions, developments, patents, and patent applications. 5.3 The Employee agrees that at the termination of his employment by the Company he will promptly deliver to the Company all technical data, drawings, memoranda, customer lists, and other documents in his possession or control which relate to the business of the Company. 5.4 The Employee agrees that so long as he is employed by the Company hereunder, and for a period of twelve (12) months after he ceases for any reason to be employed by the Company, he will not, directly or indirectly, own, operate, manage or participate in the ownership, operation, or management of, or be connected or employed in any way (whether as owner, employee, officer, director, partner, shareholder, consultant, joint venturer, investor, lender or in any other capacity) with, or engage, enter into or participate in any business in competition with the business of the Company, including, but not limited to, the business of the design, manufacture, and sale of flexible circuits, laminated cable and related products, operating units of flexible circuit competitors, laminated cable competitors, material or service suppliers to competitors or customer owned printed circuit facilities, anywhere in the United States; provided, however, the Employee shall not be deemed to be in violation of this subsection 5.4 solely by reason of his ownership of not more than two percent (2%) of the equity of any corporation whose stock is regularly traded on a national securities exchange or in the over-the-counter market. 5.5 The Employee agrees that so long as he is employed by the Company hereunder, and for a period of twelve (12) months after he ceases for any reason to be employed by the Company, he will not, directly or indirectly, through one or more persons, offer employment to any employee of the Company, assist in the hiring of any employee of the Company by any other person, or encourage any employee of the Company to terminate his or her employment with the Company. 5.6 The Employee agrees that so long as he is employed by the Company hereunder, and for a period of twelve (12) months after he ceases for any reason to be employed by Company, Employee shall not, directly or indirectly, solicit, divert or take away, or attempt to divert or take away, the business of any client, account or customer, or prospective client, customer or account of Company or with whom Employee has had any contact as a result of his employment by Company hereunder nor shall he divulge, disclose or communicate the list of customers (present or potential) of the Company's business to any person, firm, corporation, association or other entity. 5.7 In consideration of and as an inducement to both parties to enter into this Agreement, Employee and Company represent and agree that the provisions of this covenant not to compete are proper and customary for Employee's level of responsibility and there is mutual advantage to both parties for execution of this Agreement. The Employee represents and agrees that he has received fair and reasonable compensation for his employment and further represents and warrants that although a disadvantage,his education, training and experience are such that the provisions of this Covenant will not prevent him from earning a living. The Company acknowledges that the employment restriction could significantly damage the Employee's ability to quickly retain suitable employment but will not prevent him from earning a living. Employee agrees and acknowledges that Company will suffer irreparable injury and damage and cannot be reasonably or adequately compensated in monetary damages for the loss by the Company of its benefits or rights under this Agreement as a result of a breach, default or violation by the Employee of his obligations hereunder. Accordingly, the Company shall be entitled, in addition to all other remedies which may be available to it (including monetary damage), to injunctive and other available equitable relief in any court of competent jurisdiction to prevent or otherwise restrain or terminate any actual or threatened breach, default or violation by the Employee of any provision hereunder or to enforce any such provision. Any legal action or other proceeding for any purpose with respect to this Section 5 shall be brought exclusively in any court of competent jurisdiction sitting in the Commonwealth of Massachusetts, and the parties hereto agree to submit to the jurisdiction of such court and to comply with all requirements necessary to give such court exclusive jurisdiction thereof. The losing party to any such proceeding shall pay all costs (including reasonable attorney's fees) of all parties with respect to the proceeding. It is acknowledged further by Employee that the provisions of Section 5 are restrictive and intended to prevent Employee from competing with Company, soliciting its customers or influencing Company's employees in any way to discontinue their employment relationship with Company. If at any time the provisions relating to the agreement of the Employee not to compete with the Company or raid or entice away its employees shall be deemed invalid or unenforceable by the laws of the jurisdiction wherein it is to be enforced, by reason of being vague or unreasonable as to duration or geographic scope or scope of activities restricted, or for any other reason, the remaining provisions thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included therein and the covenant shall be considered divisible as to such invalid or unenforceable portion, and it shall be construed to include only such restrictions and to such extent as shall be deemed to be reasonable and enforceable by the court or other body of such jurisdiction charged with interpreting and/or enforcing this Agreement, and the Company, and Employee agree that the restrictions of such covenant as so construed shall be valid and binding as though the invalid or unenforceable portion had not been included herein. 5.8 For purposes of this Agreement, the words "so long as he is employed by the Company hereunder" as used herein shall refer to the time period when the Company shall have terminated Employee's employment without cause pursuant to Section 6.3 below and Employee continues to be paid compensation in accordance with the provisions of Section 2 above. 6. Employment Termination ---------------------- Section 1 of this Agreement notwithstanding, the employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 6.1 At the election of the Company, for cause, immediately upon written notice by the Company to the Employee. For the purposes of this Agreement the term "Cause" shall mean that the Employee shall have breached or failed to perform his obligations and job responsibilities in accordance with the terms and conditions of this Agreement or his job description, shall demonstrate negligence, inefficiency, gross misconduct, dishonesty, or insubordination in the execution of his duties as an employee of the Company, or upon conviction of a felony or any crime involving moral turpitude; 6.2 Upon the death or total disability of the Employee. As used in this Agreement, the term "total disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of 90 consecutive days during any 360-day period, to perform the services contemplated under this Agreement. A determination of total disability shall be made by a physician satisfactory to both the Employee and the Company, provided that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. Notwithstanding the foregoing, the Company may, in its sole discretion, enlarge the time period definition provided herein; or 6.3 Upon notice of termination given at the election of the Company by action of its board of directors without Cause provided that the Employee shall be entitled to receive the compensation described in Section 7.3 below. 7. Effect of Termination --------------------- 7.1 In the event the Employee's employment is terminated for Cause pursuant to Section 6.1, the Company shall pay to the Employee the compensation and benefits otherwise payable to him under Section 2 through the last day of his actual employment by the Company. 7.2 If the Employee's employment is terminated because of disability pursuant to Section 6.2 above, the Company shall pay to the Employee both the compensation which would otherwise be payable to the Employee up to the end of the month in which the termination of his employment because of disability occurs and an amount, payable on a monthly basis, for a period of six (6) months beginning with the first month after termination of his employment because of disability occurs, equal to one hundred percent (100%) of the rate of compensation payable per month to Employee, at the time of Employee's termination, pursuant to subsection 2.1 above. Notwithstanding the foregoing, Company's obligation to pay compensation to Employee for six months after termination of his employment shall be reduced dollar for dollar by the amount of any long term disability payments received by or payable to Employee for this same time period. 7.3 If the Employee's employment is terminated without Cause pursuant to Section 6.3 or in the event the Company decides after expiration of this Agreement not to renew Employee's employment with the Company and said decision was made without Cause, the Company shall pay to the Employee both (i) the compensation and benefits otherwise payable to him under Section 2 through the last day of his actual employment by the Company and (ii) an amount, payable on a monthly basis, through June 30, 1999 equal to one hundred percent (100%) of the rate of compensation payable per month to Employee, at the time of Employee's termination, pursuant to subsection 2.1 above. Additionally, Company shall pay to Employee a monthly sum equivalent to fifty percent (50%) of the rate of compensation payable per month to Employee, at the time of Employee's termination, pursuant to subsection 2.1 above ("Termination Pay"), for each month or pro rata portion of each month, from July 1, 1999 to the earlier to occur of the following dates: (a) June 30, 2000; (b) Employee's reemployment; or (c) Company determining, in its sole discretion, that it will waive compliance by the Employee with the provisions of section 5.4 herein. 8. Attachment; assignability ------------------------- The right of the Employee or his Designated Beneficiary to any payment hereunder shall not be subject in any manner to attachment or other legal process for the debts of the Employee or such Designated Beneficiary, and the right to any such payment shall not be subject to anticipation, alienation, sale, transfer, assignment, or encumbrance. 9. Severability ------------ The provisions of this Agreement shall be severable, and the invalidity of any portion of this Agreement shall not affect the validity of any other portion hereof. 10. Successors ---------- This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Employee, his executors, administrators, and personal representatives. The parties further agree that this Agreement contains the entire understanding of the parties and is the complete and exclusive statement of the Agreement between them, and that they understand and agree to be bound by its terms and conditions. 11. Governing Law ------------- This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its behalf by an officer thereof thereunto duly authorized and has caused its seal to be hereunto affixed and duly attested, and the Employee has hereunto set his hand and seal, as of the day and year first above written. ATTEST: PARLEX CORPORATION: By: /s/ Herbert W. Pollack - ----------------------------- ------------------------------------ Herbert W. Pollack, Chief Executive Officer EMPLOYEE: /s/ Peter J. Murphy - ----------------------------- ------------------------------------ Peter J. Murphy EX-10 3 EX 10-AN, LICENSE AGREEMENT LICENSE AGREEMENT This Agreement is effective June 1, 1996 by and between Parlex Corporation, a Massachusetts corporation, having its principal place of business at 145 Milk Street, Methuen, Massachusetts, 01844 (hereinafter referred to as "Parlex"), and Polyclad Laminates, Inc., a Massachusetts corporation having its principal place of business at 40 Industrial Park, West Franklin, New Hampshire, 03235 (hereinafter referred to as "Polyclad"). WHEREAS Parlex has issued and pending United States and foreign patents, which are hereinafter defined as "Licensed Patents" relating to multi-layer circuit board construction and fabrication; WHEREAS Polyclad desires to acquire certain license rights, as hereinafter set forth, under the Licensed Patents, and Parlex is willing to grant such rights on the terms set forth herein; NOW THEREFORE in consideration of the premises and the mutual obligations of the parties, the parties agree as follows: 1.0 DEFINITIONS 1.1 Permitted Products shall mean two dimensional, multi-layer printed circuit boards which are not designed nor intended to be folded or bent upon installation. Incidental flexibility of a product not to exceed 15 is permissible in an otherwise permitted product. 1.2 Excluded Products shall mean three-dimensional, multi-layer printed circuit boards which are designed or intended to be folded or bent upon installation, or multi-layer flexible circuit boards mountable on a flat rigidized heat sink, and including without limitation Type 3, Type 4 and Type 5 printed circuit or printed wiring boards as defined in MIL/STD- 2118 dated 4 May 1984, a copy of which is attached hereto. 1.3 Cap Material shall mean a copper layer having a C stage adhesive coating thereon over which a B stage adhesive coating is provided. 1.4 Licensed Patents shall mean the issued and pending United States and foreign patents identified in Schedule A hereto, any patents resulting from such applications, continuations, divisions, and continuations-in-part and foreign counterparts thereof, any reissues and reexaminations of any such patents, and any improvement in any future patents of Parlex dominated by one or more claims of existing Licensed Patents. 2.0 LICENSE GRANT 2.1 Parlex hereby grants to Polyclad (meaning Polyclad and any entity which now or in the future Polyclad controls, or is under common control with, or which controls Polyclad, but only so long as such entity is controlled by, is under common control with, or controls Polyclad), upon the terms as set forth herein, a royalty bearing license under the Licensed Patents solely for the purpose of providing to customers of Polyclad a label license for use of Polyclad Cap Material in the fabrication of Permitted Products by such customers. It is understood that the term customers includes direct sales to third parties unrelated to Polyclad as well as to internal sales or transfers within Polyclad. This license and the obligation to pay royalties under Paragraph 3.1 shall extend to sales by Polyclad of Cap Material throughout the world. 2.2 Polyclad shall sell the Cap Material with the following label license notice relating to Permitted Products, which shall be conspicuously provided on product packaging and literature in a manner reasonably acceptable to the parties. The notice language and placement may be changed only with the prior written approval of Parlex. This Cap Material is sold only for use in fabricating two- dimensional multi-layer printed circuit boards which are not designed nor intended to be folded or bent upon installation. Unauthorized use of this Cap Material may subject the user to patent infringement liability. 2.3 It is understood that Parlex has previously granted certain license rights in South Korea under the Licensed Patents to Samsung. * Parlex shall notify Polyclad of the identity of any such additional parties licensed when Parlex has entered into such license(s). * 2.4 Parlex does not intend to grant further licenses for Cap Material under the Licensed Patents other than those previously granted; however, it is recognized that circumstances may require one or more other subsequent licenses to be granted under the Licensed Patents for Cap Material. In the event that Cap Material supplied by Polyclad fails to meet customer production volume or quality requirements at competitive prices, Parlex shall have the right to grant a license under the Licensed Patents to only one additional third party in the United States or Europe; however, Polyclad shall have a sixty (60) day period within which to cure the production and/or quality deficiency. Parlex shall have the right to grant a license to a third party under the Licensed Patents for any country or countries other than the United States or Europe in the event that a customer for Cap Material desires an additional source of such Cap Material. Parlex shall also have the right to grant a license under the Licensed Patents to a party supplying Cap Material to Merix Corporation, but such license shall be limited to facilities of Merix Corporation in existence as of the Effective Date of this Agreement. Parlex shall notify Polyclad of any other such license granted to a third party hereunder. Any dispute concerning the right of Parlex to grant an additional license under this Agreement which is not resolved by the parties shall be submitted to arbitration by either party as provided in Section 6.0 of this Agreement. Unless and until the arbitration panel has rendered a decision in Parlex's favor, Parlex shall not grant a license to the disputed licensee. 2.5 In the event that Cap Material sold by Polyclad in a country in which no Licensed Patent has been granted, * 2.6 Each of the parties hereby warrants and represents to the other that they have the unencumbered right to enter into this Agreement and shall indemnify and hold harmless the other party in the event that a third party challenges such right. 2.7 Licensor hereby releases Licensee and its customers from any and all claims of infringement of the License Patent arising prior to the Effective Date of the Agreement. Licensee confirms that it has not sold Cap Material prior to the Effective Date of this Agreement. _______________________ * Confidential information has been omitted and filed separately with the Commission. 3.0 PAYMENT AND REPORTS 3.1 * 3.2 On or before the thirtieth (30th) day after the end of each calendar quarter during the term of this Agreement, Polyclad shall submit to Parlex a written report setting forth for such quarter a computation of the royalties due under Subparagraph 3.1, including any minimum royalties. Simultaneously with the delivery of each such report, Polyclad shall pay Parlex the amount of the royalties due Parlex in accordance with such report. 3.3 Polyclad shall maintain at its principal place of business accurate records and books of account in respect of the sales of Cap Material on which royalties are payable under this Agreement. Polyclad agrees to make such records available for the inspection of an independent certified public accountant (CPA) firm designated by Parlex and acceptable to Polyclad, for the purpose of verifying, at the expense of Parlex, the accuracy of the amount of royalty payments hereunder at reasonable times as agreed by the parties, but no more than once each year. Such CPA firm shall only audit records and books of account for a reporting year within twelve (12) months after the end of that reporting year. 4.0 LITIGATION 4.1 Polyclad shall promptly notify Parlex if Polyclad learns of any breach by customers of Polyclad of the label license restrictions of this Agreement. 4.2 Parlex shall have the sole responsibility for enforcement of any breach of the label license restrictions by customers of Polyclad. 4.3 In the event that any third party infringes any Licensed Patent, or in the event any claim is made or action commenced by a third party which alleges that a Licensed Patent is invalid, Parlex shall have the right at its own expense, but shall not be obligated, to bring an appropriate action against such infringer to cause such infringement to cease or negotiate appropriate settlement with such infringer, or to defend such claim or action by a third party. * Parlex will render reasonable assistance to Polyclad in such litigation or other proceeding, at its own expense. Parlex shall permit, and shall execute such documents as are necessary to permit Polyclad to sue or defend in its own name, and shall, if required, become a named party to such litigation or other proceeding. During such litigation or other proceeding, Polyclad may withhold payment of royalties and shall reimburse Parlex for withheld royalties at the termination of such litigation or proceeding, by settlement or otherwise, to the extent that any damages or settlement amounts plus reasonable litigation fees and costs exceed, if so, such withheld royalties. _______________________ * Confidential information has been omitted and filed separately with the Commission. 5.0 CONFIDENTIALITY 5.1 The proprietary information of each party shall be maintained in confidence in accordance with the separate confidentiality agreement entered into by the parties and attached hereto as Appendix A. 5.2 Neither Parlex nor Polyclad shall use the name of the other for promotional or other purposes nor disclose the terms of this Agreement without the prior written consent of the other; however, either party may notify others of the fact that this Agreement is in effect. 6.0 DISPUTES In the event of any dispute under this Agreement, such dispute will be resolved by final and binding arbitration held in Boston, Massachusetts under the Commercial Arbitration Rules of the American Arbitration Association. The arbitration panel shall be composed of three (3) arbitrators, one of whom shall be appointed by each party and the third of whom shall be appointed by the two party-appointed arbitrators. The arbitration decision shall be binding and enforceable and may be entered in any court having jurisdiction over the applicable party or parties. 7.0 TERM AND TERMINATION 7.1 This initial term of this Agreement shall remain in force and effect until *. 7.2 This Agreement is agreed to have become effective on June 1, 1996 (the "Effective Date") and Polyclad's liability to pay royalties shall be deemed to have commenced on that date. 7.3 In the event any royalties due from Polyclad hereunder shall remain unpaid after the same have become due and payable, or in the event of any other substantial breach or default hereunder by Polyclad, Parlex may terminate this Agreement by notice to Polyclad, of the default, and this Agreement and all licenses and rights containing herein shall terminate thirty (30) days after such notice unless Polyclad shall have cured such breach or default within said thirty (30) day notice period. 7.4 * Upon termination of this Agreement, Polyclad shall discontinue the manufacture and sale of Cap Materials. 7.5 In the event either party files a petition in bankruptcy, is adjudicated bankrupt, makes an assignment for the benefit of its creditors, or otherwise becomes the subject of any bankruptcy, reorganization, insolvency or similar proceedings, the other party shall have the right to terminate this Agreement and all licenses and rights contained herein upon ten (10) days notice thereof. 7.6 Termination of this Agreement shall not affect the obligation under Paragraph 5.1 herein. _______________________ * Confidential information has been omitted and filed separately with the Commission. 8.0 NOTICES All notices under this Agreement shall be in writing and shall be sent by telefax (confirmed by courier or certified or registered mail), to the receiving party at the respective addresses set forth below or such other address as a party may specify by notice to the other: If to Parlex: Parlex Corporation 145 Milk Street Methuen, MA 01844 U.S.A. Attention: Peter J. Murphy President If to Polyclad: Polyclad Laminates, Inc. 40 Industrial Park Drive West Franklin, NH 03235 U.S.A. Attention: James W. Crocker Executive Vice President Chief Operating Officer 9.0 GENERAL PROVISIONS 9.1 This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts and applicable United States federal law. 9.2 Nothing in this Agreement shall convey or imply any license or right by either party other than as expressly set forth in this Agreement. 9.3 This Agreement constitute the entire understanding and agreement of the parties with respect to the subject matter hereof, supersedes any prior understandings or agreements, and may not be varied or modified orally or otherwise than by an instrument in writing duly executed by all of the parties. 9.4 This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.5 Any headings in the sections of this Agreement are inserted for convenience only and shall not constitute a part hereof for any purposes whatsoever. 9.6 Parlex and Polyclad shall be deemed at all times to be independent contractors and nothing contained herein is intended nor shall be construed for any purpose as creating the relation of employer and employee between Parlex and Polyclad or of designating either party as an agent of the other. 9.7 Parlex shall have no product liability with respect to the manufacture and sale of Cap Material by Polyclad, and nothing in this Agreement shall be construed to provide or imply any product warranty by Parlex to Polyclad or to customers of Polyclad. 9.8 Parlex shall notify Polyclad of the issuance of each patent resulting from the pending patent applications of the Licensed Patents. Parlex shall have no obligation to provide Polyclad with copies of any unpublished patent applications. 9.9 This Agreement shall be assignable by Parlex, and shall not be assignable by Polyclad to any party other than a successor of the business to which this Agreement pertains without the prior written permission of Parlex. Polyclad shall notify Parlex of any transfer within the Polyclad group of related companies of the business applicable to this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. PARLEX CORPORATION By ___________________________ Peter J. Murphy President POLYCLAD LAMINATES, INC. By ___________________________ James W. Crocker Executive Vice President Chief Operating Officer EX-10 4 EX 10-AO, LICENSE GRANT This Agreement is effective May 5, 1995 ("Effective Date") by and between Parlex Corporation a Massachusetts corporation 145 Milk Street Methuen, MA 01844 U.S.A. (hereinafter "Parlex") and AlliedSignal Laminate Systems, Inc. a Delaware corporation 230 North Front Street P.O. Box 1448 La Crosse, WI 54602-1448 (hereinafter "ASLS") WHEREAS Parlex has issued and pending United States and foreign patents, as identified in Schedule A hereto, and may apply for future patents relating to multi-layer circuit board construction and fabrication using double coated copper foil (hereinafter Licensed Patents). WHEREAS ASLS desires to acquire certain license rights, as hereinafter set forth, under the Licensed Patents, and Parlex is willing to grant such rights on the terms set forth herein. NOW THEREFORE in consideration of the premises and the mutual obligations of the parties, the parties agree as follows: 1.0 DEFINITIONS 1.1 Unless otherwise specifically defined, ASLS shall mean AlliedSignal Laminate Systems, Inc., its subsidiaries and affiliates, including any partnership, corporation, trust, unincorporated association, or other entity or association, which, directly or indirectly, is controlled by AlliedSignal Laminate Systems, Inc. For purposes of the preceding sentence, "control" shall mean the power to vote 50% or more of the voting share, general partnership interests, or other voting interests of AlliedSignal Laminate Systems, Inc. 1.2 Permitted Products shall mean flat, multi-layer printed circuit boards which are note designed nor intended to be more than 15'. Bending in excess of 15' for installation only shall be permitted. Flat products using aluminum base plates for automotive applications are Excluded Products. 1.3 Excluded Products shall mean multi-layer printed circuit boards which are designed or intended to be folded or bent more than 15'. 1.4 Cap Material shall mean a copper layer having a C stage adhesive coating thereon over which a B stage adhesive coating is provided. 1.5 Net Sales shall mean the gross receipts of ASLS from the sale of the Cap Material for use in Permitted Products, less those of the following actually incurred by ASLS as an element of such sales: prepaid transportation, insurance, custom duties, allowances for actual returned or rejected products, sales, use and turnover taxes, and customary trade, quantity and cash discounts. 2.0 LICENSE GRANT 2.1 Parlex hereby grants to ASLS, upon the terms as set forth herein, * license to manufacture, use and sell Cap Material for the fabrication of Permitted Products. This license is granted under the License Patents, including without limitation improvements and any future patents relating to Licensed Patents that may be necessary for the manufacture, use and/or sale of Cap Material for the fabrication of Permitted Products. This * license shall be subject to the rights previously granted to Samsung by Parlex and any Parlex customer-dictated requirements for another supplier of Cap Material. _______________________ Confidential information has been omitted and filed separately with the Commission. 2.2 ASLS shall sell the Cap Material for fabrication of Permitted Products with the following label license notice which shall be conspicuously provided on product packaging and literature in a manner reasonably acceptable to the parties. "This Cap Material is licensed by Parlex Corporation only for use in fabricating flat multi-layer printed circuit boards which are not designed nor intended to be bent more than 15' but excluding flat products using aluminum base plates for automotive applications. Bending in excess of 15' for installation only shall be permitted. Purchaser should contact Parlex Corporation if printed circuit boards are to be fabricated with this Cap Material which would be bent more than 15' or for flat products using aluminum base plates for automotive applications." 2.3 In the event that ASLS expends its flexible products business through acquisition or other means, Parlex shall in good faith negotiate with ASLS for license rights under the Licensed Patents for such business. 3.0 PURCHASE OF CAP MATERIAL 3.1 Parlex shall purchase all of its requirements for Cap Material from ASLS under the terms and conditions of Schedule B hereto which may be revised from time to time by agreement of the parties. 3.2 Parlex shall use its best efforts to promote ASLS as a supplier of Cap Material for all products and applications. Parlex shall use ASLS tradenames and trademarks for Cap Material in all Parlex publications, sales and promotional materials, marketing literature, and press releases. 3.3 In the event that Samsung or another licensee of Parlex requires a second source or alternative supplier of Cap Material for other than Permitted Products, Parlex shall have the right to license such supplier *. 3.4 In the event that a sublicensee of ASLS requires a second source or alternative supplier of Cap Material for other than Excluded Products, ASLS shall have the right to license such supplier at a royalty of at least *. 3.5 In the event that a Parlex customer requires a supplier of Cap Material other than ASLS, Parlex shall have the right to license such supplier *. 3.6 In the event a licensee, sublicensee, or customer of either party shall require a second source or alternative supplier of Cap material other than ASLS, and an alternate supplier of Cap Material is license by either party under this Agreement, that alternate supplier of Cap Material is licensed by either party under this Agreement, that alternate supplier shall supply Cap Material to customers licensed by Parlex but shall not supply Cap Material to others nor license others to supply Cap Materials. _______________________ Confidential information has been omitted and filed separately with the Commission. 4.0 PAYMENT AND REPORTS 4.1 ASLS shall pay to Parlex a royalty of * of the Net Sales of Cap Material sold by ASLS for use in Permitted Products. Unless otherwise stipulated in a Purchase order, no royalties are payable on sales of Cap Material by ASLS to Parlex. 4.2 On or before the thirtieth (30th) day after the end of each fiscal quarter during the term of this Agreement, ASLS shall submit to Parlex a written report setting forth for such quarter (a) the total Net Sales of Cap Material solf be ASLS for use in Permitted Products; and (b) a computation of the royalties due. Simultaneously with the delivery of each such report, ASLS shall pay Parlex the amount of the royalties due Parlex in accordance with such report. 4.3 On or before the thirtieth (30th) day after the end of each fiscal quarter during the term of this Agreement, each party shall submit to the other a written report setting forth for such quarter (a) the total Net Sales of Cap material sold by each party pursuant to Sections 3.3, 3.4, and 3.5, and (b) a computation of the royalties due. Simultaneously with the delivery of each such report, each party shall pay the other party the amount of the royalties due in accordance with such report. 4.4 The parties shall maintain at their respective principal places of business accurate records and books of account in respect of the sales of Cap Material on which royalties are payable under this Agreement. The parties agree to make such records available for the inspection of an independent certified public accountant designated by one party and acceptable to the other, for the purpose of verifying, at the expense of the party requesting inspection, the accuracy of the amount of royalty payments hereunder. _______________________ Confidential information has been omitted and filed separately with the Commission. 5.0 LITIGATION 5.1 ASLS shall promptly notify Parlex of any written claim which is received regarding the scope or validity of Licensed Patents. 5.2 Parlex shall have the sole responsibility for enforcement of any breach of the label license restrictions by customers of ASLS. 5.3 In the event that any third party infringes any Licensed Patent, Parlex shall have the right at its own expense to bring an appropriate action against such infringer to cause such infringement to cease or negotiate appropriate settlement with such infringer. In the event Parlex shall fail so to do, after notice by ASLS to Parlex, ASLS shall have the right to discontinue payment of royalties hereunder until such time as Parlex causes the infringement to cease. 5.4 In the event that any action is commenced by a third party which alleges that a Licensed Patent is invalid, Parlex shall have the right, but it shall not be obligated, to defend such action. If Parlex shall fail to defend such action, ASLS shall have the right to terminate this Agreement upon ten (10) days written notice to Parlex. 5.5 To the knowledge of Parlex, Parlex represents that manufacture, use, and sale of Cap Material for fabrication of Permitted Products does not infringe any patents issued before the date of this Agreement. 5.6 Parlex agrees to indemnify, defend and hold harmless ASLS against any claims by Samsung that the Agreement or any activities contemplated under the Agreement will violate or breach any provision of the license agreement previously granted by Parlex to Samsung. Parlex agrees to indemnify and hold harmless ASLS for damages or losses relating to claims of infringement of any patents based on the sale of Cap Material for the Fabrication of Permitted Products. Parlex's liability is limited to the maximum of royalties and license fees paid to Parlex by ASLS during the term of this Agreement. 6.0 CONFIDENTIALITY 6.1 The parties will exchange information under this Agreement which is proprietary with the respective parties and which is considered to be confidential ("Confidential Information"). Such exchange of information ;will be governed by the following terms and conditions. Each party shall use the same degree of care as it uses with its proprietary information of a like nature to hold Confidential Information in strict confidence and shall not disclose the same to other without the prior written consent of the disclosing party during the term of this Agreement and for a period of five (5) years from the date this Agreement is terminated. Each party may disclose Confidential Information to its officers and employees who have a need to know and who have undertaken like obligations of confidentiality. Confidential Information shall not include any information which: (a) was in the public domain prior to disclosure, or thereafter comes into the public domain without any breach of any confidentiality obligation, or (b) was known by the receiving party prior to disclosure, as shown by written records; or (c) was disclosed to the receiving party by a third party not in violation of any obligations of confidentiality from or through the disclosing party; or (d) is independently developed by the receiving party. Any combination of known information shall be within any of the foregoing exclusions only if the combination as such is within such exclusion. 6.2 Neither Parlex nor ASLS shall use the name of the other for promotional or other purposes unless mutually agreed on. 6.3 Neither party shall disclose the terms of this Agreement without the prior written consent of the other, however, either party may notify others of the fact that this agreement is in effect. 7.0 DISPUTES In the event of any dispute under this Agreement, such dispute will be resolved by final and binding arbitration held in Boston, Massachusetts under the Commercial Arbitration Rules of the American Arbitration Association. The arbitration panel shall be composed of three (3) arbitrators, one of whom shall be appointed by each party and the third of whom shall be appointed b the two party-appointed arbitrators. The arbitration decision shall be enforceable in any court having jurisdiction over the applicable party or parties. 8.0 TERM AND TERMINATION 8.1 This Agreement shall remain in force and effect for an initial term of three (3) years from the Effective Date and from year to year thereafter, provided either party may terminate on not less than ninety (90) days prior notice after the third anniversary of the Effective Date. 8.2 In the event either party files a petition in bankruptcy, is adjudicated bankrupt, makes an assignment for the benefit of its creditors, secures appointment of a receiver for its assets or property, or otherwise becomes the subject of any bankruptcy, reorganization, insolvency or similar proceedings, the other party shall have the right to terminate this Agreement and all licenses and rights contained herein upon ten (10) days notice thereof. 8.3 In the event of any substantial breach or default of this Agreement by either party, the other party may terminate this Agreement by notice of the breach or default, and this Agreement and all licenses and rights contained herein shall terminate sixty (60) days after each notice unless the breach or default shall have been cured within the sixty (60) day notice period. Failure by ASLS to meet the quality specifications, or delivery or pricing terms of the Supply Agreement, Schedule B, are a substantial breach or default of this Agreement. 8.4 In the event that the Supply Agreement, Schedule B hereof is terminated, either party may terminate this Agreement upon thirty (30) days notice. 9.0 NOTICES All notices under this Agreement shall be in writing and shall be sent by electronic transmission (confirmed by courier or certified or registered mail), to the receiving party at the respective addresses set forth below or such other address as a party may specify by notice to the other. If to Parlex: Parlex Corporation 145 Milk Street Methuen, MA 01844 U.S.A. Attention: Peter J. Murphy Executive Vice President If to ASLS: AlliedSignal Laminate Systems, Inc. 230 North Front Street P.O. Box 1448 La Crosse, WI 54602-1448 Attention: Mark P. Bulriss President 10.0 GENERAL PROVISIONS 10.1 This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts and applicable United States federal law. 10.2 Nothing in this Agreement shall convey or imply any license or right by either party other than as expressly set forth in this Agreement. 10.3 This Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof, supersedes any prior understandings or agreements, and may not be varied or modified orally or other wise than by an instrument in writing duly executed by all of the parties. 10.4 This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.5 Any headings in the sections of this Agreement are inserted for Convenience only and shall not Constitute a part hereof for any purposes whatsoever. 10.6 Parlex and ASLS shall be deemed at all times to be independent contractors and nothing contained herein is intended nor shall be construed for any purpose as creating the relation of employer and employee between Parlex and ASLS or of designating either party as an agent of the other. 10.7 Parlex shall have no liability with respect to the manufacture and sale of Cap Material by ASLS, and nothing in this Agreement shall be construed to provide or imply any warranty by Parlex to ASLS or to customers of ASLS. 10.8 ASLS shall have no liability to Parlex or its licensees with respect to the manufacture and sale of any products by Parlex or its licensees, and nothing in this Agreement shall be construed to provide or imply any warranty by ASLS to Parlex or its Licensees and customers. 10.9 Parlex shall notify ASLS of the issuance of each patent resulting from the pending patent applications of the Licenses Patents and of the filing of any other patent applications related to Licensed Patents. 10.10 This Agreement shall not be assignable by either party without the prior written permission of the other party. 10.11 This Agreement is intended to settle disagreement between the parties regarding patent rights and to provide for development of markets for Cap material and Parlex product incorporating such products. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the Effective Date. PARLEX CORPORATION By: _______________________________ Peter J. Murphy Executive Vice President ALLIEDSIGNAL LAMINATE SYSTEMS INC. By: _______________________________ Mark P. Bulriss President Schedule A
Docket No. Title Inventors Issue Date Status - --------------------------------------------------------------------- PAR-108AX Multiple D.McKenney 08/297.792 Pending United States Layer R. Cyr 8/30/1994 div of xx printed Ref: circuit boards and method of manufacture PAR-108XX Multiple D.McKenney 08/110,437 Issued United States layer R. Cyr 8/23/1993 REF: printed 5,362,534 Incorporates circuit 11/08/1994 PAR 109 boards and method of manufacture PAR-108Xq999 Multiple D.McKenney PCT/US94/0 Pending PCT layer R. Cyr 9495 REF: printed 8/23/1994 circuit boards and method of manufacture
Schedule B SUPPLY AGREEMENT THIS AGREEMENT is effective May 5, 1995 ("Effective Date"), by and between Parlex Corporation, a corporation organized under the laws of Massachusetts, 145 Milk Street, Methuen, MA 01844 U.S.A. ("Buyer") and AlliedSignal Laminate Systems, Inc., a corporation organized under the laws of Delaware, 230 North Front Street, P.O. Box 1448, La Crosse, WI 54602- 1448 (Seller). WHEREAS, Buyer desires to purchase all of its requirements for a copper layer having a C stage adhesive coating thereon over which a B stage adhesive coating is provided ("Cap Material") from Seller; WHEREAS, Seller wishes to supply Buyer with its requirements for Cap Material; NOW THEREFORE, in consideration of the premises and mutual obligations of the parties, the parties agree as follows: 1.0 Purchase of Cap Material 1.1 Subject to the terms and conditions set forth herein, *. 1.2 Buyer shall use its best efforts to promote Seller as a supplier of Cap Material to its licensees other than Seller. 1.3 At Seller's option, Seller's sublicensees may supply a portion of Buyer and its licensees' requirements for Cap Material. _______________________ Confidential information has been omitted and filed separately with the Commission. 2.0 Price 2.1 The Price for Cap Material for the first year of this Contract is set forth on Exhibit A. 2.2 The prices identified in Exhibit A are based on Seller's manufacturing cost and the cost of purchased materials, services (electricity, water, etc), and labor as a January 1, 1995. _______________________ Confidential information has been omitted and filed separately with the Commission. From time to time after the first anniversary of the Effective Date, but no more frequently than once during any 12 month period, Buyer or Seller may initiate negotiations to adjust prices to recognize changes in Seller's costs. Seller will provide such data as may be reasonably requested by Buyer to substantiate any proposed price adjustment. 2.3 Any proposed price adjustment must be submitted at least 45 days prior to the requested effective date. Price adjustments due to increases in manufacturing costs will be Seller's actual costs increases. 3.0 Quality 3.1 Cap Material shall meet the specifications attached hereto as Exhibit B. 3.2 The parties may at any time mutually agree to change Exhibit B by written amendment. In the event such change results in increases or decreases in the cost of Seller's Cap Material, the parties will negotiate an appropriate price adjustment. 4.0 Cap Material Notification 4.1 Seller shall sell the Cap Material with the following label license notice which shall be conspicuously provided on Cap Material Packaging and literature in a manner reasonably acceptable to the parties. The notice language and placement may be changed only with the prior written approval of the parties. "This Cap Material is licensed by Parlex Corporation only for use in fabricating flat multi-layer printed circuit boards which are not designed nor intended to be bent more than 15', but excluding flat products using aluminum base plates for automotive applications. Bending in excess of 15' for installation only shall be permitted. Purchaser should contact Parlex Corporation if printed circuit boards are to be fabricated with this Cap Material which would be bent more than 15', or are for flat products using aluminum base plates for automotive applications." Bending in excess of 15' for installation only shall be permitted. Purchaser should contact Parlex Corporation if printed circuit boards are to be fabricated with this Cap Material which would be bent more than 15', or are for flat products using aluminum base plates for automotive applications." 5.0 Duration 5.1 The term of this Agreement shall commerce on the Effective Date and shall continue for a term of three (3) years and remain in effect for so long as the License Agreement between the parties. 6.0 Disputes 6.1 In the event of any dispute under this Agreement, such dispute will be resolved by final and binding arbitration held in Boston, Massachusetts under the Commercial Arbitration Rules of the American Arbitration Association. The arbitration panel shall be composed of three (3) arbitrators, one of whom shall be appointed by each party and the third of whom shall be appointed by the two party appointed arbitrators. The arbitration decision shall be enforceable in any court having jurisdiction over the applicable party or parties. 7.0 Miscellaneous 7.1 All notices hereunder shall be in writing and either delivered or mailed by first-class mail, postage pre-paid, or sent by telecommunications equipment (including, without limitation, the use of a telecopier or word processing equipment) addressed to: Parlex Corporation 145 Milk Street Methuen, MA 01844 AlliedSignal Laminate Systems Inc. 230 North Front Street La Crosse, WI 54602-1448 Attn: President or at such other address or addresses as Buyer shall have furnished in writing to Seller. 7.2 The General Terms and Conditions of this Agreement are set out in Exhibit C hereto and made a part hereof. Any conflict between the terms of this Agreement and the terms of Exhibit C will be controlled by the former. IN WITNESS WHEREOF, the parties hereto have entered into and executed this Agreement as of the day and year first set forth above. PARLEX CORPORATION ALLIEDSIGNAL LAMINATE SYSTEMS INC. By: ___________________ By: ____________________ Peter J. Murphy Mark P. Bulriss Executive Vice President President Exhibit A PRICE*
Actual Target Target Year 1 Year 2 Year 3 - ----------------------------------------------------------------- 1 Ounce * * * Half Ounce * * * Base Price -- actual prices billed to Parlex for Parlex use with no royalty payable on sales of Cap material by ASLS to Parlex. Pricing in Year 2 and Year 3 will not be adjusted until Parlex shall purchase following minimum quarterly amounts during Year 2 and Year 3.
Half Ounce Year 2 * 1 Ounce Year 2 * 1 Ounce Year 3 * _______________________ Confidential information has been omitted and filed separately with the Commission. EX-10 5 EX 10-AP, LICENSE AGREEMENT LICENSE AGREEMENT License Agreement (hereinafter referred to as ("AGREEMENT") entered into this 1st day of July, 1996, by and between Parlex Corporation, a Massachusetts corporation with a principal place of business at 145 Milk Street, Methuen, Massachusetts 01844 (hereinafter referred to as ("PARLEX"), and Pucka Industrial Co., Ltd.., a Taiwan corporation with a principal place of business at No. 13, Lane 417, Min An Road, Hsin Chung, Taipei, Taiwan, R.O.C.(hereinafter referred to as "PUCKA"). WHEREAS, PARLEX has designed, developed and patented certain Flexible Circuit Technology (as defined below) to manufacture certain Products (as defined below) and wishes to transfer to PUCKA, a nonexclusive, nontransferable, area specific license and right to use and practice such Flexible Circuit Technology on the terms and conditions as provided for herein; and WHEREAS, PUCKA is desirous of acquiring such Flexible Circuit Technology with such right to use and practice such Flexible Circuit Technology for the purposes and on the terms and conditions as provided for herein. NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth and for other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties hereto agree as follows: Section 1. DEFINITIONS A. Flexible Circuit Technology: The term "Flexible Circuit Technology", as used herein, shall mean the process described in U.S. patent 5,334,800 and U.S. patent 5,334,800 Rev. 1 Amendment A as well as any future amendments and revisions used by PARLEX as of the Effective Date (as defined below) to manufacture the circuits described under the definition of Products, including engineering and manufacturing documents and drawings, written procedures, processes, prints and process sheets now being used by PARLEX in the manufacture, use and sale of the Products (as defined below). B. Products: The term "Products" as used herein, shall mean all single-sided and double-sided flexible circuits with silver shielding using Flexible Circuit Technology.. C. Effective Date: The term "Effective Date", as used herein, shall mean the date of this Agreement, the 1st day of July, 1996. D. License Year: The term "License Year", as used herein, shall mean a twelve (12) calendar month period; provided, however, that the first License Year shall commence on the Effective Date of this Agreement and end on December 31, 1996, and the subsequent License Years shall mean each twelve (12) calendar month period thereafter. Section 2. GRANT OF LICENSE 2.1 Subject to the terms and conditions of this Agreement, PARLEX hereby grants to PUCKA an exclusive, nontransferable, area specific license and right to use and practice such Flexible Circuit Technology, without the right to grant sublicenses, for the sole purpose of using the Flexible Circuit Technology to design, develop, market, manufacture and sell the Products solely in Taiwan. PARLEX will consider, on a written case by case basis, allowing PUCKA to sell to customers outside of Taiwan. 2.2 Notwithstanding the foregoing, PARLEX hereby reserves the right to develop, manufacture and sell the Products to its existing and future customers worldwide. 2.3 PUCKA shall use commercially reasonable efforts to manufacture and sell the Flexible Circuit Technology to the fullest extent possible. Pucka shall, at its own expense, provide, keep, maintain and operate a modern plant(s) designed for and equipped with the necessary machinery and equipment for manufacturing and processing the Products as well as any other equipment, materials and supplies which are necessary to promptly supply all demands and requirements for the Products. Pucka shall maintain at all times in its plant(s) the necessary personnel (including qualified and experienced management) for manufacturing, processing and selling the Products, and shall operate all departments of its plant(s) in accordance with standards of orderliness, cleanliness and appearance as specified by PARLEX. 2.4 PUCKA shall act as an independent contractor and will not be subject to the will and control of PARLEX. Neither PUCKA or its employees are in any sense employees of PARLEX and PUCKA and its employees are not authorized to commit any acts which might be construed as acts of PARLEX. Both parties shall have no authority to bind the other in any respect. It is agreed and understood that PUCKA and its employees are not employees of PARLEX under the meaning or application of any federal or state unemployment insurance law, or the social security law, tax law or any workmen's compensation law that relate to employer/employee relationships. PUCKA hereby agrees to assume all liabilities or obligations imposed by or incurred as a result of anyone or more of the above-enumerated laws with respect to its employees and their performance under this Agreement. 2.5 During the term of this Agreement, PUCKA shall have the right to indicate to the public that it is an authorized manufacturer of the Products and to use PARLEX's trademarks, marks, and trade names that PARLEX may adopt from time to time ("Trademarks") solely for the sale of the Products. Nothing herein shall grant to PUCKA any right, title or interest in the Trademarks. At no time during or after the term of this Agreement shall PUCKA challenge or assist others to challenge the Trademarks or the registration thereof or attempt to register any trademarks, marks or trade names confusingly similar to the Trademarks. 2.6 All representations of the Trademarks that PUCKA intends to use shall first be submitted to PARLEX for approval (which shall not be unreasonably withheld) of design, color, and other details or shall be exact copies of those used by PARLEX. If any of the Trademarks are to be used in conjunction with another trademark on or in relation to the Products, then PARLEX's mark shall be presented equally legibly, equally prominently, and of equal or greater size than the other but nevertheless separated from the other so that each appears to be a mark in its own right, distinct from the other mark. 2.7 Upon termination of this Agreement, PUCKA shall immediately cease displaying, advertising, and using the Trademarks, and shall not hereafter use, advertise or display any name, mark, or logo which is or any part of which is similar to or capable of being confused with any of the Trademarks. Section 3. TRANSFER OF TECHNOLOGY AND TECHNICAL ASSISTANCE 3.1 PARLEX shall to the extent practicable, provide at its facilities in Methuen, Massachusetts, training and instruction of PUCKA personnel in the use of the Flexible Circuit Technology for the manufacture of the Products. Such training and instruction by PARLEX shall be according to EXHIBIT A. If at any time during the term of this Agreement PUCKA desires additional training and instruction beyond that outlined in EXHIBIT A, PARLEX shall provide such additional training and instruction to the extent agreed upon by the parties and at a charge by PARLEX of one thousand U.S.Dollars ($1,000) per day or fraction thereof and subject to the availability of PARLEX personnel. 3.2 Upon PUCKA's reasonable request made during the term of this Agreement, PARLEX shall give or shall cause to be given to PUCKA such technical assistance after the date hereof as PUCKA and its employees may reasonably require in connection with the transfer of Flexible Circuit Technology provided in the preceding paragraph and to enable PUCKA to fully utilize the Flexible Circuit Technology to manufacture and sell Products as heretofore manufactured and sold by PARLEX and to provide services as heretofore provided by PARLEX. The term "technical assistance" as used herein shall refer solely to consultation provided either by telephone or facsimile and there is no obligation expressed or implied that PARLEX will be expected to travel or visit for or at the request of PUCKA. However, if PARLEX agrees to send personnel anywhere for or at the request of PUCKA, then all expenses, including salaries, shall be paid for by PUCKA. 3.3 All costs incurred to provide technical assistance and training to PUCKA and its employees, as contemplated by Sections 3.1 and 3.2 above, including travel, living, lodging, and all other expenses, shall be borne by PUCKA. 3.4 In accordance with the provisions of section 3.1 above PARLEX and PUCKA agree to Exhibit A below. 3.5 PARLEX may request PUCKA to provide technical or sales service to existing or future customers in Taiwan. Costs incurred by PUCKA will be reimbursed by PARLEX only when specifically approved in advance. The exact cost to provide this service shall be determined by PUCKA on a case-by-case basis and submitted to PARLEX prior to commencement of the service. Section 4. FLEXIBLE CIRCUIT TECHNOLOGY OWNERSHIP 4.1 PUCKA acknowledges and agrees that PARLEX is the sole and exclusive owner of all right, title and interest, including all business or technical information proprietary to PARLEX and all trademarks, copyrights, patents, trade names, trade secrets and other intellectual property rights, in and to the Flexible Circuit Technology and Products and all products or information derived or to be derived from PUCKA'S use of said Flexible Circuit Technology and manufacture of the Products. 4.2 PUCKA understands and acknowledges that the rights granted under this Agreement do not constitute a license to use the Flexible Circuit Technology and manufacture the Products for any reason or purpose other than as specified herein. Section 5. ROYALTIES AND PAYMENTS 5.1 * 5.2 The term "Net Sales Price", as used in this Section 5 and for purposes hereof, shall mean PUCKA's actual invoice price less cash and quantity discounts, and duties, excise and sales taxes paid. 5.3 * _______________________ Confidential information has been omitted and filed separately with the Commission. Section 6. WARRANTIES AND REPRESENTATIONS 6.1 PUCKA warrants and represents that it will in good faith provide PARLEX with all information relative to any modification, enhancements or improvement made to the manufacturing equipment, raw materials, processes or any other aspect of the Flexible Circuit Technology. 6.2 PARLEX warrants and represents that it will in good faith provide PUCKA will all information relative to any modification, enhancements or improvement made to the manufacturing equipment, raw materials, processes or any other aspect of the Flexible Circuit Technology. 6.3 PUCKA and PARLEX warrant and represent to each other that neither the execution, delivery nor performance of this Agreement will, with or without the giving of notice or the passage of time, or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any lien, charge or encumbrance pursuant to, any provision of either party's Articles of Organization or Bylaws or any franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, rule, or regulation or any order, judgment or decree to which either is a party or by which it may be bound or affected. Both parties have the full power and authority to enter into this Agreement and to carry out the transactions contemplated thereby, all proceedings required to be taken by them to authorize the execution, delivery and performance of this Agreement and all other agreements relating hereto or contemplated hereby have been properly taken and this Agreement constitutes a valid and binding obligation. 6.4 PUCKA and PARLEX warrant and represent to each other that there is no claim, legal action, suit, arbitration, governmental investigation or other legal or administrative proceeding, nor any order, decree or judgment in progress, pending or in effect, or to their knowledge threatened, against or relating to either party and the transactions contemplated by this Agreement, and neither party knows or has reason to be aware of any basis for the same. 6.5 PARLEX warrants and represents that it is the owner of the right, title and interest in the Flexible Circuit Technology and that it has full right to grant the rights set forth in this Agreement. PARLEX also warrants and represents that there are no outstanding agreements, assignments or encumbrances inconsistent with the provisions of this Agreement. PARLEX makes no other representations or warranties, express or implied, nor does it assume any liability in respect of any infringement of patents or other rights of third parties due to PUCKA's operation under the rights granted herein. 6.6 PUCKA warrants and represents that it will maximize its best efforts to manufacture and sell the Products. Section 7. COVENANT NOT TO COMPETE 7.1 As further consideration for PARLEX's agreement to license the Flexible Circuit Technology under the terms and conditions of this Agreement, *. _______________________ Confidential information has been omitted and filed separately with the Commission. 7.2 PUCKA agrees and acknowledges PARLEX will suffer irreparable injury and damage and cannot be reasonably or adequately compensated in monetary damages for the loss by PARLEX of its benefits or rights under this Agreement as a result of a breach, default or violation by PUCKA of its obligations thereunder. Accordingly, PARLEX shall be entitled, in addition to all other remedies which may be available to it (including monetary damages), to injunctive and other available equitable relief in any court of competent jurisdiction to prevent or otherwise restrain or terminate any actual or threatened breach, default or violation by PUCKA of any provision thereunder or to enforce any such provision. Any legal action or other proceeding for any purpose with respect to this covenant shall be brought exclusively in any court of competent jurisdiction sitting in the Commonwealth of Massachusetts, and the parties hereto agree to submit to the jurisdiction of such court and to comply with all requirements necessary to give such court exclusive jurisdiction thereof. The losing party to any such proceeding shall pay all costs (including reasonable attorney's fees) of all parties with respect to that proceeding. 7.3 It is acknowledged further by PUCKA that this provision is restrictive but is necessary to induce PARLEX to enter into this Agreement. Section 8. INDEMNIFICATION 8.1 PUCKA agrees to indemnify and hold PARLEX harmless from and against any and all claims, damages, expenses, debts, demands, actions, causes of action, suits, costs and liabilities whatsoever (including reasonable attorneys' fees and costs of investigation and preparation) which may be brought against PARLEX by any third party arising out of, in connection with or related in any way to the design, manufacture, sale, use and marketing of the Flexible Circuit Technology and/or the Products including but not limited to, all product liability claims and patent infringement claims. 8.2 PUCKA assumes full responsibility for any use by it of the Flexible Circuit Technology as well as the Products manufactured by it using the Flexible Circuit Technology. Section 9. CONFIDENTIALITY 9.1 PUCKA hereby covenants and agrees to keep and cause to be kept secret and confidential all business and technical information (whether written or oral) including the Flexible Circuit Technology and will not divulge, publish or use any such information to any person or persons, firms or corporations, nor use the same for its or their own benefit. 9.2 PUCKA has or will require all of its employees and consultants who have access to any of the Flexible Circuit Technology to execute agreements similar in content to Section 9 and will exercise its best efforts to obtain compliance therewith. Section 10. RECORDS AND REPORTS 10.1 *. _______________________ Confidential information has been omitted and filed separately with the Commission. 10.2 PUCKA shall keep, for at least the three (3) most recent License Years, accurate books and records of the number and type of all Products sold, the amount of sales thereof and the royalties owed PARLEX. 10.3 PARLEX may, on reasonable notice, have its duly authorized agent or representative, inspect, check, and verify all such books and records either at PUCKA's business premises or at a place mutually agreed upon. The agent's reports and the aforesaid royalty statements, and the information contained therein, shall be maintained in confidence by PARLEX. Section 11. NOTICES 11.1 All notices required or permitted to be sent or delivered under the terms of this Agreement shall be considered to have been duly sent or delivered when sent by certified or registered mail, return receipt requested, postage prepaid, and addressed to the party for whom or for which intended at such party's address herein above set forth or to such other address or addresses as may be designated by like notice. Section 12. TERM 12.1 This Agreement shall be in full force and effect commencing with the date of execution of this Agreement and shall continue in full force and effect for a term of five years. In addition to all other remedies available to the parties under the law, and except as otherwise provided herein, this Agreement may be terminated by either party as specifically provided herein: (a) PARLEX may, upon thirty (30) days written notice to PUCKA terminate this Agreement if PUCKA fails to make any payment in compliance with the terms of this Agreement. However, notwithstanding the foregoing, PUCKA shall have the right to cure said default for failure to make payment if within ten (10) days after the date of breach it tenders the overdue payment. (b) If a petition of bankruptcy or any arrangement for the benefit of creditors or a petition for reorganization is filed by or against either party, or if either party makes an assignment for the benefit of creditors; or if a receiver (permanent or temporary) of either parties' property or any party thereof, is appointed by a court of competent authority. (c) Except as otherwise provided above in sub sections (a)and (b), if either party defaults in the performance of any term, condition or obligation hereunder, and if such default is not cured within thirty (30) days after written notice by the non-defaulting party. 12.2 Upon termination, the due dates for royalties owed by PUCKA to PARLEX shall be accelerated automatically so that such amounts become due and payable on the Effective Date of Termination regardless of the payment term provisions set forth in this Agreement. 12.3 All engineering and manufacturing documents, processes, written procedures, print and process sheets, trademarks, trade names, patents, designs, drawings, formulas or other data, photographs, samples, literature and sales aids of every kind shall remain the property of PARLEX. Within thirty (30) days after termination of this Agreement for any reason, PUCKA shall prepare all such items in its possession for shipment as PARLEX may direct, at PARLEX's expense. PUCKA shall not make or retain any copies of any confidential items or information which may have been entrusted to it. 12.4 The provisions of Sections 4,5,6,7,8,9,and 13 shall survive the termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon termination of this Agreement. Section 13. USE OF FLEXIBLE CIRCUIT TECHNOLOGY AFTER EXPIRATION OR TERMINATION OF AGREEMENT 13.1. Upon expiration of this Agreement, or upon termination of this Agreement by either party, the obligations of both parties to maintain the confidentiality of the Flexible Circuit Technology under Section 11 hereof shall continue. All rights and Licenses granted to PUCKA under this Agreement shall immediately cease and terminate and PUCKA shall immediately cease all new developments of projects with the customers. PUCKA shall have the right to continue to supply current customers with parts produced for those customers at the date of termination until the current purchase order runs out. Section l4. GOVERNING LAW 14.1 This Agreement, executed in duplicate, shall be interpreted in accordance with and its performance shall be governed by the laws of the Commonwealth of Massachusetts. Any litigation or legal action between the parties concerning this Agreement shall take place in a court of competent jurisdiction in the Commonwealth of Massachusetts. PUCKA hereby consents to and submits itself to the jurisdiction of the Commonwealth of Massachusetts and agrees to appear in any such action upon written notice thereof. 14.2. All rights and remedies available to PARLEX shall be cumulative and in addition to all rights and remedies available to PARLEX under all applicable laws, including without limitation, the Uniform Commercial Code in effect in Massachusetts. No waiver of any right or remedy available to PARLEX in any instance shall constitute a waiver of any other right of remedy. Section l5. BINDING EFFECT AND SEVERABILITY 15.1. The terms of this Agreement shall be binding upon and inure to the benefit of and shall be enforceable by the executors, administrators, successors, assigns and transferees of the parties hereto. In case any term of this Agreement shall be held invalid, illegal or unenforceable in whole or in part, neither the validity of the remaining part of such term nor the validity of any other term of this Agreement shall in any way be affected thereby. 15.2. This Agreement constitutes the full and complete understanding and agreement of the parties, supersedes all prior understandings and agreements, both oral and written as to the subject matter of this Agreement, and cannot be amended, changed, modified, or terminated without the consent in writing of both parties hereto. Section l6. NON-WAIVER 16.1 The failure of PARLEX, at any time or from time to time, to enforce or require the strict keeping and performance of any of the terms or conditions of this Agreement shall not constitute nor be construed to be a waiver of such terms or conditions in any way. The exercise by PARLEX of any right arising thereunder shall not preclude nor prejudice it from thereafter exercising the same or any other right nor shall the waiver of any breach of the Agreement prevent a subsequent enforcement of such term or obligation or be deemed to be a waiver of a subsequent breach. Section l7. ASSIGNABILITY 17.1 Neither party hereto shall, during the term of this Agreement, assign, transfer or otherwise dispose of this Agreement or its interests, rights and obligations in or under this Agreement, without the prior written approval of the other party hereto, except that either party may assign this Agreement without approval of the other party, to a wholly-owned subsidiary of the assigning party. Section l8. LANGUAGE 18.1 This Agreement is in the English language, and is to be governed and interpreted in the English language, and is executed in duplicate originals, one duplicate to be retained by each party hereto. Section 19. HEADINGS 19.1 Any headings in this Agreement are inserted for convenience only and shall not constitute a part hereof for any purpose whatsoever. Section 20. SUCCESSION 20.1 This agreement has override and supersede all previous License Agreements. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers or representatives as of the day and year first above written. PARLEX CORPORATION By:________________________ PETER J. MURPHY, PRESIDENT PUCKA INDUSTRIAL CO., LTD. By:________________________ SANDO CHEN, PRESIDENT EXHIBIT A 1.0 Training and Technology Transfer 1.1 PHASE I PUCKA agrees to send up to 3 individuals to PARLEX for a period of 2 months maximum for training in the areas of: * 1.2 PHASE II PUCKA agrees to send up to 3 individuals to PARLEX for a period of 2 months maximum for training in the following areas: * 2.0 Cost Considerations 2.1 * Should PUCKA request the additional support, the cost shall be paid for these services under the provisions of the basic AGREEMENT. 3.0 Equipment Procurement 3.1 * 3.2 * 4.0 Timing 4.1 PHASE I - PARLEX procure and ship equipment * - PARLEX commence training of PUCKA * 4.2 PHASE II - PARLEX procure and ship equipment * - PARLEX commence training of PUCKA * - - PARLEX commits to "best effort" in our attempt to meet the procurement and ship schedule however, due to the uncertainty of equipment manufacture performance we are unable to guarantee these dates. _______________________ Confidential information has been omitted and filed separately with the Commission. EX-10 6 EX 10-AQ, REVOLVING CREDIT AND LOAN AGREEMENT REVOLVING LINE OF CREDIT NOTE ----------------------------- FLEET NATIONAL BANK OF Loan No._________Date: ,1995 MASSACHUSETTS One Federal Street Boston, MA 02211 BORROWER: Parlex Corporation 145 Milk Street Methuen, MA 01844 PRINCIPAL AMOUNT: $5,000,000.00 INTEREST RATE: The rate of interest payable hereunder shall be variable and shall be equal to the Corporate Base Rate per annum. Interest will be computed on the basis of a 360-day year and the actual number of days elapsed. Corporate Base Rate shall mean the annual rate of interest established by the Bank from time to time, at the principal office of the Bank, as its Corporate Base Rate. The rate of interest payable hereunder shall be changed effective as of the day on which a change in the Corporate Base Rate becomes effective. The undersigned Borrower promises (jointly and severally if more than one person has signed) to pay to FLEET NATIONAL BANK OF MASSACHUSETTS (hereinafter "Lender", which term shall include its successors and assigns) or order the Principal Amount of FIVE MILLION AND 00/100 ($5,000,000.00) DOLLARS or such lesser amount as may have been advanced and remains outstanding at the Interest Rate hereinabove specified as follows: Monthly Payments of interest only, commencing December 31, 1995 and thereafter on the same day of each succeeding month through the payment due December 31, 1997. On January 31, 1998, and thereafter on the same day of each succeeding month, Borrower shall make equal monthly payments of principal in an amount calculated to pay the entire Principal Balance of this Note outstanding on December 31, 1997 in three (3) years (from said date) together with a payment of interest then accrued and the entire unpaid Principal balance with interest then outstanding shall be due and payable on December 31, 2000. Payments made hereunder shall be applied first to Interest then outstanding and the balance, if any, to Principal. Principal amounts repaid hereunder may be redrawn. Notwithstanding the foregoing, there shall be no further advances of principal after December 31, 1997. At the option of Lender, the entire unpaid Principal balance hereunder with interest then outstanding shall become immediately due and payable without notice or demand upon the occurrence of any of the following events (in each instance, an "Event of Default"): (1) failure of Borrower or of any endorser to honor, observe or perform any liability, obligation or agreement hereunder or under any instrument, document or undertaking given in connection herewith or as security herefor including without limitation, failure to make, when due any payment required hereunder or in connection herewith; (2) if any statement, representation or warranty made by or on behalf of any Borrower, endorser in connection with the loan evidenced by this Note, including without limitation in the loan application and in any financial data given in support thereof, proves to have been false, inaccurate or incomplete in any material respect when made; (3) the termination or dissolution, business failure, insolvency or cessation of customary business activity by the Borrower or any endorser; (4) appointment of a receiver, conservator or similar officer of any of the property of; the making of an assignment for the benefit of creditors, trust mortgage or composition with creditors or other arrangement of similar import by; or the commencement of any proceedings under any Bankruptcy or Insolvency Law, now or hereafter enacted by or against Borrower or any endorser, provided the institution of such proceedings against the Borrower shall not be an Event of Default hereunder if such proceedings are stayed, terminated or dismissed within sixty (60) days of being instituted; (5) an event of default occurs under any loan from Lender to Borrower. Borrower shall have the right: (1) to cure monetary defaults hereunder or under any instrument, document or undertaking given or entered into in connection herewith within ten (10) calendar days of its receipt of written notice from Lender of an Event of Default; and (2) to cure non monetary defaults hereunder or under any such instrument, document or undertaking with thirty (30) calendar days after written notice from Lender, in which event, this Note and the loan evidenced hereby shall be reinstated if not otherwise in default and additional interest accrued due to imposition of the Default Rate as hereinafter defined, shall be deemed waived. The time periods provided herein for cure shall be concurrent with and not consecutive to any other grace periods which may be provided in or with respect to any obligation having the benefit of this provision. Borrower and each endorser hereby jointly and severally agrees to pay all expenses including reasonable attorney's fees, which Lender may incur in effecting collection of this Note, upon default or at maturity. Lender shall not, by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder unless such waiver be in writing and signed by Lender. A delay, omission or waiver on one occasion shall not be deemed a waiver or bar on any future occasion of the same or any other right. The Note may be prepaid in whole or in part without premium. Borrower and each endorser of this Note or the obligation represented hereby, waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, except as specifically provided herein with respect to notices of non-monetary default; assents to any extension or postponement of the time of payment or any other indulgence and to the addition or release of any other party primarily or secondarily liable. Borrower and each endorser hereby agree that in the Event of Default hereunder, Lender may hold, dispose of and apply toward satisfaction of the Obligations and Borrower and deposit, credit or other sum at any time held for or with respect to such party and any other property of such party at any time in Lender's possession without first having recourse to any other rights or any security which Lender may have or hold and without thereby in any way releasing or discharging the balance of the Obligations or the liability or such party with respect thereto. The proceeds of the loan evidenced by this Note may be disbursed to any one or more Borrowers, if more than one. Borrower shall pay to Lender a late charge in the amount of five (5%) percent of each periodic payment due hereunder which is more than fifteen (15) days in arrears to offset the additional expenses involved in processing delinquent payments. In addition, from and after the date on which this Note becomes dues and payable, at maturity, upon default or otherwise, interest shall accrue and shall be immediately due and payable at a rate (the "Default Rate") which is four (4%) percent per annum higher than the Interest Rate hereinabove specified but in no event higher than the maximum interest rate permitted by law. This Note shall be deemed to be a Massachusetts instrument, and all rights obligations hereunder shall be governed by the laws of the Commonwealth of Massachusetts. WITNESS: BORROWER: Parlex Corporation ______________________ By:________________________ Its: President Fleet National Bank of Massachusetts COMMERCIAL LOAN AGREEMENT ------------------------- TERM LOAN AGREEMENT, dated __________________, 1995, between FLEET NATIONAL BANK OF MASSACHUSETTS (the "Bank"), having an office at One Federal Street, Boston, Massachusetts and Parlex Corporation, a Massachusetts corporation (collectively, the "Borrower"), having its chief executive offices at 145 Milk Street, Methuen, Massachusetts. W I T N E S S E T H: -------------------- SECTION 1 - THE LOAN -------------------- 1.1 AMOUNT: The Bank will lend to the Borrower and the Borrower will borrow from the Bank up to Five Million ($5,000,000.00) Dollars pursuant to a Revolving Line of Credit Note of even date (the "Note"). 1.2 LOAN FEES: During the period from the date of this Agreement up to and including the date at which the Note begins to amortize (the "Amortization Date"), the Borrower agrees to pay to the Bank a commitment fee, payable in arrears on the last day of each calendar quarter, commencing on the first of such dates next succeeding the date hereof, and on the Amortization Date and shall be equal to one-half of one (1/2 of 1%) percent per annum (computed on the basis of the actual number of days elapsed in a year of 360 days) of the average daily unused principal amount of the Note during the preceding period. 1.3 LIMITATION ON AVAILABILITY: Notwithstanding anything contained herein to the contrary, the amount of $500,000 shall not be available for disbursement hereunder for as long as a $500,000 Standby Letter of Credit (the "LC") issued b the Bank in connection with the guaranty given by the Borrower described in Section 5.3 of this Agreement remains outstanding. To the extend the amount of the LC is subsequently reduced consensually and not as a result of partial draws, then the amount by which the LC is reduced shall be made available for disbursement. SECTION 2 - REPRESENTATIONS AND WARRANTIES ------------------------------------------ The Borrower hereby represents and warrants to the Bank (which representations and warranties will survive the delivery of the Note and which shall continue until full and final payment of the Note) that: 2.1 CORPORATE EXISTENCE AND POWER: The Borrower is, and will continue to be, a corporation duly organized, validly existing and in good standing under the laws of its state of organization and is duly qualified and in good standing to do business in all other jurisdictions in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary except where the failure to qualify would not have a material adverse effect on the business, assets or financial condition of Borrower, and it has the corporate power to make this Agreement and to borrow hereunder. The Borrower has all requisite permits, authorizations and licenses without unusual restrictions or limitations, to own, operate and lease its properties and to conduct the business in which it is presently engaged, all of which are in full force and effect. 2.2 CORPORATE AUTHORITY: The making and performance by the Borrower of this Agreement and each and every other agreement, instrument or document required to be executed and delivered to the Bank by the Borrower pursuant to the terms hereof have been duly authorized by all necessary corporate action. The execution and delivery of this Agreement and each and every other agreement, instrument or document required to be executed and delivered to the Bank by the Borrower pursuant to the terms, the consummation of the transactions herein and therein contemplated, the fulfillment of or compliance with the terms and provisions hereof and of each and every other instrument, agreement or document required to be executed and delivered to the Bank by the Borrower pursuant to the terms hereof, are within its powers and will not violate any provision of law or of its charter or By-Laws or results in the breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Borrower pursuant to any indenture or bank loan or credit agreement (other than pursuant to this Agreement or other loan from the Bank) or other agreement or instrument to which the Borrower is a party. No approval, authorization, consent or other order of or registration or filing with any governmental body is required in connection with the making and performance of this Agreement. 2.3 FINANCIAL CONDITION: The financial statement(s) heretofore, delivered to the Bank, was prepared in conformity with generally accepted accounting principles and practices consistently maintained throughout the period(s) involved and is correct and complete and fairly present the financial condition and the results of operations of the Borrower for the period(s) and as of the date(s) thereof. The Borrower has no direct or contingent liabilities not disclosed in such statements. Since the date of the latest dated balance sheet included in said financial statement, there has been no material adverse change in the financial condition of the Borrower from that set forth and, except as disclosed to the Bank in writing, no dividends or other distributions have been declared or made to stockholders. 2.4 INFORMATION COMPLETE: Subject to any limitations stated therein or in connection therewith, all information furnished or to be furnished by the Borrower pursuant to the terms hereof is, or will be at the time the same is furnished, accurate and complete in all material respects necessary in order to make the information furnished, in the light of the circumstances under which such information is furnished, not misleading. 2.5 STATUTORY COMPLIANCE: To the best of Borrower's knowledge, the Borrower is in compliance with all federal, state, county and municipal laws, ordinances, rules or regulations applicable to it, its property or the conduct of its business, including, without limitation, those pertaining to or concerning public health, safety and the environment. 2.6 LITIGATION: No proceedings by or before any private, public or governmental body, agency or authority and no litigation is pending, or so far as is known to the Borrower or any of its officers, threatened against it. 2.7 EVENTS OF DEFAULT: No Event of Default has occurred, and to the best of the Borrower's knowledge, no event has occurred or is continuing which, pursuant to the provisions of Section 6, with the lapse of time and/or the giving of a notice specified therein, would constitute such an Event of Default. 2.8 USE OF PROCEEDS: The Borrower shall use the proceeds of the Note of general commercial purposes, provided that no part of such proceeds will be used, in whole or in part, for the purpose of purchasing or carrying any "margin stock" as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System. 2.9 VALIDITY: This Agreement, the Note and all related agreements, upon the execution and delivery thereof, will be legal, valid, binding and enforceable obligations of the Borrower or the person executing the same, as the case may be, in accordance with the terms of each. 2.10 TITLE TO PROPERTY: The Borrower has good and marketable title to its properties and assets subject to no mortgage, pledge, lien, security interest, encumbrance or other charge except in connection with other loans from the Bank. 2.11 TAXES: The Borrower has filed all tax returns and reports required to be filed by it with all federal, state or local authorities and to the best of the Borrower's knowledge, has paid in full or made adequate provision for the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due or claimed to be due on or in respect of such tax returns and reports. 2.12 LOCATION: All books and records relating to its assets are located at the Borrower's chief executive office as set forth above. SECTION 3 - CONDITIONS PRECEDENT -------------------------------- The obligation of the Bank hereunder is, without limitation, subject to the following conditions precedent: 3.1 APPROVAL OF BANK COUNSEL: All legal matters incident to the transactions hereby contemplated shall be reasonably satisfactory to counsel for the Bank. 3.2 PROOF OF CORPORATE ACTION: The Bank shall have received certified copies of all corporate action taken by the Borrower to authorize the execution and delivery of this Agreement and the Note and the borrowing hereunder and such other papers as the Bank or its counsel shall reasonably request. 3.3 RELATED AGREEMENTS AND DOCUMENTS: The Borrower shall have delivered to the Bank the various agreements and documents the Bank may reasonably request. 3.4 OPINION OF COUNSEL: The Bank shall have received from counsel for the Borrower a written opinion, satisfactory in form and substance to the Bank and its counsel. SECTION 4 - AFFIRMATIVE COVENANTS --------------------------------- The Borrower covenants and agrees that from the date hereof until payment in full of all amounts due under the Note and the termination of this agreement, unless the Bank otherwise consents in writing, the Borrower shall: 4.1 FINANCIAL STATEMENTS: Deliver to the Bank within forty-five (45) days after the close of each quarter of each fiscal year of the Borrower a management prepared balance sheet of the Borrower as of the close of each fiscal quarter and statements of income and retained earnings for that portion of the fiscal year-to-date then ended, prepared in conformity with generally accepted accounting principles, applied on a basis consistent with that of the preceding period or containing disclosure of the effect on financial position or results of operations of any change in the application of generally accepted accounting principles during a period, subject in all instances to year end adjustments and certified by the president, chief executive officer, or the chief financial officer of the Borrower as accurate, true and complete; (b) at the time that the financial statements are delivered pursuant to Section 4.1(a) above, Borrower shall also deliver an accounts receivable aging report in form reasonably acceptable to the Bank and a certificate from the chief financial officer certifying that Borrower is not in default under the terms of this loan agreement, including without limitation, as to the financial covenants set forth herein; (c) within ninety (90) days after the close of each fiscal year of the Borrower, audited financial statements including a balance sheet as of the close of such fiscal year and statements of income and retained earnings and cash flows for the year then ended, prepared in conformity with generally accepted accounting principles, applied on a basis consistent with that of the preceding year or containing disclosure of the effect on financial position or results of operations of any change in the application of generally accepted accounting principles during the year and accompanied by a report thereon, containing an opinion, unqualified as to scope, of a firm of independent certified public accountants selected by the Borrower and acceptable to the Bank; (d) all SEC reports as filed during the fiscal year; (e) promptly upon the Bank's written request, such other information about the financial condition and operations of the Borrower, or any Guarantor (if any), as the Bank may, from time to time, reasonably request. 4.2 INSURANCE: (a) Keep its properties insured against fire and other hazards (so called "All Risk" coverage) in amounts and with companies reasonably satisfactory to the Bank to the same extent and covering such risks as is customary in the same or a similar business, but in no event in an amount less than the full insurance value thereof, which policies shall name the Bank as loss payee as its interest may appear, (b) maintain public liability coverage against claims for personal injuries or death, and (c) maintain all worker's compensation, employment or similar insurance as may be required by applicable law. Such All Risk property insurance coverage shall provide for a minimum of thirty (30) days written cancellation notice to the Bank. Borrower agrees to deliver copies of all of the aforesaid insurance policies to the Bank. In the event of any loss or damage to any of its assets, Borrower shall give prompt written notice to the Bank and to its insurers of such loss or damage and shall promptly file its proofs of loss with said insurers. 4.3 COMPLIANCE WITH LAWS: TAX AND OTHER LIENS: Comply with all material federal, state, county and municipal laws, rules, ordinances and regulations applicable to it, its business or its property, including without limitation, those pertaining to or concerning public health, safety and the environment. Pay all taxes, assessments, governmental charges or levies, or claims for labor, supplies, rent and other obligations made against it or its property which, if unpaid, might become a lien or charge against the Borrower or its property, and which in each instance exceed the amount of $175,000 except with respect to such liabilities being contested in good faith with the prior written consent of the Bank which consent shall not be unreasonably withheld and against which, if requested by the Bank, the Borrower shall maintain reserves in amount and in form (book, cash, bond or otherwise) reasonably satisfactory to the Bank. Prevent to the extent possible the imposition of any liens and encumbrances against Borrower or its property for the costs of any response, removal, remedial action or clean-up of toxic substances or hazardous wastes. 4.4 CHIEF EXECUTIVE OFFICE AND PLACES OF BUSINESS: Keep its chief executive office, principal places of business and locations of assets at the locations set forth in this Agreement and the Borrower shall maintain its principal place of business, its chief executive office and locations of assets at said addresses. Borrower shall promptly give Bank written notice of any change in any such addresses. All business records of the Borrower, including those pertaining to all accounts and contract rights, shall be kept at the said chief executive office of the Borrower unless prior written consent of Bank is obtained to a change of location. 4.5 INSPECTION: Allow the Bank by or through any of its officers, agents, attorneys, or accountants designated by it, for the purpose of ascertaining whether or not each and every provision hereof and of any related agreement, instrument or document is being performed and for the purpose of examining the assets of the Borrower and the records relating thereto, to enter the offices and plants of the Borrower to examine or inspect any of the properties, books and records or extracts therefrom, and to discuss the affairs, finances and accounts thereof with the Borrower's officers and its accountants, all at such reasonable times and as often as the Bank may reasonably request, but in each case upon reasonable notice. 4.6 LITIGATION: Promptly advise the Bank of the commencement of litigation, including arbitration proceedings and any proceedings before any governmental agency, which might have a material adverse effect upon the condition, (financial, operating or otherwise) of the Borrower, or where the amount involved is $175,000 or more. 4.7 MAINTENANCE OF EXISTENCE: Continue to conduct its business as presently conducted, maintain its existence and comply with all valid and applicable statutes, rules and regulations, and maintain its properties in good repair, working order and operating condition. The Borrower shall immediately notify the Bank of any event causing material loss or unusual depreciation in the value of its business assets and the amount of same. 4.8 PERFORMANCE: Comply with all terms and conditions of this Agreement. 4.9 FINANCIAL COVENANTS: Borrower shall comply with the following financial covenants: a. Borrower shall maintain a minimum consolidated Tangible Net worth of $ 12,000.000 as a base plus fifty (50%) percent of net income for each quarter, to be tested quarterly. Intangible assets shall be deemed to include goodwill, purchased technology and capitalized software development costs. b. Borrower shall maintain a minimum ratio of consolidated Total Liabilities including deferred taxes and all contingent obligations such as guarantees to Tangible Net Worth of 1.00:1 on a quarterly basis. c. Borrower shall maintain a minimum Current Ratio of 1.4:1 on a Quarterly basis. (Advances under the Note will continue to be counted as a current liability for the purposes of this covenant. d. Borrower shall maintain a minimum working capital of: $6.0 Million at fiscal year end 1996 $6.5 Million at fiscal year end 1997 $7.0 Million at fiscal year end 1998 $7.5 Million at fiscal year end 1999 e. Borrower shall maintain a minimum Debt Service and UN financed Capital Expenditures Coverage Ratio of 2.0X effective as of June 30, 1996 and annually thereafter. This ratio means, during the applicable period, that quotient that is equal to (a) the aggregate of (i) Earnings Before Interest, Taxes, Depreciation and Amortization minus (ii) UN financed Capital Expenditures and minus (iii) Dividends, divided by (b) the sum of (i) Interest and (ii) Current Maturity of Long-Term Debt: EBITDA-UN financed Cap X-Dividends ---------------------------------- Interest + CMLTD Any Balance outstanding on the Note will not be considered as a Current Maturity of Long Term Debt provided that the Note remains a revolving instrument (either by its terms or as subsequently amended in writing). f. Borrower shall not incur capital expenditures per year in an amount greater than ten (10%) percent of the prior year's consolidated sales. g. Borrower's initial cash investment in Parlex Shanghai Circuit Co., Ltd.shall not exceed $600,000.00, nor shall its total investment exceed $1,503,000.00 without in each instance receiving the prior written consent from the Bank, which consent shall not be unreasonably withheld. Any guarantees given in connection with the Joint Venture Agreement (as hereinafter defined) shall not be counted in the calculation of "total investment". SECTION 5. NEGATIVE COVENANTS ----------------------------- The Borrower covenants and agrees that until payment is made in full of the Note and the performance of all its other obligations hereunder and under any other agreement, unless the Bank otherwise consents in writing, the Borrower shall not: 5.1 ENCUMBRANCES: Incur or permit to exist any lien, mortgage, charge or other encumbrance against any of its property or assets, whether now owned or hereafter acquired, except: (a) liens required by this Agreement; (b) pledges or deposits in connection with or to secure worker's compensation and unemployment insurance; (c) all liens under the certain Bond Purchase and Guaranty Agreement dated October 1, 1981 among the Borrower, the City known as the Town of Methuen, the Bank and Fidelity Tax Exempt Money Market Trust ("Bond Agreement"); and (d) tax liens which are being contested in good faith and in compliance herewith. Purchase money security interests for capital expenditures shall be allowed on equipment hereafter acquired by Borrower as permitted by Section 4.9 (f) above. 5.2 LIMITATION ON INDEBTEDNESS: Create or incur any indebtedness or obligation for borrowed money, or issue or sell any obligations of the Borrower, including, however, from the operation of this covenant: (a) the Note hereunder and all other liabilities of the Borrower to the Bank; (b) indebtedness subordinated in payment and priority to all indebtedness of the Borrower to the Bank in writing and in form and substance reasonably satisfactory to the Bank (unless said indebtedness will result in a violation of the financial covenants set forth herein); and (c) equipment purchase money liens which do not create a violation of the financial covenants set forth herein. 5.3 CONTINGENT LIABILITIES: Assume, guarantee, endorse or otherwise become liable upon the obligations of any person, firm or corporation except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business or except for a $500,000 Guaranty to The Hong Kong and Shanghai Banking Corporation Ltd. required by the terms of the Joint Venture Agreement between Borrower, Shanghai 20th Radio Factory and Mascon, Inc. for the establishment of Parlex (Shanghai) Circuit Co., Ltd. dated May 29, 1995 ("Joint Venture Agreement"). 5.4 DISPOSITION OF ASSETS: Sell, lease, pledge, transfer or otherwise dispose of all of any of its assets (other than in the ordinary course of its business as presently conducted) whether now owned or hereafter acquired except for liens or encumbrances required or permitted hereby or by any related agreement or for transfers of equipment to its subsidiary, Parlex Shanghai Circuit Co., Ltd. (which transfers, however, shall be subject to the restrictions of Section 4.9(g)) and provided that Borrower may sell in any fiscal year all or any of its assets up to a net book value of $150,000.00. 5.5 DIVIDENDS, DISTRIBUTIONS: Declare or pay any dividend (unless payable in capital stock of the Borrower) or authorize or make any other distribution with respect to its share of capital stock of the Borrower, whether now or hereafter outstanding (unless all financial covenants of the Borrower have been satisfied and will not be violated by such actions). 5.6 TRANSACTIONS WITH SUBSIDIARIES OR AFFILIATES: Enter into, or be a party to, any transaction with any Subsidiary or any affiliate (including, without limitation, transactions involving the purchase, sale or exchange of property, the rendering of service or the sale of stock) except in the ordinary course of business pursuant to the reasonable requirements of the Borrower and upon fair and reasonable terms no less favorable to the Borrower would obtain in a comparable arms-length transaction with a party other than a Subsidiary or an Affiliate or as required under the Joint Venture Agreement. 5.7 LOCATION: Change its chief executive office, places of business or the present locations of its assets or records relating thereto from those address(es) herein above set forth. 5.8 MANAGEMENT, CAPITAL STRUCTURE, ACCOUNTING METHODS: Make or consent to a material change in the stock ownership or capital structure of the Borrower or make a material change in the management of the Borrower provided, however, that for purposes of this covenant, Herbert W. Pollack's retirement from the Borrower, for whatever reason, shall not be deemed to be a material change in the management of the Borrower, or in the manner in which the business of the Borrower is conducted or in its method of accounting or in its election to be taxed, as applicable, of the Internal Revenue Code. 5.9 MERGERS/ACQUISITIONS: Make any acquisition or investment or be a party to any merger in which Parlex Corporation is not the surviving entity without the prior written consent of the Bank. The Bank must be provided with ten (10) business days prior notice of any permitted merger. Such notice must include the business rationale of the transaction and historical and pro forma financial information. Any consent so given will automatically terminate in six (6) months from the date of such consent unless the Bank has reapproved of the transaction prior to its consummation. SECTION 6 DEFAULTS ------------------ If any one or more of the following "Events of Default" shall occur: 6.1 Failure by the Borrower to observe or perform any covenant or agreement contained herein, or failure by the Borrower to perform any of its obligations under any other documents entered into in connection with the Note, including without limitation, failure to pay any amount as required which shall continue without correction beyond any applicable cure period. 6.2 Failure by the Borrower to perform any act, duty, obligation or other agreement contained herein and not otherwise constituting an Event of Default hereunder which shall occur and continue without correction beyond any cure period set forth in the Note (and which shall apply to this Agreement). Then, and in such event, the Bank may declare the then outstanding principal balance and all interest accrued under the Note and all applicable penalties and surcharges and any other liabilities of the Borrower to the Bank to be forthwith due and payable, whereupon the same shall become forthwith due and payable, without presentment or demand for payment, notice of non-payment, protest any other notice or demand of any kind, all of which are expressly waived by the Borrower. The Bank shall have any and all other rights and remedies provided in any other document entered into in connection with the Note. SECTION 7 - MISCELLANEOUS ------------------------- 7.1 WAIVERS. (a) Borrower hereby waives presentment, demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description except as expressly reserved in any document entered into in connection with the Note. With respect to this Agreement, any related agreements, the Note and any collateral now or hereafter securing the Note, Borrower assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of any collateral now or hereafter securing the Note, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Bank may deem advisable. The Bank shall have no duty as to the collection or protection of any collateral now or hereafter securing the Note or any income thereon, nor as to the preservation of rights against prior parties, nor as to the preservation of any rights pertaining thereto beyond the safe custody thereof unless and until it takes possession thereof. The Bank may exercise its rights with respect to any collateral without resorting or regard to other collateral nor or hereafter securing the Note or sources of reimbursement for liability. The Bank shall not be deemed to have waived any of its rights upon or under any document for agreement relating to the liabilities of the Borrower or any collateral now or hereafter securing any such liabilities unless such waiver be in writing and signed by the Bank. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. The Bank may revoke any permission or waiver previously granted to Borrower, such revocation shall be effective whether given orally or in writing. All rights and remedies of the Bank with respect to this Agreement, any related agreements, the Note or any collateral now or hereafter securing the Note, whether evidences hereby or by any other instrument or document, shall be cumulative and may be exercised singularly or concurrently. (b) THE BORROWER HEREBY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION. 7.2 NOTICES: All notices, requests or demands to or upon a party to this Agreement shall be given or made by the other party hereto in writing, in person or by deposit in the mails postage prepaid, certified mail, return receipt requested addressed to the addressee at the address set forth above or such other addresses as such addressee may have designated in writing to the other party hereto. No other method of giving any notice, request or demand is hereby precluded. 7.3 EXPENSES: ADDITIONAL DOCUMENTS: The Borrower will pay all reasonable expenses arising out of the preparation, amendment, protection, collection and/or other enforcement of this Agreement, any related agreements, the notes, or of any collateral or security interest now or hereafter granted to secure the notes or security interest or lien granted under any related agreement (including, without limitation, reasonable counsels' fees and reasonable costs relating to the appraisals and/or valuation of assets). The Borrower will from time to time, at its expenses, execute and deliver to the Bank all such other and further instruments and documents and take or cause to be taken all such other and future action as the Bank shall request in order to effect and confirm or vest more securely all rights contemplated by this Agreement. 7.4 COMPLIANCE: The determination of the Borrower's compliance with all covenants contained in this Agreement or the Note shall be based on the consistent application of generally accepted accounting principles employed by the Borrower as of the date of this Agreement unless otherwise subsequently and specifically agreed to in writing by the Bank. 7.5 LIEN AND SET OFF: The Borrower hereby gives the Bank a lien and right of set off for all of Borrower's liabilities and obligations upon and against all the deposits, credits, collateral and property of the Borrower now or hereafter in the possession, custody, safekeeping or control of the Bank or any entity under the control of Fleet National Bank of Massachusetts or in transit to any of them. At any time after the occurrence of an Event of Default and the running of any applicable cure periods, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of the Borrower even though unmatured. 7.6 STAMP TAX: The Borrower will pay any stamp or other tax which becomes payable in respect of the Note, this Agreement or related agreements except for income taxes. 7.7 MASSACHUSETTS LAW: This Agreement and the rights and obligations of the parties hereunder and under any related agreements and under the Note shall be construed and interpreted in accordance with the law of Massachusetts. The Borrower agrees that the execution of this Agreement and related agreements and the performance of the Borrower's obligations hereunder and thereunder shall be deemed to have a Massachusetts situs and the Borrower shall be subject to the personal jurisdiction of the courts of the Commonwealth of Massachusetts with respect to any action the Bank, its successors or assigns, may commence hereunder or thereunder. Accordingly, the Borrower hereby specifically and irrevocably consents to the jurisdiction of the courts of the Commonwealth of Massachusetts with respect to all maters concerning this Agreement, related agreements, the Note or the enforcement of any of the foregoing. 7.8 SURVIVAL OF REPRESENTATIONS: All representations, warranties, covenants and agreements herein contained or made in writing in connection with this Agreement shall survive the execution and delivery of the Note and shall continue in full force and effect until all amounts payable on account of the Note, any related agreements and this Agreement shall have been paid in full. 7.9 SEVERABILITY: If any provision of this Agreement shall to any extent be held invalid or unenforceable, the remainder of this Agreement shall not be affected. 7.10 INTEGRATION; MODIFICATIONS: This Agreement is intended by the parties as a final, complete and exclusive statement of the transactions evidenced by this Agreement. No modification or amendment hereof shall be effective unless same shall be in writing and signed by the parties hereto. 7.11 SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon and shall inure to the benefit of the Borrower, the Bank and their respective successors and assigns. 7.12 TERMINATION OF THIS AGREEMENT: This Agreement shall terminate upon the full and final payment of all amounts due hereunder, under the Note and u under any related agreements. IN WITNESS WHEREOF, the parties hereto have caused this Commercial Term Loan Agreement to be duly executed as a sealed instrument as of the day and year first above written. Signed, Sealed and Delivered FLEET NATIONAL BANK in the Presence of the OF MASSACHUSETTS Undersigned as witnesses By: ________________ to a ll signatories: Its: COMMONWEALTH OF MASSACHUSETTS On this ___________day of _______________, 19____, personally appeared _________________________, by ________________________ its _____________, hereunto duly authorized, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed, and the free act and deed of said corporation, before me. ______________________________ Notary Public My Commission Expires:________ CORPORATE VOTE -------------- I, Jill Pollack Kutchin, do hereby certify: That I am the Clerk of PARLEX CORPORATION that at a Special Meeting of the Board of Directors of the corporation duly called and held at 145 Milk Street, Methuen, Massachusetts on the 4th day of December 1995, all the Directors being present and voting at all times, the following resolution was unanimously adopted: VOTED: That the President, Peter J. Murphy or the Chief Executive Officer, Herbert W. Pollack, acting singly is hereby authorized and directed in the name and in behalf of the corporation to acquire financing in the amount of $5,000,000.00 from FLEET NATIONAL BANK OF MASSACHUSETTS and in connection therewith to sign in the name and on behalf of the corporation, seal with the corporate seal, acknowledge and deliver any and all instruments, which may be necessary thereto, under terms and conditions which are appropriate in the discretion of said President or Chief Executive Officer. I DO FURTHER CERTIFY that the above Vote has not been altered, amended rescinded or repealed. I DO FURTHER CERTIFY that the corporation is a duly organized corporation; that the foregoing Vote is in accordance with the charter and by-laws of the corporation; that Peter J. Murphy is the duly elected President, Herbert W. Pollack is the Chief Executive Officer and that I am duly elected Clerk of the corporation. _____________________________ Jill Pollack Kutchin, Clerk A True Copy: Attest KUTCHIN & RUFO, P.C. COUNSELORS AT LAW ONE LIBERTY SQUARE BOSTON, MASSACHUSETTS 02109 _______ (617)542-3000 TELECOPIER (617) 542-3001 December 12, 1995 Donald MacQuarrie, Vice President Fleet Bank of Massachusetts One Federal Street Boston, MA 02110 Re: Loan Arrangement by and between Fleet Bank of Massachusetts (the "Bank") and Parlex Corporation (the "Borrower") _____________________________________ Dear Mr. MacQuarrie: This opinion is being furnished to the Bank in connection with the above-referenced loan. We are general counsel to the Borrower. We have examined the following documents: 1. $5,000,000.00 Commercial Loan Agreement; and 2. Revolving Line of Credit Note. The documents described above in connection with the establishment of the loan agreement by and between the Bank and the Borrower are hereinafter sometimes referred to as the "Loan Documents". We have examined either original, certified copies or copies otherwise authenticated to our satisfaction of certificates, documents and materials (and have made such inquiry of officers of the Borrower) as we have deemed necessary in order to furnish the opinions herein expressed. We have made such other examinations as to matters of fact and law as we have deemed necessary in order to enable us to give the opinions hereinafter expressed. As a condition precedent to your entering into the Loan Documents, you have required that we, as counsel to the Borrower, render our opinion as to various aspects of the transaction. Based on the foregoing and subject to the qualifications and limitations set forth in this letter, we are of the opinion that: 1. The Borrower is a corporation duly organized and in good standing under the laws of the Commonwealth of Massachusetts. The Borrower has corporate power and authority adequate to carry on the business and own the properties presently conducted and owned by it and to enter into and perform its obligations under the Loan Documents. 2. The Borrower is duly qualified to transact business, as a foreign corporation, in all jurisdictions in which the character of the properties owned or the nature of the activities conducted by such corporation requires its qualification as a foreign corporation. 3. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary corporate action on the part of the Borrower, including all necessary approval by its directors of the transaction contemplated therein, and such authorization is in conformity with the Articles of Organization and Bylaws of the Borrower, and the Loan Documents constitute valid and binding obligations of the Borrower, enforceable in accordance with their respective terms. 4. The execution and delivery by the Borrower of the Loan Documents do not conflict with or result in a breach of any material term, condition or provision of any law or regulation, of any order, writ, judgment or decree of any court or governmental authority of which we are aware, of the Borrower's Articles of Organization or Bylaws. To our current knowledge based upon representations from the Borrower's officers, the execution and delivery by the Borrower of the Loan Documents do not conflict with or result in a breach of any material term, condition or provision of any indenture, contract, agreement or other instrument to which the Borrower is a party or by which it or its property is bound. We have made such examination of Massachusetts and federal law as we have deemed relevant for the purposes of this opinion, but we have not made an independent review of the laws of any state other than the laws of the Commonwealth of Massachusetts. Accordingly, we do not express any opinion as to the laws of any state or jurisdiction other than the laws of the United States and the Commonwealth of Massachusetts. We have assumed the genuineness of all signatures on the certificates and other documents referred to herein, the authenticity of all documents submitted to us as originals and the conformity to authentic originals of all documents submitted to us as copies thereof, and also the competency of each person signing any of the foregoing. Furthermore, nothing herein shall be deemed to be an opinion as to the ownership of, or title to any assets of the Borrower. All of our opinions set forth above are subject to the following additional qualifications: 1. The validity or enforceability of the rights and remedies provided in the Loan Documents may be limited: (i) by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting the rights of creditors generally; (ii) in that enforcement thereof is subject to general principles of equity (Whether such enforcement is considered in a proceeding at law or in equity) and to the discretion of the court before which any proceedings therefore may be brought; and (iii) by such duties and standards as are or may be imposed on creditors under the UCC or any other applicable law, including without limitation good faith, fair dealing and commercial reasonableness in the enforcement of rights and remedies. 2. This opinion has been delivered solely for your use in connection with the contemplated transactions and may not be referred to, quoted, circulated or used for any other purpose or relied upon by any other person nor may copies be delivered or furnished to any other party. 3. Except to the extent otherwise set forth above, for purposes of this opinion, we have not made an independent review of any contract or agreement which may have been executed by or which may now be binding upon the Borrower or which may effect any asset encumbered to secure the Loan Documents, nor have we undertaken to review our internal files or any files of the Borrower relating to transactions to which either may be a party, or to discuss their transactions or business with any other lawyers in our firm or with any other officers, partners or employees of the Borrower, nor have we examined any court dockets. Respectfully submitted, KUTCHIN & RUFO, P.C. By: ________________________ Edward D. Kutchin EX-21 7 SUBSIDIARIES OF THE REGISTRANT PARLEX CORPORATION Listing of Subsidiaries ----------------------- Parlex International Corporation Incorporated - St. Thomas, U.S. Virgin Islands Organized as a Foreign Sales Corporation January 8, 1985 Parlex Nevada, Inc.(Inactive) Incorporated in State of Nevada Date of Incorporation - February 1, 1988 Parlex (Shanghai) Circuit Co., Ltd. Incorporated in Shanghai, China Date of Incorporation - May 29, 1995 EX-23 8 INDEPENDENT AUDITORS' CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-10250, 33-39646, 33-39648, 33-88470 and 33-88472 of Parlex Corporation on Form S-8 of our report dated August 2, 1996, appearing in this Annual Report on Form 10-K of Parlex Corporation for the year ended June 30, 1996. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts September 27, 1996 EX-24 9 POWERS OF ATTORNEY POWER OF ATTORNEY We the undersigned, officers and directors of Parlex Corporation, hereby severally constitute Herbert W. Pollack and Steven M. Millstein, and each of them singly, our true and lawful attorneys, with full power indicated below, to sign for us the Report on Form 10-K of Parlex Corporation for the fiscal year ended June 30, 1996 and any required amendments thereto, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to said Report and any and all such amendments. Witness our hands on the dates set forth below: Dated: */S/ Sheldon A. Buckler Director - ------------------------------- Sheldon A. Buckler */S/ Richard W. Hale Director - ------------------------------- Richard W. Hale */S/ M. Joel Kosheff Director - ------------------------------- M. Joel Kosheff */S/ Peter J. Murphy Director - ------------------------------- Peter J. Murphy */S/ Lester Pollack Director - ------------------------------- Lester Pollack */S/ Benjamin Rabinovici Director - ------------------------------- Benjamin Rabinovici EX-27 10 FINANCIAL DATA SCHEDULE
5 This schedule contains a summary of financial information extracted from the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations and is qualified in its entirety by reference to such financial statements. 1 12-MOS JUN-30-1996 JUN-30-1996 386,608 0 7,533,313 79,980 7,753,424 16,625,288 32,051,165 19,396,046 29,662,056 7,477,660 100,000 0 0 258,266 0 29,662,056 47,102,025 47,257,025 40,307,894 45,826,186 0 0 351,125 1,170,302 386,961 770,486 0 0 0 770,486 .61 .61
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