UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 22, 2004
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PARLEX CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Massachusetts
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(State or Other Jurisdiction of Incorporation)
0-12942 04-2464749
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(Commission File Number) (IRS Employer Identification No.)
One Parlex Place, Methuen, Massachusetts 01844
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(Address of Principal Executive Offices) (Zip Code)
(978) 685-4341
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(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On December 22, 2004, Parlex Corporation and certain of its
subsidiaries (collectively, "Parlex") entered into a Joint Venture
Agreement, Stock Transfer Agreement and License Agreement (collectively, the
"Agreements") with Infineon Technologies Asia Pacific Pte Ltd ("Infineon"),
a wholly-owned subsidiary of Infineon Technologies AG. Pursuant to the
Agreements, Infineon will purchase, for an aggregate $3,000,000, a 49%
interest in a new entity to be formed by Parlex under the laws of Hong Kong
("HoldCo"). HoldCo, in turn, shall own a new entity ("NewCo") to be formed
under the laws of the People's Republic of China ("PRC"). At or before
closing, Parlex shall transfer to NewCo all of the assets relating to its
production of substrates for Infineon, the world's largest producer of so-
called "smart cards". Under the terms of the Agreements, Parlex is required
to obtain certain governmental approvals from the PRC with respect to NewCo,
and be able to consummate the transaction no later than March 31, 2005 (the
"Outside Closing Date").
Upon execution of the Agreements, Parlex received a deposit of an
aggregate $1,000,000 of the total purchase price. Specifically, Infineon
paid $500,000 to Parlex as consideration for the License Agreement, pursuant
to which Parlex granted Infineon a license relating to certain proprietary
technology used in connection with the production of the substrates. Under
the Agreements, Infineon is required to assign the license to NewCo at
closing, so long as the transaction closes on or before the Outside Closing
Date. Infineon also paid $500,000 of the $2,500,000 to be payable to Parlex
under the Stock Transfer Agreement, with the remaining $2,000,000 to be paid
at closing. In the event the transaction is not consummated on or before
the Outside Closing Date, Parlex is required to repay the $1,000,000, or
Infineon shall be entitled to offset such amount against Parlex's substrate-
related invoices submitted to Infineon.
Infineon and Parlex each have a right of pre-emption in the event
either entity attempts to sell its interest in HoldCo. In addition, each of
Parlex and Infineon has specific rights to purchase some or all of the other
entity's interest in HoldCo, or sell its interest in Holdco to the other
entity, upon the occurrence of certain events. Specifically:
1. Infineon has the right to purchase all (but not less than all)
of Parlex's interest in HoldCo at any time within three (3) years after the
closing date of the transaction if:
a. Parlex fails to meet certain specified performance
criteria with regard to yield, delivery, reliability and
quality for a period of not more than six (6) consecutive
months and after notice is given by Infineon to Parlex
specifying the nature and extent of the performance
issues;
b. Parlex (or any affiliate of Parlex) enters into a
definitive agreement to transfer a controlling interest in
Parlex (or any affiliate of Parlex) to a company that is
then in the business of manufacturing smart cards and or
smart cards ICs and is a direct competitor to Infineon, or
any Infineon affiliate, and on a list of specified
entities;
c. a voluntary or involuntary proceeding is commenced with
respect to Parlex's debts under any bankruptcy, insolvency
or similar law, or the appointment of a trustee or similar
official is sought, provided, however, that in the event
of an involuntary proceeding, Parlex shall be entitled to
a ninety (90) day grace period to dismiss or stay such
proceeding; or
d. NewCo fails to fulfill an exclusivity clause pursuant to
which it shall not sell its products to any other entity
on or before December 31, 2005.
2. Parlex has the right to purchase a portion of Infineon's
interest in HoldCo such that Parlex's interest shall equal 80.1% of HoldCo's
outstanding shares upon the occurrence of either of the following:
a. at Parlex's sole discretion, provided that Parlex may only
exercise such option during the time period commencing 12
months after the closing date and terminating 24 months
after the closing date; or
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b. upon Infineon's failure to meet certain minimum volume
requirements relating to the purchase of NewCo-produced
substrates, provided, however, that Parlex may only
exercise such option during the time period commencing 24
months after the closing date and terminating 36 months
after the closing date.
3. Infineon may also require Parlex to purchase Infineon's interest
in HoldCo, as follows:
a. Infineon has the option to sell, at its sole discretion,
either (i) all (and not less than all) of its interest in
HoldCo, or (ii) such portion of its interest in HoldCo as
will result in Infineon owning 19.9% of HoldCo following
such sale; and
b. Infineon's option to sell all or a portion of its interest
in HoldCo to Parlex shall only be exercisable in the event
that Parlex (or any other entity that owns an interest in
HoldCo) has entered into an agreement which will cause a
"Change of Control". For this purpose, a "Change of
Control" shall be deemed to occur if any person becomes
the beneficial owner of 50% or more of the combined voting
power of Parlex (or any other entity that owns an interest
in HoldCo) (subject to certain exceptions such as the
acquisition of shares by an employee benefit plan, etc.).
4. The price at which such shares shall be purchased and sold in
the event of any of the above is pre-determined and is based on (i) the
value of HoldCo as established by this transaction, (ii) HoldCo's net
income, and (iii) a premium of five percent (5%).
In connection with the transaction, Parlex and Infineon shall at
closing also enter into a number of ancillary agreements, including those
relating to the supply of substrates to Infineon and the provision of
certain services by Parlex to NewCo.
On December 28, 2004, Parlex Corporation issued a press release
summarizing these matters. A copy of the press release is attached hereto
as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
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(c) Exhibits.
10.1 Joint Venure Agreement, dated December 22, 2004, by and
between Parlex Asia Pacific Ltd. and Infineon Technologies
Asia Pacific Pte Ltd.
10.2 Stock Transfer Agreement, dated December 22, 2004, by and
among Parlex Corporation, Parlex Asia Pacific Ltd. and
Infineon Technologies Asia Pacific Pte Ltd.
10.3 License Agreement, dated December 22, 2004, by and among
Parlex Corporation and Infineon Technologies Asia Pacific
Pte Ltd.
99.1 Press Release of Parlex Corporation dated December 28,
2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PARLEX CORPORATION
(Registrant)
By: /s/ Jonathan R. Kosheff
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Jonathan R. Kosheff
Chief Financial Officer
Date: December 29, 2004
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