<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SHELDAHL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MINNESOTA 41-0758073
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1150 SHELDAHL ROAD
NORTHFIELD, MINNESOTA 55057
(507) 663-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
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JAMES E. DONAGHY
CHIEF EXECUTIVE OFFICER
SHELDAHL, INC.
1150 SHELDAHL ROAD
NORTHFIELD, MINNESOTA 55057
(507) 663-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES P. MOORSE, ESQ. THOMAS R. KING, ESQ.
LINDQUIST & VENNUM P.L.L.P. FREDRIKSON & BYRON, P.A.
4200 IDS CENTER 900 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402 MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 371-3211 TELEPHONE: (612) 347-7059
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(1)(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.25 par value..... 2,012,500(1) $15.25 $30,690,625 $10,583
</TABLE>
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(1) Includes 262,500 shares of Common Stock issuable which may be purchased by
the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) and based on the average of the high and low sales
prices for the Registrant's Common Stock on October 10, 1995 as reported on
the Nasdaq National Market.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 12, 1995
1,750,000 SHARES
LOGO
COMMON STOCK
All of the 1,750,000 shares of Common Stock offered hereby are being sold by
the Company. The Common Stock is quoted on the Nasdaq National Market under the
symbol "SHEL." On October 9, 1995, the last reported sale price per share of
the Common Stock, as reported by Nasdaq, was $15.75. See "Price Range of Common
Stock."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total (3)........................ $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$225,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase an
aggregate of up to 262,500 additional shares of Common Stock solely to
cover over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them, and are subject to the right of the
Underwriters to withdraw, cancel or modify such offer and to reject any order
in whole or in part. It is expected that delivery of shares of the Common Stock
will be made on or about , 1995.
DAIN BOSWORTH NEEDHAM & COMPANY, INC.
Incorporated
THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE>
[DESCRIPTION OF PHOTOS/DIAGRAM ON INSIDE FRONT COVER]
Caption at top of page - Novaclad, ViaGrid and High Density Substrates
Caption at left - Sheldahl's Emerging Products as used in the creation of an
Advanced Integrated Circuit Package
Caption at bottom - Sheldahl's Emerging Products Provide Solutions for Future
Generations of Electronic Packaging
Six photos aligned in clockwise formation:
#1 - Photo of ViaGrid, with following caption: Sheldahl's ViaGrid
product, with laser generated holes as small as 1 mil (.001"), is used as the
base material for the fabrication of high density substrates.
#2 - Photo of software on computer screen, with following caption: MCM
Station Software, created under Sheldahl's joint marketing agreement with Mentor
Graphics, is used by designers to map a high density circuit for connection to
an advanced silicon die.
#3 - Photo of processing equipment, with following caption: Using
Sheldahl's efficient roll-to-roll process, the high density circuit is imaged,
etched and plated onto ViaGrid, creating a high density substrate.
#4 - Photo of high density substrate, with following caption: The high
density substrate is incorporated into an advanced integrated circuit package
such as a Ball Grid Array or Pin Grid Array.
#5 - Photo of integrated circuit, with following caption: To complete
the integrated circuit package, the advanced silicon die is mounted on the
Sheldahl high density substrate.
#6 - Photo of computer, with following caption: The finished integrated
circuit is used in an electronic application such as the personal computer shown
here.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
[DESCRIPTION OF DIAGRAM ON INSIDE GATEFOLD OF FRONT COVER]
Diagram of automobile showing component parts supplied by the Company, with
short descriptions of each component part as follows:
Tail Light Clusters - Modular assembly eliminates wiring and facilitates
automatic assembly
Air Bags - Moisture barrier to protect the explosive charge
Audio Controls - Low cost flexible circuits
Instrument Cluster - Low cost flexible circuits
Hornswitch - Lightweight, low cost
ECUs - Novaclad based flexible circuitry provides thermal dissipation
and cost savings
Sensors - Compact interconnect assemblies operating in harsh
environments
Power Distribution - Eliminates wiring and facilitates automatic
assembly
ABS - Withstands harsh environment
Caption at left - Sheldahl in Automotive Electronics
Caption at right - The Right Technology - Sheldahl technology provides flexible
laminates and flexible printed circuitry with performance targeted to each
particular application. From cost effective dashboard and other modular circuits
to high performance flexible circuitry, Sheldahl technology has the solutions
for a variety of automotive needs. The cost and performance characteristics of
Sheldahl technology are being recognized by automotive electronics engineers
around the world.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus. See "Risk Factors" for information
prospective investors should consider. Unless the context requires otherwise,
all references in this Prospectus to "Sheldahl" or the "Company" refer to
Sheldahl, Inc. and its subsidiary. Unless otherwise indicated, all information
in this Prospectus assumes that the Underwriters' over-allotment option is not
exercised. Novaclad(R), Novaflex(R), ViaGrid(R), Flexbase(R) and Z-Link(R) are
registered trademarks of the Company. See "Glossary" for definitions of certain
terms used herein.
THE COMPANY
Sheldahl is a leading producer of high quality flexible printed circuitry and
flexible laminates, principally for sale to the automotive electronics and
datacommunication markets. Flexible circuitry is used to provide electrical
connection between components and electronic systems and also as a substrate to
support electronic devices. Flexible circuits consist of polyester or polyimide
film to which copper foil is laminated and processed through various imaging,
etching and plating processes. Flexible circuits can be further processed by
surface mount attachment of electronic components to produce an interconnect
assembly. Flexible circuits provide advantages over rigid printed circuit
boards by accommodating packaging contour and motion and reducing size and
weight. According to industry sources, the worldwide market for flexible
circuitry is estimated to increase from $1.7 billion in 1995 to $2.2 billion by
1998.
The Company recently introduced three high performance products based on
proprietary thin film technology: Novaclad, ViaGrid and high density
substrates. These emerging products provide substantial benefits compared to
traditional flexible circuits, including the capability for very fine circuit
traces (down to 1 mil, or .001") as well as greater heat tolerance and
dissipation. The Company has designed its Novaclad and ViaGrid products to be
used as a base material for high performance printed circuits. The Company has
developed its high density substrates to enable integrated circuit ("IC")
manufacturers to package future generations of ICs economically by attaching
the silicon die to a high density substrate manufactured by the Company or
other circuitry manufacturers using the Company's Novaclad or ViaGrid products.
As ICs are becoming increasingly powerful, they produce more heat and require a
greater number of connections to attach the silicon die, placing substantially
greater demands on IC packaging materials. Industry sources project that the
number of high density IC packages requiring more than 256 connections to the
silicon die is expected to increase from an estimated 777 million worldwide in
1995 to over 3.7 billion worldwide in 2000, representing a compound annual
growth rate of 36.9%.
The Company believes the growth of the IC market, together with increasing
silicon die connection densities, provides an attractive market opportunity for
its emerging products. Other technologies available for high density IC
packaging, including ceramic and deposited substrates, are generally available
only at substantially greater costs than the Company's emerging products. The
Company currently has over 40 high density substrate designs in process for
Ball Grid Arrays, Pin Grid Arrays and other high density IC packages, of which
approximately 10 have been developed through the prototype stage, with such
customers as Texas Instruments, ASAT, Motorola, Coors Electronic Packaging
Company and National Semiconductor. The Company is investing approximately $38
million in an advanced New Production Facility to produce its emerging products
in commercial volumes. This New Production Facility, located in Longmont,
Colorado, is scheduled to be operational in April 1996.
3
<PAGE>
The Company has developed a number of strategic relationships to support its
efforts to commercialize its emerging products:
. In August 1995, the Company began a program with Texas Instruments to
develop Ball Grid Array IC packages incorporating the Company's high
density substrates.
. In June 1995, the Company signed a joint marketing agreement with Mentor
Graphics to provide printed circuit manufacturers with access to
comprehensive design solutions to enable them to manufacture custom
designed high density circuits using ViaGrid as a base material.
. In August 1995, the Company signed a letter of intent with Morton
International to form a joint venture which would have exclusive
worldwide rights to market the Company's ViaGrid product to printed
circuit manufacturers through Morton International's direct sales force.
. In September 1995, the Advanced Research Projects Agency, a U.S.
Government Agency, extended its commitment to a consortium formed in
fiscal 1994 and managed by Sheldahl to develop high density, low cost
Multi-Chip Modules using Novaclad as a base material. The Company has
received $7.4 million of funding from ARPA through fiscal 1995, and
expects to receive an additional $3.5 million through fiscal 1997.
. In March 1995, the Company began a joint program with Coors Electronic
Packaging Company to develop IC packages in which silicon dies are
attached to the Company's high density substrates and then placed on a
ceramic base.
In 1989, management developed a new business strategy focused on achieving a
leading position supplying flexible circuits to the automotive electronics
market and sales to automotive customers have increased at a compound annual
rate of 24.6% since fiscal 1989. Industry sources estimate that the average
electronic content per automobile has grown from approximately $1,200 in 1990
to approximately $1,700 in 1995 and is projected to grow to approximately
$2,400 in 2000. Based on the Company's historical growth in sales to automotive
customers, as well as product design work already completed for the 1996 and
1997 model years, the Company believes that automotive demand for flexible
circuits is likely to grow at a greater rate than overall demand for automotive
electronics. The Company's flexible circuits and flexible laminates are
incorporated into vehicles manufactured by Chrysler, Ford, General Motors,
Honda and Toyota.
The Company's goal is to be the leading worldwide supplier of high quality
flexible printed circuitry, flexible laminates and high density substrates
serving the needs of the datacommunication and automotive electronics markets.
To achieve this goal, the Company has developed a business strategy focused on
(i) capitalizing on market opportunities for its emerging products, (ii)
leveraging strategic relationships to increase market penetration, (iii)
increasing penetration of the growing automotive electronics market, (iv)
continuing to develop advanced manufacturing capabilities and product quality
and (v) emphasizing product and process improvements and new product
applications. Sheldahl believes its vertically integrated production
capabilities, including efficient roll-to-roll manufacturing processes, its
proprietary technology and close collaboration with customers in the design of
new product applications, will continue to be key to the execution of the
Company's business strategy.
The Company is a Minnesota corporation and its principal executive offices
are located at 1150 Sheldahl Road, Northfield, Minnesota 55057. Its telephone
number is (507) 663-8000.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered............... 1,750,000 shares
Common Stock outstanding after this 8,583,926 shares (1)
offering..........................
Use of proceeds.................... To reduce outstanding indebtedness and
increase working capital to support further
product development and increased
manufacturing capacity.
Nasdaq National Market symbol...... SHEL
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................. $82,102 $88,346 $95,216
Gross profit.............................. 15,742 19,073 20,464
Income from continuing operations before
provision for income taxes and cumulative
effect of changes in methods of
accounting .............................. 1,487 3,594 4,334
Net income................................ 1,437 2,816 3,134
Net income per share...................... $ .29 $ .52 $ .45
Weighted average common shares and common
share equivalents outstanding ........... 4,950 5,418 6,925
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 1, 1995
-------------------
AS
ACTUAL ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $16,332 $
Total assets................................................ 94,186
Long term debt, excluding current portion................... 33,864
Total shareholders' investment.............................. 40,952
</TABLE>
- --------
(1) Does not include 567,358 shares of Common Stock issuable upon exercise of
outstanding options under the Company's stock option plans as of October 1,
1995, of which 389,581 are currently exercisable. See "Capitalization" and
"Description of Capital Stock--Outstanding Stock Options."
(2) Adjusted to reflect the sale of Common Stock offered hereby and the
application of the estimated net proceeds therefrom.
5
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the following risk
factors in connection with their purchase of the shares of Common Stock offered
hereby.
NEW PRODUCTION FACILITY START-UP
The Company is scheduled to begin production of Novaclad, ViaGrid and high
density substrate products, in quantities sufficient for market introduction,
at its new production facility in Longmont, Colorado (the "New Production
Facility") in April 1996. As of the date of this Prospectus, however, several
pieces of equipment key to the production process have not yet been delivered
to the New Production Facility and must be installed, tested and integrated
with other production equipment before commercial production can begin. The
equipment used to produce small holes, or "vias," in the production of ViaGrid
has been developed by the Company and a vendor who has certain proprietary
rights in this equipment. The delivery of such equipment has been subject to
delays by this vendor. Although the Company believes that it has validated the
technical capabilities of its processes and the equipment to be installed, the
validation of certain equipment has involved only small quantities of product
and took place under research and development circumstances which may not be
duplicated at the New Production Facility. The Company's pilot plant in
Longmont, Colorado enabled the Company to verify certain aspects of its
production process but did not meet all expectations and was dependent on
outside vendors and the Company's Northfield facility for certain aspects of
the production process. The Company's ability to begin production of commercial
quantities of its products in April 1996 is therefore subject to significant
risks of delays in the delivery of equipment, failure of the equipment to
produce sufficient quantities of products at acceptable quality levels and
costs and difficulties in integrating the equipment into the production
process. Once the New Production Facility is operational, the Company expects
that, initially, it is not likely to produce sufficient sales volume or profit
contribution to offset the depreciation and other expenses related to its
operation. The start-up of the New Production Facility is therefore likely to
have a material adverse effect on the Company's results of operations unless
sales of products from the New Production Facility increase sufficiently to
cover expenses. See "Business--Manufacturing."
MARKET ACCEPTANCE OF NEW PRODUCTS
A significant portion of the Company's anticipated future success in the
datacommunication market and a significant portion of future revenue growth of
the Company will depend on market acceptance of its emerging Novaclad, ViaGrid
and high density substrate products. Although the Company believes that these
products have attractive performance characteristics and utility in a
potentially broad range of products, sales of these emerging products will
depend on the Company's ability to (i) convince potential customers that the
advantages and applications of the Company's emerging products justify the
expense and production changes necessary to incorporate the Company's products
into the customer's manufacturing process; (ii) work with designers of
integrated circuit ("IC") packages and electronics to incorporate the Company's
emerging products; (iii) qualify its emerging products for inclusion in the
customer's products within the time requirements of the customer's design cycle
and (iv) produce sufficient quantities of these products in a timely manner.
Moreover, these products will compete with certain other thin film laminates or
alternative materials offered by other manufacturers and such materials may
achieve wider market acceptance than the Company's products. Failure of the
Company's emerging Novaclad, ViaGrid and high density substrate products to
achieve timely or sufficient market acceptance would have a material adverse
effect on the Company's results of operations. See "Business--Emerging
Products" and "--Competition."
DEPENDENCE ON AUTOMOTIVE MARKET
Sales to the automotive market as a percentage of total sales were 52.9% in
fiscal 1994 and 54.5% in fiscal 1995. Sales of automotive component products
have historically been stronger in the last half of each fiscal year. The
Company's production of component products for the automotive market fluctuates
as
6
<PAGE>
automotive manufacturers begin production of new models and end production of
others. A decrease in the number of the Company's electronic components
included in new models could have a material adverse effect on the Company's
results of operations. A general downturn in the automotive market could have a
material adverse effect on the demand for the electronic components supplied by
the Company to its customers in the automotive market. In addition, as the
automotive industry continues to qualify and reduce the number of suppliers and
demand higher performance products at a lower cost, there can be no assurance
that the Company will be able to maintain its current sales volumes at existing
profit margins to automotive manufacturers and their suppliers. See "Business--
Industry Background," and "--Current Products."
CUSTOMERS' PRODUCT OBSOLESCENCE AND STANDARDS
The Company supplies component products primarily to the automotive
electronics and datacommunication markets. Substantially all of the products in
these markets which incorporate the Company's component products are subject to
technological obsolescence, performance standards and pricing requirements. The
Company's future success in these markets will depend upon its ability to (i)
work closely with manufacturers to design end products or applications which
incorporate the Company's products and achieve market acceptance, (ii) develop
technologies to meet the evolving market requirements of its customers, (iii)
continue to deliver high-performance, cost-effective products and (iv) expand
its sales and marketing efforts domestically and internationally. There can be
no assurance that the Company will continue to meet the current qualification
requirements of its major customers, meet new qualification requirements
imposed by its customers or continue to be selected as a supplier by new
customers. See "Business--Industry Background," "--Business Strategy," "--
Emerging Products" and "--Current Products."
CUSTOMER CONCENTRATION
The Company's customer base is concentrated. During fiscal 1995, the
Company's ten largest customers accounted for approximately 53.4% of net sales,
and 15.9%, 6.6% and 5.9% of the Company's net sales during fiscal 1995 were to
Ford Motor Company, Motorola, Inc. and Polaroid Corp., respectively. The
Company expects that sales to a relatively small number of customers will
continue to account for a significant portion of sales for the foreseeable
future, and the loss of, or a significant decline in orders from, one of the
Company's key customers could have a material adverse effect on the Company's
results of operations. See "Business--Current Products" and "--Sales and
Customer Support."
CAPITAL INTENSIVE BUSINESS
The Company's business is capital intensive. In the past three years, the
Company has invested a total of $23.7 million in its current operations and
$26.7 million in the New Production Facility in Longmont, Colorado. The Company
originally projected capital expenditures for the start-up of the pilot plant
and the New Production Facility to be approximately $30 million. Due to
necessary process changes and additional equipment purchases, the Company
expects its investment in the New Production Facility to increase to
approximately $38 million, including the site, construction of the facility,
equipment purchases and the value of the equipment the Company expects to
lease. In addition to these increased capital expenditures for the start-up of
the New Production Facility, the Company may encounter additional unplanned
costs, including the purchase of alternative production equipment in the event
the planned equipment does not meet performance expectations or is not
delivered in a timely manner. In order to remain competitive, the Company must
continue to make significant expenditures for capital equipment, expansion of
operations and research and development. If the Company is successful in
introducing its emerging products, it may be required to make additional
capital investments to increase manufacturing capacity before significant net
sales and positive cash flows can be derived from the initial investment in the
New Production Facility. The Company believes it will be able to fund its
anticipated working capital and capital expenditure requirements through fiscal
1997 from (i) the proceeds of this offering, (ii) funds generated from
operations, (iii) bank borrowings and (iv) funds received from the Advanced
Research Projects Agency of the U.S.
7
<PAGE>
Government ("ARPA"). However, there can be no assurance that unanticipated
developments will not create an earlier need for additional capital, that
additional capital will be available when needed by the Company or that such
capital will be available on terms acceptable to the Company. See "Use of
Proceeds," "Management's Discussion and Analysis of Results of Operations and
Financial Condition--Liquidity and Capital Resources" and "Business--Research
and Development."
DEPENDENCE ON KEY PERSONNEL
The Company's business is dependent on the efforts and abilities of its
executive officers and key personnel, especially in the development, marketing
and manufacturing of its Novaclad, ViaGrid and high density substrate products.
The Company's continued success will also depend on its ability to continue to
attract and retain qualified employees. The loss of services of any key
personnel could have a material adverse effect on the Company. The Company does
not have key-person life insurance on any of its employees. See "Management."
COMPETITION
The market segments served by the Company are highly competitive. Some of the
Company's competitors have substantially greater financial and marketing
resources than the Company. Although the Company believes performance and price
characteristics of its emerging products will provide competitive solutions for
its customers' needs, there can be no assurance that its customers will not
choose other technologies due to such customers' familiarity with the competing
technology, the financial resources of the supplier or the ease of
incorporating alternative technology into customers' manufacturing processes.
In addition, there can be no assurance that other competitors will not enter
the markets served by the Company. The Company's results may be adversely
affected by the actions of its competitors, including the development of new
technologies, the introduction of new products or the reduction of prices.
There also can be no assurance that the Company will be able to take actions
necessary to maintain its competitive position. See "Business--Competition."
VARIABILITY OF QUARTERLY RESULTS
Historically, the Company's quarterly results of operations have fluctuated
significantly primarily because of the timing of orders from its larger
customers. Due to this and the inherent uncertainty associated with the
development of new products and production facilities, the Company expects that
its quarterly results of operations will continue to be subject to significant
fluctuations. See Note 12 of Notes to Consolidated Financial Statements.
POSSIBLE VOLATILITY OF STOCK PRICE
Factors such as announcements by the Company or its competitors, fluctuations
in the Company's results of operations, general conditions in the automotive
and datacommunication markets or the worldwide economy or changes in earnings
or estimates by analysts could cause the price of the Common Stock to
fluctuate, perhaps substantially. Also, prices for many technology company
stocks, including the Common Stock, may fluctuate widely for reasons that are
not always related to the operating performance of such companies.
RELIANCE ON SPECIALIZED MANUFACTURING FACILITIES
The Company has separate manufacturing and assembly facilities, certain of
which perform processes dependent upon products produced at its other
facilities. The Company's flexible laminates are produced at one facility and
further processed into printed circuitry in a separate facility, both located
in Northfield, Minnesota. Further assembly is performed at two facilities in
South Dakota. Delays or disruptions at its flexible laminate facility may
result in an insufficient supply of materials for its flexible printed
circuitry
8
<PAGE>
facility and its assembly facilities. The Company's Novaclad, ViaGrid and high
density substrate products will be manufactured primarily at the New Production
Facility. Each of these facilities contains or will contain specialized
equipment which is not quickly replaceable. Any natural or other event
affecting any one of these facilities or the manufacturing equipment could
materially and adversely affect the Company's results of operations. See
"Business--Manufacturing."
DEPENDENCE ON CERTAIN SUPPLIERS
The Company is dependent upon single source suppliers for certain of the raw
materials used in the Company's manufacturing processes. The Company currently
depends on one supplier for the polyimide film which serves as a base material
for its Novaclad, ViaGrid and high density substrate products and such film is
produced at a single manufacturing facility. Any interruption in such supply of
polyimide film to the Company could adversely affect the Company's
manufacturing and sales of its emerging products. Certain other materials and
services used by the Company in the manufacture of its products are currently
obtained from single sources. While the Company has not experienced significant
problems in the delivery of these materials or services, the Company believes
an interruption in the supply of such materials or services could have a
material adverse effect on the Company's results of operations. See "Business--
Suppliers."
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company's success depends, to a large extent, on its ability to maintain
a competitive proprietary position in its product areas. The Company has
received certain patents with respect to its products and processes and has
several other patent applications pending. There can be no assurance that
patents will be issued on the basis of the Company's applications, that any
patent issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted under any patent will provide
significant benefits to the Company. The Company was named as a defendant in a
patent infringement matter regarding its Novaclad products which was dismissed
in January 1994 for lack of jurisdiction and which has not been commenced
elsewhere. There can be no assurance that this plaintiff or others will not
bring other actions against the Company. The Company is also aware of a patent
which may cover certain plated through holes of double-sided circuits made of
the Company's Novaclad material. Although no claims have been made against the
Company under this patent, the owner of the patent may attempt to construe the
patent broadly enough to cover certain Novaclad products manufactured currently
or in the future by the Company. The Company believes that prior commercial art
and conventional technology, including certain patents of the Company, exist
which would allow the Company to prevail in the event any such claim is made
under this patent. Any action commenced by or against the Company could be time
consuming and expensive and could result in requiring the Company to enter into
a license agreement or cease manufacture of any products ultimately determined
to infringe such patent. In addition to patent protection, the Company also
attempts to protect its trademarks through registration and proper use. The
Company also attempts to protect its proprietary information as trade secrets
by taking security precautions at its facilities. Further, the Company
maintains confidentiality through the use of secrecy or confidentiality
agreements and other measures intended to prevent the public dissemination of
trade secret information. There can be no assurance that these steps will
prevent misappropriation of the Company's proprietary rights or that third
parties will not independently develop functionally equivalent or superior non-
infringing technology. See "Business--Proprietary Technology."
9
<PAGE>
ENVIRONMENTAL MATTERS
The Company's production processes require the use, storage and disposal of
certain substances which are considered hazardous under applicable federal and
state laws. Accordingly, the Company is subject to a variety of regulatory
requirements for the handling of such substances. The Company has maintained a
safety and environmental compliance program for a number of years. Any
inadvertent mishandling of materials or similar incident, however, could result
in costly administrative or legal proceedings, or remediation. In addition,
future environmental regulations could add to overall costs of doing business.
See "Business--Environmental Regulations" and "--Legal Proceedings."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after this
offering could adversely affect the market price of the Common Stock. Of the
8,583,926 shares which will be outstanding after this offering (excluding
391,931 shares subject to currently exercisable stock options), approximately
7,555,949 shares will be freely tradeable in the public market without
restriction or further registration under the Securities Act of 1933, as
amended (the "Act"), and 1,027,977 shares will be "affiliate" securities within
the meaning of Rule 144 (the "Affiliate Shares"). Beginning 90 days after the
date of this Prospectus, all Affiliate Shares subject to lock-up agreements
between the Underwriters and the Company's officers and directors will become
eligible for sale in the public market, subject to Rule 144 volume limitations
applicable to affiliates. The Company has filed registration statements on Form
S-8 to register shares of Common Stock reserved for issuance under its stock
option plans. Shares of Common Stock issued pursuant to these plans from time
to time will be available for sale in the public market, subject to Rule 144
volume limitations applicable to affiliates. See "Description of Capital
Stock--Outstanding Stock Options" and "Underwriting."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and the Minnesota Business
Corporation Act include certain "anti-takeover" provisions. These provisions,
including the power to issue additional stock and to establish separate classes
or series of stock, may, in certain circumstances, deter or discourage takeover
attempts and other changes in control of the Company not approved by the Board.
See "Description of Capital Stock."
10
<PAGE>
RECENT DEVELOPMENTS
The Company has recently initiated various strategic relationships to further
position itself to achieve its goal of being the leading worldwide supplier of
high quality flexible printed circuitry, flexible laminates and high density
substrates serving the needs of the datacommunication and automotive
electronics markets. These recent strategic relationships include:
Texas Instruments Semiconductor Program. In August 1995, the Company began a
program with Texas Instruments Corporation ("Texas Instruments") to develop an
advanced IC package using Ball Grid Array technology in which the silicon die
is attached to the Company's high density substrate which in turn is placed on
an array of small solder balls forming the base of the package. In addition to
providing increased performance, the Ball Grid Array replaces the fragile leads
which extend from the perimeter of current IC packages, resulting in improved
assembly yields and reduced size. See "Business--Business Strategy" and
"--Sales and Customer Support--Emerging Products."
Mentor Graphics Agreement. In June 1995, the Company signed a joint marketing
agreement with Mentor Graphics Corporation ("Mentor Graphics"), a worldwide
leader in providing electronic design automation tools and professional
services for use in designing printed circuits. The Company believes that many
potential purchasers of the Company's new ViaGrid product already use Mentor
Graphics' design tools and that the Company's relationship with Mentor Graphics
will facilitate the Company's ability to market ViaGrid to these customers.
Mentor Graphics has developed software specifically for designing advanced
packaging and other printed circuitry solutions incorporating ViaGrid and will
offer this MCM Station(R) software, together with training and customer
support, to printed circuit manufacturers. Mentor Graphics will also offer
contract design services, using the MCM Station(R) software, to printed circuit
manufacturers. The Company expects this relationship to provide printed circuit
manufacturers with access to comprehensive design solutions to enable them to
manufacture custom designed circuits using ViaGrid as a base material. See
"Business--Business Strategy" and "--Sales and Customer Support--Emerging
Products."
Joint Venture With Morton International. In August 1995, the Company signed a
letter of intent with the Electronic Materials Group of Morton International,
Inc. ("Morton"), a worldwide leader in supplying specialty chemicals and
equipment to the printed circuit and photochemical machining industries. Under
the terms of the letter of intent, Morton and the Company would form a joint
venture in which each party would have a 50% ownership interest. The joint
venture would have exclusive worldwide rights to market the Company's new
ViaGrid product to printed circuit manufacturers through Morton's direct sales
force. The Company would retain the right to use ViaGrid in the manufacture of
high density substrates. The letter of intent contemplates that the joint
venture would be obligated to purchase certain minimum quantities of ViaGrid
from the Company on a take-or-pay basis, with the joint venture having a
royalty bearing license to establish separate manufacturing capacity if certain
sales volumes are exceeded. The Company believes that its access to Morton's
direct sales force through the joint venture, together with the design software
and services offered pursuant to the Company's joint marketing agreement with
Mentor Graphics, will enable the Company to offer ViaGrid and the design
capabilities necessary to utilize ViaGrid to a significantly larger number of
printed circuit manufacturers than the Company would be able to reach
independently. There can be no assurance that the Company will sign a
definitive joint venture agreement with Morton, or that the terms of any
definitive agreement will be as contemplated by the letter of intent. See
"Business--Business Strategy" and "--Sales and Customer Support--Emerging
Products."
ViaGrid Beta-Test Sites. In June 1995, the Company established ViaGrid beta-
test sites with two manufacturers that design and fabricate printed circuits.
The beta-test sites have been established to allow these manufacturers to test
processes and equipment necessary to design and manufacture circuitry utilizing
ViaGrid material. The Company's objective is to establish these circuit
manufacturers as examples for other potential customers of the feasibility and
advantages of converting their manufacturing processes to use ViaGrid and
thereby generate more customers and more demand for the Company's emerging
ViaGrid product. See "Business--Sales and Customer Support--Emerging Products."
11
<PAGE>
ARPA Programs. In September 1995, ARPA agreed to extend its commitment to a
consortium (the "ARPA Consortium") managed by the Company and formed in fiscal
1994 to develop a high density, low-cost, Multi-Chip Module (a high performance
IC package containing more than one silicon die) using Novaclad as the base
material. Pursuant to its original commitment to the ARPA Consortium, ARPA
provided $13.8 million in funding to the ARPA Consortium (of which $7.4 million
was received by the Company) and has agreed to fund an additional $2.7 million
(of which $2.1 million would be received by the Company), subject to the
completion of certain milestones. In connection with its extension of the ARPA
Consortium project, ARPA has agreed to recommend for funding an additional
approximately $2.0 million to the ARPA Consortium (of which approximately $1.4
million would be received by the Company) for the development of multi-layer
circuits made from the Company's high density substrates. In fiscal 1995, the
Company was chosen to supply high-density substrates for consortia managed by
National Semiconductor Corporation and formed to develop (i) low-cost plastic
packaging and (ii) an IC attachment technique for a silicon die without using
wires, known as a Flip Chip. ARPA has agreed to provide $9.6 million in funding
for these consortia (of which $1.1 million would be received by the Company),
subject to the completion of certain milestones. See "Business--Business
Strategy" and "--Research and Development."
Coors Electronic Ceramic Packaging Program. In March 1995, the Company began
a joint program with Coors Electronic Packaging Company ("Coors Electronic"),
one of the leading producers of high-performance ceramic packages for ICs. The
Company and Coors Electronic plan to develop ceramic packages in which a
silicon die is attached to the Company's high density substrate and then placed
on a ceramic base. These new IC packages are designed to combine the
performance of the Company's high density substrates with the durability and
other advantages of a ceramic base. The new IC packages would be marketed by
Coors Electronic for use in packaging many different semiconductor devices,
such as memory chips and microprocessors, with increased density, speed,
durability and cost savings. See "Business--Business Strategy" and "--Sales and
Customer Support--Emerging Products."
12
<PAGE>
GLOSSARY
ARPA--The Advanced Research Projects Agency of the United States Department
of Defense, an agency which funds projects to enhance the competitiveness of
United States companies in world markets.
BALL GRID ARRAY--An advanced IC package in which the silicon die is attached
to a high density substrate which is in turn placed on an array of small solder
balls forming the base of the package. The Ball Grid Array is soldered directly
to an electronic circuit, without using pins or wire leads coming out of the
perimeter of the package.
CERAMIC IC PACKAGE--A circuit based on ceramic layers, which provides high
circuit density and thermal resistance at a relatively high cost per
connection. Ceramic IC packages are typically used in high density IC packaging
applications.
DEPOSITED SUBSTRATE--A circuit with extremely high circuit density
manufactured by depositing materials onto a silicon die using expensive
manufacturing techniques similar to those used in the fabrication of
semiconductors, resulting in a very high cost per connection.
DIELECTRIC--A nonconductive material, such as a plastic film or coating used
to provide an insulating layer on a printed circuit.
ELECTRONIC CONTROL UNIT--An automotive component which controls one or more
systems within a vehicle.
FLEXIBLE CIRCUIT--A flexible printed circuit manufactured from a flexible
laminate. Flexible circuits can be single-sided, double-sided or multi-layer.
FLEXIBLE LAMINATE--A flexible material formed by combining two or more
dissimilar materials into one, typically through the application of heat,
pressure or vacuum deposition. For example, copper foil may be laminated to a
polyester or polyimide film using an adhesive, forming a flexible laminate.
FLIP CHIP--An attachment technique where a silicon die is flipped over and
soldered directly to a substrate.
HIGH DENSITY SUBSTRATE--Electronic circuits manufactured from thin film
flexible laminates such as the Company's Novaclad and ViaGrid products with
very thin circuit traces down to 1 mil (.001").
IC--An integrated circuit, which is a type of semiconductor in which a number
of elements are combined to form a more complicated circuit. These elements are
fabricated in a silicon die, which is attached to a substrate and then encased
in plastic, ceramic or other advanced forms of packaging to prevent damage and
facilitate handling. This package is known as an IC package.
IC PACKAGE--See "IC."
INTERCONNECT--A circuit used to provide electrical connection between
components and electronic systems and also as a substrate to support electronic
devices.
METALIZATION--Directly depositing a thin layer of a metal, such as copper,
onto a base material without an adhesive.
MULTI-CHIP MODULE--A high performance IC package containing more than one
silicon die on a single high density substrate.
NEW PRODUCTION FACILITY--Sheldahl's 102,000 square foot manufacturing
facility in Longmont, Colorado, scheduled to be operational in April 1996. This
facility will produce the Company's emerging Novaclad, ViaGrid and high density
substrate products.
13
<PAGE>
NOVACLAD--Sheldahl's patented adhesiveless copper polyimide laminate. The
Company believes Novaclad is thinner, lighter, more flexible, more durable and
withstands harsh environments better than adhesive-based laminates.
PHOTORESIST--A material that is applied to a laminate to enable the use of
photographic processes to imprint the circuit design on the base material.
PIN GRID ARRAY--An advanced IC package in which the silicon die is attached
to a high density substrate which is in turn placed on an array of pins forming
the base of the package. The pins provide the electronic connection between the
IC package and the printed circuit to which it is attached.
POLYESTER--A relatively low cost dielectric material used by the Company in
the manufacture of flexible laminates and flexible circuits.
POLYIMIDE--A high cost dielectric material used by the Company in the
manufacture of flexible laminates and flexible circuits, including the
Company's emerging Novaclad, ViaGrid and high density substrate products.
Compared to polyester, polyimide is stronger and can withstand higher
temperatures.
PRINTED CIRCUIT--A generic term referring to a circuit fabricated by
transferring a circuit pattern to a copper or other laminate through imaging,
etching and plating processes.
SILICON DIE--A small chip which controls the basic functions of an IC.
VACUUM DEPOSITION--The process of depositing one material onto another under
a combination of vacuum and heat conditions. Vacuum deposition is used in the
manufacture of the Company's emerging Novaclad, ViaGrid, high density
substrates and certain other products.
VAPOR BARRIER TAPES--Flexible laminates used to protect and maintain the
integrity of an automotive air bag's explosive device, ensuring that the bag
will inflate in the event of a collision.
VIAGRID--A higher-value-added form of the Company's Novaclad product with
pre-drilled vias measuring down to 1 mil (.001") in diameter. ViaGrid is
designed to be used by circuit manufacturers to create high density circuits
with very fine circuit traces down to 1 mil (.001") in width. ViaGrid is pre-
coated with a photoresist which, together with the pre-drilled vias, enables
circuit manufacturers to eliminate several costly, environmentally hazardous
and heavily regulated manufacturing steps.
VIAS--Metalized and plated holes designed to conduct electricity between the
two sides of a circuit. Electricity is conducted from one side of the circuit
to the other "via" the hole.
Z-LINK--An adhesive manufactured by the Company which conducts electricity
only along the "Z" or vertical axis. Z-Link is designed for use in the
fabrication of multi-layer circuits.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated, based on an assumed offering price of $ , to be $
million ($ million if the Underwriters' over-allotment option is exercised
in full). The Company anticipates that a portion of the net proceeds will be
used to repay in full its revolving note under its current revolving credit
agreement, which revolving note provides for borrowings up to $15.0 million,
based on the Company's inventory and accounts receivable. At September 1, 1995,
$10.5 million was outstanding under the revolving note and the applicable
interest rate was 9.75%. The Company will utilize the remainder of the net
proceeds to increase working capital to support further product development and
increased manufacturing capacity, including possible expansion of the New
Production Facility. The Company expects that the proceeds from this offering,
in addition to cash flow from operations, bank borrowings and funds from ARPA
and other funded programs, will be sufficient to fund the Company's working
capital and capital expenditures through fiscal 1997, including equipping the
New Production Facility and funding additional capital investments in the
Company's current operations. Pending such uses, the Company will invest the
proceeds in investment grade, short-term, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Manufacturing."
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the symbol
"SHEL." The following table sets forth the high and low sales prices of the
Common Stock for the periods indicated, as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 2, 1994:
First quarter............................................ $13 3/4 $ 7 1/2
Second quarter........................................... 12 1/4 9 1/4
Third quarter............................................ 14 3/4 11
Fourth quarter........................................... 13 8 3/4
FISCAL YEAR ENDED SEPTEMBER 1, 1995:
First quarter............................................ 14 10 1/4
Second quarter........................................... 15 1/2 11 1/2
Third quarter............................................ 15 1/4 10 1/2
Fourth quarter........................................... 19 1/4 11 3/4
FISCAL YEAR ENDING AUGUST 30, 1996:
First quarter (through October 9, 1995).................. 21 1/4 15 3/4
</TABLE>
On October 9, 1995, the last reported sales price of the Common Stock was
$15.75. At October 1, 1995, there were approximately 1,355 record holders of
the Company's Common Stock and an estimated additional 2,650 shareholders who
held beneficial interests in shares of Common Stock registered in nominee names
of banks and brokerage houses.
DIVIDEND POLICY
Pursuant to its current revolving credit agreement, the Company is restricted
from declaring or paying cash dividends without the consent of the Company's
lenders. The Company has never declared or paid any dividends on its Common
Stock. The Company currently intends to retain any earnings for use in its
operations and expansion of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
at September 1, 1995 and as adjusted to give effect to the sale of the
1,750,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 1, 1995
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.......................... $ 4,179 $ 4,179
======= ========
Long-term debt, excluding current portion ................. $33,864 $ 23,330
------- --------
Shareholders' investment:
Preferred Stock, $1.00 par value: 500,000 shares
authorized; none issued ................................ -- --
Common Stock, $.25 par value: 20,000,000 shares
authorized; 6,831,576 shares issued and outstanding;
8,581,576 shares issued and outstanding, as
adjusted (1) ........................................... 1,708
Additional paid-in capital............................... 22,311
Retained earnings........................................ 16,933
------- --------
Total shareholders' investment......................... 40,952
------- --------
Total capitalization................................. $74,816 $
======= ========
</TABLE>
- --------
(1) Does not include 569,708 shares of Common Stock issuable upon exercise of
outstanding options under the Company's stock option plans as of September
1, 1995.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The consolidated statements of
operations data presented below as of and for the fiscal years ended August
27, 1993, September 2, 1994 and September 1, 1995 and the consolidated balance
sheet data as of September 2, 1994 and September 1, 1995 have been derived
from the Company's Consolidated Financial Statements included elsewhere in
this Prospectus, which have been audited by Arthur Andersen LLP, independent
public accountants. The statements of operations data set forth below for the
years ended August 30, 1991 and August 28, 1992 and the balance sheet data set
forth below at August 30, 1991, August 28, 1992 and August 27, 1993 are
derived from audited financial statements not included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
AUGUST 30, AUGUST 28, AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1991 1992 1993 1994 1995
---------- ---------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................... $ 86,753 $83,977 $82,102 $88,346 $95,216
Cost of sales....................................... 68,189 68,476 66,360 69,273 74,752
-------- ------- ------- ------- -------
Gross profit ....................................... 18,564 15,501 15,742 19,073 20,464
-------- ------- ------- ------- -------
Expenses:
Sales and marketing............................... 6,356 7,648 7,274 8,014 9,090
General and administrative........................ 3,835 4,090 4,029 4,153 3,895
Research and development.......................... 1,828 2,171 1,929 2,366 2,270
Interest.......................................... 1,262 1,366 1,023 946 875
-------- ------- ------- ------- -------
Total expenses.................................. 13,281 15,275 14,255 15,479 16,130
-------- ------- ------- ------- -------
Income from continuing operations before provision
for income taxes................................... 5,283 226 1,487 3,594 4,334
Provision for income taxes.......................... 1,000 52 50 800 1,200
-------- ------- ------- ------- -------
Income from continuing operations................... 4,283 174 1,437 2,794 3,134
Cumulative effect of change in method of accounting
for income taxes (1)............................... 571 -- -- 1,422 --
Cumulative effect of change in method of accounting
for post retirement benefits (2)................... -- -- -- (875) --
Loss from discontinued operation (3)................ (11,459) -- -- (525) --
-------- ------- ------- ------- -------
Net income (loss)................................... $ (6,605) $ 174 $ 1,437 $ 2,816 $ 3,134
======== ======= ======= ======= =======
Income (loss) per share:
Continuing operations............................. $ .90 $ .04 $ .29 $ .52 $ .45
Effect of accounting changes for income taxes (1). .12 -- -- .26 --
Effect of accounting change for post-retirement
benefits (2)..................................... -- -- -- (.16) --
Discontinued operation (3)........................ (2.40) -- -- (.10) --
-------- ------- ------- ------- -------
Net income (loss) per share....................... $ (1.38) $ .04 $ .29 $ .52 $ .45
======== ======= ======= ======= =======
Weighted average common shares and common share
equivalents outstanding............................ 4,774 4,829 4,950 5,418 6,925
======== ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital..................................... $ 13,287 $10,708 $11,314 $15,942 $16,332
Total assets........................................ 51,480 42,425 44,783 60,320 94,186
Long-term debt, excluding current portion........... 14,322 9,960 11,433 7,963 33,864
Total shareholders' investment...................... 17,661 17,937 19,448 36,482 40,952
</TABLE>
- --------
(1) Effective September 1, 1990, the Company adopted Statement of Financial
Accounting Standards No. 96, "Accounting for Income Taxes." Effective
August 28, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." See Note 6 of Notes to
Consolidated Financial Statements.
(2) Effective August 28, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting For Postretirement
Benefits Other Than Pensions." See Note 7 of Notes to Consolidated
Financial Statements.
(3) In fiscal 1994, the Company increased its reserve for discontinued
operation by $525,000, net of income tax benefits. See Note 8 of Notes to
Consolidated Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading producer of high quality flexible printed circuitry
and flexible laminates, primarily for sale to the automotive electronics and
datacommunication markets. The Company's basic materials technology was
originally developed for the United States Space Program. In the late 1960's,
the Company entered the emerging flexible circuitry segment of the printed
circuit industry.
Prior to 1989, the Company's products were sold primarily to
datacommunication, aerospace/defense and automotive customers, as well as for
miscellaneous industrial and consumer product applications. In 1989, the
Company developed a new business strategy focused on achieving a leading
position supplying the automotive electronics market with flexible circuits
based on the Company's core materials technologies. Management believed the
automotive market provided growth opportunities due to increasing electronic
content of automobiles as manufacturers focused on increasing vehicle
performance while reducing weight and overall vehicle costs. The Company
established a technical design and sales office in Detroit, Michigan in 1989
and targeted specific automotive customers that it identified as leaders in the
drive to increase the electronic content of automobiles. As a result of this
strategic shift, the Company's sales to automotive customers increased from
$13.9 million in fiscal 1989 to $51.9 million in fiscal 1995, a compound annual
growth rate of 24.6%, while the Company's sales to other markets declined from
$57.0 million in fiscal 1989 to $43.3 million in fiscal 1995.
Concurrent with the Company's strategic shift to focus on the automotive
electronics market in 1989, the Company began to focus its research and
development expenditures on other opportunities. As a result, in 1992 the
Company patented its Novaclad high performance adhesiveless flexible laminate.
The features of Novaclad allow designers to increase circuit density for IC
packaging and other interconnect solutions. In fiscal 1994, the ARPA Consortium
was established, consisting of eight companies co-sponsored by ARPA to develop
and commercialize high density substrates made from Novaclad for incorporation
into low cost Multi-Chip Modules. ARPA provided a total of $13.8 million to the
ARPA Consortium in fiscal years 1994 and 1995 (of which $7.4 million was
received by the Company) and has agreed to fund an additional $2.7 million (of
which $2.1 million is expected to be received by the Company in fiscal 1996),
subject to completion of certain milestones. The results of the efforts made by
the Company and the ARPA Consortium led the Company to begin construction of
the New Production Facility in Longmont, Colorado, which is scheduled to begin
production of Novaclad, ViaGrid and high density substrates in commercial
quantities in April 1996. In September 1995, ARPA agreed to recommend for
funding an additional approximately $2.0 million to the ARPA Consortium (of
which approximately $1.4 million is expected to be received by the Company in
fiscal 1996), subject to completion of certain milestones. Sheldahl accounts
for funding received from ARPA as a reimbursement of expenses.
The Company has made and expects to continue to make substantial investments
in production capabilities to support its strategy of increasing penetration of
the automotive electronics market and commercializing its emerging Novaclad,
ViaGrid and high density substrate products for the datacommunication market.
During fiscal years 1993, 1994 and 1995, the Company made capital expenditures
totaling $23.7 million to increase the production capabilities of its current
operations, and through fiscal 1995 the Company made capital expenditures of
$26.7 million in connection with the New Production Facility. By the time the
New Production Facility is scheduled to be operational in April 1996, the
Company expects to have made a total investment of approximately $38 million,
including the site, the construction of the building and the production
equipment purchased and leased. The Company capitalizes expenditures related to
constructing, equipping and financing the New Production Facility; however,
costs to operate the pilot operation, net of ARPA funding, have been expensed
since the start-up in fiscal 1994. The Company's results of operations to date
have not been materially affected by the pilot operation. When the New
Production Facility is operational, the Company expects that, initially, it is
not likely to produce
18
<PAGE>
sufficient sales volume or profit contribution to offset the depreciation and
other expenses related to its operation. The start-up of the New Production
Facility is therefore likely to have a material adverse effect on the Company's
results of operations unless sales of products from the New Production Facility
increase sufficiently to cover expenses. See "Risk Factors--New Production
Facility Start-Up."
In September 1995, the Company sold its aviation lighting product line to a
subsidiary of The B.F.Goodrich Company for approximately $2.6 million, enabling
the Company to focus on its emerging products, flexible circuitry and flexible
laminates operations. This product line generated sales of $3.6 million in
fiscal 1995.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
certain items for the Company's consolidated statements of operations for the
periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0%
Cost of sales....................... 80.8 78.4 78.5
----- ----- -----
Gross profit........................ 19.2 21.6 21.5
----- ----- -----
Expenses:
Sales and marketing................ 8.9 9.1 9.5
General and administrative......... 4.9 4.7 4.1
Research and development........... 2.3 2.6 2.4
Interest........................... 1.2 1.1 .9
----- ----- -----
Total expenses.................... 17.3 17.5 16.9
----- ----- -----
Income from continuing operations
before provision for income taxes.. 1.9 4.1 4.6
Provision for income taxes.......... .1 1.0 1.3
----- ----- -----
Income from continuing operations... 1.8% 3.1% 3.3%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED SEPTEMBER 1, 1995, SEPTEMBER 2, 1994, AND AUGUST 27, 1993
Net Sales. The table below sets forth, for the periods indicated, the
Company's net sales to various markets.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Automotive......................... $35,242 42.9% $46,737 52.9% $51,919 54.5%
Datacommunications................. 20,052 24.4 18,380 20.8 16,860 17.7
Aerospace and defense.............. 14,329 17.5 10,452 11.8 12,150 12.8
Industrial......................... 7,268 8.9 7,438 8.4 8,221 8.6
Consumer........................... 5,211 6.3 5,339 6.0 6,066 6.5
------- ----- ------- ----- ------- -----
Total.............................. $82,102 100.0% $88,346 100.0% $95,216 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
The Company's net sales increased $6.9 million, or 7.8%, in fiscal 1995 and
$6.2 million, or 7.6%, in fiscal 1994. These increases resulted primarily from
increased sales to automotive customers partially offset by decreased sales to
datacommunication and aerospace/defense customers. The Company's increased
sales to automotive customers were the result of a successful effort to further
penetrate the automotive electronics market through the use of the Company's
flexible circuits and flexible laminates in power distribution,
19
<PAGE>
electronic control units, air bags and dashboard instrumentation. The rate of
growth of automotive-related sales declined in 1995 from previous years, as the
Company's customers delayed production of certain new automotive components,
causing the Company to delay production start-up of certain major new flexible
circuit products. Declining sales to the datacommunication market in each of
the last three years were primarily due to the Company's efforts to focus more
of its sales and marketing efforts on automotive applications. Aerospace and
defense sales, while up $1.7 million, or 16.2%, in fiscal 1995, have also
declined from fiscal 1993 levels as a result of reduced demand for multi-layer
insulation blankets and flexible circuitry for use in satellite and defense
applications, respectively.
The Company's increased net sales in fiscal years 1995 and 1994 reflected
increased sales of flexible printed circuitry (sales of which increased to
$64.4 million in fiscal 1995 from $61.6 million in fiscal 1994 and $55.3
million in fiscal 1993) as well as flexible laminates (sales of which increased
to $24.0 million in fiscal 1995 from $21.3 million in fiscal 1994 and $17.9
million in fiscal 1993). Sales of miscellaneous fabricated products and
aviation lighting increased to $6.8 million in fiscal 1995 after declining to
$5.5 million in fiscal 1994 from $8.8 million in fiscal 1993.
Gross Profit. The Company's gross profit increased $1.3 million, or 6.9%, in
fiscal 1995 and $3.3 million, or 21.2%, in fiscal 1994. As a percentage of net
sales, gross profit for fiscal years 1995, 1994 and 1993 was 21.5%, 21.6% and
19.2%, respectively. The increase in gross profit in fiscal years 1994 and 1995
is related to increased net sales, as well as material yield and labor
productivity improvements made possible by the Company's substantial capital
investments in fiscal years 1992, 1993 and 1994. However, operating costs not
funded by the ARPA Consortium for the Company's pilot operation for high
density substrates increased in fiscal 1995 by approximately $1.0 million,
partially offsetting the increase in gross profit. The start-up of the New
Production Facility for the manufacture of Novaclad, ViaGrid and high density
substrates will negatively impact gross profit during the initial start-up
period in fiscal 1996.
Sales and Marketing Expenses. Sales and marketing expenses increased $1.1
million, or 13.4%, in fiscal 1995 and $740,000, or 10.2%, in fiscal 1994. The
increased sales and marketing expenses resulted from increased labor, travel
and advertising costs incurred to promote the Company's emerging Novaclad,
ViaGrid and high density substrate products and to focus sales and design
support for the capture of future automotive applications. Fiscal 1994 sales
and marketing expenses increased as a result of expanded efforts to secure
current and future automotive market sales, as well as new product promotion
efforts, including travel. As a percentage of net sales, sales and marketing
expenses were 9.5% in fiscal 1995, 9.1% in fiscal 1994 and 8.9% in fiscal 1993.
General and Administrative Expenses. Gross general and administrative
expenses decreased $25,000, or 0.5%, to $4.6 million in fiscal 1995 and
increased $554,000, or 13.8%, to $4.6 million in fiscal 1994 from $4.0 million
in fiscal 1993. ARPA credits applied to general and administrative expenses
were $663,000, $430,000 and $0 in fiscal years 1995, 1994 and 1993,
respectively, resulting in net general and administrative expenses of $3.9
million, $4.2 million and $4.0 million in fiscal years 1995, 1994 and 1993,
respectively. See Note 9 of Notes to Consolidated Financial Statements for
additional information regarding ARPA. The increase in gross general and
administrative expenses in fiscal 1994 reflected increased professional
services, computer hardware and software expenses and training and education
costs. Net general and administrative expenses as a percentage of net sales
decreased to 4.1% in fiscal 1995 from 4.7% in fiscal 1994 and 4.9% in fiscal
1993.
Research and Development Expenses. Gross research and development expenses
decreased $237,000, or 7.6%, in fiscal 1995 to $2.9 million, and increased $1.2
million, or 61.6%, to $3.1 million in fiscal 1994 from $1.9 million in fiscal
1993. ARPA credits applied to research and development expenses were $611,000,
$752,000 and $0 during fiscal years 1995, 1994 and 1993, respectively,
resulting in net research and development expenses of $2.3 million, $2.4
million and $1.9 million in fiscal years 1995, 1994 and 1993, respectively. The
decrease in gross research and development expenses in fiscal 1995 was
principally due to the temporary allocation of technical resources to
manufacturing support and reduced use of external
20
<PAGE>
consulting services. The increase in gross research and development expenses in
fiscal 1994 resulted from additional staffing, material testing and consulting
and professional costs primarily supporting the Company's Novaclad, ViaGrid and
high density substrate products and achieving ARPA Consortium objectives. As a
percentage of sales, net research and development expenses were 2.4% in fiscal
1995, 2.6% in fiscal 1994 and 2.3% in fiscal 1993.
Interest Expense. Gross interest expense increased to $2.3 million in fiscal
1995 from $1.4 million in fiscal 1994 and $1.1 million in fiscal 1993, as the
Company's borrowings to support capital expenditures increased substantially.
Capitalized interest increased from $66,000 in fiscal 1993 to $405,000 in
fiscal 1994 due to the Company's significant capital investment programs to
expand its production in existing facilities. In 1995, the Company capitalized
interest costs of $1.3 million related to capital investments for production
equipment and construction of the New Production Facility in Longmont,
Colorado. The resulting net interest expense was $875,000 in fiscal 1995,
$946,000 in fiscal 1994 and $1.0 million in fiscal 1993.
Income Taxes. The Company's effective tax rate was 27.7%, 22.3% and 3.4% for
fiscal years 1995, 1994 and 1993, respectively. These rates differed from the
federal statutory rate primarily because of state income taxes and benefits
from research and development credits and foreign sales corporation benefits.
DISCONTINUED OPERATION
On May 27, 1994, the Company sold its idle Nashua, New Hampshire facility for
an amount less than the recorded value. In addition, the Company revised its
estimate of the costs it expected to incur related to the abandonment of leased
facilities in Orange County, California. The consolidated statement of
operations for fiscal 1994 reflects a charge of $525,000, net of income tax
benefits of $175,000, to reserve for the losses related to these events. As of
September 1, 1995, there are no remaining obligations with respect to the
Company's discontinued operation. See Note 8 of Notes to Consolidated Financial
Statements.
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), effective August 28, 1993. The
adoption of SFAS No. 109 resulted in a cumulative one-time favorable adjustment
of $1.4 million. The Company also adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions". The Company provides certain medical and other postretirement
benefits to qualified employees. The adjustment made in the first quarter of
fiscal 1994 resulted in a cumulative one-time charge against income of
$875,000, net of income tax benefits of $525,000. Effective September 3, 1994,
the Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"). The
effect of adoption of SFAS No. 112 did not have a significant impact on the
Company's results of operations or financial condition. See Notes 6 and 7 of
Notes to Consolidated Financial Statements.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). The
Company will be required to adopt SFAS No. 121 in fiscal 1997 and expects that
its ultimate adoption will not have a significant impact on the Company's
results of operations or financial condition. See Note 2 of Notes to
Consolidated Financial Statements.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net capital expenditures in fiscal years 1995, 1994 and 1993 were $32.2
million, $13.8 million and $4.4 million, respectively, of which $26.7 million
was for building and equipping the New Production Facility in Longmont,
Colorado. The remaining capital expenditures were used to expand manufacturing
capacity for the Company's current products. Over the past three fiscal years,
the Company has financed its capital expenditures through equity proceeds of
$15.6 million from a public offering of Common Stock and stock option
exercises, debt financing of $26.9 million and cash flow from operations of
$10.9 million. The Company expects its capital expenditures in fiscal 1996 to
be approximately $25.0 million. The Company believes that its cash flow from
operations, funds available under its revolving credit agreement and proceeds
from this offering will be sufficient to meet the Company's working capital and
capital expenditure requirements at least through fiscal 1997.
During fiscal 1995, the Company amended and restated its revolving credit
agreement with Norwest Bank Minnesota, N.A., Harris Trust and Savings Bank and
NBD Bank, N.A. The amended and restated credit agreement provides the Company a
$15.0 million revolving note. The revolving note is based on the Company's
inventories and accounts receivable and accrues interest at the prime rate plus
up to 1.5% depending on the Company's net worth. At September 1, 1995, the
interest rate was 9.75%. The credit agreement also increased the Company's term
note from $10.0 million to $20.0 million, which is collateralized by equipment
and accrues interest at the prime rate plus up to 2.0%, depending on the
Company's net worth. At September 1, 1995, the interest rate was 10.25%.
Borrowings under the revolving note and term note are due December 31, 1997.
The term note provides for quarterly principal installments of $1.3 million
beginning January 1, 1996. On September 1, 1995, the Company had $10.5 million
in outstanding borrowings under the revolving note and credit available of $3.6
million, and outstanding borrowings of $20 million under the term note. During
the last quarter of fiscal 1995, the Company obtained a $5.7 million mortgage
from Northern Life Insurance Company, collateralized by the Company's land and
building in Longmont, Colorado. The note bears interest at 8.32%, with equal
monthly principal and interest payments of $52,000, with the remaining unpaid
principal balance due September 1, 2002.
22
<PAGE>
BUSINESS
GENERAL
Sheldahl is a leading producer of high quality flexible printed circuitry and
flexible laminates, principally for sale to the automotive electronics and
datacommunication markets. Flexible circuitry is used to provide electrical
connection between components and electronic systems and also as a substrate to
support electronic devices. Flexible circuits consist of polyester or polyimide
film to which copper foil is laminated and processed through various imaging,
etching and plating processes. Flexible circuits can be further processed by
surface mount attachment of electronic components to produce an interconnect
assembly. Flexible circuits provide advantages over rigid printed circuit
boards by accommodating packaging contour and motion and reducing size and
weight. According to industry sources, the worldwide market for flexible
circuitry is estimated to increase from $1.7 billion in 1995 to $2.2 billion by
1998.
The Company recently introduced three high performance products based on
proprietary thin film technology: Novaclad, ViaGrid and high density
substrates. These emerging products provide substantial benefits compared to
traditional flexible circuits, including the capability for very fine circuit
traces (down to 1 mil, or .001") as well as greater heat tolerance and
dissipation. The Company has designed its Novaclad and ViaGrid products to be
used as a base material for high performance printed circuits. The Company
developed its high density substrates to enable IC manufacturers to package
future generations of ICs economically by attaching the silicon die to a high
density substrate manufactured by the Company or other circuitry manufacturers
using the Company's Novaclad or ViaGrid products. As ICs are becoming
increasingly powerful, they produce more heat and require a greater number of
connections to attach the silicon die, placing substantially greater demands on
IC packaging materials. The Company believes the growth of the IC market,
together with increasing silicon die connection densities, will provide an
attractive market opportunity for its emerging products. The Company is
investing approximately $38 million in an advanced New Production Facility to
produce its emerging products in commercial volumes. This New Production
Facility, located in Longmont, Colorado, is scheduled to be operational in
April 1996.
In 1989, management developed a new business strategy focused on achieving a
leading position supplying flexible circuits to the automotive electronics
market and sales to automotive customers have increased at a compound annual
rate of 24.6% since fiscal 1989. Industry sources estimate that the average
electronic content per automobile has grown from approximately $1,200 in 1990
to approximately $1,700 in 1995 and is projected to grow to approximately
$2,400 in 2000. Based on the Company's historical growth in sales to automotive
customers, as well as product design work already completed for the 1996 and
1997 model years, the Company believes that automotive demand for flexible
circuits is likely to grow at a greater rate than overall demand for automotive
electronics. The Company's flexible circuits and flexible laminates are
incorporated into vehicles manufactured by Chrysler, Ford, General Motors,
Honda and Toyota.
INDUSTRY BACKGROUND
Electronics Industry Trends. Over the past decade, consumers and original
equipment manufacturers have demanded electronic products providing
dramatically increased performance accompanied by significantly reduced size,
weight and cost. These factors have forced electronic systems manufacturers to
produce smaller, lighter and higher performing components while reducing their
costs in order to remain competitive. Flexible circuitry contributes to the
ability of electronic systems manufacturers to accomplish these objectives.
Flexible Circuitry. Flexible circuits and interconnect assemblies are used to
provide electrical connection between components and electronic systems and
also as a substrate to support electronic devices. The electronics industry has
historically relied upon rigid printed circuit boards as the predominant
interconnect substrate due to their relatively low cost and widespread
availability. However, electronics systems manufacturers are increasingly
demanding flexible circuits and interconnect assemblies. Due to their
mechanical flexure, flexible circuits provide advantages over rigid printed
circuit boards by readily accommodating packaging contour and motion. In
addition, flexible circuits can be used to reduce or eliminate the size, weight
and expense of (i) rigid circuit boards when the flexible circuit serves as the
primary substrate to which components are attached and (ii) connectors, cables
and other components when flexible circuits are directly attached to other
substrates or subsystems within the system.
23
<PAGE>
Flexible printed circuits are manufactured from a base of polyester or
polyimide film to which copper is laminated. This laminate is then processed
through various imaging, etching and plating processes to produce a flexible
printed circuit. The flexible circuit can be further modified by processes such
as surface mount assembly, wave soldering, connector and terminal staking,
custom folding and stiffening to produce an interconnect assembly. The
worldwide interconnect market in 1995 is estimated by BPA (Technology and
Management) Ltd. ("BPA"), an independent research organization, to be $26.3
billion, of which $1.7 billion represents the flexible circuitry market. BPA
estimates that the flexible circuitry portion of the market will grow to $2.2
billion by 1998.
Currently, a new generation of thin film flexible circuitry is emerging which
offers higher circuit density (with very fine circuit traces down to 1 mil, or
.001") and greater heat resistance and dissipation than traditional flexible
circuits. These new high density substrates are fabricated from thin film
laminates formed by depositing copper directly to a polyimide film, without the
use of an adhesive, using vacuum, sputtering or other deposition techniques.
The greater circuit density and thermal properties of these high density
substrates are well suited to demanding applications including IC packaging and
harsh under-the-hood automotive environments.
Datacommunication Market. The datacommunication market includes components
for such product applications as wireless communications, computers, digital
telephones, facsimile machines and high frequency data transmission. The
Company is focusing on the IC packaging portion of the datacommunication
market, believing that market trends in IC packaging will lead to significant
demand for emerging high density substrates. ICs have historically been
packaged by connecting the silicon die to a lead frame or by bonding the
silicon die to an interconnect substrate using fine wires. As ICs are becoming
increasingly powerful, they produce more heat and require a significantly
greater number of connections to attach the silicon die, placing substantially
greater demands on the IC packaging materials. For instance, a typical IC five
years ago required up to approximately 80 connections to the silicon die,
whereas typical ICs today require up to approximately 250 connections, and five
years from now industry sources project that ICs may require over 1,000
connections. Further IC packaging demands arise when multiple silicon dies are
integrated into one powerful package, known as a Multi-Chip Module.
Based on discussions with IC manufacturers as well as industry studies, the
Company believes that the traditional lead frame and wire bonding techniques in
many cases cannot meet the increased connection density requirements of future
generations of ICs, and that IC manufacturers are currently seeking new
packaging technologies which provide high connection densities and heat
tolerance at an economical cost per connection. The Company believes that the
high connection density and heat dissipation characteristics of its emerging
high density substrates will enable IC manufacturers to package powerful ICs at
an economical cost per connection. Other technologies currently available for
high density IC packaging, including ceramic and deposited substrates, are
generally available only at substantially greater costs than high density
substrates fabricated from thin film flexible laminates. According to VLSI
Research Inc., the number of high density IC packages requiring more than 256
connections to the silicon die has increased from an estimated 240 million in
1990 to an estimated 777 million in 1995, and is projected to increase to 3.7
billion in 2000, representing a compound annual growth rate of 36.9% between
1995 and 2000.
Automotive Electronics Market. The Economist Intelligence Unit Ltd. ("EIU")
estimates that the average electronic content per automobile has grown from
approximately $1,200 in 1990 to approximately $1,700 in 1995 and is projected
to grow to approximately $2,400 in 2000. These increases result as automobile
manufacturers use electronics to increase vehicle performance while reducing
size, weight and overall vehicle manufacturing and assembly costs. Within the
automotive electronics market, flexible circuitry provides cost effective
solutions for a wide variety of applications including dashboard
instrumentation, electronic control units, steering wheel controls, power
distribution, sensors, anti-lock brakes and other electronic systems, many of
which are increasingly being designed into vehicle models. Based on the
Company's historical 24.6% compound annual growth rate in sales to automotive
customers since fiscal 1989, as well as product design work already completed
for the 1996 and 1997 model years, the Company believes that automotive demand
for flexible circuits is likely to grow at a greater rate than overall demand
for automotive electronics. In addition to the growing demand for flexible
circuitry in the automotive electronics market, automotive production cycles
generally last three to five years, providing a relatively predictable source
of demand once a flexible circuit is designed into a specific vehicle model or
vehicle platform.
24
<PAGE>
BUSINESS STRATEGY
The Company's goal is to be the leading worldwide supplier of high quality
flexible printed circuitry, flexible laminates and high density substrates
serving the needs of the datacommunication and automotive electronics markets.
To meet this goal, the Company has developed a business strategy focused on the
following elements:
. Capitalize on Emerging Products and Market Opportunities. The Company is
focused on effectively commercializing and achieving market acceptance
of its emerging Novaclad, ViaGrid and high density substrate products.
Based on the evolution of IC packaging, the Company believes there are
significant market opportunities for its emerging products, which
provide for high-density, high-performance and low-cost packaging
solutions. The Company currently has over 40 designs utilizing its high
density substrates in process, of which approximately 10 have been
developed through the prototype stage, with such customers as Texas
Instruments, ASAT, Motorola, Coors Electronic and National
Semiconductor. The Company's objective is to achieve market acceptance
and validation of its high density substrates, which it believes will
lead to market demand for direct sales of its Novaclad and ViaGrid
products to the printed circuit industry. The Company also believes that
its alliances with Morton and Mentor Graphics will accelerate market
acceptance of ViaGrid by assisting printed circuit manufacturers in
implementing the design and manufacturing processes to incorporate
ViaGrid into their products. See "Recent Developments," "--Emerging
Products" and "--Sales and Customer Support--Emerging Products."
. Leverage Strategic Relationships to Increase Market Penetration. The
Company has developed a number of strategic alliances and intends to
continue to leverage its technical, marketing and financial resources
through strategic relationships. The Company believes these strategic
relationships allow the Company to shorten new product development
cycles, facilitate marketing efforts and benefit from the extensive
resources of the Company's strategic partners, such as those developed
through the ARPA Consortium. See "Recent Developments," "--Emerging
Products" and "--Sales and Customer Support--Emerging Products."
. Increase Penetration of Growing Automotive Electronics Market. The
Company intends to build upon its position as a leading supplier of
flexible circuits and interconnects to the growing automotive
electronics industry. Since fiscal 1989, the Company's sales of
automotive component products have increased at a compound annual rate
of 24.6%. The Company believes it will continue to increase its sales to
automotive customers, on the basis that its leadership position,
manufacturing capabilities and established relationships will enable it
to increase the number of component product applications in each vehicle
and the number of vehicle models and vehicle platforms utilizing its
products. See "--Current Products."
. Focus on Advanced Manufacturing Capabilities and Product Quality. The
Company has made significant investments to enhance its manufacturing
capacity and product quality and will continue to invest in advanced
manufacturing capabilities to meet the anticipated demands for its
products at a competitive cost. Since fiscal 1992, the Company has
doubled the manufacturing capacity of its existing products, and by
April 1996 the Company expects to have invested approximately $38
million in the New Production Facility in Longmont, Colorado. In
addition, the Company believes that its roll-to-roll manufacturing
processes allow it to produce a large volume of high quality flexible
laminates and circuits at a competitive cost. See "--Manufacturing."
. Emphasize Product and Process Improvements and New Product Applications.
The Company believes its ability to develop improved products and
processes and new product applications will enhance the Company's growth
opportunities. Sheldahl's 38-person research and development team
focuses its efforts on proprietary flexible materials and processes that
have a broad range of applications and offer superior performance,
quality and cost. The Company has focused its recent development efforts
on its Novaclad, ViaGrid and high density substrate products and the
associated manufacturing processes. Although these products are targeted
primarily for the datacommunication market, the Company has also
integrated Novaclad into electronic component products for the
automotive electronics market. See "--Research and Development."
25
<PAGE>
EMERGING PRODUCTS
The Company has recently introduced three new proprietary products to achieve
a technical and competitive advantage and create new sales opportunities,
especially in the datacommunication market. The Company currently is equipping
its New Production Facility in Longmont, Colorado to manufacture these products
in commercial quantities. These products, together with their target markets
and applications, are summarized below.
Polyimide Film
+ Metallization
+ Plating
Novaclad
+ Laser via generation
+ Plating
+ Photo resist
Sold by Sheldahl's direct sales force and distributors to printed circuit
manufacturers as a substrate for flexible circuits.
ViaGrid
+ Develop/etch/strip
+ Precious metal plating
+ Test
+ Coverlay
+ Excise
Planned to be sold through Sheldahl's joint venture with Morton to printed
circuit manufacturers as a base material for high performance circuits and IC
packaging.
High Density Substrates
Sold by Sheldahl's direct sales force to IC manufacturers and packagers.
Novaclad. Novaclad is a thin and flexible adhesiveless copper laminate used
in the design and manufacture of flexible interconnects and high density
substrates. Novaclad consists of a polyimide film onto which copper has been
deposited on both sides, in a vacuum, without an adhesive. After the vacuum
deposition process, additional copper is plated onto the laminate to achieve a
desired thickness of copper ranging from 5 microns to 35 microns (a micron is
one-millionth of a meter). Novaclad provides a number of important benefits
when compared to traditional adhesive-based laminates, including the capability
for finer circuit traces (down to 1 mil, or .001") and corresponding higher
circuit density, greater heat tolerance and dissipation, improved signal speed
and impedance control, increased dimensional stability, resistance to chemicals
and greater durability. Because of these characteristics, the Company believes
that Novaclad is a cost-effective, high-performance solution for a broad range
of interconnect systems, especially high density substrates for IC packages and
Multi-Chip Modules. Since fiscal 1993, the Company has produced Novaclad in
limited quantities at its Northfield, Minnesota facility. In fiscal 1995, the
Company sold $6.3 million of Novaclad-based flexible circuits, primarily for
harsh, under-the-hood automotive applications where Novaclad's heat tolerance
and chemical resistance characteristics provide superior performance.
26
<PAGE>
ViaGrid. ViaGrid is a higher-value-added form of Novaclad with pre-drilled
small holes, or vias, measuring down to 1 mil (.001") in diameter. ViaGrid is
designed to be sold in rolls or sheets to printed circuit manufacturers as a
base material for the manufacture of high density substrates. The vias, which
are plated through with copper, enable the transmission of electrical currents
between the two sides of the laminate. The combination of thin copper traces
and very small vias permits the design of circuits that are up to six times
more dense than current flexible circuitry technology. Because of its
adhesiveless character, ViaGrid provides all of the benefits of Novaclad.
Additionally, ViaGrid is pre-coated with a photoresist. The combination of
these characteristics allow circuit fabricators the opportunity to eliminate
several costly processing steps in the manufacture of printed circuits.
The Company will market ViaGrid in both standard and custom via arrays.
Design software has been developed with Mentor Graphics through the ARPA
Consortium. This software, in addition to Mentor Graphics' professional design
services, will allow printed circuit manufacturers to design the layout of
their circuitry around the standard via array, thus providing a less expensive
solution than a custom via array. Custom via arrays can be designed using
Mentor Graphics' MCM Station(R) software and manufactured with the Company's
laser via generation process. The Company believes ViaGrid provides solutions
for a variety of applications, including high density interconnects, IC
packages and Multi-Chip Modules. The Company believes there is also an
opportunity for rigid printed circuit manufacturers to mount ViaGrid-based
circuits to rigid circuit boards and to use ViaGrid as an interlayer in multi-
layer circuit boards, in a cost effective manner for applications requiring
dense circuitry.
High Density Substrates. The Company uses ViaGrid in the manufacture of high
density substrates primarily for IC packages. The material properties of
ViaGrid allow for the design of very dense circuitry patterns which enable IC
designers to improve the processing capabilities of ICs by increasing the
number of connections to the silicon die in a similar or reduced amount of
physical space, while reducing the cost per connection. The Company's high
density substrates enhance signal speed as traces are very smooth and fine
while the dimensional stability of the substrate is maintained. These features
allow the Company's high density substrates to be designed into Ball Grid
Array, Pin Grid Array and other high density IC packages. The following
illustration depicts a design using Sheldahl's high density substrate in a Ball
Grid Array IC package:
CROSS SECTION OF BALL GRID ARRAY IC PACKAGE
[LOGO OF CROSS SECTION ILLUSTRATION APPEARS HERE]
Protective Casing ----------------------
Wire Bond 1.17mm
Silicon Die
Etched Copper Circuit --------- 2.13mm
Sheldahl high-density substrate 0.36mm
Vias ---------
Solder ball ----------------------
27
<PAGE>
The Company's strategy is to target the high density segment of the market
for IC packaging and Multi-Chip Module applications where circuit densities
using ViaGrid can be reduced to as small as 1 mil (.001") traces and vias. As
the market for high density substrates develops and creates a demand for
alternate manufacturing capacities, the Company will consider licensing the
manufacturing process of its high density substrates to leverage the market
demand for its ViaGrid product. The Company currently has over 40 high density
substrate designs in process, of which approximately 10 have been developed
through the prototype stage, with such customers as Texas Instruments, ASAT,
Motorola, Coors Electronic and National Semiconductor.
Other Emerging Products. The Company produces a proprietary Z-Link adhesive
product that interconnects two electrical layers and is used in the fabrication
of multi-layer circuits. The Z-Link adhesive conducts electricity in only one
direction, the "Z" or vertical direction. The Company, through the ARPA
Consortium, is working to further develop the Z-Link technology for use in
Multi-Chip Modules. See "--Research and Development."
CURRENT PRODUCTS
The Company's current products include flexible printed circuitry and
interconnect systems, flexible laminates and miscellaneous fabricated products.
The following table summarizes representative customers and representative
applications for the Company's primary current products:
<TABLE>
<CAPTION>
REPRESENTATIVE REPRESENTATIVE
PRODUCT CUSTOMERS APPLICATIONS
---------------------------------------------------------------------------------------------
<C> <C> <S>
Flexible Printed Circuitry and Ford, General Motors Dashboard instru-
Interconnect Systems mentation, sound
systems, other
automotive con-
trols
-----------------------------------------------------------------
Molex, Motorola Automotive elec-
tronic
control units
-----------------------------------------------------------------
Saturn Industries, Siemens Power distribution
units
-----------------------------------------------------------------
Honeywell Microswitch Automotive sensors
-----------------------------------------------------------------
ITT Teves Anti-lock brake
systems
-----------------------------------------------------------------
Polaroid Instant cameras
-----------------------------------------------------------------
Hewlett Packard, Texas Printers
Instruments
-----------------------------------------------------------------
Key Tronic Corp., Texas Notebook computers
Instruments
-----------------------------------------------------------------
Northern Telecom Telecommunications
equipment
---------------------------------------------------------------------------------------------
Flexible Laminates Methode, Morton, TRW Air bags
-----------------------------------------------------------------
Parlex, AMP Flexible circuits
and cable assem-
blies
-----------------------------------------------------------------
3M, Norton Abrasive belt tape
-----------------------------------------------------------------
Lockheed Satellite insula-
tion
</TABLE>
28
<PAGE>
Flexible Printed Circuitry and Interconnect Systems. The Company manufactures
flexible printed circuitry and interconnect systems using traditional adhesive-
based and emerging Novaclad laminates. The Company's flexible printed circuitry
is typically manufactured in an efficient roll-to-roll process from polyester
or polyimide film to which copper is laminated. The laminate is processed
through various imaging, etching and plating processes and then selectively
protected with a dielectric covering to produce a flexible printed circuit.
Automated screen printing and photo imaging processes produce single-sided and
double-sided flexible circuits, with lines and spaces down to 8 mils (.008") in
width. The Company uses its emerging Novaclad laminate to produce high
performance flexible circuits primarily for demanding under-the-hood automotive
applications which require greater circuit density, enhanced heat and chemical
resistance and dimensional stability. In fiscal 1995, Novaclad-based products
represented approximately $6.3 million, or 6.6%, of the Company's net sales.
All of the Company's flexible printed circuits are electronically tested
prior to shipping. Additionally, the Company offers value-added processing,
including surface mount assembly, wave soldering, connector and terminal
staking, custom folding, stiffening, application of pressure-sensitive adhesive
and hand soldering, in order to deliver a ready-to-use interconnect system to
the end customer. The Company targets applications where increased performance,
reduced size and weight, ability to accommodate packaging contours or a
reduction in the number of assembly steps is desired to reduce the customer's
overall cost. Flexible printed circuitry and interconnect systems, including
Novaclad-based products, accounted for $64.4 million, or 67.6%, of the
Company's net sales for fiscal 1995.
Flexible Laminates. The Company's flexible laminate products consist of
adhesive-based tapes and other flexible laminates used in a variety of
applications in the datacommunication market, moisture barrier tape and flat
cable tape used in automobile air bag systems, splicing tape used in the
manufacture of commercial and industrial sandpaper belts and thermal insulating
blankets used primarily in the aerospace/defense market for satellites. The
Company produces its flexible laminates using coating, laminating and vacuum
metalizing processes. Coating involves applying chemicals or adhesives to a
thin flexible material while laminating consists of combining two or more
materials through application of heat and pressure. Vacuum metalizing typically
involves placing a metal onto a thin film, foil or fabric, by evaporation,
sputtering or pattern deposition. The Company's flexible laminates provide
extended flexibility, strength, conductivity, durability and heat dissipation.
The Company consumes approximately one-half of the flexible laminates it
produces in the manufacture of flexible printed circuitry and interconnect
systems. Flexible laminates accounted for $24.0 million, or 25.2%, of the
Company's net sales for fiscal 1995.
Miscellaneous Fabricated Products. Based on the Company's historical
expertise in developing unique applications for a variety of materials, the
Company also designs and manufactures special fabrications employing technical
capabilities of thermoforming, embossing, sealing, slitting and sheeting. The
Company's fabricated products include static shielding materials, insulation
blankets, environmental closures, space inflatibles and multi-layer insulation
and are primarily for use in the aerospace/defense and datacommunication
markets. Miscellaneous fabricated products accounted for $3.1 million, or 3.3%,
of the Company's net sales for fiscal 1995.
SALES AND CUSTOMER SUPPORT
The Company's sales and customer support efforts are directed by three lead
product managers who are responsible for defining target markets and customers,
strategic product planning and new product introduction. These product managers
supervise a sales force of 16 account managers and over 60 engineers,
technicians and customer support personnel. The Company employs a team approach
led by account managers who work extensively with the Company's customers at
the design stage, seeking to influence product designs and applications,
particularly in the automotive and emerging datacommunication products areas.
The Company believes that its close ties with customers at all stages of a
project distinguish it from many competitors who manufacture products according
to customer specifications without providing
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<PAGE>
significant design, technical or consulting services. Account managers also
coordinate appropriate design, research and development, engineering, order
fulfillment and other personnel to support customer needs. To supplement its
direct sales efforts, the Company uses domestic and international distributors.
The cornerstone of the Company's sales and customer support strategy is to
provide superior customer service, from prompt and efficient technical support
to rapid processing and delivery of prototype and production orders through its
electronic data interchange and just-in-time delivery capabilities.
Emerging Products. To gain market acceptance of its Novaclad, ViaGrid and
high density substrates, the Company's strategy is to (i) develop the market by
educating customers as to the advantages of these products, (ii) provide
customers with design capabilities to use the products and (iii) partner with
significant IC packaging manufacturers to prove the capabilities of the
products, as summarized below:
. Market Development. The Company's initial efforts to develop the market
for its emerging products involved the formation in fiscal 1994 of the
ARPA Consortium, which has been managed by the Company. The Company has
also established ViaGrid beta-test sites with manufacturers that design
and fabricate printed circuits. In August 1995, the Company signed a
letter of intent to form a joint venture with Morton, under which the
joint venture would market ViaGrid to printed circuit manufacturers
through Morton's direct sales force. The Company expects this joint
venture to accelerate market acceptance of ViaGrid by utilizing Morton's
industry presence, extensive customer network and process expertise in
the printed circuit board industry. The Company is marketing Novaclad to
manufacturers that convert flexible materials into interconnect systems
through the Company's direct sales force and to U.S. and European
distributor networks. The Company also intends to seek distribution
arrangements for Novaclad in Asia. See "Recent Developments" and "--
Research and Development."
. Design Support. In June 1995, the Company signed a joint marketing
agreement with Mentor Graphics, a leader in worldwide electronic design
automation tools and professional services for use in designing printed
circuits, pursuant to which Mentor Graphics will offer the Company's
customers Mentor Graphics' MCM Station(R) software, customer support and
contract design services. To the extent such services contribute to
ViaGrid sales, Mentor Graphics will be entitled to a royalty based on
such sales under the terms of the agreement. The Company expects this
relationship to provide circuit manufacturers with access to
comprehensive design solutions to enable them to manufacture custom
designed, high density substrates using the Company's ViaGrid product as
a base material. See "Recent Developments."
. IC Packaging Partners. The Company has entered into strategic alliances
with Texas Instruments and Coors Electronic to develop IC packages
incorporating the Company's high density substrates. The Company and
Texas Instruments have agreed to jointly develop Ball Grid Array IC
packages using the Company's high density substrates. Under the
Company's development initiative with Coors Electronic, the parties will
develop ceramic packages for ICs using the Company's high density
substrate. The Company currently has over 40 high density substrate
designs in process with Texas Instruments, Coors Electronics and other
customers, including Motorola, National Semiconductor and ASAT.
Approximately 10 of these designs have been developed through the
prototype stage. The Company believes that successful applications of
its high-density substrates will, in turn, increase demand for its
Novaclad and ViaGrid products. See "Recent Developments."
Automotive Electronics. In the automotive electronics market, the Company has
enjoyed increasing sales through its strategy of working very closely with its
customers beginning at the design stage. In 1989, the Company opened a
technical design and sales office in Detroit, Michigan which is currently
staffed with 15 engineers, designers and sales personnel in order to provide
automotive customers with comprehensive support. In fiscal 1995, 15.9%, 6.6%
and 4.3% of the Company's net sales went to multiple sourcing locations of Ford
Motor Company, Motorola, Inc. and Delco Electronics Corporation (a division of
General Motors Corporation), respectively. The Company also provides products,
through first tier suppliers, to Chrysler and the U.S. operations of Honda and
Toyota.
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<PAGE>
International. The Company works with European manufacturers and suppliers
and has had a sales presence in Europe since February 1992, including its
current sales office in Paris, France. The Company supplements its direct sales
efforts with independent manufacturers' representatives and distributors in
Europe and Asia, principally for flexible laminates. The Company's export sales
during fiscal years 1993, 1994 and 1995 were $7.8 million, $7.6 million, and
$11.1 million, respectively.
MANUFACTURING
The Company manufactures and assembles its products in Northfield, Minnesota,
Aberdeen and Britton, South Dakota, and is in the process of implementing
operations in the New Production Facility in Longmont, Colorado. The Company
focuses on quality in its manufacturing efforts, and believes that its
vertically-integrated manufacturing capabilities enhance its ability to control
product quality. The Company has been a qualified supplier to various
automotive manufacturers for many years and has commenced ISO 9001
certification, targeting completion of the accreditation process by early 1996.
Current Products. The Company uses a continuous roll-to-roll manufacturing
process to produce a large volume of high-quality flexible laminates
efficiently using coating, laminating and vacuum metalizing techniques. The
Company consumes approximately one-half of the flexible laminates it produces
for the manufacture of printed circuitry and interconnect systems. The Company
converts flexible laminates into printed circuitry principally by screen
printing and etching an image onto a flexible laminate and by photoimaging and
developing circuit patterns onto flexible laminates. The Company believes its
flexible circuit manufacturing equipment at its Northfield, Minnesota
facilities has the capacity to support substantial production increases with
only selective incremental capital investment. The Company processes certain of
its flexible printed circuitry into interconnect systems. Process capabilities
include surface mount assembly, wave soldering, connector and terminal staking,
custom folding, stiffening, application of pressure-sensitive adhesive and hand
soldering. Substantially all of these interconnect assembly functions are
performed at the Company's facilities in Aberdeen and Britton, South Dakota.
Emerging Products. To manufacture its emerging products, the Company is
constructing and equipping the New Production Facility in Longmont, Colorado,
based on the results of its testing and production activities at a pilot plant
in Longmont established in July 1994. In August 1995, the Company completed
construction of the 102,000 square foot building for the New Production
Facility. The manufacturing process at the New Production Facility will include
a series of integrated roll-to-roll processes consisting of metalization, via
generation, plating, photoimaging, developing, selective etching and electrical
testing. The Company has ordered each critical piece of production equipment
and has scheduled delivery, installation and process validation testing to
enable the facility to be operational in April 1996. The initial annual
production capacity of the new facility is expected to be approximately 2.0
million square feet of Novaclad, approximately 250,000 square feet of ViaGrid
and approximately 500,000 square feet of high density substrates. The facility
has been designed to allow for expansion in increments of approximately 500,000
square feet of finished product, consisting of varying amounts of ViaGrid and
high density substrates. The Company's investment in the New Production
Facility, including the site, building and equipment purchased or leased by the
Company, is expected to total approximately $38 million. In connection with its
proposed joint venture with Morton, the Company has agreed to increase its
annual capacity of ViaGrid for sale to the joint venture by 750,000 square feet
upon payment by the joint venture of a non-refundable fixed license fee. The
Company has also agreed to grant the joint venture a royalty bearing license to
manufacture ViaGrid at such time as the joint venture requires additional
capacity. See "Risk Factors--New Production Facility Start-Up" and "Recent
Developments."
China Joint Venture. The Company currently has no foreign manufacturing or
assembly operations. However, in August 1995, the Company entered into various
agreements to form a joint venture in Jiujiang Jiangxi, China with Jiangxi
Changjiang Chemical Plant and Hong Kong Wah Hing (China) Development Co., Ltd.
Under the agreements, the Company will license certain technology to the joint
venture, provide
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<PAGE>
certain technical support, receive a 20% ownership interest in the joint
venture, receive cash payments totaling up to $900,000 upon completion of
certain milestones, and receive a royalty on products sold by the joint
venture. The joint venture is being established to manufacture flexible
adhesive-based laminates and associated cover film tapes in China. Under the
terms of the agreements, the joint venture will market these products in China,
Taiwan, Hong Kong and Macau and the Company will market the products produced
by the joint venture in all other markets. The Company does not expect
manufacturing under this joint venture to commence until fiscal 1999. Formation
of the joint venture is subject to approvals from government agencies which, as
of the date of this Prospectus, are in progress but have not yet been obtained.
RESEARCH AND DEVELOPMENT
Sheldahl's recent research and development efforts, through its 38-person
research and development team, have focused on opportunities presented by the
demand for higher density and thinner packaging for electronic devices. The
Company has also identified within its core technologies other opportunities
for participation in the trend towards miniaturization within the electronics
industry and has pursued these opportunities independently and through various
consortia.
In fiscal 1994, the ARPA Consortium was organized to develop a high-density,
low-cost Multi-Chip Module utilizing Novaclad as the base material. The ARPA
Consortium is comprised of a vertically-integrated team of non-competing
companies, including four systems integrators (Silicon Graphics, Inc., Wireless
Access, Inc., Hughes Missile Systems Company and Delco Electronics), a
computer-aided design company (Mentor Graphics), a prototype company (Litronic
Industries), a materials manufacturer (Sheldahl)
and an assembly company (Jabil Circuit, Inc.). The ARPA Consortium has achieved
various milestones, including validation of each of the essential processes for
production of the Company's high-density substrates as a base material for low-
cost Multi-Chip Modules. Due, in part, to the rapid development of very high
density IC packages and Multi-Chip Modules, advanced multi-layering technology
is being increasingly demanded by the market. In September 1995, ARPA agreed to
extend its commitment to the consortium for the expansion of development of
this technology using the Company's Z-Link adhesive or other multi-layering
technologies. In addition to the ARPA Consortium, the Company also participates
in various other consortia, including consortia managed by National
Semiconductor and formed to develop (i) low-cost plastic packaging and (ii) an
IC attachment technique for a silicon die without using wires, known as a Flip
Chip. See "Recent Developments," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 9 of Notes to
Consolidated Financial Statements.
The Company seeks to expand its resources and knowledge base through
technical alliances with other companies. Pursuant to a cross license
agreement, Sheldahl and Sumitomo Bakelite Co., Ltd. ("Sumitomo") have exchanged
research and development personnel during the past eight years, and Sumitomo
fabricates certain circuits for the Company. Sumitomo and the Company have also
conducted joint material design experiments and Sumitomo has introduced the
Company to potential suppliers and customers. In addition, in August 1994,
Sheldahl acquired a significant minority ownership interest in Sidrabe Joint
Stock Company ("Sidrabe"), a newly privatized vacuum deposition developmental
company located in Riga, Latvia for an investment of $453,000. Sidrabe
historically was a developmental agency for the former Soviet Union's military
and aerospace programs, specializing in the design and production of vacuum
deposition equipment. With the Company's ownership position in Sidrabe, the
Company received worldwide rights to some key elements of Sidrabe technology
and the Company has access to Sidrabe's scientific and technical personnel with
extensive product and process expertise. The Company has also purchased certain
manufacturing equipment from Sidrabe.
SUPPLIERS
The Company qualifies strategic suppliers through a Vendor Certification
Program which limits the number of suppliers to those who provide the Company
with the best total value and quality. The Company closely monitors product
quality and delivery schedules. During the last five years, the Company has not
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<PAGE>
experienced significant shortages of raw materials. The Company currently
depends, however, on one supplier for the polyimide film which serves as a base
for the Company's Novaclad, ViaGrid and high density substrate products. This
supplier currently manufactures this polyimide film at a single manufacturing
facility. In addition, the Company has experienced delays in delivery of
certain laser via generation equipment currently available from only one
supplier. Certain other materials and plating processes used by the Company in
the manufacture of its products are currently obtained from single sources. See
"Risk Factors--New Production Facility Start-up" and "--Dependence on Certain
Suppliers."
COMPETITION
The Company's business is highly competitive with principal competitive
factors being product quality, performance, price and service. The Company
believes its vertical integration, which allows it to control product quality
and manufacturing efficiencies better than many of its competitors, is a
competitive advantage. Sheldahl's competitors include materials suppliers,
flexible and rigid circuit manufacturers, as well as electronics manufacturers
who produce their own materials and interconnect systems. Some of the Company's
competitors have substantially greater financial and other resources than the
Company. The Company's primary competitors with respect to its flexible printed
circuitry and interconnect systems include Pressac Limited (a U.K. company) and
Parlex Corp. in the automotive electronics market and Mektec Corp., Fujikura
Ltd. (a Japanese company) and ADFlex Solutions, Inc. in the datacommunication
market. The Company's primary competition for its flexible laminate products
include Rogers Corporation and GTS Flexible Materials, Ltd. (a U.K. company).
The Company's Novaclad, ViaGrid and high density substrates compete with
substrates produced through several alternative processes. These competing
products include single-sided, polyimide-based, etched copper laminates
produced using various methods of production by Minnesota Mining and
Manufacturing, Inc., International Business Machines Corporation and several
Japanese companies. The Company believes the production processes required for
each of these competing substrates, which include copper sputtering, manual
drilling and traditional etching techniques, are inherently more expensive than
the Company's method of production and result in products that are not as
easily utilized as the Company's emerging products in the design and production
of higher-density IC packages. The Company's emerging products also compete
with ceramic packaging products produced by companies such as Coors Electronic
and Kyocera of Japan, although the Company believes these products are more
expensive than the Company's substrate products, and with BT resin-based
substrates supplied by companies such as Amkor Electronics and Tessera, which
the Company believes are limited in their ability to accommodate increased
circuit densities beyond current levels. The Company expects these and other
competitors will continue to refine their processes or develop new products
that will compete on the basis of cost and performance with the Company's
emerging products.
BACKLOG
The Company's backlog consists of those orders for which the Company has
delivery dates. Automotive customers typically provide for four to six weeks of
committed shipments while datacommunication customers generally provide for up
to eight weeks of committed shipments. The Company's backlog of unshipped
orders as of September 1, 1995 and September 2, 1994 was approximately $26.2
million and $17.1 million, respectively. Generally, most orders in backlog are
shipped during the following three months. Because of the Company's quick turn
of orders to work-in-process, the timing of orders, delivery intervals,
customer and product mix and the possibility of customer changes in delivery
schedules, the Company's backlog at any particular date may not be
representative of actual sales for any succeeding period.
PROPRIETARY TECHNOLOGY
The Company owns three United States patents for Novaclad and the processes
for making Novaclad and five additional applications are pending. Applications
are pending for foreign patents on Novaclad in
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<PAGE>
Japan, Canada and the European Patent Office. In addition, the Company has one
United States patent and one Canadian patent relating to its Z-Link adhesive
product and has been informed that two additional United States patents
relating to Z-Link have been allowed. Federal trademark registrations have been
obtained on Novaclad(R), ViaGrid(R), Flexbase(R), Novaflex(R) and Z-Link(R).
Sheldahl also relies on internal security and secrecy measures and on
confidentiality agreements for protection of trade secrets and proprietary
know-how. There can be no assurance that Sheldahl's efforts to protect its
intellectual property will be effective to prevent misappropriation or that
others may not independently develop similar technology. The Company believes
that it possesses adequate proprietary rights to the technology involved in its
products and that its products, trademarks and other intellectual property
rights do not infringe upon the proprietary rights of third parties.
The Company was named as a defendant in a patent infringement matter
regarding its Novaclad products which was dismissed in January 1994 for lack of
jurisdiction and which has not been commenced elsewhere. There can be no
assurance that this plaintiff or others will not bring other actions against
the Company. The Company is also aware of a patent which may cover certain
plated through holes of double sided circuits made of the Company's Novaclad
materials. Although no claims have been made against the Company under this
patent, the owner of the patent may attempt to construe the patent broadly
enough to cover certain Novaclad products manufactured currently or in the
future by the Company. The Company believes that prior commercial art and
conventional technology, including certain patents of the Company, exist which
would allow the Company to prevail in the event any such claim is made under
this patent. Any action commenced by or against the Company could be time
consuming and expensive and could result in requiring the Company to enter into
a license agreement or cease manufacture of any products ultimately determined
to infringe such patent.
ENVIRONMENTAL REGULATIONS
Sheldahl is subject to various federal, state and local environmental laws
relating to the Company's operations. The Company's manufacturing and assembly
facilities are registered with the U.S. Environmental Protection Agency and are
licensed, where required, by state and local authorities. The Company has
agreements with licensed hazardous waste transportation and disposal companies
for transportation and disposal of its hazardous wastes generated at its
facilities. The New Production Facility in Longmont, Colorado has been
specifically designed to reduce water usage in the manufacturing process and
employs a sophisticated waste treatment system intended to substantially reduce
discharge streams. Compliance with federal and state environmental laws and
regulations did not have a material effect on the Company's capital
expenditures, earnings or competitive position during fiscal 1995. Similarly,
fiscal 1996 capital expenditures to comply with such laws and regulations are
not expected to be material. The Company believes it is in material compliance
with federal and state environmental laws and regulations.
EMPLOYEES
As of September 15, 1995, the Company employed approximately 1,020 people in
the United States and Europe, including 851 in production, 84 in sales,
marketing, application engineering and customer support, 38 in research and
development and 47 in administration. The production staff consists principally
of full-time workers employed in the Company's four currently operating
manufacturing and assembly plants. In Northfield, Minnesota, production workers
(approximately 406) are represented by the Union of Needletrade, Industrial and
Textile Employees, formerly the Amalgamated Clothing and Textile Workers Union
(the "Union"), which has been the bargaining agent since 1963. The Company has
a three-year collective bargaining agreement with the Union which expires in
November 1997. The Company has never experienced a work stoppage and believes
that its employee relations are good.
PROPERTIES
The Company owns two manufacturing facilities totaling 305,000 square feet
and a 20,000 square foot administration and sales support office in Northfield,
Minnesota. The Company also owns the 102,000 square
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foot New Production Facility in Longmont, Colorado and is leasing a 34,000
square foot pilot plant in Longmont, Colorado under a lease that expires in May
1996. The Company leases a 30,000 square foot assembly facility in Aberdeen,
South Dakota and owns a 30,000 square foot assembly facility in Britton, South
Dakota. The Company also leases a 3,000 square foot technical sales and design
office in Detroit, Michigan and a 900 square foot sales and marketing office in
Paris, France. Management believes that all facilities currently in use are
generally in good condition, well-maintained and adequate for their current
operations. The Company also leases a production facility in Irvine, California
which it has subleased to the purchaser of its aviation lighting product line.
LEGAL PROCEEDINGS
The Company's operations expose it to the risk of certain legal and
environmental claims in the normal course of business. To date, these matters
have not had a material adverse effect on the Company's results of operations
or financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James S. Womack 67 Chairman of the Board and Director
James E. Donaghy 61 President, Chief Executive Officer and
Director
Edward L. Lundstrom 45 Executive Vice President
John V. McManus 48 Vice President--Finance and Assistant
Secretary
Beverly M. Brumbaugh 60 Vice President--Human Resources & Corporate
Excellence
Keith L. Casson 56 Vice President--Research & Development
Gregory D. Closser 43 Vice President--Flexible Interconnects
Roger D. Quam 49 Vice President--Composite Materials
Ronald P. Rumpsa 60 Vice President--Materials
Gerald E. Magnuson 64 Secretary and Director
John G. Kassakian 52 Director
William B. Miller 63 Director
Kenneth J. Roering 53 Director
Richard S. Wilcox 66 Director
Beekman Winthrop 54 Director
</TABLE>
James S. Womack joined the Company in 1956 and served as President of the
Company from 1971 to 1988 and as Chief Executive Officer from 1971 to 1991. He
became a director of the Company in 1968 and was elected Chairman of the Board
in 1988. Mr. Womack is a director of General Securities, Inc. and Zytec Corp.
James E. Donaghy joined the Company in 1988 as its President and Chief
Operating Officer. He has served as President and Chief Executive Officer since
1991, and has been a director of the Company since 1988. Between 1958 and 1988,
Mr. Donaghy held various positions at Dupont Company, most recently as Director
of Planning and Development for Dupont Electronics Group. Mr. Donaghy's
experiences with Dupont Company included worldwide responsibility for its
connector and electronic materials business. Mr. Donaghy is a director of
Hutchinson Technology, Incorporated and the Institute of Printed Circuitry.
Edward L. Lundstrom joined the Company in 1976 and has served in several
capacities since that time, including Vice President, Treasurer, General
Manager of Circuit Division and Vice President--Sales and Marketing. He has
been Executive Vice President since September 1995, with responsibilities for
corporate marketing, core process redesign, information systems and new
business development, with particular emphasis on geographic areas outside the
United States.
John V. McManus joined the Company in 1972 and has served as Vice President--
Finance and Assistant Secretary since 1991. From 1987 to 1991, he served as
Corporate Controller.
Beverly M. Brumbaugh joined the Company in 1961 and has served in several
capacities since that time, including Director of Human Resources and
Industrial Relations. He has been Vice President--Human Resources & Corporate
Excellence since 1989. Mr. Brumbaugh is Chairman of the American Electronics
Association Minnesota Council for Quality.
Keith L. Casson joined the Company in 1968 and has served as Vice President--
Research and Development since September 1993, with responsibility since
September 1995 for deployment of the emerging products in the New Production
Facility. Prior to September 1993, he held various positions with the Company,
including Automotive/Consumer Market Manager, Director of Business Development
and Director of Interconnect Systems Research and Development. Mr. Casson is a
member of the Institute of Printed Circuitry.
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<PAGE>
Gregory D. Closser joined the Company in 1978 and has served as Vice
President-Flexible Interconnects since September 1995. From 1983 to 1989, he
held the position of Quality Director. From 1989 to 1993, he was the General
Manager of Interconnect Manufacturing. From 1993 to 1995 he was Vice
President--Interconnect Operations.
Roger D. Quam joined the Company in 1969 and has served in several capacities
since that time, including Business Manager of Engineered Products and Vice
President of Engineered Products. He has served as Vice President--Composite
Materials since September 1995, previously serving as Vice President--Materials
Operations and Aviation Products beginning in 1988.
Ronald P. Rumpsa joined the Company in 1989 and has served as Vice
President--Materials since September 1993. From 1989 to 1993, he held the
position of Corporate Director of Materials.
Gerald E. Magnuson has served as Secretary of the Company since 1962 and a
director since 1975. Mr. Magnuson is Of Counsel to the law firm of Lindquist &
Vennum P.L.L.P., Minneapolis, Minnesota, and a director of Munsingwear, Inc.,
Research, Incorporated and Washington Scientific Industries, Inc.
John G. Kassakian has served as a director of the Company since 1985. Mr.
Kassakian is Professor of Electrical Engineering and Director, Laboratory for
Electromagnetic and Electronic Systems, Massachusetts Institute of Technology,
Cambridge, Massachusetts. He is also a director of Ault Incorporated.
William B. Miller has served as director of the Company since 1991. Mr.
Miller is a consultant with Miller & Company, Maybole, Scotland, a business
consulting firm. Prior to 1991, he was Managing Director and Chairman of
Prestwick Holdings plc, Ayr, Scotland, an electronic component manufacturer and
assembler.
Kenneth J. Roering has served as a director of the Company since 1988. Mr.
Roering is a Professor, School of Management, at the University of Minnesota,
Minneapolis, Minnesota. He is a director of TSI, Inc., Mountain Parks Financial
Group and Transport Corporation of America, Inc.
Richard S. Wilcox has been a director of the Company since 1972. Mr. Wilcox
is a private investor and a director of Computer Identics Corporation.
Beekman Winthrop has been a director of the Company since 1992. Mr. Winthrop
is a private investor and President of Woodwin Management, Inc., an investment
advisory firm. He is also President and a director of Central Coal & Coke
Corporation, Kansas City, Missouri, a manager of interests in coal, gas and oil
properties.
OTHER KEY PERSONNEL
Certain other employees of the Company currently serving in key capacities
relating to the Company's emerging products include:
Lawrence E. Lemke, age 46, is the Director--Micro Products, responsible for
implementing the Company's emerging products applications in Longmont, Colorado
and working with the Company's strategic partners to develop IC packages and
other circuits incorporating high density substrates. He joined the Company in
1991 and has held a variety of positions, including Business Manager, working
with the Company's emerging products, and Engineering Manager and Principal
Consulting Engineer, working with the Company's flexible printed circuit
products. He has been in manufacturing operations for the last 20 years, most
recently with Digital Equipment Corporation.
Ellen M. McCoy, age 34, is the Company's Business Manager for Novaclad,
ViaGrid, Copperclad Laminate, Z-Link, Thin Film Products and Fabrication. She
joined the Company in 1990, and has held a variety of product management
positions in the electronic materials and tapes group. Ms. McCoy has been in
technical marketing and sales for the last 13 years, most recently with Dow
Chemical Corporation.
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<PAGE>
Glenn Gengel, age 32, is the Company's Micro Products Technical Manager based
in Longmont, Colorado. He joined the Company in 1987 and has spent the last
five years in its Advanced Manufacturing Program. Mr. Gengel was the Chief
Engineer for the automation of the Company's Northfield flexible circuit
operation and has been integrally involved with the Company's emerging products
program since its founding in 1991. He is currently responsible for the
technology process aspects of the New Production Facility.
Richard L. Swisher, age 53, is the Principal Engineer/Scientist for the
Company's emerging products development team. Mr. Swisher joined the Company in
1968 and has held a variety of engineering and research and development
positions, including responsibility for the development of electroluminescent
and photoconductive displays, sensor mosaic arrays and special thin film
coatings, such as special optical and resistive coatings. He has led the
process development work with respect to Novaclad since 1991.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of October 1, 1995, the number of shares
of the Company's Common Stock beneficially owned (i) by each director, (ii) by
certain executive officers, (iii) by each person known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock and
(iv) by all officers and directors as a group. Unless otherwise indicated, each
person has sole voting and dispositive power over such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OUTSTANDING SHARES
OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
------------------------ ------------ -------- -----------
<S> <C> <C> <C>
Peter B. Cannell and Co., Inc.(2)....... 647,200 9.47% 7.54%
919 Third Avenue
New York, NY 10022
Sumitomo Bakelite Co., Ltd.(2).......... 414,400 6.07% 4.83%
Mita-Nitto-Osaka Bldg.
11-36, 3-Chome Mita
Minato-Ku, Tokyo 108, Japan
Regan Money Managers(2)................. 371,600 5.44% 4.33%
7600 Parklawn Avenue, Suite 300
Edina, MN 55435
James E. Donaghy(3)(4)(5)............... 86,237 1.26% 1.00%
James S. Womack(3)...................... 80,801 1.18% *
John G. Kassakian(3).................... 9,997 * *
Gerald E. Magnuson(3)................... 18,188 * *
William B. Miller(3).................... 4,000 * *
Kenneth J. Roering(3)................... 18,000 * *
Richard S. Wilcox(3)(6)................. 106,155 1.55% 1.24%
Beekman Winthrop(3)..................... 273,800 4.01% 3.19%
Gregory D. Closser(3)................... 37,997 * *
Edward L. Lundstrom(3).................. 32,155 * *
John V. McManus(3)...................... 52,037 * *
Roger D. Quam(3)........................ 51,225 * *
All Officers and Directors as a Group
(15 persons)(3)(4)(6).................. 815,715 11.59% 9.28%
</TABLE>
- --------
*Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Based upon information contained in a Schedule 13G or Schedule 13D filed
with the Securities and Exchange Commission.
(3) Includes shares which may be purchased within 60 days of October 1, 1995
upon exercise of outstanding stock options in the amounts of 22,548 shares
for Mr. Donaghy, 11,143 shares for Mr. Womack, 5,000 shares for each of
Messrs. Kassakian, Magnuson, Roering and Wilcox, 4,000 shares for Mr.
Miller, 3,000 shares for Mr. Winthrop, 24,391 shares for Mr. Closser,
27,322 shares for Mr. Lundstrom, 23,147 shares for Mr. McManus, 27,906
shares for Mr. Quam and 202,138 shares for all officers and directors as a
group.
(4) Includes shares held by the Company's Employee Savings Plan for the benefit
of the person or group named herein.
(5) Excludes options to acquire 107,719 shares of Common Stock, which options
are not currently exercisable.
(6) Includes 35,400 shares held by a trust for the benefit of Mr. Wilcox's
daughter, for which he is trustee. Mr. Wilcox disclaims beneficial
ownership of these 35,400 shares.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of up to 20,000,000 shares of Common Stock, $.25 par value per share,
and up to 500,000 shares of Preferred Stock, $1.00 par value per share. As of
October 1, 1995, 6,833,926 shares of Common Stock were issued and outstanding
and no shares of Preferred Stock were issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share. Holders of Common
Stock have the right to cumulate their votes in the election of directors by
giving written notice of intent to cumulate votes to any officer of the Company
before the meeting or to the presiding officer at the meeting. A holder may
cumulate votes for the election of directors by multiplying the number of votes
to which the shareholder may be entitled by the numbers of directors to be
elected and casting all such votes for one nominee or distributing them among
any two or more nominees. Holders of Common Stock have no conversion rights and
no preemptive or other rights to subscribe for additional securities. Upon
liquidation or dissolution, the holders of Common Stock will be entitled to
share ratably in all assets available for distribution after the payment or
provision for payment of all debts and liabilities and subject to the rights of
the holders of Preferred Stock which may be outstanding. Each share of Common
Stock is entitled to such dividends as may from time to time be declared by the
Board of Directors out of funds legally available therefor. The shares of
Common Stock are quoted on the Nasdaq National Market under the symbol "SHEL."
The outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to issue Preferred Stock in one or more classes or series
and to fix the voting power, dividend, redemption rights or privileges, rights
on liquidation or dissolution, conversion rights and privileges, sinking or
purchase fund rights, and other preferences, privileges and restrictions, of
such class or series.
The voting and other rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the right of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
OUTSTANDING STOCK OPTIONS
As of September 1, 1995, the Company had outstanding and unexercised options
to acquire 569,708 shares of Common Stock awarded pursuant to option plans
maintained by the Company. Of this amount, options to purchase 391,931 shares
are currently exercisable at exercise prices ranging from $4.875 to $13.00 per
share. The Company had reserved as of September 1, 1995 an additional 583,015
shares for future grants under its 1994 Stock Option Plan. See Note 4 of Notes
to Consolidated Financial Statements.
ANTI-TAKEOVER PROVISIONS IN ARTICLES OF INCORPORATION
The Company's Amended and Restated Articles of Incorporation require the
approval of certain types of transactions involving "interested shareholders"
(essentially defined as any holder of 10% or more of the outstanding Common
Stock of the Company) by holders of 75% of the voting power generally entitled
to vote in the election of directors, unless the transaction in question has
been approved by a majority vote of
40
<PAGE>
the "continuing directors" of the Company. The special voting requirements
generally cover such transactions as a merger, consolidation or statutory
exchange of shares of the Company or any subsidiary of the Company with an
interested shareholder; a sale, lease, mortgage or other transfer to or with an
interested shareholder of any assets of the Company equal to 10% or more of the
book value of the consolidated assets of the Company; the issuance or transfer
by the Company or any subsidiary to any interested shareholder of any
securities of the Company (except pursuant to stock dividends, stock splits and
similar transactions) or of any securities of a subsidiary of the Company
(except pursuant to a pro rata distribution to all holders of Common Stock of
the Company); the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of an interested
shareholder; and a transaction that has the effect of increasing the
proportionate share of Common Stock of the Company that is beneficially owned
by any interested shareholder. These special voting requirements do not apply
to any proposed transaction that would otherwise be covered if the
consideration to be received by holders of Common Stock of the Company in the
proposed transaction meets certain conditions generally designed to insure that
the shareholders receive a fair price for their shares. A similar 75% vote
would be required to amend, repeal or adopt any provisions inconsistent with
any of the provisions described above. These provisions could have the effect
in certain circumstances of delaying or preventing a change in control of the
Company at some future time.
ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 1/3% or 50%) by an existing shareholder or other
person is approved by a majority of the shareholders of the Company other than
the acquirer (if already a shareholder) and officers and directors who are also
employees of the Company, the shares acquired above such new percentage level
of voting control will not be entitled to voting rights. The Company is
required to hold a special shareholders' meeting to vote on any such
acquisition within 55 days after the delivery to the Company by the acquirer of
an information statement describing, among other things, the acquirer and any
plans of the acquirer to liquidate or dissolve the Company and copies of
definitive financing agreements for any financing of the acquisition not to be
provided by funds of the acquirer. If any acquirer does not submit an
information statement to the Company within 10 days after acquiring shares
representing a new threshold percentage of voting control of the Company, or if
the disinterested shareholders vote not to approve such an acquisition, the
Company may redeem the shares so acquired by the acquirer at their market
value. Section 302A.671 generally does not apply to a cash offer to purchase
all shares of voting stock of the issuing corporation if such offer has been
approved by a majority vote of disinterested board members of the issuing
corporation.
Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between the Company and a shareholder who becomes the beneficial
holder of 10% or more of the Company's outstanding voting stock (an "interested
shareholder") unless a majority of the disinterested directors of the Company
have approved, prior to the date on which the shareholder acquired a 10%
interest, either the business combination transaction suggested by such a
shareholder or the acquisition of shares that made such a shareholder a
statutory interested shareholder. If such prior approval is not obtained, the
statute imposes a four-year prohibition from the interested shareholder's share
acquisition date on mergers, sales of substantial assets, loans, substantial
issuances of stock and various other transactions involving the Company and the
statutory interested shareholder or its affiliates.
In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years
following the completion of such an offer unless the selling shareholders are
given the opportunity to sell the shares on terms that are substantially
equivalent to those contained in the earlier tender offer. The Section does not
apply if a committee of the Board consisting of all of its disinterested
directors (excluding present and former officers of the corporation) approves
the subsequent acquisition before shares are acquired pursuant to the earlier
tender offer.
41
<PAGE>
These statutory provisions could also have the effect in certain
circumstances of delaying or preventing a change in the control of the Company.
BYLAW PROVISIONS
The Bylaws of the Company establish an advance notice procedure with regard
to (i) certain business to be brought before an annual meeting of shareholders
of the Company and (ii) the nomination by shareholders of candidates for
election as directors.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Norwest Bank Minnesota,
N.A.
42
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom Dain Bosworth Incorporated and Needham &
Company, Inc., are serving as representatives (the "Representatives"), have
severally agreed to purchase an aggregate of 1,750,000 shares of Common Stock
from the Company at the Price to Public set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions, in the amounts set
forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER TO BE PURCHASED
----------- ----------------
<S> <C>
Dain Bosworth Incorporated...............................
Needham & Company, Inc...................................
---------
Total................................................ 1,750,000
=========
</TABLE>
The nature of the Underwriters' obligation is such that all of the shares of
Common Stock offered hereby, excluding shares covered by the over-allotment
option granted to the Underwriters, must be purchased if any are purchased. The
Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to the approval of certain matters by legal
counsel and to certain other conditions.
The Company has been advised by the Representatives that the several
Underwriters propose to offer the shares of Common Stock to the public
initially at the Price to Public set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share on sales to certain other dealers.
After the initial offering, the Price to Public, concession and reallowance may
be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an aggregate of
262,500 additional shares of Common Stock from the Company at the same price
per share to be paid by the Underwriters for the other shares of Common Stock
offered hereby. The Underwriters may exercise such option only for the purpose
of covering any over-allotments in the sale of the 1,750,000 shares of Common
Stock offered hereby. To the extent that the Underwriters exercise the over-
allotment option, each Underwriter will become committed, subject to certain
conditions, to purchase a number of the additional shares of Common Stock
proportionate to such Underwriter's initial commitment as set forth in the
table above.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they have discretionary
authority.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including certain liabilities under the Act in connection
with the offering. Such indemnification may be limited or unavailable in
certain circumstances, including where legally unavailable.
The Company's officers, directors and certain shareholders have agreed that,
for a period of 90 days after the date of this Prospectus, they will not sell,
assign, transfer, encumber or grant an option to purchase or dispose of any
Common Stock without the prior written consent of Dain Bosworth Incorporated.
43
<PAGE>
In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Company's
Common Stock on Nasdaq immediately prior to the commencement of the sale of the
shares in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on Nasdaq limited by the bid
prices of market makers not connected with this offering and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited in amount to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified period prior to the filing of this Prospectus
with the Securities and Exchange Commission and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota. Gerald E. Magnuson, Of Counsel to Lindquist & Vennum
P.L.L.P., is a director, officer and holder of Common Stock of the Company.
Certain legal matters will be passed upon for the Underwriters by Fredrikson &
Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The audited financial statements and schedule included or incorporated by
reference in this Prospectus and elsewhere in the Registration Statement of
which this Prospectus is a part have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company's Common Stock is quoted on the Nasdaq
National Market of the National Association of Securities Dealers Automated
Quotations system ("Nasdaq"), and such reports, proxy statements and other
information regarding the Company can be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act of 1933, as amended with respect to the shares offered
hereby. This Prospectus does not contain all information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the shares offered hereby, reference is made to such
Registration Statement, copies of which may be inspected in the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
44
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended September
1, 1995 is hereby incorporated in this Prospectus by reference. In addition,
all documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or a subsequently
filed document modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to John V. McManus, Vice President--Finance, Sheldahl, Inc.,
1150 Sheldahl Road, Northfield, Minnesota 55057. Telephone requests may be
directed to John V. McManus at (507) 663-8000.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of September 2, 1994 and September 1, 1995. F-3
Consolidated Statements of Operations for the Fiscal Years Ended August
27, 1993,
September 2, 1994 and September 1, 1995.................................. F-4
Consolidated Statements of Changes in Shareholders' Investment for the
Fiscal Years Ended
August 27, 1993, September 2, 1994 and September 1, 1995................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended August
27, 1993,
September 2, 1994 and September 1, 1995.................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Sheldahl, Inc.:
We have audited the accompanying consolidated balance sheets of Sheldahl, Inc.
(a Minnesota corporation) and Subsidiary as of September 1, 1995 and September
2, 1994, and the related consolidated statements of operations, changes in
shareholders' investment and cash flows for each of the three fiscal years in
the period ended September 1, 1995. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sheldahl, Inc. and Subsidiary,
as of September 1, 1995 and September 2, 1994, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended September 1, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 6 and 7 to the financial statements, effective August 28,
1993, the Company changed its methods of accounting for income taxes and
postretirement benefits.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 12, 1995
F-2
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
ASSETS 1994 1995
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,008 $ 1,045
Accounts receivable, net of allowances for doubtful
accounts of $200 in 1994 and $267 in 1995......... 14,463 17,637
Inventories........................................ 10,568 12,509
Deferred tax assets................................ 1,429 849
Prepaid expenses and other current assets.......... 478 732
------- -------
Total current assets............................. 28,946 32,772
------- -------
Plant and equipment:
Land and buildings ................................ 14,963 15,924
Machinery and equipment............................ 41,166 52,748
Construction in progress .......................... 11,972 32,654
Accumulated depreciation .......................... (37,832) (41,471)
------- -------
Net plant and equipment ......................... 30,269 59,855
------- -------
Other assets......................................... 924 1,559
Deferred tax assets ................................. 181 --
------- -------
$60,320 $94,186
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt .............. $ 2,021 $ 4,179
Accounts payable .................................. 6,589 9,113
Accrued salaries and commissions .................. 1,324 1,262
Other accrued liabilities.......................... 2,431 1,886
Reserves for discontinued operation................ 489 --
Income taxes payable .............................. 150 --
------- -------
Total current liabilities ....................... 13,004 16,440
Long-term debt....................................... 7,963 33,864
Other non-current liabilities ....................... 2,871 2,683
Deferred taxes....................................... -- 247
------- -------
Commitments and contingencies (Notes 5 and 7)
Shareholders' investment:
Preferred stock, $1.00 par value, 500,000 shares
authorized, none outstanding...................... -- --
Common stock, $.25 par value, 20,000,000 shares
authorized; 6,590,369 and 6,831,576 shares
outstanding ...................................... 1,648 1,708
Additional paid-in capital ........................ 21,035 22,311
Retained earnings.................................. 13,799 16,933
------- -------
Total shareholders' investment .................... 36,482 40,952
------- -------
$60,320 $94,186
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net sales................................. $82,102 $88,346 $95,216
Cost of sales............................. 66,360 69,273 74,752
------- ------- -------
Gross profit ............................. 15,742 19,073 20,464
------- ------- -------
Expenses:
Sales and marketing .................... 7,274 8,014 9,090
General and administrative.............. 4,029 4,153 3,895
Research and development................ 1,929 2,366 2,270
Interest................................ 1,023 946 875
------- ------- -------
Total expenses ....................... 14,255 15,479 16,130
------- ------- -------
Income from continuing operations before
provision for income taxes and cumulative
effect of changes in methods of
accounting .............................. 1,487 3,594 4,334
Provision for income taxes ............... 50 800 1,200
------- ------- -------
Income from continuing operations before
cumulative effect of changes in methods
of accounting ........................... 1,437 2,794 3,134
Cumulative effect of change in method of
accounting for income taxes (Note 6) .... -- 1,422 --
Cumulative effect of change in method of
accounting for post retirement benefits
(Note 7) ................................ -- (875) --
Loss from discontinued operation (Note 8). -- (525) --
------- ------- -------
Net income ............................... $ 1,437 $ 2,816 $ 3,134
======= ======= =======
Income per share:
Continuing operations .................. $ .29 $ .52 $ .45
Accounting change--income taxes......... -- .26 --
Accounting change--post retirement
benefits............................... -- (.16) --
Discontinued operation.................. -- (.10) --
------- ------- -------
Net income per share ..................... $ .29 $ .52 $ .45
======= ======= =======
Weighted average common shares and common
share equivalents outstanding ........... 4,950 5,418 6,925
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE FISCAL YEARS ENDED AUGUST 27, 1993, SEPTEMBER 2, 1994, AND SEPTEMBER 1,
1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INVESTMENT
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance August 28, 1992..... 4,773,536 $1,193 $ 7,198 $ 9,546 $17,937
Net income................ -- -- -- 1,437 1,437
Stock options exercised... 37,459 10 64 -- 74
--------- ------ ------- ------- -------
Balance August 27, 1993..... 4,810,995 1,203 7,262 10,983 19,448
Net income................ -- -- -- 2,816 2,816
Stock options exercised... 83,124 21 333 -- 354
Net proceeds from common
stock offering........... 1,696,250 424 13,440 -- 13,864
--------- ------ ------- ------- -------
Balance September 2, 1994 .. 6,590,369 1,648 21,035 13,799 36,482
Net income................ -- -- -- 3,134 3,134
Stock options exercised... 241,207 60 1,276 -- 1,336
--------- ------ ------- ------- -------
Balance September 1, 1995 .. 6,831,576 $1,708 $22,311 $16,933 $40,952
========= ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income.............................. $1,437 $ 2,816 $ 3,134
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 3,875 4,014 4,845
Cumulative effect of accounting
changes.............................. -- (547) --
Deferred income tax provision......... -- 565 1,008
Loss from discontinued operation...... -- 525 --
Net change in other operating
activities:
Accounts receivable................... (2,428) (1,029) (3,174)
Inventories........................... 716 (1,246) (1,941)
Prepaid expenses and other current
assets............................... (64) (175) (254)
Other assets.......................... 124 (533) (635)
Accounts payable and accrued
liabilities.......................... (34) 216 (331)
Income taxes payable.................. -- 150 (150)
Other non-current liabilities......... 47 156 (188)
------ ------- -------
Net cash provided by operating
activities............................. 3,673 4,912 2,314
------ ------- -------
Investing activities:
Capital expenditures, net............... (4,388) (13,841) (32,182)
Net cash flow used in discontinued
operation.............................. (893) (1,044) (489)
------ ------- -------
Net cash used in investing activities... (5,281) (14,885) (32,671)
------ ------- -------
Financing activities:
Net borrowings (repayments) under
revolving note......................... 2,703 (9,233) 10,533
Proceeds from long-term debt............ -- 11,000 23,466
Repayments of long-term debt............ (1,225) (4,446) (5,941)
Proceeds from stock offering, net....... -- 13,864 --
Proceeds from stock option exercises.... 74 354 1,336
------ ------- -------
Net cash provided by financing
activities............................. 1,552 11,539 29,394
------ ------- -------
Net increase (decrease) in cash and cash
equivalents............................ (56) 1,566 (963)
------ ------- -------
Cash and cash equivalents at beginning of
year..................................... 498 442 2,008
------ ------- -------
Cash and cash equivalents at end of year.. $ 442 $ 2,008 $ 1,045
====== ======= =======
Supplemental cash flow information:
Interest paid........................... $1,167 $ 1,266 $ 2,204
====== ======= =======
Income taxes paid....................... $ 50 $ 60 $ 114
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS DESCRIPTION AND FISCAL YEAR:
The Company is a leading producer of high quality flexible printed circuitry
and flexible laminates, primarily for sale to the automotive electronics and
datacommunication markets. The Company primarily sells to original equipment
manufacturers in the United States and also to those in Europe and the Pacific
Rim. The Company's fiscal year ends on the Friday closest to August 31. Fiscal
year 1994 consisted of 53 weeks. Fiscal years 1995 and 1993 consisted of 52
weeks.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation--
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
Significant Customers--
The Company's largest customer accounted for sales of $15,053,000 in 1995;
$13,771,000 in 1994; and $12,326,000 in 1993. No other customer accounted for
greater than 10% of net sales.
Export Sales--
The Company had export sales of $11,100,000 in 1995; $7,592,000 in 1994; and
$7,809,000 in 1993.
Revenue Recognition--
The Company recognizes revenue principally as products are shipped. In
addition, the Company grants credit to customers and generally does not require
collateral or any other security to support amounts due.
Inventories--
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
1994 1995
------------ ------------
<S> <C> <C>
Raw material ................................... $ 4,403 $ 4,267
Work-in-process................................. 5,245 5,649
Finished goods ................................. 1,835 3,663
LIFO reserve ................................... (915) (1,070)
------- -------
Total......................................... $10,568 $12,509
======= =======
</TABLE>
The Company values its inventories at the lower of last-in, first-out (LIFO)
cost or market. If the first-in, first-out method of valuing inventories had
been used in place of LIFO, reported earnings per share would have been $.02
higher in 1995, $.01 higher in 1994 and $.04 higher in 1993.
Plant and Equipment--
Plant and equipment are stated at cost and include expenditures which
increase the useful lives of existing plant and equipment. The cost of major
plant and equipment additions includes interest capitalized during the
acquisition period. Interest capitalized totaled $1,328,000 in 1995, $405,000
in 1994, and $66,000 in 1993. Maintenance, repairs and minor renewals are
charged to operations as incurred. When plant and equipment are disposed of,
the related cost and accumulated depreciation are removed from the respective
accounts and any gain or loss is reflected in the results of operations.
F-7
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For financial reporting purposes, plant and equipment are depreciated
principally on a straight-line basis over the estimated useful lives of 20 to
40 years for buildings and 3 to 15 years for machinery and equipment. For
income tax reporting purposes, straight-line and accelerated depreciation
methods are used.
Income Taxes--
Deferred income taxes are provided for temporary differences between the
financial reporting basis and tax basis of the Company's assets and liabilities
at currently enacted tax rates.
Earnings Per Share--
Earnings per share is computed based on the weighted average number of common
and equivalent shares outstanding during each period presented.
New Accounting Pronouncement--
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment Of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). The
Company will be required to adopt SFAS No. 121 in fiscal 1997 and expects that
its ultimate adoption will not have a significant impact on the Company's
results of operations or financial condition.
(3)FINANCING:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
1994 1995
------------ ------------
<S> <C> <C>
Revolving credit agreement........................... $7,920 $30,533
Note payable to insurance company, secured by real
estate mortgage, interest at 8.32% with monthly
payments of $52, including principal and interest,
remaining balance due September 2002................ -- 5,700
Note payable to Economic Development Agency, secured
by $825 standby letter of credit, interest at 2.0%
with monthly payments of $9, including principal and
interest, remaining balance due October 1998........ 916 833
Note payable to a bank, secured by a real estate
mortgage, interest at 8.0% with monthly payments of
$9, including principal and interest through
February 1999 ...................................... 406 326
Other ............................................... 742 651
------ -------
9,984 38,043
Less-current maturities ............................. (2,021) (4,179)
------ -------
$7,963 $33,864
====== =======
</TABLE>
During fiscal 1995, the Company renegotiated its revolving credit agreement.
The resulting amended and restated revolving credit agreement consists of a $15
million revolving note (revolver), based on and secured by the Company's
inventories and accounts receivable, and a $20 million term note collateralized
by equipment. Commitment fees on the revolver are charged at 0.5% on the unused
portion. Interest on the revolver and term note accrues at prime plus up to
1.5% and 2.0%, respectively, depending on the Company's net worth, as defined.
As of September 1, 1995, outstanding borrowings under the revolver were
$10,533,000, with $3,642,000 available, and borrowings under the term note were
$20,000,000. The term note requires quarterly principal installments of
$1,250,000 beginning January 1, 1996. At September 1, 1995, the interest rates
were 9.75% on the revolver and 10.25% for the term note. The entire credit
agreement expires December 31, 1997.
F-8
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's debt agreements contain various restrictive covenants which,
among other things, require the Company to maintain defined consolidated net
worth levels, financial ratios and minimum coverage ratios, and call for the
pledging of certain assets. These agreements also restrict additional
indebtedness, capital expenditures and cash dividends. The Company was in
compliance with these covenants as of September 1, 1995.
Future maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal 1996 ..................... $ 4,179
Fiscal 1997 ..................... 5,466
Fiscal 1998 ..................... 22,173
Fiscal 1999 ..................... 781
Fiscal 2000 ..................... 220
Thereafter....................... 5,224
-------
$38,043
=======
</TABLE>
(4)STOCK OPTIONS:
The shareholders of the Company have approved stock option plans (the Plans)
for officers, other full-time key salaried employees and non-employee directors
of the Company to reward outstanding performance and enable the Company to
attract and retain key personnel. Under the Plans, options are granted at an
exercise price equal to the fair market value of the Company's common stock at
the date of grant and are generally exercisable for five or ten years. The
Plans also provide for automatic grants of 1,000 non-qualified stock options to
each non-employee director of the Company on the date that each such director
is elected or re-elected to the Board of Directors, and expire, to the extent
not already exercised, thirty days after termination of service as a Director.
As of September 1, 1995, the Plans authorize the future granting of options to
purchase up to 583,015 shares of common stock.
Stock option transactions during 1993, 1994 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
-------- ------------------
<S> <C> <C>
Outstanding at August 28, 1992............... 624,311 $4.875 to $8.750
Granted ................................... 214,468 $5.000 to $7.625
Exercised ................................. (81,982) $5.000 to $7.125
Lapsed..................................... (56,155) $5.250 to $8.750
--------
Outstanding at August 27, 1993............... 700,642 $4.875 to $8.750
Granted ................................... 205,777 $9.000 to $12.000
Exercised ................................. (150,442) $5.000 to $7.625
--------
Outstanding at September 2, 1994............. 755,977 $4.875 to $12.000
Granted ................................... 84,777 $13.000 to $16.500
Exercised ................................. (271,046) $5.000 to $12.000
--------
Outstanding at September 1, 1995............. 569,708 $4.875 to $16.500
========
</TABLE>
Options exercisable were 600,642 as of August 27, 1993, 655,977 as of
September 2, 1994 and 391,931 as of September 1, 1995.
F-9
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The options outstanding as of September 1, 1995 expire five or ten years
after the grant date as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
FISCAL YEARS THAT EXPIRE
------------ -----------------
<S> <C>
1996.................. 12,780
1997.................. 37,182
1998.................. 7,000
1999.................. 7,000
2000.................. 7,000
2001.................. 63,840
2002.................. 100,000
2003.................. 89,683
2004.................. 167,446
2005.................. 77,777
-------
569,708
=======
</TABLE>
(5)COMMITMENTS AND CONTINGENCIES:
Lease Commitments--
The Company has noncancelable operating lease commitments for certain
manufacturing facilities and equipment which expire at various dates through
fiscal 1999. Minimum rent commitments under operating leases are $1,782,000 in
1996, $442,000 in 1997, $292,000 in 1998 and 1999 and $37,000 in 2000. In
accordance with the terms of the lease agreements, the Company is required to
pay maintenance and property taxes related to the leased property. Operating
lease expense relating to continuing operations was $2,394,000 in 1995,
$2,128,000 in 1994, and $2,032,000 in 1993.
Employment Agreements--
The Company has employment agreements with various officers which are
renewable in successive one-year terms and require minimum severance benefits
following a change in control of the Company, as defined.
Litigation--
The Company's operations expose it to the risk of certain legal and
environmental claims in the normal course of business. The Company believes
that these matters will not have a material adverse effect on the Company's
results of operations or financial condition.
(6) INCOME TAXES:
Effective August 28, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109),
under which deferred income tax assets and liabilities are recognized for the
differences between financial and income tax reporting basis of assets and
liabilities and valued based on enacted tax rates and laws. Net income for 1994
was increased by $1,422,000, or $0.26 per share, for the cumulative effect of
this accounting change. The effect of adopting SFAS No. 109 increased the
Company's 1994 tax provision by $565,000 when compared to the previous method
used.
The provision for income taxes from continuing operations consisted of the
following (in thousands):
<TABLE>
<CAPTION>
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Currently payable.................... $50 $235 $ 192
Deferred............................. -- 565 1,008
--- ---- ------
Provision for income taxes......... $50 $800 $1,200
=== ==== ======
</TABLE>
F-10
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation from the provision for income taxes using the statutory
federal income tax rate to the provision for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
<S> <C> <C> <C>
Federal statutory rates ............ $505 $1,222 $1,474
Research and development tax
credits............................ -- (210) (200)
Tax benefit of foreign sales
corporation........................ -- (133) (222)
Recognition of previously unrecorded
deferred tax assets................ (505) -- --
State income taxes, net of federal
benefit............................ -- 42 37
Other .............................. 50 (121) 111
---- ------ ------
$ 50 $ 800 $1,200
==== ====== ======
</TABLE>
As of September 1, 1995, the Company had net operating loss carryforwards of
approximately $2,400,000 which expire through 2008.
Temporary differences and carryforwards which result in net deferred income
tax assets were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets (liabilities)
Net operating loss carryforwards.............. $ 1,186 $ 1,246
Income tax credits carryforwards.............. 950 1,138
Post retirement benefits...................... 532 494
Inventories .................................. 378 433
Deferred compensation ........................ 270 349
Medical reserves.............................. -- 131
Vacation reserve.............................. 188 120
Reserve for discontinued operation............ 184 --
Bad debts reserve ............................ 75 99
Other ........................................ 402 423
------- -------
Deferred tax assets......................... 4,165 4,433
------- -------
Depreciation ................................. (1,887) (3,376)
Medical reserves ............................. (68) --
------- -------
Deferred tax liabilities ................... (1,955) (3,376)
------- -------
Valuation allowance......................... (600) (455)
------- -------
Total deferred tax assets................. $ 1,610 $ 602
======= =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. The Company has
established a valuation allowance for a portion of the net operating loss and
income tax credit carryforwards and other items due to the uncertainty related
to their ultimate realization. The reduction in the valuation allowance was due
to the expiration of certain state tax credit carryforwards.
F-11
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) PENSION AND POST RETIREMENT BENEFITS:
Defined Benefit Plan--
The Company sponsors a defined benefit pension plan covering substantially
all hourly employees of the Company's Northfield, Minnesota, facility (the
Northfield Plan). Pension costs are funded in compliance with the Employee
Retirement Income Security Act of 1974. Net periodic pension cost is as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
----- ---- -----
<S> <C> <C> <C>
Service cost ......................................... $ 170 $163 $ 164
Interest cost on projected benefit obligation......... 240 262 286
Return on plan assets................................. (278) (89) (232)
Net amortization and deferral......................... 142 (81) 45
----- ---- -----
Net periodic pension cost........................... $ 274 $255 $ 263
===== ==== =====
</TABLE>
Funding information with respect to the Northfield Plan is as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
1994 1995
------------ ------------
<S> <C> <C>
Actuarial present value of -
Vested benefit obligation .................... $3,557 $4,200
====== ======
Accumulated benefit obligation................ $3,617 $4,281
====== ======
Projected benefit obligation.................. $3,617 $4,552
====== ======
Plan assets at fair value .................... $2,933 $3,556
====== ======
Projected benefit obligation in excess of plan
assets........................................ $ 684 $ 996
Unrecognized transition amount................. (80) (70)
Unrecognized prior service cost ............... (524) (760)
Unrecognized net loss ......................... 178 100
------ ------
Accrued pension cost........................... 258 266
Additional minimum liability................... 426 459
------ ------
Net pension liability........................ $ 684 $ 725
====== ======
</TABLE>
The accumulated benefit obligation is the actuarial present value of all
vested and non-vested benefits for employee service before July 1, 1995. The
projected benefit obligation is the accumulated benefit obligation increased to
include expected increases in the plan's flat dollar benefit. The projected
benefit obligation is determined using an assumed discount rate of 7.5%. The
assumed long-term rate of return for assets is 7.5%. Plan assets consist
principally of cash equivalents, bonds and common stock.
An additional minimum liability is included in other non-current liabilities
in the accompanying consolidated balance sheets. This additional liability is
an estimate of cash contributions required to be made to the plan in the
future. An intangible asset of $459,000 related to this liability is included
in other assets in the accompanying consolidated balance sheets.
Employee Savings Plan--
The Company has an employee savings plan covering all employees who meet
certain age and service requirements and who are not participants in the
Northfield Plan.
F-12
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's contribution to the employee savings plan equals 2% of the
participant's salary. The Company also matches participants' voluntary
contributions to the plan. This matching contribution is subject to Company
earnings on a quarterly basis and is limited to 4% of each participant's
salary. The Company's expense related to the employee savings plan was $900,000
in 1995, $674,000 in 1994, and $661,000 in 1993.
Postretirement Benefits--
In December 1990, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (SFAS No. 106). SFAS No. 106
requires that the expected cost of these benefits be charged to expense during
the years that the employees render service.
The Company adopted SFAS No. 106 on August 28, 1993 and recorded a one-time
charge of $875,000, or $.16 per share, net of income tax benefits of $525,000
in the accompanying statement of operations. The Company's plan, which is
unfunded, provides medical and life insurance benefits for select employees.
These employees, who retire after age 40 with 20 years or more of service, have
access to the same medical plan as active employees.
Net periodic postretirement benefit cost is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
1994 1995
------------ ------------
<S> <C> <C>
Service cost.................................... $137 $30
Interest cost on accumulated benefit obligation. 47 54
---- ---
Net periodic postretirement benefit cost...... $184 $84
==== ===
</TABLE>
Funding information related to the Company's plan is as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 2, SEPTEMBER 1,
1994 1995
------------ ------------
<S> <C> <C>
Accumulated benefit obligation................. $1,418 $1,364
Plan assets at fair value...................... -- --
------ ------
Projected benefit obligation in excess of
plan assets................................. 1,418 1,364
Unrecognized net gain.......................... 13 28
------ ------
Accrued postretirement benefits.............. $1,405 $1,336
====== ======
</TABLE>
A 12% annual rate of increase in the health care cost trend rate was assumed
with rates decreasing gradually to 5.5% at 2006 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. Increasing the assumed health care cost trend rate
assumption by one percentage point would increase accumulated postretirement
benefit obligation by 5.7% and the net periodic postretirement benefit cost by
10.4% each year. The discount rate used in determining the accumulated
postretirement benefit obligation was 8% in 1994 and 7.5% in 1995.
(8) DISCONTINUED OPERATION:
On May 27, 1994, the Company sold its idle Nashua, New Hampshire, facility
for an amount less than the recorded value. In addition, the Company revised
its estimate of the costs it will incur related to the abandonment of leased
facilities in Orange County, California. The statement of operations for 1994
reflects a charge of $525,000, net of income tax benefits of $175,000, to
reserve for the losses related to these events. As of September 1, 1995, there
are no remaining obligations with respect to the Company's discontinued
operation.
F-13
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) CONSORTIUM FOR THE DEVELOPMENT OF MULTI-CHIP MODULE LAMINATES (MCM-L):
On January 10, 1994, the Company entered into a Consortium Agreement
sponsored by the Advanced Research Projects Agency (ARPA), a United States
Government Agency. The purpose of the Consortium is to accelerate the
development and commercialization of the multi-chip module laminate (MCM-L). As
a Consortium member, the Company expects to receive approximately $9,500,000 in
funding over two and one-half years from ARPA to further test, design and
develop the manufacturing processes for the Company's Novaclad(R) and Z-Link(R)
products which are to be used in constructing multi-chip modules. The Company
incurred $5,030,000 in fiscal 1995 and $3,079,000 in fiscal 1994 in costs
related to this project, of which $7,392,000 have been reimbursed by the ARPA
Consortium with the remaining $717,000 included in accounts receivable in the
accompanying consolidated balance sheet as of September 1, 1995.
(10)JOINT VENTURE:
In August 1995, the Company entered into various agreements to form a joint
venture in Juijiang Jiangxi China with Jiangxi Changjiang Chemical Plant and
Hong Kong Wah Hing (China) Development Co., Ltd. Under the agreements, the
Company will license certain technology to the joint venture and will provide
certain technical support. In return, the Company will receive a 20% ownership
interest in the joint venture, a $900,000 payment, subject to completion of
certain milestones, and a royalty on products sold by the joint venture. The
joint venture is being established to manufacture flexible adhesive-based
copperclad laminates and associated cover film tapes in China. Under the terms
of the agreements, the joint venture will market these products in China,
Taiwan, Hong Kong and Macau and the Company will market the products produced
by the joint venture in all other markets. Formation of the joint venture is
subject to approvals from government agencies which are in progress but which
have not yet been obtained.
(11)SUBSEQUENT EVENTS:
On September 5, 1995, the Company sold its Hoskins Aviation Lighting Product
Line division to a subsidiary of The B.F. Goodrich Company. The value of the
transaction was approximately $2.6 million. The transaction did not have a
material effect on the results of operations or financial position of the
Company.
On October 12, 1995, the Company filed a Registration Statement on Form S-3
with the Securities and Exchange Commission to register 1,750,000 shares of
common stock (excluding an over-allotment option of 262,500 shares to be
granted to the underwriters).
F-14
<PAGE>
SHELDAHL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12)QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The consolidated results of operations for the four quarters of 1995 and 1994
are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL 1995
---------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales .......................... $21,088 $21,960 $25,203 $26,965 $95,216
Cost of sales and expenses.......... 20,377 21,782 24,123 24,600 90,882
------- ------- ------- ------- -------
Income from continuing operations
before provision for income taxes.. 711 178 1,080 2,365 4,334
Provision for income taxes.......... 192 43 300 665 1,200
------- ------- ------- ------- -------
Net income.......................... $ 519 $ 135 $ 780 $ 1,700 $ 3,134
======= ======= ======= ======= =======
Net income per share................ $ .08 $ .02 $ .11 $ .24 $ .45
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994
----------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales......................... $20,169 $21,739 $23,902 $22,536 $88,346
Cost of sales and expenses........ 19,935 20,843 22,661 21,313 84,752
------- ------- ------- ------- -------
Income from continuing operations
before provision for income taxes
and accounting changes........... 234 896 1,241 1,223 3,594
Provision for income taxes........ 65 224 311 200 800
------- ------- ------- ------- -------
Income from continuing operations
before accounting changes........ 169 672 930 1,023 2,794
Accounting changes................ 547 -- -- -- 547
Loss from discontinued operation.. -- -- (525) -- (525)
------- ------- ------- ------- -------
Net income........................ $ 716 $ 672 $ 405 $ 1,023 $ 2,816
======= ======= ======= ======= =======
Income per share:
--Continuing operations......... $ .03 $ .13 $ .18 $ .16 $ .52
--Accounting changes............ .11 -- -- -- .10
--Discontinued operation........ -- -- (.10) -- (.10)
------- ------- ------- ------- -------
Net income per share.............. $ .14 $ .13 $ .08 $ .16 $ .52
======= ======= ======= ======= =======
</TABLE>
F-15
<PAGE>
[DESCRIPTION OF PHOTOS ON INSIDE BACK COVER]
Caption at top of page - Advanced Manufacturing
Sheldahl Invests to Enhance Productivity and Quality
Caption at bottom of page - Sheldahl's Manufacturing Operations Provide
Production Capabilities for Future Generations of Electronic Packaging
Two photos on the page:
#1 - Photo of the Company's New Production Facility in Longmont,
Colorado, with following caption: Sheldahl's New Production Facility
in Longmont, Colorado, scheduled to be operational in April 1996, will
manufacture the Company's emerging Novaclad, ViaGrid and high density substrate
products.
#2 - Photo of the Company's roll-to-roll production equipment, with
following caption: Sheldahl's current and emerging products are manufactured
using efficient roll-to-roll processes.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUM-
STANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 6
Recent Developments....................................................... 11
Glossary ................................................................. 13
Use of Proceeds........................................................... 15
Price Range of Common Stock............................................... 15
Dividend Policy........................................................... 15
Capitalization ........................................................... 16
Selected Consolidated Financial Data ..................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business ................................................................. 23
Management ............................................................... 36
Principal Shareholders ................................................... 39
Description of Capital Stock ............................................. 40
Underwriting ............................................................. 43
Legal Matters............................................................. 44
Experts................................................................... 44
Available Information..................................................... 44
Incorporation of Certain Documents by Reference........................... 45
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,750,000 SHARES
LOGO
COMMON STOCK
-----------
PROSPECTUS
-----------
DAIN BOSWORTH
Incorporated
NEEDHAM & COMPANY, INC.
, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee........................................... $ 10,583
NASD filing fee................................................ 3,570
Nasdaq listing fee............................................. 17,500
Accounting fees and expenses................................... 30,000*
Legal fees and expenses........................................ 60,000*
Printing expenses.............................................. 40,000*
Blue Sky fees and expenses .................................... 10,000*
Transfer agent and registrar fees.............................. 5,000*
Miscellaneous.................................................. 48,347*
--------
Total........................................................ $225,000*
========
</TABLE>
- --------
*Except for the SEC registration fee, NASD filing fee and Nasdaq listing
fee, all of the foregoing expenses have been estimated.
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of Minnesota Statutes requires the Registrant to indemnify a
person made or threatened to be made a party to a proceeding by reason of the
former or present official capacity of the person with respect to the
Registrant, against judgments, penalties, fines, including reasonable expenses,
if such person (1) has not been indemnified by another organization or employee
benefit plan for the same judgments, penalties, fines, including, without
limitation, excise taxes assessed against the person with respect to an
employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements, incurred by the person in connection with
the proceeding with respect to the same acts or omissions; (2) acted in good
faith; (3) received no improper personal benefit, and statutory procedure has
been followed in the case of any conflict of interest by a director; (4) in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful; and (5) in the case of acts or omissions occurring in the
person's performance in the official capacity of director or, for a person not
a director, in the official capacity of officer, committee member or employee,
reasonably believed that the conduct was in the best interests of the
Registrant, or, in the case of performance by a director, officer or employee
of the Registrant as a director, officer, partner, trustee, employee or agent
of another organization or employee benefit plan, reasonably believed that the
conduct was not opposed to the best interests of the Registrant. In addition,
Section 302A.521, subd. 3, requires payment by the Registrant, upon written
request, of reasonable expenses in advance of final disposition in certain
instances. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a
disinterested quorum is present, or by a designated committee of the Board, by
special legal counsel, by the shareholders or by a court. The Registrant's
Bylaws provide for indemnification of officers, directors and employees to the
fullest extent provided by Section 302A.521.
As permitted by Section 302A.251 of the Minnesota Business Corporation Act,
the Amended and Restated Articles of Incorporation of the Registrant eliminate
the liability of the directors of the Registrant for monetary damages arising
from any breach of fiduciary duties as a member of the Registrant's Board of
Directors (except as expressly prohibited by Minnesota Statutes, Section
302A.251, subd. 4).
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation,
incorporated by reference from Exhibit 3.1 of the
Registrant's Form 10-Q for the quarter ended December 2,
1994.
3.2 Bylaws, as amended, incorporated by reference from Exhibit
3.2 of the Registrant's Registration Statement on Form S-
2 (File No. 33-79266).
4.1 Stock Purchase Agreement Relating to Purchase of Sheldahl
Stock dated March 12, 1987 between the Registrant and
Sumitomo Bakelite Co., Ltd., as amended through January
9, 1991, incorporated by reference from Exhibit C(4) of
Registrant's Form 8-K filed January 22, 1991.
4.2 Amendment No. 4 to Stock Purchase Agreement Relating to
Purchase of Sheldahl Stock dated January 3, 1994,
incorporated by reference from Exhibit 4.2 of the
Registrant's Registration Statement on Form S-2 (File No.
33-79266).
5.1 Opinion and Consent of Lindquist & Vennum P.L.L.P.,
counsel to the Company.*
10.1 1987 Stock Option Plan, incorporated by reference from
Exhibit 10.1 of the Registrant's Form 10-K for the fiscal
year ended August 27, 1993.
10.2 1994 Stock Option Plan, incorporated by reference from
Exhibit 10.1 of the Registrant's Form 10-Q for the
quarter ended December 2, 1994.
10.3 Consulting Agreement dated August 17, 1988 between James
S. Womack and Sheldahl, Inc., incorporated by reference
from Exhibit 10.2 of the Registrant's Form 10-K for the
fiscal year ended August 27, 1993.
10.4 Form of Employment Agreement for Executive Officers of the
Registrant, incorporated by reference from Exhibit C(1)
of the Registrant's Form 8-K filed August 23, 1985.
10.5 Employment Agreement between James E. Donaghy and the
Registrant dated March 1, 1988, as amended August 17,
1988, incorporated by reference from Exhibit 10.4 of the
Registrant's Form 10-K for the fiscal year ended August
27, 1993.
10.6 Sales Agreement Relating to Japanese Sales dated March 12,
1987 between the Registrant and Sumitomo Bakelite Co.,
Ltd., incorporated by reference from Exhibit C(2) of the
Registrant's Form 8-K filed March 25, 1987.
10.7 Sales Agreement Relating to United States Sales dated
March 12, 1987 between the Registrant and Sumitomo
Bakelite Co., Ltd., incorporated by reference from
Exhibit C(3) of the Registrant's Form 8-K filed March 25,
1987.
10.8 Amendment Number One to Sales Agreement Relating to
Japanese Sales dated January 9, 1991 between the
Registrant and Sumitomo Bakelite Co., Ltd., incorporated
by reference from Exhibit C(2) of the Registrant's Form
8-K filed January 22, 1991.
10.9 Amendment Number One to Sales Agreement Relating to United
States Sales dated January 9, 1991 between Sheldahl, Inc.
and Sumitomo Bakelite Co., Ltd., incorporated by
reference from Exhibit C(3) of the Registrant's Form 8-K
filed January 22, 1991.
10.10 Amended and Restated Cross License Agreement dated
November 1, 1993 between the Registrant and Sumitomo
Bakelite Co., Ltd., incorporated by reference from
Exhibit 10.5 of the Registrant's Form 10-K for the fiscal
year ended September 2, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.11 Lease dated June 15, 1989 between Aberdeen Development
Corporation and the Registrant, incorporated by reference
from Exhibit 10.13 of the Registrant's Form 10-K for the
fiscal year ended August 27, 1993.
10.12 Lease Agreement dated May 1, 1994 between 345 Partnership
and the Registrant, incorporated by reference from
Exhibit 10.13 of the Registrant's Registration Statement
on Form S-2 (File No. 33-79266).
10.13 Amended and Restated Credit and Security Agreement dated
November 24, 1993 among the Registrant, Norwest Bank
Minnesota, N.A., and Harris Trust and Savings Bank,
incorporated by reference from Exhibit 4.1 of the
Registrant's Form 10-K for the fiscal year ended August
27, 1993.
10.14 Second Amendment to Amended and Restated Credit and
Security Agreement dated May 12, 1994 among the
Registrant, Norwest Bank Minnesota, N.A., Harris Trust
and Savings Bank, incorporated by reference from Exhibit
10.1 of the Registrant's Form 10-Q for the quarter ended
March 3, 1995.
10.15 Third Amendment to Amended and Restated Credit and
Security Agreement dated January 24, 1995 among the
Registrant, Norwest Bank Minnesota, N.A., Harris Trust
and Savings Bank and NBD Bank, N.A., incorporated by
reference from Exhibit 10.2 of the Registrant's Form 10-Q
for the quarter ended March 3, 1995.
10.16 Loan Authorization dated October 1, 1994 between the South
Dakota Board of Economic Development Registrant,
incorporated by reference from Exhibit 10.1 of the
Registrant's Form 10-Q for the quarter ended February 25,
1994.
10.17 Agreement Relating to Employment dated October 1, 1994
between the South Dakota Board of Economic Development
and the Registrant, incorporated by reference from
Exhibit 10.2 of the Registrant's Form 10-Q for the
quarter ended February 25, 1994.
10.18 Promissory Note dated October 4, 1993 due to the South
Dakota Board of Economic Development, incorporated by
reference from Exhibit 10.3 of the Registrant's Form 10-Q
for the quarter ended February 25, 1994.
10.19 Note Purchase Agreement dated as of August 31, 1995
between the Registrant and Northern Life Insurance
Company, incorporated by reference from Exhibit 10.19 of
the Registrant's Form 10-K for the year ended September
1, 1995.
10.20 Agreement dated January 10, 1994 between the MCM-L
Consortium and the Advanced Projects Research Agency,
incorporated by reference from Exhibit 10.4 of the
Registrant's Form 10-Q for the quarter ended February 25,
1994.
10.21 Articles of Collaboration dated November 30, 1993 for the
MCM-L Consortium, incorporated by reference from Exhibit
10.5 of the Registrant's Form 10-Q for the quarter ended
February 25, 1994.
10.22 Joint Marketing Agreement dated June 14, 1995 between the
Registrant and Mentor Graphics Corporation, incorporated
by reference from Exhibit 10.22 of the Registrant's Form
10-K for the year ended September 1, 1995.
10.23 Agreement Relating to Joint Venture dated August 1, 1995
between Registrant, Jiangxi Changjiang Chemical Plant,
Hong Kong Wah Hing (China) Development Co. Ltd. and
Jiujiang Flex Co. Ltd., incorporated by reference from
Exhibit 10.23 of the Registrant's Form 10-K for the year
ended September 1, 1995.
10.24 Agreement Relating to Payments dated August 1, 1995
between Registrant and Jiangxi Changjiang Chemical Plant,
Hong Kong Wah Hing (China) Development Co. Ltd. and
Jiujiang Flex Co. Ltd. incorporated by reference from
Exhibit 10.24 of the Registrant's Form 10-K for the year
ended September 1, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.25 Manufacturing Agreement dated August 1, 1995 between
Registrant and Jiujiang Flex Co., Ltd. incorporated by
reference from Exhibit 10.25 of the Registrant's Form 10-
K for the year ended September 1, 1995.
10.26 Marketing and License Agreement dated August 1, 1995
between Registrant and Jiujiang Flex Co., Ltd.
incorporated by reference from Exhibit 10.26 of the
Registrant's Form 10-K for the year ended September 1,
1995.
10.27 Technology Development Agreement dated August 15, 1995
between Low Cost Flip Chip Consortium and the Advanced
Projects Research Agency, incorporated by reference from
Exhibit 10.27 of the Registrant's Form 10-K for the year
ended September 1, 1995.
10.28 Articles of Collaboration dated July 10, 1995 for the Low
Cost Flip Chip Consortium, incorporated by reference from
Exhibit 10.28 of the Registrant's Form 10-K for the year
ended September 1, 1995.
10.29 Technology Development Agreement dated March 23, 1995
between Plastic Packaging Consortium and the Advanced
Projects Research Agency, incorporated by reference from
Exhibit 10.29 of the Registrant's Form 10-K for the year
ended September 1, 1995.
10.30 Articles of Collaboration dated March 17, 1995 for the
Plastic Packaging Corporation, incorporated by reference
from Exhibit 10.30 of the Registrant's Form 10-K for the
year ended September 1, 1995.
10.31 License Agreement dated June 20, 1994 between Sidrabe and
Registrant, incorporated by reference from Exhibit 10.31
of the Registrant's Form 10-K for the year ended
September 1, 1995.
10.32 Amendment One to License Agreement dated September 14,
1994 between Sidrabe and Registrant, incorporated by
reference from Exhibit 10.32 of the Registrant's Form
10-K for the year ended September 1, 1995.
11 Statement Regarding Computation of Per Share Earnings,
incorporated by reference from Exhibit 11 of the
Registrant's Form 10-K for the fiscal year ended
September 1, 1995.
24.1 Consent of Arthur Andersen LLP
24.2 Consent of Lindquist & Vennum P.L.L.P. (included in
Exhibit 5.1 to the Registration Statement).
25 Power of Attorney (included in the signature page of the
Registration Statement).
</TABLE>
- --------
*To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event
II-4
<PAGE>
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF NORTHFIELD, STATE OF MINNESOTA, ON THE 12TH DAY OF
OCTOBER, 1995.
Sheldahl, Inc.
/s/ James E. Donaghy
By___________________________________
James E. Donaghy
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James E.
Donaghy and John V. McManus, and each of them (with full power to act alone),
such person's true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as such person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON OCTOBER 12, 1995 IN THE
CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ James S. Womack Chairman of the Board and Director
___________________________________________
James S. Womack
/s/ James E. Donaghy President, Chief Executive Officer and
___________________________________________ Director (principal executive officer)
James E. Donaghy
/s/ John V. McManus Vice President Finance (principal financial
___________________________________________ and accounting officer)
John V. McManus
/s/ John G. Kassakian Director
___________________________________________
John G. Kassakian
/s/ Gerald E. Magnuson Director
___________________________________________
Gerald E. Magnuson
/s/ William B. Miller Director
___________________________________________
William B. Miller
/s/ Kenneth J. Roering Director
___________________________________________
Kenneth J. Roering
/s/ Richard S. Wilcox Director
___________________________________________
Richard S. Wilcox
/s/ Beekman Winthrop Director
___________________________________________
Beekman Winthrop
</TABLE>
II-6
<PAGE>
Exhibit 1.1
-----------
1,750,000 SHARES
SHELDAHL, INC.
COMMON STOCK
PAR VALUE $.25 PER SHARE
UNDERWRITING AGREEMENT
----------------------
Dain Bosworth Incorporated
Needham & Company, Inc.
As Representatives of the several Underwriters
c/o Dain Bosworth Incorporated
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Sheldahl, Inc., a Minnesota corporation (the "Company") proposes,
subject to the terms and conditions stated herein, to issue and sell to the
several Underwriters named in Schedule A hereto (the "Underwriters"), for which
you are acting as representatives (the "Representatives"), an aggregate of
1,750,000 shares (the "Firm Shares") of Common Stock, par value $.25 per share,
of the Company (the "Common Stock"), and, at the election of the Underwriters,
up to 262,500 shares of Common Stock (the "Option Shares"). The Firm Shares and
the Option Shares are herein collectively called the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 33- ) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act and all
documents incorporated by reference in the prospectus contained therein at such
time is herein referred to as the "Registration Statement." The form of
prospectus first filed by the Company with the Commission pursuant to Rules
424(b) and 430A under the Act is referred to herein as the "Prospectus." Each
preliminary prospectus included in the Registration Statement prior to the time
it becomes effective or filed with the Commission pursuant to Rule 424(a) under
the Act is referred to herein as a "Preliminary Prospectus." Any reference
herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any amendment or supplement to
any Preliminary Prospectus or Prospectus shall be deemed to refer to and include
any documents filed after the date of such Preliminary Prospectus or Prospectus,
as the case may be, under the Securities Exchange Act of
<PAGE>
1934, as amended (the "Exchange Act"), and incorporated by reference in such
Preliminary Prospectus or Prospectus, as the case may be; and any reference to
any amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section 13(a) or
15(d) of the Exchange Act after the effective date of the Registration Statement
that is incorporated by reference in the Registration Statement. Copies of the
Registration Statement, including all exhibits and schedules thereto and any
documents incorporated by reference, any amendments thereto and all Preliminary
Prospectuses have been delivered to you.
The Company hereby confirms its agreements with respect to the
purchase of the Shares by the Underwriters as follows:
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(i) The Registration Statement has been declared effective under
the Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or
threatened by the Commission.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission promulgated thereunder, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, the Company makes no representation or
warranty as to information contained in or omitted in reliance upon,
and in conformity with, written information furnished to the Company
by or on behalf of any Underwriter through the Representatives
expressly for use in the preparation thereof.
The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission conformed in
all material respects to the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, and none of such
documents contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and any further documents
so filed and incorporated by reference in the Prospectus, when such
documents become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the requirements
of the Securities Act or the Exchange Act as applicable, and the rules
and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(iii) The Registration Statement conforms, and the Prospectus
and any amendments or supplements thereto will conform, in all
material respects to the
-2-
<PAGE>
requirements of the Act and the rules and regulations thereunder.
Neither the Registration Statement nor any amendment thereto, and
neither the Prospectus nor any supplement thereto, contains or will
contain, as the case may be, any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to
information contained in or omitted from the Registration Statement or
the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Company
by or on behalf of any Underwriter through the Representatives,
expressly for use in the preparation thereof.
(iv) The Company has been duly organized, is validly existing as
a corporation in good standing under the laws of the State of
Minnesota, has the corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus,
and is duly qualified to transact business in all jurisdictions in
which the conduct of its business or its ownership or leasing of
property requires such qualification and the failure so to qualify
would have a material adverse effect on the business or condition,
financial or otherwise, of the Company and its subsidiaries, taken as
a whole.
(v) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own or lease its properties and conduct its business as
described in the Prospectus, and is duly qualified to transact
business in all jurisdictions in which the conduct of its business or
its ownership or leasing of property requires such qualification and
the failure so to qualify would have a material adverse effect on the
business or condition, financial or otherwise, of the Company and its
subsidiaries, taken as a whole. All outstanding shares of capital
stock of each of the subsidiaries of the Company have been duly
authorized and validly issued, are fully paid and non-assessable, and
are owned, directly or indirectly, by the Company free and clear of
all liens, encumbrances and security interests. No options, warrants
or other rights to purchase, agreements or other obligations to issue,
or other rights to convert any obligations into, shares of capital
stock or ownership interests in any of the subsidiaries of the Company
are outstanding.
(vi) The outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding
shares of capital stock and other securities of the Company, prior to
the date hereof, were made in compliance with the Act and all
applicable state securities or blue sky laws. The Shares to be issued
and sold by the Company to the Underwriters pursuant to this Agreement
have been duly authorized and, when issued and paid for as
contemplated herein, will be validly issued, fully paid and
nonassessable. There are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of capital stock of the Company pursuant to
the Company's Articles of Incorporation, Bylaws or any agreement or
other instrument to which the Company is
-3-
<PAGE>
a party or by which the Company is bound. Neither the filing of the
Registration Statement nor the offering or the sale of the Shares as
contemplated by this Agreement gives rise to any rights for, or
relating to, the registration of any shares of capital stock or other
securities of the Company, except such rights which have been validly
waived or satisfied. Except as described in the Prospectus, there are
no outstanding options, warrants, agreements, contracts or other
rights to purchase or acquire from the Company any shares of its
capital stock. The Company has the authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus. The outstanding capital stock of the Company, including
the Shares, conforms, and the Shares to be issued by the Company to
the Underwriters will conform, to the description thereof contained in
the Prospectus.
(vii) The financial statements, together with the related notes
and schedules as set forth or incorporated by reference in the
Registration Statement and Prospectus, present fairly the consolidated
financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated in
the Registration Statement at the indicated dates and for the
indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, and all adjustments necessary
for a fair presentation of results for such periods have been made,
except as otherwise stated therein. The summary and selected
financial and statistical data included in the Registration Statement
present fairly the information shown therein on the basis stated in
the Registration Statement and have been compiled on a basis
consistent with the financial statements presented therein.
(viii) There is no action or proceeding pending or, to the
knowledge of the Company, threatened or contemplated against the
Company or any of its subsidiaries before any court or administrative
or regulatory agency which, if determined adversely to the Company or
any of its subsidiaries, would, individually or in the aggregate,
result in a material adverse change in the business or condition
(financial or otherwise), results of operations, shareholders' equity
or prospects of the Company and its subsidiaries, taken as a whole,
except as set forth in the Registration Statement.
(ix) The Company has good and marketable title to all properties
and assets reflected as owned in the financial statements hereinabove
described (or as described as owned in the Prospectus), in each case
free and clear of all liens, encumbrances and defects, except such as
are described in the Prospectus or do not substantially affect the
value of such properties and assets and do not materially interfere
with the use made and proposed to be made of such properties and
assets by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company
and its subsidiaries.
(x) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented,
(A) there has not been
-4-
<PAGE>
any material adverse change, or any development involving a
prospective material adverse change, in or affecting the condition,
financial or otherwise, of the Company and its subsidiaries, taken as
a whole, or the business affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not occurring in the
ordinary course of business, (B) there has not been any transaction
not in the ordinary course of business entered into by the Company or
any of its subsidiaries which is material to the Company and its
subsidiaries, taken as a whole, other than transactions described or
contemplated in the Registration Statement, (C) the Company and its
subsidiaries have not incurred any material liabilities or
obligations, which are not in the ordinary course of business or which
could result in a material reduction in the future earnings of the
Company and its subsidiaries, (D) the Company and its subsidiaries
have not sustained any material loss or interference with their
respective businesses or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance, (E)
there has not been any change in the capital stock of the Company
(other than upon the exercise of options and warrants described in the
Registration Statement), or any material increase in the short-term or
long-term debt (including capitalized lease obligations) of the
Company and its subsidiaries, taken as a whole, (F) there has not been
any declaration or payment of any dividends or any distributions of
any kind with respect to the capital stock of the Company, other than
any dividends or distributions described or contemplated in the
Registration Statement, or (G) there has not been any issuance of
warrants, options, convertible securities or other rights to purchase
or acquire capital stock of the Company.
(xi) Neither the Company nor any of its subsidiaries is in
violation of, or in default under, its Articles of Incorporation or
Bylaws, or any statute, or any rule, regulation, order, judgment,
decree or authorization of any court or governmental or administrative
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, or any indenture, mortgage,
deed of trust, loan agreement, lease, franchise, license or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them are bound or to
which any property or assets of the Company or any of its subsidiaries
is subject, which violation or default would have a material adverse
effect on the business, condition (financial or otherwise), results of
operations, shareholders' equity or prospects of the Company and its
subsidiaries, taken as a whole.
(xii) The issuance and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions contemplated herein will not
violate any provision of the Articles of Incorporation or Bylaws of
the Company or any of its subsidiaries or any statute or any order,
judgment, decree, rule, regulation or authorization of any court or
governmental or administrative agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, and
will not conflict with, result in a breach or violation of, or
constitute, either by itself or upon notice or passage of time or
both, a default under any indenture, mortgage, deed of trust, loan
agreement, lease, franchise, license or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any
property or assets of the Company or any of its
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<PAGE>
subsidiaries is subject. No approval, consent, order, authorization,
designation, declaration or filing by or with any court or
governmental agency or body is required for the execution and delivery
by the Company of this Agreement and the consummation of the
transactions herein contemplated, except as may be required under the
Act or any state securities or blue sky laws.
(xiii) The Company and each of its subsidiaries holds and is
operating in compliance with all licenses, approvals, certificates and
permits from governmental and regulatory authorities, foreign and
domestic, which are necessary to the conduct of its business as
described in the Prospectus.
(xiv) The Company has the power and authority to enter into this
Agreement and to authorize, issue and sell the Shares it will sell
hereunder as contemplated hereby. This Agreement has been duly and
validly authorized, executed and delivered by the Company.
(xv) Arthur Andersen LLP, which has certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Act and the rules and regulations thereunder.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xvii) The Shares have been approved for designation upon notice
of issuance on the Nasdaq National Market under the symbol "SHEL."
(xviii) The Company has obtained and delivered to the
Representatives written agreements, in form and substance satisfactory
to the Representatives, of each of its directors, officers and certain
shareholders that no offer, sale, assignment, transfer, encumbrance,
contract to sell, grant of an option to purchase or other disposition
of any Common Stock or other capital stock of the Company will be made
for a period of 90 days after the date of the Prospectus, directly or
indirectly, by such holder otherwise than hereunder or with the prior
written consent of the Representatives.
(xix) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectus
or the Prospectus or other materials permitted by the Act to be
distributed by the Company.
(xx) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). The
Company does not do any business, directly or indirectly, with the
government of Cuba or with any person or entity located in Cuba.
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(xxi) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns or reports required to be filed,
and have paid in full all taxes indicated by said returns or reports
and all assessments received by it or any of them to the extent that
such taxes have become due and payable, except where the Company and
its subsidiaries are contesting in good faith such taxes and
assessments.
(xxii) The Company and each of its subsidiaries owns or licenses
all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and other similar
rights necessary for the conduct of its business as described in the
Prospectus. Except as described in the Prospectus, the Company has no
knowledge of any infringement by it or its subsidiaries of any
patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets or other similar rights of others,
and neither the Company nor any of its subsidiaries has received any
notice or claim of conflict with the asserted rights of others with
respect to any of the foregoing.
(xxiii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (C) access to records is permitted only in
accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxiv) Other than as contemplated by this Agreement, the Company
has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated
hereby.
(xxv) The conditions for the use of Form S-3, as set forth in
the General Instructions thereto, have been satisfied.
(xxvi) The representations and warranties of the Company made in
this Agreement and the information provided in any schedule, list or
other document specifically referred to herein or provided to the
Representatives or their counsel in connection with their due
diligence review of the Company do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to
make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
(xxvii) The Company and its management have no reason, other
than matters already disclosed to the Representatives, to believe that
the Company may be unable to begin commercial production at the New
Production Facility by April 1996, as disclosed in the Prospectus.
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<PAGE>
(b) Any certificate signed by any officer of the Company and delivered
to the Representatives or counsel to the Underwriters shall be deemed to be
a representation and warranty of the Company to each Underwriter as to the
matters covered thereby.
2. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and covenants contained herein, and subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a price of $______ per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule A hereto, subject to
adjustments in accordance with Section 8 hereof.
In addition, on the basis of the representations, warranties and covenants
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters an option to purchase at their
election up to 262,500 Option Shares at the same price per share as set forth
for the Firm Shares in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. The option granted hereby may be
exercised in whole or in part, but only once, and at any time upon written
notice given within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option and the time and date at which certificates are to be delivered. If any
Option Shares are purchased, each Underwriter agrees, severally and not jointly,
to purchase that portion of the number of Option Shares as to which such
election shall have been exercised (subject to adjustment to eliminate
fractional shares) determined by multiplying such number of Option Shares by a
fraction the numerator of which is the maximum number of Firm Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule A hereto and the denominator of which is the maximum
number of Firm Shares which all of the Underwriters are entitled to purchase
hereunder. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than two or later than ten full business days after the exercise of such option,
and shall not in any event be prior to the Closing Date. If the date of
exercise of the option is three or more full days before the Closing Date, the
notice of exercise shall set the Closing Date as the Option Closing Date.
Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Dain Bosworth Incorporated may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to you
for the account of such Underwriter at such time and place as shall hereafter be
designated by the Representatives, against payment by such Underwriter or on its
behalf of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Company in next day funds. The time and
date of such delivery and payment shall be, with respect to the Firm Shares,
8:30 a.m. Minneapolis time, at the offices of ___________________________, on
_______________, 199 , or such other time and date as you and the Company may
agree upon in writing, such time and date being herein referred to as the
"Closing Date," and, with respect to the Option Shares, at the time and on the
date specified by you in the written notice given by you of the Underwriters'
election to purchase the Option Shares, or such other time and date as you and
the Company may agree upon in writing, such time and date being referred to
herein as the "Option Closing Date." Such certificates will be made available
for checking and packaging at least twenty-four hours prior to the Closing Date
or the Option Closing Date, as the case may be, at a location as may be
designated by you.
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3. Offering by Underwriters. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representatives deems it advisable to do so. The Firm Shares are to be
initially offered to the public at the initial public offering price set forth
in the Prospectus. The Representatives may from time to time thereafter change
the public offering price and other selling terms. To the extent, if at all,
that any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer such Option Shares to the public on the foregoing terms.
It is understood that _______________________ Firm Shares will
initially be reserved by the several Underwriters for offer and sale upon the
terms and conditions set forth in the Prospectus to employees and persons having
business relationships with the Company and its subsidiaries who have heretofore
delivered to you offers or indications of interest to purchase Firm Shares in
form satisfactory to you, and that any allocation of such Firm Shares among such
persons will be made in accordance with timely directions received by you from
the Company, provided that under no circumstances will you or any Underwriter be
liable to the Company or any such person for any action taken or omitted in good
faith in connection with such offering to employees and persons having business
relationships with the Company and its subsidiaries. It is further understood
that any of such Firm Shares which are not purchased by such persons will be
offered by the Underwriters to the public upon the terms and conditions set
forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will prepare and timely file with the Commission under
Rule 424(b) under the Act a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A under the Act, and will not file any amendment to the
Registration Statement or supplement to the Prospectus or any document
incorporated by reference in the Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy and as to
which the Representatives shall have objected in writing promptly after
reasonable notice thereof or which is not in compliance with the Act or the
rules and regulations thereunder. The Company will file promptly all
reports and any definitive proxy or information statements required to be
filed by the Company with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus
and for so long as the delivery of a prospectus is required in connection
with the offering or sale of the Shares.
(b) The Company will advise the Representatives promptly of any
request of the Commission for amendment of the Registration Statement or
for any supplement to the Prospectus or for any additional information, or
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus,
of the suspension of the qualification of the Shares for offering or sale
in any jurisdiction, or of the institution or threatening of any
proceedings for that purpose, and the Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the
use of the Prospectus or suspending such qualification and to obtain as
soon as possible the lifting thereof, if issued.
(c) The Company will endeavor to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably
have designated in writing
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<PAGE>
and will, or will cause counsel to, make such applications, file such
documents, and furnish such information as may be reasonably requested by
the Representatives, provided that the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to
file such a consent. The Company will, from time to time, prepare and file
such statements, reports and other documents as are or may be required to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many copies of
any Preliminary Prospectus as the Representatives may reasonably request
and, during the period when delivery of a prospectus is required under the
Act, the Company will furnish the Underwriters with as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may, from time to time, reasonably request. The Company
will deliver to the Representatives, at or before the Closing Date, three
signed copies of the Registration Statement and all amendments thereto
including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration Statement,
without exhibits, and of all amendments thereto, as the Representatives may
reasonably request.
(e) If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or if for any other reason it shall be necessary
at any time to amend or supplement the Prospectus to comply with any law,
the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein in light of
the circumstances existing when it is so delivered, not misleading, or so
that the Prospectus will comply with law. In case any Underwriter is
required to deliver a prospectus in connection with sales of any Shares at
any time nine months or more after the effective date of the Registration
Statement, upon the request of the Representatives but at the expense of
such Underwriter, the Company will prepare and deliver to such Underwriter
as many copies as the Representatives may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 18
months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date
of the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 thereunder and will
advise you in writing when such statement has been so made available.
(g) The Company will, for such period up to five years from the
Closing Date, deliver to the Representatives copies of its annual report
and copies of all other documents,
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<PAGE>
reports and information furnished by the Company to its security holders or
filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with
respect to significant subsidiaries, as that term is defined in the rules
and regulations under the Act, which are not consolidated in the Company's
financial statements.
(h) No offering, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such Common Stock or other capital
stock (other than pursuant to employee stock option plans, outstanding
options or on the conversion of convertible securities outstanding on the
date of this Agreement) will be made for a period of days after the date
of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Representatives.
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to maintain the designation
of the Common Stock on the Nasdaq National Market.
5. Costs and Expenses. The Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company; the cost of preparing,
printing and filing of the Registration Statement, Preliminary Prospectuses and
the Prospectus and any amendments and supplements thereto and the printing,
mailing and delivery to the Underwriters and dealers of copies thereof and of
this Agreement, the Agreement Among Underwriters, any Selected Dealers
Agreement, the Underwriters' Selling Memorandum, the Invitation Letter, the
Power of Attorney, the Blue Sky Memorandum and any supplements or amendments
thereto (excluding, except as provided below, fees and expenses of counsel to
the Underwriters); the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements of counsel for the
Underwriters) incident to securing any required review by the NASD of the terms
of the sale of the Shares; listing fees, if any, transfer taxes and the
expenses, including the fees and disbursements of counsel for the Underwriters
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws; the fees and expenses incurred in connection with
the designation of the Shares on the Nasdaq National Market; the costs of
preparing stock certificates; the costs and fees of any registrar or transfer
agent and all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section 5. In addition, the Company will pay all travel and lodging expenses
incurred by management of the Company in connection with any informational "road
show" meetings held in connection with the offering and will also pay for the
preparation of all materials used in connection with such meetings. The Company
shall not, however, be required to pay for any of the Underwriters' expenses
(other than those related to qualification of the Shares under state securities
or Blue Sky laws and those incident to securing any required review by the NASD
of the terms of the sale of the shares) except that, if this Agreement shall not
be consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
10(b) hereof, or by reason of any failure, refusal or inability on the part of
the Company to perform any undertaking or
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satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms shall be due to the default or omission
of any Underwriter, then the Company shall promptly upon request by the
Representatives reimburse the several Underwriters for all out-of-pocket
accountable expenses, including fees and disbursements of counsel, incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company
shall not in any event be liable to any of the several Underwriters for damages
on account of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company contained
herein are true and correct, at and as of the Closing Date or the Option Closing
Date, as the case may be, the condition that the Company shall have performed
all of its covenants and obligations hereunder and to the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
4(a) hereof; no stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, or any part thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to
the reasonable satisfaction of the Representatives.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Lindquist & Vennum,
P.L.L.P., counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters, to the
effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Minnesota with corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus.
(ii) Each subsidiary of the Company has been duly organized and
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Prospectus. The outstanding shares of capital stock
of each such subsidiary have been duly authorized and validly issued,
are fully paid and nonassessable and are owned, directly or
indirectly, by the Company, free and clear of all liens, encumbrances
and security interests, other than security interests specifically
disclosed in the Prospectus. To the knowledge of such counsel, no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into
any shares of capital stock or ownership interests in each such
subsidiary are outstanding.
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(iii) The Company has authorized and outstanding capital stock
as described in the Prospectus. The outstanding shares of the
Company's capital stock have been duly authorized and validly issued
and are fully paid and nonassessable. The form of certificate for the
Shares is in due and proper form and complies with all applicable
statutory requirements. The Shares to be issued and sold by the
Company pursuant to this Agreement have been duly authorized and, when
issued and paid for as contemplated herein, will be validly issued,
fully paid and nonassessable. No preemptive or, to the knowledge of
such counsel, other similar subscription rights of shareholders of the
Company, or of holders of warrants, options, convertible securities or
other rights to acquire shares of capital stock of the Company, exist
with respect to any of the Shares or the issue and sale thereof. To
the knowledge of such counsel, no rights to register outstanding
shares of the Company's capital stock, or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or
other rights to acquire shares of such capital stock, exist which have
not been validly exercised or waived with respect to the Registration
Statement. The capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Prospectus.
(iv) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened
by the Commission.
(v) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder
(except that such counsel need express no opinion as to the financial
statements and related schedules included therein). The documents
incorporated by reference in Prospectus or any further amendment or
supplement thereto made by the Company prior to the Closing Date or
the Option Closing Date, as the case may be,(other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion), when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder; such counsel has no reason to believe that any of such
documents, when such documents became effective or were so filed, as
the case may be, contained in the case of registration statement which
became effective under the Act, an untrue statement of a material
fact, or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or,
in the case of other documents which were filed under the Exchange Act
with the Commission, an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made when
such documents were so filed, not misleading.
(vi) The statements (A) in the Prospectus under the caption
"Description of Capital Stock" and (B) in the Registration Statement
in Item 15 insofar as such statements constitute a summary of matters
of law, are accurate summaries and fairly present the information
called for with respect to such matters.
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<PAGE>
(vii) Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the
Registration Statement, incorporated by reference into the Prospectus,
or described in the Registration Statement or the Prospectus which are
not so filed, incorporated by reference or described as required; and
insofar as any statements in the Registration Statement or the
Prospectus constitute summaries of any contract, agreement, document
or instrument to which the Company is a party, such statements are
accurate summaries and fairly present the information called for with
respect to such matters.
(viii) Such counsel knows of no legal or governmental
proceeding, pending or threatened, before any court or administrative
body or regulatory agency, to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or Prospectus and are not so
described, or statutes or regulations that are required to be
described in the Registration Statement or the Prospectus that are not
so described.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a violation of or default under the
Articles of Incorporation or Bylaws of the Company or any of its
subsidiaries, or under any statute, permit, judgment, decree, order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, or under any lease, contract,
indenture, mortgage, loan agreement or other agreement or other
instrument or obligation known to such counsel to which the Company or
any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any property or assets of the
Company or any of its subsidiaries is subject, except such agreements,
instruments or obligations with respect to which valid consents or
waivers have been obtained by the Company or any of its subsidiaries.
(x) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue and sell the Shares as
contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by
state securities and blue sky laws, as to which such counsel need
express no opinion) except such as have been obtained or made,
specifying the same.
(xii) The Company is not, and immediately upon completion of the
sale of Shares contemplated hereby will not be, required to register
as an "investment company" under the Investment Company Act of 1940,
as amended.
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<PAGE>
(xiii) Such counsel has no reason to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Company prior to the Closing Date or the Option
Closing Date, as the case may be, (other than the financial statements
and related schedules therein, as to which such counsel need express
no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as of
its date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to the Closing Date or the Option
Closing Date, as the case may be, (other than the financial statements
and related schedules therein, as to which such counsel need express
no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading or that, as of the Closing Date or the Option Closing Date,
as the case may be, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Closing Date or the Option Closing Date, as the
case may be, (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed.
(c) The Representatives shall have received from Fredrikson & Byron,
P.A., counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Shares, the Registration
Statement, the Prospectus, and other related matters as the Representatives
may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon
such matters.
(d) The Representatives shall have received on each of the date
hereof, the Closing Date and the Option Closing Date, as the case may be, a
signed letter, dated as of the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to the
Representatives, from Arthur Andersen, LLP, to the effect that they are
independent public accountants with respect to the Company and its
subsidiaries within the meaning of the Act and the related rules and
regulations and containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus.
(e) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date or the Option Closing Date, as the case may be,
there shall not have been any change or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in your judgment, is material and
adverse to the Company and makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
the Closing Date or the Option Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus.
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<PAGE>
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the chief executive officer and the chief financial officer of the Company
to the effect that, as of the Closing Date or the Option Closing Date, as
the case may be, each of them severally represents as follows:
(i) The Prospectus was filed with the Commission pursuant to Rule
424(b) within the applicable period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 4
of this Agreement; no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been initiated or are, to his knowledge, threatened by
the Commission.
(ii) The representations and warranties of the Company set forth
in Section 1 of this Agreement are true and correct at and as of the
Closing Date or the Option Closing Date, as the case may be, and the
Company has performed all of its obligations under this Agreement to
be performed at or prior to the Closing Date or the Option Closing
Date, as the case may be.
(g) In addition, at each closing, the Company shall have delivered to
the Representatives an opinion, satisfactory in form and substance to the
Representatives and their counsel, of Merchant, Gould, Smith, Edell, Welter
& Schmidt, special patent counsel for the Company, to the effect that:
(i) In a properly-decided decision, a court or the U.S. Patent
and Trademark Office would find that the patent identified in the
Prospectus under the heading "Proprietary Technology" as a "patent
which may cover certain plated through holes of double-sided circuits"
is either not infringed by the Company's existing or proposed
products, or invalid, or, in an interference proceeding, that the
Company has priority of inventorship with respect to the technology
covered by such patent.
(ii) To the best of such counsel's knowledge, except with respect
to the patent described above, there are no United States patents of
third parties which are infringed by the products currently made, used
and sold by the Company or which the Company currently proposes to
make, use or sell.
(iii) To the best of such counsel's knowledge there are no
legal, governmental or administrative proceedings pending or
threatened against the Company that relate to patents, trademarks or
other intellectual property, except for pending or proposed United
States and foreign patent applications.
(iv) To the best of such counsel's knowledge, after due inquiry,
the Company has not received any notice of conflict with the asserted
rights of others in respect of any trademarks, service marks, trade
names, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets, patents, patent
applications, know-how, or similar rights, nor of any threatened
actions with respect thereto, which, if determined adversely to the
Company, would individually or
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in the aggregate have a material adverse effect on the general
affairs, financial position, net worth, or results of operations of
the Company.
(v) To the best of such counsel's knowledge, after due inquiry,
that the Company owns, possesses, or is licensed under all of the
material trademarks, trademark applications, trademark registrations,
service marks, service mark registrations, copyrights, patents, patent
applications, and licenses as are described in the Prospectus and
which are necessary for the Company's present or planned future
business.
(vi) The statements in the Prospectus under the captions "Risk
Factors--Patents, Trademarks and Proprietary Rights" and "Business--
Proprietary Technology" are accurate summaries and such counsel has no
reason to believe that such statements contain an untrue statement of
material fact, or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(h) The Company shall have furnished to the Representatives such
further certificates and documents as the Representatives may reasonably
have requested.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Representatives and to Fredrikson &
Byron, P.A., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 7
hereof).
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each officer and director thereof, and each person, if any,
who controls any Underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or such
persons may became subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus or the Prospectus, including any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading in light of the circumstances
under which they were made, or (iii) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or the offering contemplated
hereby, and which is included as part of or referred to in any losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arising out of or based upon matters covered by clause (i) or (ii)
above, and will reimburse each Underwriter and each such controlling person
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for any legal or other expenses reasonably incurred by such Underwriter or
such controlling person in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that
the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged
omission, made in the Registration Statement, any Preliminary Prospectus or
the Prospectus, including any amendments or supplements thereto, in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein; and provided, further, that the Company shall not be liable in the
case of any matter covered by clause (iii) above to the extent that it is
determined in a final judgment by a court of competent jurisdiction that
such losses, claims, damages or liabilities resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct.
(b) Each Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that each Underwriter will be liable in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity or
contribution may be sought pursuant to this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) or contribution
provided for in Section 7(f) shall be available with respect to a
proceeding to any party who shall fail to give notice of such proceeding as
provided in this Section 7(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party otherwise than
on account of the provisions of Section 7(a), (b) or (c). In case any such
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
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<PAGE>
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and shall pay as incurred the fees
and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay promptly as incurred the reasonable fees and expenses of
the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and the indemnified party shall have
reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense
of any such action or that there may be legal defenses available to it or
other indemnified parties which are different from or additional to those
available to the indemnifying party. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the fees and expenses of more than
one separate firm at any time for all such indemnified parties. Such firm
shall be designated in writing by the Representatives and shall be
reasonably satisfactory to the Company in the case of parties indemnified
pursuant to Section 7(a) and shall be designated in writing by the Company
and shall be reasonably satisfactory to the Representatives in the case of
parties indemnified pursuant to Section 7(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on
the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the
total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just
and equitable if
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<PAGE>
contributions pursuant to this Section 7(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect
thereto) referred to above in this Section 7(d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no Underwriter shall
be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Shares purchased by such
Underwriter; and no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations in this Section 7(e) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have, and the
obligations of the Underwriters under this Section 7 shall be in addition
to any liability which the Underwriters may otherwise have.
8. Default by Underwriters. If on the Closing Date or the Option Closing
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the
Company), you, as Representatives of the Underwriters, shall use your best
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon, and upon the terms set forth herein, of the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours you, as Representatives, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
Shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company except for expenses to be
borne by the Company and the Underwriters as provided in Section 5 hereof and
the indemnity and contribution agreements in Section 7 hereof. In the event of
a default by any Underwriter or Underwriters, as set forth in this Section 8,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration Statement or in
the Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a
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defaulting Underwriter. Any action taken under this Section 8 shall not relieve
any defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
9. Notices. All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Dain Bosworth Incorporated,
Dain Bosworth Plaza, 60 South Sixth Street, Minneapolis, Minnesota 55402
Attention: ______________________, with copies to Fredrikson & Byron, P.A., 1100
International Centre, 900 Second Avenue South, Minneapolis, Minnesota 55402,
Attention: Robert K. Ranum; and if to the Company, to Sheldahl, Inc., 1150
Sheldahl Road, Northfield, Minnesota 55057, Attention: John V. McManus, with
copies to Lindquist & Vennum, P.L.L.P., 4200 IDS Center, Minneapolis, Minnesota
55402, Attention: Charles P. Moorse.
10. Termination. This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters or (ii) 4:00 p.m.,
Minneapolis time, on the first business day following the later of the date
on which the Registration Statement becomes effective or the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change in or affecting the condition, financial or otherwise, of the
Company and its subsidiaries taken as a whole or the business affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency after
the date hereof or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such
Exchange, or a halt or suspension of trading in securities generally which
are quoted on Nasdaq National Market System, or (iv) declaration of a
banking moratorium by either federal or New York State authorities; or
(c) as provided in Sections 6 and 8 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company, as
to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (b) above or as provided in Sections 5 and 7 of this
Agreement.
11. Written Information. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2 and Section 7 hereof), the
Company understands and agrees with each of the Underwriters that the following
constitutes the only written information furnished to the Company by or through
the Representatives specifically for use in preparation of the Registration
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Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto: (i) the per share "Price to Public" and per share
"Underwriting Discounts and Commissions" set forth on the cover page of the
Prospectus, (ii) the information relating to stabilization and passive market
making set forth in the last two paragraphs on page two of the Preliminary
Prospectus and the Prospectus, and (iii) the information set forth in the first,
second and last paragraphs under the caption "Underwriting" in the Preliminary
Prospectus and the Prospectus.
12. Successors. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Shares merely because of such purchase.
13. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors and officers and (c) delivery of and payment for
the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction
This Agreement may be executed 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.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Minnesota.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
SHELDAHL, INC.
By:________________________________________
James E. Donaghy
Chief Executive Officer
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The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
DAIN BOSWORTH INCORPORATED
NEEDHAM & COMPANY, INC.
As Representatives of the several Underwriters
By Dain Bosworth Incorporated
By:_______________________________
Its:____________________________
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SCHEDULE A
SCHEDULE OF UNDERWRITERS
Number of Firm Maximum Number
Underwriter Shares to be Purchased of Option Shares
----------- ---------------------- ----------------
Dain Bosworth Incorporated............
Needham & Company, Inc.
[Names of Underwriters by Grouping]
Total.......................
461319
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Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated October 12, 1995 included in
Sheldahl, Inc.'s Form 10-K for the year ended September 1, 1995 and to all
references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
October 12, 1995
