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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 1, 1995
COMMISSION FILE NUMBER: 0-45
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SHELDAHL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0758073
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1150 SHELDAHL ROAD
NORTHFIELD, MN 55057
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (507) 663-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE OF $.25 PER SHARE
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
____ ____
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of shares held by non-affiliates was
approximately $91,443,696 on October 9, 1995, when the last sales price of the
Registrant's Common Stock, as reported in the Nasdaq National Market System, was
$15.75.
As of October 9, 1995, the Company had outstanding 6,833,926 shares of
Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. 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 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. 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 production facility ("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.
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 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
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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 Strategy" and "--Sales and Customer Support--Emerging Products."
Joint Venture With Morton International, Inc. 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 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 materials. 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 "--Sales and Customer Support--
Emerging Products."
ARPA Programs. In September 1995, the Advanced Research Projects Agency of
the U.S. Government ("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
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 Strategy" and "--Sales and Customer Support--
Emerging Products."
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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.
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 the
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
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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.
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."
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. 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."
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 are
summarized below.
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.
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
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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 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."
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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>
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REPRESENTATIVE REPRESENTATIVE
PRODUCT CUSTOMERS APPLICATIONS
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<S> <C> <C>
Flexible Printed Circuitry and Ford, General Motors Dashboard instrumentation, sound
Interconnect Systems systems, other automotive controls
- - -------------------------------------------------------------------------------------------------
Molex, Motorola Automotive electronic control units
- - -------------------------------------------------------------------------------------------------
Saturn Industries, Siemens Power distribution units
- - -------------------------------------------------------------------------------------------------
Honeywell Microswitch Automotive sensors
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ITT Teves Anti-lock brake systems
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Polaroid Instant cameras
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Hewlett Packard, Texas Printers
Instruments
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Key Tronic Corp., Texas Notebook computers
Instruments
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Northern Telecom Telecommunications equipment
- - -------------------------------------------------------------------------------------------------
Flexible Laminates Methode, Morton, TRW Air bags
- - -------------------------------------------------------------------------------------------------
Parlex, AMP Flexible circuits and cable
assemblies
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3M, Norton Abrasive belt tape
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Lockheed Satellite insulation
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</TABLE>
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.
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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 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
8
<PAGE>
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.
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
9
<PAGE>
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 "--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 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
10
<PAGE>
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
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.
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 produced by 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
11
<PAGE>
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 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 additionial 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 for lack of jurisdiction in
January 1994 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.
ITEM 2. PROPERTIES
12
<PAGE>
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 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.
ITEM 3. LEGAL PROCEEDINGS
The Company was one of several defendants in four related actions venued in
the U.S. District Court for the Central District of California and the Superior
Court, Orange County, California ("Olen Litigation"). Two of these actions were
commenced on November 26, 1992 and June 4, 1992, by Olen Properties Corp., the
owner of a building occupied by the Company from 1986 to 1990 (the "Olen
Property"), alleging environmental contamination, miscellaneous damage to the
facility and loss of rental income. The other two actions were commenced on
October 7, 1992 by Donald Investment Co., a defendant in the Olen Litigation and
the owner of property adjacent to the Olen Property, alleging that contamination
on the Olen Property had migrated onto its property. A separate but related
action was commenced March 21, 1994 in District Court, Ramsey County, Minnesota
in which the Company and BMC Industries, Inc. ("BMC"), a defendant in the Olen
Litigation, each alleged rights of indemnification against the other party
relative to certain expenses and damages in the Olen Litigation. Each of these
actions was settled and dismissed with prejudice in July 1995 under the terms of
an Agreement of Compromise, Settlement and Release (the "Settlement Agreement").
Under the terms of the Settlement Agreement, Sheldahl paid $525,000 in full
release of all claims related to the subject matter of the actions.
In addition, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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
</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.
Pursuant to its current 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.
ITEM 6. SELECTED 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.
14
<PAGE>
<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
======== ======= ======= ======= ========
AUGUST 30, AUGUST 28, AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1991 1992 1993 1994 1995
---------- ---------- ---------- ------------ ------------
(IN THOUSANDS)
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 Post Retirement
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.
15
<PAGE>
ITEM 7. 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 millon 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 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.
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.
16
<PAGE>
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, 1993 SEPTEMBER 2, 1994 SEPTEMBER 1, 1995
---------------- ----------------- ------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ------ -------- ----- --------- ----
<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, 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 flexibile 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.
17
<PAGE>
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 21.4%, 21.5%
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 adminstrative 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 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 expenses 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 $1,000,000 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
18
<PAGE>
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 cummulative 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 cummulative 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 fianancial 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.
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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements are listed under Item 14 of this
report. Unaudited quarterly financial data for fiscal 1994 and 1995 is set forth
in Note 12 to the Consolidated Financial Statements included with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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.
20
<PAGE>
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.
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.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ending September 1,
1995, September 2, 1994 and August 27, 1993, the cash compensation paid by the
Company, as well as certain other compensation paid or accrued for those years,
to James E. Donaghy, the Company's President and Chief Executive Officer, and to
each of the four other most highly compensated executive officers of the Company
in office at the end of fiscal year 1995, whose total cash
21
<PAGE>
compensation exceeded $100,000 during fiscal year 1995 (together with Mr.
Donaghy, the "Named Executive Officers") in all capacities in which they served:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
--------------
Annual Compensation Awards
---------------------------------------------
Name and Securities All Other
Principal Position Underlying Compen-
- - ----------------------- Year Salary Bonus Options sation(1)
---- ----------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
James E. Donaghy 1995 $256,203 - 7,719 $ 8,998
President and Chief 1994 247,722 - 10,548 10,718
Executive Officer 1993 231,014 - 0 8,680
Edward L. Lundstrom 1995 131,053 - 3,985 6,348
Executive Vice 1994 122,324 - 11,134 6,116
President 1993 106,538 - 10,654 4,433
Roger D. Quam 1995 124,577 - 3,762 6,071
Vice President- 1994 121,540 - 11,267 5,470
Composite Materials 1993 109,512 - 10,951 4,340
Gregory D. Closser 1995 113,278 - 3,428 5,630
Vice President- 1994 108,161 - 9,972 5,341
Flexible Interconnect 1993 96,325 - 9,633 4,009
John V. McManus 1995 121,378 - 3,671 5,172
Vice President- 1994 107,272 - 9,830 4,817
Finance 1993 94,557 - 9,456 3,935
- - --------------
</TABLE>
(1) These amounts represent Company basic and matching contributions to the
Company's 401(k) plan on behalf of such employees.
22
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's stock option plans to the Named Executive Officers
during the last fiscal year:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- - --------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDER- GRANTED TO APPRECIATION
LYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR PER SHARE DATE 5% 10%
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James E. Donaghy 7,719 9.9% $16.50 08/24/05 $80,098 $202,985
Edward L. Lundstrom 3,985 5.1% 16.50 08/24/05 41,351 104,793
Roger D. Quam 3,762 4.8% 16.50 08/24/05 39,037 98,928
Gregory D. Closser 3,428 4.4% 16.50 08/24/05 35,572 90,145
John V. McManus 3,671 4.7% 16.50 08/24/05 38,093 96,535
</TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options at Options at Fiscal
Year-End Year-End (1)
_________________________ _________________________
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Donaghy 27,090(2) $253,969 22,548 107,719 $202,110 $1,119,298
Edward L. Lundstrom 12,353 72,574 27,322 3,985 304,177 9,963
Roger D. Quam 12,959 89,093 27,906 3,762 311,329 9,405
Gregory D. Closser 9,962 75,960 24,391 3,428 272,084 8,570
John V. McManus 9,482 65,189 23,147 3,671 258,824 9,178
- - ------------------
</TABLE>
(1) Based on a per share price of $19.00, which is the average of the bid and
asked prices for the Company's Common Stock on September 1, 1995, the last
day of the Company's fiscal year.
(2) Reflects the net number of shares acquired upon exercise of options taking
into account shares transferred to the Company in payment of the option
exercise price.
Director Compensation. Directors who are not employees of the Company
(currently all directors except Mr. Donaghy) were paid during fiscal year 1995
an annual retainer of $12,000 and a fee of $800 for each day of meetings of the
Board of Directors or any committee. Mr. Wilcox has elected to defer his
director fees pursuant to the Company's Supplemental Executive Retirement Plan
that allows the deferral of directors fees. Each non-employee member of the
Board of Directors receives at the time of election or re-election to the Board
by the shareholders an option to purchase 1,000 shares of the Company's Common
Stock at a purchase price equal to the fair market value of the Company's
23
<PAGE>
Common Stock on the date of such election or re-election. Each director option
is exercisable as to all or part of the shares subject to the option during a
term of five years but will expire 30 days after a director's departure from the
Board.
Mr. Womack, who retired as an employee of the Company during fiscal
year 1992, receives, in addition to the director fees noted above, a $10,000
annual retainer for serving as the Chairman of the Board. Mr. Womack also
received health insurance benefits through the Company until he reached age 65,
and the terms of certain options to purchase 94,911 shares granted to Mr. Womack
as an employee under the 1987 Stock Option Plan (13,750 of which have since
expired and 74,018 of which were subsequently exercised) were extended to their
original expiration dates. Finally, the Company and Mr. Womack entered into a
Consulting Agreement during fiscal year 1988 which provides that the Company
will retain Mr. Womack as an independent consultant from the date immediately
following his termination of employment until his 75th birthday, unless another
date is agreed upon by the parties. Mr. Womack is to receive as annual
compensation under the Consulting Agreement 50% of the average of his annual
cash compensation for the five calendar years preceding termination of
employment (but not less than $125,000), less an amount equal to an annual
annuity that could be purchased with the principal in his retirement accounts at
the date of retirement provided from all retirement contributions by the
Company. The Consulting Agreement also restricts Mr. Womack from competitive
employment and disclosure of trade secrets and confidential information.
Mr. Miller received $12,863 during fiscal year 1995 representing fees
relating to international consulting work performed on behalf of the Company.
Mr. Roering received $2,193 during fiscal year 1995 representing fees relating
to certain management consulting work performed on behalf of the Company. Mr.
Magnuson received $5,000 during fiscal year 1995 for his services as Secretary
of the Company. Lindquist & Vennum P.L.L.P., of which Mr. Magnuson is Of
Counsel, was paid for legal services rendered to the Company during fiscal year
1995. It is anticipated that Lindquist & Vennum P.L.L.P. will continue to
perform legal services for the Company.
In fiscal year 1982, the Company established a retirement program for
directors not covered by another retirement plan of the Company which provides
for the payment of an annual benefit equal to the annual retainer paid to
directors during the full fiscal year preceding retirement. The retirement
benefit, which is payable to directors who have served five years or more, will
commence at the later of the time of retirement or when the director becomes 65
years old and will be subject to proportionate reduction if the director has
served the Company less than 15 years. The maximum number of years that the
benefit is payable is ten years.
Employment Agreements. The Company has entered into employment
agreements with certain of its executive officers, including each of the Named
Executive Officers. The employment agreements provide, among other things, for
a lump sum cash severance payment to such individuals equal to approximately
three times the individual's average annual compensation over the preceding five
years plus certain fringe benefits under certain circumstances following a
"change in control" of the Company. In general, a change in control would occur
when there has been any change in the controlling persons reported in the
Company's proxy statements, when 20% or more of the Company's outstanding voting
stock is acquired by any person, or when current members of the Board of
Directors or their successors elected or nominated by such members cease to be a
majority of the Board of Directors. However, a "change in control" would not
occur if any of these events is authorized, approved, or recommended by the
Board of Directors. If a change in control had occurred at the end of fiscal
year 1995, the following individuals would have received the approximate payment
indicated pursuant to the employment agreements: Mr. Donaghy, $683,857; Mr.
Lundstrom, $327,781; Mr. Quam, $332,992; Mr. Closser, $240,055; Mr. McManus,
$280,407; all current executive officers as a group, $2,497,158.
The employment agreement referred to above with Mr. Donaghy also
requires the Company to pay Mr. Donaghy a salary of not less than $185,600
annually, certain portions of which may be deferred. In addition, if Mr.
Donaghy's employment is terminated other than voluntarily by him or for cause by
the Company and no change in control has occurred, Mr. Donaghy will receive as a
severance payment an amount equal to one and one-half times his annual cash
compensation for the preceding year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
24
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NUMBER 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 815,715 11.59% 9.28%
a Group (15 persons)(3)(4)(6)
</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.
25
<PAGE>
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of the report:
1. Consolidated Financial Statements
FORM 10-K
PAGE REFERENCE
--------------
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
2. Consolidated Financial Statement Schedules
FORM 10-K
PAGE REFERENCE
--------------
DESCRIPTION
- - -----------
Schedule II - Valuation and Qualifying Accounts........ S-1
(b) Reports on Form 8-K
None.
(c) Exhibits and Exhibit Index
Exhibit No. Description
- - ----------- -----------
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).
27
<PAGE>
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.
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.
28
<PAGE>
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.
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.
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.
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.
10.25 Manufacturing Agreement dated August 1, 1995 between
Registrant and Jiujiang Flex Co., Ltd.
10.26 Marketing and License Agreement dated August 1,
1995 between Registrant and Jiujiang Flex Co., Ltd.
10.27 Technology Development Agreement dated August 15, 1995
between Low Cost Flip Chip Consortium and the Advanced
Projects Research Agency.
10.28 Articles of Collaboration dated July 10, 1995 for
the Low Cost Flip Chip Consortium.
10.29 Technology Development Agreement dated March 23, 1995
between Plastic Packaging Consortium and the Advanced
Projects Research Agency.
10.30 Articles of Collaboration dated March 17, 1995 for
the Plastic Packaging Consortium.
10.31 License Agreement dated June 20, 1994 between
Sidrabe and Registrant.
29
<PAGE>
10.32 Amendment One to License Agreement dated September 14,
1994 between Sidrabe and Registrant.
11 Statement Regarding Computation of Per Share Earnings.
22 Subsidiary of Registrant.
24 Consent of Independent Public Accountants.
27 Financial Data Schedule.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: October 12, 1995 SHELDAHL, INC.
By: /s/ James E. Donaghy
------------------------------
James E. Donaghy, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant on October 12, 1995 and in the capacities indicated.
(POWER OF ATTORNEY)
Each person whose signature appears below constitutes and appoints James E.
Donaghy and John V. McManus as such person's true and lawful attorneys-in-fact
and agents, each acting alone, 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 of all amendments to this Annual Report on
Form 10-K 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, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
said attorneys-in-fact and agents, each acting alone, or such person's
substitute or substitutes may lawfully do or cause to be done by virtue thereof.
By /s/ James S. Womack Chairman of the Board and Director
--------------------
James S. Womack
By /s/ James E. Donaghy President, Chief Executive Officer and
--------------------- Director
James E. Donaghy (principal executive officer)
By /s/ John V. McManus Vice President Finance
--------------------
John V. McManus (principal financial and accounting
officer)
By /s/ John G. Kassakian Director
----------------------
John G. Kassakian
By /s/ Gerald E. Magnuson Director
-----------------------
Gerald E. Magnuson
By /s/ William B. Miller Director
----------------------
William B. Miller
By /s/ Kenneth J. Roering Director
-----------------------
Kenneth J. Roering
By /s/ Richard S. Wilcox Director
----------------------
Richard S. Wilcox
By /s/ Beekman Winthrop Director
---------------------
Beekman Winthrop
31
<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 and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
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>
SHELDAHL, INC. AND SUBSIDIARY
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
----------------------------------------------
Allowance for Doubtful Accounts:
- - -------------------------------
The transactions in the allowance for doubtful accounts for the fiscal years
ending August 27, 1993, September 2, 1994 and September 1, 1995 were as follows:
1993 1994 1995
---- ---- ----
Balance, Beginning of year $287,138 $194,521 $200,000
Additions, Charged to Operations - 99,585 -
Recoveries (accounts charged off), net (92,617) (94,106) 67,412
-------- -------- --------
Balance, End of Year $194,521 $200,000 $267,412
======== ======== ========
S-1
<PAGE>
Exhibit 10.19
SHELDAHL, INC.
NOTE PURCHASE AGREEMENT
Dated as of August 31, 1995
TO NORTHERN LIFE INSURANCE COMPANY:
Dear Sirs:
The undersigned, Sheldahl, Inc., a Minnesota corporation (herein called the
"Company"), hereby confirms its agreements set forth below with Northern Life
Insurance Company (herein called the "Purchaser"). Reference is made to
paragraph 15 hereof for definitions of capitalized terms used herein and not
otherwise defined.
1. Purchase and Sale of Notes.
(a) The Notes. Subject to the terms and conditions herein, the Company
will sell to the Purchaser on such date on or prior to September 1, 1995, as may
be fixed by the Purchaser on at least three days' prior written notice to the
Company, or as may be mutually agreed upon with the Purchaser (the date of sale
being herein called the "Closing Date"), and the Purchaser will purchase from
the Company on the Closing Date, at 100% of the principal amount thereof, a
promissory note of the Company (which, together with any note or notes issued in
substitution therefor, are herein collectively called the "Notes" and
individually a "Note"), in the principal amount of $5,700,000, dated the Closing
Date. The principal amount of and interest on the Notes shall be due in eighty-
three (83) consecutive, combined monthly installments of principal and interest
(at the rate hereinafter set forth), each in an aggregate amount equal to
$52,293.16, payable on the first day of each month, commencing October 1, 1995
(each such installment to be applied first to the payment of accrued interest on
the unpaid principal amount of the Notes and the remainder to be applied to
principal), with a final installment on September 1, 2002, in an amount equal to
the unpaid principal amount of the Notes, plus accrued interest thereon. The
Notes shall bear interest from the Closing Date until payment in full of the
principal amount thereof at the rate of 8.32% per annum (provided that solely
for the purposes of determining the portion of annual interest allocable to any
interest payment period, it shall be assumed that a year is comprised of 360
days and 12 30-day months), subject to adjustment as set forth in paragraph
1(b). The Notes shall be subject to optional prepayment as hereinafter
provided, shall in all respects be subject to the terms of this Agreement, and
shall be substantially in the form of Exhibit A hereto.
(b) Adjustment of Interest Rate. The interest rate on the Notes shall be
reduced by .25% upon satisfaction of all of the following conditions:
(i) The Company is rated NAIC 2 or higher;
(ii) the Company raises at least $10,000,000 of Net Equity Proceeds
after the Closing Date; and
<PAGE>
(iii) on or prior to December 31, 1999, the Company's Net Income for
the period from January 1, 1995 to the date of determination,
determined on a cumulative basis, exceeds 80% of the projected
Net Income of the Company for such period, determined on a
cumulative basis, as set forth in the projections dated January
31, 1995 delivered to the Purchaser and attached hereto as
Exhibit B.
Any such interest rate adjustment shall become effective as of the first
principal and interest payment date occurring after the satisfaction of all of
the foregoing conditions. The aggregate amount of each remaining combined
monthly installment of principal and interest shall be recalculated accordingly
to provide for the payment of all principal of and interest on the Notes in
level monthly installments, with the final installment on September 1, 2002.
The Company and the holders of the Notes shall execute an addendum to each
outstanding Note or, at the request of the holder of any Note, the Company shall
issue a new Note in exchange for the Notes held by such noteholder, reflecting
the principal and interest payable on the Notes following adjustment of the
interest rate.
(c) Security. Payment of the Notes shall be secured by a deed of trust, in
substantially the form of Exhibit C hereto (the "Deed of Trust"), subject to no
other liens or encumbrances other than Permitted Encumbrances (as defined in the
Deed of Trust), on the real property described in Exhibit D hereto, together
with all improvements now or hereafter located thereon (the "Mortgaged
Property").
(d) Late Payments. Any payment of principal or (to the extent permitted by
applicable law) interest on the Notes not paid within ten (10) days after the
date when such payment was due, whether by regular installment, upon prepayment,
by acceleration, at maturity or otherwise, shall thereafter bear interest at a
rate per annum equal to the greater of (i) 2% in excess of the rate then
applicable to the Notes or (ii) the prime rate as publicly announced by Norwest
Bank Minnesota, National Association, provided that in no event shall such rate
exceed the maximum rate permitted by applicable law.
(e) Manner of Payment. The Purchaser will pay the purchase price of the
Notes by wire transfer of immediately available Federal funds to such accounts
as shall be specified by the Company, or in such other funds or in such other
manner as may be mutually agreed upon by the Purchasers and the Company, against
delivery to the Purchasers of the Notes.
(f) Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a Saturday, Sunday or
holiday for banks under the laws of the State of Minnesota, such payment may be
made on the next succeeding business day.
2. Prepayments of the Notes.
(a) Voluntary Prepayments With Premium. The Company may, at its option, on
any interest payment date, prepay the Notes in whole or in part (but if in part
only in the aggregate amount of $100,000 or integral multiples thereof), upon 30
days' prior written notice to the holders of the Notes, and upon payment of a
prepayment premium equal to the excess, if any, of (i) the amount equal to the
present value of all installments of principal and interest which are avoided by
such prepayment, determined by discounting such payments of principal and
interest at a rate per
2
<PAGE>
annum equal to .50% plus the Treasury Yield Percentage, over (ii) the principal
amount to be prepaid. In no event shall such prepayment premium be less than
zero.
(b) Manner of Effecting Voluntary Prepayment. In the event the Company
shall give notice of any prepayment in accordance with paragraph 2(a) above,
such notice shall specify the principal amount of the Notes to be prepaid and
the date of proposed prepayment, and thereupon such principal amount, together
with accrued and unpaid interest thereon to the prepayment date and together
with the applicable premium, if any, shall become due and payable on the
prepayment date. In the event any prepayment shall be less than the entire
unpaid principal amount of the Notes, the amount of such prepayment shall be
applied pro rata on all Notes on the last maturing required installment or
installments of principal in inverse order of their maturity. The amount of all
other remaining installments of principal and interest shall not be changed, but
the portions of each installment applicable to principal and to interest shall
be recalculated based upon the remaining unpaid principal amount of the Notes.
(c) Mandatory Prepayment. The Notes are subject to mandatory prepayment at
par (plus all accrued and unpaid interest) in accordance with paragraphs 9 and
10 of this Agreement, as applicable, subject to the terms and conditions set
forth therein.
3. Representations and Warranties. The Company represents and warrants
to the Purchaser as follows:
(a) Corporate Organization. The Company and its Subsidiaries are
corporations organized and existing and in good standing under the laws of the
States of their incorporation, and are duly qualified to do business and are in
good standing under the laws of each State where the nature of the business done
or property owned require such qualification. The Company is organized under
the laws of the State of Minnesota. Exhibit E hereto correctly sets forth the
name of each Subsidiary, its state of incorporation and the percentage of the
outstanding capital stock of such Subsidiary owned by the Company or another
Subsidiary. Except as set forth on Exhibits E and G, the Company does not own,
directly or indirectly, more than 1% of the total outstanding capital stock of
any class of any other corporation.
(b) Conflicting Agreements and Other Matters. Neither the execution and
delivery by the Company of this Agreement, the Notes and the Deed of Trust, nor
the performance or observance by the Company or any Subsidiary of any of the
terms or conditions of this Agreement, the Notes or the Deed of Trust, will (i)
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any lien upon any of the properties or assets of the Company or any
Subsidiary pursuant to, the Articles of Incorporation or Bylaws of the Company
or any Subsidiary, any award of any arbitrator, or any indenture, contract or
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law rule or regulation to which the Company or any
Subsidiary is subject, or (ii) require any registration or filing with, or any
consent or approval of, any Federal, state or local governmental agency or
authority.
(c) Due Authorization. The execution and delivery of this Agreement, and
of the Notes and of the Deed of Trust have been duly authorized by all necessary
corporate action of the Company and its Subsidiaries.
3
<PAGE>
(d) Legal Proceedings. There are no actions, suits, or proceedings pending
or, to the best knowledge of the Company, threatened against the Company or any
of its Subsidiaries or any property of the Company or any of its Subsidiaries
in any court or before any federal, state, municipal or other governmental
agency, which, if decided adversely to the Company or any of its Subsidiaries,
would have a materially adverse effect upon the Company or any of its
Subsidiaries or upon the business or properties of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is in default with
respect to any order of any court or governmental agency.
(e) Financial Statements. The Company has furnished to the Purchaser a
consolidated balance sheet, statement of income and retained earnings and
statement of cash flows of the Company and its Subsidiaries for the fiscal year
ended September 2, 1994, certified by Arthur Andersen LLP, independent certified
public accountants, and unaudited consolidated balance sheets, statements of
income and retained earnings and statements of cash flows of the Company and its
Subsidiaries for the nine months ended June 2, 1995. Said financial statements
fairly present the financial condition of the Company and its Subsidiaries at
the date(s) thereof and the results of operations of the Company and its
Subsidiaries for the period(s) indicated, all in conformity with generally
accepted accounting principles consistently followed through the period(s)
involved. There have been no material adverse changes in the condition,
financial or otherwise, of the Company and its Subsidiaries since the latest
balance sheet referred to.
(f) Title to Assets. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good title to all
personal property they purport to own, including (except as they have been
affected by transactions in the ordinary course of business) all properties and
assets reflected in the most recent balance sheet referred to in paragraph 3(e)
hereof. In the case of property used in their trades or businesses but not
owned by them, the Company and its Subsidiaries have a valid, binding and
enforceable right to use such property pursuant to a written lease, license or
other agreement. All of the assets of the Company and its Subsidiaries are free
and clear of all mortgages, liens, pledges, charges and encumbrances (other than
liens permitted by paragraph 5(i) hereof).
(g) Securities Matters. Neither the Company nor any of its Subsidiaries
nor any agent acting on the behalf of the Company or any of its Subsidiaries has
offered the Notes, or any part thereof, or any similar obligation for sale to,
or solicited any offers to buy such Notes, or any part thereof, or any similar
obligation from, any person or persons so as to bring the issue or sale of the
Notes within the provisions of Section 5 of the Securities Act of 1933, as
amended, and neither the Company nor any of its Subsidiaries will sell or offer
for sale any note or any similar obligation of the Company or any Subsidiary to,
or solicit any offer to buy any similar obligation of the Company or any
Subsidiary from, any person or persons so as to bring the issue or sale of the
Notes within the provisions of Section 5 of the Securities Act of 1933, as
amended.
(h) Licenses and Permits. The Company and its Subsidiaries have procured
and are now in possession of all material licenses or permits required by
federal, state or local laws for the operation of the business of the Company
and its Subsidiaries in each jurisdiction wherein the Company or any Subsidiary
is now conducting or proposes to conduct business.
(i) No Defaults on Indebtedness. Neither the Company nor any of its
Subsidiaries is in default in the payment of the principal of or interest on any
indebtedness for borrowed money nor is in default under any instrument or
agreement under and subject to which any indebtedness for
4
<PAGE>
borrowed money has been issued, and no event has occurred under the provisions
of any such instrument or agreement which with or without the passing of time or
the giving of notice, or both, constitutes or would constitute an event of
default thereunder.
(j) Tax Returns. The Company and its Subsidiaries have filed all federal
and state income tax returns which, to the knowledge of the officers of the
Company, are required to be filed, and have paid all taxes shown on said returns
and all assessments received by them to the extent that they have become due.
The federal income tax returns of the Company have been finally determined by
the Internal Revenue Service to be satisfactory (or have been closed by the
applicable statute of limitations) for all years prior to and including the year
ended 1988. No claims have been asserted against the Company in respect of
Federal income tax returns for any subsequent year.
(k) No Margin Stock. Neither the Company nor any of its Subsidiaries owns
any Margin Stock and none of the proceeds received by the Company or any
Subsidiary from the sale of the Notes will be used for the purpose of purchasing
or carrying a Margin Stock or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase a Margin Stock or for any
other purpose not permitted by Regulation G (12 CFR Part 207) of the Board of
Governors of the Federal Reserve System, as amended from time to time.
(l) ERISA Matters. Each Plan of the Company and each ERISA Affiliate in
which any employees of the Company or any ERISA Affiliate participate that is
subject to any provisions of ERISA is being administered substantially in
accordance with the documents and instruments governing such Plan, and such
documents and instruments are consistent with those provisions of ERISA and the
Internal Revenue Code which have become effective and operative with respect to
such Plan as of the date of this Agreement. No such Plan has incurred any
material accumulated funding deficiency within the meaning of Section 302 of
ERISA (whether or not waived), and neither the Company nor any ERISA Affiliate
has incurred any material liability (including any material contingent
liability) to the PBGC in connection with any such Plan. No such Plan nor any
trust created thereunder nor any trustee or administrator thereof has engaged in
a "prohibited transaction" within the meaning of ERISA or Section 4975 of the
Internal Revenue Code and the issuance and sale of the Notes as contemplated
hereby will not constitute a "prohibited transaction". No such Plan nor any
trust created thereunder has been terminated, nor have there been any
"reportable events" within the meaning of Section 4043 of ERISA with respect to
any such Plan. Neither the Company nor any ERISA Affiliate contributes to or
has any employees who are covered by any "multiemployer plan," as such term is
defined in Section 3(37) of ERISA, and neither the Company nor any ERISA
Affiliate has incurred any withdrawal liability with respect to any such
multiemployer plan.
(m) Brokers and Finders. Neither the Company, any agent acting on its
behalf nor any person controlling, controlled by or under common control with
the Company has taken any action the effect of which would be to cause the
Purchaser to be liable for any broker's, finder's or agent's fee or commission
in connection with the placement of the Notes or any other transactions
contemplated by this Agreement. The Company has retained United Mortgage
Company as its agent for placement of the Notes and is solely responsible for
any fees and expenses payable to such agent.
(n) Use of Proceeds. The Company will use the proceeds of the Notes to
repay the existing Deed of Trust loan used to pay a portion of the costs
associated with construction of the Mortgaged Property and for general corporate
purposes.
5
<PAGE>
(o) Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended).
(p) Full Disclosure. Neither this Agreement, the financial statements
referred to in paragraph 3(e) hereof, nor any other document, certificate or
instrument delivered to the Purchaser on behalf of the Company or any Subsidiary
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading.
4. Affirmative Covenants. The Company covenants and agrees that, so long
as any amount shall remain unpaid on any of the Notes, it will:
(a) Payment. Duly and punctually pay or cause to be paid the principal of
and interest on the Notes and will duly and punctually perform or cause to be
performed all things on its part or on the part of any Subsidiary to be done or
performed under this Agreement and the Deed of Trust.
(b) Maintenance of Books and Records. At all times keep and cause each
Subsidiary to keep proper books of record and account in which full, true and
correct entries will be made of their transactions in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved.
(c) Inspection of Books and Records. At all reasonable times and upon
reasonable notice permit and cause each Subsidiary to permit Washington Square
Capital, Inc. ("WSC"), as representative of the holders of the Notes, at the
expense of the holders of the Notes, to inspect its books and records and to
make extracts therefrom and to inspect its properties and operations; provided,
however, that if an Event of Default occurs and is continuing, the Company shall
pay all fees and expenses of WSC in connection with such examination of its and
its Subsidiaries' books and records.
(d) Financial Information. From time to time furnish and cause each
Subsidiary to furnish the holders of the Notes with such information and
statements as the holders of the Notes may reasonably request concerning
performance by it of the covenants and agreements contained in this Agreement
and the Deed of Trust, and with copies of all financial statements and reports
that it shall send or make available to its stockholders; and in the event that
written notice of the occurrence of an Event of Default shall have been given to
the Company, and the Company shall have notified the holders of the Notes that
such Event of Default has been corrected, the Company shall, upon request of the
holders of at least 66-2/3% of the unpaid principal amount of the Notes at the
time outstanding, for the purpose of showing that such Event of Default has been
corrected, furnish to the holders of the Notes a signed copy of an audit report
or, if such matter may be covered in a special report, a special report prepared
and certified by an independent certified public accountant selected by the
Company and satisfactory to the holders of the Notes, confirming that such Event
of Default has been corrected. All expenses incurred in connection with such
report shall be borne by the Company. Nothing in this paragraph 4(d), however,
shall diminish, defer, postpone or otherwise limit the right of the holders of
the Notes to take any action permitted by paragraph 7 hereof.
(e) Quarterly Financial Statements. Furnish to the holders of the Notes,
within 45 days after the close of each of the first three quarterly fiscal
periods in each fiscal year of the Company and its Subsidiaries, consolidated
balance sheets and consolidated statements of income and retained
6
<PAGE>
earnings and consolidated statements of cash flows reflecting the financial
condition of the Company and its Subsidiaries at the end of each such quarterly
period and the results of operations during such period in accordance with
generally accepted accounting principles, all in reasonable detail, and setting
forth comparable figures for the same accounting period in the preceding fiscal
year.
(f) Annual Financial Statements. Furnish to the holders of the Notes, as
soon as available, but in any event within 120 days after the close of each
fiscal year of the Company, signed copies of an audit report prepared and
certified (without qualification as to the scope of the audit) by Arthur
Andersen LLP or another firm of independent certified public accountants of
national standing selected by the Company and reasonably satisfactory to the
holders of the Notes, which report shall include a consolidated balance sheet of
the Company and its Subsidiaries as at the end of such year and consolidated
statements of income and retained earnings of the Company and its Subsidiaries
and consolidated statements of cash flows of the Company and its Subsidiaries
reflecting the operations during said year, all in reasonable detail and setting
forth comparable figures for the preceding fiscal year, which report shall be
accompanied by a statement by such accounting firm certifying that in making the
examination upon which such report was based, no information came to its
attention which to its knowledge indicated a default under this Agreement had
occurred or specifying any such default.
(g) Financial Certification. At the time of the delivery to the holders of
the Notes of the reports referred to in paragraphs 4(e) and 4(f) hereof, deliver
to the holders of the Notes a certificate signed by its chief financial officer,
certifying that he has reviewed the provisions of this Agreement and stating, in
his opinion, if such be the fact, that the Company and its Subsidiaries have not
been and are not in default as to any of the provisions contained in this
Agreement, or, in the event the Company or any Subsidiary is or was in default,
setting forth the details of such default. Such certificate shall set forth the
computations upon which such officer based the conclusion that the Company and
its Subsidiaries are and have been in compliance with paragraphs 4(o), (p), (q)
and (r), and 5(a), (b), (c), (e), (i), (j) and (k) hereof.
(h) Copies of Management Letters, Etc. Furnish to the holders of the Notes,
promptly after the receipt thereof by the Company, copies of all management
letters or similar documents submitted to the Company, if any, by independent
certified public accountants in connection with each annual audit and any
interim audit, if any, of the accounts of the Company or any of its
Subsidiaries.
(i) Copies of Regulatory Reports. Furnish to the holders of the Notes,
within fifteen (15) days after transmittal or filing thereof by the Company,
copies of all proxy statements, notices and reports as it shall send to its
stockholders, copies of all registration statements (without exhibits) and all
reports which it files with the Securities and Exchange Commission or any other
regulatory agency, other than routine reports filed with respect to employee
benefit plans (excepting those annual reports with respect to each such plan
requested by the holders of the Notes in writing pursuant to paragraph 4(v)
hereof).
(j) Corporate Existence. Maintain and cause each Subsidiary to maintain
its corporate existence in good standing (except that the corporate existence
of any Subsidiary may be terminated pursuant to a merger or consolidation
permitted under paragraph 5(f) of this Agreement), maintain all licenses and
permits necessary for the conduct of their business and comply with all
applicable
7
<PAGE>
laws, rules and regulations of the United States and of each state thereof and
of each political subdivision thereof and of any and all other governmental
authorities.
(k) Payment of Taxes and Claims. Pay and cause each Subsidiary to pay
before they become delinquent (a) all taxes, assessments and governmental
charges or levies imposed on the Company, any Subsidiary or upon the property of
the Company or any Subsidiary, (b) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like persons which, if
unpaid, might result in the creation of a lien or charge upon any property of
the Company or any Subsidiary; and (c) all claims, assessments or levies
required to be paid by the Company or any Subsidiary pursuant to any agreement,
contract, law, ordinance or governmental rule or regulation governing any
pension, retirement, profit-sharing or any similar plan of the Company or any
Subsidiary; provided, however, that the Company or such Subsidiary shall have
the right to contest in good faith, by appropriate proceedings promptly
initiated and diligently conducted which will prevent the forfeiture or sale of
any property of the Company or such Subsidiary or any material interference with
the use thereof by the Company or such Subsidiary, the validity, amount or
imposition of any of the foregoing and upon such good faith contest to delay or
refuse payment thereof, if such reserve or other appropriate provision, if any,
as shall be required by generally accepted accounting principles shall have been
made therefor and if such claim would not have a material adverse effect on the
Company or its Subsidiaries.
(l) Maintenance of Properties. Maintain and cause each Subsidiary to
maintain and keep its properties in good repair, working order and condition
(subject to normal wear and tear and other customary exceptions), and from time
to time make all needful and proper repairs, renewals and replacements so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
(m) Insurance. In addition to the insurance required to be maintained
under paragraph 8 hereof, maintain and cause each Subsidiary to maintain, in
insurance companies of recognized standing, insurance of types and in amounts as
may be consistent with sound business practices.
(n) Remuneration. Pay and cause each Subsidiary to pay compensation,
whether by way of salaries, bonuses, participations in pension or profit sharing
plans, fees under management contracts or for professional services, to any of
its officers, directors, employees or stockholders only in amounts which are not
in excess of reasonable compensation paid for similar services by similar
businesses.
(o) Minimum Consolidated Tangible Net Worth. Maintain during each period
designated below Consolidated Tangible Net Worth, calculated as at the end of
each fiscal month of the Company, at or above the level set forth opposite each
such period:
8
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Minimum Consolidated Tangible
- - ----------- -----------------------------
Net Worth
---------
==============================================================
<S> <C>
1995 35,500,000
==============================================================
1996 39,500,000
==============================================================
1997 44,500,000
==============================================================
1998 and thereafter 50,500,000
==============================================================
</TABLE>
provided, however, that each amount specified in the right hand column above
shall be increased by the aggregate of all increases in the Company's
Consolidated Tangible Net Worth resulting from Net Equity Proceeds.
(p) Maximum Consolidated Debt to Consolidated Tangible Net Worth Ratio.
Maintain during each period designated below the ratio of Consolidated Debt to
Consolidated Tangible Net Worth, calculated as at the end of each fiscal month
of the Company, at not more than the ratio set forth below opposite each such
period:
<TABLE>
<CAPTION>
Fiscal Year Maximum Consolidated Debt to
- - ----------- ----------------------------
Consolidated Tangible Net Worth
-------------------------------
==============================================================
<S> <C>
1995 1.75 to 1.00
==============================================================
1996 1.70 to 1.00
==============================================================
1997 1.50 to 1.00
==============================================================
1998 and thereafter 1.25 to 1.00
==============================================================
</TABLE>
(q) Minimum Consolidated Interest and Rent Coverage Ratio. Maintain at all
times its Consolidated Interest and Rent Coverage Ratio, calculated as at the
end of each fiscal quarter of the Company and based upon the previous four
fiscal quarters (including such fiscal quarter), at not less than 1.5 to 1.0 in
fiscal year 1995, and 2.0 to 1.0 in each fiscal year thereafter.
(r) Minimum Consolidated Fixed Charge Coverage Ratio. Maintain its
Consolidated Fixed Charge Coverage Ratio, calculated as at the end of each
fiscal quarter of the Company and based upon the cumulative Cash Flow available
for Fixed Charges and cumulative Debt Service (including such fiscal quarter) at
not less than 1.00 to 1.00.
(s) Notice of Default. Give the holders of the Notes prompt notice in
writing of any condition or event which constitutes an Event of Default under
paragraph 7 hereof, or which, after notice or lapse of time, or both, would
constitute such an Event of Default.
9
<PAGE>
(t) Exchange of Notes. At any time, upon written request of the holder of
a Note and surrender of the Note for such purpose, issue new Notes in exchange
therefor in such denominations of at least $250,000 as shall be specified by the
holder of such Note, in an aggregate principal amount equal to the then unpaid
principal amount of the Note surrendered and substantially in the form of
Exhibit A, with appropriate insertions and variations, and bearing interest from
the date to which interest has been paid on the Note surrendered. The Company
will not charge the holders of the Notes for any costs or expenses incurred by
the Company in connection with the issuance of any new Notes.
(u) Maintenance of Deed of Trust. Take all action necessary in order to
perfect and to protect and maintain the lien of the Deed of Trust.
(v) Qualified Retirement Plans. Cause each Plan of the Company and any
ERISA Affiliate in which any employees of the Company or any ERISA Affiliate
participant that is subject to the provisions of ERISA or the Internal Revenue
Code and the documents and instruments governing each such Plan to be conformed
to when necessary, and to be administered in a manner consistent with those
provisions of ERISA or the Internal Revenue Code which may, from time to time,
become effective and operative with respect to such Plans; if requested by the
holders of the Notes in writing from time to time, furnish to the holders of the
Notes a copy of any annual report with respect to each such plan that the
Company files with the Internal Revenue Service pursuant to ERISA. The Company
will not, and will not permit any ERISA Affiliate to (i) engage in any
"prohibited transaction," (ii) incur any "accumulated funding deficiency,"
whether or not waived, (iii) terminate any Plan in a manner which could result
in the imposition of a lien on any property of the Company or any ERISA
Affiliate, or (iv) incur any withdrawal liability in connection with any
"multiemployer plan."
(w) Rule 144A. Upon the request of the holder of any Note, the Company
will provide such holder such financial and other information as such holder may
reasonably determine to be necessary to be delivered to a qualified
institutional buyer in order to permit compliance with the information
requirements of Rule 144A(d)(4) under the Securities Act of 1933, as amended, in
connection with the resale of the Notes.
5. Negative Covenants. The Company covenants and agrees that so long as
any amount shall remain unpaid on the Notes, it will not and will not permit any
Subsidiary to:
(a) Limitation on Funded Debt. Create, assume, incur, guarantee or
otherwise be or become liable for any Funded Debt other than (i) the Notes, (ii)
Funded Debt outstanding pursuant to the Norwest Bank Agreement, and any
extensions, renewals or replacements thereof in an aggregate principal amount
not to exceed $35,000,000, (iii) other existing Funded Debt of the Company as
set forth in Exhibit F hereto, provided that all such Funded Debt shall be
repaid in accordance with its terms and the schedule set forth in Exhibit F with
no extension, renewal or other modification, and (iv) Funded Debt of the Company
incurred after the date hereof, provided that after giving effect to the
incurrence of such Funded Debt and the application of the proceeds thereof, the
aggregate unpaid principal amount of all Funded Debt of the Company does not
exceed the Applicable Percentage of Total Capitalization.
10
<PAGE>
(b) Limitation on Subsidiary Debt. Permit its Subsidiaries to create,
assume, incur, guarantee or otherwise become liable for any Debt, except for
trade accounts payable arising in the ordinary course of business.
(c) Permitted Investments. Purchase, or permit to exist investments in,
stock or securities of, or make or permit to exist loans or advances to, or
other investments in, or guarantee, endorse or otherwise become contingently
liable for the obligations of any Person (including investments in or loans or
advances to any corporation proposed to be acquired or created as a Subsidiary),
except:
(i) investments in direct obligations of the United States
government maturing within one year from the date of issue
thereof and repurchase agreements of commercial banks having
capital stock and surplus aggregating not less than
$100,000,000 to repurchase any such obligations within 90 days
of the acquisition thereof;
(ii) certificates of deposit issued by banks having capital and
surplus aggregating not less than $100,000,000;
(iii) commercial paper rated A-1 or A-2 or P-1 or P-2 by recognized
rating services;
(iv) if so permitted by law, savings deposits in national banks and
federal savings and loan associations having capital stock and
surplus aggregating not less than $100,000,000, provided that
the aggregate of all such savings deposits at any one bank or
savings and loan association shall not exceed $150,000 at any
time;
(v) existing equity investments in Subsidiaries;
(vi) travel and expense advances of the Company and its Subsidiaries
to their respective officers and employees in the ordinary
course of business;
(vii) the endorsement of negotiable instruments by the Company for
deposit or collection or similar transactions in the ordinary
course of business;
(viii) existing investments, guaranties, endorsements and other
direct or contingent liabilities in connection with the
obligations of other Persons in existence on the date hereof
and listed in Exhibit G hereto; and
(ix) other loans, advances or investments not otherwise permitted by
this paragraph 5(c) made after the Closing Date, provided that
the aggregate amount of all such investments at any time
outstanding shall not exceed 5% of Consolidated Tangible Net
Worth.
(d) Subordination of Claims. Subordinate or permit to be subordinated any
claim against, or obligation of another person, firm or corporation held or
owned by it to any other claim against, or obligation of, such other person,
firm or corporation.
11
<PAGE>
(e) Sale of Assets. Sell, lease or otherwise dispose of all or any part of
its assets, provided that (i) any Subsidiary may sell, lease or otherwise
dispose of all or any part of its assets to the Company or other Subsidiary,
(ii) the Company and any Subsidiary may sell inventory in the ordinary course of
business, (iii) the Company and any Subsidiary may sell or otherwise dispose of
assets which are obsolete, worn out or no longer useful in the conduct of their
respective businesses, and (iv) the Company and any Subsidiary may sell or
otherwise dispose of assets provided that the aggregate book value of all such
assets sold or otherwise disposed of in any fiscal year of the Company shall not
exceed 5% of the consolidated total assets of the Company and its Subsidiaries
as of the end of the immediately proceeding fiscal year.
(f) Merger and Consolidation. Merge or consolidate with any corporation,
provided that any Subsidiary may be merged or consolidated with the Company (if
the Company is the surviving corporation) or with another Subsidiary. The
Company shall not sell, transfer or otherwise dispose of, or permit any
Subsidiary to sell, transfer or otherwise dispose of, the shares of any
Subsidiary to any person other than another Subsidiary, provided, however, that
the Company or any Subsidiary may sell, transfer or otherwise dispose of the
shares of any Subsidiary if the book value of such sale, transfer or disposition
would be permitted pursuant to clause (iv) of paragraph 5(e) hereof.
(g) Maintenance of Present Business. Engage in any business, if as a
result, when taken as a whole, the effect would be substantially to alter the
nature of the business in which it is presently engaged, nor purchase or invest,
directly or indirectly, in any substantial amount of assets or property other
than assets or property useful and to be used in its business as presently
conducted.
(h) Transactions with Affiliates. Except on terms no less favorable to the
Company than would be obtainable in a comparable arms' length transaction,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, loan or advance money to, or otherwise deal with (i) any director,
officer or employee of the Company or any Subsidiary or (ii) any person who,
directly or indirectly either individually or together with his spouse, his
lineal descendants and ascendants and brothers and sisters by blood or adoption
or spouses of such descendants, ascendants, brothers and sisters, beneficially
owns 5% or more of the voting stock of the Company or (iii) any spouse, lineal
descendant or ascendant, brother or sister, by blood, adoption or marriage, of
any person listed in clause (i) or (ii) above, and spouses of such ascendants,
descendants, brothers and sisters or (iv) any company in which any person
described in clause (i), (ii) or (iii) above owns a 5% or greater equity
interest.
(i) Permitted Liens. Create, assume, or suffer to exist any mortgage,
pledge, encumbrance, lien, security interest or charge of any kind whether
presently effective, springing, conditional or contingent (including any charge
upon property purchased under conditional sales contracts, title retention
agreements or other purchase money security interests or under leases which
constitute Capitalized Lease Obligations) upon any of its property or assets,
whether now owned or hereafter acquired, except liens securing the Notes, and:
(i) presently existing liens described in Exhibit F securing existing
indebtedness permitted by paragraph 5(a)(ii) and (iii) hereof;
(ii) liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings promptly initiated and
diligently conducted in accordance with paragraph 4(k) hereof;
12
<PAGE>
(iii) other liens, charges, or encumbrances incidental to the conduct
of its business or the ownership of its property which were not
incurred in connection with borrowing of money or the obtaining
of advances or credit and which do not in the aggregate
materially detract from the value of its property or materially
impair the use thereof in the operation of the business;
(iv) liens imposed by law in favor of mechanics, repairmen, carriers
or warehousemen for sums not yet due or which are being
contested in good faith by appropriate proceedings promptly
initiated and diligently conducted, if such reserve or other
appropriate provision, if any, as required by generally accepted
accounting principles shall been made therefor;
(v) encumbrances in the nature of zoning restrictions, easements,
and rights and restrictions on the use of real property, none of
which materially impairs the use by the Company or any
Subsidiary of the property subject thereto;
(vi) liens existing on property at the time of its acquisition by the
Company or any Subsidiary or on the property of any corporation
at the time such corporation becomes a Subsidiary, and
extensions, renewals or replacements of any of the foregoing;
provided that the (a) incurrence of Debt secured by any such
lien is not prohibited by any other covenant or limitation of
this Agreement, and (b) such lien does not extend to any other
property of the Company or its Subsidiaries; and
(vii) liens securing Purchase Money Obligations or Capitalized Lease
Obligations provided that (A) the Debt secured by any such lien
does not exceed 100% of the cost of the property acquired
subject thereto, (B) such liens shall not encumber any other
property of the Company or its Subsidiaries other than the
property acquired subject thereto, and (C) the incurrence of the
Debt secured by any such lien is not prohibited by any other
covenant or limitation of this Agreement.
(j) Dividend Restrictions. Pay Dividends, except that any Subsidiary may
pay Dividends to the Company or another Subsidiary.
(k) Capital Expenditures. Expend or contract to expend Capital
Expenditures in excess of (i) the Capital Expenditure Annual Limit during any
fiscal year of the Company, or (ii) together with all Capital Expenditures from
and after August 28, 1993, the Capital Expenditure Cumulative Limit.
6. Conditions Precedent. The obligation of the Purchaser to purchase the
Notes, as provided in paragraph 1 hereof, shall be subject to the satisfaction,
on or before the Closing Date, of the following conditions.
(a) The representations and warranties contained in paragraph 3 hereof
shall be true and correct as of the Closing Date; the Company shall not be in
default with respect to any of the provisions hereof, and there shall exist no
event which, with the passage of time or the giving of
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notice, or both, would constitute such a default; and the Company shall have
delivered to the Purchaser a certificate signed by a responsible officer of the
Company to such effects.
(b) The Purchaser shall have received from Lindquist & Vennum, counsel for
the Company, a favorable opinion in form and substance satisfactory to the
Purchaser as to all matters specified in Exhibit H hereto and such other matters
incident to the transaction herein contemplated as the Purchaser may reasonably
request.
(c) The Purchaser shall have received from its special counsel, Faegre &
Benson, a favorable opinion in form and substance satisfactory to the Purchaser,
as to such matters incident to the transaction herein contemplated as the
Purchaser may reasonably request.
(d) The Company shall have provided to the Purchaser a commitment by an
insurer satisfactory to the Purchaser to issue a mortgagee's policy of title
insurance on 1970 ALTA Loan Policy Form B in an amount not less than the
aggregate principal amount of the Notes covering each parcel of Mortgaged
Property, provided that such commitment or the latest endorsement thereof shall
show the status of title to the Mortgaged Property as of the Closing Date, and
provided further that in no event shall such commitment for title insurance (i)
reflect any easements, restrictions, claims, encumbrances or title defects other
than encumbrances permitted by paragraph 5(i), (ii) contain any proration or
coinsurance clause which has the effect of reducing the actual amount of
coverage as a result of the amount of coverage being less than the principal
amount of the secured debt, or (iii) except from coverage of the policy any (A)
lien, or right to a lien for services, labor or material furnished on or to the
Mortgaged Property (regardless of whether such lien has been recorded prior to
the date of issuance of the title insurance policy), (B) easements, restrictions
or other encumbrances which a survey would show or (C) rights of parties in
possession.
(e) The Company shall have provided to the Purchaser a survey of the
Mortgaged Property, including real estate owned in fee and all appurtenant
easements, certified to the Purchaser within thirty days prior to the Closing
Date by a surveyor or land engineer licensed in Colorado, showing the location
of all points and lines referred to in the legal description, the location of
any existing improvements in compliance with all set back requirements, and the
location of all utilities and easements, which survey shall reflect no
easements, restrictions, claims, encumbrances or title defects other than
encumbrances permitted by paragraph 5(i).
(f) The Company shall have provided to the Purchaser a Phase I
environmental report for the Mortgaged Property prepared in accordance with ASTM
standards by an environmental consultant reasonably acceptable to the Purchaser,
which report shall disclose no recognized environmental conditions.
(g) The Purchaser shall have received Uniform Commercial Code, tax and
judgment lien searches against the Company and its Subsidiaries from the States
of Minnesota and Colorado and every other state as the Purchaser may request, as
of a date no more than fifteen days prior to the Closing Date, certified by a
reporting service satisfactory to the Purchaser, and disclosing no security
interests other than those permitted under paragraph 5(i) of this Agreement.
(h) Neither the Company nor any Subsidiary shall have suffered a material
adverse change in financial condition, nor shall there exist any material
action, suit or proceeding pending, or to the knowledge of the Company
threatened, against the Company nor any of its Subsidiaries.
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(i) All proceedings to be taken in connection with the transaction
contemplated by this Agreement and all documents incident thereto shall be
satisfactory in form and substance to the Purchaser and its counsel and the
Purchaser shall have received copies of all documents which the Purchaser may
reasonably request.
7. Defaults.
(a) Events of Default. Any one or more of the following shall constitute
an Event of Default as such term is used herein:
(i) default shall have been made in the punctual payment of the
principal of, premium, if any, or any interest on any of the
Notes when due, whether by regular installment, upon prepayment,
by acceleration, at maturity or otherwise, and such default
shall have continued for a period of ten (10) business days; or
(ii) the Company or any Subsidiary defaults in any payment of
principal of or interest on any other obligation for borrowed
money beyond any period of grace provided with respect thereto
or in the performance of any other agreement, term or condition
contained in any agreement under which any such obligation is
created if the effect of such default is to cause, or permit the
holder or holders of any obligation or obligations of the
Company in excess of $500,000 in the aggregate (or a trustee on
behalf of such holder or holders) to cause, such obligation or
obligations to become due prior to their stated maturity; or
(iii) an order for relief shall be entered in any Federal Bankruptcy
proceeding in which the Company or any Subsidiary is the debtor;
or bankruptcy, receivership, insolvency, reorganization, relief,
dissolution, liquidation or other similar proceedings shall be
instituted by or against the Company or any Subsidiary or all or
any part of the property of the Company or any Subsidiary under
the Federal Bankruptcy Code or any other law of the United
States or any bankruptcy or insolvency law of any state of
competent jurisdiction unless, if such proceedings are
instituted against the Company or any Subsidiary, such
proceedings are dismissed or discharged within 60 days after
they are instituted; or
(iv) the Company or any Subsidiary shall have become insolvent or
unable to pay its debts as they mature, cease doing business as
a going concern, make an assignment for the benefit of
creditors, admit in writing its inability to pay its debts as
they become due, or if a trustee, receiver or liquidator shall
be appointed for the Company or any Subsidiary or for any
substantial portion of the assets of the Company or any
Subsidiary and such appointment shall not be vacated within 60
days; or
(v) default shall be made in the performance or observance of any
other of the terms, covenants or conditions of this Agreement
and such default shall
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continue for a period of thirty days after written notice
thereof shall have been given by the holders of Notes to the
Company; or
(vi) final judgments or orders for the payment of money in excess of
$300,000 in the aggregate shall be rendered against the Company
or any Subsidiary and such judgments or orders shall remain
unsatisfied, unstayed and unbonded for a period of 60 days after
the date such judgments or orders are required to be paid; or
(vii) there shall occur any Event of Default under the Deed of Trust;
or
(viii) if any representation or warranty contained in this Agreement
or in any other document supplied to the holders of Notes by the
Company in connection with this transaction proves to be false
in any material respect as of the time this Agreement was made.
(b) Acceleration of Maturities. When any Event of Default described in
clause (i) of paragraph 7(a) has occurred and is continuing, any holder of a
Note may, by notice to the Company, declare the entire principal and all
interest accrued on the Notes held by such holder to be, and the Notes held by
such holder shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. In addition to and not in limitation of the foregoing,
when any Event of Default described in clauses (i), (ii), (v), (vi), (vii) or
(viii) of said paragraph 7(a) has occurred and is continuing, the holder or
holders of more than 50% of the principal amount of Notes at the time
outstanding may, by notice to the Company, declare the entire principal and all
interest accrued on all Notes to be, and all Notes shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived. When any Event of
Default described in clauses (iii) or (iv) of paragraph 7(a) has occurred, then
all outstanding Notes shall immediately become due and payable without
presentment, demand or notice of any kind. Upon any Notes becoming due and
payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay to the holders of the Notes then due and payable the entire
principal and interest accrued on the Notes and, to the extent not prohibited by
applicable law, an amount as liquidated damages for the loss of the bargain
evidenced hereby (and not as a penalty) equal to the premium specified in
paragraph 2(a) hereof, if any, determined as of the date on which the Notes
shall so become due and payable. No course of dealing on the part of the holder
or holders of the Notes nor any delay or failure on the part of any holder to
exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay to the holder or holders of the
Notes all costs and expenses incurred by them in the collection of any Notes
upon any default hereunder or thereon, including reasonable compensation to such
holder's or holders' attorneys for all services rendered in connection
therewith.
(c) Rescission of Acceleration. The provisions of paragraph 7(b) are
subject to the condition that if the principal of and accrued interest on all or
any outstanding Notes have been declared immediately due and payable by reason
of the occurrence of any Event of Default described in clauses (i), (ii), (v),
(vi), (vii) or (viii) of paragraph 7(a), the holders of 68% in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind
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and annul such declaration and the consequences thereof, provided that at the
time such declaration is annulled and rescinded:
(i) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(ii) all arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except any
principal, interest or premium on the Notes which has become due
and payable solely by reason of such declaration under paragraph
7(b)) shall have been duly paid; and
(iii) each and every other Event of Default shall have been made
good, cured or waived pursuant to paragraph 13(c);
and provided, further, that no such rescission and annulment shall extend to or
affect any subsequent Event of Default or impair any right consequent thereto.
8. Insurance.
(a) Risks to be Insured. In addition to the insurance required to be
maintained under paragraph 4(m) of this Agreement, the Company will at its
expense maintain with insurers satisfactory to the holders of Notes (i)
insurance with respect to the Mortgaged Property against physical loss
(including without limitation loss resulting from fire, lightning, wind and
hail, sprinkler leakage, explosion and smoke), written on an "all risks"
replacement cost basis, in amounts sufficient to prevent the holders of Notes or
the Company from becoming a co-insurer of any partial loss under the applicable
policies, (ii) public liability, including personal injury and property damage,
insurance applicable to the Mortgaged Property in such amounts as are usually
carried by persons operating similar properties in the same general locality but
in any event with a combined single limit of not less than $3,000,000 per
occurrence and $5,000,000 in the aggregate, (iii) appropriate workers'
compensation insurance with respect to any work on or about the Mortgaged
Property to the extent required by the law of the states in which the Mortgaged
Property is located and to the extent necessary to protect the Company or the
Purchaser against workers' compensation claims, (iv) at any time when the
improvements portion of any parcel of Mortgaged Property is being constructed,
repaired, replaced, rebuilt or restored, builder's risk insurance (in completed
value nonreporting form) in an amount not less than the actual replacement value
of such improvements, exclusive of foundations and excavations, (v) business
interruption insurance covering a period not less than six months and (vi) such
other insurance, in such amounts and against such risks, as is commonly obtained
in the case of property similar to the Mortgaged Property and located in the
states in which the Mortgaged Property or the is located, or is reasonably
requested by the holders of the Notes. The Company will comply with such other
requirements as the holders of Notes may reasonably request for the protection
by insurance of their interest. Such insurance shall be written by companies of
nationally recognized financial standing legally qualified to issue insurance
and reasonably acceptable to the holders of the Notes.
(b) Policy Provisions. All insurance maintained by the Company pursuant to
subparagraphs (a)(i), (a)(ii), (a)(iv), (a)(v) and (a)(vi) of this paragraph 8
shall (i) name the Company and the holders of Notes as insured, as their
respective interests may appear, (ii) provide, except in the case of public
liability insurance, that all insurance proceeds for losses of less than
$250,000 shall be
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<PAGE>
adjusted with and payable to the Company and that all insurance proceeds for
losses of $250,000 or more shall be adjusted with the Company and the holders of
Notes jointly, but shall be payable to the holders of Notes, (iii) include
effective waivers by the insurer of all claims for insurance premiums against
the holders of Notes, (iv) provide that any losses shall be payable
notwithstanding (A) any act of negligence of the holders of Notes or the
Company, (B) any foreclosure or other proceedings or notice of sale relating to
the Mortgaged Property, or (C) any change in the title to or ownership of the
Mortgaged Property, (v) provide that no cancellation thereof shall be effective
until at least 30 days after receipt by the holders of Notes of written notice
thereof, and (vi) be reasonably satisfactory to the holders of Notes in all
other respects.
(c) Delivery of Insurance Certificates. The Company will deliver to the
holders of Notes certificates evidencing the existence of all insurance policies
with respect to the Mortgaged Property which the Company is required to maintain
or cause to be maintained pursuant to subparagraph (a) hereof together with
evidence as to the payment of all premiums then due thereon.
9. Damage to or Destruction of Mortgaged Property.
(a) Notice. In case of any material damage to or destruction of the
Mortgaged Property or any part thereof, the Company will promptly give written
notice thereof to the holders of Notes, generally describing the nature and
extent of such damage or destruction.
(b) Restoration. Except as otherwise provided in paragraph 9(d) hereof, in
case of any damage to or destruction of the Mortgaged Property or any part
thereof, the Company, whether or not the insurance proceeds, if any, on account
of such damage or destruction shall be sufficient for the purpose, at its
expense, will promptly commence and complete the repair, replacement, rebuilding
or restoration of the Mortgaged Property as nearly as possible to its value,
condition and character, immediately prior to such damage or destruction, with
such alterations and additions as may be made at the Company's election.
(c) Application of Insurance Proceeds in the Event of Restoration. Except
as otherwise provided in paragraph 9(d), all insurance proceeds received by or
payable to the holders of Notes on account of any damage to or destruction of
all or any part of the Mortgaged Property (less the actual cost, fees and
expenses incurred in the collection thereof) shall be applied or dealt with by
the holders of Notes as follows:
(i) All such proceeds actually received by the holders of Notes on
account of any such damage or destruction shall, unless there is
an uncured Event of Default or event which with the passing of
time or the giving of notice, or both, would constitute such an
Event of Default, be made available for purposes of repairing,
replacing, rebuilding or restoring the Mortgaged Property,
subject to deposit by the Company with the holders of Notes of
the amount in excess of insurance proceeds necessary to effect
the restoration.
(ii) The holders of the Notes shall permit the application of the net
proceeds to payment of the costs of repair, replacement,
rebuilding or restoration upon request made by the Company to the
holders of Notes no more often than monthly accompanied by lien
waivers through the last previous request. If the net proceeds
are not sufficient to pay such costs in full, the Company will
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<PAGE>
nonetheless complete the same and will pay the portion of the
cost thereof in excess of the amount of the net proceeds. So
long as there is no Event of Default or event which with the
passing of time or the giving of notice, or both, would
constitute such an Event of Default, any balance of net proceeds
remaining after payment of all costs of any repair, rebuilding,
replacement or restoration shall be remitted to the Company
within 5 days after evidence is given by the Company to the
holders of the Notes of complete and full payment of such costs.
(d) Prepayment in the Event the Mortgaged Property is Not Restored. In
case all or any part of the Mortgaged Property is destroyed or damaged (A) so as
to render such property, in the reasonable judgment of the holders of Notes,
incapable of being repaired, replaced, rebuilt or restored for purposes of
normal operation of the Company's business on the property within six months
after its damage or destruction, or (B) to such an extent that the Company
determines that it is uneconomic to repair, replace, rebuild or restore; then in
either such event the Company shall have no obligation to repair, replace,
rebuild or restore the Mortgaged Property and no right to have the net proceeds
of the insurance claim applied to such repair, replacement, rebuilding or
restoration, and whether or not the net proceeds of any applicable insurance
claim are sufficient for such purpose, the Company shall, on the first interest
payment date occurring at least 30 days after such damage or destruction, in
addition to making the regular payment on the Notes due on such date, prepay the
Notes, without premium, in an amount equal to the then unpaid principal amount
of the Notes, plus accrued interest thereon. Any such prepayment shall be
applied on the last maturing required installment or installments of principal
in inverse order of their maturity. The net proceeds of any insurance claim
shall be applied to any such prepayment. So long as there is no Event of
Default or event which with the passing of time or the giving of notice, or
both, would constitute such an Event of Default, any insurance proceeds
remaining after prepayment pursuant to this paragraph 9(d) shall be remitted by
the holder of the Note to the Company within five days after such prepayment.
10. Taking of Mortgaged Property.
(a) Notice; Assignment of Awards. In case of a taking as a result of or in
lieu of or in anticipation of the exercise of the right of condemnation or
eminent domain of all or any part of the Mortgaged Property, or the commencement
of any proceedings or negotiations that might result in any such taking, the
Company will promptly give written notice thereof to the holders of Notes,
generally describing the nature and extent of such taking or the nature of such
proceedings or negotiations and the nature and extent of the taking that might
result therefrom, as the case may be. The Company hereby irrevocably assigns,
transfers and sets over to the holders of Notes all its rights to any award or
payment on account of any taking of the Mortgaged Property (excluding any award
for relocation expenses). The Company will in good faith and with due diligence
file and prosecute what would otherwise be its claims for any such award or
payment and cause the same to be collected and paid over to the holders of
Notes, and irrevocably authorizes and empowers the holders of Notes, in the name
of the Company, to collect and to receipt for any such award or payment and, in
the event the Company fails so to act or is otherwise in default hereunder, to
file and prosecute such claim. The Company will pay all costs, fees and
expenses reasonably incurred by the holders of the Notes in connection with any
taking and seeking and obtaining any award or payment on account thereof.
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(b) Restoration. Except as provided in paragraph 10(d) hereof, in case of
a taking of the Mortgaged Property, the Company will, whether or not the awards
or payments, if any, on account of such taking shall be sufficient for the
purpose, at the Company's expense, promptly commence and complete restoration of
the Mortgaged Property as nearly as possible to its value, condition and
character immediately prior to such taking, except to the extent made impossible
or in the reasonable judgment of the Company uneconomical by any reduction in
area caused by such taking, provided that in case of a taking for temporary use
the Company shall not be required to effect restoration until such taking is
terminated.
(c) Application of Awards in the Event of Restoration. Except as otherwise
provided in paragraph 10(d) hereof, all awards and payments received by or
payable to the holders of Notes on account of a taking of all or any part of the
Mortgaged Property (less the actual costs, fees and expenses incurred in the
collection thereof) shall be applied to pay the cost of restoring of the portion
of the Mortgaged Property remaining after such taking, such application to be
effected substantially in the same manner and subject to the same conditions as
provided in paragraph 9(c)(ii) hereof with respect to insurance proceeds.
(d) Prepayment in the Event the Mortgaged Property is Not Restored. In the
event a parcel of Mortgaged Property is not restored pursuant to paragraph 10(b)
hereof the Company shall prepay the Notes, such prepayment to be effected
substantially in the same manner and subject to the same conditions as provided
in paragraph 9(d) hereof with respect to prepayment in the event of destruction
or damage of the Mortgaged Property. The net proceeds of any awards or payments
shall be applied to any such prepayment. So long as there is no Event of
Default or event which with the passing of time or the giving of notice, or
both, would constitute such an Event of Default, any proceeds remaining after
prepayment pursuant to this paragraph 10(d) shall be remitted by the holder of
the Note to the Company within five days after such prepayment.
11. Payments on and Registration and Transfer of Notes. The Company
agrees that it will make payment of the principal of, premium, if any and
interest on the Notes by wire transfer of immediately available federal funds
with sufficient information to identify the source and application of funds to
the Purchaser in accordance with the wire transfer instructions set forth in
Appendix I hereto, or to such other accounts or in such other manner as may from
time to time be designated by the holder of a Note, without presentment of the
Notes and without the rendering of any bills therefor. The Company shall keep
at its principal office a register in which the Company shall provide for the
registration of the Notes and of transfers of the Notes (the "Note Register").
Upon surrender of any Note for transfer at the office of the Company, the
Company shall execute and deliver, in the name of the designated transferee a
new Note in a principal amount equal to the unpaid principal amount of, and
dated the date to which interest has been paid on, the Note so surrendered.
When a Note shall be presented or surrendered for transfer it shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder thereof or his attorney duly authorized in writing. The Company
may treat the person in whose name the Note is registered on the Note Register
as the owner of the Note for the purpose of receiving payment of principal of
and interest on the Note and for all other purposes and the Company shall not be
affected by notice to the contrary.
12. Expenses. The Company agrees, whether or not the purchase of the
Notes herein contemplated shall be consummated, to pay and save the Purchaser
harmless against liability for the payment of all out-of-pocket expenses arising
in connection with this transaction including any
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<PAGE>
documentary stamp taxes (and including interest and penalties, if any), which
may be determined to be due and payable with respect to the execution and
delivery of the Notes, and the reasonable fees and expenses of counsel to the
Purchaser. The Company also agrees to pay, and to save the Purchaser harmless
against liability for the payment of, the reasonable fees and expenses of
counsel to the Purchaser in connection with any documentation and related
services arising after the Closing Date in connection with the preparation of
waivers or amendments of any provisions of this Agreement, the Notes or the Deed
of Trust. In addition, the Company agrees to pay, and to save the holders of the
Notes harmless against, all brokerage or finders fees incurred in the
transaction contemplated by this Agreement.
13. Delivery of Documents; Pro Rata Payments; Amendments and Consents.
(a) Delivery of Documents. All notices, certificates, requests, statements
and other documents required or permitted to be delivered to the Purchaser or
the holders of Notes by any provision hereof shall also be delivered to each
holder of a Note whose address has been provided to the Company, except that
financial statements and other documents provided for in paragraphs 4(e) and
4(f) need not be delivered to any holder, other than the Purchaser, holding less
than 10% of the aggregate principal amount of Notes from time to time
outstanding.
(b) Pro Rata Payments. All interest payments and payments or prepayments
of principal shall be made and applied pro rata on all Notes outstanding in
accordance with the respective unpaid principal amounts thereof.
(c) Amendments and Consents. The registered holder or holders of more than
fifty percent (50%) of the unpaid principal amount of the Notes at the time
outstanding may by agreement with the Company amend this Agreement, and any
consent, notice, request or demand required or permitted to be given by the
Purchaser or the holders of the Notes by any provision hereof shall be
sufficient if given by the holder or holders of more than fifty (50%) of the
unpaid principal amount of Notes at the time outstanding except that, without
the written consent of the holders of all Notes at the time outstanding, no
amendment to this Agreement shall extend the maturity of any Note, or alter the
rate of interest or any premium payable with respect to any Note, or affect the
amount or timing of any required payments or prepayments, or reduce the
proportion of the principal amount of the Notes required with respect to any
consent.
14. Investment Purpose. The Purchaser represents that the acquisition of
the Notes by it will be for investment and not with a view to resale in
connection with any distribution thereof, it being understood, however, that the
disposition of the property of the Purchaser shall at all times be within its
control.
15. Definitions. For purposes of this Agreement the following terms shall
have the following meanings:
"Applicable Percentage" shall mean (i) 55% at all times after the date of
this Agreement until the Company shall have completed a public offering of its
capital stock, and (ii) 50% at all times thereafter.
"Capital Expenditure" means an expenditure by the Company or any Subsidiary
for the lease, purchase or other acquisition of any capital asset; provided that
with respect to the lease of any
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<PAGE>
capital asset (whether pursuant to a capitalized lease or an operating lease),
the principal amount thereof shall be the fair market value of the capital asset
so leased.
"Capital Expenditure Annual Limit" means $41,000,000 for the fiscal year
ending September 1, 1995, $19,000,000 for the fiscal year ending August 30,
1996, $20,000,000 for the fiscal year ending August 29, 1997, and $10,000,000
for each fiscal year thereafter.
"Capital Expenditure Cumulative Limit" means, during the period commencing
on August 28, 1993 and ending on the date of determination, cumulative (A) Net
Income (or loss), plus (B) Non-Cash Charges, plus (C) Term Debt Proceeds, plus
(D) Net Equity Proceeds, less (E) scheduled principal payments on Funded Debt,
less (F) non-scheduled prepayments on Funded Debt, in each case of the Company
and its Subsidiaries determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Capitalized Lease Obligations" shall mean lease payment obligations under
leases that are required to be capitalized under generally accepted accounting
principles.
"Cash Flow Available for Fixed Charges" means, with respect to the
applicable period of computation, (i) Net Income of the Company and its
Subsidiaries, plus (ii) Interest Expense of the Company and its Subsidiaries,
plus (iii) Non-Cash Charges of the Company and its Subsidiaries, plus (iv) Term
Debt Proceeds of the Company and its Subsidiaries, plus (v) Net Equity Proceeds
of the Company and its Subsidiaries, less (vi) cash expenditures by the Company
and its Subsidiaries for the purchase of capital assets and less (vii) cash
expenditures by the Company and its Subsidiaries with respect to the principal
portion of any Capitalized Lease Obligation, all determined on a consolidated
basis in accordance with generally accepted accounting principles.
"Cash Flow Available for Interest and Rent" of a Person shall mean, with
respect to the applicable period of computation, such Person's Pre-Tax Earnings,
plus Interest Expense, plus Rent Expense.
"Closing Date" shall have the meaning set forth in paragraph 1(a).
"Company" shall have the meaning set forth in the preamble.
"Consolidated Debt" shall mean all Debt of the Company and its Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Fixed Charge Coverage Ratio" shall mean, with respect to the
applicable period of computation, the ratio of the consolidated Cash Flow
Available for Fixed Charges of the Company and its Subsidiaries to the
consolidated Debt Service of the Company and its Subsidiaries.
"Consolidated Interest and Rent Coverage Ratio" shall mean, with respect to
the applicable period of determination, the ratio of (i) the Cash Flow Available
for Interest and Rent of the Company and its Subsidiaries to (ii) the sum of
Interest Expense and Rent Expense of the Company and its Subsidiaries.
"Consolidated Tangible Net Worth" shall mean the aggregate amount of
stockholders' equity of the Company and its Subsidiaries on a consolidated basis
determined in accordance with generally
22
<PAGE>
accepted accounting principles consistent with those followed in preparation of
the financial statements referred to in paragraph 3(e), less the purchase price
of acquired businesses in excess of the fair market value of tangible net
assets, other items of goodwill, patents, trademarks, trade names, copyrights,
organization expense, treasury stock, unamortized debt discount and expense, any
write-up of the value of any assets and other like intangibles, or any
securities or Debt of the Company or any Subsidiary or any other securities
unless the same are readily marketable in the United States of America or
entitled to be used as a credit against Federal income tax liabilities which (in
the aggregate) exceed $1,000,000, all determined on a consolidated basis in
accordance with generally accepted accounting principles consistent with those
followed in the preparation of the financial statements referred to in paragraph
3(e).
"Debt" of any Person shall mean (i) all items of indebtedness or liability
which in accordance with generally accepted accounting principles would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined, (ii) the face amount of all letters of credit issued for the account
of any person and, without duplication all drafts thereunder, (iii) any
indebtedness for borrowed money or the deferred purchase price of property or
services secured by a lien on any property of any Person, whether or not such
indebtedness has been assumed, and (iv) guaranties or other contingent
obligations for any indebtedness described in clauses (i) through (iii).
"Debt Service" means, with respect to the applicable period of computation,
the aggregate of (i) all scheduled payments of principal on all Funded Debt,
(ii) Interest Expense, and (iii) all scheduled payments of rent under
Capitalized Lease Obligations (determined in accordance with generally accepted
accounting principles).
"Deed of Trust" shall have the meaning set forth in paragraph 1(c).
"Dividends" shall mean any payment in cash, property or other assets upon
or in respect of any shares of any class of capital stock including, without
limiting the foregoing, payments as dividends and payments for the purpose of
redeeming, purchasing, or otherwise acquiring any shares of any class of its
capital stock, including in the term "stock" any warrant or option or other
right to purchase such stock, or making any other distribution in respect of any
such shares of stock; excluding, however, any distribution which may be payable
solely in common stock of the corporation making the distribution.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 and
the regulations adopted pursuant thereto.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which, together with the Company, would be deemed to be a single
employer within the meaning of Section 4001(b)(1) of ERISA.
"Event of Default" shall have the meaning set forth in paragraph 7.
"Funded Debt" shall mean any obligation for borrowed money or for the
acquisition of property or any obligation evidenced by a promissory note or
similar instrument, payable more than one year from the date of its creation (or
which is renewable at the option of the obligor to a date more than one year
from the date of its creation), including the current portion thereof, which
under
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generally accepted accounting principles is shown on the balance sheet as a
liability, including but not limited to the Notes and any Capitalized Lease
Obligations. Notwithstanding the foregoing sentence, the term "Funded Debt"
shall in any event include any obligation incurred under a revolving credit
facility or similar arrangement, whether or not payable on a date (or renewable
to a date) more than one year from the date of its creation.
"Interest Expense" shall mean, for any period, the total gross interest
expense during such period, and shall in any event include, without limitation,
(i) interest expensed (whether or not paid) on all Debt, (ii) the amortization
of debt discounts, (iii) the amortization of all fees payable in connection with
the incurrence of Debt to the extent included in interest expense, (iv) the
portion of any Capitalized Lease Obligation allocable to interest expense.
"Margin Stock" shall have the meaning ascribed to that term in Section
207.2(i) of Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve Board.
"Mortgaged Property" shall have the meaning set forth in paragraph 1(c).
"Net Equity Proceeds" shall mean the net cash proceeds actually received by
the Company from the sale of additional common or preferred stock in the Company
on or after November 24, 1993, including cash received from the exercise of
stock options.
"Net Income" of any person shall mean, with respect to the applicable
period of computation, such person's after tax Net Income determined in
accordance with generally accepted accounting principles, excluding any
extraordinary or non-recurring items.
"Non-Cash Charges" shall mean depreciation, amortization, deferred taxes
and other non-cash charges which have the effect of reducing the Pre-Tax
Earnings or Net Income, as the case may be, all as determined in accordance with
generally accepted accounting principles.
"Norwest Bank Agreement" shall mean that certain Amended and Restated
Credit and Security Agreement dated as of November 24, 1993, among the Company,
as borrower, Norwest Bank Minnesota, National Association and Harris Trust and
Savings Bank, as lenders, and Norwest Bank Minnesota, National Association, as
agent, as amended by the First Amendment dated as of December 2, 1993, the
Second Amendment dated as of May 12, 1994, and the Third Amendment dated as of
January 24, 1995.
"Note Register" shall have the meaning set forth in paragraph 8.
"Note" or "Notes" shall have the meaning set forth in paragraph 1(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.
"Person" shall mean an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan within the meaning of
Section 3(2) of ERISA.
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"Pre-Tax Earnings" of a Person means, with respect to any applicable period
of computation, such Person's Net Income, plus any income taxes and
extraordinary or non-cash losses paid or incurred by such Person, less any
extraordinary or non-cash gains claimed or earned by such Person, all as
determined in accordance with generally accepted accounting principles.
"Purchase Money Obligations" shall mean Debt incurred in connection with
the acquisition of machinery and equipment, which Debt is secured by conditional
sales contracts, title retention agreements and other purchase money security
interests.
"Purchaser" shall have the meaning set forth in the preamble.
"Rent Expense" mean, with respect to the applicable period of computation,
all scheduled payments of rent under operating leases.
"Subsidiary" or "Subsidiaries" shall mean the corporations listed on
Exhibit D hereto, and any other corporation or corporations more than 50% of the
outstanding capital stock of every class of which is hereafter owned, directly
or indirectly, by the Company.
"Term Debt Proceeds" means all proceeds obtained by the Company from (i)
term advances under that certain Amended and Restated Credit and Security
Agreement dated as of November 24, 1993 between the Company and Norwest Bank
Minnesota, National Association and Harris Trust and Savings Bank, or (ii) other
term indebtedness permitted pursuant to paragraph 5(a).
"Total Capitalization" shall mean as of the date of any determination
thereof, the sum of (i) the aggregate principal amount of all outstanding Funded
Debt of the Company and its Subsidiaries, plus (ii) Consolidated Tangible Net
Worth.
"Treasury Yield Percentage" shall mean the yield, as reported by Bloomberg
Financial Markets, determined as of 10:00 a.m. Minneapolis, Minnesota time on
the second Business Day prior to the date fixed for prepayment, of those
actively traded "On The Run" United States Treasury securities having a then-
remaining maturity equal to the then-remaining maturity of an actively traded
"On The Run" United States Treasury security, such yield shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
yields, as reported by Bloomberg Financial Markets, of actively traded "On The
Run" Treasury securities having then-remaining maturities closest to the
remaining average life of the Notes. If such market data for any reason ceases
to be available through Bloomberg Financial Markets, the holders of the Notes
may, in their reasonable discretion, select any other publicly available source
of similar market data. For purposes hereof, "On The Run" United States
Treasury securities refers to those United States Treasury securities which are
most recently auctioned as of the date in question.
16. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by the Company in connection
herewith shall survive the execution and delivery of this Agreement and of the
Notes.
17. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.
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18. Notices. All communications provided for hereunder shall be sent by
first class mail and, if to the Purchasers, addressed to the Purchasers at the
notice address listed on Appendix I hereto, and if to the Company, addressed to
Sheldahl, Inc., 1150 Sheldahl Road, Northfield, MN 55057, attention Chief
Financial Officer or to such other address with respect to any party as such
shall notify the other parties in writing.
19. Governing Law. This Agreement is being delivered and is intended to
be performed in the State of Minnesota, and shall be construed and enforced in
accordance with the laws of such State.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
21. Captions. The captions in this Agreement are for convenience only and
shall not be considered in the interpretation of any of the provisions hereof.
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If the Purchasers are in agreement with the foregoing, please sign the form
of acceptance on the enclosed counterpart of this letter and return the same to
the undersigned. Upon acceptance by all the Purchasers, this letter shall
become a binding agreement between the Purchasers and the undersigned.
Very truly yours,
SHELDAHL, INC.
By /s/ John McManus
------------------------
Its Vice President Finance
The foregoing Agreement is accepted
as of the date first above written
NORTHERN LIFE INSURANCE COMPANY
By /s/ Frank P. Pintens
----------------------
Its Assistant Treasurer
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Exhibit 10.22
JOINT MARKETING AGREEMENT
This JOINT MARKETING AGREEMENT is entered into this 14th day of June, 1995
("Effective Date") by and between SHELDAHL, INC., a Minnesota corporation
("SHELDAHL"), and MENTOR GRAPHICS CORPORATION, an Oregon corporation ("MENTOR
GRAPHICS").
RECITALS
--------
1. SHELDAHL has developed and is currently testing and producing materials
known as ViaGrid/TM/.
2. MENTOR GRAPHICS is a world leader in computer-aided design of
electronic circuitry.
3. The parties wish to work together to develop electronic packaging
designs on standard ViaGrid/TM/ and custom ViaGrid/TM/ materials produced by
SHELDAHL.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties agree as follows:
Section 1. Definitions.
1.1 "Approved Account" means those companies designated on Exhibit A as
approved accounts and such other companies agreed to by SHELDAHL and MENTOR
GRAPHICS in writing.
1.2 "Excluded Account" means those companies designated on Exhibit A as
Excluded Accounts which shall be excluded from the application of the terms of
this Agreement unless agreed by SHELDAHL in writing.
1.3 "Production Units" means those non-Prototype ViaGrid/TM/ units
accepted by the Approved Account to be used in a product.
1.4 "Program" means production using ViaGrid/TM/ with a design tested and
accepted by the Approved Account under the terms of this Agreement.
1.5 "Prototype" means those ViaGrid/TM/ units that are produced for an
Approved Account's internal verification engineering and/or manufacturing to
prove the design and manufacturing processes associated with a product.
1.6 "Royalty Product" means any construction of ViaGrid/M/ that is
produced for an Approved Account by SHELDAHL utilizing a design tested and
accepted by the Approved Account during the term of this Agreement or a
derivative of such design for the same part, purpose and platform and pursuant
to the same Program with the Approved Account, provided MENTOR GRAPHICS has
<PAGE>
contributed to the establishment of the Approved Account and its relationship
with SHELDAHL pursuant to the terms of this Agreement by (a) establishing
ViaGrid/TM/ in the specifications of the design and the design results in a
ViaGrid/TM/ solution; (b) designing a Prototype and the design results in a
ViaGrid/TM/ solution; (c) converting a Prototype design to a Production Unit
design; or (d) any combination of the above.
1.7 "ViaGrid/TM/" means a dielectric, polymeric film material carrying one
or more copper conductive layers and one or more resist layers with vias. Supply
of ViaGrid/TM/ with vias smaller than 3 mil will be limited by SHELDAHL's
capacity and other commitments.
Section 2. COOPERATION.
2.1 The parties will work together to develop electronic packaging designs
on standard ViaGrid/TM/ and custom ViaGrid/TM/ materials during the term of this
Agreement.
2.2 To assure a continuous and free exchange of information regarding
design opportunities, the parties hereby establish a Joint Review Board of equal
members from each party at least one technically trained and experienced
employee from each party ("Joint Review Board"). The Joint Review Board shall
meet as often as appropriate to review and approve design opportunities,
identify and agree on additional Approved Accounts and carry out its other
obligations specified in this Agreement. Action by the Joint Review Board shall
be unanimous. Each party shall bear its own costs and expenses in connection
with the meetings of the Joint Review Board. The Marketing Liaisons identified
in Section 2.3 may designate other company representatives from time to time to
act as Joint Review Board members by written notice to the other party.
2.3 Ellen McCoy shall be SHELDAHL's designated person responsible for
marketing and G. White, as well as additional people designated by SHELDAHL,
shall be the designated persons responsible for the manufacturing process and
design implementation. The designated account manager of MENTOR GRAPHICS and
Armagan Akar, as well as additional people designated by MENTOR GRAPHICS, will
be the designated persons responsible for fulfilling MENTOR GRAPHICS'
obligations under this Agreement. In the event of changes in any responsible
person designated by either party under this Section 2.3 ("Marketing Liaisons"),
such party shall promptly notify the other party of the change and identify a
replacement.
Section 3. Mentor Graphics' Responsibilities.
3.1 MENTOR GRAPHICS shall use reasonable efforts to (a) recommend
ViaGrid/TM/ to Approved Accounts for applicable design
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solutions and (b) deliver design expertise to the Approved Accounts to develop
electronic packaging designs on ViaGrid/TM/ materials which satisfy the Approved
Account's specifications.
3.2 MENTOR GRAPHICS shall use reasonable efforts to produce and submit for
publication three articles for trade publications that describe the relationship
between SHELDAHL and MENTOR GRAPHICS and the application successes both parties
have achieved together.
3.3 MENTOR GRAPHICS shall focus its efforts under this Agreement on
designers and design services for application in PCMCIA, disk drive, and density
patch products for memory devices and may pursue designs in any other segment
for which ViaGrid/TM/ and the subject matter of this Agreement may have
application.
Section 4. Sheldahl's Responsibilities.
4.1 SHELDAHL shall manage the production and assembly and material
delivery channels to produce the ViaGrid/TM/ product utilizing the Approved
Account's design.
4.2 SHELDAHL shall coordinate sales between MENTOR GRAPHICS and SHELDAHL's
electronic packaging partner and delivery of Prototypes to the Approved
Accounts.
4.3 SHELDAHL and MENTOR GRAPHICS agree that any Approved Account may use
the design kit developed by them through the ARPA Consortium for standard
ViaGrid/TM/. MENTOR GRAPHICS shall use its current tool systems for all other
designs (i.e., MCM station).
4.4 SHELDAHL will refer customer interest in tools for design to MENTOR
GRAPHICS.
4.5 SHELDAHL shall use reasonable efforts to promote and position Mentor
Graphics with the Approved Accounts as its primary design vendor for ViaGrid/TM/
solutions.
Section 5. Design Services.
5.1 MENTOR GRAPHICS shall, upon its acceptance of an engagement for
services, provide design assistance to the Approved Accounts to the extent
requested in a written statement of work ("SOW") from SHELDAHL or a SOW
developed by a MENTOR GRAPHICS professional services representative with an
Approved Account. The Joint Review Board shall review and approve the design
services targeting the ViaGrid/TM/ material, including the costs of such
services. A major criteria for determining the costs is the mutual desire of the
parties to present a price point that enables the Approved Account to bring its
product implemented in ViaGrid/TM/ to market quickly and affordably. As of the
Effective Date, the parties have identified a rate for design
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services of $135 per hour as meeting this criteria. This targeted rate,
however, may be changed by the Joint Review Board consistent with the major
criteria above, for reasons such as (a) existing business arrangements with a
customer; (b) then current market conditions; (c) changes in MENTOR GRAPHICS'
cost structure; or (d) the likelihood of resulting royalties. MENTOR GRAPHICS
shall provide the Joint Review Board with an estimate of total fees and expenses
to be incurred for the design services. Services shall start subsequent to
approval by the Joint Review Board, execution of applicable agreements, and
receipt and acceptance of a purchase order. Services shall be provided by
MENTOR GRAPHICS to Approved Accounts under terms similar to the MENTOR GRAPHICS
Professional Services Agreement and SOW attached as Exhibits B and C,
respectively. All such design services shall be on standard or custom
ViaGrid/TM/ materials.
5.2 If the Approved Account contracts with SHELDAHL directly, SHELDAHL and
MENTOR GRAPHICS shall sign an SOW in the form of Exhibit C. SHELDAHL shall pay
MENTOR GRAPHICS $135 per hour plus reasonable travel-related expenses incurred
in connection with such design services. MENTOR GRAPHICS shall invoice SHELDAHL
for such services on a monthly basis. Payment terms shall be net 30 days after
receipt by SHELDAHL of MENTOR GRAPHICS' invoice. The services specified in the
SOW shall be subject to the terms of this Agreement and the terms of Exhibit B
to the extent consistent with this Agreement. In the event of any conflict in
such terms, the terms of this Agreement shall control.
5.3 SERVICES AND THE RESULTS ARE PROVIDED "AS IS" AND MENTOR GRAPHICS
MAKES NO WARRANTY WITH REGARD TO SERVICES OR RESULTS, EITHER EXPRESS OR IMPLIED.
MENTOR GRAPHICS SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. MENTOR GRAPHICS IS NOT OBLIGATED TO
SUPPORT ANY SOFTWARE OR OTHER MATERIAL THAT IT PROVIDES UNDER THIS AGREEMENT.
5.4 EXCEPT AS PROVIDED IN SECTION 5.5, (A) NEITHER PARTY SHALL BE LIABLE
TO THE OTHER PARTY FOR ANY CLAIMS AGAINST IT BY ANY PARTY NOT A PARTY TO THIS
AGREEMENT, (B) NEITHER PARTY SHALL BE LIABLE FOR LOSS OF PROFITS, INTERRUPTION
OF SERVICE, OR FOR ANY OTHER SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES AND
(C) IN NO EVENT SHALL MENTOR GRAPHICS' LIABILITY TO SHELDAHL FOR DAMAGES EXCEED
THE FEES AND ROYALTIES PAID UNDER THIS AGREEMENT FOR SERVICES PROVIDED
HEREUNDER.
5.5 Each party shall indemnify and hold the other party harmless from and
against all loss, claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, which the other party may suffer or be required to
pay arising out of injuries to persons (including death) or damage to tangible
property solely and directly caused by the negligence or
4
<PAGE>
willful misconduct of the indemnifying party's agents or employees.
5.6 The provisions of Sections 2 and 3 of Exhibit B apply to the ownership
and licensing of any Intellectual Property developed under this Agreement (as
Intellectual Property is defined in Section 2.1 of Exhibit B), with the
following three exceptions. Any Intellectual Property which is embodied in
ViaGrid/TM/ or its manufacture ("ViaGrid/TM/ Technology") shall be the sole
property of SHELDAHL and shall be transferred to SHELDAHL pursuant to the
assignment provisions of Section 2.2 of Exhibit B. Intellectual Property which
is embodied in MENTOR GRAPHICS' software, tool set or related design services
(other than the design kit developed by MENTOR GRAPHICS and SHELDAHL under the
ARPA Consortium, which is jointly owned) or in development processes, training
and documentation associated with such software, tool set and related design
services ("MG Technology") shall be the sole property of MENTOR GRAPHICS and
shall be subject to the licensing provisions of Exhibit B. Intellectual Property
which is not ViaGrid/TM/ Technology or MG Technology shall be jointly owned.
With respect to such jointly owned Intellectual Property either party may
utilize, use or exercise its undivided rights without the consent of the other
party and without accounting to the other party, provided that the parties shall
cooperate in the pursuit of any patent applications related to such jointly
owned Intellectual Property. If the patent application is pursued, the parties
shall agree upon the details for filing such protection and any enforcement
issues thereof at the given time.
Section 6. Royalty Payments and Reports.
6.1 As additional consideration for MENTOR GRAPHICS' services hereunder,
SHELDAHL agrees to pay MENTOR GRAPHICS a royalty of $1.50 per square foot for
each design on custom ViaGrid/TM/ and $3.50 per square foot for each design on
standard ViaGrid/TM/ for each Royalty Product sold to an Approved Account during
a period, whichever is shorter, of (a) 5 years from initial production of the
Royalty Product; (b) the date this Agreement is terminated pursuant to Section
10.2 as a result of a breach by MENTOR GRAPHICS of a material provision of this
Agreement; or (c) the completion of the Program for the Royalty Product between
SHELDAHL and the Approved Account. Royalties for Royalty Products shall begin to
accrue after SHELDAHL or its subcontracted manufacturers begins shipping Royalty
Products to the Approved Account regardless of the date that the design is
initiated. All royalty payments shall be made on a quarterly basis as set forth
in Section 6.2 below.
6.2 Within 30 days after the end of each calendar quarter, SHELDAHL shall
furnish MENTOR GRAPHICS with a written report setting forth the square footage
of each Royalty Product with respect to which any royalty payments are payable
under Section 6.1 and the amount of royalty payment payable with respect to that
Royalty Product; and the aggregate amount of all royalty
5
<PAGE>
payments payable under Section 6.1. SHELDAHL shall use all reasonable efforts
to provide a preliminary report of royalty payments by the end of each calendar
quarter. The cut-off date for royalty data to be provided to MENTOR GRAPHICS
will be the 15th day of the last month of a quarter.
6.3 Notwithstanding anything contained herein to the contrary, no royalty
payment shall be due or payable under this Section 6 on Royalty Products which
are Prototypes that do not become Production Units, or Royalty Products which
are not accepted by the Approved Account within 90 days of the date of sale or
are returned by the Approved Account or Royalty Products which, after
acceptance, are recalled but not replaced by SHELDAHL.
6.4 SHELDAHL shall keep accurate records in sufficient detail to permit
MENTOR GRAPHICS to determine the amount of royalty payments payable hereunder.
On reasonable written notice from MENTOR GRAPHICS, SHELDAHL shall permit such
records to be inspected by a MENTOR GRAPHICS' certified public accountant during
normal business hours, but only to the extent necessary to verify the amount of
royalty payments payable or accrued hereunder.
6.5 Except as provided in Section 6.1(b), this Section 6 shall survive any
termination or expiration of the Agreement.
Section 7. Confidentiality.
To assist in their performance under this Agreement the parties may
exchange certain information, including technical and marketing information,
which the disclosing party deems confidential. All confidential information
disclosed under this Agreement will be disclosed and treated in accordance with
the Confidential Information Exchange Agreement (CIEA) attached as Exhibit D.
Section 8. Non-Exclusivity.
8.1 Notwithstanding anything to the contrary herein, in the event (a)
MENTOR GRAPHICS fails to meet its obligations under this Agreement, any work
order with SHELDAHL or SOW; (b) MENTOR GRAPHICS declines an engagement for
services proposed by SHELDAHL or an Approved Account or (c) an Approved Account
has specified a design company other than MENTOR GRAPHICS after each party has
asserted reasonable efforts in converting such account, then SHELDAHL may
contract with other design companies and shall have no liability to MENTOR
GRAPHICS with respect to any resulting design and no royalty obligation
hereunder.
8.2 In the event the SHELDAHL members of the Joint Review Board do not
approve a design opportunity proposed by MENTOR GRAPHICS after discussion of all
relevant issues by the Joint Review Board and approval of such design
opportunity by the MENTOR GRAPHICS members of the Joint Review Board, SHELDAHL
shall not independently solicit such design opportunity during the term of this
Agreement without allowing MENTOR GRAPHICS to participate
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<PAGE>
in such opportunity under the terms of this Agreement including Section 8.1
above.
Section 9. Publicity.
9.1 SHELDAHL and MENTOR GRAPHICS will jointly share products and
literature at the Design Show, IPC Show and SAE Show. A joint press release
announcing this Agreement will be approved by both parties and promptly released
by both parties.
9.2 SHELDAHL shall publicly refer to MENTOR GRAPHICS as its EDA and design
partner. MENTOR GRAPHICS shall refer to SHELDAHL as its materials and design
partner on high performance materials.
Section 10. Term and Termination.
10.1 The term of this Agreement shall be for a period of 24 months from
the Effective Date, subject to earlier termination as provided below. The
parties may extend the term of this Agreement by subsequent written agreement.
10.2 If either party defaults on or breaches any material provision of
this Agreement, the party not in default or breach shall have the right to
cancel this Agreement upon written notice provided the defaulting party does not
correct the default or breach within the applicable cure period. In the event
of a breach of the obligations of a party under this Agreement, the nonbreaching
party shall provide written notice to the breaching party setting forth, in
sufficient detail, a description of the breach and the applicable cure period.
If the breach is either party's breach of the confidentiality provisions, the
notice of breach shall provide for a cure period of not less than five days.
For all other types of breach, including without limitation the failure to pay
any amounts due in a timely manner, the notice of breach shall provide for a
cure period of not less than 30 days.
10.3 Either party may terminate this Agreement in the event that
proceedings for a reorganization, liquidation, bankruptcy or receivership are
filed or instituted against the other party.
10.4 At the end of the term of this Agreement, neither party will have any
liability to the other except with respect to any breach of any obligations
under this Agreement and except for any obligations under this Agreement which
by their terms continue after termination of this Agreement.
10.5 Termination or expiration of this Agreement shall have no effect on
SHELDAHL's obligations to make payment for services performed under this
Agreement or to pay royalties to the extent required under Section 6.
Section 11. Independent Parties.
Nothing in this Agreement is intended to create a joint venture,
partnership, corporation or other association between SHELDAHL and MENTOR
GRAPHICS. Neither party to this Agreement
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has authority to act on behalf of the other or to incur any financial
obligations or liability on behalf of the other; if, despite such intention, a
claim arises against one of the parties based on actions of the other, the party
responsible for such actions will fully indemnify the party against whom such
claim is made. The provisions of this Section 11 shall survive termination of
this Agreement for any reason.
Section 12. Arbitration.
Any dispute between the parties arising out of or concerning the subject
matter of, or the respective rights or obligation of the parties under, this
Agreement shall be submitted to arbitration if it cannot be resolved by the
parties. If arbitration is requested by SHELDAHL, the arbitration proceedings
shall be conducted in Wilsonville, Oregon in accordance with the rules of the
American Arbitration Association then in effect. If arbitration is requested by
MENTOR GRAPHICS, the arbitration proceeding shall be conducted in Minneapolis,
Minnesota, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrator's award shall be final and binding and may be
enforced in any court of competent jurisdiction. The non-prevailing party shall
pay the prevailing party's costs and expenses (including reasonable attorneys'
fees) incurred in enforcing any such arbitration award.
Section 13. Governing Law.
This Agreement and the rights and obligations of the parties hereunder
shall be construed and interpreted in accordance with the laws of the State of
Oregon.
Section 14. Force Majeure.
Both parties to this Agreement shall be excused from the performance of
their obligations hereunder, and shall be excused for so long as such condition
continues, if such performance is prevented by conditions beyond the control of
the parties, such as acts of God, voluntary or involuntary compliance with any
regulation, law or order of any government, war, civil commotion, strike,
epidemic, failure or default of public utilities or common carriers, destruction
of production facilities or materials by fire, earthquake, storm or like
catastrophe.
Section 15. Notice Provisions.
Any notice required or permitted to be given hereunder shall be in writing
and any notice shall be deemed to have been given when delivered in person, by
fax, or three (3) days after the date upon which it is mailed, postage prepaid,
by certified or registered airmail, properly addressed to the addresses written
below:
If to SHELDAHL: Sheldahl, Inc.
1150 Sheldahl Road
Northfield, MN 55057
Attn: James E. Donaghy
Fax No.: 507-663-8435
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If to MENTOR GRAPHICS: Mentor Graphics Corporation
8005 S.W. Boeckman Road
Building 04118
Wilsonville, OR 97070
Attn: General Counsel
Fax No.: 503-685-1485
Section 16. Assignments.
This Agreement is binding upon shall inure to the benefit of the parties
and their successors and assigns; provided that neither the rights nor the
obligations hereunder may be assigned by either party without the prior written
consent of the other party except to the assigning party's parent, subsidiary,
or other enterprise fifty percent or more of the voting power of which is owned
by such party.
Section 17. Modification.
No modification or any claimed waiver of any of the provisions of this
Agreement shall be effective unless in writing and signed by a duly authorized
officer of the party against whom such modification or waiver is sought.
Section 18. Entire Agreement; Exhibits.
18.1 This Agreement shall constitute the entire agreement of the parties
with respect to the subject matter of this Agreement and supersedes all prior
agreements between the parties related to the subject matter hereof.
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18.2 The following documents are attached to and made a part of this
Agreement:
Exhibit A Approved Accounts and Excluded Accounts
Exhibit B Mentor Graphics Professional Services Agreement
Exhibit C Mentor Graphics Statement of Work
Exhibit D Confidential Information Exchange Agreement
Section 19. Counterparts.
This Agreement may be signed in any one or more counterparts, each of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each party has caused a duly authorized representative
to execute this Agreement.
SHELDAHL, INC.
By /s/ James E. Donaghy
---------------------------------
Its President
---------------------------
MENTOR GRAPHICS CORPORATION
Professional Services Division
By /s/ Russell F. Henke
--------------------------------
Its V.P./General Manager
---------------------------
MENTOR GRAPHICS CORPORATION
Corporate Contracts
By /s/ Charles Tryon
---------------------------------
Its Director of Contracts
---------------------------
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Exhibit 10.23
AGREEMENT RELATING TO JOINT VENTURE
-----------------------------------
This AGREEMENT RELATING TO JOINT VENTURE is made and entered into this 1st
day of August, 1995, by and between SHELDAHL, INC., a corporation established
and existing under the laws of the State of Minnesota having its principal place
of business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A.
("SHELDAHL"), JIANGXI CHANGJIANG CHEMICAL PLANT, a corporation established and
existing under the laws of China, having its principal place of business at 1
Qianjin Road (E), Jiujiang Jiangxi China 332006 ("JCCP"), HONG KONG WAH HING
(CHINA) DEVELOPMENT CO., LTD., a corporation established and existing under the
laws of Hong Kong having its principal place of business at 14 Westlands Road,
3/F C, Aik San Factory Building, Quarry Bay, Hong Kong ("WAH HING"), and
JIUJIANG FLEX CO., LTD., a corporation established and existing under the laws
of China, having its principal place of business at 1 Qianjin Road (E), Jiujiang
Jiangxi China 332006 ("SNW").
Jiujiang Wahhing Norinco Electronics Industry Co. Ltd. is an enterprise
with foreign investment (a limited liability company) established by JCCP and
WAH HING to manufacture and to sell flexible copper laminates and associated
coverfilms and tapes. Jiujiang Wahhing Norinco Electronics Industry Co. Ltd.
was registered and approved by the city government of Jiujiang in Jiangxi
province in China on August 18, 1994.
During the establishment of Jiujiang Wahhing Norinco Electronics Industry
Co. Ltd., SHELDAHL expressed its interest in participating as an equity owner of
Jiujiang Wahhing Norinco Electronics Industry Co. Ltd. after assessing its
strategic planning and technical competitive advantages. After a series of
discussions, both JCCP and WAH HING have agreed to have SHELDAHL participate as
an equity owner of Jiujiang Wahhing Norinco Electronics Industry Co. Ltd.
BACKGROUND:
A. JCCP is actively engaged in the business of developing, manufacturing
and marketing various kinds of electronic material in China and the
international markets.
B. SHELDAHL is actively engaged in the business of developing,
manufacturing and marketing flexible copperclad laminates and associated
coverfilm tapes throughout the world.
C. Wah Hing is actively engaged in the businesses of manufacturing and
marketing toys, real estate development, construction contracting and investment
development.
D. The following additional agreements ("Additional Agreements") are being
entered into this date: (i) Manufacturing
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Agreement; (ii) Marketing and License Agreement; and (iii) Agreement Relating to
Payments.
E. All three parties desire to establish a long-term business relationship
through investment in SNW.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties agree as follows:
1. Purpose, Scope, Duration.
1.1 JCCP, SHELDAHL and WAH HING have decided to jointly form a limited
liability company in Jiujiang, Jiangxi China under the name Jiujiang Flex Co.,
Ltd. The formation of the company is based on principles of shared risk, shared
management and shared profit. The duration of SNW shall be thirty (30) years,
unless extended by mutual agreement of the parties.
1.2 The total investment of SHELDAHL, WAH HING and JCCP in SNW is
approximately $5,000,000. SNW is expected to have the capability to produce
600,000 square meters of flexible copperclad laminates and 600,000 square meters
of associated coverfilm tapes.
1.3 The purpose and scope of SNW shall be to manufacture and sell
flexible copperclad laminates and associated coverfilm tapes through SNW's
distribution channels in China (including Taiwan, Hong Kong and Macau) and to
SHELDAHL for resale in all other markets.
1.4 Neither JCCP nor WAH HING shall, while it owns shares in SNW and
for a period of three years after it sells its shares in SNW, manufacture or
market, directly or indirectly, for sale anywhere in the world, products which
are competitive with products manufactured or marketed by SNW. Neither JCCP nor
WAH HING shall, directly or indirectly pursue business opportunities related to
the technology licensed to SNW by SHELDAHL except through SNW.
1.5 Except for SHELDAHL's obligations under the Manufacturing
Agreement and the Marketing and License Agreement, SHELDAHL shall be free to
pursue other business opportunities outside of SNW. SHELDAHL may grant a license
under the Technical Information and the Industrial Property Rights of SHELDAHL
to manufacture Licensed Products in any country in Asia other than third parties
which would manufacture the Licensed Products in mainland China, Taiwan, Hong
Kong or Macau. In such event, SHELDAHL agrees to purchase, in replacement of its
120,000 square meter commitment under the Manufacturing Agreement, a total of
150,000 square meters of Licensed Products which are flexible copperclad
laminates each year during the period beginning with
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such license granted and ending the tenth (10th) Royalty Year. In the event
SHELDAHL desires to grant such a license, it agrees to inform the Board of
Directors of SNW six (6) months before the license grant and discuss and
consider with the SNW Board of Directors SNW's participation. If SNW desires to
participate, SHELDAHL shall give special consideration to such request.
2. Formation and Capitalization.
2.1 The name of the company is Jiujiang Flex Co., Ltd. JCCP shall
cause the joint venture to be approved under the laws of China and in connection
therewith, shall cause Articles of Association to be filed and approved as
required by China law.
2.2 The total investment of SHELDAHL, WAH HING and JCCP in SNW is
approximately $5,000,000 which is equal to 100% equity ownership interest. JCCP
will contribute to SNW the manufacturing facilities, the secondary equipment
inside mainland China, the supporting infrastructure of the factory and the
right to use the land and will receive 40% ownership in SNW. WAH HING will
contribute to SNW certain imported equipment and capital and will receive 40%
ownership interest in SNW. All equipment and facilities shall be free and clear
of any rights of third parties and title to such items shall be transferred to
SNW. SHELDAHL will provide SNW with licensed technology valued at $900,000 and
technical assistance valued at $100,000 (as specified in both the Marketing and
License Agreement and the Manufacturing Agreement) and will receive 20%
ownership interest in SNW valued at $1,000,000 and the payments required under
the Additional Agreements. Each party shall provide SNW with a clear and
separate list of all investment items from each party with such items verified
by the parties. SNW will submit the complete list of all investment items to the
China Business Registration Agency which will verify the investment and issue
the legal binding verification report. The parties will utilize this Agency
report as the basis to determine the exact value of the contribution from each
party to calculate the ownership interest of each party.
2.3 All expenses related to the formation and organization of SNW
shall be paid by SNW. Other than those costs, each party shall pay their
respective costs and expenses of finalizing the transactions contemplated by
this Agreement.
3. Management of SNW.
3.1 The Board of Directors of SNW shall become effective the date when
SNW receives governmental approval.
3.2 The Board of Directors consists of 8 Board members, out of which
JCCP shall have 3 members; WAH HING shall have 3 members; and SHELDAHL shall
have 2 members. The Chairman
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of the Board is from WAH HING. The Vice Chairmen are from JCCP and SHELDAHL.
The term of the Chairman of the Board, Vice Chairman of the Board and each Board
member is four (4) years. Board members' terms may be renewed after approval by
the party which they represent. Each party shall notify the Board in writing
when it decides to replace its designated Board member.
3.3 The overall management and control of the business and affairs of
SNW shall be vested in the Board of Directors. Each member of the Board of
Directors shall be entitled to one vote. Each party shall be entitled to remove
and replace its designated directors. Five directors shall be required for all
meetings of the Board of Directors; provided, that no meeting shall be held
unless one director designated by each party is present. The initial President
of SNW responsible for its day-to-day operations shall be Mr. Guo You-Wi. All
successors to Mr. Guo You-Wi, and all other officers of SNW shall be appointed
and removed by the Board of Directors.
3.4 JCCP, WAH HING and SHELDAHL, as shareholders, will cause SNW to be
operated and managed in a manner that is fair to all shareholders of SNW.
4. Consents. The written consent of the Board of Directors and JCCP, WAH
HING and SHELDAHL must be obtained prior to SNW:
a. authorizing, issuing or acquiring any capital stock, warrants,
options or other rights in or for capital stock of SNW other than
those to be issued under Sections 2.2 or 5.2;
b. entering into any transaction with JCCP, WAH HING or SHELDAHL
(other than those contemplated by the Additional Agreements), or
any of their affiliates;
c. changing the purpose or scope of SNW's business in a manner
inconsistent with Section 1.3 or otherwise engaging in activities
outside said scope; or
d. entering into any transaction for the merger, consolidation,
sale, lease or transfer of substantially all of the assets or
dissolution or liquidation of SNW.
5. Initial Capital; SHELDAHL Option.
5.1 The capital contributions in Section 2.2 shall be supplemented by
debt financing as the Board of Directors deem appropriate to fund SNW's cash
requirements for working capital
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and additional equipment necessary to establish and finance the operations of a
manufacturing plant capable of producing the Licensed Products described in the
Marketing and License Agreement. The debt financing will be secured by the
assets of SNW to the extent allowed by law. If additional security is required
to obtain necessary working capital, the three parties shall assist SNW. JCCP
and WAH HING shall assist by providing any required guarantees to lenders.
Sheldahl shall assist by providing flexible payment terms for products or
materials which SNW may purchase from Sheldahl and advance payments for products
purchased by Sheldahl from SNW (as determined by the SNW Board of Directors and
Sheldahl at the time JCCP and WAH HING provide guarantees), but such assistance
shall be required only if and when JCCP or WAH HING are called upon to perform
their obligations under their guarantees.
5.2 SHELDAHL shall have the right and option, at any time and from
time to time during the option periods described below, to purchase additional
ownership interests in SNW; provided that SHELDAHL's total ownership interest in
SNW shall not exceed 30% as a result of such purchases under this Section 5.2.
SHELDAHL shall receive a 1% ownership interest in SNW for each $50,000 of
funding during the first option period which shall begin on the fourth month
after the Licensed Products manufactured by SNW meet the performance and quality
standards of such products manufactured by SHELDAHL and shall end two years
thereafter. SHELDAHL shall receive a 1% ownership interest in SNW for each
$60,000 of funding during the second option period which shall begin at the end
of the first option period and shall end two years thereafter.
6. Facilities, Equipment and Personnel.
6.1 JCCP will take the leadership role, in working with SHELDAHL and
WAH HING, to develop a comprehensive plan for the project, to design the layout
and specifications of the facilities and the schedule. JCCP will provide SNW
the facility, land and secondary equipment.
6.2 SHELDAHL will take the leadership role, in working with JCCP and
WAH HING, to plan the production equipment specifications and schedule and
optimal process flow techniques.
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6.3 JCCP, SHELDAHL and WAH HING shall work together to complete
construction of the manufacturing plant and begin operations at the earliest
possible date.
6.4 All investment from each party, be it tangible or intangible,
shall be clearly stated as provided in Section 2.2.
6.5 JCCP shall identify and select the initial employees of SNW,
subject to approval of the Board of Directors of SNW. All employee benefits
shall be approved by the Board of Directors.
7. Accounting and Tax Matters.
7.1 Within three (3) months after the end of each fiscal year, the
President shall cause to be prepared and shall submit to the directors the
balance sheet, statement of income and loss and a distribution plan.
7.2 Three months prior to the end of each fiscal year, the President
shall cause to be prepared and shall submit to the directors for consideration a
business plan and budget of SNW for the next fiscal year ("Annual Plan and
Budget"). When approved by the directors, the Annual Plan and Budget shall be
SNW's operational and spending plan.
7.3 The books of account of SNW shall be kept and maintained at SNW's
offices in accordance with the approved international standards. All parties
shall have the right at all reasonable times to audit, examine, makes copies of
and extracts from, the books of account of SNW. All documents will be written
in Chinese.
7.4 The President shall cause such financial statements and tax
returns and statements to be prepared and furnished to the parties as requested
by the Board of Directors or required by the laws of China. Financial
statements shall be distributed to the parties at least twice a year. SNW shall
provide SHELDAHL with an English version of the statements.
8. Distributions.
Within ninety (90) days following the end of each fiscal year, the
Board of Directors shall determine the reasonable working capital requirements
of SNW for the next fiscal year, including any required reserves. The Board of
Directors shall approve all distributions which shall be made in proportion to
each parties equity ownership in SNW.
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9. Representations of Parties.
9.1 In order to induce the other to enter into and perform this
Agreement, JCCP, WAH HING and SHELDAHL (each constituting a "Representing Party"
for purposes of this Section 9) each hereby represents and warrants to the
others as follows:
a. The Representing Party is a corporation duly organized and
validly existing under the laws of its jurisdiction of
organization.
b. The Representing Party has taken all corporate actions necessary
for the authorization, execution, delivery and performance of
this Agreement, and when accepted by the other parties this
Agreement will constitute a valid and binding obligation,
enforceable against it in accordance with the terms hereof.
c. Except as provided in Section 14.2(b), no consent, approval or
authorization of, or exemption by, or filing with, any
governmental body is required in connection with the execution,
delivery and performance by the Representing Party of this
Agreement or the taking of any other action contemplated hereby,
except SHELDAHL is currently applying for all necessary licenses
required by the government of the United States.
d. There are no undisclosed facts of which the Representing Party is
aware that could materially effect the operations, business or
financial condition of SNW after the date hereof or its ability
to perform its obligations under this Agreement.
9.2 JCCP and WAH HING represent and warrant to SHELDAHL that SNW has
no debts or liabilities and has incurred no obligations since its formation on
August 18, 1994. To the extent SNW has debts, liabilities or other obligations,
JCCP and WAH HING shall provide additional funds to SNW to eliminate them or
shall assume and become responsible for them.
10. Pre-Emptive Rights.
In the case of issuance of new shares by SNW other than under Section
5.2, JCCP, WAH HING and SHELDAHL shall have the right to subscribe for such
number of shares to maintain their respective ownership percentage in SNW.
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11. Co-Sale Right.
Neither party shall sell or otherwise transfer any interest in its
shares in SNW without allowing the other parties to participate on the same
terms in the contemplated transfer in proportion to the number of shares each
party holds.
12. First Refusal Right.
No party will sell, transfer or otherwise dispose of any of the shares
of SNW at any time (other than to majority owned subsidiaries of that party)
unless the other parties shall have been given the opportunity, in the following
manner, to purchase (or cause a corporation, entity, person or group designated
by them to purchase) such shares:
a. The selling party shall notify the other parties in writing of
such intention, specifying the shares proposed to be disposed of
and the proposed terms thereof.
b. The other parties shall have the right, exercisable by written
notice given by them to the selling party within 30 days after
receipt of such notice of intention, to purchase (or to cause a
corporation, entity, person or group designated by them to
purchase) all or any part of the shares specified in such notice
of intention on the terms and at the price set forth therein.
c. If the other parties exercise their right of first refusal
hereunder, the closing of the purchase of the shares with respect
to which such right has been exercised shall take place within 60
days after the other parties give notice of such exercise.
d. If the other parties do not exercise their right of first refusal
hereunder within the time specified for such exercise, the
selling party shall be free during the period of 60 days
following the expiration of such time for exercise to sell the
shares to the purchaser specified in such notice of intention at
the price specified therein or at any price in excess thereof.
Any shares not sold by the selling party within said 60 day
period shall continue to be subject to the provisions of this
Section 12.
e. If the other parties shall designate another corporation, entity,
person or group as the purchaser pursuant to this Section 12, the
giving
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of notice of acceptance of the right of first refusal by the
other parties shall constitute a legally binding obligation of
the other parties to complete such purchase if such other
corporation, entity, person or group shall fail to do so.
f. The right of any party to sell its shares to a third party shall
be subject to the condition that any such purchaser agree in
writing to be bound by all of the terms and conditions of this
Agreement.
13. Confidentiality.
Neither JCCP nor WAH HING shall have access to confidential
information of SNW or SHELDAHL exchanged or pursuant to the Marketing and
License Agreement and the Manufacturing Agreement. In the event either JCCP or
WAH HING receives such information, it agrees to keep such information strictly
secret and confidential and not to disclose it to any third persons or use it
The obligations of this Section 13 shall survive any termination of this
Agreement.
14. Closing and Conditions.
14.1 The Closing of the transactions provided for in Section 2 shall
take place at a place to be agreed by the parties on or before December 31, 1995
(the "Closing"). At the Closing, the parties shall execute and deliver such
documents and instruments, together with the cash required by Section 2.2, as
required to effect the intents and purposes of this Agreement.
14.2 The obligations of the parties hereunder and under the Additional
Agreements are subject to the fulfillment, prior to or at Closing, of the
following conditions:
(a) The representations of the parties in this Agreement shall be
true and correct;
(b) JCCP shall have obtained all authorizations, consents, waivers
and approvals from the government of China and any agencies
thereof as may be necessary to form SNW, to enable SNW to conduct
its business as contemplated herein and to allow SNW and JCCP to
satisfy their obligations in this Agreement and the Additional
Agreements; and
(c) SHELDAHL shall have obtained all licenses required from the
government of the United States to allow it to satisfy its
obligations in this Agreement and the Additional Agreements.
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(d) SHELDAHL's Board of Directors shall have approved the terms of
this Agreement and the Additional Agreements.
15. Term and Termination.
15.1 The term of this Agreement shall commence on the date hereof and
continue for a period of thirty (30) years unless terminated in accordance with
the provisions of this Agreement or by force of law. The term of this Agreement
may be extended by mutual agreement of all parties.
15.2 This Agreement shall terminate in any one of the following
circumstances:
a. Failure of the parties to satisfy the conditions set forth in
Section 14.2;
b. Receivership, bankruptcy, other insolvency proceedings,
liquidation, or dissolution of SNW;
c. The sale or transfer of all or substantially all of the assets or
shares of capital stock of SNW;
d. The voluntary agreement of all parties to this Agreement; or
e. SHELDAHL fails to agree to its final ownership interest if such
interest is more or less than 20%.
16. Arbitration.
Any dispute between the parties arising out of or concerning the
subject matter of, or the respective rights and obligations of the parties
under, this Agreement shall be submitted to arbitration if it cannot be resolved
by the parties. The arbitration proceeding shall be conducted in the place
where the party against which the arbitration is requested has its principal
office and in accordance with the rules of the Commercial Arbitration
Association then in effect at such place.
17. Governing Law.
This Agreement and the rights and obligations of the parties hereunder
shall be construed and interpreted in accordance with the laws of China.
18. Force Majeure.
Both parties to this Agreement shall be excused from the performance
of their obligations hereunder, and shall be
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excused for so long as such condition continues, if such performance is
prevented by conditions beyond the control of the parties, such as acts of God,
voluntary or involuntary compliance with any regulation, law or order of any
government, war, civil commotion, strike, epidemic, failure or default of public
utilities or common carriers, destruction of production facilities or materials
by fire, earthquake, storm or like catastrophe.
19. Notice Provisions.
Any notice required or permitted to be given hereunder shall be in
writing and any notice shall be deemed to have been given when delivered in
person or seven (7) days after the date upon which it was mailed, postage
prepaid, by certified or registered air mail properly addressed to the addresses
on page 1 of this Agreement; provided, however, that the presumption of actual
receipt shall be subject to rebuttal by probative evidence showing that such
notice was not actually received.
20. Modification.
No modification or any claimed waiver of any of the provisions of this
Agreement shall be effective unless in writing and signed by a duly authorized
officer of the party against whom such modification or waiver is sought.
21. Entire Agreement.
This Agreement and the Additional Agreements shall constitute the
entire agreement of the parties with respect to the subject matter of this
Agreement and this Agreement will be attached to the Joint Venture Contract and
Articles of Association.
22. Translation.
The parties acknowledge that a Chinese translation of this Agreement
is being executed by the parties on the date hereof. In interpreting this
Agreement, the English version and the Chinese version shall be given equal
weight. There shall be signed four (4) copies of this Agreement in Chinese and
four (4) copies in English. Each party shall receive one (1) copy in English
and one (1) copy in Chinese.
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IN WITNESS WHEREOF, the parties have caused their respective
representatives to sign and execute this Agreement in counterpart and each party
holds one copy.
JIANGXI CHANGJIANG CHEMICAL HONG KONG WAH HING (CHINA)
PLANT OF CHINA DEVELOPMENT CO., LTD.
By /s/ Rong-Zhong Rui By /s/ William C.H. Ma
-------------------------- ---------------------------
Its President Its Managing Director
---------------------- -----------------------
SHELDAHL, INC. JIUJIANG FLEX CO., LTD.
By /s/ Edward Lundstrom By /s/ Edward Lundstrom
-------------------------- ---------------------------
Its V.P./Sales & Marketing Its Vice Chairman
---------------------- -----------------------
By /s/ Rong-Zhong Rui
---------------------------
By /s/ William C.H. Ma
---------------------------
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Exhibit 10.24
AGREEMENT RELATING TO PAYMENTS
------------------------------
This AGREEMENT RELATING TO PAYMENTS is made and entered into this 1st day
of August, 1995, by and between SHELDAHL, INC., a corporation established and
existing under the laws of the State of Minnesota having its principal place of
business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A. ("SHELDAHL"),
JIANGXI CHANGJIANG CHEMICAL PLANT, a corporation established and existing under
the laws of China, having its principal place of business at 1 Qianjin Road (E),
Jiujiang Jiangxi China 332006 ("JCCP"), HONG KONG WAH HING (CHINA) DEVELOPMENT
CO., LTD., a corporation established and existing under the laws of Hong Kong
having its principal place of business at 14 Westlands Road, 3/F C, Aik San
Factory Building, Quarry Bay, Hong Kong ("WAH HING"), and JIUJIANG FLEX CO.,
LTD., a corporation established and existing under the laws of China having its
principal place of business at 1 Qianjin Road (E), Jiujiang, Jiangxi China
332006 ("SNW").
BACKGROUND:
A. JCCP, WAH HING and SHELDAHL wish to establish a limited liability
company in Jiujiang, Jiangxi China. Its name is Jiujiang Flex Co., Ltd. The
purpose of the company is to manufacture and sell flexible copperclad laminates
and associated coverfilm tapes.
B. The following additional agreements ("Additional Agreements") are being
entered into this date: (i) Manufacturing Agreement; (ii) Marketing and License
Agreement; and (iii) Agreement Relating to Joint Venture.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties agree as follows:
1. SNW agrees to pay, and JCCP and WAH HING agree to cause SNW to pay,
SHELDAHL the following amounts upon completion of each of the following
milestones:
Milestone Payment
--------- -------
Approval by the Chinese $270,000
Government Agency of Joint
Venture Contract and Related
Agreements
Within 45 days of approval $180,000
by the Chinese Government
Agency of Joint Venture Contract
and Related Agreements
<PAGE>
Completion of Phase 2 $ 90,000
(Equipment Performance
Specifications)
Completion of Phase 4 $ 90,000
(Personnel Training)
Completion of Phase 5 $180,000
(Equipment verification)
Completion of Phase 7 $ 90,000
--------
(Start-up of production)
TOTAL $900,000
========
Each phase is more fully described in Schedule B to the Marketing and License
Agreement. All payments shall be made in United States dollars.
2. SHELDAHL has agreed to assist SNW in establishing a manufacturing line
using technology licensed by SHELDAHL to SNW. SHELDAHL will receive a total of
$900,000 for such assistance which shall be paid upon completion of certain
milestones listed in Section 1 above. The $900,000 will be loaned to SNW by
JCCP and WAH HING and will be repaid within 3-1/2 years after SNW begins
production and the products meet the technical specifications by using dividends
retained by SNW under Section 3 below and otherwise by SNW.
3. Dividends which are otherwise distributable to SHELDAHL by SNW shall be
retained by SNW until the earlier of (a) the date SNW has retained an amount
equal to the payments described in Section 1 above; or (b) 3 1/2 years after SNW
begins production, provided SHELDAHL has satisfied all contractual commitments
then due to SNW under the Marketing and License Agreement and Manufacturing
Agreement; or (c) the date SHELDAHL fulfills the commitments described in clause
(b) above which have not been satisfied prior to the end of the period set forth
in clause (b) above. SHELDAHL shall fully participate in all distributions
after the earliest of the periods described in this Section 3.
4. This Agreement shall be effective only upon approval by the Chinese
Government Agency of the terms of this Agreement and the Additional Agreements,
to the extent such approval is required. This Agreement shall terminate in the
event the Agreement Relating to Joint Venture terminates under Section 15.2(e)
or the Closing under that agreement does not occur.
5. This Agreement will be executed in Chinese and English. Each party
shall have one copy in Chinese and one in English.
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6. This Agreement shall be attached to the Joint Venture Contract and
Articles of Association.
IN WITNESS WHEREOF, the parties have caused their respective
representatives to sign and execute this Agreement in counterpart and each party
holds one copy.
JIANGXI CHANGJIANG CHEMICAL HONG KONG WAH HING (CHINA)
PLANT OF CHINA DEVELOPMENT CO., LTD.
By /s/ Rong-Zhong Rui By /s/ William C.H. Ma
-------------------------- ---------------------------
Its President Its Managing Director
---------------------- --------------------
SHELDAHL, INC. JIUJIANG FLEX CO., LTD.
By /s/ Edward Lundstrom By /s/ Edward Lundstrom
-------------------------- ---------------------------
Its V.P./Sales & Marketing Its Vice Chairman
---------------------- -----------------------
By /s/ Rong-Zhong Rui
---------------------------
By /s/ William C.H. Ma
---------------------------
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Exhibit 10.25
MANUFACTURING AGREEMENT
-----------------------
This MANUFACTURING AGREEMENT is made and entered into as of the 1st day of
August, 1995, by and between SHELDAHL, INC., a corporation established and
existing under the laws of the State of Minnesota having its principal place of
business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A. ("SHELDAHL"),
and JIUJIANG FLEX CO., LTD., a corporation established and existing under the
laws of China having its principal place of business at 1 Qianjin Road (E),
Jiujiang Jiangxi China 332006 ("SNW").
BACKGROUND:
A. SHELDAHL is actively engaged in the business of developing,
manufacturing and marketing flexible copperclad laminates and associated
coverfilm tapes (coverlay) throughout the world.
B. SNW has been established in Jiujiang, Jiangxi China to manufacture
flexible copperclad laminates and associated coverfilm tapes.
C. Both parties desire to establish a long-term business relationship
through technical assistance, sales of copperclad laminates and associated
coverfilm tapes and investment by SHELDAHL and others in the SNW and are
entering into or have entered into the following agreements (the "Additional
Agreements") in addition to this Agreement: (i) Agreement Relating to Joint
Venture; (ii) Marketing and License Agreement and (iii) Agreement Relating to
Payments.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties agree as follows:
1. Definitions.
Terms used in this Agreement which are not defined in this Agreement shall
have the meanings given such terms in the Marketing and License Agreement.
2. Manufacture of Licensed Products.
2.1 SNW agrees to manufacture and sell to SHELDAHL, and SHELDAHL agrees to
purchase from SNW, 120,000 square meters of Licensed Products which are flexible
copperclad laminates each year for three (3) consecutive years beginning the
fourth month after the Licensed Products manufactured at the SNW Plant meet the
performance and quality standards of such products manufactured by SHELDAHL. In
the event SHELDAHL grants a license during such three-year period as provided in
Section 2.2 of the Marketing and License Agreement, SHELDAHL's 120,000 square
meter
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commitment shall be replaced by the commitment provided in that agreement.
2.2 In addition to the Licensed Products sold by the SNW to SHELDAHL under
Section 2.1 above, the SNW shall manufacture and sell to SHELDAHL up to 200,000
square meters of Licensed Products each year during the term of this Agreement
beginning the month SHELDAHL's minimum purchases start under Section 2.1 above.
SHELDAHL shall give SNW six (6) months' advance notice of its intended purchases
and the Board of Directors of the SNW must approve such purchases, which
approval shall not be unreasonably withheld.
2.3 During the three-year period in which SHELDAHL is required to purchase
Licensed Products under Section 2.1 of this Agreement, or until such earlier
time, if any, as a license is granted by SHELDAHL to a third party as provided
in Section 2.2 of the Marketing and License Agreement, SHELDAHL agrees to
purchase from the SNW all of SHELDAHL's requirements for Licensed Products in
Asia to the extent the SNW can timely deliver Licensed Products to SHELDAHL
which meet the performance and quality standards of such products manufactured
by SHELDAHL. After the three-year period in which SHELDAHL is required to
purchase Licensed Products under Section 2.1 above, until such time, if any, as
a license is granted by SHELDAHL as provided in Section 2.2 of the Marketing and
License Agreement, SHELDAHL shall present its estimate of the demand for
Licensed Products in Asia and agrees that SNW shall be SHELDAHL's primary
supplier of such products in Asia provided SNW can timely deliver Licensed
Products to SHELDAHL which meet the performance and quality standards of such
products manufactured by SHELDAHL.
2.4 After the Licensed Products meet the performance and quality standards
of such products manufactured by SHELDAHL, SNW shall not change the Licensed
Products or the manufacturing process for the Licensed Products without the
written consent of SHELDAHL.
3. Price and Terms.
3.1 The price of each of the Licensed Products shall be equal to 80% of
the price of such products to the world high volume market as agreed to annually
by SHELDAHL and the Board of Directors of the SNW based on information available
to the parties. All payments shall be made in United States dollars.
3.2 The terms of payment for the Licensed Products purchased by SHELDAHL
under this Agreement shall be net 30 days from invoice date unless the parties
agree to other payment terms prior to product shipment.
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3.3 SNW shall deliver the Licensed Products F.O.B. point of destination as
designated in SHELDAHL's purchase order. The purchaser of the Licensed Products
shall be responsible for shipping charges.
3.4 Each of the Licensed Products sold to SHELDAHL shall conform with the
performance and quality specifications for such product. Replacement of
defective Licensed Products will be made without charge by SNW within thirty
(30) days of receipt by SNW of notice that the Licensed Products are defective.
3.5 SHELDAHL may, upon reasonable notice, visit the SNW Plant and review
its production and quality control procedures. SNW shall deliver to SHELDAHL
test samples of the Licensed Products produced by it on reasonable notice by
SHELDAHL. SHELDAHL shall pay for the testing of the product samples requested
by SHELDAHL from the SNW.
3.6 SNW shall indemnify and hold SHELDAHL harmless for all liabilities
incurred by SHELDAHL related to products manufactured by the SNW and sold by
SHELDAHL.
3.7 SHELDAHL shall order Licensed Products by submitting written purchase
orders to SNW at least 30 days prior to shipment and shall specify the quantity,
price, delivery date, method of shipment and product specifications, however,
SHELDAHL shall provide SNW a six-month rolling forecast of estimated purchases
and shall provide SNW with a monthly update of such forecast. In the event
SHELDAHL's actual purchases materially exceed its forecast, the parties shall
work together to resolve the difference.
4. Confidentiality.
The confidentiality provisions contained in Section 11 of the Marketing and
License Agreement shall apply to any Technical Information and other
confidential information acquired from the other party under this Agreement.
5. Term and Termination.
5.1 The initial term of this Agreement shall be for a period of ten (10)
years from the date the government of China approves this Agreement and the
Additional Agreements; provided that if a written notice of termination shall
not be received by either party from the other party at least six months prior
to the expiration of the initial term or any renewal term, the term of this
agreement shall be automatically renewed for successive two year terms beyond
the initial term until such written notice of termination is timely received.
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5.2 If either party defaults on or breaches a material provision of this
Agreement or any Additional Agreement, the party not in default or breach shall
have the right to cancel this Agreement upon sixty (60) days' written notice;
provided, however, that if the defaulting party corrects the default or breach
within the sixty (60) day period, this Agreement shall continue in full force
and effect.
5.3 Either party may terminate this Agreement in the event that
proceedings for reorganization, liquidation, bankruptcy or receivership are
filed or instituted against or by the other party.
5.4 This Agreement shall terminate in the event the Agreement Relating to
Joint Venture is terminated under Section 15.2(e) or the Closing under that
agreement does not occur.
6. Force Majeure.
Both parties to this Agreement shall be excused from the performance of
their obligations hereunder, other than obligations to pay for goods sold and
delivered under this Agreement, and shall be excused for so long as such
condition continues, if such performance is prevented by conditions beyond the
control of the parties, such as acts of God, voluntary or involuntary compliance
with any regulation, law or order of any government, war, civil commotion,
strike, epidemic, failure or default of public utilities or common carriers,
destruction of production facilities or materials by fire, earthquake, storm or
like catastrophe. If such event occurs, SHELDAHL's annual minimum purchase
obligations in Section 2.1 shall be reduced proportionately for the time during
the year in which such condition continues.
7. Arbitration.
Any dispute between the parties arising out of or concerning the subject
matter of, or the respective rights and obligations of the parties under, this
Agreement shall be submitted to arbitration if it cannot be resolved by the
parties. If arbitration is requested by SHELDAHL, the arbitration proceeding
shall be conducted in Jiujiang, Jiangxi China in accordance with the rules of
the Commercial Arbitration Association then in effect in China; if arbitration
is requested by SNW, the arbitration proceeding shall be conducted in
Minneapolis, Minnesota, U.S.A. in accordance with the rules of the American
Arbitration Association then in effect.
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8. Governing Law.
This Agreement and the rights and obligations of the parties hereunder
shall be construed and interpreted in accordance with the laws of China.
9. Assignment.
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other party.
Notwithstanding the foregoing, SHELDAHL may assign all of its rights and
obligations under this Agreement to any entity which acquires SHELDAHL by
merger, consolidation or purchase of substantially all of the assets or business
of SHELDAHL related to the Licensed Products.
10. Entire Agreement.
This Agreement and the Additional Agreements shall constitute the entire
agreement of the parties with respect to the subject matter of this Agreement
and this Agreement shall be attached to the Joint Venture Contract and Articles
of Association.
11. Translation.
The parties acknowledge that a Chinese translation of this Agreement is
being executed by the parties on the date hereof. In interpreting this
Agreement, the English version and Chinese version shall be given equal weight.
There shall be signed four (4) copies of this Agreement in Chinese and four (4)
copies in English. Each party to the Agreement Relating to Joint Venture
including SNW shall receive one copy in English and one copy in Chinese.
12. Government Approval.
This Agreement shall be effective only upon approval by the Chinese
Government Agency of the terms of this Agreement and the Additional Agreements,
to the extent such approval is required.
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IN WITNESS WHEREOF, the parties have caused their respective
representatives to sign and execute this Agreement in counterpart and each party
holds one copy.
JIUJIANG FLEX CO., LTD.
By /s/ Edward Lundstrom
--------------------
Its Vice Chairman
-----------------
By /s/ Rong-Zhong Rui
--------------------
By /s/ William C.H. Ma
--------------------
SHELDAHL, INC.
By /s/ Edward Lundstrom
--------------------
Its V.P./Sales & Marketing
-----------------------
6
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Exhibit 10.26
MARKETING AND LICENSE AGREEMENT
This MARKETING AND LICENSE AGREEMENT is made and entered into as of the 1st
day of August, 1995, by and between SHELDAHL, INC., a corporation established
and existing under the laws of the State of Minnesota having its principal place
of business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A.
("SHELDAHL"), and JIUJIANG FLEX CO., LTD., a corporation established and
existing under the laws of China having its principal place of business at 1
Qianjin Road (E), Jiujiang Jiangxi China 332006 ("SNW").
BACKGROUND:
A. SHELDAHL is actively engaged in the business of developing,
manufacturing and marketing flexible copperclad laminates and associated
coverfilm tapes (coverlay) throughout the world.
B. SNW has been established in Jiujiang Jiangxi China to manufacture
flexible copperclad laminates and associated coverfilm tapes.
C. Both parties desire to establish a long-term business relationship
through technical assistance, sales of copperclad laminates and associated
coverfilm tapes and investment by SHELDAHL and others in the SNW and are
entering into or have entered into the following agreements (the "Additional
Agreements") in addition to this Agreement: (i) Agreement Relating to Joint
Venture; (ii) Manufacturing Agreement; and (iii) Agreement Relating to Payments.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties agree as follows:
1. Definitions.
1.1 "Excluded Products" shall mean SHELDAHL's product offerings not listed
on Schedule A attached hereto.
1.2 "Industrial Property Rights" shall mean any and all patents and other
industrial property rights of SHELDAHL with respect to the Licensed Products (as
defined below) and related technology thereof excluding, however, any such
rights related to Excluded Products.
1.3 "SNW Plant" shall mean the SNW's manufacturing plant in Jiujiang
Jiangxi China.
1.4 "Licensed Products" shall mean the flexible polyimide and polyester-
based laminates and associated polyester and polyimide coverfilm tapes listed on
Schedule A and any
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Improvements thereof by SHELDAHL or SNW as defined in Section 9.2 excluding,
however, the Excluded Products. Other polyimide and polyester-based laminates
and associated coverfilm tapes of SHELDAHL may be added as Licensed Products if
the SNW and SHELDAHL agree and a reasonable technology transfer fee is
determined.
1.5 "Net Sales" shall mean the full amount collected on the sale of
Licensed Products after deduction of (a) any collected tax or other governmental
charge on the sale, transportation, use or delivery of the Licensed Product, (b)
any amounts repaid or credited by reason of returns or rejections, and (c) any
amount paid to the Chinese government on account of royalty payments to be made
to SHELDAHL for such sales.
1.6 "Royalty Product" shall mean any Licensed Product sold by the SNW,
excluding Licensed Products sold to SHELDAHL.
1.7 "Royalty Year" shall mean a period of four consecutive calendar
quarters beginning with the calendar quarter which includes the date on which
the SNW first manufactures and sells Royalty Products and each period of four
consecutive calendar quarters thereafter.
1.8 "Technical Information" shall mean all areas of technology related to
the Licensed Products, whether patentable or not, relating to the manufacture of
the Licensed Products, including without limitation manufacturing processes,
equipment specifications, product design standards, computer aided design
systems, training and education programs, and any other controls, processes,
systems, equipment and related technology which would be of assistance in
development of the Licensed Products by the SNW, excluding however any such
confidential Technical Information related to Excluded Products.
1.9 "Industrial Property Rights" and "Technical Information" as used in
this Agreement shall not include any such right or information acquired by
SHELDAHL under agreements entered into by SHELDAHL with unrelated third parties
or developed jointly with any such unrelated third party, unless specifically
authorized in writing by any such third party.
2. Grant of License.
2.1 SHELDAHL hereby grants to the SNW an exclusive license under the
Technical Information and the Industrial Property Rights of SHELDAHL to
manufacture Licensed Products in China at the SNW Plant using a roll-to-roll
process. SHELDAHL also grants to the SNW the right to sell the Licensed
Products produced by the SNW solely under the terms of Section 4 below.
SHELDAHL has the right to grant the licenses granted in this
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Section 2. The SNW shall manufacture the Licensed Products and formulate and
mix adhesives only at the SNW Plant unless SHELDAHL agrees otherwise. SHELDAHL
retains all other rights under the Technical Information and Industrial Property
Rights, including the right to license such rights to third parties, other than
third parties which would manufacture the Licensed Products in mainland China,
Taiwan, Hong Kong or Macau.
2.2 In the event SHELDAHL grants, after the date of this Agreement, to any
third party other than SNW a license under the Technical Information and the
Industrial Property Rights of SHELDAHL to manufacture Licensed Products in any
country in Asia, SHELDAHL agrees to purchase, in replacement of its 120,000
square meter commitment under the Manufacturing Agreement, a total of 150,000
square meters of Licensed Products which are flexible copperclad laminates each
year during the period beginning with such license grant and ending the tenth
(10th) Royalty Year. In the event SHELDAHL desires to grant such a license, it
agrees to inform the Board of Directors of SNW six months before the license
grant and discuss and consider with the SNW Board of Directors SNW's
participation. If SNW desires to participate, SHELDAHL shall give special
consideration to such request.
2.3 The SNW may not sublicense the rights granted hereunder except with
the prior written consent of SHELDAHL.
3. Royalty Payment and Reporting.
3.1 In consideration of the licenses granted under Section 2, SNW shall
pay to SHELDAHL a running royalty for each Royalty Year at the rates set forth
below of Net Sales of Royalty Products:
<TABLE>
<CAPTION>
Royalty Rate
Aggregate Net Sales --------------
of all Royalty Products Royalty Years Royalty Years
Each Royalty Year 1-3 4-10
- - ------------------------------- --- ----
<S> <C> <C>
First $2,000,000 5% 3.5%
Next $2,000,001 to $4,000,000 4% 2.5%
Next $4,000,001 to $8,000,000 3% 1.5%
In excess of $8,000,000 2% 1.0%
</TABLE>
For example, if the SNW sells $4,000,000 of Royalty Products during the second
Royalty Year, the royalty shall equal $180,000. Sales by the SNW for currency
other than United States dollars shall be converted to dollars using an
internationally accepted exchange rate on the payment due date.
3.2 SHELDAHL shall receive a minimum royalty of $100,000 each Royalty Year
payable within 30 days of the end of each Royalty Year. The minimum royalty
payment shall be reduced
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by amounts paid to SHELDAHL by the SNW under Section 3.1 for the Royalty Year.
3.3 Royalties shall be paid quarterly within 30 days after the end of each
calendar quarter during the period for which any royalty shall be due, and shall
be accompanied by a written report detailing the quantity and Net Sales Price of
Royalty Products sold by SNW during the calendar quarter in which royalties are
due under Section 3 and the aggregate dollar volume of Royalty Products sold
during the Royalty Year.
3.4 No royalties shall be paid for Royalty Products sold after the tenth
(10th) Royalty Year under either Section 3.1 or 3.2 above.
3.5 SNW shall keep full and accurate books of account containing all
information necessary to compute the royalties due SHELDAHL under this
Agreement. Such books of account shall be kept at the SNW Plant, and shall be
available upon reasonable notice for inspection and audit by financial
representatives of SHELDAHL from time to time during regular business hours.
4. Marketing of Licensed Products.
4.1 The Licensed Products produced by the SNW may be sold only pursuant to
the terms of this Section 4.
4.2 The SNW shall be primarily responsible for managing and shall have
ultimate control over sales of Licensed Products produced at the SNW Plant in
mainland China, Hong Kong and Macau. Sales to Taiwan are governed by Section
4.4 below.
4.3 Subject to SHELDAHL's purchase obligations in the Manufacturing
Agreement, SHELDAHL shall be primarily responsible for managing and shall have
ultimate control over sales of the Licensed Products produced at the SNW Plant
in all markets other than mainland China, Taiwan, Hong Kong and Macau.
4.4 Subject to SHELDAHL's purchase obligations in the Manufacturing
Agreement, SHELDAHL shall be primarily responsible for managing and shall have
ultimate control over sales of the Licensed Products produced at the SNW Plant
in Taiwan until December 31, 1998. Prior to December 31, 1998, the SNW and
SHELDAHL shall agree upon the distribution method in Taiwan. After December 31,
1998, the SNW shall be primarily responsible for managing and shall have
ultimate control over sales of the Licensed Products produced at the SNW Plant
in Taiwan under the distribution method agreed to by SHELDAHL and the SNW.
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5. Trademark.
5.1 SNW shall have the exclusive right to use SHELDAHL's trademark
"Flexbase(TM)" only on Licensed Products which meet the performance and quality
standards of such products manufactured by SHELDAHL and only for selling
Licensed Products produced at the SNW Plant in mainland China, Taiwan, Hong Kong
and Macau under the terms of Section 4 of this Agreement; subject to SHELDAHL's
right to use the trademark "Flexbase(TM)" in its sales of Licensed Products
under the terms of Section 4 of this Agreement and without restriction anywhere
in the world with respect to the sale of its own products. The SNW shall
identify SHELDAHL as the owner of the Flexbase(TM) trademark. Until such
trademarks are issued, SHELDAHL makes no warranty as to validity or use of such
trademarks.
5.2 The SNW shall use and refer to the name of SHELDAHL as a licensor of
the Technical Information and the Industrial Property Rights in an appropriate
manner; provided the SNW shall obtain the prior written consent of SHELDAHL to
such use and reference.
6. Temporary Supply of Products.
6.1 Until the earlier of December 31, 1998 or the date the SNW begins
producing Licensed Products which meet the performance and quality standards of
such products manufactured by SHELDAHL, SHELDAHL shall sell to the SNW flexible
laminates and associated coverfilm tapes with the same specifications as the
Licensed Products solely for resale by the SNW in mainland China. During such
period, SNW shall work with SHELDAHL in developing a marketing plan for such
products in mainland China. SNW shall update SHELDAHL periodically with respect
to sales in China and suggest modifications to such marketing plan. After such
period, SNW shall have the rights provided in Section 4.2 above.
6.2 SNW shall use tradenames and trademarks of SHELDAHL in the sale or
distribution of SHELDAHL's products in mainland China unless otherwise
authorized by SHELDAHL from time to time.
6.3 SHELDAHL shall provide to SNW necessary promotional materials which
are available, it being understood that such materials will be in the English
language.
7. Price and Terms of SHELDAHL Sales.
7.1 The price of each of the products sold by SHELDAHL to the SNW under
Section 6 above shall be equal to 80% of the price of such products to the world
high volume market as agreed
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<PAGE>
to annually by SHELDAHL and the Board of Directors of the SNW based on
information available to the parties.
7.2 The terms of payment for the products sold by SHELDAHL to the SNW
under this Agreement shall be net 30 days from invoice date unless the parties
agree to other payment terms prior to product shipment.
7.3 SHELDAHL shall deliver such products to the SNW F.O.B. SHELDAHL plant.
7.4 Each of such products sold to the SNW shall conform with the
performance and quality specifications for such products. Replacement of
defective products will be made without charge by SHELDAHL within thirty (30)
days of receipt by SHELDAHL of notice that the products sold by SHELDAHL to the
SNW are defective.
7.5 SNW shall order products from SHELDAHL by submitting written purchase
orders to SHELDAHL at least 30 days prior to shipment and shall specify the
quantity, price, delivery date, method of shipment and product specifications.
All sales by SHELDAHL to the SNW shall be subject to SHELDAHL's general terms
and conditions of sale to the extent consistent with this Section 7.
8. Technical Assistance to SNW by SHELDAHL.
8.1 Immediately after the execution of this Agreement, SHELDAHL shall
provide technical assistance to SNW for the SNW Plant based on the Technical
Information of SHELDAHL in the manner prescribed in Schedule B attached hereto.
8.2 The subjects of the technology for the technical assistance
provided for in Section 8.1 are detailed in Schedule B as "deliverables."
8.3 The technical assistance to SNW by SHELDAHL shall be made through
technical instruction by SHELDAHL's personnel and technical materials to be
provided by SHELDAHL. SNW shall provide, at its expense, technical interpreters
at SHELDAHL's facilities and the SNW Plant. If SNW so requests, SHELDAHL shall
disclose and deliver such Technical Information by documentation such as
drawings, specifications, bills and materials, designs, etc., which is available
to SHELDAHL, it being understood that such materials will be in the English
language.
8.4 The documentation delivered by SHELDAHL under Section 8.3 of this
Agreement shall be complete and accurate in all material respects. SHELDAHL
shall receive certain payments for its technical assistance under the terms of
the Agreement
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Relating to Payments upon completion of certain milestones set forth in that
agreement. Promptly after completion of Phase 2 as set forth in Schedule B,
SHELDAHL's technical group will work with the technical people from SNW to
finalize the time schedule for the technical assistance. If SHELDAHL does not
meet its obligations under Schedule B in accordance with the agreed-upon
schedule (and such delay does not occur because of force majeure or the failure
of SNW or any third party under contract with SNW to perform its obligations),
SHELDAHL shall pay SNW for such delay an amount equal to SNW's actual direct
expenses occasioned by such delay, less any amounts required to be paid by
equipment suppliers or vendors under contract with SNW for failure to timely
fulfill their contractual obligations to SNW.
8.5 SHELDAHL shall provide SNW technical assistance under Section 8.1
by accepting SNW's engineers at its plants, and by dispatching its engineers to
the SNW Plant as detailed in Schedule B. SNW shall bear all travel, living and
other expenses of SNW's engineers and personnel for such technical assistance.
SHELDAHL shall bear all travel and living expenses of SHELDAHL's engineers and
personnel for the time periods detailed in Schedule B. If additional engineer
and personnel time of SHELDAHL is necessary for training (Phase 4), equipment
installation (Phase 6) or start-up (Phase 7), SNW shall pay SHELDAHL an agreed
per diem rate, plus all additional travel and living expenses.
9. Joint Technical Advisory Board; Improvements.
9.1 Subject to the provisions of this Agreement, to assure a
continuous and free interchange of Technical Information and technology
developments between the SNW and SHELDAHL, the parties hereby establish a Joint
Technical Advisory Board made up of at least two technically trained and
experienced employees from each party. The Joint Technical Advisory Board shall
meet at such times as may be agreed by the parties. Subject to the provisions
of this Agreement, at those meetings the parties shall advise each other
thoroughly of the Technical Information relating to all technical developments
and technology improvements related to the Licensed Products since the time of
the last meeting. Travel, living and salary expenses of the representatives of
the parties who serve on the Joint Technology Advisory Board shall be paid by
the SNW.
9.2 In the event the SNW or SHELDAHL should develop any enhancement,
modification, design, concept or technique related to any of the Licensed
Products or the Technical Information licensed under this Agreement
("Improvements"), the other party shall be granted a non-exclusive right and
license to use such Improvement. Any such Improvement by SNW or SHELDAHL shall
be included in the license granted hereunder and shall be subject to all of the
terms and conditions of this Agreement
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related to such license. Any license granted to SHELDAHL under this Section 9.2
shall be royalty free.
10. Patent.
10.1 Any rights to apply for patent in any country in the world with
respect to Improvements conceived by SHELDAHL shall belong to SHELDAHL; provided
that in the event SHELDAHL determines not to apply for a patent within China,
SNW may apply for such patent with respect to such Improvement in China after a
full consultation with SHELDAHL.
10.2 Any rights to apply for patent in any country in the world with
respect to Improvements conceived by SNW shall belong to SNW; provided that in
the event SNW determines not to apply for a patent within the U.S.A., SHELDAHL
may apply for such patent with respect to such Improvement in the U.S.A. after a
full consultation with SNW.
11. Confidentiality.
11.1 Each of the parties hereto agrees to keep strictly secret and
confidential any and all Technical Information and other confidential
information acquired from the other party hereunder and not to disclose it to
any third persons or use it except as permitted by this Agreement.
11.2 The obligation imposed by this Section 11 shall not apply to any
information:
(a) which at the time of disclosure is in the public domain; or
(b) which after disclosure becomes part of the public domain, by
publication or otherwise, through no fault of the recipient party; or
(c) which at the time of disclosure is already in the recipient
party's possession, and such possession can be properly demonstrated by it;
or
(d) which is rightfully made available to one party from sources
independent of the other party, or
(e) the disclosure of which is agreed in writing by the other party.
The obligations of this Section 11 shall survive for a period of five
(5) years after the termination of this Agreement for any reason.
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12. Term and Termination.
12.1 The initial term of this Agreement shall begin the date the
government of China approves this Agreement and the Additional Agreements and
end after the tenth (10th) Royalty Year; provided that if a written notice of
termination shall not be received by either party from the other party at least
six months prior to the expiration of the initial Term or any renewal Term, the
Term of this Agreement shall be automatically renewed for successive two year
Terms beyond the initial Term until such written notice of termination is timely
received.
12.2 If either party defaults on or breaches a material provision of
this Agreement or any Additional Agreement, the party not in default or breach
shall have the right to cancel this Agreement upon sixty (60) days' written
notice; provided, however, that if the defaulting party corrects the default or
breach within the sixty (60) day period, this Agreement shall continue in full
force and effect.
12.3 Either party may terminate this Agreement in the event that
proceedings for reorganization, liquidation, bankruptcy or receivership are
filed or instituted against or by the other party.
12.4 This Agreement shall terminate in the event the Agreement
Relating to Joint Venture is terminated under Section 15.2(e) or the Closing
under that agreement does not occur.
13. Perpetual Right.
SNW shall have the perpetual non-exclusive right to make, have made,
use and sell the Licensed Products only in mainland China, Taiwan, Hong Kong and
Macau under the Industrial Property Rights or the Technical Information of
SHELDAHL after any termination of this Agreement; provided that in case of the
termination by reason of the SNW's breach or default or a termination under
Section 12.4, the SNW shall have no further rights under this Agreement.
14. Payments.
All payments to be made under this Agreement shall be in United States
dollars.
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15. Arbitration.
Any dispute between the parties arising out of or concerning the
subject matter of, or the respective rights and obligations of the parties
under, this Agreement shall be submitted to arbitration if it cannot be resolved
by the parties. If arbitration is requested by SHELDAHL, the arbitration
proceeding shall be conducted in Jiujiang, Jiangxi China in accordance with the
rules of the Commercial Arbitration Association then in effect in China; if
arbitration is requested by SNW, the arbitration proceeding shall be conducted
in Minneapolis, Minnesota, U.S.A. in accordance with the rules of the American
Arbitration Association then in effect.
16. Governing Law.
This Agreement and the rights and obligations of the parties hereunder
shall be construed and interpreted in accordance with the laws of China.
17. Force Majeure.
Both parties to this Agreement shall be excused from the performance
of their obligations hereunder, and shall be excused for so long as such
condition continues, if such performance is prevented by conditions beyond the
control of the parties, such as acts of God, voluntary or involuntary compliance
with any regulation, law or order of any government, war, civil commotion,
strike, epidemic, failure or default of public utilities or common carriers,
destruction of production facilities or materials by fire, earthquake, storm or
like catastrophe. This Section 17 shall not apply to either party's obligations
to make payment for products sold and delivered under this Agreement or to make
royalty payments for Licensed Products sold by SNW. This Section 17 also does
not apply to the SNW's inability to get exchange of currency to fulfill its
payment obligations under this Agreement. If exchange of currency is blocked
for more than one year, SHELDAHL may terminate this Agreement or request payment
in other currency.
18. Notice Provisions.
Any notice required or permitted to be given hereunder shall be in
writing and any notice shall be deemed to have been given when delivered in
person or seven (7) days after the date upon which it was mailed, postage
prepaid, by certified or registered air mail properly addressed to the addresses
written on the first page of this Agreement; provided, however, that the
presumption of actual receipt shall be subject to rebuttal by
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probative evidence showing that such notice was not actually received.
19. Assignment.
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other party.
Notwithstanding the foregoing, SHELDAHL may assign all of its rights and
obligations under this Agreement to any entity which acquires SHELDAHL by
merger, consolidation or purchase of substantially all of the assets or business
of SHELDAHL related to the Licensed Products.
20. Entire Agreement.
This Agreement and the Additional Agreements shall constitute the
entire agreement of the parties with respect to the subject matter of this
Agreement and this Agreement shall be attached to the Joint Venture Contract and
Articles of Association.
21. Translation.
The parties acknowledge that a Chinese translation of this Agreement
is being executed by the parties on the date hereof. In interpreting this
Agreement, the English version and the Chinese version shall be given equal
weight. There shall be signed four (4) copies of this Agreement in Chinese and
four (4) copies in English. Each party to the Agreement Relating to Joint
Venture, including the SNW, shall receive one copy in English and one copy in
Chinese.
22. Government Approvals.
This Agreement shall be effective only upon approval by the Chinese
Government Agency of the terms of this Agreement and the Additional Agreements,
to the extent such approval is required.
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IN WITNESS WHEREOF, the parties have caused their respective
representatives to sign and execute this Agreement in counterpart and each party
holds one copy.
JIUJIANG FLEX CO., LTD.
By /s/ Edward Lundstrom
--------------------
Its Vice Chairman
----------------
By /s/ Rong-Zhong Rui
--------------------
By /s/ William C.H. Ma
--------------------
SHELDAHL, INC.
By /s/ Edward Lundstrom
--------------------
Its V.P./Sales & Marketing
-----------------------
12
<PAGE>
Exhibit 10.27
TECHNOLOGY REINVESTMENT PROJECT
TECHNOLOGY DEVELOPMENT AGREEMENT
BETWEEN
LOW COST FLIP CHIP CONSORTIUM
c/o NATIONAL SEMICONDUCTOR CORPORATION
1120 KIFER ROAD
SUNNYVALE, CA 94086-3737
AND
THE ADVANCED RESEARCH PROJECTS AGENCY
3701 NORTH FAIRFAX DRIVE
ARLINGTON, VA 22203-1714
CONCERNING
DIRECT ATTACHMENT OF FLIP CHIPS ON LAMINATE SUBSTRATES
Agreement No.: MDA972-95-3-0031
ARPA Order No.: C326/01
Total Amount of the Agreement: $21,097,981
Total Estimated Government Funding of the Agreement: $9,829,610
Funds Obligated: $6,794,728
Authority: 10 U.S.C. (S) 2371 & (S) 2511
Line of Appropriation:
AA 9740400 1320 C326 P4VIO 2525 DPAC 4 5271 503733 $6,794,728
This Agreement is entered into between the United States of America, hereinafter
called the Government represented by The Advanced Research Projects Agency
(ARPA), and the Low Cost Flip Chip Consortium pursuant to and under U.S. Federal
law.
FOR LOW COST FLIP CHIP CONSORTIUM FOR THE UNITED STATES OF AMERICA
NATIONAL SEMICONDUCTOR CORPORATION THE ADVANCED RESEARCH PROJECTS
AGENCY
/s/ Dennis W. Ralston /s/ R. H. Register
- - ------------------------------ ---------------------------
(Signature) (Signature)
Dennis W. Ralston Ron H. Register
Manager, Business Operations 8/8/95 Deputy Director for Management 8/15/95
- - ------------------------------------ --------------------------------------
(Name, Title) (Date) (Name, Title) (Date)
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 2
TABLE OF CONTENTS
ARTICLES PAGE
ARTICLE I Scope of the Agreement 3
ARTICLE II Term 6
ARTICLE III Management of the Project 6
ARTICLE IV Agreement Administration 8
ARTICLE V Obligation and Payment 9
ARTICLE VI Disputes 10
ARTICLE VII Patent Rights 11
ARTICLE VIII Data Rights 14
ARTICLE IX Foreign Access to Technology 16
ARTICLE X Pre-Agreement Costs 17
ARTICLE XI Officials Not to Benefit 17
ARTICLE XII Civil Rights Act 17
ARTICLE XIII Order of Precedence 17
ARTICLE XIV Execution 17
ATTACHMENTS
ATTACHMENT 1 Statement of Work
ATTACHMENT 2 Report Requirements
ATTACHMENT 3 Schedule of Payments and Payable Milestones
ATTACHMENT 4 Funding Schedule
ATTACHMENT 5 List of Government and Consortium Representatives
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 3
ARTICLE I: SCOPE OF THE AGREEMENT
A. BACKGROUND
1. This Agreement is a Defense Dual-Use Critical Technology Partnership
awarded under the Congressionally funded Technology Reinvestment Project (TRP).
The mission of the TRP is to stimulate the transition to a growing, integrated,
national industry capability that provides the most advanced, affordable,
military systems and the most competitive commercial products. Within the
general Technology Development area of Low Cost Electronic Packaging, this
Agreement focuses specifically on advancing the technology and enhancing the
United States (U.S.) production capabilities of flip-chip Direct Chip Attach
(DCA) assembly for integrated microcircuits with the goal of enhancing both
military and commercial customers to employ flip-chip assembled integrated
circuits (ICs) in a wide variety of applications.
2. Aptos Corporation (Aptos), Delco Electronics Corporation (Delco),
Hughes Missile Systems Company (Hughes), Jabil Circuit, Inc. (Jabil), Litronic
Industries, Inc. (Litronic), National Semiconductor Corporation (Nationa),
Sheldahl, Inc. (Sheldahl), and SunDisk Corporation (SunDisk) have formed a
partnership to emplace a domestic infrastructure for the manufacture of low-cost
flip-chip assemblies, from wafer fabrication to final product assembly. This
initiative springs from the growing recognition that the evolution of electronic
products toward lower cost, smaller form factor, lower weight and higher
performance can best be realized at chip level by eliminating the IC package.
3. To succeed in this goal, bare die flip-chip must supplant the current
benchmark for low-cost packaging, the industry standard molded plastic package.
Over 90% of IC packages are encapsulated in plastic. There are extensive
infrastructures in place to support production of packages such as Plastic Quad
Flat Pack (PQFP), Plastic Leaded Chip Carrier (PLCC) and Small Outline
Integrated Circuit (SOIC). Although these manufacturing technologies are well
understood, they also possess significant limitations in today's marketplace.
They are large compared to the die they house resulting in board areas up to
twenty times the area of the die. The larger package dimension also can result
in parasitics that are up to 10 times greater than bumped die.
4. There is consequently a growing desire to eliminate the package
altogether, and move to DCA of bare die substrate. Of the three technologies
that currently exist for bare die attach, chip and wire, chip-on-glass, and
solder bump flip-chip, only the last is a valid approach to the wide spectrum of
electronic products designed and manufactured in the U.S. military and
commercial markets. However, the only broadly established solder bumped flip-
chip technology in the U.S. to date is the controlled collape chip connection
(C4) process of International Business Machines Corporation. It is indeed
highly performance-effective, but not cost-effective for most commodity
applications. Moreover, the high lead content of the bumps does not permit
reflow at Surface Mount Assembly (SMA) temperatures.
5. A major goal of this Consortium, therefore, is to develop a cost-
effective alternative to high-temperature evaporated solders. Wafer and die
bumping process cost is, however, only one component of a successful low-cost
DCA product infrastructure. Only if the TOTAL COST OF OWNERSHIP to the end
product manufacturer, military or commercial, is lower than that of a fully
packaged part will the goal of the Consortium be met and widespread adoption of
this interconnect process succeed. Therefore, this Consortium explicitly
addresses most of the objectives essential to providing a complete low-cost
flip-chip DCA product.
6. The Consortium partners will address the complete delivery chain, from
chip design and wafer fabrication through wafer bumping, handling and shipping
to rapid prototyping and high volume board assembly. The Consortium shall
develop the processes, tools and cost modeling approaches essential to
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 4
establishing the validity of the infrastructure. The end result of this two-
year program will be: (a) the creation of domestic capabilities for high-volume,
low-cost solder bumping; (b) design rule sets and industry standards for area
array pad layouts and wafer bumping; (c) low-cost fine-line substrates for bare
die chip attach; (d) SMA processes and design rules for board attach of these
chips; and (e) reliability standards and test matrices for environmental
qualification. Some of these capabilities exist today in a few proprietary
locations; almost none are available as part of a widely accessible industry
infrastructure.
7. The manufacturing infrastructure resulting from this Consortium must
address the often disparate requirements of dual-use military customers who
often require small numbers of a variety of IC's rather than large volumes of a
few products. Cost-effective approaches to this market mandate individual die
bumping and small lot substrate fabrication and board assembly. The Consortium
has provided for this process flow and has identified deliverables which address
the situation. Another set of parameters is required for high-volume, low-cost
product drivers. Here, the program will stress total cost of ownership, high-
volume wafer bumping, shipping media such as tape and reel, and IC design
methodologies that minimize silicon area.
8. Of perhaps equal importance to the infrastructure processes, the
Consortium shall also generate new product applications which will demonstrate
the cost-effectiveness and reliability of our solder-bumped flip-chips.
Specifically, the Consortium shall generate at least four new products in the
course of the two-year program. These products will graphically demonstrate the
superiority of DCA across a wide range of applications. They will include:
(a) improved electronics for the Stinger missile, which will provide
an order of magnitude increase in functionality without increase in volume,
weight or cost;
(b) a personal computer memory card international association (PCMCIA)
card flash memory module, comprising 128 mega bit (Mb) in flash random
access memory (RAM) chips plus a 120-pin memory management chip;
(c) a field-configured multi-chip module (MCM) comprising four high
pincount field programmable gate array's (FPGA's) flip-chipped into a
plastic ball grid array (BGA) MCM package format; and
(d) a high-volume consumer market product currently being defined.
9. These new capabilities and products will improve the performance and
cost-effectiveness of both consumer and advanced microelectronic technologies.
They will advance U.S. competence in IC packaging, a domain in which the U.S.
has traditionally been outshone by foreign competition. The Consortium team
will be a strong force to exploit this technology for job creation potential in
both defense and commercial applications.
10. Without government funding, the development of a manufacturing
infrastructure for low-cost flip-chip technology will take considerably longer
and have less widespread military and commercial distribution. Many smaller
corporations lack the financial and engineering resources to carry out
development or to access proprietary systems developed by major industry
sources. A further advantage to Government involvement lies in its ability to
aid in industry and institute networking, promoting and assisting the Consortium
in collaborating with other agencies engaged in complementary development. The
synergy will leverage the program's efforts, broadening and strengthening the
resulting infrastructure which is the goal.
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 5
11. The dual-use applications of this technology are numerous. In
addition to the specific objectives of the program listed above, low-cost flip-
chip interconnect will become a valuable capability for all military
applications that require light weight, restricted form factor, or very high
performance circuitry. This includes aircraft avionics, all space applications,
missiles and smart munitions, cockpit display systems, electronic warfare target
recognition, image processing, portable navigation equipment such as battlefield
global positioning system (GPS), and many other applications. Commercially, the
intensifying drive toward low-power, light weight portable equipment in the
telecommunications, computing, data storage and display/printing markets alone
guarantees rapid adoption of this technology in multibillion dollar product
markets, once the preeminent goal of low total cost of ownership is achieved and
conclusively demonstrated and a widely accessible infrastructure emplaced.
12. At the completion of this program, there will be existence proof of
the effectiveness of low-cost flip-chip DCA and first-generation infrastructure
for the manufacture of flip-chip components and their assembly on product boards
will be in place. To further propagate the technology, major U.S. firms must
adopt or develop design tools and libraries for area array pad design and must
either support contract wafer bumping throughout the industry, or bring up
internal capability. Success on the part of the Consortium combined with active
collaboration with those domestic agencies and institutes promoting standards
and design methodologies will greatly accelerate progress toward widespread
utilization of Solder Bumped DCA as the standard methodology for interconnecting
ICs.
13. The new low-cost, flip-chip technology and infrastructure developed
under this program will create a new standard for high Input/Output (I/O) IC
assembly. Flip-chip technology adoption will increase dramatically for devices
with more than 500 I/O. In addition, the developments from this program will be
applicable to lower lead count applications. The total market for flip-chip die
is expected to reach over one billion by the year 2000 according to TechSearch
International. This will equate to over $1 billion in IC shipments. Major
market segments served will include Computers, Automotive, Telecom, and PCMCIA
Cards. In addition to these commercial markets, these technologies will serve
military markets by replacing a portion of the existing military ceramic market
flip-chip DCA, resulting in a reduction in cost on the order of three to five
times current military IC packaging cost.
B. DEFINITIONS
1. CONSORTIUM - The group of companies or individual companies
collaborating to accomplish the objectives of this Agreement.
2. CONSORTIUM MEMBER - A single company operating under the Articles of
Collaboration referred to in this Agreement.
3. PARTY OR PARTIES - As the context requires, either the Government,
represented by ARPA, or the Consortium, or both.
4. PROGRAM - The effort described in the proposal submitted in response
to Solicitation No. SOL94-27, Defense Technology Conversion, Reinvestment, and
Assistance, entitled, "Low Cost Flip Chip", and more particularly defined in the
Statement of Work, Attachment 1 hereto.
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 6
C. SCOPE
1. The Consortium shall perform a coordinated research and development
program (Program) designed to address a complete delivery chain of low-cost
flip-chip assembly. The research shall be carried out in accordance with the
Statement of Work incorporated in this Agreement as Attachment 1. The
Consortium shall submit or otherwise provide all documentation required by
Attachment 2, Report Requirements.
2. The Consortium shall be paid for each Payable Milestone accomplished
in accordance with the Schedule of Payments and Payable Milestones set forth in
Attachment 3 and the procedures of Article V. Both the Schedule of Payments and
the Funding Schedule set forth in Attachments 3 and 4 respectively may be
revised or updated in accordance with Article III.
3. The Government and the Consortium (Parties) estimate that the
Statement of Work of this Agreement can only be accomplished with the Consortium
aggregate resource contribution of $11,268,371 from the effective date of this
Agreement through twenty-four (24) months thereafter. The Consortium intends
and, by entering into this Agreement, undertakes to cause to be provided these
funds. Consortium contributions will be provided as detailed in the Funding
Schedule set forth in Attachment 4. If either ARPA or the Consortium is unable
to provide its respective total contribution, the other party may reduce its
project funding by a proportional amount.
D. GOALS/OBJECTIVES
1. The goal of this Agreement is to attain a cost for direct flip-chip
attachment of bare ICs on laminate substrates that is equal to or better than
the current industry standard practice of wire bonding the ICs to leadframes,
encapsulating them in plastic, and soldering the leadframes to a board.
2. The Government will have continuous involvement with the Consortium.
The Government will also obtain access to research insults and certain rights in
data and patents pursuant to Articles VII and VIII. ARPA and the Consortium are
bound to each other by a duty of good faith and best reasonable research effort
in achieving the goals of the Consortium. This Agreement reflects the
collaborative document identified as "Articles of Collaboration for Low Cost
Flip Chip Consortium," which document binds Consortium Members.
3. This Agreement is an "other transaction" pursuant to 10 U.S.C. (S)
2371. The Parties agree that the principal purpose of this Agreement is for the
Government to support and stimulate the Consortium to provide its best
reasonable efforts in advanced research and technology development and not for
the acquisition of property or services for the direct benefit or use of the
Government. The Federal Acquisition Regulation (FAR) and Department of Defense
FAR Supplement (DFARS) apply only as specifically referenced herein. This
Agreement is not a procurement contract or grant agreement for purposes of FAR
Subpart 31.205-18. This Agreement is not intended to be, nor shall it be
construed as, by implication or otherwise, a partnership, a corporation, or
other business organization.
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 7
ARTICLE II: TERM
A. THE TERM OF THIS AGREEMENT
The Program commences upon the date of the last signature hereon and continues
for twenty-four (24) months. If all funds are expended prior to the twenty-four
(24)-month duration, the Parties have no obligation to continue performance and
may elect to cease development at that point. Provisions of this Agreement,
which, by their express terms or by necessary implication, apply for periods of
time other than specified herein, shall be given effect, notwithstanding this
Article.
B. TERMINATION PROVISIONS
Subject to a reasonable determination that the program will not produce
beneficial results commensurate with the expenditure of resources, either Party
may terminate this Agreement by written notice to the other Party, provided that
such written notice is preceded by consultation between the Parties. In the
event of a termination of the Agreement, it is agreed that disposition of Data
developed under this Agreement shall be in accordance with the provisions set
forth in Article VIII, Data Rights. The Government, acting through the
Agreements Administrator, and the Consortium, acting through its Consortium
Management Committee, will negotiate in good faith a reasonable and timely
adjustment of all outstanding issues between the Parties as a result of
termination. Failure of the Parties to agree to a reasonable adjustment will be
resolved pursuant to Article VI, Disputes. The Government has no obligation to
reimburse the Consortium beyond the last completed and paid milestone if the
Consortium, acting through its Consortium Management Committee, decides to
terminate.
C. EXTENDING THE TERM
The Parties may extend by mutual written agreement the term of this Agreement if
funding availability and research opportunities reasonably warrant. Any
extension shall be formalized through modification of the Agreement by the
Agreements Administrator and the Consortium Administrator.
ARTICLE III: MANAGEMENT OF THE PROJECT
A. CONSORTIUM MEMBERS
Consortium Members, as set forth in the Articles of Collaboration of the
Consortium, are:
Aptos Corporation
Delco Electronics Corporation
Hughes Missile Systems Company
Jabil Circuit, Inc.
Litronic Industries, Inc.
National Semiconductor Corporation
Sheldahl, Inc.
SunDisk Corporation
7
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 8
B. CONSORTIUM MANAGEMENT COMMITTEE (CMC)
1. The CMC shall be comprised of one voting representative from each
Consortium Member, and in accordance with the Consortium Articles of
Collaboration, bind the Consortium Members. The following CMC decisions are
subject to ARPA approval:
(a) Changes to the Articles of Collaboration if such changes
substantially alter the relationship of the Parties as originally agreed
upon when the Agreement was executed;
(b) Changes to, or elimination of, any ARPA funding allocation to any
Consortium Member as technically and/or financially justified;
(c) Technical and/or funding revisions to the Agreement; and
(d) Admission of additional or replacement Consortium Members.
2. The CMC, is responsible for establishing a schedule of regular
technical meetings, to be held on a quarterly basis. The CMC shall notify all
Consortium Members and the ARPA Program Manager of the established meeting
schedule and, in the event of changes to this schedule, shall notify all
Consortium Members and the ARPA Program Manager thirty (30) calendar days prior
to the next scheduled meeting.
3. A simple majority of the Program Managers (or designees) representing
the Consortium Members and the ARPA Program Manager (or designee) will
constitute a quorum at quarterly technical meetings. All technical decisions
shall be made by majority vote of the CMC and the ARPA Program Manager.
C. MANAGEMENT AND PROGRAM STRUCTURE
Technical and program management of the coordinated research program established
under this Agreement shall be accomplished through the management structure and
processes detailed in this Article.
1. Subject to the terms and conditions of the Articles of Collaboration
of the Consortium, the CMC shall be responsible for the overall management of
the Consortium including technical, programmatic, reporting, financial and
administrative matters.
2. The ARPA Program Manager shall fully participate in all meetings of
the CMC. Other Government personnel as deemed appropriate by the ARPA Program
Manager may also participate in the technical portion of these meetings.
D. PROGRAM MANAGEMENT PLANNING PROCESS
The program management and planning process shall be subject to quarterly and
annual reviews with inputs and review from the CMC and the ARPA Program Manager.
1. Initial Program Plan: The Consortium will follow the initial program
plan that is contained in the Statement of Work (Attachment 1), and the Schedule
of Payments and Payable Milestones (Attachment 3).
2. Overall Program Plan Annual Review
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 9
(a) The CMC, with ARPA Program Manager participation and review, will
prepare an overall Annual Program Plan in the first quarter of each
Agreement year. (For this purpose, each consecutive twelve (12) month
period from (and including) the month of execution of this Agreement during
which this Agreement shall remain in effect shall be considered an
"Agreement Year.") The Annual Program Plan will be presented and reviewed
at an annual site review concurrent with the appropriate quarterly meeting
of the CMC which will be attended by the Consortium Members, the ARPA
Program Manager, Senior ARPA management or other ARPA program managers and
personnel as appropriate. The CMC, with ARPA participation and review,
will prepare a final Annual Program Plan.
(b) The Annual Program Plan provides a detailed schedule of research
activities, commits the Consortium to use its best efforts to meet specific
performance objectives, includes forecasted expenditures and describes the
Payable Milestones. The Annual Program Plan will consolidate all prior
adjustments in the research schedule, including revisions/modifications to
payable milestones. Recommendations for changes, revisions or
modifications to the Agreement which result from the Annual Review shall be
made in accordance with the provisions of Article III, Section E.
E. MODIFICATIONS
1. As a result of quarterly meetings, annual reviews, or at any time
during the term of the Agreement, research progress or results may indicate that
a change in the Statement of Work and/or the Payable Milestones, would be
beneficial to program objectives. Recommendations for modifications, including
justifications to support any changes to the Statement of Work and/or the
Payable Milestones, will be documented in a letter and submitted by the CMC to
the ARPA Program Manager with a copy to the ARPA Agreements Administrator. This
documentation letter will detail the technical, chronological, and financial
impact of the proposed modification to the research program. The CMC shall
approve any Agreement modification. The Government is not obligated to pay for
additional or revised Payable Milestones until the Payable Milestones Schedule
(Attachment 3) is formally revised by the ARPA Agreements Administrator and made
part of this Agreement.
2. The ARPA Program Manager shall be responsible for the review and
verification of any recommendations to revise or otherwise modify the Agreement
Statement of Work, Schedule of Payments or Payable Milestones, or other proposed
changes to the terms and conditions of this Agreement.
3. For minor or administrative Agreement modifications (e.g. changes in
the paying office or appropriation data, changes to Government or Consortium
personnel identified in the Agreement, etc.) no signature is required by the
Consortium.
ARTICLE IV. AGREEMENT ADMINISTRATION
Unless otherwise provided in this Agreement, approvals permitted or required to
be made by ARPA may be made only by the ARPA Agreements Administrator.
Administrative and contractual matters under this Agreement shall be referred to
the following representatives of the parties:
ARPA: Scott R. Ulrey (Agreements Administrator) (703) 696-2434
CONSORTIUM: Dennis W. Ralston (Consortium Administrator) (408) 721-2812
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 10
Technical matters under this Agreement shall be referred to the following
representatives:
ARPA: Nicholas J. Naclerio (Program Manager) (703) 696-2216
CONSORTIUM: Jim Dunham (Program Manager) (408) 721-6140
Each party may change its representatives named in this Article by written
notification to the other party.
ARTICLE V: OBLIGATION AND PAYMENT
A. OBLIGATION
1. The Government's liability to make payments to the Consortium is
limited to only those funds obligated under this Agreement or by amendment to
the Agreement. ARPA may incrementally fund this Agreement.
2. If modification becomes necessary in performance of this Agreement,
pursuant to Article III, paragraph E, the ARPA Agreements Administrator and
Consortium Administrator shall execute a revised Schedule of Payable Milestones
consistent with the then current Program Plan.
B. PAYMENTS
1. In addition to any other financial reports provided or required, the
CMC shall notify the ARPA Agreements Administrator immediately if any
contribution from a Consortium Member is not made as required.
2. Prior to the submission of invoices to ARPA by the Consortium
Administrator, the Consortium shall have and maintain an established accounting
system which complies with Generally Accepted Accounting Principles, and with
the requirements of this Agreement, and shall ensure that appropriate
arrangements have been made for receiving, distributing and accounting for
Federal funds. The Parties recognize that as a conduit, the Consortium does not
incur nor does it allocate any indirect costs of its own to the Consortium
Member cost directly incurred pursuant to this Agreement. Consistent with this,
an acceptable accounting system will be one in which all cash receipts and
disbursements are controlled and documented properly.
3. The CMC shall document the accomplishments of each Payable Milestone
by submitting or otherwise providing the Payable Milestones Report required by
Attachment 2, Part E. The Consortium shall submit an original and one (1) copy
of all invoices to the Agreements Administrator for payment approval. After
written verification of the accomplishment of the Payable Milestone by the ARPA
Program Manager, and approval by the Agreements Administrator, the invoices will
be forwarded to the payment office within fifteen (15) calendar days of receipt
of the invoices at ARPA. Payments will be made by DAO/DE, Attn: Sandra
Schwartz, Bolling AFB/FS, BUilding 5681 - Suite 280, 170 Luke Avenue,
Washington, DC 20332-5113 within fifteen (15) calendar days of ARPA's
transmittal. Subject to change only through written Agreement modification,
payment shall be made to the address of the Consortium Administrator set forth
below.
4. Address of Payee: National Semiconductor Corporation
2900 Semiconductor Drive
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 11
P.O. Box 2900
Santa Clara, CA 95052-8090
Electronic Funds Transfer:
Bank of America
1850 Gateway Blvd.
Concord, CA 94520
TRANS/ABA Number 121000358
Account Number 1233203690
5. Payments shall be made in the amounts set forth in the Attachment No.
3, provided the ARPA Program Manager has verified the accomplishment of the
Payable Milestones. It is recognized that the quarterly accounting of current
expenditures reported in the "Quarterly Business Status Report" submitted in
accordance with Attachment No. 2 is not necessarily intended or required to
match the Payable Milestones until submission of the Final Report; however,
payable milestones shall be revised during the course of the program to reflect
current and revised projected expenditures.
6. Limitation of Funds: In no case shall the Government's financial
liability exceed the amount obligated under this Agreement.
7. Financial Records and Reports: The Consortium and Consortium Members
shall maintain adequate records to account for Federal funds received under this
Agreement and shall maintain adequate records to account for Consortium
Participant funding provided under this Agreement. Upon completion or
termination of this Agreement, whichever occurs earlier, the Consortium
Administrator shall furnish to the Agreements Administrator a copy of the final
report required by Attachment 2, Part F. The Consortium's and Consortium
Members' relevant financial records are subject to examination or audit on
behalf of ARPA by the Government for a period not to exceed three (3) years
after expiration of the term of this Agreement. The Agreements Administrator or
designee shall have direct access to sufficient records and information of the
Consortium and Consortium Members, to ensure full accountability for all funding
under this Agreement. Such audit, examination, or access shall be performed
during business hours on business days upon written notice received by the
audited party no less than five (5) working days prior to the requested audit
date and shall be subject to the security requirements of the audited party.
Notwithstanding the foregoing, it is recognized that many Consortium Members are
commercial firms whose accounting systems may not contain the level of detail
that is normally required by the FAR. Accordingly, the evaluating the
Consortium Members' contributions, the Government agrees to rely on the
principles of price analysis and value analysis to the maximum extent possible,
provided that the level of detail is reasonable to account fo the expenditure of
funds.
ARTICLE VI: DISPUTES
A. GENERAL
Parties shall communicate with one another in good faith and in a timely and
cooperative manner when raising issues under this Article.
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 12
B. DISPUTE RESOLUTION PROCEDURES
1. Any disagreement, claim or dispute between ARPA and the Consortium
concerning questions of fact or law arising from or in connection with this
Agreement, and, whether or not involving an alleged breach of this Agreement,
may be raised only under this Article.
2. Whenever disputes, disagreements, or misunderstandings arise, the
Parties shall attempt to resolve the issue(s) involved by discussion and mutual
agreement as soon as practicable. In no event shall a dispute, disagreement or
misunderstanding which arose more than three (3) months prior to the
notification made under subparagraph B.3 of this article constitute the basis
for relief under this article unless the Director of ARPA in the interests of
justice waives this requirement.
3. Failing resolution by mutual agreement, the aggrieved Party shall
document the dispute, disagreement, or misunderstanding by notifying the other
Party (through the ARPA Agreements Administrator or Consortium Administrator, as
the case may be) in writing of the relevant facts, identify unresolved issues,
and specify the clarification or remedy sought within five (5) working days
after providing notice to the other Party, the aggrieved Party may, in writing,
request a joint decision by the ARPA Deputy Director for Management and the
SEMATECH General Counsel and Secretary as appointed by the CMC of the
Consortium. The other Party shall submit a written position on the matter(s) in
dispute within thirty (30) calendar days after being notified that a decision
has been requested. The Deputy Director for Management and the Consortium
Representative shall conduct a review of the matter(s) in dispute and render a
decision in writing within thirty (30) calendar days of receipt of such written
position. Any such joint decision is final and binding unless a Party shall
within thirty (30) calendar days request further review as provided in this
Article.
4. Upon written request to the Director of ARPA, made within thirty (30)
calendar days or upon unavailability of a joint decision under subparagraph B.3
above, the dispute shall be further reviewed. The Director of ARPA may elect to
conduct this review personally or through a designee or jointly with the
SEMATECH General Counsel and Secretary as appointed by the CMC of the
Consortium. Following the review, the Director of ARPA or designee will resolve
the issue(s) and notify the Parties in writing. Such resolution is not subject
to further administrative review and, to the extent permitted by law, shall be
final and binding.
5. Subject only to this article and 41 U.S.C. (S) 321-322, if not
satisfied with the results of completing the above process, either Party may
within thirty (30) calendar days of receipt of the notice in subparagraph B.3
above pursue any right and remedy in a court of competent jurisdiction.
C. LIMITATION OF DAMAGES
Claims for damages of any nature whatsoever pursued under this Agreement shall
be limited to direct damages only up to the aggregate amount of ARPA funding
disbursed as of the time the dispute arises. In no event shall ARPA be liable
for claims for consequential, punitive, special and incidental damages, claims
for lost profits, or other indirect damages. ARPA agrees that there is no joint
and several liability within the Consortium. The Consortium disclaims any
liability for consequential, indirect or special damages, except when such
damages are caused by the willful misconduct of Consortium Managerial personnel.
In no event shall the liability of a Consortium Member or any other entity
performing research activities under this Agreement exceed the funding it has
received up to the time of incurring such liability.
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AGREEMENT NUMBER: MDA972-95-3-0031
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ARTICLE VII: PATENT RIGHTS
A. DEFINITIONS
1. "Invention" means any invention or discovery which is or may be
patentable or otherwise protectable under Title 35 of the United States Code.
2. "Made" when used in relation to any invention means the conception or
first actual reduction to practice of such invention.
3. "Practical application" means to manufacture, in the case of a
composition of product; to practice, in the case of a process or method, or to
operate, in the case of a machine or system; and, in each case, under such
conditions as to establish that the invention is capable of being utilized and
that its benefits are, to the extent permitted by law or Government regulations,
available to the public on reasonable terms.
4. "Subject invention" means any invention of a Consortium Member
conceived or first actually reduced to practice in the performance of work under
this Agreement.
B. ALLOCATION OF PRINCIPAL RIGHTS
Unless the Consortium shall have notified ARPA (in accordance with subparagraph
C.2 below) that the Consortium does not intend to retain title, the Consortium
shall retain the entire right title, and interest throughout the world to each
subject invention consistent with the provisions of the Articles of
Collaboration, this Article, and 35 U.S.C. (S) 202. With respect to any subject
invention in which the Consortium retains title, ARPA shall have a nonexclusive,
nontransferable, irrevocable, paid-up license to practice or have practiced on
behalf of the United States the subject invention throughout the world for
United States Government purposes only. Notwithstanding the above, the
Consortium may elect as defined in its Articles of Collaboration to provide full
or partial rights that it has retained to Consortium Members or other parties.
C. INVENTION DISCLOSURE, ELECTION OF TITLE, AND FILING OF PATENT APPLICATION
1. The Consortium shall disclose each subject invention to ARPA within
four (4) months after the inventor discloses it in writing to his company
personnel responsible for patent matters. The disclosure to ARPA shall be in
the form of a written report and shall identify the Agreement under which the
invention was made and the identity of the inventor(s). It shall be
sufficiently complete in technical detail to convey a clear understanding to the
extent known at the time of the disclosure, of the nature, purpose, operation,
and the physical, chemical, biological or electrical characteristics of the
invention. The disclosure shall also identify any publication, sale, or public
use of the invention and whether a manuscript describing the invention has been
submitted for publication and, if so, whether it has been accepted for
publication at the time of disclosure.
2. If the Consortium determines that it does not intend to retain title
to any such invention, the Consortium shall notify ARPA, in writing, within
eight (8) months of disclosure to ARPA. However, in any case where publication,
sale, or public use has initiated the one (1)-year statutory period wherein
valid patent protection can still be obtained in the United States, the period
for such notice may be shortened by ARPA to a date that is no more than sixty
(60) calendar days prior to the end of the statutory period.
3. The Consortium shall file its initial patent application on a subject
invention to which it elects to retain title within one (1) year after election
of title or, if earlier, prior to the end of the statutory period
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wherein valid patent protection can be obtained in the United States after a
publication, or sale, or public use. The Consortium may elect to file patent
applications in additional countries (including the European Patent Office and
the Patent Cooperation Treaty) within either ten (10) months of the
corresponding initial patent application or six (6) months from the date
permission is granted by the Commissioner of Patents and Trademarks to file
foreign patent applications, where such filing has been prohibited by a Secrecy
Order.
4. Requests for extension of the time for disclosure election, and filing
under Article VII, paragraph C, may, at the discretion of ARPA, and after
considering the position of the Consortium, be granted.
D. CONDITIONS WHEN THE GOVERNMENT MAY OBTAIN TITLE
Upon ARPA's written request the Consortium shall convey title to any subject
invention to ARPA under any of the following conditions:
1. If the Consortium fails to disclose or elects not to retain title to
the subject invention within the times specified in paragraph C of this Article;
provided, that ARPA may only request title within sixty (60) calendar days after
learning of the failure of the Consortium to disclose or elect within the
specified times.
2. In those countries in which the Consortium fails to file patent
applications within the times specified in paragraph C of this Article;
provided, that if the Consortium has filed a patent application in a country
after the times specified in paragraph C of this Article, but prior to its
receipt of the written request by ARPA, the Consortium shall continue to retain
title in that country; or
3. In any country in which the Consortium decides not to continue the
prosecution of any application for, to pay the maintenance fees on, or defend in
reexamination or opposition proceedings on, a patent on a subject invention.
E. MINIMUM RIGHTS TO THE CONSORTIUM AND PROTECTION OF THE CONSORTIUM'S RIGHT
TO FILE
1. The Consortium shall retain a non-exclusive, royalty-free license
throughout the world in each subject invention to which the Government obtains
title, except if the Consortium fails to disclose the invention within the times
specified in paragraph C of this Article. The Consortium license extends to the
domestic (including Canada) subsidiaries and affiliates, if any, of the
Consortium Members within the corporate structure of which the Consortium Member
is a party and includes the right to grant licenses of the same scope to the
extent that the Consortium was legally obligated to do so at the time the
Agreement was awarded. The license is transferable only within the approval of
ARPA, except when transferred to the successor of that part of the business to
which the invention pertains. ARPA approval for license transfer shall not be
unreasonably withheld.
2. The Consortium domestic license may be revoked or modified by ARPA to
the extent necessary to achieve expeditious practical application of the subject
invention pursuant to an application for an exclusive license submitted
consistent with appropriate provisions at 37 CFR Part 404. This license shall
not be revoked in that field of use or the geographical areas in which the
Consortium has achieved practical application and continues to make the benefits
of the invention reasonably accessible to the public. The license in any
foreign country may be revoked or modified at the discretion of ARPA to the
extent the Consortium, its licensees, or the subsidiaries or affiliates have
failed to achieve practical application in that foreign country.
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AGREEMENT NUMBER: MDA972-95-3-0031
PAGE 15
3. Before revocation or modification of the license, ARPA shall furnish
the Consortium a written notice of its intention to revoke or modify the
license, and the Consortium shall be allowed thirty (30) calendar days (or such
other time as may be authorized for good cause shown) after the notice to show
cause why the license should not be revoked or modified.
F. ACTION TO PROTECT THE GOVERNMENT'S INTEREST
1. The Consortium agrees to execute or to have executed and promptly
deliver to ARPA all instruments necessary to (i) establish or confirm the rights
the Government has throughout the world in those subject inventions to which the
Consortium elects to retain title, and (ii) convey title to ARPA when requested
under paragraph D of this Article and to enable the Government to obtain patent
protection throughout the world in that subject invention.
2. The Consortium agrees to require, by written agreement, that employees
of the Members of the Consortium working on the Consortium, other than clerical
and nontechnical employees, agree to disclose promptly in writing, to personnel
identified as responsible for the administration of patent matters and in a
format acceptable to the Consortium, each subject invention made under this
Agreement in order that the Consortium can comply with the disclosure provisions
of paragraph C of this Article. The Consortium shall instruct employees,
through employee agreements or other suitable educational programs, on the
importance of reporting inventions in sufficient time to permit the filing of
patent applications prior to U.S. or foreign statutory bars.
3. The Consortium shall notify ARPA of any decisions not to continue the
prosecution of a patent application, pay maintenance fees, or defend in a
reexamination or opposition proceedings on a patent, in any country, not less
than thirty (30) calendar days before the expiration of the response period
required by the relevant patent office.
4. The Consortium shall include, within the specification of any United
States patent application and any patent issuing thereon covering a subject
invention, the following statement: "This invention was made with Government
support under Agreement No. MDA972-95-3-0031 awarded by ARPA. The Government
has certain rights in the invention."
G. LOWER TIER AGREEMENTS
1. The Consortium shall include this Article, suitably modified, to
identify the Parties, in all subcontracts or lower tier agreements, regardless
of tier, for experimental, developmental, or research work.
2. In the case of a lower tier agreement with a vendor, at any tier,
ARPA, the vendor, and the Consortium agree that the mutual obligations of the
parties created by this Article flow down to the vendor and constitute an
agreement between the vendor and ARPA with respect to the matters covered by
this Article.
H. REPORTING ON UTILIZATION OF SUBJECT INVENTIONS
The Consortium agrees to submit during the term of the Agreement, periodic
reports no more frequently than annually on the utilization of a subject
invention or on efforts at obtaining such utilization of a subject invention or
on efforts at obtaining such utilization that are being made by the Consortium
or licensees or assignees of the inventor. Such reports shall include
information regarding the status of development, date of first commercial sale
or use, gross royalties received by the Consortium subcontractor(s), and such
other
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PAGE 16
data and information as the agency may reasonably specify. The Consortium also
agrees to provide additional reports as may be requested by ARPA in connection
with any march-in proceedings undertaken by ARPA in accordance with paragraph J
of this Article. Consistent with 35 U.S.C. (S) 202(c)(5), ARPA agrees it shall
not disclose such information to persons outside the Government without
permission of the Consortium.
I. PREFERENCE FOR AMERICAN INDUSTRY
Notwithstanding any other provision of this clause, the Consortium agrees that
it shall not grant to any person the exclusive right to use or sell any subject
invention in the United States or Canada unless such person agrees that any
product embodying the subject invention or produced through the use of the
subject invention shall be manufactured substantially in the United States or
Canada. However, in individual cases, the requirements for such an agreement my
be waived by ARPA upon a showing by the Consortium that reasonable but
unsuccessful efforts have been made to grant licenses on similar terms to
potential licensees that would be likely to manufacture substantially in the
United States or that, under the circumstances, domestic manufacture is not
commercially feasible.
J. MARCH-IN RIGHTS
The Consortium agrees that with respect to any subject invention in which it has
retained title, ARPA has the right to require the Consortium, an assignee, or
exclusive licensee of a subject invention to grant a non-exclusive license to a
responsible applicant or applicants, upon terms that are reasonable under the
circumstances, and if the Consortium assignee, or exclusive licensee refuses
such a request, ARPA has the right to grant such a license itself if ARPA
determines that:
1. Such action is necessary because the Consortium or assignee has not
taken effective steps, consistent with the intent of this Agreement to achieve
practical application of the subject invention;
2. Such action is necessary to alleviate health or safety needs which are
not reasonably satisfied by the Consortium, assignee, or their licensees;
3. Such action is necessary to meet requirements for public use and such
requirements are not reasonably satisfied by the Consortium, assignee, or
licensees; or
4. Such action is necessary because the agreement required by paragraph
(I) of this Article has not been obtained or waived or because a licensee of the
exclusive right to use or sell any subject invention in the United States is in
breach of such Agreement.
K. ALTERNATE PROCEDURES FOR PATENT RIGHTS
Notwithstanding the provisions of subparagraph C.1. above, the Consortium may
elect to follow the procedures in this paragraph (which may be referred to as
"alternate" subparagraph C.1.):
1. The Consortium shall disclose each subject invention to ARPA within
eight (8) months after the inventor discloses it in writing to his company
personnel responsible for patent matters. The Consortium invention shall be
disclosed to ARPA in writing in the form of a summary written report (Invention
Summary Report) identifying the Agreement under which the invention was made,
the identity of the inventor(s), and the Consortium Member company. The
Invention Summary Report shall outline the nature, purpose, and operation of the
invention. A copy of the patent application shall be on file in the Consortium
Document Repository located at National Semiconductor Corporation in Sunnyvale,
California for Government review.
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Detailed technical information excluded for the Invention Summary Report shall
also be on file in the Consortium Document Repository. The Invention Summary
Report shall also identify any publication, sale, or public use of the invention
and whether a manuscript describing the invention has been submitted for
publication and, if so, whether it has been accepted for publication at the time
of disclosure.
ARTICLE VIII: DATA RIGHTS
A. DEFINITIONS
1. "Government Purpose Rights", as used in this article, means rights to
use, duplicate, or disclose Data, in whole or in part and in any manner, for
Government purposes only, and to have or permit others to do so for Government
purposes only.
2. "Unlimited Rights", as used in this article, means rights to use,
duplicate, release, or disclose, Data in whole or in part, in any manner and for
any purposes whatsoever, and to have or permit others to do so.
3. "Data", as used in this article, means recorded information,
regardless of form or method of recording, which includes but is not limited to,
technical data, software, trade secrets, and mask works. The term does not
include financial, administrative, cost, pricing or management information and
does not include subject inventions included under Article VII.
B. ALLOCATION OF PRINCIPAL RIGHTS
1. This Agreement shall be performed with mixed Government and Consortium
funding. The Parties agree that in consideration for Government funding, the
Consortium intends to reduce to practical application items, components and
processes developed under this Agreement.
2. The Consortium agrees to retain and maintain in good condition until
five (5) years after completion or termination of this Agreement, all Data
necessary to achieve practical application. In the event of exercise of the
Government's March-in Rights as set forth under Article VII or subparagraph B.3
of this article, the Consortium acting through its CMC, agrees, upon written
request from the Government, to deliver at no additional cost to the Government,
all Data necessary to achieve practical application within sixty (60) calendar
days from the date of the written request. The Government shall retain
Unlimited Rights, as defined in paragraph A above, to this delivered Data.
3. The Consortium agrees that, with respect to Data necessary to achieve
practical application, ARPA has the right to require the Consortium to deliver
all such Data to ARPA in accordance with its reasonable directions if ARPA
determines that:
(a) Such action is necessary because the Consortium or assignee has
not taken effective steps, consistent with the intent of this Agreement to
achieve practical application of the technology developed during the
performance of this Agreement;
(b) Such action is necessary to alleviate health or safety needs which
are not reasonably satisfied by the Consortium, assignee, or their
licensees; or
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PAGE 18
(c) Such action is necessary to meet requirements for public use and
such requirements are not reasonably satisfied by the Consortium, assignee,
or licensees.
4. With respect to Data delivered pursuant to Attachment 2, the
Government shall receive Government Purpose Rights, as defined in paragraph A
above. With respect to all Data delivered, in the event of the Government's
exercise of its right under subparagraph B.2 of this article, the Government
shall receive Unlimited Rights.
C. MARKING OF DATA
Pursuant to paragraph B above, any Data delivered under thus Agreement shall be
marked with the following legend:
Use, duplication, or disclosure is subject to the restrictions as stated in
Agreement MDA972-95-3-0031 between the Government and the Consortium.
D. LOWER TIER AGREEMENTS
The Consortium shall include this Article, suitably modified to identify the
Parties, in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
ARTICLE IX: FOREIGN ACCESS TO TECHNOLOGY
This Article shall remain in effect during the term of the Agreement and for
three (3) years thereafter.
A. DEFINITION
"Foreign Firm or Institution" means a firm or institution organized or
existing under the laws of a country other than the United States, its
territories, or possessions. The term includes, for purposes of this Agreement,
any agency or instrumentality of a foreign government; and firms, institutions
or business organizations which are owned or substantially controlled by foreign
governments, firms, institutions, or individuals.
"Know-How" means all information including, but not limited to discoveries,
formulas, materials, inventions, processes, ideas, approaches, concepts,
techniques, methods, software, programs, documentation, procedures, firmware,
hardware, technical data, specifications, devices, apparatus and machines.
"Technology" means discoveries, innovations, Know-How and inventions,
whether patentable or not, including computer software, recognized under U.S.
law as intellectual creations to which rights of ownership accrue, including,
but not limited to, patents, trade secrets, maskworks, and copyrights developed
under this Agreement.
B. GENERAL
The Parties agree that research findings and technology developments arising
under this Agreement may constitute a significant enhancement to the national
defense, and to the economic vitality of the United States. Accordingly, access
to important technology developments under this Agreement by Foreign Firms or
Institutions must be carefully controlled. The controls contemplated in this
Article are in addition to, and are
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PAGE 19
not intended to change or supersede, the provisions of the International Traffic
in Arms Regulation (22 CFR pt. 121 et seq.), the DoD Industrial Security
Regulation (DoD 5220.22-R) and the Department of Commerce Export Regulation (15
CFR pt. 770 et seq.)
C. RESTRICTIONS ON SALE OR TRANSFER OF TECHNOLOGY TO FOREIGN FIRMS OR
INSTITUTIONS
1. In order to promote the national security interests of the United
States and to effectuate the policies that underlie the regulations cited above,
the procedures stated in subparagraphs C.2, C.3, and C.4 below shall apply to
any transfer of Technology. For purposes of this paragraph, a transfer includes
a sale of the company, and sales or licensing of Technology. Transfers do not
include:
(a) sales of products or components, or
(b) licenses of software or documentation related to sales of products
or components, or
(c) transfer to foreign subsidiaries of the Consortium participants
for purposes related to this Agreement, or
(d) transfer which provides access to Technology to a Foreign Firm or
Institution which is an approved source of supply or source for the conduct
of research under this Agreement provided that such transfer shall be
limited to that necessary to allow the firm or institution to perform its
approved role under this Agreement
2. The Consortium shall provide timely notice to ARPA of any proposed
transfers from the Consortium of Technology developed under this Agreement to
Foreign Firm or Institutions. If ARPA determines that the transfer may have
adverse consequences to the national security interests of the United States,
the Consortium, its vendors, and ARPA shall jointly endeavor to find
alternatives to the proposed transfer which obviate or mitigate potential
adverse consequences of the transfer but which provide substantially equivalent
benefits to the Consortium.
3. In any event, the Consortium shall provide written notice to the ARPA
Program Manager and Agreements Administrator of any proposed transfer to a
foreign firm or institution at least sixty (60) calendar days prior to the
proposed date of transfer. Such notice shall cite this Article and shall state
specifically what is to be transferred and the general terms of the transfer.
Within thirty (30) calendar days of receipt of the Consortium's written
notification, the ARPA Agreements Administrator shall advise the Consortium
whether it consents to the proposed transfer. In cases where ARPA does not
concur or sixty (60) calendar days after receipt and ARPA provides no decision,
the Consortium may utilize the procedures under Article VI, Disputes. No
transfer shall take place until a decision is rendered.
4. Except as provided in subparagraph C.1 above and in the event the
transfer of Technology to Foreign Firms or Institutions is approved by ARPA, the
Consortium shall negotiate a license with the Government to the Technology under
terms that are reasonable under the circumstances.
D. LOWER TIER AGREEMENTS
The Consortium shall include this Article, suitably modified, to identify the
Parties, in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
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ARTICLE X: PRE-AGREEMENT COSTS
Costs incurred on or after November 21, 1994 by the Consortium to accomplish the
Tasks set forth in the Statement of Work, Attachment 1 hereto, shall be
allowable contributions and credited toward the Consortium's contribution to the
Agreement.
ARTICLE XI: OFFICIALS NOT TO BENEFIT
No member of Congress shall be admitted to any share or part of any contract or
agreement made, entered into, or accepted by or on behalf of the United States,
or to any benefit to arise thereupon.
ARTICLE XII: CIVIL RIGHTS ACT
This Agreement is subject to the compliance requirements of Title VI of the
Civil Rights Act of 1964 as amended (42 U.S.C. 2000-d) relating to
nondiscrimination in Federally assisted programs. Each Consortium Member
company has signed an Assurance of Compliance with the nondiscriminatory
provisions of the Act. The Parties recognize that since the Consortium has no
employees, that compliance is the responsibility of each Consortium Member.
ARTICLE XIII: ORDER OF PRECEDENCE
In the event of any inconsistency between the terms of this Agreement and
language set forth in the Consortium's Articles of Collaboration, the
inconsistency shall be resolved by giving precedence in the following order (1)
The Agreement (2) Attachments to the Agreement, (3) Consortium Articles of
Collaboration.
ARTICLE XIV: EXECUTION
This Agreement constitutes the entire agreement of the Parties and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions among the Parties, whether oral or written, with respect to the
subject matter hereof. This Agreement may be revised only by written consent of
the CMC and ARPA Agreements Administrator. This Agreement or modifications
thereto, may be executed in counterparts each of which shall be deemed as
original, but all of which taken together shall constitute one and the same
instrument.
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ATTACHMENT NO. 1, PAGE 1
STATEMENT OF WORK
(INITIAL PROGRAM PLAN)
The Low-Cost Flip-Chip Program will establish enabling technologies and the
infrastructure required to manufacture Direct Flip Chip Attach assemblies in
four key Focus Areas. The benefits gained in these related Focus Areas will
establish a comprehensive delivery chain for the manufacture of military and
commercial flip chip assemblies. The four key areas are:
1. Low-Cost Wafer Bumping,
2. Low-Cost Laminate Substrate Design and Fabrication,
3. Flip Chip Assembly on Laminate Substrates, and
4. Process verification through End Product Demonstration.
The first task for the Consortium will be to develop a baseline execution
plan for the program. This plan will consist of a detailed program schedule in
Gantt chart form, a revised SOW (if necessary) and a current status report.
This status report will detail the accomplishments of the Consortium and provide
details of the planned activities of the group for the coming months.
1.0 Low-Cost Wafer Bumping - (Focus Area 1)
This area will investigate and develop wafer and die bumping technologies
to reduce the cost of ownership and enhance reliability of Direct Flip Chip
Attach assemblies. Work will include development of routing redistribution
metalization and dielectric, alternative bump alloys, and bumping costs lower
than that available today.
1.1 Description of Problem
Direct Flip Chip Attach of ICs holds some inherent advantages over
conventional packaging, such as smaller form factor and higher performance.
However, the key to widespread adoption of flip-chip technology in high volume
lies in reducing the total cost of ownership of the product chip below that of
competing package technologies. The benchmark for the highest volume components
is the plastic package, (PQFP, SOIC, or PLCC) and its delivery chain. In order
to compete, flip-chip product chips must have low component cost, high
reliability, and possess maximum compatibility with existing SMA processes.
Obviously, the most important single step in the fabrication process of flip-
chips is wafer bumping operation. This must be optimized for cost, reliability
and downstream assembly process compatibility. For low-volume manufacturing and
prototyping which are frequently encountered in military applications, other
approaches must be sought which lend themselves to both wafer and individual die
bumping.
1.2 Key Metrics
1.2.1 Mainstream infrastructure process:
. Solder bump compatible with SMT temperatures (230C reflow)
. 4 mil peripheral pitch redistribution to 10 mil area pad pitch
. Cost modeling - Cost Target less than $25 for bumping and less
than $100 for redistribution and bumping.
. Process Design rules
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ATTACHMENT NO. 1, PAGE 2
. Qualification to Mil Std specification / Q100
. Bump process yields of 99%+
1.2.2 Technical Extensions Projects:
. Fine pitch - 6 mil peripheral bumping capability
. Single die bumping - cost to be modeled - cost target less than
wire bond assembly for equivalent product
. Solder jet - fine pitch capability - target cost less than $20/6"
wafer
. Solder wire - fine pitch capability - cost to be modeled
. Pb free process cost comparable to Eutectic
. 5/95 Sn/Pb process - cost comparable to Eutectic
. High Fatigue Life Alloy - 2X eutectic performance
. Electrolyze Ni Under Bump Metal process - Prove manufacturability /
uniformity
. Technology Extensions bumping processes will be Qualified to Mil
Std specification / Q100.
1.3 Technical Approach
To achieve these deliverables, the following major tasks will be addressed:
1. Development of underbump and redistribution metallization
processes;
2. Deposition of Eutectic Sn/Pb and other alloy solder bumps;
3. Development of single die bumping processes; and
4. Process Qualification through the use of test chips and live
product demonstrations.
1.3.1 Underbump and redistribution metallization process development
Underbump metalization processes using both vacuum technology and
electroless plating will be developed. In addition, an econondcal
redistribution layer (metalization and dielectric) will be developed to
allow redistribution of peripheral pads to area array pads giving system
designer increased flexibility. These processes will have the following
characteristics:
. Compatible with IC conductor metal surface passivation process and
compatible with SMA processes.
. Competitive with or lower in cost than existing vacuum deposition
processes
. Exhibit good adhesion to SnPb eutectic solder - High shear strength
. Exhibit superior electrical performance - Low resistance
. Electrolyze Nickel plating process that provides consistent shear
strength and solderability.
1.3.2 Deposition of Solder Bumps
The Consortium will develop a new generation of solder bump processes
for flip-chip packaging, that will result in technologies of greater
density and lower cost than the current manufacturing state of the art.
These new technologies will be logical extensions of current processes and
will offer substantial advancement of flip-chip interconnect. The enhanced
technologies will be characterized and design rules generated as follows:
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ATTACHMENT NO. 1, PAGE 3
. Fine Pitch Flip-Chip: Develop a process capable of 6 mil pitch
peripheral bonding. This process will also provide a barrier
metal sealing off the pads thus reducing the susceptibility of
product corrosion.
. Solder Jetting approach will be developed for deposition of
eutectic Sn/Pb solder using the principles of ink jet printing.
In this technique, a piezoelectric transducer generates an
impulse which drives the displacement of a molten droplets of
solder from a reservoir. Goal is to deposit on a 10 mil pitch at
10 bumps/sec. This process cost will be compared to full wafer
bumping to determine when it is cost effective.
. Solder wire bonding approach will be developed to attach solder
directly on the aluminum IC pads. This would eliminate the use
of UMB and could using the conventional wire bonding equipment
currently used in IC Au wire assembly. This process cost will
also be compared to full wafer bumping to determine when it is
cost effective.
. Pb free bump metallurgy and deposition process will be developed
with reflow temperatures compatible with SMA processes.
. 5/95 Sn/Pb reflow process will be developed.
. High fatigue life alloys will be developed that will improve
temperature cycling performance by 2X. The new alloys to be
investigated will be reflowable at 230C and compatible with SMA
processes.
1.3.3 Single Die Bumping
Processes will be evaluated and developed that will allow for bumping
of a single die. Single die bumping will allow the user a greater degree
of flexibility especially in low volume market areas. This technique may
also provides advantages in the rework of individual sights and also may
have some cost advantages over full wafer bumping.
. The pad preparation processes will be established for the
deposition of solder on bare aluminum die pad.
. Solder jetting and solder wire techniques will be developed and
characterized.
1.3.4 Process Qualification
Characterization and quaHficaLion of the UBM and bumping processes
will be carried out at both the component and board level by the wafer
bumping Consortium Members and by the end users. The full array of
standard tests will be defined to be used on all of the process options.
The qualification will include but is not limited too:
. Component level tests the assess bump/UBM/chip mechanical
strength, electrical connection and environmental stability.
. Board level tests will be carried out with underfill. These
tests will focus on mechanical and thermomechanical stability
such as power cycling and board flexure.
. Test chips will be obtained and developed to allow for process
development and characterization. Several of the Members will
use their own existing test chips. In addition, them will be
mechanical and functional test chips made available to allow for
common qualification methods where feasible.
. Mil Std qualification testing methods will be used.
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ATTACHMENT NO. 1, PAGE 4
2.0 Low-Cost Laminate Substrate Design and Fabrication (Focus Area 2)
This focus area will concentrate on the development of high-density, low-
cost laminate substrates. Depending on design complexity, today's cost of
laminate substrate can be over $10/sq in. This program will leverage the
technology advances made by the MCM-L Consortium.
2.1 Description of the Problem
Direct flip-chip assembly puts exacting requirements on laminated
substraies. The small solder ball size on flip-chips requires substrate
flatness better than 0.0005" across the assembly sites, and must be maintained
at assembly reflow temperatures. This dictates CTE compatible and high Tg
materials. Soldermask registration needs to be don nwd to be improved to better
than +/-0.0005" as well. Multiple row and area I/O on chip require the
development of laminate via technology that can interconnect 0.005" diameter
pads and maintain system impedance requirements. New types of surface
metallization needs to be developed to support flip-chip assembly. In addition,
testing of PCB with flip-chip sites requires enhanced membrane type test heads.
All of these requirements must of be met at the lowest possible cost.
2.2 Key Metrics
. Substrate surface metallization suitable for flip-chip assembly.
. Laminate system with glass transition temperature (Tg) higher
than 210C and CTE matched to produce assembly site flatness
better than 0.0005".
. 2 mil Via structures that support interconnecting 0.005" diameter
pads.
. Membrane test heads capable of testing flip-chip sites
. Soldermask registration better than +/- 0.0005"
. 10 mil pad pitch grid; wiring density = die size + 100 mil apron
. Cost Modeling will be performed - Cost targets:
. 2 layer - $.25 / in sq
. Multilayer - $.25 / in sq / layer
. Membrane test head capable of testing 6 mil pad pitch
. Mil Std qual capability
2.3 Technical Approach
To achieve these metrics, the Consortium will develop new technologies as
well as enhancements to the MCM-L technology currently under development. The
following 7 major tasks will be addressed:
1. Optimize surface metallization
2. Develop High Tg bond ply materials and selective via process
3. Soldermask Development
4. Using the bond ply and basic substrate processes, develop 10 mil
pitch routing grid.
5. Develop a set of comprehensive design rules and process outline.
6. Develop membrane test head
7. Mil std qualification
2.3.1 Substrate surface metallization
4
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 1, PAGE 5
The Consortium will define the optimal substrate pad metalization
system and install capability for production. This surface will be surface
mount compatible with the various bump technologies being used.
2.3.2 Bond Ply and Via Structure
New high Tg snap-cure B-stage adhesive material and process will be
selected for CTE match to the substrate system. This will help to meet the
sight flatness requirement. This anisotropic bond ply will be capable of
producing 2 mil vias with 5 mil pads.
2.3.3 Soldermask
Develop flush soldermask chip sites.
2.3.4 10 mil grid pitch
The critical parameter of the substrate is the routing density. The
Consortium will use the materials and processes developed for bond ply
adhesive and via structures to create high density routing designs. The
target is 10 mil pitch or less and the process will be characterized to
determine capability.
2.3.5 Design Rules
In additional to the pad pitch of 10 mils, all design rules for the
final process will be verified and characterized to ensure
manufacturability.
2.3.6 Membrane test head
Test head and optical alignment systems will be developed to enable
electrical testing of substrates down to a 6 mil pitch. This will involve
design and fabrication of prototypes and final product. Qualification be
performed to prove production capability.
2.3.7 Mil qualification
The Consortium will perform qualification testing on the final
substrate technology to relevant Mil std environmental reliability
conditions.
3.0 Flip Chip Assembly on Laminate Substrates (Focus area #3)
This focus area will develop and install capability to assembly flip-chip
devices and other surface mount components in a single pass.
3.1 Description of Problem
The availability of flip-chip devices and advanced substrates for their use
will require a development and demonstration of low-cost processes for their
assembly and rework. To compete, these processes must be compatible with
current SMA methods and practices while achieving component placement
capabilities of 10 mil pitch and finer on laminate substrates.
5
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 1, PAGE 6
3.2 Key Metrics
The key metrics for success are:
1. Product integration on a standard SMA assembly line.
2. Materials compatibility for assembly of eutectic-type solder
bumped chips on industry standard laminates.
3. Cost modeling will be performed. Target is less than 90% of
similar QFP assembly cost
4. Successful prototype product assembly (see focus area 4)
3.3 Technical Approach
To achieve these metrics, eight major tasks will be addressed.
1. Design Guidelines
2. Materials and substrate selection
3. Assembly methods
4. Underfill process development
5. Repair/rework process development
6. Component and board handling
7. Equipment selection and characterization
8. Prototype product assembly (see focus area 4)
3.3.1 Design Guidelines
Design guidelines to support the development of flip-chip assembly
shall define the variables necessary for fabrication of test substrates and
prototype products. The major ones are:
. Pad and via location and dimensions based on chip pad ring, ball
size and pitch.
. Vision system alignment requirements.
. Component keepouts and clearances.
. Soldermask dimensional tolerances.
. Pad finish and plating thickness.
. Test access.
. Tooling holes.
. Polarity/silkscreen identifiers
3.3.2 Materials Selection
A variety of materials will be reviewed and characterized for process
compatibility. The major tasks are:
1. Establish flip-chip critical characteristics of polyamide and
alternative substrates.
2. Fabricate test substrates.
3. Characterize fluxes and other materials for assembly
compatibility with the solders used for chip bumping.
4. Develop and document material and substrate combinations that
enable flip-chip assembly that conforms to key metrics outlined
above.
6
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 1, PAGE 7
3.3.3 Assembly Methods
Development of SMA compatible assembly methods for flip chip
components will require:
. Process experimentation with selected materials and substrates
from 3.3.2 above focusing on key variables of time, temperature
profile, atmosphere and line loading.
. Assembly and test of flip-chip components using appropriate test
chips.
. Board-level environmental testing to establish process
robustness.
3.3.4 Underfill Process Development
An underfill for flip-chips mounted on laminate substrates is required
to reduce the stress on solder joints. This stress can be extreme due to
the thermal coefficient of expansion mismatch of silicon chip (3.6 ppm) and
substrate (15-22 ppm). Materials will be evaluated for:
. Adhesion.
. Flow Properties
. Cure Time.
. Thermal Conductivity.
. Reworkability.
. Environmental stability.
3.3.5 Repair/Rework Process Development
The repair and rework of flip-chip assemblies is critical to low-cost
implementation of the flip-chip technology. Several methods will be
investigated by the Consortium.
. Establish inspection and rework process prior to underfill.
. Extend rework process with the necessary modifications to the
post-underfill stage.
. Repair of chip sights.
3.3.6 Component and Board Handling
Handling of flip-chip components and small substrates such as flex
circuits will require modifications to standard methods. vKey issues to be
resolved:
. Handling of flex circuit.
. Handling equipment for flip-chips such as nozzle sizes and
materials selection.
. Tray/tape-and-reel standards and chip orientation.
3.3.7 Equipment Selection
The investigation and selection of equipment for the above flip-chip
handling steps will be a major task. The Consortium will address:
. Sourcing of equipment options and vendors.
. Establish criteria/metrics for selection and characterization.
. Assess, buyoff and install equipment.
7
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 1, PAGE 8
3.3.8 Prototype Product Assembly
The focus of this phase of the program is to develop and emplace a
manufacturing process compatible with current SMA practices. Ultimate
demonstration of this capability will be carried out through the assembly
in low to moderate volume of prototypes of new products from the Consortium
Members products. Assembly of these will take place at a number of sites
as described in focus area #4.
4.0 Product Demonstration and Process Verification
The production worthiness of the infrastructure will be demonstrated by the
Consortium Members product drivers. Prototypes of four Consortium products will
be assembled using solder bumped, DCA components.
4.1 Key Metrics
. Fully functional working prototype products.
. Performance meeting design and engineering specifications.
. Manufacturing cost in line with market considerations and goals
of the Consortium.
4.2 Technical Approach
To achieve these metric, product prototypes will be designed, built, and
tested.
4.2.1 Hughes - Stinger Missile Module
The project will consist of design, fabrication, testing and cost
assessment of "Stinger" memory modules. The major problem to be solved in
the Stinger is area, circuit functionality must increase in while the space
available stays the same. The memory module will utilize a multi-chip
module laminate (MCM-L) and flip-chip attachment approach in place of a
seven-hybrid stack of VLSI circuits. The major deliverables are:
. Electrical design.
. Product design.
. Test development and implementation.
. Wafer bumping.
. Fabrication of test board and substrate.
. Rework and repair process development.
. Prototype assembly at Hughes and at Jabil.
. Prototype testing and reliability performance report.
4.2.2 SunDisk - Solid state storage device
SunDisk will develop a new, reduced form factor, solid state flash
storage device for very high density embedded applications such as cameras,
telephones, pagers, and other similar consumer electronics. SunDisk will
design and fabricate prototypes using a board design in which the flash
memory devices are mounted with bare dies and eutectic solder bumped flip
chip in place of the chip and wire method currently being employed. The
major deliverables of this project are:
8
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 1, PAGE 9
. Design and fabrication of test board for solder bumped flash
storage device.
. Board level characterization of SunDisk solder bumped flash
storage devices.
. Board level qualification of flash storage devices.
. Environmental testing of the flash memory devices and final
reliability performance report.
4.2.3 National Semiconductor - CLAy FCMCM
National's CLAy product is based on a 4 chip array of Field
Programmable Gate Array (FPGA) that can be reconfigures in real time while
operating in the system. Currently, the design optimization of the FCMCM
is being funded through ARPA contract DABT63-93-C-0071. This contract
modifies the CLAy chip periphery to 224 I/O's per side for 896 I/O's per
chip. Each chip has 1028 bumps on 0.009" pitch with four CLAy chips
mounted on a 625 I/O BGA. The current cost-less-die for the ceramic BGA is
currently over $100 each. By use of the MCM-L substrate technology being
enhanced and developed in this Low Cost Flip Chip program, plus the use of
overmolded packaging in place of ceramic, the Consortium expects to reduce
the cost by an order of magnitude and reduce the cost barrier to
commercialization. The major deliverables of this project are:
. Evaluation of bumping technology.
. Evaluation of MCM-L substrate technology.
. Assembly of CLAy FCMCM in PBGA packages at National
Semiconductor.
. Reliability and cost assessment of CLAy samples assembled in the
Consortium.
4.2.4 National Semiconductor - ProductDriver #2
A fourth product driver is currently being investigated by the
Consortium. The Consortium are working with two other corporations to
define a product that fits the intent of this program as well as other
National products and will make a decision by the end of the 1st quarter of
the project. This project will use the Consortium infrastructure to
develop and demonstrate a flip-chip assembly and will include the
reliability and cost assessment reports.
9
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 2, PAGE 1
REPORT REQUIREMENTS
A. MONTHLY TECHNICAL STATUS REPORT
On or before thirty (30) calendar days after the effective date of the
Agreement and monthly thereafter throughout the term of the Agreement,
the Consortium Management Committee (CMC) shall submit a monthly
technical report to the Consortium Members and ARPA. The report
should be approximately one (1) to three (3) pages in length and shall
be distributed via e-mail and printed copy. Two (2) copies shall be
submitted to the ARPA Program Manager, one (1) copy shall be submitted
to the ARPA Agreements Administrator and one (1) copy shall be
submitted to ARPA/ESTO, Attn: Assistant Director for Program
Management
The technical status report will review the previous month's
accomplishments, highlight potential problems, and estimate progress
toward the Payable Milestones. The technical status report will
include a review of the status of consortium collaborative activities
during the reporting period.
B. QUARTERLY BUSINESS STATUS REPORT
On or before ninety (90) calendar days after the effective date of the
Agreement and quarterly thereafter throughout the term of the
Agreement, the CMC shall submit a quarterly business status report.
Two (2) copies shall be submitted to the ARPA Program Manager, one (1)
copy shall be submitted to the ARPA Agreements Administrator and one
(1) copy shall be submitted to ARPA/ESTO, Attn: Assistant Director
for Program Management
The business status report shall provide summarized details of the
resource status of this Agreement, including the status of the
contributions by the Consortium Members. This report will include a
quarterly accounting of current expenditures as outlined in the Annual
Program Plan. Any major deviations shall be explained along with
discussions of the adjustment actions proposed.
C. ANNUAL PROGRAM PLAN DOCUMENT
The CMC shall submit or otherwise provide to the ARPA Program Manager
one (1) copy of a report which describes the Annual Program Plan as
described in Article III, Section D. This document shall be submitted
not later than thirty (30) calendar days following the Annual Site
Review as described in Article III, Section D.
D. SPECIAL TECHNICAL REPORTS
As agreed to by the Consortium and the ARPA Program Manager, the CMC
shall submit or otherwise provide to the ARPA Program Manager one (1)
copy of special reports on
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 2, PAGE 2
significant events such as significant target accomplishments by
Consortium Members, significant tests, experiments, or symposia.
E. PAYABLE MILESTONES REPORTS
The CMC shall submit or otherwise provide to the ARPA Program Manager,
documentation describing the extent of accomplishment of Payable
Milestones. This information shall be as required by Article V,
paragraph B and shall be sufficient for the ARPA Program Manager to
reasonably verify the accomplishment of the milestone of the event in
accordance with the Statement of Work.
F. FINAL REPORT
1. The CMC shall submit or otherwise provide a Final Report making
full disclosure of all major developments by the Consortium within sixty
(60) calendar days of completion or termination of this Agreement. With
the approval of the ARPA Program Manager, reprints of published articles
may be attached to the Final Report. Two (2) copies shall be submitted or
otherwise provided to the ARPA Program Manager and one (1) copy shall be
submitted or otherwise provided to ARPA/ESTO, Attn: Assistant Director for
Program Management. One (1) copy shall be submitted to the Defense
Technical Information Center (DTIC) addressed to Bldg. 5/Cameron Station,
Alexandria, VA 22314.
2. The Final Report shall be marked with a distribution statement to
denote the extent of its availability for distribution, release, and
disclosure without additional approvals or authorizations. The Final
Report shall be marked on the front page in a conspicuous place with the
following marking:
"DISTRIBUTION STATEMENT B. Distribution authorized to U.S. Government
agencies only to protect information not owned by the U.S. Government
and protected by a contractor's "limited rights" statement, or
received with the understanding that it not be routinely transmitted
outside the U.S. Government. Other requests for this document shall
be referred to ARPA/S&IO (Attn: Technical Information Officer)."
2
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 3, PAGE 1
SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
<TABLE>
<CAPTION>
SOW ARPA CONSORTIUM
TASK MONTH REF PAYABLE MILESTONES PAYMENT PAYMENT
---- ----- --- ------------------------------------------------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1 1 Intro Deliver baseline execution plan to include detailed $ 400,000 $ 450,000
program schedule in Gantt chart form. Status
report describing work performed to date.
2 3 2.3.5 Deliver substrate design simulation report for each $ 880,250 $ 910,250
of the Consortium Members' products and required
design rules.
3 6 1.3.4 Deliver the Consortium test chip plans. Deliver a $1,464,400 $1,465,530
design report on mechanical test chip C' (CLAy
simulation mechanical test chip). Test chip "C" will
have completed fab and initial assembly. Deliver
the Consortium plans for obtaining and using a
functional test chip for process qualification.
4.2.3 Deliver design review report on CLAy substrate
package
4 9 3.3.7 Consortium assembly infrastructure will select and $1,790,600 $1,790,600
install flip chip assembly and handling equipment.
Deliver a report describing the equipment selection
criteria and verification of installation.
1.3.2 Demonstrate capability to produce 5/95 Sn/Pb
solder bumps. Deliver a report describing the
process and cost model to date.
5 12 3.3.8 Demonstrate the infrastructure prototype capability $1,410,600 $1,757,600
4.2.2 by assembling 300 Sun Disk memory modules.
Deliver sample parts and assembly report.
2.3.2 Demonstrate high density substrate prototype
capability.
2.3.3 Deliver Substrate materials and process design
2.3.4 report and initial test substrate evaluation report.
The report will demonstrate bond ply process and
material capable of 2 mil via, 5 mil pads and 10 mi
area array grid.
6 15 1.3.1 Demonstrate capability to produce a redistribution / $1,280,650 $1,657,023
dielectric layer process for area array bumping.
Deliver initial process characterization report, cost
model and reliability report.
1.3.3 Demonstrate and qualify a single die bumping
process. Deliver a report describing process
characterization, cost modeling, and reliability
testing.
</TABLE>
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 3, PAGE 2
<TABLE>
<CAPTION>
SOW ARPA CONSORTIUM
TASK MONTH REF PAYABLE MILESTONES PAYMENT PAYMENT
---- ----- ----- ------------------------------------------------------- ------- -----------
<C> <C> <C> <S> <C> <C>
7 18 4.2.1 Demonstrate manufacturing capability for the $1,064,750 $ 1,391,250
Stinger missile product driver assembled at 2
Consortium Members' facilities. Deliver a product
report including characterization, reliability and
cost model and comparison to wire bond cost.
4.2.2 Deliver final qualification report for SunDisk
memory module.
2.3.5 Demonstrate volume manufacturing capability for
2.3.7 high density substrate at the production facility.
Deliver samples and manufacturability qualification
report.
8 21 1.2.2 Deliver process characterization, reliability, cost $ 915,370 $ 1,134,726
model and manufacturing report on the bumping
technology extension projects (Pb free process,
Electroless Ni UBM process, Solder jet process,
Solder wire process)
2.3.6 Demonstrate fine pitch substrate test head
capability. Deliver characterization and cost report.
9 24 4.2.3 Deliver final qualification report on the CLAy $ 622,990 $ 711,392
product driver including reliability, electrical
characterization and cost report.
1.3.2 Deliver process characterization, reliability, cost
model and manufacturing report on the bumping
technology extensions (fine pitch - 6 mil process
and high fatigue life process).
TOTAL: $9,829,610 $11,268,371
</TABLE>
2
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 4
FUNDING SCHEDULE
<TABLE>
<CAPTION>
A. PROJECTED PROGRAM FUNDING COMMITMENTS
-------------------------------------
ARPA Consortium
Funding Contribution
---------- ------------
<S> <C> <C>
AY* 95 $6,794,728 $ 6,373,980
AY 96 $3,034,882 $ 4,894,391
TOTALS $9,829,610 $11,268,371
---------- -----------
*Agreement Year
</TABLE>
B. CONSORTIUM MEMBER CONTRIBUTIONS
-------------------------------
<TABLE>
<CAPTION>
MEMBER CONTRIBUTION CASH** IN-KIND***
------ ------------ ----------- ----------
<S> <C> <C> <C>
Aptos $ 1,277,773 $ 1,277,773 $ 0
Delco $ 711,176 $ 670,676 $ 40,500
Hughes $ 625,000 $ 582,000 $ 43,000
Jabil $ 1,550,000 $ 973,400 $ 576,600
Litronic $ 1,305,530 $ 826,780 $ 478,750
National $ 4,422,949 $ 4,422,949 $ 0
Sheldahl $ 650,943 $ 650,943 $ 0
SunDisk $ 725,000 $ 725,000 $ 0
----------- ----------- ----------
TOTALS $11,268,371 $10,129,521 $1,138,850
</TABLE>
**Cash contributions consist of fully-burdened labor exclusive of cost of
money and fee, Government IR&D expenditures, and cash expenditures for
consumable equipment, travel, supplies, construction (costs associated with
equipment installation), software, direct materials, and other direct
costs.
***In kind contributions consist of depreciation expenses allocated on a
percentage basis for equipment used on the program and the lease equivalent
of an R&D Lab allocated on a percentage basis.
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 5, PAGE 1
LIST OF GOVERNMENT AND CONSORTIUM REPRESENTATIVES
GOVERNMENT: SCOTT R. ULREY
ARPA/CMO
3701 N. Fairfax Drive
Arlington, VA 22203-1714
phone: (703) 696-2434
FAX: (703) 696-2208
Email: [email protected]
NICHOLAS J. NACLERIO
ARPA/ESTO
3701 N. Fairfax Drive
Arlington, VA 22203-1714
phone: (703) 696-2216
FAX: (703) 696-2203
Email: [email protected]
CONSORTIUM: DENNIS RALSTON
NATIONAL SEMICONDUCTOR CORPORATION
M/S 10-225
2900 Semiconductor Drive
Santa Clara, CA 95052
phone: (408) 721-2812
FAX: (408) 721-4860
Email: [email protected]
JIM DUNHAM
NATIONAL SEMICONDUCTOR CORPORATION
2900 Semiconductor Drive
Santa Clara, CA 95052
phone: (408) 721-6140
FAX: (408) 721-6142
Email: [email protected]
SCOTT GRAHAM
APTOS CORPORATION
1557 Centre Pointe Drive
Milpitas, CA 95035
phone: (408) 956-7988 X3006
FAX: (408) 956-7979
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 5, PAGE 2
CONSORTIUM: MICHELLE A. WILKES
DELCO ELECTRONICS CORPORATION
One Corporate Center
P.O. Box 9005
Mail Station CT50B
Kokomo, IN 46904-9005
phone: (317) 451-5532
FAX: (317) 451-5520
MICHAEL J. VARNAU
DELCO ELECTRONICS CORPORATION
2033 East Boulevard
Mail Station 6060
Kokomo, IN 46904-9005
phone: (317) 451-7136
FAX: (317) 451-8564
Email: [email protected]
MARLENE TOMPKINS
HUGHES MISSILE SYSTEMS COMPANY
P.O. Box 11337
Tucson, AZ 85252
phone: (602) 794-4040
FAX: (602) 794-2460
Email: [email protected]
PAUL H. BITTNER
JABIL CIRCUIT, INC.
2220 Lundy Ave
San Jose, CA 95131
phone: (408) 943-0196
FAX: (408) 943-0589
Email: [email protected]
MARTY NEESE
JABIL CIRCUIT, INC.
2220 Lundy Ave
San Jose, CA 95131
phone: (408) 943-0196
FAX: (408) 943-0589
Email: [email protected]
DICK POMMER
LITRONIC INDUSTRIES
2950 Red Hill Ave
Costa Mesa, CA 92626
phone: (714) 545-6649
FAX: (714) 545-7616
Email: [email protected]
2
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0031
ATTACHMENT NO. 5, PAGE 3
CONSORTIUM: KRIS SHAW
LITRONIC INDUSTRIES
2950 Red Hill Ave
Costa Mesa, CA 92626
phone: (714) 545-6649
FAX: (714) 545-7616
WILLIAM M. BAKER
SHELDAHL, INC.
1150 Sheldahl Road
P.O. Box 170
Northfield, MN 55057
phone: (303) 651-2880
FAX: (303) 651-2265
THOMAS A. OLSON
SHELDAHL, INC.
1150 Sheldahl Road
P.O. Box 170
Northfield, MN 55057
phone: (507) 663-8000 Ext. 546 or 300
FAX: (507) 663-8435
BOB WALLACE
SUNDISK CORPORATION
3270 Jay St.
Santa Clara, CA 95054
phone: (408) 562-0500
FAX: (408) 562-0503
Email: [email protected]
3
<PAGE>
Exhibit 10.28
ARTICLES OF COLLABORATION
FOR
LOW COST FLIP CHIP CONSORTIUM
This Agreement is entered into by and among the following parties:
National Semiconductor Corporation
Aptos Corporation
Delco Electronics Corporation
Hughes Missile Systems Company
Jabil Circuit, Inc.
Litronic Industries
Sheldahl, Inc.
SunDisk Corporation
WHEREAS the Parties have complementary research interests and wish to form a
cooperative research consortium (hereinafter Consortium) to engage in
cooperative research in the area of low cost solder-bumped flip chip assemblies
in order to develop and emplace a domestic manufacturing capability for design,
solder-bumping and board assembly of integrated circuit (IC) wafers and die;
(hereinafter scope of research); and WHEREAS the Parties anticipate receiving
funding from a government agency; and WHEREAS the Parties wish to be bound
together in the Consortium by these Articles of Collaboration (Articles
hereinafter) in the form of a Joint Research and Development Venture as such
term is defined in the National Cooperative Research Act of 1984 through a
Cooperative Agreement as such term is defined in 31 U.S.C. 6305; and WHEREAS
terms not otherwise defined in this Agreement shall have the meaning set forth
in the ARPA Agreement between the Consortium and the Advanced Research Projects
Agency (ARPA).
Hereinafter the following definitions apply:
Each of National Semiconductor Corporation, Aptos Corporation, Delco
Electronics Corporation, Hughes Missile Systems Company, Jabil Circuit,
Inc., Litronic Industries, Sheldahl, Inc. and SunDisk Corporation once
having executed these Articles is a Consortium Member.
Each Consortium Member is a Party. All Consortium Members are collectively
identified as Parties.
SEMATECH is an Advisor to the Consortium. Due to legal constraints placed
upon these entities, they are unable to sign these Articles of
Collaboration, but agree to support the Consortium's goals and objectives.
As an Advisor to the program, these entities shall not have any voting
authority within the Consortium.
Page 1 of 21
<PAGE>
Each U.S. governmental department or agency thereof providing funding to
the Consortium as a whole is in an Agency during the period such funding is
available or being used.
NOW THEREFORE, the Parties agree as follows:
1. (a) The Parties hereby establish a joint research and development
venture to engage in a collaborative research effort of limited duration to gain
further knowledge and understanding of such technologies for the purposes and
within the Scope of Research set forth herein.
(b) Subject to the availability of Agency funding, the Parties
individually agree to expend best reasonable efforts to achieve the goals
assigned to them as defined in the Program Plan (including milestone payment
plan), attached hereto and incorporated herein. By execution of this Agreement
each Party authorizes the Consortium Management Committee (CMC) or its designee
to enter into with an Agency a single Other Transaction (hereinafter Funding
Agreement) as defined in 10 U.S.C. 2371 and consistent with the Project
Statement to fund the Consortium. In the course of the Consortium, the
Consortium Administrator shall disburse to each Party the funds associated with
the completion of each milestone established in the Detailed Milestone Payment
Plan upon receipt of appropriate documentation from the Party. Milestone
payments to each Party will be made within 15 working days after receipt of a
certification of milestone completion, assuming such funds are available from
the Agency and unless the CMC shall direct the Consortium Administrator to the
contrary in accordance with Article 4.
(c) This Agreement shall not preclude any Party from developing at
its own expense technology based upon Consortium technology but apart from the
Project Statement, provided that the proprietary information and other rights of
other Parties hereunder are not violated. The developing Party under this
subparagraph reserves all intellectual property rights in its so developed
technology.
(d) The Parties agree to empower the Consortium Administrator to
officially execute the ARPA-Consortium Agreement No. MDA972-95-3-0031 on behalf
of all of the individual Consortium Member companies. This authority is granted
only after each individual company has had adequate time to review the Agreement
and have provided written authorization to the Consortium Administrator to
execute the document on behalf of their respective company.
2. (a) Subject to the terms and conditions stated herein, the Consortium
will be managed and governed by the Consortium Management Committee. The CMC is
empowered to determine all policy, business, financial, legal, and technical
issues of the Consortium. The CMC is authorized to represent the Consortium in
reporting progress, in negotiating, and in transacting business with respect to
the
Page 2 of 21
<PAGE>
scope of the Agreement with ARPA or other persons. Specifically and without
limitation, except as otherwise provided in this Agreement, the CMC is empowered
to redirect the research, redefine the tasks and goals of the Parties, and to
proportionally change to all Parties the amount of funding provided by an Agency
concerning the program.
(b) Each Consortium Member will appoint one voting representative to
comprise the CMC, who shall have the power to designate an alternate voting
representative from time to time. The CMC will meet in regular committee
meetings, approximately every three months, at locations chosen on a rotating
basis by the CMC or as is mutually acceptable among the Consortium Members.
Each representative may be accompanied by other employees of the Party or
Agency, including without limitation financial, business, and legal personnel.
Each Party and Agency will limit its attendees to three, with the exception of
National Semiconductor employees providing overall support to the Consortium.
Other parties may attend the committee meetings at the invitation of the CMC,
but only after agreeing in writing to appropriate disclosure limitations. The
CMC may exclude from a portion of the non-technical committee meetings the
representatives of the Agencies or other third persons.
(c) The National Semiconductor representative to the CMC will act as
chairperson of the committee meetings, keep the other members of the CMC
informed of developments, and deliver notification regarding meetings of the
CMC. Any Consortium Member may call a special meeting of the CMC.
(d) Subject to CMC approval National Semiconductor will appoint a
Consortium Administrator to the Consortium who will attend all CMC meetings and
who will provide a single point of contact to the Contracting Officers of
Parties and the Agencies or their designees.
(e) National Semiconductor will ensure that minutes of the meetings of
the CMC are recorded and distributed to the Consortium Members and, as
requested, to ARPA.
(f) Each Consortium Member will be responsible for hosting both CMC
meetings and Technical Management Committee (TMC) meetings on a rotating basis.
The schedule for hosting meetings will be published by the Consortium
Administrator within 30 days after execution of these Articles.
3. a. A simple majority of CMC members will constitute a quorum at a
CMC meeting. The CMC will attempt to reach a consensus decision of all
representatives present at each committee meeting. However, if demanded by one
Consortium Member, a decision may be determined by a vote of the CMC after the
concerns of affected Parties and Agencies present at the meeting are heard.
Except
Page 3 of 21
<PAGE>
as provided in sections 4, 5 and 7, a majority vote of the voting
representatives present rules.
b. Any Consortium Member company may request the convening of the
CMC. Requests must be made directly to the Chairman of the CMC. A request to
convene an unscheduled meeting of the CMC must allow at least 15 working days to
convene the meeting.
c. CMC meetings will be held quarterly. Locations for the meetings
will be rotated among the Consortium Members. Each Consortium Member is
responsible for providing the necessary facilities to host a CMC meeting. The
Consortium Administrator will notify all member companies of the date and
location of the regularly scheduled CMC meetings at least 30 days in advance.
If an unscheduled CMC meeting is called by any of the member companies, the
Consortium Administrator will endeavor to provide as much notice as practical.
4. A supermajority vote, as required, is a vote of all but one of the
Consortium Members. For purposes of a supermajority vote, the vote of a
representative of a Consortium Member either not attending the CMC meeting or
not participating will be counted as an opposing vote. With a supermajority
vote, the CMC is empowered to:
(a) Revise the Articles of Collaboration;
(b) Revise or terminate any funding agreements with an Agency;
(c) Delegate authority of CMC to the Consortium Administrator or
Consortium Chairman;
(d) Substantially change or eliminate any Agency funding allocated to
any Party as technically and/or financially justified by the CMC.
A Party experiencing any reduction in Agency funding may pro rata
reduce its internally funded participation in the Consortium;
(e) Act on any issue declared reasonably, in writing by a Consortium
Member, to be of critical importance;
(f) Appoint and remove the Consortium Administrator or any other
officer; and
(g) Approve Annual Program Plan for Funds and adjusting funding to
all parties subject to section 6.
5. (a) The CMC by unanimous vote may admit a new member to the
Consortium. The membership of a new member shall become effective and such new
member shall become a Party upon its execution of this Agreement. The CMC will
consider new members on a non-discriminatory basis, but only if the new Members
technical contributions can be justified and only on relatively comparable
financial terms as the existing Parties, recognizing the risk of their original
investment. The consideration will include without limitation whether the new
member would bring to
Page 4 of 21
<PAGE>
the Consortium technology otherwise unavailable on the time scale of the program
or would allow the technology to be developed by members of the Consortium to be
applied to new markets. Other conditions of its admission are that the entry of
the new member would not substantially adversely affect the intellectual
property rights of the original Consortium Members, that the added effort would
not substantially change the ongoing Consortium program, and that the new Member
could participate without diminishing Agency funding provided to existing
Members. Notwithstanding the above, the representatives of the CMC may consider
any reasonable factor in addition to those above, and their decision on
admitting new Members is discretionary and final.
(b) If a member is unable to attend a CMC or TMC meeting, the member
may vote via written proxy. The proxy vote must be received by the Chairman of
the CMC at least one (1) working day prior to the CMC or TMC meeting. The proxy
vote must be in writing from the CMC voting representative of the Party or his
designee. A FAX or EMAIL proxy is acceptable.
(c) If a member is absent from a CMC or TMC meeting, that Party's
vote will be counted as a negative vote on all issues brought forth to a vote.
6. A Party may reject an expansion of its scope of responsibility within
the Consortium, a modification of its rights in Intellectual Property, or a
reduction of its Agency funding not accompanied by a reduction in the scope of
its responsibilities.
7. (a) Any Party may resign at will from the Consortium after it has
provided written notice to the CMC 30 days in advance of the effective date of
the resignation. During the 30 day period, the resigning Party shall wind down
its effort in an orderly fashion. The CMC shall reasonably determine whether to
provide any further Agency funding to the resigning member after its notice of
resignation.
(b) The resigning Party shall make a reasonable best effort to
transfer its portion of Consortium work to other members of the Consortium, this
reasonable best effort extending beyond the 30 day period if reasonably required
and at the resigning Party's own cost (which shall not exceed the payment due to
the resigning party at the next payable milestone payment date following the
date notice of resignation is given). The resigning Party must provide a
reasonable, royalty-bearing, non-exclusive, perpetual, sub-licensable license in
its Consortium Intellectual Property as defined in Paragraph 8 (b), restricted
to the field of use defined in the SOW to the Party or Parties designated by the
CMC to replace the resigning Party in performing its assigned tasks.
(c) The CMC may, by unanimous vote, except for the resigning Party,
force a Party to resign if that Party is not adequately performing the tasks
assigned to it or is not reasonably cooperating with the Consortium and its
Parties. For purposes
Page 5 of 21
<PAGE>
of the unanimous vote, the representative of a Consortium Member not attending
the CMC meeting or not voting will defeat the unanimity, except for the
resigning party. The CMC will provide at least 30 days notice to the offending
Party to resolve nonperformance issues prior to the issue coming to a vote
before the CMC. All appropriate efforts and communications will be made prior
to forcing a Party to resign. All of the requirements and responsibilities of a
resigning party described in 7(a) and 7(b) apply to a party forced to resign.
8. (a) As to intellectual property made in the Consortium, each Party
retains title to inventions, technical data rights, and other intellectual
property made solely by its employees in performance of the Consortium work.
Inventions or technical data jointly developed by employees of more than one
Party are jointly owned by the respective employing Parties.
(b) Consortium Intellectual Property is that intellectual property
developed by and in the course of identified tasks assigned to and performed by
the member Party, whether performed under Agency funding or funding provided by
the Party as agreed to in the Funding Agreement and/or in this Agreement for
cost sharing. The identified tasks shall be those tasks i) agreed to by the
Party in a separate agreement between the Consortium and ARPA, ii) agreed to by
the Party with other Parties of the Consortium, and (iii) assigned to the Party
by the CMC subject to the restrictions of section 6. However, Consortium
Intellectual Property does not include (1) background: (2) concurrently
developed intellectual property that is independently funded apart from
Consortium: or (3) continuation (improvement or subsequent) intellectual
property (including so-defined processes) of the respective Party(ies). All
Parties agree to perform the tasks assigned to them in the attached Statement of
Work, to which the CMC is empowered to redirect these efforts.
(c) All Parties neither receive from nor are required to grant to the
other Consortium Members any royalty-free licenses in its Consortium
intellectual property, but all Parties agree to grant to any other Consortium
Member a reasonable, royalty-bearing license for the sole purpose of continuing
the Consortium. The cost of this license will not be counted towards the
overall cost of the Low Cost Flip Chip Consortium program. Further, all Parties
will license its Consortium intellectual property to other Parties only under
commercially reasonable terms.
(d) In the event of a dispute concerning the reasonableness of a
proposed royalty resulting from Consortium Intellectual Property, all Parties
agree to submit to binding arbitration to determine the reasonableness of the
proposed royalty agreement between Parties. All Parties agree that the
arbitrator's decision will be binding.
(e) One Party may exercise march-in rights against the Consortium
Intellectual Property of another Party to the extent specified in this
paragraph. March--
Page 6 of 21
<PAGE>
in rights become available if the Party originally holding title to the
Consortium Intellectual Property has failed to adequately commercialize within a
reasonable time, the technology of the Consortium related to that Consortium
Intellectual Property. The reasonable time shall be no less than 3 years from
the date these Articles are terminated. Any Consortium Member may exercise
march-in rights upon any Member either on the Member's behalf or on the behalf
of its licensees irrespective of whether an Agency has exercised similar march-
in rights. The title holder shall be entitled to commercially reasonable
licensing fees and a reasonable license agreement from the Member exercising
march-in rights.
(f) Each Party is subject to the licensing and march-in rights of
subparagraph (e), but the Consortium may not bind any Party without its approval
for the conveyance of its intellectual property to any Agency.
(g) The Consortium favors, subject to Agency requirements, an
open-publication policy to promote commercial acceptance of the technologies
developed for flip chip packaging of integrated circuits, but simultaneously
desires to protect the proprietary information of the Parties developed both
within and without the Consortium. However, successful commercialization of
aspects of the technology by some of the Parties may depend on the proprietary
nature of the information. Each Party will individually decide whether to
publish its own technical data or maintain it as proprietary. However, in the
performance of the Consortium, proprietary information, software or hardware of
one Party may necessarily be disclosed to or used by another Party. A non-
disclosure agreement separately executed by all the Members, attached as Exhibit
1, is incorporated herein by reference, and the Members will assure that their
employees participating in the Consortium conform to its terms.
(h) Notwithstanding the separately executed non-disclosure agreement
attached hereto, when one Party's Consortium related work depends on the
proprietary information of another Party, the technical data may be published to
the extent that such data: (i) is required for a description of the Member's
work, (ii) does not disclose proprietary materials, hardware, formulations or
software, and (iii) relates primarily to system or material performance and
characteristics. However, publication of proprietary technical data may be
delayed by its owner for a time period of not more than six (6) months enabling
the filing of patent applications. In the event that a Party's work depends on
proprietary materials, hardware, software or processes developed by another
Party in tasks outside the Consortium, the system performance and
characteristics may be published, but only after the delay period for patent
filings. In no event shall such disclosure in any way reveal the proprietary
information of the implementation necessary to achieve the system performance.
(i) Each Party will select its inventions for which it applies for
patents. The Party is further responsible for prosecuting those applications
and maintaining the resulting patents, both in the U.S. and in foreign
countries. A Party jointly owning an
Page 7 of 21
<PAGE>
invention may file a patent application for it and the co-owning Parties will
cooperate in the filing and prosecution.
(j) Any patent application filed claiming a Consortium invention
covered by an agreement with an Agency shall include a Government interest
paragraph. The Party will report a patent application claiming any Consortium
Intellectual Property to the CMC within one month and provide to the CMC a copy
of the application, without claims. The CMC will report the invention in a
timely manner including a short abstract to all Parties and to any Agency
funding the invention, as required by the Agency. Any Member or the funding
Agency may obtain copies of the application from the CMC. However, any such
patent information shall be covered by the non-disclosure agreement and shall
not be disclosed by the Agency to non-governmental personnel until the
respective patents have been issued. All Parties agree to retain and maintain
in good condition until five (5) years after completion or termination of these
Articles, all data necessary to achieve practical application of all Consortium
and/or Government funded inventions.
(k) The funding agreement for the Project Statement may provide for
the government to obtain certain rights in the Consortium Intellectual Property.
Each Party agrees to such government rights in its Consortium Intellectual
Property subject to the Agreement between the Consortium and ARPA. The
intellectual property rights provided to the Consortium by Agreement shall be
provided in turn to the Parties according to the terms of this Agreement. The
Parties will cooperate with the CMC in performing any reporting, election, and
rights predetermination to the Agency regarding intellectual property as
required by the funding agreement and to provide the required information to the
CMC before such information is required by the Funding Agreement.
(l) All Parties agree to respect the Intellectual Property rights of
all other Parties. During the term of the Agreement, no Party may attempt to
reverse engineer, analyze, recreate, or duplicate the specific technology
developed by another Party as a result of this Collaboration Agreement. Such
efforts may result in termination of membership in the Consortium, forfeiture of
all funds assigned to the milestones to be performed by the offending Party, and
any legal action deemed appropriate.
(m) Notwithstanding the above limitations in this paragraph 8, a
basic intent for the formation of this consortium is to share information freely
or by license to the maximum extent possible without disclosing or otherwise
compromising another Parties proprietary data. This is necessary to assure the
formation of a viable market for the advanced low cost flip chip technology.
9. (a) National Semiconductor Corporation will receive funds from the
funding Agency and disperse such funds available to the Consortium as specified
in
Page 8 of 21
<PAGE>
the attached Consortium Funding Agreement or as directed by the CMC. Milestone
payments will be distributed within fifteen (15) working days after receipt of a
document certifying completion of the milestone, providing funds have been made
available by ARPA.
(b) The funding agreement for the Project Statement may provide for
certain rights of the Government to audit the financial records of the
Consortium. Each Party agrees that it will reasonably cooperate with a
Government audit of the Consortium and a Government audit of their individual
financial records related directly to the costs incurred during the performance
of the ARPA Agreement in accordance with Generally Accepted Accounting
Principles (GAAP) only. No Federal Acquisition Regulations or Cost Accounting
Standards apply to the accounting and financial records and systems of the
members.
10. (a) The Consortium Administrator will set up a document repository
(Consortium Data Repository), wherein all pertinent documents and data generated
by the Consortium and its Members will be archived. All Parties agree to
provide to the Consortium Administrator copies of pertinent documentation,
drawings, photographs and data. Data will be maintained for a period of up to
five (5) years after completion or termination of these Articles. Such data
shall not include proprietary information previously developed at prior expense
by any Party prior to entering into this Agreement.
(b) A copy of all patent abstracts resulting from Consortium
Intellectual Property will be provided to the Consortium Administrator within 30
days after filing.
(c) All press releases, publicity, technical papers and other such
data shall be provided to the Consortium Administrator for archiving in the
Consortium Data Repository within 30 days of submittal for publication.
11. a. THE PARTIES DISCLAIM ANY WARRANTY INCLUDING WITHOUT LIMITATION AN
IMPLIED WARRANTY FOR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, TO
EACH OTHER, TO ANY AGENCY, AND TO THIRD PARTIES FOR ACTIONS, OMISSIONS,
PRODUCTS, NON-CONFORMITIES, DEFECTS, LIABILITIES, OR INFRINGEMENT ARISING OUT OF
THE CONSORTIUM. THE PARTIES DISCLAIM ANY LIABILITY FOR CONSEQUENTIAL, INDIRECT,
OR SPECIAL DAMAGES. IN NO EVENT SHALL A PARTY'S LIABILITY UNDER THIS AGREEMENT
EXCEED THE FUNDING IT HAS RECEIVED UP TO THE TIME OF INCURRING SUCH LIABILITY.
b. The Parties are bound to each other and to the Agency entering
into this agreement with the Consortium by a duty of only good faith and best
reasonable research effort in achieving the goals of the Consortium. Joint and
several
Page 9 of 21
<PAGE>
liability will not attach to the Parties of the Consortium so that no Party is
responsible for the actions of another Party, but is responsible only for those
tasks specified to it and to which it agrees to perform in the separately
executed ARPA funding agreement. Any Party may waive any right, breach or
default which such Party has the right to waive, provided that such waiver shall
not be effective against the waiving Party unless it is in writing, is signed by
such Party, and specifically refers to this Agreement. No waiver of any breach
of any agreement or provision herein contained shall be deemed a waiver of any
preceding or succeeding breach thereof nor of any other agreement or provision
herein contained.
12. No Party has the obligation to, nor will it disclose to, another Party
proprietary information not required for the research purposes in the Program,
and specifically will not exchange with another Party in connection with this
Agreement any market data or plans for other services or market products or any
information relating to flip chip IC packaging of microcircuits, except as such
information is made publicly available.
13. (a) These Articles are not intended to form, nor shall they be
construed to form, by implication or otherwise, a partnership or other formal
business organization, nor should they be construed as a contract or a grant as
defined for purposes of federal procurement law. No Party can be bound by
another Party acting as its agent except as specifically stated in this
Agreement.
(b) No Party shall be obligated to provide any capital contribution,
loan, guarantee, or other financing commitment for the benefit of the
Consortium, unless required for such Party's portion of the Project Statement or
such Party agrees in writing herein or otherwise.
14. Except and to the extent as specifically set forth herein, nothing in
these Articles shall be construed by implication, estoppel or otherwise to grant
any license or right under any patent, copyright, trade secret, trademark or
proprietary right of any Party.
15. This Agreement does not bar the Parties from singly or jointly
planning, designing, or entering manufacturing, subject to the rights of all
Parties, outside the Consortium.
16. No Party shall identify any other Party and its association with this
Consortium in advertising, publicity, or otherwise, except with the formal
written approval of such other Party. However, the Parties agree that
notification of the establishment of this Joint Research and Development Venture
shall be filed by National Semiconductor Corporation on behalf of the Parties
with the Attorney General and the Federal Trade Commission in accordance with
the provisions of the National Cooperative Research Act of 1984 within 90 days
of execution of this Agreement and
Page 10 of 21
<PAGE>
after adequate review by the legal departments of all Parties.
17. (a) These Articles and the Consortium shall continue after execution
of this agreement for 24 months thereafter or earlier under any provision of
sub-section (b) hereof. It may be renewed at any time prior to the expiration
of the term of this Agreement by letter agreement signed by the authorized
representatives of all the Parties who are Parties at that time.
(b) This Agreement shall terminate upon the earliest occurrence of:
(i) disapproval by the Attorney General or the Federal Trade Commission of the
notification of Section (15); (ii) termination of the funding of the first
Project Statement by an Agency unless each Party has agreed to extend the
Consortium for subsequent funding; or (iii) no funding is provided by an Agency
by March 31, 1995.
(c) The obligations of confidentiality set forth in Article 8 hereof
shall survive termination of these Articles for a period of 36 months.
18. The Funding Agreement from an Agency may impose certain requirements
upon the Consortium or its Participants regarding reporting accounting, civil
rights, intellectual property, and technology transfer information or
transferring of intellectual property generated with funds provided by the
Agency. A Participant by acceptance of such funds agrees to conform to such
requirements and to reasonably cooperate with the Consortium in conforming to
such requirements.
19. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by telecopier or by registered or certified
mail, postage prepaid, addressed as follows:
Primary Alternate
Jim Dunham Dennis W. Ralston
National Semiconductor Corporation National Semiconductor Corporation
3707 Tahoe Way, MS 19-100 1130 Kifer Road, MS 10-225
Santa Clara, CA 95051 Sunnyvale, CA 94086
(408) 721-6140 (408) 721-2812
Ed Johnson
Aptos Corporation
1557 Centre Pointe Drive
Milpitas, CA 95035
(408) 956-7988
Page 11 of 21
<PAGE>
Curt Erickson Mathew Venteicher
Delco Electronics Corporation Delco Electronics Corporation
700 East Firmin Road One Corporate Center
Kokomo, IN 46904-9005 Kokomo, IN 46904-9005
(317) 451-9389 (317) 451-5264
Marlene Tompkins
Hughes Missile Systems Company
1150 East Herman Road
P.0. Box 11337
Tucson, AZ 85706
(520) 794-4040
Paul H. Bittner Marty Neese
Jabil Circuit, Inc. Jabil Circuit, Inc.
2220 Lundy Avenue 2220 Lundy Avenue
San Jose, CA 95131 San Jose, CA 95131
(408) 943-0196 (408) 943-0196
Dick Pommer Kris Shaw
Litronic Industries, Inc. Litronic Industries, Inc.
2950 Red Hill Avenue 2950 Red Hill Avenue
Costa Mesa, CA 92626 Costa Mesa, CA 92626
(714) 545-6649 (714) 545-6649
William M. Baker Thomas A. Olsen
Sheldahl, Inc. Sheldahl, Inc.
345-C South Francis Street 1150 Sheldahl Road
Longmont, CO 80501 Northfield, MN 55057
(303) 651-2880 (507) 663-8000
Bob Wallace
SunDisk Corporation
3270 Jay Street
Santa Clara, CA 95054
(408) 562-0500
or such other addresses or telecopier numbers as shall be furnished by like
notice by such party. Any such notice or communication given by mail shall be
deemed to have been given three (3) business days after the date so mailed, and
any such notice or communication given by telecopier shall be deemed to have
been given when sent by telecopier and the appropriate answer back received.
Page 12 of 21
<PAGE>
20. Neither this Agreement nor any rights hereunder, in whole or in
part, shall be assignable or otherwise transferable without the prior written
consent of all other Parties, except the Party's wholly owned subsidiaries, its
ultimate parent company, and to any company wholly owned by its parent company.
The above is subject to ARPA approval.
21. (a) These Articles shall first become effective on the date all
Consortium Members have signed these Articles and such Articles will be
effective only as to such Parties who have signed these Articles by such date.
These Articles shall be effective as to any other Party on the date such other
Party executes these Articles.
(b) This Agreement may be executed in counterparts each of which
shall be deemed an original, but taken together shall constitute one and the
same instrument.
22. The Parties Shall further execute, sign or do or procure to be
executed, signed and done all such further deeds and documents and acts as may
be reasonably required to enable the Parties freely and fully to pursue their
agreed objective provided hereunder.
23. These Articles shall be governed by the laws of the United States
and the State of California except principles of conflict of laws.
24. This Agreement constitutes the entire agreement of the Parties
and supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions among the Parties, whether oral or written, with
respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties has caused these Articles to be executed
by its duly authorized representatives, on the respective dates entered below.
Page 13 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME NATIONAL SEMICONDUCTOR CORPORATION
--------------------------------------
ADDRESS: 1130 KIFER ROAD, MS 10-225
------------------------------
SUNNYVALE, CA 94086
------------------------
By /s/ RICHARD B. CASSIDY, III
------------------------------
(AUTHORIZED SIGNATURE)
RICHARD B. CASSIDY, III
--------------------------
(PRINT NAME)
V.P., GENERAL MANAGER - MILITARY/AEROSPACE DIVISION
------------------------------------------------------
(TITLE)
6-28-95
-------
(DATE OF EXECUTION)
Page 14 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME APTOS CORPORATION
---------------------
ADDRESS: 1557 CENTRE POINTE DRIVE
----------------------------
MILIPITAS, CA 95035
------------------------
By /s/ PAUL LIN
----------------
(AUTHORIZED SIGNATURE)
PAUL LIN
------------
(PRINT NAME)
PRESIDENT
-------------
(TITLE)
JULY 7, 1995
------------
(DATE OF EXECUTION)
Page 15 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME DELCO ELECTRONICS CORPORATION
----------------------------------
ADDRESS: ONE CORPORATE CENTER
------------------------
KOKOMO, IN 46904-9005
--------------------------
By /s/ MICHELLE A. WILKES
-------------------------
(AUTHORIZED SIGNATURE)
MICHELLE A. WILKES
---------------------
(PRINT NAME)
CONTRACTS MANAGER
--------------------
(TITLE)
7-10-95
-------
(DATE OF EXECUTION)
Page 16 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME HUGHES MISSILE SYSTEMS COMPANY
----------------------------------
ADDRESS: P.O. BOX 11337
------------------
TUCSON, AZ 85734-1337
--------------------------
By /s/ JOHN T. McKNIFF
-----------------------
(AUTHORIZED SIGNATURE)
JOHN T. McKNIFF
-------------------
(PRINT NAME)
CONTRACTS MANAGER, ADVANCED PROGRAMS
---------------------------------------
(TITLE)
6-28-95
-------
(DATE OF EXECUTION)
Page 17 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
CONFIDENTIAL DISCLOSURE STATEMENT
CONSORTIUM MEMBER
COMPANY NAME JABIL CIRCUIT, INC.
------------------------
ADDRESS: 2220 LUNDY AVE
------------------
SAN JOSE, CA 95131
-----------------------
By /s/ PAUL H. BITTNER
-----------------------
(AUTHORIZED SIGNATURE)
PAUL H. BITTNER
-------------------
(PRINT NAME)
V.P. ADV. ENG
-----------------
(TITLE)
6/27/95
-------
(DATE OF EXECUTION)
Page 18 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME LITRONIC INDUSTRIES
------------------------
ADDRESS: 2950 REDHILL AVE.
---------------------
COSTA MESA, CA 92626
-------------------------
By /s/ RICHARD J. POMMER
-------------------------
(AUTHORIZED SIGNATURE)
RICHARD J. POMMER
--------------------
(PRINT NAME)
DIRECTOR, ADVANCED PACKAGING
-------------------------------
(TITLE)
27 JUNE 1995
------------
(DATE OF EXECUTION)
Page 19 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME SHELDAHL, INC.
-------------------
ADDRESS: 1150 SHELDAHL ROAD
----------------------
NORTHFIELD, MN 55057-0170
------------------------------
By /s/ KEITH CASSON
-------------------
(AUTHORIZED SIGNATURE)
KEITH CASSON
---------------
(PRINT NAME)
VICE PRESIDENT, RESEARCH & DEVELOPMENT
-----------------------------------------
(TITLE)
JULY 7, 1995
------------
(DATE OF EXECUTION)
Page 20 of 21
<PAGE>
LOW COST FLIP CHIP CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME SUNDISK CORPORATION
-----------------------
ADDRESS: 3270 JAY STREET
-------------------
SANTA CLARA, CA 95054
--------------------------
By /s/ ROBERT WALLACE
---------------------
(AUTHORIZED SIGNATURE)
ROBERT WALLACE
-----------------
(PRINT NAME)
VICE PRESIDENT MANUFACTURING
-------------------------------
(TITLE)
27 JUNE 1995
------------
(DATE OF EXECUTION)
Page 21 of 21
<PAGE>
Exhibit 10.29
TECHNOLOGY REINVESTMENT PROJECT
TECHNOLOGY DEVELOPMENT AGREEMENT
BETWEEN
PLASTIC PACKAGING CONSORTIUM
c/o NATIONAL SEMICONDUCTOR CORPORATION
1120 KIFER ROAD
SUNNYVALE, CA 94086-3737
AND
THE ADVANCED RESEARCH PROJECTS AGENCY
3701 NORTH FAIRFAX DRIVE
ARLINGTON, VA 22203-1714
CONCERNING
LOW COST PLASTIC PACKAGING RESEARCH AND DEVELOPMENT
Agreement No.: MDA972-95-3-0024
ARPA Order No.: C326/00
Total Amount of the Agreement: $19,192,716
Total Estimated Government Funding of the Agreement: $9,578,005
Funds Obligated: $7,445,949
Authority: 10 U.S.C. (S) 2371 & (S) 2511
Line of Appropriation:
AA 9740-400 1320 C326 P4V10 2525 DPAC 4 5270 503733 $7,445,949
This Agreement is entered into between the United States of America, hereinafter
called the Government represented by The Advanced Research Projects Agency
(ARPA), and the Plastic Packaging Consortium pursuant to and under U.S. Federal
law.
FOR PLASTIC PACKAGING CONSORTIUM FOR THE UNITED STATES OF AMERICA
NATIONAL SEMICONDUCTOR CORPORATION THE ADVANCED RESEARCH PROJECTS
AGENCY
/s/ Dennis W. Ralston /s/ Ron H. Register
- - ---------------------------- ----------------------------
(Signature) (Signature)
Dennis W. Ralston Ron H. Register
Manager, Business Operations 3/17/95 Deputy Director for Management 3/23/95
- - ------------------------------------ --------------------------------------
(Name, Title) (Date) (Name, Title) (Date)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLES PAGE
<S> <C> <C>
ARTICLE I Scope of the Agreement 3
ARTICLE II Term 6
ARTICLE III Management of the Project 6
ARTICLE IV Agreement Administration 8
ARTICLE V Obligation and Payment 8
ARTICLE VI Disputes 10
ARTICLE VII Patent Rights 11
ARTICLE VIII Data Rights 14
ARTICLE IX Foreign Access to Technology 16
ARTICLE X Pre-Agreement Costs 17
ARTICLE XI Officials Not to Benefit 17
ARTICLE XII Civil Rights Act 17
ARTICLE XIII Order of Precedence 17
ARTICLE XIV Execution 17
ATTACHMENTS
ATTACHMENT 1 Statement of Work
ATTACHMENT 2 Report Requirements
ATTACHMENT 3 Schedule of Payments and Payable Milestones
ATTACHMENT 4 Funding Schedule
ATTACHMENT 5 List of Government and Consortium Representatives
</TABLE>
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ARTICLE I: SCOPE OF THE AGREEMENT
A. BACKGROUND
1. This Agreement is a Defense Dual-Use Critical Technology Partnership
awarded under the Congressionally funded Technology Reinvestment Project (TRP).
The mission of the TRP is to stimulate the transition to a growing, integrated,
national industry capability that provides the most advanced, affordable,
military systems and the most competitive commercial products. Within the
general Technology Development area of Low Cost Electronic Packaging, this
Agreement focuses specifically on advancing the technology and enhancing the
United States (U.S.) production capabilities of plastic packaging for integrated
microcircuits with the goal of enhancing both commercial and military customers
to employ plastic encapsulated integrated circuits (ICs) in a wide variety of
applications.
2. National Semiconductor Corporation (National), Amoco Chemical Company
(Amoco), Plaskon Electronic Materials, Inc. (Plaskon), The Dexter Corporation
(Dexter), Olin Corporation (Olin), Leading Technologies, Inc. (Leading
Technologies), Integrated Packaging Assembly Corporation (IPAC), Delco
Electronics Corporation (Delco), Sheldahl Inc. (Sheldahl), and Sandia National
Laboratories (Sandia), subcontractor to National have formed a partnership to
establish the infrastructure and competencies to manufacture low-cost, high-
density, and high-performance plastic packages on-shore. This initiative comes
from a growing need to improve complexity, performance and reliability of
plastic packages for military and commercial use while lowering the total cost
to allow for full commercialization. At the end of the two (2)-year program,
the on-shore infrastructure will be developed and plastic packaging technology
will be revolutionized. All plastic ICs will migrate to this technology.
3. The basic material and construction technology used in the manufacture
of plastic ICs has not changed in ten (10) years. During this time period IC
complexity, power, and speed requirements have increased significantly. This
trend in ICs characteristics and requirements will continue. In order to
address the future package demands for density, performance, cost, and
reliability, major changes in material and technology must be made.
4. The Plastic Packaging Consortium will develop the total supply chain
from packaging materials supply to a final low-cost on-shore assembly source.
The program will focus on three areas for improvements: plastic package
ruggedization plastic package thermal dissipation enhancement, and development
of high density plastic packages. Improvements will be achieved through
enhancements of molding compounds, die attach materials, leadframe
materials/design, and reliability characterization. The end result of this two
(2)-year program will be to introduce plastic package processes and material
which eliminate drybagging, eliminate popcorning, increase thermal conductivity,
increase operating temperature, decrease manufacturing process time, introduce
low-cost (stamped) fine-pitch leadframes, and introduce low-cost
substrate/interposer processes to be used on high-density packaging. These
improvements in environmental and quality levels will open up many new product
opportunities such as high-density multi-chip modules (MCMs), high-power
amplifiers, computer peripheral products and the military use of plastic ICs.
5. The Plastic Package Consortium team members were selected, with the
above expected results in mind, based on assessment of needs and core
competencies of candidates. A brief description of the capabilities of the team
members is listed as follows:
(a) Amoco is an energy company with sales of $40 billion. Amoco will
develop and supply epoxy molding compound resins for the three focus areas
of the TRP;
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(b) Leading Technologies, Inc. is a U.S.-based leadframe supplier
with a combination of tooling, stamping, photo-etching and plating
capabilities. Leading Technologies will develop and supply fine pitch
leadframe designs, tooling and finished samples; heat sink designs, tooling
and finished samples; leadframe adhesives; and treatment processes for
unproved molding compound to frame adhesives;
(c) Delco is the largest manufacturer of automotive electronics in the
world. Delco will study and characterize epoxy molding compound properties
and die attach material and perform leadframe to epoxy adhesion analysis;
(d) Dexter is a $900 million polymer company which manufactures
polymer compounds, electronic materials and structural adhesives. Dexter
will develop and supply enhanced epoxy molding compounds for unproved
thermal performance, improved adhesion, reduced moisture absorption, and
lower stress. Dexter will also develop and supply enhanced die attach and
underfill materials;
(e) IPAC is a U.S.-based subcontracting assembly house. IPAC will
install 160 lead and 304 lead Plastic Quad Flat Pack (PQFP) and 625 lead
Ball Grid Array (BGA) manufacturing capability and provide test samples for
all focus areas;
(f) National is the second largest supplier of military ICs and the
fourth largest U.S. manufacturer of ICs. National will supply product
drivers for all three (3) focus areas and provide screening and an analysis
of EMC, die attach (D/A), leadframes materials, sample assembly and a final
technology demonstration;
(g) Olin is a manufacturer of chemical and metal products. Olin will
develop and supply new leadframe materials as well as an analysis of
adhesion characteristics to the Consortium;
(h) Plaskon will develop and supply epoxy molding compounds for
unproved stress and moisture performance, unproved adhesion and higher
thermal conductivity;
(i) Sheldahl is the largest U.S. supplier of flexible printed
circuits. Sheldahl will design and supply interposers and substrates for
PQFP and BGA packages; and
(j) Sandia will supply assembly test chips for all focus areas of the
TRP.
6. A critical aspect of this program will be the commercialization of the
new technologies. Many companies, including NationaL supply dual-use products
that could employ these technologies. Currently, many IC products are
manufactured in unique, costly ceramic packages. As the size of the military
market declines, the economics of producing these ceramic encapsulated ICs will
become increasingly unfavorable. This program will enable improvements in
plastic package quality and reliability to levels that meet military
environmental and quality requirements. These improvements will make products
available directly from commercial suppliers and eliminate the need for separate
backend processing. National's strategy will be to introduce these technologies
into semiconductor products which have dual-uses (e.g. military, commercial and
avionics Other Equipment Manufacturers (OEMs)) first. This strategy will
leverage the low military volume with high commercial volume. Examples of
National's semiconductor products that could be selected include the Super I/O,
Precision Amplifiers and CLAy products.
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7. These technological advances in plastic packaging will be applied to
both military and commercial products. The future direction of the DoD is to
use an installed IC manufacturing infrastructure for military system
applications. This program will allow this to be achieved through the use of
on-shore assembly infrastructure. IC companies will have the choice of using
this infrastructure to produce products for the DoD without the threat of
foreign intervention.
8. The Plastic Package Consortium will create capabilities for world-
class manufacturing in the U.S. through the use of the Consortium's unique
teaming arrangement. This arrangement will accelerate market introduction of
distinctive packaging technologies and competencies and position the IC industry
to conduct more package production of leading-edge products in the U.S.
9. The new ruggedized packages and technology developed under this
program will create a new quality standard for all high-density plastic ICs.
The total U.S. market for high-lead count applications addressed by these
technologies is forcasted to be in excess of $7 billion by 1997 and growing
according to Dataquest, Inc. Many of the developments expected from this
program are also applicable to low-lead count applications, thereby increasing
the potential market for these products by a factor of three. In addition to
the existing commercial market, these technologies will serve military markets
by replacing a portion of the existing military ceramic market with plastic
packages, resulting in a reduction in cost on the order of three to five times
the current military IC package cost.
B. DEFINITIONS
1. Consortium - The group of companies or individual companies
collaborating to accomplish the objectives of this Agreement.
2. Consortium Member - A single company operating under the Articles of
Collaboration referred to in this Agreement.
3. Party or Parties - As the context requires, either the Government,
represented by ARPA, or the Consortium, or both.
4. Program - The effort described in the proposal submitted in response
to Solicitation No. SOL94-27, Defense Technology Conversion, Reinvestment, and
Assistance, entitled, "Low-Cost Plastic Packaging", and more particularly
defined in the Statement of Work, Attachment 1 hereto.
C. SCOPE
1. The Consortium shall perform a coordinated research and development
program (Program) designed to develop improved technology for plastic packages
for ICs and to enhance the U.S. plastic packaging assembly capabilities. The
research shall be carried out in accordance with the Statement of Work
incorporated in this Agreement as Attachment 1. The Consortium shall submit or
otherwise provide all documentation required by Attachment 2, Report
Requirements.
2. The Consortium shall be paid for each Payable Milestone accomplished
in accordance with the Schedule of Payments and Payable Milestones set forth in
Attachment 3 and the procedures of Article V. Both the Schedule of Payments and
the Funding Schedule set forth in Attachments 3 and 4 respectively may be
revised or updated in accordance with Article III.
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3. The Government and the Consortium (Parties) estimate that the
Statement of Work of this Agreement can only be accomplished with the Consortium
aggregate resource contribution of $9,614,711 from the effective date of this
Agreement through twenty-four (24) months thereafter. The Consortium intends
and, by entering into this Agreement, undertakes to cause to be provided these
funds. Consortium contributions will be provided as detailed in the Funding
Schedule set forth in Attachment 4. If either ARPA or the Consortium is unable
to provide its respective total contribution, the other party may reduce its
project funding by a proportional amount.
D. GOALS/OBJECTIVES
1. The goal of this Agreement is to advance the development of low-cost
advanced plastic packaging infrastructure and core competencies, which can be
employed by U.S. IC manufacturers for both military and commercial uses.
2. The Government will have continuous involvement with the Consortium.
The Government will also obtain access to research insults and certain rights in
data and patents pursuant to Articles VII and VIII. ARPA and the Consortium are
bound to each other by a duty of good faith and best reasonable research effort
in achieving the goals of the Consortium. This Agreement reflects the
collaborative document identified as "Articles of Collaboration for Plastic
Packaging Consortium," which document binds Consortium Members.
3. This Agreement is an "other transaction" pursuant to 10 U.S.C. (S)
2371. The Parties agree that the principal purpose of this Agreement is for the
Government to support and stimulate the Consortium to provide its best
reasonable efforts in advanced research and technology development and not for
the acquisition of property or services for the direct benefit or use of the
Government. The Federal Acquisition Regulation (FAR) and Department of Defense
FAR Supplement (DFARS) apply only as specifically referenced herein. This
Agreement is not a procurement contract or grant agreement for purposes of FAR
Subpart 31.205-18. This Agreement is not intended to be, nor shall it be
construed as, by implication or otherwise, a partnership, a corporation, or
other business organization.
ARTICLE II: TERM
A. THE TERM OF THIS AGREEMENT
The Program commences upon the date of the last signature hereon and continues
for twenty-four (24) months. If all funds are expended prior to the twenty-four
(24)-month duration, the Parties have no obligation to continue performance and
may elect to cease development at that point. Provisions of this Agreement,
which, by their express terms or by necessary implication, apply for periods of
time other than specified herein, shall be given effect, notwithstanding this
Article.
B. TERMINATION PROVISIONS
Subject to a reasonable determination that the program will not produce
beneficial results commensurate with the expenditure of resources, either Party
may terminate this Agreement by written notice to the other Party, provided that
such written notice is preceded by consultation between the Parties. In the
event of a termination of the Agreement, it is agreed that disposition of Data
developed under this Agreement shall be in accordance with the provisions set
forth in Article VIII, Data Rights. The Government, acting through the
Agreements Administrator, and the Consortium, acting through its
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AGREEMENT NUMBER: MDA972-95-3-0024
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Consortium Management Committee, will negotiate in good faith a reasonable and
timely adjustment of all outstanding issues between the Parties as a result of
termination. Failure of the Parties to agree to a reasonable adjustment will be
resolved pursuant to Article VI, Disputes. The Government has no obligation to
reimburse the Consortium beyond the last completed and paid milestone if the
Consortium, acting through its Consortium Management Committee, decides to
terminate.
C. EXTENDING THE TERM
The Parties may extend by mutual written agreement the term of this Agreement if
funding availability and research opportunities reasonably warrant. Any
extension shall be formalized through modification of the Agreement by the
Agreements Administrator and the Consortium Administrator.
ARTICLE III: MANAGEMENT OF THE PROJECT
A. CONSORTIUM MEMBERS
Consortium Members, as set forth in the Articles of Collaboration of the
Consortium, are:
Amoco Chemical Company
Leading Technologies, Inc.
Delco Electronics Corporation
The Dexter Corporation
Integrated Packaging Assembly Corporation
National Semiconductor Corporation
Olin Corporation
Plaskon Electronic Materials, Inc.
Sheldahl, Inc.
B. CONSORTIUM MANAGEMENT COMMITTEE (CMC)
1. The CMC shall be comprised of one voting representative from each
Consortium Member, and in accordance with the Consortium Articles of
Collaboration, bind the Consortium Members. The following CMC decisions are
subject to ARPA approval:
(a) Changes to the Articles of Collaboration if such changes
substantially alter the relationship of the Parties as originally agreed
upon when the Agreement was executed;
(b) Changes to, or elimination of, any ARPA funding allocation to any
Consortium Member as technically and/or financially justified;
(c) Technical and/or funding revisions to the Agreement; and
(d) Admission of additional or replacement Consortium Members.
2. The CMC, is responsible for establishing a schedule of regular
technical meetings, to be held on a quarterly basis. The CMC shall notify all
Consortium Members and the ARPA Program Manager of the established meeting
schedule and, in the event of changes to this schedule, shall notify all
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AGREEMENT NUMBER: MDA972-95-3-0024
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Consortium Members and the ARPA Program Manager thirty (30) calendar days prior
to the next scheduled meeting.
3. A simple majority of the Program Managers (or designees) representing
the Consortium Members and the ARPA Program Manager (or designee) will
constitute a quorum at quarterly technical meetings. All technical decisions
shall be made by majority vote of the CMC and the ARPA Program Manager.
C. MANAGEMENT AND PROGRAM STRUCTURE
Technical and program management of the coordinated research program established
under this Agreement shall be accomplished through the management structure and
processes detailed in this Article.
1. Subject to the terms and conditions of the Articles of Collaboration
of the Consortium, the CMC shall be responsible for the overall management of
the Consortium including technical, programmatic, reporting, financial and
administrative matters.
2. The ARPA Program Manager shall fully participate in all meetings of
the CMC. Other Government personnel as deemed appropriate by the ARPA Program
Manager may also participate in the technical portion of these meetings.
D. PROGRAM MANAGEMENT PLANNING PROCESS
The program management and planning process shall be subject to quarterly and
annual reviews with inputs and review from the CMC and the ARPA Program Manager.
1. Initial Program Plan: The Consortium will follow the initial program
plan that is contained in the Statement of Work (Attachment 1), and the Schedule
of Payments and Payable Milestones (Attachment 3).
2. Overall Program Plan Annual Review
(a) The CMC, with ARPA Program Manager participation and review, will
prepare an overall Annual Program Plan in the first quarter of each
Agreement year. (For this purpose, each consecutive twelve (12) month
period from (and including) the month of execution of this Agreement during
which this Agreement shall remain in effect shall be considered an
"Agreement Year.") The Annual Program Plan will be presented and reviewed
at an annual site review concurrent with the appropriate quarterly meeting
of the CMC which will be attended by the Consortium Members, the ARPA
Program Manager, Senior ARPA management or other ARPA program managers and
personnel as appropriate. The CMC, with ARPA participation and review,
will prepare a final Annual Program Plan.
(b) The Annual Program Plan provides a detailed schedule of research
activities, commits the Consortium to use its best efforts to meet specific
performance objectives, includes forecasted expenditures and describes the
Payable Milestones. The Annual Program Plan will consolidate all prior
adjustments in the research schedule, including revisions/modifications to
payable milestones. Recommendations for changes, revisions or
modifications to the Agreement which result from the Annual Review shall be
made in accordance with the provisions of Article III, Section E.
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E. MODIFICATIONS
1. As a result of quarterly meetings, annual reviews, or at any time
during the term of the Agreement, research progress or results may indicate that
a change in the Statement of Work and/or the Payable Milestones, would be
beneficial to program objectives. Recommendations for modifications, including
justifications to support any changes to the Statement of Work and/or the
Payable Milestones, will be documented in a letter and submitted by the CMC to
the ARPA Program Manager with a copy to the ARPA Agreements Administrator. This
documentation letter will detail the technical, chronological, and financial
impact of the proposed modification to the research program. The CMC shall
approve any Agreement modification. The Government is not obligated to pay for
additional or revised Payable Milestones until the Payable Milestones Schedule
(Attachment 3) is formally revised by the ARPA Agreements Administrator and made
part of this Agreement.
2. The ARPA Program Manager shall be responsible for the review and
verification of any recommendations to revise or otherwise modify the Agreement
Statement of Work, Schedule of Payments or Payable Milestones, or other proposed
changes to the terms and conditions of this Agreement.
3. For minor or administrative Agreement modifications (e.g. changes in
the paying office or appropriation data, changes to Government or Consortium
personnel identified in the Agreement, etc.) no signature is required by the
Consortium.
ARTICLE IV. AGREEMENT ADMINISTRATION
Unless otherwise provided in this Agreement, approvals permitted or required to
be made by ARPA may be made only by the ARPA Agreements Administrator.
Administrative and contractual matters under this Agreement shall be referred to
the following representatives of the parties:
ARPA: Scott R. Ulrey (Agreements Administrator) (703) 696-2434
CONSORTIUM: Dennis W. Ralston (Consortium Administrator) (408) 721-2812
Technical matters under this Agreement shall be referred to the following
representatives:
ARPA: Nicholas J. Naclerio (Program Manager) (703) 696-2216
CONSORTIUM: Jim Dunham (Program Manager) (408) 721-6140
Each party may change its representatives named in this Article by written
notification to the other party.
ARTICLE V: OBLIGATION AND PAYMENT
A. OBLIGATION
1. The Government's liability to make payments to the Consortium is
limited to only those funds obligated under this Agreement or by amendment to
the Agreement. ARPA may incrementally fund this Agreement.
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2. If modification becomes necessary in performance of this Agreement,
pursuant to Article III, paragraph E, the ARPA Agreements Administrator and
Consortium Administrator shall execute a revised Schedule of Payable Milestones
consistent with the then current Program Plan.
B. PAYMENTS
1. In addition to any other financial reports provided or required, the
CMC shall notify the ARPA Agreements Administrator immediately if any
contribution from a Consortium Member is not made as required.
2. Prior to the submission of invoices to ARPA by the Consortium
Administrator, the Consortium shall have and maintain an established accounting
system which complies with Generally Accepted Accounting Principles, and with
the requirements of this Agreement, and shall ensure that appropriate
arrangements have been made for receiving, distributing and accounting for
Federal funds. The Parties recognize that as a conduit, the Consortium does not
incur nor does it allocate any indirect costs of its own to the Consortium
Member cost directly incurred pursuant to this Agreement. Consistent with this,
an acceptable accounting system will be one in which all cash receipts and
disbursements are controlled and documented properly.
3. The CMC shall document the accomplishments of each Payable Milestone
by submitting or otherwise providing the Payable Milestones Report required by
Attachment 2, Part E. The Consortium shall submit an original and one (1) copy
of all invoices to the Agreements Administrator for payment approval. After
written verification of the accomplishment of the Payable Milestone by the ARPA
Program Manager, and approval by the Agreements Administrator, the invoices will
be forwarded to the payment office within fifteen (15) calendar days of receipt
of the invoices at ARPA. Payments will be made by AFDW/FW, Attn: Commercial
Services, 170 Luke Avenue, Suite 280, Bolling Air Force Base, Washington, DC
20332-5113 within fifteen (15) calendar days of ARPA's transmittal. Subject to
change only through written Agreement modification, payment shall be made to the
address of the Consortium Administrator set forth below.
4. Address of Payee: Plastic Packaging Consortium
c/o National Semiconductor Corporation
2900 Semiconductor Drive
P.O. Box 2900
Santa Clara, CA 95052-8090
Electronic Funds Transfer:
Bank of America
1850 Gateway Blvd.
Concord, CA 94520
TRANS/ABA Number 121000358
Account Number 123320369
5. Payments shall be made in the amounts set forth in the Attachment No.
3, provided the ARPA Program Manager has verified the accomplishment of the
Payable Milestones. It is recognized that the quarterly accounting of current
expenditures reported in the "Quarterly Business Status Report" submitted in
accordance with Attachment No. 2 is not necessarily intended or required to
match the Payable Milestones until submission of the Final Report; however,
payable milestones shall be revised during the course of the program to reflect
current and revised projected expenditures.
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6. Limitation of Funds: In no case shall the Government's financial
liability exceed the amount obligated under this Agreement.
7. Financial Records and Reports: The Consortium and Consortium Members
shall maintain adequate records to account for Federal funds received under this
Agreement and shall maintain adequate records to account for Consortium
Participant funding provided under this Agreement. Upon completion or
termination of this Agreement, whichever occurs earlier, the Consortium
Administrator shall furnish to the Agreements Administrator a copy of the final
report required by Attachment 2, Part F. The Consortium's and Consortium
Members' relevant financial records are subject to examination or audit on
behalf of ARPA by the Government for a period not to exceed three (3) years
after expiration of the term of this Agreement. The Agreements Administrator or
designee shall have direct access to sufficient records and information of the
Consortium and Consortium Members, to ensure full accountability for all funding
under this Agreement. Such audit, examination, or access shall be performed
during business hours on business days upon written notice received by the
audited party no less than five (5) working days prior to the requested audit
date and shall be subject to the security requirements of the audited party.
Notwithstanding the foregoing, it is recognized that many Consortium Members are
commercial firms whose accounting systems may not contain the level of detail
that is normally required by the FAR. Accordingly, the evaluating the
Consortium Members' contributions, the Government agrees to rely on the
principles of price analysis and value analysis to the maximum extent possible,
provided that the level of detail is reasonable to account fo the expenditure of
funds.
ARTICLE VI: DISPUTES
A. GENERAL
Parties shall communicate with one another in good faith and in a timely and
cooperative manner when raising issues under this Article.
B. DISPUTE RESOLUTION PROCEDURES
1. Any disagreement, claim or dispute between ARPA and the Consortium
concerning questions of fact or law arising from or in connection with this
Agreement, and, whether or not involving an alleged breach of this Agreement,
may be raised only under this Article.
2. Whenever disputes, disagreements, or misunderstandings arise, the
Parties shall attempt to resolve the issue(s) involved by discussion and mutual
agreement as soon as practicable. In no event shall a dispute, disagreement or
misunderstanding which arose more than three (3) months prior to the
notification made under subparagraph B.3 of this article constitute the basis
for relief under this article unless the Director of ARPA in the interests of
justice waives this requirement.
3. Failing resolution by mutual agreement, the aggrieved Party shall
document the dispute, disagreement, or misunderstanding by notifying the other
Party (through the ARPA Agreements Administrator or Consortium Administrator, as
the case may be) in writing of the relevant facts, identify unresolved issues,
and specify the clarification or remedy sought within five (5) working days
after providing notice to the other Party, the aggrieved Party may, in writing,
request a joint decision by the ARPA Deputy Director for Management and the
SEMATECH General Counsel and Secretary as appointed by the CMC of the
Consortium. The other Party shall submit a written position on the matter(s) in
dispute within thirty (30) calendar days after being notified that a decision
has been requested.
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The Deputy Director for Management and the Consortium Representative shall
conduct a review of the matter(s) in dispute and render a decision in writing
within thirty (30) calendar days of receipt of such written position. Any such
joint decision is final and binding unless a Party shall within thirty (30)
calendar days request further review as provided in this Article.
4. Upon written request to the Director of ARPA, made within thirty (30)
calendar days or upon unavailability of a joint decision under subparagraph B.3
above, the dispute shall be further reviewed. The Director of ARPA may elect to
conduct this review personally or through a designee or jointly with the
SEMATECH General Counsel and Secretary as appointed by the CMC of the
Consortium. Following the review, the Director of ARPA or designee will resolve
the issue(s) and notify the Parties in writing. Such resolution is not subject
to further administrative review and, to the extent permitted by law, shall be
final and binding.
5. Subject only to this article and 41 U.S.C. (S) 321-322, if not
satisfied with the results of completing the above process, either Party may
within thirty (30) calendar days of receipt of the notice in subparagraph B.3
above pursue any right and remedy in a court of competent jurisdiction.
C. LIMITATION OF DAMAGES
Claims for damages of any nature whatsoever pursued under this Agreement shall
be limited to direct damages only up to the aggregate amount of ARPA funding
disbursed as of the time the dispute arises. In no event shall ARPA be liable
for claims for consequential, punitive, special and incidental damages, claims
for lost profits, or other indirect damages. ARPA agrees that there is no joint
and several liability within the Consortium. The Consortium disclaims any
liability for consequential, indirect or special damages, except when such
damages are caused by the willful misconduct of Consortium Managerial personnel.
In no event shall the liability of a Consortium Member or any other entity
performing research activities under this Agreement exceed the funding it has
received up to the time of incurring such liability.
ARTICLE VII: PATENT RIGHTS
A. DEFINITIONS
1. "Invention" means any invention or discovery which is or may be
patentable or otherwise protectable under Title 35 of the United States Code.
2. "Made" when used in relation to any invention means the conception or
first actual reduction to practice of such invention.
3. "Practical application" means to manufacture, in the case of a
composition of product; to practice, in the case of a process or method, or to
operate, in the case of a machine or system; and, in each case, under such
conditions as to establish that the invention is capable of being utilized and
that its benefits are, to the extent permitted by law or Government regulations,
available to the public on reasonable terms.
4. "Subject invention" means any invention of a Consortium Member
conceived or first actually reduced to practice in the performance of work under
this Agreement.
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B. ALLOCATION OF PRINCIPAL RIGHTS
Unless the Consortium shall have notified ARPA (in accordance with subparagraph
C.2 below) that the Consortium does not intend to retain title, the Consortium
shall retain the entire right title, and interest throughout the world to each
subject invention consistent with the provisions of the Articles of
Collaboration, this Article, and 35 U.S.C. (S) 202. With respect to any subject
invention in which the Consortium retains title, ARPA shall have a nonexclusive,
nontransferable, irrevocable, paid-up license to practice or have practiced on
behalf of the United States the subject invention throughout the world for
United States Government purposes only. Notwithstanding the above, the
Consortium may elect as defined in its Articles of Collaboration to provide full
or partial rights that it has retained to Consortium Members or other parties.
C. INVENTION DISCLOSURE, ELECTION OF TITLE, AND FILING OF PATENT APPLICATION
1. The Consortium shall disclose each subject invention to ARPA within
four (4) months after the inventor discloses it in writing to his company
personnel responsible for patent matters. The disclosure to ARPA shall be in
the form of a written report and shall identify the Agreement under which the
invention was made and the identity of the inventor(s). It shall be
sufficiently complete in technical detail to convey a clear understanding to the
extent known at the time of the disclosure, of the nature, purpose, operation,
and the physical, chemical, biological or electrical characteristics of the
invention. The disclosure shall also identify any publication, sale, or public
use of the invention and whether a manuscript describing the invention has been
submitted for publication and, if so, whether it has been accepted for
publication at the time of disclosure.
2. If the Consortium determines that it does not intend to retain title
to any such invention, the Consortium shall notify ARPA, in writing, within
eight (8) months of disclosure to ARPA. However, in any case where publication,
sale, or public use has initiated the one (1)-year statutory period wherein
valid patent protection can still be obtained in the United States, the period
for such notice may be shortened by ARPA to a date that is no more than sixty
(60) calendar days prior to the end of the statutory period.
3. The Consortium shall file its initial patent application on a subject
invention to which it elects to retain title within one (1) year after election
of title or, if earlier, prior to the end of the statutory period wherein valid
patent protection can be obtained in the United States after a publication, or
sale, or public use. The Consortium may elect to file patent applications in
additional countries (including the European Patent Office and the Patent
Cooperation Treaty) within either ten (10) months of the corresponding initial
patent application or six (6) months from the date permission is granted by the
Commissioner of Patents and Trademarks to file foreign patent applications,
where such filing has been prohibited by a Secrecy Order.
4. Requests for extension of the time for disclosure election, and filing
under Article VII, paragraph C, may, at the discretion of ARPA, and after
considering the position of the Consortium, be granted.
D. CONDITIONS WHEN THE GOVERNMENT MAY OBTAIN TITLE
Upon ARPA's written request the Consortium shall convey title to any subject
invention to ARPA under any of the following conditions:
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PAGE 14
1. If the Consortium fails to disclose or elects not to retain title to
the subject invention within the times specified in paragraph C of this Article;
provided, that ARPA may only request title within sixty (60) calendar days after
learning of the failure of the Consortium to disclose or elect within the
specified times.
2. In those countries in which the Consortium fails to file patent
applications within the times specified in paragraph C of this Article;
provided, that if the Consortium has filed a patent application in a country
after the times specified in paragraph C of this Article, but prior to its
receipt of the written request by ARPA, the Consortium shall continue to retain
title in that country; or
3. In any country in which the Consortium decides not to continue the
prosecution of any application for, to pay the maintenance fees on, or defend in
reexamination or opposition proceedings on, a patent on a subject invention.
E. MINIMUM RIGHTS TO THE CONSORTIUM AND PROTECTION OF THE CONSORTIUM'S RIGHT
TO FILE
1. The Consortium shall retain a non-exclusive, royalty-free license
throughout the world in each subject invention to which the Government obtains
title, except if the Consortium fails to disclose the invention within the times
specified in paragraph C of this Article. The Consortium license extends to the
domestic (including Canada) subsidiaries and affiliates, if any, of the
Consortium Members within the corporate structure of which the Consortium Member
is a party and includes the right to grant licenses of the same scope to the
extent that the Consortium was legally obligated to do so at the time the
Agreement was awarded. The license is transferable only within the approval of
ARPA, except when transferred to the successor of that part of the business to
which the invention pertains. ARPA approval for license transfer shall not be
unreasonably withheld.
2. The Consortium domestic license may be revoked or modified by ARPA to
the extent necessary to achieve expeditious practical application of the subject
invention pursuant to an application for an exclusive license submitted
consistent with appropriate provisions at 37 CFR Part 404. This license shall
not be revoked in that field of use or the geographical areas in which the
Consortium has achieved practical application and continues to make the benefits
of the invention reasonably accessible to the public. The license in any
foreign country may be revoked or modified at the discretion of ARPA to the
extent the Consortium, its licensees, or the subsidiaries or affiliates have
failed to achieve practical application in that foreign country.
3. Before revocation or modification of the license, ARPA shall furnish
the Consortium a written notice of its intention to revoke or modify the
license, and the Consortium shall be allowed thirty (30) calendar days (or such
other time as may be authorized for good cause shown) after the notice to show
cause why the license should not be revoked or modified.
F. ACTION TO PROTECT THE GOVERNMENT'S INTEREST
1. The Consortium agrees to execute or to have executed and promptly
deliver to ARPA all instruments necessary to (i) establish or confirm the rights
the Government has throughout the world in those subject inventions to which the
Consortium elects to retain title, and (ii) convey title to ARPA when requested
under paragraph D of this Article and to enable the Government to obtain patent
protection throughout the world in that subject invention.
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AGREEMENT NUMBER: MDA972-95-3-0024
PAGE 15
2. The Consortium agrees to require, by written agreement, that employees
of the Members of the Consortium working on the Consortium, other than clerical
and nontechnical employees, agree to disclose promptly in writing, to personnel
identified as responsible for the administration of patent matters and in a
format acceptable to the Consortium, each subject invention made under this
Agreement in order that the Consortium can comply with the disclosure provisions
of paragraph C of this Article. The Consortium shall instruct employees,
through employee agreements or other suitable educational programs, on the
importance of reporting inventions in sufficient time to permit the filing of
patent applications prior to U.S. or foreign statutory bars.
3. The Consortium shall notify ARPA of any decisions not to continue the
prosecution of a patent application, pay maintenance fees, or defend in a
reexamination or opposition proceedings on a patent, in any country, not less
than thirty (30) calendar days before the expiration of the response period
required by the relevant patent office.
4. The Consortium shall include, within the specification of any United
States patent application and any patent issuing thereon covering a subject
invention, the following statement: "This invention was made with Government
support under Agreement No. MDA972-95-3-0024 awarded by ARPA. The Government
has certain rights in the invention."
G. LOWER TIER AGREEMENTS
1. The Consortium shall include this Article, suitably modified, to
identify the Parties, in all subcontracts or lower tier agreements, regardless
of tier, for experimental, developmental, or research work.
2. In the case of a lower tier agreement with a vendor, at any tier,
ARPA, the vendor, and the Consortium agree that the mutual obligations of the
parties created by this Article flow down to the vendor and constitute an
agreement between the vendor and ARPA with respect to the matters covered by
this Article.
H. REPORTING ON UTILIZATION OF SUBJECT INVENTIONS
The Consortium agrees to submit during the term of the Agreement, periodic
reports no more frequently than annually on the utilization of a subject
invention or on efforts at obtaining such utilization of a subject invention or
on efforts at obtaining such utilization that are being made by the Consortium
or licensees or assignees of the inventor. Such reports shall include
information regarding the status of development, date of first commercial sale
or use, gross royalties received by the Consortium subcontractor(s), and such
other data and information as the agency may reasonably specify. The Consortium
also agrees to provide additional reports as may be requested by ARPA in
connection with any march-in proceedings undertaken by ARPA in accordance with
paragraph J of this Article. Consistent with 35 U.S.C. (S) 202(c)(5), ARPA
agrees it shall not disclose such information to persons outside the Government
without permission of the Consortium.
I. PREFERENCE FOR AMERICAN INDUSTRY
Notwithstanding any other provision of this clause, the Consortium agrees that
it shall not grant to any person the exclusive right to use or sell any subject
invention in the United States or Canada unless such person agrees that any
product embodying the subject invention or produced through the use of the
subject invention shall be manufactured substantially in the United States or
Canada. However, in
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PAGE 16
individual cases, the requirements for such an agreement my be waived by ARPA
upon a showing by the Consortium that reasonable but unsuccessful efforts have
been made to grant licenses on similar terms to potential licensees that would
be likely to manufacture substantially in the United States or that, under the
circumstances, domestic manufacture is not commercially feasible.
J. MARCH-IN RIGHTS
The Consortium agrees that with respect to any subject invention in which it has
retained title, ARPA has the right to require the Consortium, an assignee, or
exclusive licensee of a subject invention to grant a non-exclusive license to a
responsible applicant or applicants, upon terms that are reasonable under the
circumstances, and if the Consortium assignee, or exclusive licensee refuses
such a request, ARPA has the right to grant such a license itself if ARPA
determines that:
1. Such action is necessary because the Consortium or assignee has not
taken effective steps, consistent with the intent of this Agreement to achieve
practical application of the subject invention;
2. Such action is necessary to alleviate health or safety needs which are
not reasonably satisfied by the Consortium, assignee, or their licensees;
3. Such action is necessary to meet requirements for public use and such
requirements are not reasonably satisfied by the Consortium, assignee, or
licensees; or
4. Such action is necessary because the agreement required by paragraph
(I) of this Article has not been obtained or waived or because a licensee of the
exclusive right to use or sell any subject invention in the United States is in
breach of such Agreement.
K. ALTERNATE PROCEDURES FOR PATENT RIGHTS
Notwithstanding the provisions of subparagraph C.1. above, the Consortium may
elect to follow the procedures in this paragraph (which may be referred to as
"alternate" subparagraph C.1.):
1. The Consortium shall disclose each subject invention to ARPA within
eight (8) months after the inventor discloses it in writing to his company
personnel responsible for patent matters. The Consortium invention shall be
disclosed to ARPA in writing in the form of a summary written report (Invention
Summary Report) identifying the Agreement under which the invention was made,
the identity of the inventor(s), and the Consortium Member company. The
Invention Summary Report shall outline the nature, purpose, and operation of the
invention. A copy of the patent application shall be on file in the Consortium
Document Repository located at National Semiconductor Corporation in Sunnyvale,
California for Government review. Detailed technical information excluded for
the Invention Summary Report shall also be on file in the Consortium Document
Repository. The Invention Summary Report shall also identify any publication,
sale, or public use of the invention and whether a manuscript describing the
invention has been submitted for publication and, if so, whether it has been
accepted for publication at the time of disclosure.
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PAGE 17
ARTICLE VIII: DATA RIGHTS
A. DEFINITIONS
1. "Government Purpose Rights", as used in this article, means rights to
use, duplicate, or disclose Data, in whole or in part and in any manner, for
Government purposes only, and to have or permit others to do so for Government
purposes only.
2. "Unlimited Rights", as used in this article, means rights to use,
duplicate, release, or disclose, Data in whole or in part, in any manner and for
any purposes whatsoever, and to have or permit others to do so.
3. "Data", as used in this article, means recorded information,
regardless of form or method of recording, which includes but is not limited to,
technical data, software, trade secrets, and mask works. The term does not
include financial, administrative, cost, pricing or management information and
does not include subject inventions included under Article VII.
B. ALLOCATION OF PRINCIPAL RIGHTS
1. This Agreement shall be performed with mixed Government and Consortium
funding. The Parties agree that in consideration for Government funding, the
Consortium intends to reduce to practical application items, components and
processes developed under this Agreement.
2. The Consortium agrees to retain and maintain in good condition until
five (5) years after completion or termination of this Agreement, all Data
necessary to achieve practical application. In the event of exercise of the
Government's March-in Rights as set forth under Article VII or subparagraph B.3
of this article, the Consortium acting through its CMC, agrees, upon written
request from the Government, to deliver at no additional cost to the Government,
all Data necessary to achieve practical application within sixty (60) calendar
days from the date of the written request. The Government shall retain
Unlimited Rights, as defined in paragraph A above, to this delivered Data.
3. The Consortium agrees that, with respect to Data necessary to achieve
practical application, ARPA has the right to require the Consortium to deliver
all such Data to ARPA in accordance with its reasonable directions if ARPA
determines that:
(a) Such action is necessary because the Consortium or assignee has
not taken effective steps, consistent with the intent of this Agreement to
achieve practical application of the technology developed during the
performance of this Agreement;
(b) Such action is necessary to alleviate health or safety needs which
are not reasonably satisfied by the Consortium, assignee, or their
licensees; or
(c) Such action is necessary to meet requirements for public use and
such requirements are not reasonably satisfied by the Consortium, assignee,
or licensees.
4. With respect to Data delivered pursuant to Attachment 2, the
Government shall receive Government Purpose Rights, as defined in paragraph A
above. With respect to all Data delivered, in the event of the Government's
exercise of its right under subparagraph B.2 of this article, the Government
shall receive Unlimited Rights.
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5. Notwithstanding the above, the Government shall have no rights to and
shall not require delivery of Olin Corporation's trade secret and know-how
information developed at private expense prior to the effective date of the
Agreement or prior to the incurrence of any pre-agreement costs as set forth in
Article X that relates to equipment specifications and designs, maintenance
practices and procedures and engineering practices and procedures for melting,
casting, hot rolling, cold rolling, annealing, and cleaning and slitting
processes.
C. MARKING OF DATA
Pursuant to paragraph B above, any Data delivered under thus Agreement shall be
marked with the following legend:
Use, duplication, or disclosure is subject to the restrictions as stated in
Agreement MDA972-95-3-0024 between the Government and the Consortium.
D. LOWER TIER AGREEMENTS
The Consortium shall include this Article, suitably modified to identify the
Parties, in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
ARTICLE IX: FOREIGN ACCESS TO TECHNOLOGY
This Article shall remain in effect during the term of the Agreement and for
three (3) years thereafter.
A. DEFINITION
"Foreign Firm or Institution" means a firm or institution organized or
existing under the laws of a country other than the United States, its
territories, or possessions. The term includes, for purposes of this Agreement,
any agency or instrumentality of a foreign government; and firms, institutions
or business organizations which are owned or substantially controlled by foreign
governments, firms, institutions, or individuals.
"Know-How" means all information including, but not limited to discoveries,
formulas, materials, inventions, processes, ideas, approaches, concepts,
techniques, methods, software, programs, documentation, procedures, firmware,
hardware, technical data, specifications, devices, apparatus and machines.
"Technology" means discoveries, innovations, Know-How and inventions,
whether patentable or not, including computer software, recognized under U.S.
law as intellectual creations to which rights of ownership accrue, including,
but not limited to, patents, trade secrets, maskworks, and copyrights developed
under this Agreement.
B. GENERAL
The Parties agree that research findings and technology developments arising
under this Agreement may constitute a significant enhancement to the national
defense, and to the economic vitality of the United States. Accordingly, access
to important technology developments under this Agreement by Foreign Firms or
Institutions must be carefully controlled. The controls contemplated in this
Article are in addition to,
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PAGE 19
and are not intended to change or supersede, the provisions of the International
Traffic in Arms Regulation (22 CFR pt. 121 et seq.), the DoD Industrial Security
Regulation (DoD 5220.22-R) and the Department of Commerce Export Regulation (15
CFR pt. 770 et seq.)
C. RESTRICTIONS ON SALE OR TRANSFER OF TECHNOLOGY TO FOREIGN FIRMS OR
INSTITUTIONS
1. In order to promote the national security interests of the United
States and to effectuate the policies that underlie the regulations cited above,
the procedures stated in subparagraphs C.2, C.3, and C.4 below shall apply to
any transfer of Technology. For purposes of this paragraph, a transfer includes
a sale of the company, and sales or licensing of Technology. Transfers do not
include:
(a) sales of products or components, or
(b) licenses of software or documentation related to sales of products
or components, or
(c) transfer to foreign subsidiaries of the Consortium participants
for purposes related to this Agreement, or
(d) transfer which provides access to Technology to a Foreign Firm or
Institution which is an approved source of supply or source for the conduct
of research under this Agreement provided that such transfer shall be
limited to that necessary to allow the firm or institution to perform its
approved role under this Agreement
2. The Consortium shall provide timely notice to ARPA of any proposed
transfers from the Consortium of Technology developed under this Agreement to
Foreign Firm or Institutions. If ARPA determines that the transfer may have
adverse consequences to the national security interests of the United States,
the Consortium, its vendors, and ARPA shall jointly endeavor to find
alternatives to the proposed transfer which obviate or mitigate potential
adverse consequences of the transfer but which provide substantially equivalent
benefits to the Consortium.
3. In any event, the Consortium shall provide written notice to the ARPA
Program Manager and Agreements Administrator of any proposed transfer to a
foreign firm or institution at least sixty (60) calendar days prior to the
proposed date of transfer. Such notice shall cite this Article and shall state
specifically what is to be transferred and the general terms of the transfer.
Within thirty (30) calendar days of receipt of the Consortium's written
notification, the ARPA Agreements Administrator shall advise the Consortium
whether it consents to the proposed transfer. In cases where ARPA does not
concur or sixty (60) calendar days after receipt and ARPA provides no decision,
the Consortium may utilize the procedures under Article VI, Disputes. No
transfer shall take place until a decision is rendered.
4. Except as provided in subparagraph C.1 above and in the event the
transfer of Technology to Foreign Firms or Institutions is approved by ARPA, the
Consortium shall negotiate a license with the Government to the Technology under
terms that are reasonable under the circumstances.
D. LOWER TIER AGREEMENTS
The Consortium shall include this Article, suitably modified, to identify the
Parties, in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
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ARTICLE X: PRE-AGREEMENT COSTS
Costs incurred on or after November 21, 1994 by the Consortium to accomplish the
Tasks set forth in the Statement of Work, Attachment 1 hereto, shall be
allowable contributions and credited toward the Consortium's contribution to the
Agreement.
ARTICLE XI: OFFICIALS NOT TO BENEFIT
No member of Congress shall be admitted to any share or part of any contract or
agreement made, entered into, or accepted by or on behalf of the United States,
or to any benefit to arise thereupon.
ARTICLE XII: CIVIL RIGHTS ACT
This Agreement is subject to the compliance requirements of Title VI of the
Civil Rights Act of 1964 as amended (42 U.S.C. 2000-d) relating to
nondiscrimination in Federally assisted programs. Each Consortium Member
company has signed an Assurance of Compliance with the nondiscriminatory
provisions of the Act. The Parties recognize that since the Consortium has no
employees, that compliance is the responsibility of each Consortium Member.
ARTICLE XIII: ORDER OF PRECEDENCE
In the event of any inconsistency between the terms of this Agreement and
language set forth in the Consortium's Articles of Collaboration, the
inconsistency shall be resolved by giving precedence in the following order (1)
The Agreement (2) Attachments to the Agreement, (3) Consortium Articles of
Collaboration.
ARTICLE XIV: EXECUTION
This Agreement constitutes the entire agreement of the Parties and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions among the Parties, whether oral or written, with respect to the
subject matter hereof. This Agreement may be revised only by written consent of
the CMC and ARPA Agreements Administrator. This Agreement or modifications
thereto, may be executed in counterparts each of which shall be deemed as
original, but all of which taken together shall constitute one and the same
instrument.
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ATTACHMENT NO. 1, PAGE 1
STATEMENT OF WORK
(INITIAL PROGRAM PLAN)
The Plastic Packaging program will establish the required infrastructure
and enabling technologies in three key Focus Areas. Benefits gained from these
interdependent, and yet individual areas, are sufficiently broad-based to be
widely applicable to the entire packaging industry. The three key Focus Areas
are:
1. Plastic Package Ruggedization,
2. Plastic Package Thermal Dissipation, and
3. High-Density Plastic Packaging
These interrelated Focus Areas offer synergistic solutions for cost-effective,
high-volume packaging with improved reliability and performance.
1.0 Plastic Package Ruggedization - (Focus Area 1)
This area will develop enabling technologies to reduce cost and enhance the
reliability of plastic packages during assembly and field operation.
Reliability issues applicable to plastic ICs include interfacial delamination,
package cracking ("popcorning'), and stress induced failures.
1.1 Description of Problem
Die interfacial delamination occurs due to excessive shear strength
breaking the interfacial bond between the die or die coating and the molding
compound. Factors governing delamination include the net thermal displacement
during thermal excursion, the gap between the epoxy and the device surface after
separation, the topography of the device, and the adhesion strength of the
molding compound. The resultant effect of these factors can be device failure.
Package cracking, or popcorning, occurs during assembly operations. In
this case the hygroscopic molding compound absorbs moisture when exposed to
typical manufacturing conditions. If moisture has accumulated past a package-
dependent critical concentration the solder reflow conditions (230-260 deg C)
cause water to vaporize. Pressure builds up inside the package and eventually,
steam is released along the path of least resistance causing cracking of the
compound. To avoid popcorning today, packages are baked and then shipped in
drybags which is very costly.
Stress-induced failures are equally damaging to devices. The thermal
mismatch between silicon and the materials inside the package causes stresses
and induces defects ranging from cosmetic passivation cracking to metal line
shift, dielectric cracking, and even die fracture.
"Ruggedization" of the packages will enhance the package reliability during
board assembly and adverse field conditions. In turn, mean-time-to-failure,
will increase the cost-effectiveness of packaging. The enabling technologies
proposed in this Focus Area will address these major reliability issues plaguing
plastic packaging.
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ATTACHMENT NO. 1, PAGE 2
1.2 Key Metrics
The key metrics for success for Focus Area 1 are to obtain:
* No interfacial delamination (e.g., between molding compound and
die surface, molding compound and leadframe, and, die attach
(d/a) and leadframe),
* An unlimited shelf life at 30 deg. C/90% RH without drybagging,
("Anti-popcorning")
* No sum-induced device failures (e.g., metal line shift,
passivation cracking, dielectric cracking, and die cracking), and
* A team cost target improvement over SIA roadmap of 50% to a cost
of $0.005/lead up to 300-lead PQFP.
1.3 Technical Approach
To achieve these four metrics, five major components will be addressed:
1. Molding Compound Enhancement,
2. Die Attach Enhancement,
3. Leadframe Enhancement,
4. Reliability Characterization, and
5. Technology Demonstration
1.3.1 Molding Compound Enhancement
New resin formulations and additives will be developed to provide properties for
enhanced reliability. The metric improvements listed below use the current low-
stress molding compounds as benchmark. The metric improvements:
* Reduce water uptake by 50% for unproved leadframe adhesion and
better anti-popcorning,
* Increase the hot strength at 240 deg C by a factor of 2,
* Lower the stress index by at least 25%,
* Increase the Tg of the anti-popcorning compound from 140 deg C to
> 160 deg.,
* Decrease the cure time by 25%, and
* Lower compound viscosity by 25%.
1.3.2 Die Attach Enhancement
Using the epoxy-based die attach material as a benchmark, development of die
attach formulations will aim at:
* Eliminating voiding in the die attach,
* Increasing the adhesion strength between the molding compound and
the die attach surface by 50% at 240 deg C,
* Decreasing cure time by 50% at 160 deg C,
* Reducing water uptake by 50% for improved leadframe adhesion and
better anti-popcorning, and
* Developing new cyanate ester-based materials with:
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ATTACHMENT NO. 1, PAGE 3
**Hot strength superior to epoxies at 260 deg C by 50%,
**Stress index lower by at least 25%, and
**Unique stable moisture-resistant properties.
1.3.3 Leadframe Enhancement
Key reliability issues affecting the interface between leadframe, the molding
compound, and the die attach are:
* Increasing the interfacial adhesion to the molding compound and
the die attach media.
* Optimizing or replacing the polyamide tape on the leadframe to
improve adhesion, and
* Developing and characterizing a new lead frame alloy with higher
strength for fine pitch stamping and in process handling.
1.3.4 Reliability Characterization
The test methodology, processing, and material properties of key materials of
construction in IC packaging will be fully characterized. The following will be
accomplished:
* Materials screening - Various combinations of materials will be
evaluated through design of experiments which will include
evaluating the different choices for synergistic interaction;
* The evaluation of adhesion and stress characteristics of die
coatings;
* The characterization of mold compounds to include
manufacturability assessment (e.g. curing kinetics, rheology, and
moldability) and mechanical characteristics (coefficient of
thermal expansion, modulus, fracture strength, and adhesion);
* Assembly Test Chips (ATCs) will be obtained for use in the
evaluation of package properties; and
* Reliability testing of the test ICs and product vehicles will be
performed.
1.3.5 Technology Demonstration
The enabling technologies for ruggedizing the packages will be validated with
commercial product vehicles. The reliability test will follow mil-approved
standards. Products could include but will not be limited to National's Super
I/O and CLAy chips.
2.0 Plastic Package Thermal Dissipation (Focus Area 2)
The objective of this Focus Area is to develop enabling technologies which will
enhance the thermal dissipation characteristics of the plastic packages.
2.1 Description of Problem
Devices are operating at increasingly faster speeds and frequencies, and
generating more heat. Thus, to keep up with the speed performance curve,
improved thermal dissipation becomes a necessity. The typical thermal path
available for plastic packages mounted on boards is through the molding
compound, along
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ATTACHMENT NO. 1, PAGE 4
the leadframe, and to the metal traces on the board. This path can be enhanced
with the use of heat spreaders imbedded into the package and with improved
thermal characteristics of the materials.
2.2 Key Metrics
The key metrics for success for Focus Area 2 are:
* High temperature operation (175 deg C),
* High thermal dissipation (Theta-ja improvement by 505 on 160 PQFP
to 20 deg. C / Watt),
* High Temperature Reliability,
* Fine Pitch stamped leadframes with heat spreaders of heat slugs,
and
* A cost target for the thermally enhanced package of $0.002 / lead
over the standard package of $0.007 / lead.
2.3 Technical Approach
To achieve these metrics, five major components will be addressed,
1. Molding Compound Thermal Enhancement,
2. Die Attach Thermal Enhancement,
3. Leadframe / Heat Sink Enhancement
4. Reliability Characterization, and
5. Technology Demonstration.
2.3.1 Molding Compound Enhancement
The molding compound must satisfy two functional requirements, high thermal
dissipation and high thermal performance. The goals are to:
* increase thermal conductivity from the current 0.4.05 W/m K,
* Evaluate new resin materials and fillers for enhanced thermal
dissipation and thermal performance, and
* Promote good interfacial adhesion to all components, including
heat spreaders and heat slugs.
2.3.2 Die Attach Thermal Enhancement
The die attach material is a thermal barrier between the die and the leadframe.
Poor thermal conductivity is usually die to either voiding or inadequate die
attach material. The d/a must satisfy two functional requirements, good thermal
conductivity and no voiding. Development work will focus on:
* Increasing thermal dissipation of the die attach by a least 25%,
and
* Eliminating voiding in the die attach for good thermal
conductivity.
2.3.3 Leadframe / Heat Sink Enhancement
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ATTACHMENT NO. 1, PAGE 5
The low-cost requirement of plastic packages dictates that any thermal
enhancement structure attached to either the leadframe of the package must not
add significantly to the total package cost. Development work will focus on:
* Designing and modeling the attachment of heat slugs to the
package,
* Designing and building automated equipment to tape, downsetting
and attaching the heat spreader to the leadframe, and
* Developing and evaluating high thermal conductivity material
leadframes.
2.3.4 Reliability Characterization
Materials screening and characterization similar to section 1.3.4 on
ruggedization must be performed. The following will be accomplished:
* The characterization of thermally enhanced molding compounds and
die attach materials,
* The development of thermal test chips for use in screening
materials,
* The assembly of 160 PQFP which will be done by IPAC and National,
and
* Reliability testing of test vehicles and product drivers will be
performed.
2.3.5 Technology Demonstration
The enabling technologies for thermally enhanced packages will be validated with
commercial product vehicles. Reliability test will follow mil-approved
standards. Two products will be selected based on market needs.
3.0 High-Density Packaging (Focus Area 3)
This Focus Area aims at developing the enabling technologies to increase the I/O
density of plastic packages. Two packaging form factors will be considered, the
PQFP and the Plastic Ball Grid Array packages (PBGA). Efforts in this area can
be broken up into three interrelated areas:
1. The development of fine pitch leadframe stamping technology,
2. The development of fine pitch PQFP with interposer attached, and
3. The development of a 625-pin Plastic BGA for use with flip chip.
Efforts will aim at developing fine pitch stamped leadframes for high lead count
PQFPs, evaluating high-density interposer substrates for PQFPs, attaching
interposers to the PQFP leadframes, and devising high-density, low-cost
substrates for PBGAs. The Consortium will be evaluating different molding
compounds for the two package types but there is a common development effort on
the high-density substrates. The commercial cross over point from QFP to BGA
from a cost and handling standpoint is expected to be at about 300 pins.
Specific packages addressed in this program are 160 to 304 or 240-lead QFP and
the 625-pin BGA with flip-chip. The flip-chip BGA portion of this focus area
will augment the work in the Low Cost Flip Chip Program in that both programs
will lead up to the development of the 4 chip CLAy product assembled in the
plastic BGA package.
3.1 Key Metrics
The key metrics for success for Focus Area 3 are:
5
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 1, PAGE 6
* To obtain fine pitch, stamped, low-cost leadframes. Two packages are
addressed:
1. 160-lead QFP with 6.0 mil internal pitch and 4.0 mil lead
flat, and
2. 304 or 240-lead QFP with 7.0 mil internal pitch and 4.0 mil
lead flat;
* The establishment of on-shore capability for high lead count
package assembly (160 and 240 or 304 or 240-lead QFP and 625
BGA);
* The development of high-density and low-cost substrates with
**Interposer cost adder $0.10 for 160-lead PQFP, and
**Substrate cost less than $0.40/sq in.;
* To have minimal or zero-warpage of BGA;
* To have reworkable, low-stress underfill for flip-chip in Plastic
BGA; and
* To accomplish the integration of interposer to leadframe.
3.2 Technical Approach
To achieve the previous key metrics, the following major components will be
addressed:
1. Molding Compound for BGAs,
2. Flip-Chip Underfill Development
3. Leadframe Enhancement
4. Substrate / Interposer Enhancement
5. Reliability Characterization, and
6. Technology Demonstration.
3.2.1 Molding Compound For BGAs
Molding compounds formulated for large chips in high lead count PQFPs and BGAs
need to have enhanced properties. Efforts will focus on:
* Lowering stress by 50%,
* Lowering molding viscosity for molding thin packages,
* Raising Tg and lowering shrinkage by 50%,
* Reducing moisture absorption by 50%,
* Having no delamination, and
* Achieving prolonged pot life.
3.2.2 Flip-Chip Underfill Development
In this program the Consortium will focus on development of an underfill to be
used with flip-chips mounted on substrates in plastic BGA packages. Underfill
of flip-chip structures can significantly increase solder joint life. The
improvement level depends on the substrates material since thermal mismatch
dictates the stress level on the joints. Key development efforts aim at high Tg
(> 160 deg C) resins with:
* Improved wetting characteristics,
* Narrower filler size distribution for small chip gaps,
* Faster cure by at least 50%,
* Better adhesion to polyamide or other substrates and substrate
coatings,
* Lower stress by at least 25%,
* Longer pot life for ease of processing,
* Higher thermal conductivity than current underfill resins by 50%,
and
6
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 1, PAGE 7
* Reworkability capability.
3.2.3 Leadframe Enhancement
Fine pitch leadframes are currently manufactured by expensive etch technique.
Stamping of higher lead count fine pitch leadframes will require looking at
different materials. Key development tasks required are:
* Developing a process for stress reduction in C7025 alloy prior
and after stamping,
* Evaluating high strength materials form punches, and
* Designing and fabricating tooling for stamping two leadframes
which are:
**160-lead PQFP with a 6.0 mil internal pitch and 4.0 mil
lead flat, and
**304-lead PQFP with a 7.0 mil internal pitch and 4.0 mil
lead flat or 240 lead PQFP.
3.2.4 Substrate/Interposer Enhancement
Two types of packages are considered for this area, 160-lead PQFP and 625-pin
BGA. The PQFP requires an interposer to be bonded to the leadframe while the
BGA involves flip-chip mounting. Development tasks will include:
* Developing a 160-lead PQFP interposer based on NSC Super I/O chip
family,
* Developing the methodology and process for attaching the
interposer to the leadframe by thermocompression bonding and by
conductive adhesives, and
* Developing a 625-pin BGA substrate based on test chips and CLAy.
3.2.5 Reliability Characterization
Once again, Tasks similar to the previous two areas will be performed. Tasks
specific to high-density packaging will include:
* Characterizing the interposer mounting technology,
* Providing redistributed and bumped test chips for flip-chip
bonding,
* Evaluating the effectiveness of the reworkable underfill resin,
* Assembling 160-lead PQFP and 625 BGA which will be handled by
IPAC and National, and
* Performing reliability testing of the test vehicles and product
drivers.
3.2.6 Technology Demonstration
The enabling technologies for stamped fine pitch leadframes, interposer
integration to the leadframe, and high-density low-cost substrates will be
validated with product vehicles. The final vehicles will be selected from the
Super I/O, LAN, and CLAy product families from National.
7
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 2, PAGE 1
REPORT REQUIREMENTS
A. MONTHLY TECHNICAL STATUS REPORT
On or before thirty (30) calendar days after the effective date of the
Agreement and monthly thereafter throughout the term of the Agreement,
the Consortium Management Committee (CMC) shall submit a monthly
technical report to the Consortium Members and ARPA. The report
should be approximately one (1) to three (3) pages in length and shall
be distributed via e-mail and printed copy. Two (2) copies shall be
submitted to the ARPA Program Manager, one (1) copy shall be submitted
to the ARPA Agreements Administrator and one (1) copy shall be
submitted to ARPA/ESTO, Attn: Assistant Director for Program
Management
The technical status report will review the previous month's
accomplishments, highlight potential problems, and estimate progress
toward the Payable Milestones. The technical status report will
include a review of the status of consortium collaborative activities
during the reporting period.
B. QUARTERLY BUSINESS STATUS REPORT
On or before ninety (90) calendar days after the effective date of the
Agreement and quarterly thereafter throughout the term of the
Agreement, the CMC shall submit a quarterly business status report.
Two (2) copies shall be submitted to the ARPA Program Manager, one (1)
copy shall be submitted to the ARPA Agreements Administrator and one
(1) copy shall be submitted to ARPA/ESTO, Attn: Assistant Director
for Program Management
The business status report shall provide summarized details of the
resource status of this Agreement, including the status of the
contributions by the Consortium Members. This report will include a
quarterly accounting of current expenditures as outlined in the Annual
Program Plan. Any major deviations shall be explained along with
discussions of the adjustment actions proposed.
C. ANNUAL PROGRAM PLAN DOCUMENT
The CMC shall submit or otherwise provide to the ARPA Program Manager
one (1) copy of a report which describes the Annual Program Plan as
described in Article III, Section D. This document shall be submitted
not later than thirty (30) calendar days following the Annual Site
Review as described in Article III, Section D.
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 2, PAGE 2
D. SPECIAL TECHNICAL REPORTS
As agreed to by the Consortium and the ARPA Program Manager, the CMC
shall submit or otherwise provide to the ARPA Program Manager one (1)
copy of special reports on significant events such as significant
target accomplishments by Consortium Members, significant tests,
experiments, or symposia.
E. PAYABLE MILESTONES REPORTS
The CMC shall submit or otherwise provide to the ARPA Program Manager,
documentation describing the extent of accomplishment of Payable
Milestones. This information shall be as required by Article V,
paragraph B and shall be sufficient for the ARPA Program Manager to
reasonably verify the accomplishment of the milestone of the event in
accordance with the Statement of Work.
F. FINAL REPORT
1. The CMC shall submit or otherwise provide a Final Report making
full disclosure of all major developments by the Consortium within sixty
(60) calendar days of completion or termination of this Agreement. With
the approval of the ARPA Program Manager, reprints of published articles
may be attached to the Final Report. Two (2) copies shall be submitted or
otherwise provided to the ARPA Program Manager and one (1) copy shall be
submitted or otherwise provided to ARPA/ESTO, Attn: Assistant Director for
Program Management. One (1) copy shall be submitted to the Defense
Technical Information Center (DTIC) addressed to Bldg. 5/Cameron Station,
Alexandria, VA 22314.
2. The Final Report shall be marked with a distribution statement to
denote the extent of its availability for distribution, release, and
disclosure without additional approvals or authorizations. The Final
Report shall be marked on the front page in a conspicuous place with the
following marking:
"DISTRIBUTION STATEMENT B. Distribution authorized to U.S. Government
agencies only to protect information not owned by the U.S. Government
and protected by a contractor's "limited rights" statement, or
received with the understanding that it not be routinely transmitted
outside the U.S. Government. Other requests for this document shall
be referred to ARPA/S&IO (Attn: Technical Information Officer)."
2
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 3, PAGE 1
SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
<TABLE>
<CAPTION>
ARPA CONSORTIUM
TASK MONTH PAYABLE MILESTONES PAYMENT PAYMENT
- - ---- --------- ---------------------------------------------------------------- ---------- ----------
<C> <S> <C> <C> <C>
1 MAR `95 DELIVER BASELINE EXECUTION PLAN $ 403,062 $ 275,113
. Deliver baseline execution plan to include detailes
program schedule in Gantt chart form and an updated
program status report including a preliminary product
design review analysis.
2 MAY `95 INITIAL PRODUCT DESIGN REVIEW $1,185,731 $1,155,376
. Specify critical initial design considerations for
Interposer and flip-chip vehicles in Focus Area 3.
(SOW 3.2.4)
. Evaluate leadframe to molding compound interfacial
adhesion for first sample of enhanced treated leadframes
for Focus Area 1. (SOW 1.3.3)
3 AUG `95 DELIVER SAMPLES OF FUNDAMENTAL COMPONENTS $1,249,657 $1,349,183
. The Consortium will demonstrate capability to produce
new blend resin to be utilized in enhanced molding
compound formulation. (SOW 1.3.1)
. Complete design and manufacture sample of test vehicle
interposer for 160-lead PQFP. (SOW 3.2.4)
4 NOV `95 EPOXY MOLDING COMPOUND $1,638,158 $1,835,444
. Demonstrate mechanical and manufacturability properties
of screening level molding compounds such as curing
kinetics, rheology, Tg, coefficient thermal expansion.
(SOW 1.3.1, 2.3.1 & 3.3.1)
5 FEB `96 MANUFACTURE EPOXY MOLDING COMPOUNDS TO TEST VEHICLES $1,530,039 $1,515,914
SPECIFICATIONS
. Demonstrate successful assembly of high lead count (160-
lead and 304 or 204-lead) PQFP packages. (SOW 3.1)
. The Consortium will evaluate and characterize the
mechanical connection of the interposer to the leadframe
for 160-lead PQFP. (SOW 3.2.5)
6 MAY `96 VALIDATION OF METALLIC PROPERTIES $1,242,326 $1,274,449
. Complete characterization of the leadframe alloy design
for higher strength to give improved stamping and
handling characteristics. (SOW 1.3.3)
. Demonstrate capability of producing stamped heat sinks
for enhanced thermal dissipation. (SOW 2.3.3)
</TABLE>
1
<PAGE>
AGREEMENT NUMBER: MDA972-95--3-0024
ATTACHMENT NO. 3, PAGE 2
SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
<TABLE>
<CAPTION>
ARPA CONSORTIUM
TASK MONTH PAYABLE MILESTONES PAYMENT PAYMENT
- - ---- --------- ---------------------------------------------------------------- ---------- ----------
<C> <S> <C> <C> <C>
7 AUG `96 COMPLETE DEVELOPMENT OF FUNDAMENTAL MATERIALS VOLUME $1,038,986 $ 989,138
PRODUCTION CAPABILITIES
. The Consortium will complete development of optimized
molding compound formulations for all focus areas.
(SOW 1.3.1, 2.3.1, & 3.2.1)
. Demonstrate on-shore volume production capability of
high lead count PQFPs (SOW 3.1)
. Complete characterization of flip chip underfill
mechanical and manufacturability properties. (SOW
3.2.2)
8 NOV `96 SELECTION OF OPTIMIZED MATERIAL COMBINATIONS TEST VEHICLE $ 827,022 $ 733,143
ASSEMBLY
. Select optimized material combinations (molding
compound, die attach material, leadframe treatment,
leadframe alloy, substrate/interposer materials, etc). Use
this set of final optimized materials for technology
demonstration product builds in all focus areas. (SOW
1.3.5, 2.3.5, & 3.2.6)
. Issue final mechanical and manufacturability report for
epoxy molding compounds for all focus areas. (SOW
1.3.1, 2.3.1, & 3.2.1)
9 FEB `97 FINAL REPORT $ 463,024 $ 486,951
. Issue final report illustrating the capabilities achieved
vs. the initial targets of the program.
TOTAL $9,578,005 $9,614,711
</TABLE>
2
<PAGE>
AGREEMNET NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 4
FUNDING SCHEDULE
A. PROJECTED PROGRAM FUNDING COMMITMENTS
-------------------------------------
<TABLE>
<CAPTION>
ARPA Consortium
Funding Contribution
----------------- ------------------
<S> <C> <C>
CY* `95 $7,445,949 $4,615,116
CY `96 $2,132,056 $4,512,644
CY `97 $ 0 $ 486,951
TOTALS $9,578,005 $9,614,711
---------- ----------
*CY - Calendar Year
</TABLE>
B. CONSORTIUM MEMBER CONTRIBUTIONS
-------------------------------
<TABLE>
<CAPTION>
MEMBER CONTRIBUTION CASH** IN-KIND***
- - ---------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Amoco $ 411,347 $ 324,797 $ 86,550
Delco $ 340,613 $ 320,338 $ 20,275
Dexter $ 482,000 $ 416,000 $ 66,000
IPAC $1,051,800 $ 796,800 $ 255,000
Leading Technologies $2,979,600 $1,892,190 $1,087,410
National $2,470,947 $2,156,747 $ 314,200
Olin $ 901,257 $ 901,257 $ 0
Plaskon $ 484,554 $ 411,754 $ 72,800
Sheldahl $ 492,593 $ 492,593 $ 0
---------- ---------- ----------
TOTALS $9,614,711 $7,712,476 $1,902,235
</TABLE>
**Cash contributions consist of fully-burdened labor exclusive of fee; cash
expenditures for program specific equipment allocated on a percentage
basis; equipment leasing charges; and cash expenditures for equipment
components, consumable equipment, travel, supplies, subcontracts,
construction (costs associated with equipment installation), software,
direct materials, and other direct costs.
***In kind contributions consist of depreciation expenses allocated on a
percentage basis for equipment used on the program, the leased equivalent
of fully depreciated equipment, and in-house commercially available
software.
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 5
PAGE 1
LIST OF GOVERNMENT AND CONSORTIUM REPRESENTATIVES
GOVERNMENT: SCOTT R. ULREY
--------------
ARPA/CMO
--------
3701 N. Fairfax Drive
Arlington, VA 22203-1714
phone: (703) 696-2434
FAX: (703) 696-2208
Email: [email protected]
NICHOLAS J. NACLERO
-------------------
ARPA/ESTO
---------
3701 N. Fairfax Drive
Arlington, VA 22203-1714
phone: (703) 696-2216
FAX: (703) 696-2203
Email: [email protected]
CONSORTIUM: JOHN HOBACK
-----------
AMOCO CHEMICAL COMPANY
----------------------
Mail Code E2F
150 East Warrenville Road
P.O. Box 3011
Naperville, IL 60566-7011
phone: (708) 420-3154
FAX: (708) 420-4479
Email: [email protected]
LEX KOSOWSKY
------------
LEADING TECHNOLOGIES, INC.
-------------------------
101 Route 38OW
Apollo, PA 15613-9656
phone: (412) 727-3466
FAX: (412) 727-3788 (973-8065)
Email: [email protected]
MICHAEL VARNAU
--------------
DELCO ELECTRONICS CORPORATION
-----------------------------
2033 East Boulevard
Mail Station 6060
Kokomo, IN 46904-9005
phone: (317) 451-7136
FAX: (317) 451-8564
Email: [email protected]
1
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 5
PAGE 2
CONSORTIUM: LEE FEHR
---------
DEXTER ELECTRONIC MATERIALS - NEW YORK OFFICE
---------------------------------------------
211 Franklin
Olean, NY 14760-1297
phone: (716) 372-6300
FAX: (716) 372-6864
GERALD K. FEHR
--------------
IPAC
----
2221 Old Oakland Road
San Jose, CA 95131-1402
phone: (408) 321-3600
FAX: (408) 321-3603 (973-8065)
Email: [email protected]
DENNIS RALSTON
--------------
NATIONAL SEMICONDUCTOR CORPORATION
----------------------------------
1120 Kifer Road
Sunnyvale, CA 94086-3737
phone: (408) 721-2812
FAX: (408) 721-4860
Email: [email protected]
JIM DUNHAM
----------
NATIONAL SEMICONDUCTOR CORPORATION
----------------------------------
2900 Semiconductor Drive
Santa Clara, CA 95052
phone: (408) 721-6140
FAX: (408) 721-6142
Email: [email protected]
DEEPAK MAHULIKAR
----------------
OLIN CORPORATION
----------------
METALS RESEARCH LABORATORY
--------------------------
91 Shelton Avenue
New Haven, CT 06511
phone: (203) 495-8550 Ext. 5652
FAX: (203) 495-8525
NICK ROUNDS
-----------
PLASKON ELECTRONIC MATERIALS, INC,
----------------------------------
ROHM AND HAAS COMPANY
---------------------
727 Norristown Road
P.O. Box 904
Spring House, PA 19477-0904
phone: (215) 641-7985
FAX: (215) 641-7520
2
<PAGE>
AGREEMENT NUMBER: MDA972-95-3-0024
ATTACHMENT NO. 5
PAGE 3
CONSORTIUM: THOMAS A. OLSON
---------------
SHELDAHL, INC.
--------------
1150 Sheldahl Road
P.O. Box 170
Northfield, MN 55057
phone: (507) 663-8000 Ext. 280
FAX: (507) 663-8326
JAMES N. SWEET
--------------
SANDIA NATIONAL LABORATORIES*
----------------------------
Dept. 1333
Mail Station 1082
Albuquerque, NM 87185-1082
phone: (505) 845-8242
FAX: (505) 844-2991
Email: [email protected]
*Subcontractor to National Semiconductor Corporation
3
<PAGE>
Exhibit 10.30
ARTICLES OF COLLABORATION
FOR
PLASTIC PACKAGING CONSORTIUM
This Agreement is entered into by and among the following parties:
National Semiconductor Corporation
Amoco Chemical Company
Leading Technologies, Inc.
Delco Electronics Corporation
Dexter Corporation
Integrated Packaging Assembly Corporation (IPAC)
Olin Corporation
Plaskon Electronic Materials, Inc.
Sheldahl, Inc.
WHEREAS the Parties have complementary research interests and wish to form a
cooperative research consortium (hereinafter Consortium) to engage in
cooperative research in the area of low cost plastic encapsulated microcircuits
to better understand package ruggedization, thermal dissipation and high density
plastic packaging including, without limitation, prototype fabrication for the
experimental demonstration of such technology; (hereinafter scope of research);
and WHEREAS the Parties anticipate receiving funding from a government agency;
and WHEREAS the Parties wish to be bound together in the Consortium by these
Articles of Collaboration (Articles hereinafter) in the form of a Joint Research
and Development Venture as such term is defined in the National Cooperative
Research Act of 1984 through a Cooperative Agreement as such term is defined in
31 U.S.C. 6305" and WHEREAS terms not otherwise defined in this Agreement shall
have the meaning set forth in the ARPA Agreement between the Consortium and the
Advanced Research Projects Agency (ARPA).
Hereinafter the following definitions apply:
Each of National Semiconductor Corporation, Amoco Chemical Company, Leading
Technologies Inc., Delco Electronics Corporation, Dexter Corporation,
integrated Packaging Assembly Corporation (IPAC), Olin Corporation, Plaskon
Electronic Materials, Inc., Sheldahl, Inc. once having executed these Articles
is a Consortium Member.
Each Consortium Member is a Party. All Consortium Members are collectively
identified as Parties.
Each of Sandia National Laboratories and SEMATECH are Advisors to the
Consortium. Sandia will be a subcontractor to National
<PAGE>
Semiconductor Corporation. Due to legal constraints placed upon these
entities, they are unable to sign these Articles of Collaboration, but agree
to support the Consortium's goals and objectives. As Advisors to the program,
these entities shall not have any voting authority within the Consortium.
Each U.S. governmental department or agency thereof providing funding to the
Consortium as a whole is in an Agency during the period such funding is
available or being used.
NOW THEREFORE, the Parties agree as follows:
1 (a) The Parties hereby establish a joint research and development venture
to engage in a collaborative research effort of limited duration to gain further
knowledge and understanding of such technologies for the purposes and within the
Scope of Research set forth herein.
(b) Subject to the availability of Agency funding, the Parties
individually agree to expend best reasonable efforts to achieve the goals
assigned to them as defined in the Program Plan (including milestone payment
plan), attached hereto and incorporated herein. By execution of this Agreement
each Party authorizes the Consortium Management Committee (CMC) or its designee
to enter into with an Agency a single Other Transaction (hereinafter Funding
Agreement) as defined in 1 0 U.S. C. 2371 and consistent with the Project
Statement to fund the Consortium. In the course of the Consortium, the
Consortium Administrator shall disburse to each Party the funds associated with
the completion of each milestone established in the Funding Agreement upon
receipt of appropriate documentation from the Party. Milestone payments to each
Party will be made within 15 working days after receipt of a certification of
milestone completion, assuming such funds are available from the Agency and
unless the CMC shall direct the Consortium Administrator to the contrary in
accordance with Article 4.
(c) This Agreement shall not preclude any Party from developing at its own
expense technology based upon Consortium technology but apart from the Project
Statement, provided that the proprietary information and other rights of other
Parties hereunder are not violated. The developing Party under this
subparagraph reserves all intellectual property rights in its so developed
technology.
(d) The Parties agree to empower the Consortium Administrator to
officially execute the ARPA-Consortium Agreement No. MDA972-95-3-0024 on behalf
of all of the individual Consortium Member companies. This authority is granted
only after each individual company has had adequate time to review the Agreement
and have
2
<PAGE>
provided written authorization to the Consortium Administrator to execute the
document on behalf of their respective company.
2. (a) Subject to the terms and conditions stated herein, the Consortium
will be managed and governed by the Consortium Management Committee. The CMC is
empowered to determine all policy, business, financial, legal, and technical
issues of the Consortium. The CMC is authorized to represent-the Consortium in
reporting progress, in negotiating, and in transacting business with respect to
the scope of the Agreement with ARPA or other persons. Specifically and without
limitation, except as otherwise provided in this Agreement, the CMC is empowered
to redirect the research, redefine the tasks and goals of the Parties, and to
proportionally change to all Parties the amount of funding provided by an Agency
concerning the program.
(b) Each Consortium Member will appoint one voting representative to
comprise the CMC, who shall have the power to designate an alternate voting
representative from time to time. The CMC will meet in regular committee
meetings, approximately every three months, at locations chosen on a rotating
basis by the CMC or as is mutually acceptable among the Consortium Members.
Each representative may be accompanied by other employees of the Party or
Agency, including without limitation financial, business, and legal personnel.
Each Party and Agency will limit its attendees to three, with the exception of
National Semiconductor employees providing overall support to the Consortium.
Other parties may attend the committee meetings at the invitation of the CMC,
but only after agreeing in writing to appropriate disclosure limitations. The
CMC may exclude from a portion of the non-technical committee meetings the
representatives of the Agencies or other third persons.
(c) The National Semiconductor representative to the CMC will act as
chairperson of the committee meetings, keep the other members of the CMC
informed of developments, and deliver notification regarding meetings of the
CMC. Any Consortium Member may call a special meeting of the CMC.
(d) Subject to CMC approval National Semiconductor will appoint a
Consortium Administrator to the Consortium who will attend all CMC meetings and
who will provide a single point of contact to the Contracting Officers of
Parties and the Agencies or their designees.
(e) National Semiconductor will ensure that minutes of the meetings of the
CMC are recorded and distributed to the Consortium Members and, as requested, to
ARPA.
(f) Each Consortium Member will be responsible for hosting
3
<PAGE>
both CMC meetings and Technical Management Committee (TMC) meetings on a
rotating basis. The schedule for hosting meetings will be published by the
Consortium Administrator within 30 days after execution of these Articles.
3. (a) A simple majority of CMC members will constitute a quorum at a CMC
meeting. The CMC will attempt to reach a consensus decision of all
representatives present at each committee meeting. However, if demanded by one
Consortium Member, a decision may be determined by a vote of the CMC after the
concerns of affected Parties and Agencies present at the meeting are heard.
Except as provided in sections 4, 5 and 7, a majority vote of the voting
representatives present rules.
(b) Any Consortium Member company may request the convening of the CMC.
Requests must be made directly to the Chairman of the CMC. A request to convene
an unscheduled meeting of the CMC must allow at least 15 working days to convene
the meeting.
(c) CMC meetings will be held quarterly. Locations for the meetings will
be rotated among the Consortium Members. Each Consortium Member is responsible
for providing the necessary facilities to host a CMC meeting. The Consortium
Administrator will notify all member companies of the date and location of the
regularly scheduled CMC meetings at least 30 days in advance. If an unscheduled
CMC meeting is called by any of the member companies, the Consortium
Administrator will endeavor to provide as much notice as practical.
4. A supermajority vote, as required, is a vote of all but one of the
Consortium Members. For purposes of a supermajority vote, the vote of a
representative of a Consortium Member either not attending the CMC meeting or
not participating will be counted as an opposing vote. With a supermajority
vote, the CMC is empowered to:
(a) Revise the Articles of Collaboration-,
(b) Revise or terminate any funding agreements with an Agency;
(c) Delegate authority of CMC to the Consortium Administrator or
Consortium Chairman;
(d) Substantially change or eliminate any Agency funding allocated to any
Party as technically and/or financially justified by the CMC. A Party
experiencing any reduction in Agency funding may pro rata reduce its
internally funded participation in the Consortium;
(e) Act on any issue declared reasonably, in writing by a Consortium
Member, to be of critical importance;
(f) Appoint and remove the Consortium Administrator or any other officer;
and
4
<PAGE>
(g) Approve Annual Program Plan for Funds and adjusting funding to all
parties subject to section 6.
5. (a) The CMC by unanimous vote may admit a new member to the Consortium.
The membership of a new member shall become effective and such new member shall
become a Party upon its execution of this Agreement. The CMC will consider new
members on a non-discriminatory basis, but only if the new Member's technical
contributions can be justified and only on relatively comparable financial terms
as the existing Parties, recognizing the risk of their original investment. The
consideration will include without limitation whether the new member would bring
to the Consortium technology otherwise unavailable on the time scale of the
program or would allow the technology to be developed by members of the
Consortium to be applied to new markets. Other conditions of its admission are
that the entry of the new member would not substantially adversely affect the
intellectual property rights of the original Consortium Members, that the added
effort would not substantially change the ongoing Consortium program, and that
the new Member could participate without diminishing Agency funding provided to
existing Members. Notwithstanding the above, the representatives of the CMC may
consider any reasonable factor in addition to those above, and their decision on
admitting new Members is discretionary and final.
(b) If a member is unable to attend a CMC or TMC meeting, the member may
vote via written proxy. The proxy vote must be received by the Chairman of the
CMC at least one (1) working day prior to the CMC or TMC meeting. The proxy
vote must be in writing from the CMC voting representative of the Party or his
designee. A FAX or EMAIL proxy is acceptable.
(c) If a member is absent from a CMC or TMC meeting, that Party's vote
will be counted as a negative vote on all issues brought forth to a vote.
6. A Party may reject an expansion of its scope of responsibility within the
Consortium, a modification of its rights in Intellectual Property, or a
reduction of its Agency funding not accompanied by a reduction in the scope of
its responsibilities.
7. (a) Any Party may resign at will from the Consortium after it has provided
written notice to the CMC 30 days in advance of the effective date of the
resignation. During the 30 day period, the resigning Party shall wind down its
effort in an orderly fashion. The CMC shall reasonably determine whether to
provide any further Agency funding to the resigning member after its notice of
resignation.
5
<PAGE>
(b) The resigning Party shall make a reasonable best effort to transfer
its portion of Consortium work to other members of the Consortium, this
reasonable best effort extending beyond the 30 day period if reasonably required
and at the resigning Party's own cost (which shall not exceed the payment due to
the resigning party at the next payable milestone payment date following the
date notice of resignation is given). The resigning Party must provide a
reasonable, royalty-bearing, non-exclusive, perpetual, sub-licensable license in
its Consortium Intellectual Property as defined in Paragraph 8 (b), restricted
to the field of use defined in the SOW to the Party or Parties designated by the
CMC to replace the resigning Party in performing its assigned tasks.
(c) The CMC may, by unanimous vote, except for the resigning Party, force
a Party to resign if that Party is not adequately performing the tasks assigned
to it or is not reasonably cooperating with the Consortium and its Parties. For
purposes of the unanimous vote, the representative of a Consortium Member not
attending the CMC meeting or not voting will defeat the unanimity, except for
the resigning party. The CMC will provide at least 30 days notice to the
offending Party to resolve nonperformance issues prior to the issue coming to a
vote before the CMC. All appropriate efforts and communications will be made
prior to forcing a Party to resign. All of the requirements and
responsibilities of a resigning party described in 7(a) and 7(b) apply to a
party forced to resign.
8. (a) As to intellectual property made in the Consortium, each Party
retains title to inventions, technical data rights, and other intellectual
property made solely by its employees in performance of the Consortium work.
Inventions or technical data jointly developed by employees of more than one
Party are jointly owned by the respective employing Parties.
(b) Consortium Intellectual Property is that intellectual property
developed by and in the course of identified tasks assigned to and performed by
the member Party, whether performed under Agency funding or funding provided by
the Party as agreed to in the Funding Agreement and/or in this Agreement for
cost sharing. The identified tasks shall be those tasks i) agreed to by the
Party in a separate agreement between the Consortium and ARPA, ii) agreed to by
the Party with other Parties of the Consortium, and (iii) assigned to the Party
by the CMC subject to the restrictions of section 6. However, Consortium
Intellectual Property does not include (1) background: (2) concurrently
developed intellectual property that is independently funded apart from
Consortium: or (3) continuation (improvement or subsequent) intellectual
property (including so-defined processes) of the respective Party(ies). All
Parties agree to perform the tasks assigned to them in the attached Statement of
Work, to which the CMC is empowered to redirect these
6
<PAGE>
efforts.
(c) All Parties neither receive from nor are required to grant to the
other Consortium Members any royalty-free licenses in its Consortium
intellectual property, but all Parties agree to grant to any other Consortium
Member a reasonable, royaltybearing license for the sole purpose of continuing
the Consortium. The cost of this license will not be counted towards the
overall cost of the Plastic Packaging Consortium program. Further, all Parties
will license its Consortium intellectual property to other Parties only under
commercially reasonable terms. Consortium members Amoco, Dexter and Plaskon,
being direct competitors, are limited to reasonable licenses among themselves
only for the purpose of aiding the Consortium program. They are not required to
license each other for general molding compound commercial usage.
(d) In the event of a dispute concerning the reasonableness of a proposed
royalty resulting from Consortium Intellectual Property, all Parties agree to
submit to binding arbitration to determine the reasonableness of the proposed
royalty agreement between Parties. All Parties agree that the arbitrator's
decision will be binding.
(e) One Party may exercise march-in rights against the Consortium
Intellectual Property of another Party to the extent specified in this
paragraph. Marchin rights become available if the Party originally holding
title to the Consortium Intellectual Property has failed to adequately
commercialize within a reasonable time, the technology of the Consortium related
to that Consortium Intellectual Property. The reasonable time shall be no less
than 3 years from the date these Articles are terminated. Any Consortium Member
may exercise march-in rights upon any Member either on the Member's behalf or on
the behalf of its licensees irrespective of whether an Agency has exercised
similar march-in rights. The title holder shall be entitled to commercially
reasonable licensing fees and a reasonable license agreement from the Member
exercising march-in rights.
(f) Each Party is subject to the licensing and march-in rights of
subparagraph (e), but the Consortium may not bind any Party without its approval
for the conveyance of its intellectual property to any Agency.
(g) The Consortium favors, subject to Agency requirements, an open-
publication policy to promote commercial acceptance of the technologies
developed for plastic packaged integrated circuits, but simultaneously desires
to protect the proprietary information of the Parties developed both within and
without the Consortium. However, successful commercialization of aspects of the
technology
7
<PAGE>
by some of the Parties may depend on the proprietary nature of the information.
Each Party will individually decide whether to publish its own technical data or
maintain it as proprietary. However, in the performance of the Consortium,
proprietary information, software or hardware of one Party may necessarily be
disclosed to or used by another Party. A non-disclosure agreement separately
executed by all the Members, attached as Exhibit 1, is incorporated herein by
reference, and the Members will assure that their employees participating in the
Consortium conform to its terms.
(h) Notwithstanding the separately executed non-disclosure agreement
attached hereto, when one Party's Consortium related work depends on the
proprietary information of another Party, the technical data may be published to
the extent that such data: (i) is required for a description of the Member's
work, (ii) does not disclose proprietary materials, hardware, formulations or
software, and (iii) relates primarily to system or material performance and
characteristics. However, publication of proprietary technical data may be
delayed by its owner for a time period of not more than six (6) months enabling
the filing of patent applications. In the event that a Party's work depends on
proprietary materials, hardware, software or processes developed by another
Party in tasks outside the Consortium, the system performance and
characteristics may be published, but only after the delay period for patent
filings. In no event shall such disclosure in any way reveal the proprietary
information of the implementation necessary to achieve the system performance.
(i) Each Party will select its inventions for which it applies for
patents. The Party is further responsible for prosecuting those applications
and maintaining the resulting patents, both in the U.S. and in foreign
countries. A Party jointly owning an invention may file a patent application
for it and the co-owning Parties will cooperate in the filing and prosecution.
(j) Any patent application filed claiming a Consortium invention covered
by an agreement with an Agency shall include a Government interest paragraph.
The Party will report a patent application claiming any Consortium Intellectual
Property to the CMC within one month and provide to the CMC a copy of the
application, without claims. The CMC will report the invention in a timely
manner including a short abstract to all Parties and to any Agency funding the
invention, as required by the Agency. Any Member or the funding Agency may
obtain copies of the application from the CMC. However, any such patent
information shall be covered by the nondisclosure agreement and shall not be
disclosed by the Agency to non-governmental personnel until the respective
patents have been issued. All Parties agree to retain and maintain
8
<PAGE>
in good condition until five (5) years after completion or termination of these
Articles, all data necessary to achieve practical application of all Consortium
and/or Government funded inventions.
(k) The funding agreement for the Project Statement may provide for the
government to obtain certain rights in the Consortium Intellectual Property.
Each Party agrees to such government rights in its Consortium Intellectual
Property subject to the Agreement between the Consortium and ARPA. The
intellectual property rights provided to the Consortium by Agreement shall be
provided in turn to the Parties according to the terms of this Agreement. The
Parties will cooperate with the CMC in performing any reporting, election, and
rights predetermination to the Agency regarding intellectual property as
required by the funding agreement and to provide the required information to the
CMC before such information is required by the Funding Agreement.
(l) All Parties agree to respect the Intellectual Property rights of all
other Parties. During the term of the Agreement, no Party may attempt to
reverse engineer, analyze, recreate, or duplicate the specific technology
developed by another Party as a result of this Collaboration Agreement. Such
efforts may result in termination of membership in the Consortium, forfeiture of
all funds assigned to the milestones to be performed by the offending Party, and
any legal action deemed appropriate.
(m) Notwithstanding the above limitations in this paragraph 8, a basic
intent for the formation of this consortium is to share information freely or by
license to the maximum extent possible without disclosing or otherwise
compromising another Parties proprietary data. This is necessary to assure the
formation of a viable market for the advanced plastic packaging technology.
9. (a) National Semiconductor Corporation will receive funds from the funding
Agency and disperse such funds available to the Consortium as specified in the
attached Consortium Funding Agreement or as directed by the CMC. Milestone
payments will be distributed within fifteen (15) working days after receipt of a
document certifying completion of the milestone, providing funds have been made
available by ARPA.
(b) The funding agreement for the Project Statement may provide for
certain rights of the Government to audit the financial records of the
Consortium. Each Party agrees that it will reasonably cooperate with a
Government audit of the Consortium and a Government audit of their individual
financial records related directly to the costs incurred during the performance
of the ARPA Agreement in accordance with Generally Accepted Accounting
Principles (GAAP) only. No Federal Acquisition Regulations or Cost
9
<PAGE>
Accounting Standards apply to the accounting and financial records and systems
of the members.
10. (a) The Consortium Administrator will set up a document repository
(Consortium Data Repository), wherein all pertinent documents and data generated
by the Consortium and its Members will be archived. All Parties agree to
provide to the Consortium Administrator copies of pertinent documentation,
drawings, photographs and data. Data will be maintained for a period of up to
five (5) years after completion or termination of these Articles. Such data
shall not include proprietary information previously developed at prior expense
by any Party prior to entering into this Agreement.
(b) A copy of all patent abstracts resulting from Consortium Intellectual
Property will be provided to the Consortium Administrator within 30 days after
filing.
(c) All press releases, publicity, technical papers and other such data
shall be provided to the Consortium Administrator for archiving in the
Consortium Data Repository within 30 days of submittal for publication.
11. (a) THE PARTIES DISCLAIM ANY WARRANTY INCLUDING WITHOUT LIMITATION AN
IMPLIED WARRANTY FOR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, TO
EACH OTHER, TO ANY AGENCY, AND TO THIRD PARTIES FOR ACTIONS, OMISSIONS,
PRODUCTS, NONCONFORMITIES, DEFECTS, LIABILITIES, OR INFRINGEMENT ARISING OUT OF
THE CONSORTIUM. THE PARTIES DISCLAIM ANY LIABILITY FOR CONSEQUENTIAL, INDIRECT,
OR SPECIAL DAMAGES. IN NO EVENT SHALL A PARTY'S LIABILITY UNDER THIS
AGREEMENT EXCEED THE FUNDING IT HAS RECEIVED UP TO THE TIME OF INCURRING SUCH
LIABILITY.
(b) The Parties are bound to each other and to the Agency entering into
this agreement with the Consortium by a duty of only good faith and best
reasonable research effort in achieving the goals of the Consortium. Joint and
several liability will not attach to the Parties of the Consortium so that no
Party is responsible for the actions of another Party, but is responsible only
for those tasks specified to it and to which it agrees to perform in the
separately executed ARPA funding agreement. Any Party may waive any right,
breach or default which such Party has the right to waive, provided that such
waiver shall not be effective against the waiving Party unless it is in writing,
is signed by such Party, and specifically refers to this Agreement. No waiver
of any breach of any agreement or provision herein contained shall be deemed a
waiver of any preceding or succeeding breach thereof nor of any other agreement
or provision herein contained.
10
<PAGE>
12. No Party has the obligation to nor will it disclose to another Party
proprietary information not required for the research purposes in the Program,
and specifically will not exchange with another Party in connection with this
Agreement any market data or plans for other services or market products or any
information relating to procurement of plastic encapsulated microcircuits,
except as such information is made publicly available.
13. (a) These Articles are not intended to form, nor shall they be construed
to form, by implication or otherwise, a partnership or other formal business
organization, nor should they be construed as a contract or a grant as defined
for purposes of federal procurement law. No Party can be bound by another Party
acting as its agent except as specifically stated in this Agreement.
(b) No Party shall be obligated to provide any capital contribution, loan,
guarantee, or other financing commitment for the benefit of the Consortium,
unless required for such Party's portion of the Project Statement or such Party
agrees in writing herein or otherwise.
14. Except and to the extent as specifically set forth herein, nothing in
these Articles shall be construed by implication, estoppel or otherwise to grant
any license or right under any patent, copyright, trade secret, trademark or
proprietary right of any Party.
15. This Agreement does not bar the Parties from singly or jointly planning,
designing, or entering manufacturing, subject to the rights of all Parties,
outside the Consortium.
16. No Party shall identify any other Party and its association with this
Consortium in advertising, publicity, or otherwise, except with the formal
written approval of such other Party. However, the Parties agree that
notification of the establishment of this Joint Research and Development Venture
shall be filed by National Semiconductor Corporation on behalf of the Parties
with the Attorney General and the Federal Trade Commission in accordance with
the provisions of the National Cooperative Research Act of 1984 within 90 days
of execution of this Agreement and after adequate review by the legal
departments of all Parties.
17. (a) These Articles and the Consortium shall continue after execution of
this agreement for 24 months thereafter or earlier under any provision of sub-
section (b) hereof. It may be renewed at any time prior to the expiration of
the term of this Agreement by letter agreement signed by the authorized
representatives of all the Parties who are Parties at that time.
(b) This Agreement shall terminate upon the earliest
11
<PAGE>
occurrence of: (i) disapproval by the Attorney General or the Federal Trade
Commission of the notification of Section (1 5); (ii) termination of the funding
of the first Project Statement by an Agency unless each Party has agreed to
extend the Consortium for subsequent funding; or (iii) no funding is provided by
an Agency by March 31, 1995.
(c) The obligations of confidentiality set forth in Article 8 hereof shall
survive termination of these Articles for a period of 36 months.
18. The Funding Agreement from an Agency may impose certain requirements upon
the Consortium or its Participants-regarding reporting accounting civil rights,
intellectual property, and technology transfer information or transferring of
intellectual property generated with funds provided by the Agency. A
Participant by acceptance of such funds agrees to conform to such requirements
and to reasonably cooperate with the Consortium in conforming to such
requirements.
19. Any notices or other communications required or permitted hereunder shall
be sufficiently given if sent by telecopier or by registered or certified mail,
postage prepaid, addressed as follows
Primary Alternate
- - ------- ---------
John Hoback David R. Nethro
Amoco Chemical Company Amoco Chemical Company
Mail Code E2F Mail Code 4406
150 East Warrenville Road 200 East Randolph
P.0. Box 3011 Chicago, Ill 60601
Naperville, IL 60566-7011 (312)856-6617
(708)420-5454
Lex Kosowsky John Wohlin
Leading Technologies, Inc. Leading Technologies, Inc.
P.0. Box 628 131 West Pittsburgh St.
3 Parks Bend Industrial Road Greensburg, PA 15601
Leechburg, PA 15656 (412) 837-6993
(412) 842-3420
Michael Varnau Mathew J. Venteicher
Delco Electronics Corporation Delco Electronics Corporation
2033 East Boulevard One Corporate Center
Mail Station 6060 Mail Station CT 50B
Kokomo, IN 46904-9005 Kokomo, IN 46904-9005
(317) 451-7136 (317) 451-5264
Lee Fehr Tony Gallo
Dexter Electronic Materials Dexter Electronic Materials
12
<PAGE>
21 1 Franklin Street 21 1 Franklin St.
Olean, NY 14760 Olean, N.Y.
(716) 372-6300 (716) 372-6300
James N. Sweet David Palmer
Sandia National Laboratories Sandia National Laboratories
Dept. 1333 Dept. 1333
P.O. Box 5800 P.O. Box 5800
Albuquerque, NM 87185-1082 Albuquerque, N.M. 87185-1082
(505) 845-8242 (505) 844-2138
Gerald. K. Fehr Victor Batinovich
IPAC IPAC
2221 Old Oakland Road 2221 Old Oakland Road
San Jose, CA 95131-1402 San Jose, CA 95131-1402
(408) 321-3668 (408) 321-3600
Jim Dunham Dennis W. Ralston
National Semiconductor Corporation National Semiconductor Corporation
M/S 19-100 M/S 10-225
2900 Semiconductor Drive 2900 Semiconductor Drive
Santa Clara, CA 95052 Santa Clara, CA 95052
(408) 721-6140 (408) 721-2812
Deepak Mahulikar John Brendis
Olin Corporation Olin Corporation
Metals Research Laboratory Metals Research Laboratory
91 Shelton Avenue 91 Shelton Avenue
New Haven, Connecticut 06511 New Haven, Connecticut 06511
(203) 495-8550 (203) 495-8550 ext. 5719
Johanna Murray Nick Rounds
Plaskon Electronic Materials, Inc. Plaskon Electronic Materials, Inc.
Rohm and Haas Company Rohm and Haas Company
727 Norristown Road 727 Norristown Road
P. O. Box 904 P. O. Box 904
Spring House, PA 19477-0904 Spring House, PA 19477-0904
(215) 641-7366 (215) 641-7985
William Baker Thomas Olson
Sheldahl, Inc. Sheldahl, Inc.
345-C S. Francis Street 1150 Sheldahl Road
Longmont, CO 80501 Northfield, MN 55057
(303) 651-2880 (507) 663-8000 Ext. 280
or such other addresses or telecopier numbers as shall be furnished by like
notice by such party. Any such notice or communication given by mail shall be
deemed to have been given three (3) business
13
<PAGE>
days after the date so mailed, and any such notice or communication given by
telecopier shall be deemed to have been given when sent by telecopier and the
appropriate answer back received.
20. Neither this Agreement nor any rights hereunder, in whole or in part,
shall be assignable or otherwise transferable without the prior written consent
of all other Parties, except the Party's wholly owned subsidiaries, its ultimate
parent company, and to any company wholly owned by its parent company. The
above is subject to ARPA approval.
21. (a) These Articles shall first become effective on the date all
Consortium Members have signed these Articles and such Articles will be
effective only as to such Parties who have signed these Articles by such date.
These Articles shall be effective as to any other Party on the date such other
Party executes these Articles.
(b) This Agreement may be executed in counterparts each of which shall be
deemed an original, but taken together shall constitute one and the same
instrument.
22. The Parties Shall further execute, sign or do or procure to be executed,
signed and done all such further deeds and documents and acts as may be
reasonably required to enable the Parties freely and fully to pursue their
agreed objective provided hereunder.
23. These Articles shall be governed by the laws of the United States and the
State of California except principles of conflict of laws.
24. This Agreement constitutes the entire agreement of the Parties and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions among the Parties, whether oral or written, with
respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties has caused these Articles to be executed
by its duly authorized representatives, on the respective dates entered below.
14
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME NATIONAL SEMICONDUCTOR CORPORATION
---------------------------------------------------
ADDRESS: 2900 Semiconductor Drive
-----------------------------------------------------
---------------------------------------------------
------------------------------------------------------
By /s/ Dennis W. Ralston
-----------------------------------------------------
(AUTHORIZED SIGNATURE)
Dennis W. Ralston
----------------------------------------------------
(PRINT NAME)
Manager Business Operations
------------------------------------------------------------
(TITLE)
3-2-95
----------------------------------------------------
(DATE OF EXECUTION)
15
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME AMOCO CHEMICAL COMPANY
---------------------------------------------------
ADDRESS: 200 East Randolph Drive
---------------------------------------------------
Chicago, IL 60601-7125
--------------------------------------------------
----------------------------------------------------
By /s/ Stephen F. Gates
----------------------------------------------------
(AUTHORIZED SIGNATURE)
STEPHEN F. GATES
-----------------------------------------------------
(PRINT NAME)
VICE PRESIDENT
---------------------------------------------------
(TITLE)
March 3, 1995
------------------------------------------------------------
(DATE OF EXECUTION)
16
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME LEADING TECHNOLOGIES, INC.
---------------------------------------------------
ADDRESS: PO BOX 628
----------------------------------------------------
Leechburg PA 15656
--------------------------------------------------
-----------------------------------------------------
By /s/ Len Kosowsky
----------------------------------------------------
(AUTHORIZED SIGNATURE)
Len Kosowksy
---------------------------------------------------
(PRINT NAME)
President
-----------------------------------------------------------
(TITLE)
3-3-95
---------------------------------------------------
(DATE OF EXECUTION)
17
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME DELCO ELECTRONICS CORPORATION
---------------------------------------------------
ADDRESS: ONE CORPORATE CENTER
----------------------------------------------------
P.O. BOX 9005
--------------------------------------------------
KOKOMO, IN 46904-9005
----------------------------------------------------
By /s/ Lesterson Wilkinson
----------------------------------------------------
(AUTHORIZED SIGNATURE)
LESTER WILKINSON
---------------------------------------------------
(PRINT NAME)
DIRECTOR, IC DELCO
-----------------------------------------------------------
(TITLE)
March 2, 1995
---------------------------------------------------
(DATE OF EXECUTION)
18
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME DEXTER CORPORATION
------------------------------------------------------
ADDRESS: 211 Franklin Street
-------------------------------------------------------
Olean, NY 14760
--------------------------------------------------
----------------------------------------------------
By /s/ Lee R. Fehr
-----------------------------------------------------
(AUTHORIZED SIGNATURE)
Lee R. Fehr
-----------------------------------------------------
(PRINT NAME)
Director of Research & Development
---------------------------------------------------------------
(TITLE)
3-2-95
-----------------------------------------------------
(DATE OF EXECUTION)
19
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME IPAC
---------------------------------------------------
ADDRESS: ---------------------------------------------------
--------------------------------------------------
----------------------------------------------------
/s/ Victor A. Batinovich
By ---------------------------------------------------
(AUTHORIZED SIGNATURE)
VICTOR A. BATINOVICH
--------------------------------------------------
(PRINT NAME)
President CEO
-----------------------------------------------------------
(TITLE)
3-1-95
--------------------------------------------------
(DATE OF EXECUTION)
20
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME OLIN CORPORATION
---------------------------------------------------
ADDRESS: 91 Shelton Avenue
----------------------------------------------------
New Haven, CT 06511
--------------------------------------------------
----------------------------------------------------
By /s/ Derek E. Tyler
----------------------------------------------------
(AUTHORIZED SIGNATURE)
Derek E. Tyler
---------------------------------------------------
(PRINT NAME)
Vice President, Metals Research Lab
------------------------------------------------------------
(TITLE)
March 17, 1995
---------------------------------------------------
(DATE OF EXECUTION)
21
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME PLASKON ELECTRONIC MATERIALS, INC.
---------------------------------------------------
ADDRESS: 100 INDEPENDENCE MALL WEST
----------------------------------------------------
PHILADELPHIA, PA 19106-2399
--------------------------------------------------
---------------------------------------------------
By /s/ Lawrence E. Hoffman, Jr.
---------------------------------------------------
(AUTHORIZED SIGNATURE)
LAWRENCE E. HOFFMAN, JR.
---------------------------------------------------
(PRINT NAME)
PRESIDENT
----------------------------------------------------------
(TITLE)
March 2, 1995
---------------------------------------------------
(DATE OF EXECUTION)
22
<PAGE>
PLASTIC PACKAGING CONSORTIUM
ARTICLES OF COLLABORATION
CONSORTIUM MEMBER
COMPANY NAME SHELDAHL, INC.
---------------------------------------------------
ADDRESS: 1150 Sheldahl Road
----------------------------------------------------
Northfield, MN 55057
-------------------------------------------------
---------------------------------------------------
By /s/ Richard J. Slater
---------------------------------------------------
(AUTHORIZED SIGNATURE)
Richard J. Slater
--------------------------------------------------
(PRINT NAME)
Senior Vice President, Technology
---------------------------------------------------------
(TITLE)
March 1, 1995
--------------------------------------------------
(DATE OF EXECUTION)
23
<PAGE>
Agreement Number: MDA972-95-3-0024
Attachment No. 4
Page 1
SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
<TABLE>
<CAPTION>
A. SCHEDULE OF PAYMENTS
--------------------
QUARTER ARPA PAYMENT CONSORTIUM PAYMENT
------- ------------ ------------------
<S> <C> <C>
FIRST $ 375,000 $ 247,060
SECOND $1,185,731 $1,155,376
THIRD $1,249,658 $1,349,183
FOURTH $1,638,158 $1,835,444
FIFTH $1,530,039 $1,595,914
SIXTH $1,242,326 $1,274,449
SEVENTH $1,038,986 $ 989,138
EIGHTH $ 827,022 $ 733,143
NINTH $ 463,024 $ 486,951
TOTAL $9,549,944 $9,666,658
</TABLE>
B. DETAILED SCHEDULE OF PAYABLE MILESTONES
---------------------------------------
<TABLE>
<CAPTION>
ARPA
TASK MONTH PAYABLE MILESTONES PAYMENT CONSORTIUM PAYMENT
- - ---- ----- ------------------ ------- ------------------
<S> <C> <C> <C> <C>
1 FEB '95 DELIVER INITIAL PROGRAM PLAN $ 375,000 $ 247,060
. Deliver initial program plan.
2 APR '95 INITIAL PRODUCT DESIGN REVIEW $1,185,731 $1,155,376
. Specify critical initial design
considerations for Interposer an flip-chip
vehicles in Focus Area 3 (SOW 3.2.4)
. Evaluate leadframe to molding compound
interfacial adhesion for first sample of
enhanced treated leadframes for Focus Area 1.
(SOW 1.3.3)
3 JULY '95 DELIVER SAMPLES OF FUNDAMENTAL $1,249,657 $1,349,183
COMPONENTS
. The consortium will demonstrate capability
to produce new blend resin to be utilized in
enhanced molding compound formulation. (SOW 1.3.1)
. Complete design and manufacture samples
of test vehicle interposer for 160-lead PQFP.
(SOW 3.2.4)
4 OCT '95 EPOXY MOLDING COMPOUND $1,638,158 $1,835,444
. Demonstrate mechanical and manufacturability
properties of screening level molding
compounds such as curing kinetics, rheology, Tg,
coefficient thermal expansion. (SOW 1.3.1,
2.3.1 & 3.3.1)
</TABLE>
24
<PAGE>
ATTACHMENT 1
25
<PAGE>
<TABLE>
<CAPTION>
Agreement Number: MDA972-95-3-0024
Attachment No. 4
Page 2
================================================================================================
ARPA CONSORTIUM
TASK MONTH PAYABLE MILESTONES PAYMENT PAYMENT
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5 JAN '96 MANUFACTURE EXPOXY MOLDING COMPOUNDS TO TEST $1,530,039 $1,595,914
VEHICLES SPECIFICATIONS
. Demonstrate successful assembly of high lead
count (160-lead and 304 or 204-lead) PQFP
packages.
(SOW 3.1)
. The Consortium will evaluate and characterize
the mechanical connection of the interposer to
the leadframe for 160-lead PFP. (SOW 3.2.5)
- - ------------------------------------------------------------------------------------------------
6 APR '96 VALIDATION OF METALLIC PROPERTIES $1,242,326 $1,274,449
. Complete characterization of the leadframe
alloy designed for higher strength to give
improved stamping and handling characteristics.
(SOW 1.3.3)
. Demonstrate capability of producing stamped
heat sinks for enhanced thermal dissipation.
(SOW 2.3.3)
- - ------------------------------------------------------------------------------------------------
7 JULY COMPLETE DEVELOPMENT OF FUNDAMENTAL MATERIALS $1,038,986 $ 989,138
'96 AND VERIFY VOLUME PRODUCTION CAPABILITIES
. The Consortium will complete development of
optimized molding compound formulations for
all focus areas.
(SOW 1.3.1, 2.3.1, & 3.2.1)
. Demonstrate on-shore volume production
capability of high lead count PQFPs. (SOW 3.1)
. Complete characterization of flip chip underfill
mechanical and manufacturability properties.
(SOW 3.2.2)
- - ------------------------------------------------------------------------------------------------
8 OCT '96 SELECTION OF OPTIMIZED MATERIAL COMBINATIONS $ 827,022 $ 733,143
AND TEST VEHICLE ASSEMBLY
. Select optimized material combinations (molding
compound die attach material, leadframe
treatment, leadframe alloy, substrate/interposer
materials, etc.) Use this set of final optimized
materials for technology demonstration product
builds in all focus areas. (SOW 1.3.5, 2.3.5, &
3.2.6)
. Issue final mechanical and manufacturability
report for epoxy molding compounds for all
focus areas.
(SOW 1.3.1, 2.3.1, & 3.2.1)
- - ------------------------------------------------------------------------------------------------
9 JAN '97 FINAL REPORT $ 463,024 $ 486,951
. Issue final report illustrating the capabilities
achieved vs. the initial targets of the program.
- - ------------------------------------------------------------------------------------------------
TOTAL $9,549,944 $9,666,658
================================================================================================
</TABLE>
26
<PAGE>
Agreement Number: MDA972-95-3-0024
Attachment No. 4
Page 3
FUNDING SCHEDULE
A. PROJECTED PROGRAM FUNDING COMMITMENTS
-------------------------------------
<TABLE>
<CAPTION>
YEAR ARPA FUNDING CONSORTIUM CONTRIBUTION
---- ------------ -----------------------
<S> <C> <C>
CY '95 $4,448,546 $4,587,063
CY '96 $4,638,373 $4,592,644
CY '97 $ 463,024 $ 486,951
---------- ----------
TOTALS $9,549,943 $9,666,658
</TABLE>
<TABLE>
<CAPTION>
B. CONSORTIUM MEMBER CONTRIBUTIONS
-------------------------------
MEMBER CONTRIBUTION
------ ------------
<S> <C>
Amoco Chemical Company $ 411,348
Delco Electronics $ 340,616
The Dexter Corporation $ 482,000
Integrated Packaging Assembly Corp. $1,051,800
Leading Technologies, Inc. 3,059,601
National Semiconductor Corp. 2,442,675
Olin Corporation $ 901,225
Plaskon Electronic Materials, Inc. $ 484,800
Sheldahl $ 492,593
----------
TOTAL $9,666,658
</TABLE>
27
<PAGE>
Plastic Packaging Statement of Work
-----------------------------------
The Plastic Packaging Program will establish the required infrastructure
and enabling technologies in three key Focus Areas. Benefits gained from these
interdependent, and yet individual areas, are sufficiently broad-based to be
widely applicable to the entire packaging industry. The three key Focus Areas
are:
1. Plastic Package Ruggedization
2. Plastic Package Thermal Dissipation
3. High Density Plastic Packaging
These interrelated Focus Areas offer synergistic solutions for cost-
effective, high volume packaging with improved reliability and performance.
1.0 Plastic Package Ruggedization - (Focus Area 1)
This area will develop enabling technologies to reduce cost and enhance the
reliability of plastic packages during assembly and field operation.
Reliability issues applicable to plastic ICs include interfacial delamination,
package cracking ("popcorning"), and stress induced failures.
1.1 Description of Problem
Die interfacial delamination occurs due to excessive shear strength
breaking the interfacial bond between the die or die coating and the molding
compound. Factors governing delamination include, the net thermal displacement
during thermal excursion, the gap between the epoxy and the device surface after
separation, the topography of the device and the adhesion strength of the
molding compound. The resultant effect of these factors can be device failure.
Package cracking, or popcorning, occurs during assembly operations. In
this case the hygroscopic molding compound absorbs moisture when exposed to
typical manufacturing conditions. If moisture has accumulated past a package-
dependent critical concentration, the solder reflow conditions (230-260 deg C)
cause water to vaporize. Pressure builds up inside the package and eventually,
steam is released along the path of least resistance causing cracking of the
compound. To avoid popcorning today, Packages are baked and then shipped in
drybags which is very costly.
Stress-induced failures are equally damaging to devices. The thermal
mismatch between silicon and the materials inside the package causes stresses
and induces defects ranging form cosmetic passivation cracking to metal line
shift, dielectric cracking, and even die fracture.
"Ruggedization" of the packages will enhance the package reliability during
board assembly and adverse field conditions. In turn, mean-time-to-failure will
increase the cost effectiveness of packaging. The enabling technologies
proposed in this Focus Area will address these major reliability issues plaguing
plastic packaging.
1.2 Key Metrics
The key metrics for success for Focus Area 1 are:
* No interfacial delamination (e.g., between molding compound and die
surface, molding compound and leadframe, and, die attach (d/a) and
leadframe).
* Unlimited shelf life at 30 deg. C/90% RH without drybagging.
("Anti-popcorning")
* No stress-induced device failures (e.g., metal line shift, passivation
cracking, dielectric cracking; and die cracking).
* Team cost target improvement over SIA roadmap is 50% to a cost of
$0.005/lead up to 300-lead PQFP.
1.3 Technical Approach
To achieve these four metrics, five major components will be addressed:
1. Molding Compound Enhancement
2. Die Attach Enhancement
3. Leadframe Enhancement
4. Reliability Characterization
5. Technology Demonstration
1.3.1 Molding Compound Enhancement
New resin formulations and additives will be developed to provide properties for
enhanced reliability. The metric improvements listed use the current low-stress
molding compounds as benchmark.
* Reduce water uptake by 50% for improved leadframe adhesion and better
anti-popcorning
* Increase the hot strength at 240 deg C by a factor of 2.
* Lower the stress index by at least 25%
* Increase the Tg of the anti-popcorning compound from 140 deg C to
160 deg
28
<PAGE>
* Decrease the cure time by 25%
* Lower compound viscosity by 25%
1.3.2 Die Attach Enhancement
----------------------
Using the epoxy-based die attach material as a benchmark, development of die
attach formulations will aim at:
* Eliminating voiding in the die attach
* Increase the adhesion strength between the molding compound and the
die attach surface by 50% at 240 deg C
* Decrease cure time by 50% at 160 deg C
* Reduce water uptake by 50% for improved leadframe adhesion and better
anti-popcorning
* Develop new cyanate ester-based materials with:
** Hot strength superior to epoxies at 260 deg C by 50%
** Stress index lower by at least 25%.
** Unique stable moisture-resistant properties
1.3.3 Leadframe Enhancement
Key reliability issues affecting the interface between leadframe, the molding
compound, and the die attach are:
* Increase the interfacial adhesion to the molding compound and the die
attach media.
* Optimize or replace the polyamide tape on the leadframe to improve
adhesion.
* Develop and characterize a new leadframe alloy with higher strength
for fine pitch stamping and in-process handling
1.3.4 Reliability Characterization
The test methodology, processing, and material properties of key materials of
construction in IC packaging will be fully characterized:
* Materials screening - Various combinations of materials will be
evaluated through design of experiments. This will include evaluating
the different choices for synergistic interaction
* Evaluate adhesion and stress characteristics of die coatings
* Characterize mold compounds. Include manufacturability assessment
(e.g. curing kinetics, rheology, moldability) and mechanical
characteristics (coefficient of thermal expansion, modulus, fracture
strength, adhesion).
* Obtain Assembly Test Chips (ATCs) for use in the evaluation of package
properties.
* Reliability testing of the test ICs and product vehicles will be
performed.
1.3.5 Technology Demonstration
The enabling technologies for ruggedizing the packages will be validated with
commercial product vehicles. Reliability tests will follow mil-approved
standards. Products could include but will not be limited to National's Super
I/O and CLAy chips.
2.0 Plastic Package Thermal Dissipation (Focus Area 2)
The objective of this Focus Area is to develop enabling technologies which will
enhance the thermal dissipation characteristics of the plastic packages.
2.1 Description of Problem
Devices are operating at increasingly faster speeds and frequencies, and
generating more heat. Thus, to keep up with the speed performance curve,
improved thermal dissipation becomes a necessity. The typical thermal path
available for plastic packages mounted on boards is through the molding
compound, along the leadframe, and to the metal traces on the board. This path
can be enhanced with the use of heat spreaders imbedded into the package and
with improved thermal characteristics of the materials.
2.2 Key Metrics
The key metrics for success for Focus Area 2 are:
* High temperature operation (175 deg C)
* High thermal dissipation (Theta-ja improvement by 50% on 160 PQFP to
20 deg. C/Watt)
* High Temperature Reliability
* Fine Pitch stamped leadframes with heat spreaders or heat slugs
* Cost target for the thermally enhanced package is $0.02/lead over the
standard package of $0.007/lead
2.3 Technical Approach
To achieve these metrics, five major components will be addressed:
1. Molding Compound Thermal Enhancement
2. Die Attach Thermal Enhancement
3. Leadframe/Heat Sink Enhancement
4. Reliability Characterization
5. Technology Demonstration
29
<PAGE>
2.3.1 Molding Compound Enhancement
The molding compound must satisfy two functional requirements, high thermal
dissipation and high thermal performance. The goals are to:
* Increase thermal conductivity from the current 0.4-0.5 W/m K
* Evaluate new resin materials and fillers for enhanced thermal
dissipation and thermal performance.
* Promote good interfacial adhesion to all components, including heat
spreaders and heat slugs
2.3.2 Die Attach Thermal Enhancement
The die attach material is a thermal barrier between the die and the leadframe.
Poor thermal conductivity is usually due to either voiding or inadequate die
attach material. The d/a must satisfy two functional requirements, good thermal
conductivity and no voiding. Development work will focus on:
* Increase thermal dissipation of the die attach by at least 25%
* Eliminate voiding in the die attach for good thermal conductivity
2.3.3 Leadframe/Heat Sink Enhancement
The low-cost requirement of plastic packages dictates that any thermal
enhancement structure attached to either the leadframe of the package must not
add significantly to the total package cost. Development work will focus on:
* Design and model the attachment of heat slugs to the package
* Design and build automated equipment to tape, downset and attach the
heat spreader to the leadframe
* High thermal conductivity material leadframes will be developed and
evaluated
2.3.4 Reliability Characterization
Materials screening and characterization similar to section 1.3.4 on
ruggedization must be performed:
* Characterize thermally enhanced molding compounds and die attach
materials
* Develop thermal test chips for use in screening materials
* Assembly of 160 PQFP will be done by IPAC and National
* Reliability testing of test vehicles and product drivers will be
performed
2.3.5 Technology Demonstration
The enabling technologies for thermally enhanced packages will be validated with
commercial product vehicles. Reliability tests will follow mil-approved
standards. Two products will be selected based on market needs.
3.0 High Density Packaging (Focus Area 3)
This Focus Area aims at developing the enabling technologies to increase the I/O
density of plastic packages. Two packaging form factors will be considered, the
PQFP and the Plastic Ball Grid Array packages (PBGA). Efforts in this area can
be broken up into 3 interrelated areas:
1. Develop fine pitch leadframe stamping technology
2. Develop fine pitch PQFP with interposer attached
3. Develop a 625-pin Plastic BGA for use with flip chip
Efforts will aim at developing fine pitch stamped leadframe for high lead count
PQFPs, evaluating high density interposer substrates for PQFPs, attaching
interposers to the PQFP leadframes, and devising high density, low-cost
substrates for PBGAs. We will be evaluating different molding compounds for the
two package types but there is a common development effort on the high density
substrates. We expect that the commercial cross over point from QFP to BGA from
a cost and handling standpoint is at about 300 pins. Specific packages
addressed in this program are 160 to 304 or 240-lead QFP and the 625-pin BGA
with flip chip. The flip-chip BGA portion of this focus area will augment the
work in the Low Cost Flip Chip Program in that both programs will lead up to the
development of the 4 chip CLAy product assembled in the plastic BGA package.
3.1 Key Metrics
-----------
The key metrics for success for Focus Area 3 are:
* Fine pitch, stamped, low-cost leadframes. Two packages are addressed:
1. 160-lead QFP with 6.0 mil internal pitch and 4.0 mil lead flat
2. 304 or 240-lead QFP with 7.0 mil internal pitch and 4.0 mil lead
flat
* Establish on-shore capability for high lead count package assembly.
(160 and 240 or 304-lead QFP and 625 BGA)
* High density and low-cost substrates
30
<PAGE>
** Interposer cost adder $0.10 for 160-lead PQFP
** Substrate cost $0.40/sq in.
* Minimal or zero-warpage of BGA
* Reworkable, low stress underfill for flip chip in Plastic BGA.
* Integration of interposer to leadframe
3.2 Technical Approach
To achieve the previous key metrics, the following major components will be
addressed:
1. Molding Compound for BGAs
2. Flip Chip Underfill Development
3. Leadframe Enhancement
4. Substrate/Interposer Enhancement
5. Reliability Characterization
6. Technology Demonstration
3.2.1 Molding Compound for BGAs
Molding compounds formulated for large chips in high lead count PQFPs and BGAs
need to have enhanced properties. Efforts will focus on:
* Lower stress by 50%
* Lower molding viscosity for molding thing packages
* Higher Tg and lower shrinkage by 50%
* Reduce moisture absorption by 50%
* No delamination
* Prolonged pot life
3.2.2 Flip-Chip Underfill Development
In this program we will focus on development of an underfill to be used with
flip-chips mounted on substrates in plastic GBA packages. Underfill of lip-chip
structures can significantly increase solder joint life. The improvement level
depends on the substrate material since thermal mismatch dictates the stress
level on the joints. Key development efforts aim at high Tg ( 160 deg C)
resins with:
* Improved wetting characteristics
* Narrower filler size distribution for small chip gaps
* Faster cure by at least 50%
* Better adhesion to polyamide or other substrates and substrate
coatings
* Lower stress by at least 25%
* Longer potlife for ease of processing
* Higher thermal conductivity than current underfill resins by 50%
31
<PAGE>
* Reworkability capability
3.2.3 Leadframe Enhancement
Fine pitch leadframes are currently manufactured by expensive etch techniques.
Stamping of higher lead count fine pitch leadframes will require looking at
different materials. Key development tasks required are:
* Develop a process for stress reduction in C7025 alloy prior and after
tamping
* Evaluate high strength materials form punches
* Design and fabricate tooling for stamping two leadframes
** 160-lead PQFP with a 6.0 mil internal pitch and 4.0 mil lead flat
** 304-lead PQFP with a 7.0 mil internal pitch and a 4.0 mil lead
flat or 240 lead PQFP
3.2.4 Substrate/Interposer Enhancement
Two types of packages are considered for this area, 160-lead PQFP and 625-pin
BGA. The PQFP requires an interposer to be bonded to the leadframe while the
BGA involves flip-chip mounting. Development tasks will include:
* Develop a 160-lead PQFP interposer based on NSC Super I/O chip family
* Develop the methodology and process for attaching the interposer to
the leadframe by thermocompression bonding and by conductive adhesives
* Develop a 625-pin BGA substrate based on test chips and CLAy.
3.2.5 Reliability Characterization
Once again, Tasks similar to the previous two area will be performed. Tasks
specific to high density package will include:
* Characterize the interposer mounting technology
* Provide redistributed and bumped test chips for flip-chip bonding
* Evaluate the effectiveness of the reworkable underfill resin
* Assembly of 160-lead PQFP and 625 BGA will be handled by IPAC and
National
* Reliability testing of the test vehicles and product drivers will be
performed
3.2.6 Technology Demonstration
The enabling technologies for stamped fine pitch leadframes, interposer
integration to the leadframe, and high density low-cost substrates will be
validated with product vehicles. The final vehicles will be selected from the
Super I/O, LAN and CLAy product families from National Semiconductor.
32
<PAGE>
Exhibit 10.31
LICENSE AGREEMENT
PARTIES
This Agreement with its appendices, exhibits and schedules, (the "Agreement")
is made as of 20 June, 1994 (the "Execution Date") between SIDRABE; a Latvian
corporation, having a principle place of business at Riga, Latvia, (the
"Licensor"), and SHELDAHL INC., a Minnesota corporation, having a principal
place of business at Northfield, Minnesota, (the "Licensee").
RECITALS
A. The Licensor, has over a period of years developed and patented valuable
technology for depositing various metals onto metal foils, films and fabrics in
a vacuum. The Licensor's patented technology being described in EXHIBIT I. The
Licensor desires the further commercial development and marketing of products
resulting from this technology. The Licensee, a leading maker and supplier of
ceramics and metal coated foils, films, and fabrics desires to be licensed under
the Licensor's patented technology for depositing various metals on metal foils
and on polyester film in a vacuum in order to further develop the technology and
to market products generated by this technology according to the terms of this
Agreement.
B. The Licensee has developed its own technology for depositing metals on metal
foils and on polyester film in a vacuum. The Licensee is also interested in
licensing the similar patented technology of Licensor to manufacture and sell
metal coated foils and films which incorporate the Licensor's technology in
whole or in part, into its own technology according to the terms of this
Agreement.
C. This Recital is provided for the convenience of the parties and shall not be
used in the interpretation or construction of the Terms of this Agreement.
ARTICLE I: DEFINITIONS
SECTION 1.0 DEFINED TERMS. Terms defined in this Article I and elsewhere,
parenthetically, in this Agreement, shall have the same meaning throughout the
Agreement. Defined terms may be used in the singular or plural.
SECTION 1.1. "PARTY" means the Licensee and/or the Licensor.
SECTION 1.2. "TECHNICAL INFORMATION" means any technical facts, data, or
advice, written or oral (in the form of reports, letters, drawings,
specifications, training and operational manuals, bills of materials,
photographs and the like) relating to compositions, product designs, machine
designs, molds, inspection equipment, methods, techniques, processes, accounting
<PAGE>
procedures, plant layouts, factory and administrative management and computer
programs owned or, if owned by another, freely licensable by the Licensor, or
access to associated computer services available from or through the Licensor,
utilized by the Licensor prior to the Execution Date in the manufacture,
processing, inspecting, testing, packaging, marketing, distribution and sale of
Licensed Products.
SECTION 1.3. "LICENSED PATENT." The subject matter of this License is
Soviet Union Patent No. 1410566 A1 and Soviet Union Patent No. 1483976 A2 which
describe the construction and use of metal source boats employed in the
production of metal coated foils, films, and fabrics (SEE EXHIBIT II) and all
corresponding foreign patents now issued or issued during the term of this
Agreement together with all reissues and continuations in part. This means,
including but not limited to, any European Community (EC) Asian, Commonwealth of
independent States (CIS) United States (US) or other patent or patent
application owned or acquired by the Licensor before the Execution Date
pertaining to Licensed Products, and whether or not based on or incorporating
any items of Technical information.
SECTION 1.4 "LICENSED PRODUCTS." Metal source boats currently being used
by the licensor including without limitation, metal source boats covered by
licensed patents and used in the production of metal coated foils, films, and
fabrics as well as such other products as may, from time to time, be added to
this definition by the parties' mutual consent.
SECTION 1.5 "LICENSOR IMPROVEMENTS" shall mean all modifications,
revisions, and new models of the Licensed Products, or any part thereof, as well
as all processes, machines, manufactures or compositions of matter which the
Licensor or any affiliate may conceive, develop, acquire or otherwise obtain
rights to during the term of this Agreement and which relate to the Licensed
Products, or any of their parts, in any of the following ways:
(a) improve the Licensed Products' performance;
(b) reduce production costs of the Licensed Products;
(c) increase the service life of the Licensed Products;
(d) broaden the Licensed Products' applicability;
(e) increase the marketability of the Licensed Products;
or,
(f) replace or displace the Licensed Products in the marketplace.
Provided nothing in these sections shall be construed to convey any rights
in nonlicensed products in the current or future product lines of the Licensor.
2
<PAGE>
SECTION 1.6 "LICENSEE IMPROVEMENTS" shall mean all modification, revisions,
and new models of the Licensed Products, or any part thereof, as well as all
processes, machines, manufactures or compositions of matter which the Licensee
or any affiliate may conceive, develop, acquire or otherwise obtain rights to
during the term of this Agreement and which relate to the Licensed Products, or
any of their parts, in any of the following ways:
(a) improve the Licensed Products' performance;
(b) reduce production costs of the Licensed Products;
(c) increase the service life of the Licensed Products;
(d) broaden the Licensed Products' applicability;
(e) increase the marketability of the Licensed Products;
or,
(f) replace or displace the Licensed Products in the marketplace.
Provided nothing in these sections shall be construed to convey any rights
in nonlicensed products in the current or future product lines of the Licensee.
SECTION 1.7 "TERRITORY." The world. The Territory may be reduced by
Licensor's giving notice to Licensee that Licensor proposes to build a plant of
a stated capacity, having a stated approximate capital cost, to make the
Products in some specified country in the Territory in which Licensee shall not
then be manufacturing the products, which country, however, shall not be the
United States of America, Canada, United States of Mexico, Central and South
America, any member or associated member of the European Economic Community, or
Asia, to include but not be limited to Japan, Indonesia, the Philippines,
Vietnam, Thailand, Taiwan, Republic of China, Malaysia, Singapore, Hong Kong,
Cambodia and Korea. If, within six months of said notice Licensee or an
Affiliate shall not have irrevocably committed to practice the license conferred
in section 2.1 in said specified country by there building (within twenty-four
months from such commitment), and operating a plant of substantially the same
stated capacity and having an estimated capital cost as the plant proposed by
the Licensor, and if Licensor or an Affiliate shall build such a plant there
within thirty months of its notice to Licensee of its intention to do so, then
the Territory shall cease to include that country.
Section 1.8 "Affiliate." Any entity the voting stock of which is at least
80% controlled by a party to this Agreement.
3
<PAGE>
ARTICLE II: EXCLUSIVE LICENSE GRANTS
SECTION 2.1 LICENSE GRANT. The Licensor hereby grants to the Licensee
a nontransferable, exclusive, perpetual license to use and sell Licensed
Products employed in the production of metal coated foils, films, and fabrics
whether or not within the Territory. In this regard, the Licensor shall not
have the right to sublicense or subcontract any work involving any licensed
Technical Information, or Licensed Patents, without prior written approval of
the Licensee.
SECTION 2.2 SUBLICENSING AND SUBCONTRACTING RIGHTS. The Licensor's
license to the Licensee under section 2.1 shall include the right to sublicense
or subcontract to any subsidiary of the Licensee listed in its annual report
that operates in such other country agreed upon by the Parties, provided that
such sublicense or subcontract is subject to the safeguards provided in this
Agreement to protect the confidentiality of, and the proprietary rights in, all
Technical Information and Licensed Trade Secrets.
ARTICLE III: DISCLOSURE OF TECHNICAL INFORMATION
SECTION 3.0 INITIAL DOCUMENTATION. Within one month after this
Agreement becomes effective, the Licensor shall provide to the Licensee an
initial package of Technical Information containing drawings, manuals,
specifications, bills of materials and photographs, but only to the extent that
the Licensor shall have prepared such material for its own use or for the use of
third parties. The Licensor shall use reasonable efforts to fully disclose the
metal source boat technology as it has been practiced by the Licensor. Such
initial package shall be furnished by the Licensor in the form of one copy in
the English language at the Licensee's manufacturing facility in Northfield,
Minnesota. The cost of additional copies and translation shall be borne by the
licensee. Nothing in this agreement shall be construed to require the Licensor
to engage in special engineering or technical studies on behalf of the Licensee,
nor to provide any information that was not utilized by the Licensor.
SECTION 3.1 FUTURE DELIVERY OF TECHNICAL INFORMATION. During the term
of this Agreement, the Licensor shall have its management representatives meet
from time to time, and whenever reasonably requested by the Licensee, with
representatives of the Licensee to review the scope and content of any Technical
Information of interest to the Licensee and to work out practical procedures for
promptly disclosing any item of Technical Information to the Licensee. The
Licensor shall, during the term of this Agreement, upon prior written request of
the Licensee disclose to the Licensee's designated representatives, without
unjustified delay, any Technical Information requested by them.
4
<PAGE>
Such requests shall, in each case, be for specific items of such Technical
Information. The obligation of the Licensor to answer such requests shall be
limited: (a) to supplying drawings, training and operational manuals,
specifications, bills of materials and photographs, but only to the extent that
the Licensor shall have prepared such material for its own use or for the use of
third parties, and (b) as to all Technical Information, to cause each such
request to be fully and fairly answered to the best of the ability of the
Licensor. Upon receipt of invoices from the Licensor, from time to time, the
Licensee shall promptly reimburse the Licensor for any expenses, at the
Licensor's normal internal costs, which the Licensor shall incur, including
freight, shipping expenses and reproduction of documents, in information
requested by the Licensee pursuant to this paragraph, but excluding personnel
costs.
SECTION 3.2 VISITS TO LICENSOR'S FACILITIES. The Licensor shall,
during the term of this Agreement, upon prior written request of the Licensee,
arrange for duly authorized representatives of the Licensee to visit factories,
laboratories, or other facilities of the Licensor where the Licensor employs
metal source boats to produce, and/or process, metal coated foils, films, and
fabrics, and to inspect at such factories, laboratories, or other facilities,
all such operations that utilize Technical Information. The Licensor shall not
be obligated to arrange for visits to an extent that by reason of the number of
visits, or the number of representatives, such visits shall interfere with the
operation of any of the Licensor's facilities so visited.
SECTION 3.3 LICENSOR'S TECHNICAL PERSONNEL. The Licensor shall,
during the term of this Agreement, upon prior written request of the Licensee,
make available to the Licensee, at offices, factories, laboratories, or other
facilities of the Licensee in the United Sates of America, the services of
personnel of the Licensor who are familiar with the manufacture of Licensed
Products, for consultation and advice concerning the Licensee's operations
relating to Licensed Products and the evaluation and/or purchase by the Licensee
of any machines or devices offered by third parties which were used or have been
considered in any advanced fashion by the Licensor in connection with the
production of metal coated foils, films, and fabrics utilizing metal source
boats, the Licensor shall not be required under this paragraph to provide more
than 10 man days of such services in any calendar year. The Licensee shall pay
the Licensor, in United States Dollars, or the currency in which the expense is
incurred, or the salary paid, the amount of (a) the reasonable travel and
subsistence expense incurred by any such Licensor employee in traveling from his
place of regular employ to, visiting, and returning to his place of regular
employ from the plants of the Licensee, and (b) the allowances for any such
employee, on a per-diem basis, for the entire period such
5
<PAGE>
employee is engaged away from his place of regular employ in providing services
to the Licensee and in traveling to and returning from the Licensee's plant or
plants, the total of such allowances not varying unreasonably from an estimate
thereof provided by the Licensor prior to the rendering of such services. After
the return of such employee, the Licensor will advise the Licensee of the actual
amounts of items (a) and (b) above, and the Licensee shall pay such total within
30 days after receipt of the Licensor's invoice. The Licensee shall pay all
salaries, travel and subsistence expenses of the Licensee's representatives in
availing itself of the Licensor's facilities or assistance under any provision
of this Article III.
SECTION 3.4 LICENSOR'S APPLICATION PERSONNEL. The Licensor shall,
during the term of this Agreement, upon prior written request of the Licensee,
make available to the Licensee, at any of its plants, the services of one or
more employees of the Licensor who are familiar with Technical Information for
the following tasks: (a) consultation and advice concerning the Licensee's
utilization of the Technical Information; and the Licensee's utilization of the
Technical Information; and (b) the training of the Licensee's personnel,
provided that the Licensor shall not furnish more than two qualified personnel
at a time, no more than two weeks at a time, and no more than twice in any
calendar year. The Licensee shall pay the Licensor, in United States Dollars,
or the currency in which the expense is incurred, or the salary paid, the amount
of (a) the reasonable travel and subsistence expense incurred by any such
Licensor employee in traveling from his place of regular employ to, visiting,
and returning to his place of regular employ from the plants of the Licensee,
and (b) the allowances for any such employee, on a per-diem basis, for the
entire period such employee is engaged away from his place of regular employ in
providing services to the Licensee and in traveling to and returning from the
Licensee's plant or plants, the total of such allowances not varying
unreasonably from an estimate thereof provided by the Licensor prior to the
rendering of such services. After the return of such employee, the Licensor
will advise the Licensee of the actual amounts of items (a) and (b) above, and
the Licensee shall pay such total within 30 days after receipt of the Licensor's
invoice. The Licensee shall pay all salaries, travel and subsistence expenses
of the Licensee's representatives in availing itself of the Licensor's
facilities or assistance under any provision of this Article III.
SECTION 3.5 COMPUTER SERVICES. Design and analytical computer
services will be available for the Licensee's use but only at a Licensor
facility under the control and supervision of Licensor personnel to help solve
problems, the design and analytical computer programs themselves not being an
item of Technical Information to be disclosed. Administrative, financial,
process control and topography computer programs
6
<PAGE>
(excluding all material relating to source software and source material which
are specifically excluded) shall be disclosed to the Licensee, but any costs
incurred by the Licensor in documentation and computer language conversions or
modifications performed in order to transfer the program and place the program
in a form usable by the Licensee, shall be paid for at an hourly rate which
approximates the then current Latvian rate for such services by the Licensee
within 45 days after receipt of an invoice for this work from the Licensor.
SECTION 3.6 EXCLUSION OF CERTAIN THIRD PARTY INFORMATION. The
Licensor shall not be required to furnish to the Licensee any information that
the Licensor receives or has received from third parties which information the
Licensor may not lawfully disclose, or the utilization of which requires the
payment of royalties by the Licensor to third parties, except when such
utilization is permissible with the payment of an appropriate royalty by the
Licensee. Nor shall the Licensor be required to furnish to the Licensee any
information that the Licensor develops for, or developed in cooperation with
third parties, and which information may not be lawfully disclosed by the
Licensor. Notwithstanding the above, the Licensor shall promptly disclose to
Licensee any prior and subsequent discussions Licensor has with third parties
regarding the licensing or sublicensing of the source boat patents which are the
subject of this agreement.
SECTION 3.7 INCLUSION OF DEFINED FUTURE INVENTIONS. If, during the
term of this Agreement, the Licensor shall conceive, make or acquire any
inventions relating to Licensed Products, or useful in their manufacture,
processing, testing, inspecting or packaging, and shall file, or decide to file
any patent application thereon, the Licensor shall, with reasonable promptness,
advise the Licensee, in writing, concerning such invention. The Licensor
further agrees to notify the Licensee in writing of any patent of any country of
the world that the Licensor owns or acquires during the term of this Agreement,
and that claims an invention relating to Licensed Products, or is useful in
their manufacture, processing, testing, inspecting or packaging. The Licensor
shall grant to the Licensee a royalty-free, exclusive, nontransferable right and
license under any such patent or resulting patent. Such license shall be
limited according to the terms set forth in section 2.1. Any license granted
pursuant to this section 3.7 shall continue for the unexpired term of the patent
licensed.
SECTION 3.8 PERIODIC TECHNICAL REPORTS. From time to time during the
term of this Agreement, the Licensor shall provide to the Licensee copies of
technical reports and evaluations relating to the manufacture of Licensed
Products which the Licensor, in its sole discretion, shall deem to be of
interest to the Licensee. During any meeting of representatives of the Licensee
and the Licensor, or in response to any subsequent written
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request of the Licensee, the Licensor shall transmit to the Licensee any
requested specific item of technical data at its disposal, relating to the
manufacture of Licensed Products, including the design of machines and equipment
employed in such manufacture. Subject to the Licensee's obligations under
Article VII, the Licensor hereby grants to the Licensee an exclusive,
unrestricted right and license to use such information transmitted to the
Licensee in the manufacture, sale and use of metal source boats which are
employed in the production of metal coated foils, films, and fabrics subject to
the limitations of the license set forth in Article II.
ARTICLE IV: LICENSE PAYMENTS
SECTION 4.0 LUMP SUM PAYMENT. In consideration of the Licensor's
furnishing the Technical Information and services to the Licensee as set forth
in Article III and for the licenses granted to the Licensee under Article II and
as may be granted pursuant to section 3.7, the Licensee shall pay to the
Licensor an annual licensing fee of $50,000. For the year of 1994 this fee
shall be payable at the rate of $10,000 per week for five weeks, the first
payment of $10,000 being made upon the execution date of this Agreement with all
subsequent annual payments of $50, 000 being paid in a lump-sum on each
subsequent January 15, beginning on January 15, 1995, and continuing throughout
the term of this Agreement. However, the entire License Fee will become
immediately due and payable upon the Licensor's termination of this Agreement
under Article IX. Such License Fees shall be paid in United States currency by
money transfer to the following account of the Licensor: LTNIBANC A/S, Stannings
Plads 1-3, Copenhagen, DK-1786 Copenhagen V, DENMARK for RIGA Bank Account No.
5005568953 in favor of A/P "SIDRABE" Account No. 07000311.
SECTION 4.1 LATE PAYMENTS. If the Licensee shall fail or refuse to
make any payment hereunder on or before the date on which such payment is due,
the Licensee shall Pay to the Licensor, at the time such payment is actually
made, an administrative fee equal to 3% of the amount of such payment for each
month, or fraction of a month, that such payment is overdue.
SECTION 4.2 NET OF DEFINED TAXES. No taxes or other charges imposed
with respect to or based upon such payments by or under the authority of any
government, treaty organization or subdivision of either, other than the United
States or a subdivision thereof, shall be deducted from such payments to the
Licensor, except income tax which is fully creditable by the Licensor against
United States income tax under the foreign tax credit provisions of the Internal
Revenue Code of the United States ("Creditable Income Tax"). The Licensee shall
deduct Creditable Income Tax from payments made hereunder and withhold and pay
it to the relevant tax authority, and shall provide to
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the Licensor such receipts and documentation as the Licensor may reasonably
request for the Licensor to receive full credit for such withheld payment.
Except for the Creditable Income Tax, the Licensee shall reimburse the Licensor
for any such taxes and charges that the Licensor may be required to pay in
connection with this Agreement and/or that the Licensee is require--d by law to
deduct from payments made hereunder.
ARTICLE V: INFORMATION FROM THE LICENSEE
SECTION 5.0 LICENSEE REPORTS AND DOCUMENTATION. To permit both
parties to obtain the full benefit of a free exchange of pertinent technical
information, the Licensee shall transmit to the Licensor, from time to time
during the term of this Agreement, copies to the Licensee's technical reports
and evaluations relating to the manufacture of Licensed Products which the
Licensee, in its sole discretion, shall deem to be of interest to the Licensor.
During any meeting of representatives of the Licensee and the Licensor, or in
response to any subsequent written request of the Licensor, the Licensee shall
transmit to the Licensor any requested specific item of technical data at its
disposal, relating to the manufacture of Licensed Products, including the design
of machines and equipment employed in such manufacture. Subject to the
Licensor's obligations under section 5.2, the Licensee hereby grants to the
Licensor a nonexclusive, unrestricted right and license to use such information
transmitted to the Licensor in the manufacture, sale, and use of Licensed
Products employed in the production of metal coated foils, films, and fabrics as
incorporated in equipment sold by the Licensor.
SECTION 5.1 LICENSEE'S FUTURE INVENTIONS. If, during the term of this
Agreement, the Licensee shall conceive, make or acquire any inventions relating
to Licensed Products which are useful in their manufacture, processing, testing,
inspecting, or packaging, and shall file, or decide to file any patent
application thereon, the Licensee shall, with reasonable promptness, advise the
Licensor, in writing, concerning such invention. If such proposed patent
application shall contain any information that is confidential under section
6.1, the Licensee shall obtain the Licensor's written approval before filing the
application to disclose such confidential information. The Licensor will
respond to the Licensee's request for approval with reasonable promptness and
its approval shall not be unreasonably withheld. The Licensee shall further
notify the Licensor in writing of any patent of any country of the world that
the Licensee owns or acquires during the term of this Agreement, and that claims
an invention relating to Licensed Products, or is useful in their manufacture,
processing, testing, .inspecting or packaging. The Licensee shall grant to the
Licensor a royalty-free, exclusive, nontransferable right and license under any
such patent or
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resulting patent, limited, however, to the use of processes, machines, and
compositions, and to the making, using and selling of metal coated foils, films
and fabrics utilizing metal source boats defined by such patent. Any license
granted under this section 5.1 shall continue for the unexpired term of the
patent licensed subject to the condition that this license shall be subject to
termination.
SECTION 5.2 LICENSOR'S DUTY OF CONFIDENCE. During the term of this
Agreement, and for five (5) years thereafter, the Licensor agrees to take all
reasonable care to keep confidential any and all information acquired in any
manner from the Licensee, including such information disclosed under section
5.0, and all other information which might be exposed to the Licensor while on
the premises of the Licensee, and shall not disclose it to third parties,
provided that such information is in written or other tangible form and clearly
marked or identified as being confidential at the time of disclosure or, if
disclosed orally, such information shall be identified as confidential at the
time of disclosure with subsequent confirmation to the Licensor in writing
within 30 days after disclosure identifying the date and type of information
disclosed. This obligation shall not apply to any information that: (a) is
disclosed by, or readily ascertainable through ordinary disassembly, inspection,
measurement and analysis of, products sold by the Licensee; (b) is publicly
available at the time of disclosure; (c) is lawfully obtained by the Licensor
from a third party who shall not have improperly derived such information,
directly or indirectly, from the Licensee; (d) is lawfully in the possession of
the Licensor, in any recorded form, before the time of disclosure and such
recorded form is produced by the Licensor; (e) is disclosed by the Licensor with
the permission of the Licensee on a nonconfidential basis; or (f) is developed
by or on behalf of the Licensor by individuals who have not developed or
received information under this Agreement.
ARTICLE VI: INFORMATION FROM LICENSOR
SECTION 6.0 LICENSEE'S RETENTION OF TECHNICAL INFORMATION IN
CONFIDENCE. During the term of this Agreement and for five (S) years
thereafter, (such period to begin from the signature of this Agreement) the
Licensee shall take all reasonable care to keep confidential all Technical
Information acquired in any manner from the Licensor and all other information
which might be exposed to the Licensee while on the premises of the Licensor,
and shall not disclose it to third parties, provided that such Technical
Information and other information is in written or other tangible form and
clearly marked or identified as being confidential at the time of disclosure or,
if disclosed orally, such information shall be identified as confidential at the
time of disclosure with subsequent confirmation to the Licensee in
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writing within 30 days after disclosure identifying the date and type of
information disclosed.
SECTION 6.1 EXCEPTIONS TO CONFIDENTIALITY. The obligations set forth
in section 6.0 shall not apply to any information that: (a) is disclosed by
Licensed Products sold by the Licensor; (b) is publicly available at the time of
disclosure; (c) is lawfully obtained by the Licensee from a third party who has
not illegally derived such information, directly or indirectly, from the
Licensor; (d) is lawfully in the possession of the Licensee, in any recorded
form, before the time of disclosure and such recorded form is produced by the
Licensee; (e) is disclosed by the Licensee with the permission of the Licensor
on a nonconfidential basis; (f) is disclosed in a patent application filed by
the Licensee with prior written approval from the Licensor pursuant to the
provisions of section 5.1; or (g) is developed by or on behalf of the Licensee
by individuals who have not developed or received information under this
Agreement.
ARTICLE VII: REPRESENTATIONS AND LIMITATIONS
SECTION 7.0 NO KNOWLEDGE OF INFRINGEMENT. The Licensor represents
that the technology for the production and use of metal source boats employed in
the production of coating metal foils, films, and fabrics was developed
internally at the Licensor or acquired by the Licensor, and was not
misappropriated from another, and further represents that, to the best of its
knowledge the Licensor's production and use of Licensed Products employed in the
coating of metal foils, films, and fabrics does not now infringe patents owned
by another. Except for such representations of origin and non-infringement as
provided for in the immediately preceding sentence, the Licensor makes no
warranty or representation that the Licensee's utilization of information
received from the Licensor will not infringe patents owned by anyone other than
the Licensor, nor any warranty or representation as to the validity or scope of
any patent under which a license is granted. The obligations between the
Parties shall in no way be affected, and no obligation shall be created, as a
result of (a) an adjudication or determination of any court, administrative
agency, tribunal or other governmental body that a claim of any Licensed Patent
is invalid, or (b) a claim that the utilization of Technical Information might
infringe the patent rights of others. The Licensee assumes all risks of
liability to any third person by reason of infringement of patents owned by such
third persons.
SECTION 7.1 LICENSEE'S DISCLAIMER OF INFRINGEMENT REPRESENTATION. The
Licensee makes no warranty or representation that the Licensor's utilization of
information furnished, or patent license granted by the Licensee to the Licensor
under this Agreement will not infringe patents owned by parties other than
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the Licensee, nor any warranty or representation as to the validity or scope of
any patent under which a license is granted. The obligations between the
parties shall in no way be affected, and no obligation shall be created as a
result of (a) an adjudication of determination of any court, administrative
agency, tribunal or other governmental body that a claim of any licensed patent
is invalid, or (b) a claim that the utilization of any information furnished to
the Licensor by the Licensee might infringe the patent rights of others. The
Licensor assumes all risks of liability to any third person by reason of
infringement of patents owned by such third persons.
SECTION 7.2 DISCLAIMER OF WARRANTIES. Nothing in this Agreement shall
be construed as: (a) a warranty or representation that anything made, used,
sold, or otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patents of third persons; or (b) a requirement
that either party shall file any patent application, secure any patent, or
maintain any patent in force; or (c) an obligation to bring or prosecute actions
or suits against third parties for infringement of any patent; or (d) an
obligation to furnish any Technical Information beyond that identified in
Article III, or any information concerning pending patent applications; or (e)
granting by implication, estoppel, or otherwise, any licenses or rights under
patents other than the Licensed Patents. Except for those representations set
forth in section 7.0, the Licensor does not make any representations, extend any
warranties of any kind, either express or implied including but not limited to
warranties of fitness for a particular purpose or of merchantability or
otherwise, or assume any responsibilities whatever with respect to use, sale, or
other disposition by the Licensee or its vendees or transferees of products
incorporating or made by use of any information, including Technical
Information, Licensed Trade Secrets and Licensed Patents, licensed under this
Agreement.
ARTICLE VIII: GOVERNMENTAL AUTHORIZATION
SECTION 8.0 EXPORT AUTHORIZATION. This Agreement, and any Technical
Information provided under it, may be subject to restrictions concerning the
export of products or Technical Information from the Government of Latvia or any
other competent authority. Accordingly, the Parties agree that they shall not
export or re-export, directly or indirectly, any Technical Information acquired
under this Agreement or any products utilizing any such Technical Information to
any country for which the Government of Latvia or other competent authority at
the time of export requires an export license or other approval, without first
obtaining the written consent to do so from the Government of Latvia or other
competent authority when required by a applicable statute or regulation. The
Licensor shall provide to
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the Licensee reasonable assistance for determining the need for, and the
procuring of, such consent.
SECTION 8.1 OTHER AUTHORIZATION. Promptly after the signature of this
Agreement, the Licensor, at its own expense, shall procure any authorization
required by the Government of Latvia and the jurisdictions in which the Licensor
has a place of business and where activity and government approval may be needed
for the entry into or performance of this Agreement. The Licensor shall furnish
to the Licensee a copy of such approval promptly after receiving it, or shall
deliver it to the Licensee along with this Agreement upon signing by the
Licensor if such approval shall have been obtained before that time. If any
such authorization is necessary is and shall not have been obtained within 90
days after the execution date, the negotiations for this Agreement shall be
deemed unsuccessfully concluded unless a later date for obtaining such
authorization shall be agreed to in writing by the Licensee. If no such
authorization is required, the Licensor shall so advise the Licensee upon
signing this Agreement, in which case this Agreement shall become effective as
otherwise provided herein without regard to such authorization. Throughout the
term of this Agreement, the Licensor shall comply with all the requirements
imposed by such government as a condition of permitting full compliance with the
provisions of this Agreement and the Licensor shall register and/or file the
license before any governmental authority, if such filing or registering is
necessary in order for this Agreement to be valid and binding upon the Licensor,
and to permit payments to be remitted to the Licensee under the terms of this
Agreement.
ARTICLE IX: TERM AND TERMINATION
SECTION 9.0 EFFECTIVENESS. Subject to the provisions of Article VIII,
this Agreement shall become effective on the latter of the date on which the
parties sign the Agreement or the date of approval by the Latvian government,
and, unless terminated earlier in accordance with section 9.1, shall remain in
effect for ten (10) years from the Effective Date of this Agreement.
SECTION 9.1 DEFAULTS. During the continuance of any one of the
following defaults, this Agreement may be terminated by serving notice of such
termination as follows:
(a) if either Party shall default in the performance observance of any
of its obligations under Article VI and section 5.2, and such default shall not
be cured within seven days after notice specifying such default has been served
upon the defaulting party; or
(b) if either Party shall default in the performance or observance of
any of its obligations under this Agreement,
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excluding obligations under Article VII and section 6.2, and such default shall
continue for 90 days after notice specifying such default has been served upon
the defaulting Party; or
(c) if either Party shall discontinue business or become bankrupt or
insolvent, or apply for or consent to the appointment of a trustee, receiver, or
liquidator of its assets, or seek relief under any law for the aid of debtors,
or take or permit any action under U.S. and/or Latvian laws similar to the
foregoing.
Such right to termination shall not be exclusive, and exercise by either Party
shall not preclude the exercise by such Party of any other right or remedy that
it may have by law against the defaulting Party on account of any default by the
defaulting Party.
SECTION 9.2 SURVIVAL. Except as expressly otherwise provided in this
Agreement, its termination shall not relieve any party of any obligation or
liability accrued hereunder prior to such termination, nor affect or impair the
rights of any Party arising under this Agreement prior to such termination.
Without limiting the foregoing Articles II, VI and VII and section 5.2 shall
survive termination or expiration of this Agreement.
ARTICLE X: GENERAL TERMS AND CONDITIONS
SECTION 10.0 MARKS AND PUBLICITY. Nothing contained in this Agreement
shall be construed as conferring any right to use in advertising, publicity or
other promotional activities any name, trade name, trademark, or other
designation (including any contraction, abbreviation, or simulation of any of
the foregoing). Without the express written approval of the other Party, no
Party shall use any designation of the other Party in any promotional activity
associated with this Agreement or the Licensed Product. Neither Party shall
issue any press release or make any public statement in regard to this Agreement
without the prior written approval of the other Party.
SECTION 10.1 FORCE MAJEURE. Neither the Licensor nor the Licensee
shall be held responsible for any delay or failure in the performance of this
Agreement to the extent such delay or failure is caused by fire, flood,
explosion, war, embargo, governmental action or failure to act, the act of any
civil or military authority, acts of God, inability to secure transportation
facilities, acts or omissions of carriers, power outages, or by any other causes
beyond its control whether or not similar to the foregoing, provided that the
hindered Party (a) notifies the other Party of such cause, (b) exercises
reasonable effort to cure such delay or failure and resume performance, and (c)
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excuses performance by the other Party during the period of such delay or
failure.
SECTION 10.2 NOTICES. All notices given under this Agreement shall
be delivered by hand, by facsimile or registered mail, to the facsimile address
below listed, or, if by mail, to the address below given to the attention of the
Headquarters of the signing party or to any other address or to the attention of
any other person which may be designated in the future by the party affected.
Notice will be deemed given when received by the addressee's facsimile machine,
the addressee's answerback code to constitute evidence, thereof or when mailed,
properly addressed with sufficient postage affixed. Copies of all notices shall
be given.
10.2.1 in the case of Licensor, to with a copy of ail notices,
however sent, to:
CEO
SHELDAHL, Inc.
1150 Sheldahl Road
Northfield, MN 55057
10.2.2 in the case of Licensee, to with a copy of all notices,
however sent, to:
President
SIDRABE A/S
17 Krustpils Str.
RIGA, LV-1073
Latvia
SECTION 10.3 RIGHT TO CONTINUE WORK WITH THIRD PARTIES. Subject to
the terms of this Agreement, each Party shall be free to engage in other work,
alone or with others, and to furnish information to and receive information from
others.
SECTION 10.4 LIMITATION OF RIGHTS. Except as expressly provided in
this Agreement, nothing contained herein shall be construed as conferring any
license or other rights by implication, estoppel or otherwise, under any patent
or patent applications, or any copyrights, trademarks, trade names or trade
dress.
SECTION 10.5 LIMITATION OF LIABILITY. Neither Party will be liable
to the other for any indirect, special or consequential damages whatsoever,
whether grounded in tort (including negligence) , strict liability or contract,
and neither party's liability under any circumstances shall exceed the contract
price hereunder.
SECTION 10.6 INDEPENDENT CONTRACTOR. In the performance of this
Agreement, the status of the parties, including its
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employees and agents, shall be that of independent contractors and not as
employees or agents, or fiduciaries of the other Party, and as such, neither
Party shall have the right to make commitments for or on behalf of the other
Party.
SECTION 10.7 GENERAL INDEMNIFICATION. Each Party shall be
responsible for (a) the safety of its own employees and agents while engaged in
work under the Agreement, and (b) any liability for damages or personal
injuries, including death, resulting from work under the Agreement, without any
warranty, liability, or indemnification on the part of the other Party.
SECTION 10.8 NO WAIVER. Failure at any time to require performance
of any of the provisions herein shall not waive or diminish a Party's right
thereafter to demand compliance therewith or with any other provision. Waiver
of any default shall not waive any other default. A party shall not be deemed
to have waived any rights hereunder unless such waiver is in writing and signed
by a duly authorized officer of the party making such waiver.
SECTION 10.9 SEVERABILITY. If one or more of the provisions of this
Agreement shall be held invalid, illegal or unenforceable, the remaining
provisions shall not in any way be affected or impaired thereby. In the event
any provision is held, illegal or unenforceable, the parties shall use
reasonable efforts to substitute a valid, legal and enforceable provision which,
insofar as is practical, implements purposes of the section held invalid,
illegal and unenforceable.
SECTION 10.10 ASSIGNMENT. This Agreement or any rights hereunder
shall not be assigned or transferred, in whole or in part, by either party
without the prior written consent of the other Party and any assignment without
such consent shall be invalid.
SECTION 10.11 APPLICABLE LAW. This Agreement shall be governed by
and construed and enforced in accordance with the law of the State of Minnesota,
United States of America, and in accordance with the English language text in
the form executed by the Parties.
SECTION 10.12 INTERPRETATION; DISPUTES. In interpreting this
Agreement the singular shall be read as the plural in each instance as sense
shall require. Any dispute, controversy or claim arising out of or relating to
this Agreement, or a breach thereof (except a dispute, controversy or claim
involving United States antitrust or antimonopoly laws or the validity or
alleged infringement of any patent) shall be finally settled by arbitration in
accordance with the Rules of the American Arbitration Association. Any such
arbitration shall be conducted in the English language by a sole neutral
arbitrator. The
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arbitration, including the rendering of the award, shall take place in
Minneapolis, Minnesota if commenced by Licensor, and Riga, Latvia if commenced
by Licensee. Any dispute arising hereunder shall be resolved promptly. The
arbitrator shall interpret this Agreement in accordance with the governing
substantive law and shall have the power of a court of law and equity, and by
order such discovery prior to hearings as to him shall seem appropriate. He
shall have the power to enter legal and equitable relief and to award, equally
or otherwise, the costs of the arbitration. His award shall be final, binding
and nonappealable. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction over the party adversely affected by
the award.
SECTION 10.13 AMENDMENTS. No addition to, deletion from or
modification of any of the provisions of this Agreement shall be binding upon
the Parties unless made in writing and signed by a duly authorized
representative of each Party.
SECTION 10.14 ENTIRE AGREEMENT. This Agreement and the attached
Exhibit (s) constitute the entire agreement between the Parties with respect to
its subject matter, and supersede all previous discussions, representations and
understandings.
EXECUTION
In consideration of the foregoing terms and conditions, the Licensor
and the Licensee have executed this Agreement as of the date first written
above.
/s/ Edgar Yadin 20 June 1994
- - ------------------------ -----------------------------
Edgar Yadin, Ph.D. Attest:
President, SIDRABE
/s/ Ross P. Miller 20 June 1994
- - ------------------------ -----------------------------
Ross P. Miller Attest:
Vice President Europe, SHELDAHL
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EXHIBIT I
GENERAL DESCRIPTION OF TECHNOLOGY
---------------------------------
SIDRABE has developed technology for the deposition of various metals on metal
foils and onto films. This technology which employs innovative equipment
developed by SIDRABE can be used in the production of copper laminates and
foils.
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Exhibit 10.32
AMENDMENT ONE
TO
LICENSE AGREEMENT
This is an Amendment to an Agreement (the "Agreement") made as of 20 June, 1994
between SIDRABE, a Latvian corporation, having a principal place of business at
Riga, Latvia, (the "Licensor"), and SHELDAHL, INC., a Minnesota corporation,
having a principal place of business at Northfield, Minnesota, (the "Licensee")
and is entered into as of September 14, 1994 by Licensor and Licensee.
1. Article II of the Agreement is amended by adding the following sections:
"SECTION 2.3 FURTHER LICENSE GRANT. The Licensor further hereby grants to
Licensee a nontransferable, exclusive, perpetual license to use Licensor's
technical information and other technology existing at the date hereof to put
metals with a thickness of 0.1 microns to 5 microns on flexible polymeric
substrates in order to produce and sell products, including without limitation
the ability to put active and passive electronic components on thin substrates.
"Metals" as used in this Section 2.3 include, without limitation, copper,
aluminum, chrome and lithium, and composites of one or more metals. "Products"
as used in this Section 2.3 include, without limitation, flexible composites of
metals and films, flexible printed circuits, Multichip Modules, single and
several chip packages, batteries and displays for use within the electrical
interconnect industry.
SECTION 2.4 FUTURE DEVELOPMENTS. If Licensor shall develop new technical
information and technology of the kind described in Section 2.3 (as
distinguished from modifications and improvements of such technical information
and technology existing at the date hereof), Licensor will first offer the right
to License such technical information and technology to Licensee for use in the
production and sale of products within the electrical interconnect industry. If
within 90 days after Licensor has notified Licensee in writing of the new
development Licensee advises Licensor of Licensee's interest in the further
license, the parties will negotiate in good faith to agree upon a commercially
reasonable License Agreement covering the new technical information and
technology.
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SECTION 2.5 INTERCHANGE OF INFORMATION. To assure a continuous and free
interchange of information concerning Licensor Improvements, Licensee
Improvements and new technical information and technology developments, the
parties hereby establish a Joint Technical Advisory Board made up of two
technically trained and experienced employees from each party. The Joint
Technical Advisory Board shall meet not less than two times each year. At those
meetings the parties shall advise each other thoroughly regarding Licensor
Improvements, Licensee Improvements and new technical information and technology
improvements since the preceding meeting. Neither party shall be obligated to
disclose information to the other party if (i) the information was provided by
an independent third party subject to a nondisclosure or confidentiality
agreement or (ii) restrictions on disclosure of the information exist by virtue
of other agreements to which the party having the information is bound."
2. Section 4.0 of the Agreement is amended to read as follows:
"SECTION 4.0 LUMP SUM PAYMENTS. In consideration of the Licensor's
furnishing the Technical Information and services to the Licensee relating to
the Licensed Products as set forth in Article III and for the licenses granted
to the Licensee under Section 2.1 and as may be granted pursuant to Section 3.7,
the Licensee shall pay to the Licensor an annual licensing fee of $50,000. For
the year of 1994 this fee shall be payable at the rate of $10,000 per week for
five weeks, the first payment of $10,000 being made upon the execution date of
this Agreement with all subsequent annual payments of $50,000 being paid in a
lump sum on each subsequent January 15, beginning on January 15, 1995, and
continuing throughout the term of this Agreement. However, the entire License
Fee will become immediately due and payable upon the Licensor's termination of
this agreement under Article IX.
In consideration of the Licensor's furnishing technical information and
services to the Licensee relating to technical information and technology
described in Section 2.3 and for the license granted to the Licensee under
Section 2.3, the Licensee shall pay to Licensor the following licensing fees:
$100,000 at the execution of this Amendment, receipt
of which is acknowledged by Licensor;
$50,000 on February 1, 1995;
$50,000 on August 1, 1995; and
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An amount equal to 3% of the sales by Sheldahl of materials
manufactured by Licensee using Licensor's technology described in Section
2.3, up to a maximum of $10,000,000 of such sales (a maximum of $300,000 in
additional licensing fees). Payment of such amount shall be made annually
on or before March 1 for sales made during the preceding calendar year.
That license fees provided in this Section 4.0 shall be paid in United
States currency by money transfer to the following account of the Licensor:
UNIBANC A/S, STAUNINGS PLADS 1-3, COPENHAGEN, DK-1786 COPENHAGEN V, DENMARK
FOR RIGA BANK ACCOUNT NO. 5005568953 IN FAVOR OF A/P "SIDRABE" ACCOUNT NO.
0700311."
3. The rights, obligations, representations and commitments of the parties
relating to the Technical Information and Licensed Products set forth in
Articles III, V, VI, VII and VIII of the Agreement shall in all respects extend
to and be applicable to the license granted in, and the technical information
and technology described in, Section 2.3.
4. Except as set forth in this Amendment, the Agreement shall continue in full
force and effect.
EXECUTION
---------
In consideration of the foregoing terms and conditions, Licensor and Licensee
have executed this Amendment as of the date first written above.
SIDRABE
By /s/ Edgar Yadin
---------------------------
Its President
--------------------------
SHELDAHL, INC.
By /s/ Ross P. Miller
---------------------------
Its Vice President - Europe
--------------------------
3
<PAGE>
Exhibit 11
SHELDAHL, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED
--------------------------------------
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1,
1993 1994 1995
---------- ------------ ------------
Primary Earnings Per Share
Weighted average number of issued
shares outstanding 4,787 5,155 6,692
Effect of exercise of stock options
under the treasury stock method 163 263 233
------ ------ ------
Weighted average shares outstanding
used to compute primary earnings
per share 4,950 5,418 6,925
====== ====== ======
Net income $1,437 $2,816 $3,134
====== ====== ======
Net income per share $0.29 $0.52 $0.45
===== ===== =====
Fully Diluted Earnings Per Share
Weighted average number of issued
shares outstanding 4,787 5,155 6,692
Effect of exercise of stock options
under the treasury stock method 197 278 279
------ ------ ------
Weighted average shares outstanding
used to compute fully diluted earnings
per share 4,984 5,433 6,971
====== ====== ======
Net income $1,437 $2,816 $3,134
====== ====== ======
Net income per share $0.29 $0.52 $0.45
===== ===== =====
<PAGE>
Exhibit 22
Subsidiary of Registrant
------------------------
Sheldahl International Sales, Inc.,
a corporation organized under the laws
of the Virgin Islands
(Wholly-owned subsidiary of Sheldahl, Inc.)
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-22154, 33-33703, 33-40729, 33-57888 and
33-58549.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
October 12, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED SEPTEMBER 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-01-1995
<PERIOD-END> SEP-01-1995
<CASH> 1045
<SECURITIES> 0
<RECEIVABLES> 17637
<ALLOWANCES> 0
<INVENTORY> 12509
<CURRENT-ASSETS> 32772
<PP&E> 101326
<DEPRECIATION> 41471
<TOTAL-ASSETS> 94186
<CURRENT-LIABILITIES> 16440
<BONDS> 0
<COMMON> 1708
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 94186
<SALES> 95216
<TOTAL-REVENUES> 0
<CGS> 74752
<TOTAL-COSTS> 15255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 875
<INCOME-PRETAX> 4334
<INCOME-TAX> 1200
<INCOME-CONTINUING> 3134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3134
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
