SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
FORM 10-K
___________________
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 30, 1996
Commission File Number: 0-45
____________________
SHELDAHL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0758073
(State or other jurisdiction (IRS 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 $0.25 per share
Preferred Stock Purchase Rights
(Title of Class)
____________________
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. YES: X NO:
The aggregate market value of shares held by non-affiliates was
approximately $138,146,772 on October 29, 1996, when the last sales price
of the Registrant's Common Stock, as reported in the Nasdaq National Market
System, was $15.50.
As of October 29, 1996, the Company had outstanding 8,912,695 shares of
Common Stock.
____________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for its annual meeting
to be held January 8, 1997, are incorporated by reference in Part III of
this Form 10-K.
<PAGE>
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 datacommunications markets. Flexible
circuitry is used to provide electrical connections 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.
The Company recently introduced three high performance products
based on proprietary thin film technology: Novaclad(r), ViaGrid(r)
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 is investing approximately $45 million in an advanced
production facility in Longmont, Colorado ("Longmont Facility").
Products
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. In fiscal 1996, the Company sold
$15.6 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
Corporation through a consortium sponsored by the Advanced Research
Projects Agency of the U.S. Government (the "ARPA Consortium").
This software, in addition to Mentor Graphics' professional design
services, will allow printed circuit manufacturers to design the
layout of their circuitry around the standard via array, thus
providing a less expensive solution than a custom via array.
Custom via arrays can be designed using Mentor Graphics MCM Station(R)
software and manufactured with the Company's laser via generation
process. The Company believes ViaGrid provides solutions for
a variety of applications, including high density interconnects,
IC packages and multi-chip modules. The Company believes there
is also an opportunity for rigid printed circuit manufacturers
to mount ViaGrid-based circuits to rigid circuit boards and to
use ViaGrid as an interlayer in multilayer 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 amounts 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 multichip 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
capabilities, the Company will consider licensing the manufacturing
process of its high density substrates to leverage the market
demand for its ViaGrid product.
Z-Link. The Company produces a proprietary Z-Link adhesive product
that interconnects two electrical layers and is used in the
fabrication of multilayer 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 multichip modules.
See "Research and Development".
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 1996, Novaclad-based products represented approximately
$15.6 million, or 13.7%, 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's 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 $86.1 million, or 75.5%, of the
Company's net sales for fiscal 1996.
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 datacommunications 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
shield 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 $24.6 million, or 21.6%, of the
Company's net sales for fiscal 1996.
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 inflatables
and multilayer insulation and are primarily for use in the
aerospace/defense and datacommunications markets. Miscellaneous
fabricated products accounted for $3.2 million, or 2.8%, of the
Company's net sales for fiscal1996.
Sales and Customer Support
The Company's sales and customer support efforts are directed by
nine 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
13 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 datacommunications product 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.
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 1996, 12.2%,
13.6% and 8.6% of the Company's net sales went to multiple
sourcing locations of Ford Motor Company, Motorola, Inc. and
Molex Corporation, respectively. The Company also provides
products, through first tier suppliers, to Chrysler and the U.S.
operation 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 Frankfurt,
Germany. 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 1994, 1995 and 1995
were $7.6 million, $11.1 million and $12.0 million, respectively.
Manufacturing
The Company manufactures and assembles its products in Northfield,
Minnesota, Aberdeen and Britton, South Dakota, and 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 received ISO 9001 certification
in our Minnesota facilities and ISO 9002 certification in our South
Dakota facilities.
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 facility in Aberdeen and Britton,
South Dakota.
Emerging Products. To manufacture its emerging products, the
Company is constructing and equipping the Longmont facility, based
on the results of its testing and production activities at a pilot
plant in Longmont established in July 1994. In August 1995, the
Company completed construction of the 102,000 square foot building
for the Longmont facility. The manufacturing process at the
Longmont facility includes a series of integrated roll-to-roll
processes consisting of metalization, via generation, plating,
photoimaging, developing, selective etching and electrical testing.
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 Longmont facility, including the site,
building and equipment purchased or leased by the Company, is
expected to total approximately $45 million.
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 licensed certain technology to the joint
venture. Providing certain technical support, the Company has
received a 20% ownership interest in the joint venture and will
receive cash payments totaling up to $900,000 upon 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 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 expects manufacturing
under this joint venture to commence in late fiscal 1997.
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 multichip 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 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 multichip modules. 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 multilayering 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".
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 product 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 datacommunications 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 laminate 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 BTU 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 datacommunications
customers generally provide for up to eight weeks of committed
shipments. The Company's backlog of unshipped orders as of
August 30, 1996, and September 1, 1995, was approximately $26.1
million and $26.2 million, respectively. Generally, most orders
in backlog are shipped during the following three months. Because
of the Company's quick turn of orders to work-in-process, the
timing of orders, delivery intervals, customer and product mix
and the possibility of customer changes in delivery schedules,
the Company's backlog at any particular date may not be
representative of actual sales for any succeeding period.
Proprietary Technology
The Company owns three united States patents for Novaclad and the
processes for making Novaclad and five additional applications are
pending. Applications are pending for foreign patents on Novaclad
in Japan, Canada and the European Patent Office. In addition, the
Company has one United States patent and one Canadian patent
elating to its Z-Link adhesive product and has been informed that
two additional United States patents relating to Z-Link have been
allowed. Federal trademark registrations have been obtained on
Novaclad(r), ViaGrid(r), Flexbase(r), Novaflex(r), and Z-Link(r).
Sheldahl also relies on internal security and secrecy measures and
on confidentiality agreements for protection of trade secrets and
proprietary know-how. There can be no assurance that Sheldahl's
efforts to protect its intellectual property will be effective
to prevent misappropriation or that others may not independently
develop similar technology. The Company believes that it
possesses adequate proprietary rights to the technology involved
in its products and that its products, trademarks and other
intellectual property rights do not infringe upon the proprietary
rights of third parties.
The Company was named as a defendant in a patent infringement
matter regarding its Novaclad products which was dismissed 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 again 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 method
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 Longmont
facility 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 1996.
Similarly, fiscal 1997 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 October 1996, the Company employed approximately 1,087 people
in the United States and Europe, including 910 in production, 80 in
sales, marketing, application engineering and customer support, 42
in research and development and 55 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 427) 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.
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 facility in Longmont, Colorado. 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. 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
is has subleased.
Item 3. Legal Proceedings
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 Securities Holders
None
Item 4A. Executive Officers
The executive officers of the Company are as follows:
Name Age Position
James S. Womack 68 Chairman of the Board and Director
James E. Donaghy 62 President, Chief Executive Officer
and Director
Edward L. Lundstrom 46 Executive Vice President
John V. McManus 49 Vice President - Finance and
Assistant Secretary
Beverly M. Brumbaugh 61 Vice President - Human Resources
and Corporate Excellence
Keith L. Casson 57 Vice President - Micro Products
Gregory D. Closser 44 Vice President - Flexible Interconnects
Roger D. Quam 50 Vice President - Composite Materials
Ronald G. Rumpsa 61 Vice President - Materials
Gerald E. Magnuson 65 Secretary and Director
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, Inc. 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. Mr. Lundstrom is a director of Research,
Inc.
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 and
Corporate Excellence since 1989. Mr. Brumbaugh is the former chairman of
the American Electronics Association Minnesota Council for Quality. He is
currently a member of the Manufactures Alliance where he serves on both the
Human Resources and Quality Councils.
Keith L. Casson joined the Company in 1968 and has served as Vice President
- - Micro Products since September 1996. He has served as Vice President -
Research and Development since September 1993, with responsibility since
September 1995 for deployment of the emerging products in the Longmont
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
servicing as Vice President - Materials Operations and Aviation Products
beginning in 1988.
Ronald G. 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.
<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 period indicated, as reported on
the Nasdaq National Market.
High Low
Fiscal Year Ended September 1, 1995:
First Quarter 14 10 1/4
Second Quarter 15 1/2 11
Third Quarter 15 1/4 10 1/2
Fourth Quarter 19 1/4 11 3/4
Fiscal Year Ended August 30, 1996:
First Quarter 21 1/4 14 3/4
Second Quarter 23 3/8 16 1/4
Third Quarter 31 1/8 18 1/8
Fourth Quarter 28 1/2 15 7/8
On October 24, 1996, the last reported sales price of the Common Stock
was $15 1/2. As of this date, there were approximately 1,500 record
holders of the Company's Common Stock and an estimated additional
2,600 shareholders who held beneficial interests in shares of
Common Stock registered in nominee names of banks and brokerages
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 the "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 September 2, 1994, September 1, 1995
and August 30, 1996 and the consolidated balance sheet data as of
September 1, 1995 and August 30, 1996 have been derived from the
Company's Consolidated Financial Statements included elsewhere in
this report, which have been audited by Arthur Andersen LLP,
independent public accountants. The statements of operations
data set forth below for the years ended August 28, 1992 and
August 27, 1993 and the balance sheet data set forth below at
August 28, 1992, August 27, 1993 and September 2, 1994 are
derived from audited financial statements not included herein.
Fiscal year ended
(In thousands, except per share data)
8/28/92 8/27/93 9/2/94 9/1/95 8/30/96
Statements of Operations Data:
Net sales $83,977 $82,102 $88,346 $95,216 $114,120
Cost of sales 68,476 66,360 69,273 74,752 89,171
______ ______ ______ ______ ______
Gross profit 15,501 15,742 19,073 20,464 24,949
______ ______ ______ ______ ______
Expenses:
Sales and marketing 7,648 7,274 8,014 9,090 9,254
General and administrative 4,090 4,029 4,153 3,895 5,129
Research and development 2,171 1,929 2,366 2,270 2,755
Interest 1,366 1,023 946 875 539
______ ______ ______ ______ ______
Total expenses 15,275 14,255 15,479 16,130 17,677
______ ______ ______ ______ ______
Income before continuing
operations Before provision
for income taxes 226 1 ,487 3,594 4,334 7,272
Provision for income taxes 52 50 800 1,200 2,500
______ ______ ______ ______ ______
Income from continuing
operations 174 1,437 2,794 3,134 4,772
====== ====== ====== ====== ======
Cumulative effect of change
in method of Accounting for
income taxes(1) - - 1,422 - -
Cumulative effect of change
in method of accounting for
post retirement benefits(2) - - (875) - -
Loss from discontinued
operation(3) - - (525) - -
______ ______ ______ ______ ______
Net income (loss) $174 $1,437 $2,816 $3,134 $4,772
______ ______ ______ ______ ______
Income (loss) per share:
Continuing operations $0.04 $0.29 $0.52 $0.45 $0.55
Effect of accounting changes
for Income taxes(1) - - .26 - -
Effect of accounting changes
for post retirement
benefits(2) - - (.16) - -
Discontinued operations(3) - - (.10) - -
______ ______ ______ ______ ______
Net income (loss) per share $0.04 $0.29 $0.29 $0.52 $0.55
====== ====== ====== ====== ======
Weighted average common
shares and common share
equivalents outstanding 4,829 4,950 5,418 6,925 8,686
====== ====== ====== ====== ======
Fiscal year ended
8/28/92 8/27/93 9/2/94 9/1/95 8/30/96
Balance Sheet Data:
Working capital $10,708 $11,314 $15,942 $16,332 $ 22,051
Total assets 42,425 44,783 60,320 94,186 115,887
Long-term debt, excluding
current portion 9,960 11,433 7,963 33,864 21,858
Total shareholders'
investment 17,937 19,448 36,482 40,952 75,337
____________________
(1) 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Sheldahl is a leading producer of advanced laminate materials and
materials-based components, primarily for sale to the automotive
electronics and datacommunications markets. The Company's basic
materials technology was originally developed for the United States
space program.
In 1989, the Company developed a business strategy focused on achieving
a leading position supplying the automotive electronics market with
flexible interconnects 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 enhancing vehicle performance while reducing weight and
overall vehicle costs. The Company targets specific automotive
customers that it has identified as leaders in the drive to increase
the electronic content of automobiles. As a result of this business
strategy, the Company's sales to automotive customers increased from
$13.9 million in fiscal 1989 to $79.0 million in fiscal 1996, a
compound annual growth rate of 27%, while the Company's sales to
other markets declined from $57.0 million in fiscal 1989 to $35.1
million in fiscal 1996.
Concurrent with the Company's strategic shift to focus on the
automotive electronics market in 1989, Sheldahl began to focus
its research and development expenditures on new opportunities.
As a result, in 1992 the Company patented its Novaclad high
performance adhesiveless flexible laminate. The features of Novaclad
allow circuitry designers to increase circuit density for integrated
circuit (IC) packaging and other interconnect solutions. The Company
also developed ViaGrid, a higher-value form of Novaclad with pre-
drilled small holes that allow printed circuit manufacturers to
produce flexible interconnects that are up to six times more dense
than current technology. The Company also uses ViaGrid in the
manufacture of chip-carrier substrates primarily for IC packages.
In fiscal 1994, a consortium was organized by the Advanced Research
Projects Agency (ARPA) of the U.S. Department of Commerce to develop
a high-density, low-cost multichip module utilizing Novaclad as the
substrate material. The ARPA consortium, comprised of a vertically-
integrated team of non-competing companies, has achieved various
milestones, including validation of each of the essential processes
for production of the Company's chip-carrier substrates as the base
material for low-cost multichip modules.
In June 1994, with the assistance of funding from ARPA, the Company
established a prototype production facility, and late in calendar year
1994, began construction of its new manufacturing facility in
Longmont, Colorado, for the production of Novaclad, ViaGrid and chip-
carrier substrates (micro products) in commercial quantities. The
Company expected commercial production to begin at the Longmont
facility by April 1996.
However, a variety of factors, including equipment delivery delays,
product specification changes, and supporting process issues, resulted
in a nine-month delay in the full production ramp-up, which is now
expected to commence in the second quarter of fiscal 1997. During
the delay, the Company has been working with leading customers,
including Texas Instruments, ASAT, Inc. and Motorola, in production
validation and product acceptance.
The adverse financial impact of the production delay at the Micro
Products facility, combined with the resulting need to continue
operation of the prototype facility, has been and will continue to
be significant. Net of ARPA consortium funding, the expenses of the
Company's Micro Products facility totaled $4.2 million in fiscal 1996.
Once fully operational, projected expenses, including depreciation,
are expected to approach $4 million per quarter. Therefore, volume
production and the related sales revenue upon successful customer
acceptance will be essential to reduce the impact of the ongoing
operating costs of the Company's Micro Products division.
In total, the Company used ARPA consortium funding to offset expenses
of $3.1 million, $5.0 million, and $3.2 million in fiscal years 1994,
1995, and 1996, respectively. Based on remaining milestones,
additional funding assistance from the ARPA consortium and another
consortium related to low-cost plastic packaging and flip chips is
expected to total approximately $700,000 through August 1997.
The Company 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 chip-carrier substrate products
for the datacommunications market. During fiscal years 1994, 1995,
and 1996, the Company made capital expenditures of approximately
$26.0 million to increase the production capabilities of its current
operations. Through fiscal 1996, the Company made capital expenditures
exceeding $45.0 million in connection with the Micro Products
production and pilot facilities.
The Company has capitalized expenditures related to building, equipping
and financing the new production facility; however, costs to operate the
pilot facility, net of the ARPA consortium funding, have been charged to
operations as incurred.
On September 5, 1995, the Company sold its aviation lighting product
line to The B.F.Goodrich Company for approximately $2.6 million,
enabling the Company to focus on its emerging products, flexible
interconnects and flexible laminates operations. The aviation
lighting product line generated sales of $3.6 million in fiscal year
1995 and was insignificant to the overall operations of the Company.
Results of Operations
The following table shows the percentage of net sales represented by
certain line items from the Company's consolidated statements of
operations for the periods indicated:
Fiscal Years Ended
August 30, September 1, September 2,
1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Cost of sales 78.1 78.5 78.4
______ ______ ______
Gross profit 21.9 21.5 21.6
______ ______ ______
Expenses:
S & M 8.1 9.5 9.1
G & A 4.5 4.1 4.7
R & D 2.4 2.4 2.6
Interest .5 .9 1.1
______ ______ ______
Total expenses 15.5 16.9 17.5
______ ______ ______
Income from continuing
operations before provision
for income taxes 6.4 4.6 4.1
Provision for income taxes 2.2 1.3 1.0
______ ______ ______
Income from continuing
operations 4.2% 3.3% 3.1%
====== ====== ======
Net Sales. The table below shows, for the periods indicated, the Company's
sales to various markets (in thousands):
Fiscal Years Ended
August 30, 1996 Sept 1, 1995 Sept 2, 1994
Amount % Amount % Amount %
Automotive $78,984 69.2% $51,919 54.5% $46,737 52.9%
Datacommunications 11,193 9.8% 16,860 17.7% 18,380 20.8%
Aerospace/Defense 10,585 9.3% 12,150 12.8% 10,452 11.8%
Industrial 8,843 7.7% 8,221 8.6% 7,438 8.4%
Consumer 4,515 4.0% 6,066 6.4% 5,339 6.1%
_______ ______ ______ ______ ______ ______
Net sales $114,120 100.0% $95,216 100.0% $88,346 100.0%
======= ====== ====== ====== ====== ======
The Company's net sales increased $18.9 million, or 20%, in fiscal 1996
and $6.9 million, or 8%, in fiscal 1995. These increases resulted
primarily from increased sales to automotive customers and were
partially offset by decreased sales to datacommunication and aerospace/
defense customers. The automotive market sales increased $27.1 million,
or 52%, in fiscal 1996 and $5.2 million, or 11%, in fiscal 1995.
These increases were due to a continued successful effort to penetrate
the automotive electronics market through the use of creatively
designed flexible interconnects and laminate materials in dashboard
instrumentation, on-board computers in the engine compartment, air
bags, and power distribution units. The growth rate of automotive-
related sales declined in fiscal 1995 from previous years, as the
Company's customers delayed production of certain new automotive
components. This caused the Company to delay production start-up of
certain major new flexible interconnect products. The Company enjoys
a favorable position in targeted segments of the automotive market,
and has increased sales revenue in that market at an average annually
compounded rate of over 27% since 1989. Automotive market sales
represented 69% of Company sales in 1996 compared to 55% in 1995.
Datacommunications sales declined $5.7 million, or 34%, in fiscal 1996
and $1.5 million, or 8%, in fiscal 1995. Declining sales to the
datacommunications market were primarily due to the Company's decision
to focus more of its sales and marketing efforts on automotive
applications. Flexible interconnect sales accounted for 84% of the
decline in fiscal 1996 as printer and laptop computer sales slowed.
Laminate material sales to the datacommunications market declined
$800,000 in fiscal 1996. After adjusting for the sale of the Company's
aviation lighting products line, the Company's sales to the aerospace/
defense market increased $2.1 million, or 24%, from $8.5 million in
fiscal 1995 to $10.6 million in fiscal 1996. Aerospace/defense sales
for fiscal 1995 were up $1.6 million, or 24%, due to an increased
demand for multilayer insulation blankets for satellites. The
aerospace sales growth reflects the use of the Company's core
materials technology in thermal control applications such as
spacecraft and commercial satellite insulation.
Industrial and consumer market sales for 1996 declined slightly, from
$14.3 million in fiscal 1995 to $13.4 million in fiscal 1996, after
increasing slightly from $12.8 million in fiscal 1994. Although
Sheldahl has not specifically focused on these markets, the Company's
laminate materials and flexible interconnect products have developed
small but well-established market niches for specific applications
over an extended period of time.
The table below shows, for periods indicated, the Company's sales by
major product lines (in thousands).
Fiscal Years Ended
August 30, 1996 Sept 1, 1995 Sept 2, 1994
Amount % Amount % Amount %
Flexible interconnects $86,146 75.5% $64,398 67.6% $61,566 69.7%
Laminate materials 24,627 21.6% 24,067 25.3% 21,264 24.1%
Fabricated devices 3,182 2.8% 3,135 3.3% 1,963 2.2%
Aviation components - - 3,616 3.8% 3,553 4.0%
Chip-carrier substrates 165 .1% - - - -
_______ ______ ______ ______ ______ ______
Total $114,120 100.0% $95,216 100.0% $88,346 100.0%
======= ====== ====== ====== ====== ======
The Company's sales growth in fiscal 1996 reflects a $21.7 million, or
34%, increase in flexible interconnect sales. Flexible interconnect
sales comprised 75% of total revenue in 1996, compared with 68% in
1995. Sales of laminate materials remained steady at $24.6 million
in fiscal 1996, or 22% of total revenue. At $3.2 million, sales of
fabricated devices also remained relatively constant in fiscal 1996.
Sales of chip-carrier substrates totaled $165,000 in fiscal 1996,
reflecting sales of prototype and pre-qualification product from
the Company's Micro Products pilot facility.
Gross Profit. The Company's gross profit increased $4.5 million, or
22%, in fiscal 1996 and $1.4 million, or 7%, in fiscal 1995. As a
percent of sales, gross profit for fiscal years 1996, 1995, and 1994
was relatively consistent at 22%. In fiscal 1996, gross profit was
adversely affected by $4.0 million in operating costs for the Micro
Products division in Longmont. Without these costs, which provided
virtually no revenues, gross margin would have been $28.9 million,
or 25% of sales. The increase in gross profit in fiscal years 1996
and 1995 was related to increased flexible interconnect sales,
primarily to the automotive market, as well as improved material
yield and labor productivity made possible by the Company's
substantial capital investments in its core product lines over the
last several years. The Company's gross profit for its core product
lines, including laminate materials and flexible interconnects,
increased $8.7 million on a sales increase of $18.7 million. This
means that $0.46 for each added sales dollar contributed to improving
gross profit in 1996, compared to $0.26 in fiscal 1995 on sales
growth of $6.8 million.
Funding received by the Company from the ARPA consortium is reflected
as a reduction to cost of sales and totaled $1.8 million, $3.8 million,
and $1.8 million in fiscal years 1996, 1995, and 1994, respectively.
The awarding of these funds was based on the completion of various
milestones, including process validation for each essential process
in the production of chip-carrier substrates for IC packages using
the Company's patented Novaclad material.
Sales and Marketing Expenses. Sales and marketing expenses increased
$164,000, or 2%, in fiscal 1996 and $1.1 million, or 13%, in fiscal
1995. The increased costs to support the Company's micro products
have been offset by sales expense savings related to the September
1995 sale of the Hoskins aviation lighting product line. As a
percentage of net sales, sales and marketing expenses were 8% in
fiscal 1996, 10% in fiscal 1995, and 9% in fiscal 1994.
General and Administrative Expenses. Gross general and administrative
expenses increased $836,000, or 18%, to $5.4 million in fiscal 1996 and
decreased $25,000, or 1%, to $4.6 million in fiscal 1995. ARPA credits
applied to general and administrative expenses were $265,000, $663,000,
and $430,000 in fiscal years 1996, 1995, and 1994, respectively,
resulting in net general and administrative expenses of $5.1 million,
$3.9 million, and $4.2 million in fiscal years 1996, 1995, and 1994,
respectively.
The table below shows, for the periods indicated, the Company's general
and administrative expenses (in thousands):
Fiscal Years Ended
August 30, September 1, September 2,
1996 1995 1994
Gross expense $ 5,394 $ 4,558 $ 4,583
ARPA funding (265) (663) (430)
______ ______ ______
Net expense $ 5,129 $ 3,895 $ 4,153
====== ====== ======
Percent of sales 4.5% 4.1% 4.7%
The increase in general and administrative expenses in fiscal 1996
reflects an increase in professional services, miscellaneous employee
benefits, and incentive compensation expense.
Research and Development Expenses. Gross research and development
expenses increased $1.1 million, or 39%, in fiscal 1996 to $4.1
million and decreased $237,000, or 8%, in fiscal 1995. ARPA credits
applied to research and development expenses were $1.3 million,
$611,000, and $752,000 in fiscal years 1996, 1995, and 1994,
respectively, resulting in net research and development expenses
of $2.8 million, $2.3 million, and $2.4 million in fiscal years 1996,
1995, and 1994, respectively. The level of the ARPA consortium
funding will be significantly reduced in fiscal 1997 as consortium
efforts are completed.
The table below shows, for the periods indicated, the Company's research
and development expenses (in thousands):
Fiscal Years Ended
August 30, September 1, September 2,
1996 1995 1994
Gross expense $ 4,010 $ 2,881 $ 3,118
ARPA funding (1,255) (611) (752)
______ ______ ______
Net expense $ 2,755 $ 2,270 $ 2,366
====== ====== ======
Percent of sales 2.4% 2.4% 2.6%
The increase in gross research and development expenses in fiscal 1996
was principally due to additional staffing, material testing, travel,
and consulting and professional costs, primarily supporting the start-
up of the Company's Micro Products division and related ARPA consortium
milestones.
Interest Expense. Gross interest expense increased to $2.4 million in
fiscal 1996 from $2.1 million in fiscal 1995 and $1.4 million in fiscal
1994, as the Company's borrowing to support capital expenditures
increased.
The following shows a breakdown of interest expense for the fiscal years
indicated (in thousands):
August 30, September 1, September 2,
1996 1995 1994
Gross interest $ 2,388 $ 2,090 $ 1,351
Capitalized interest (1,605) (1,215) (405)
Investment income (244) - -
______ ______ ______
Net expense $ 539 $ 875 $ 946
====== ====== ======
Percent of sales .5% .9% 1.1%
Capitalized interest increased from $405,000 in fiscal 1994 to $1.2
million in fiscal 1995 and $1.6 million in fiscal 1996. The Company's
capitalized interest costs during fiscal years 1995 and 1996 were
related to capital investments for production equipment processes to
enhance capacity and the construction of the Micro Products plant and
equipment. On November 21, 1995, the Company completed a secondary
public offering of common stock from which it received net proceeds
of $29.0 million. The net proceeds were used to reduce outstanding
indebtedness, with the remainder invested in high-grade, short-term
interest bearing debt securities resulting in investment income of
$244,000 in fiscal 1996. The resulting net interest expense in fiscal
1996 was $539,000. Net interest expense was $875,000 and $946,000 in
fiscal years 1995 and 1994, respectively.
Income Taxes. The Company's effective tax rate was 34%, 28%, and 22%
for fiscal years 1996, 1995, and 1994, respectively. The increase in
the 1996 effective tax rate resulted from the elimination of the
research and development tax credit from July 1995 through June 1996
and lower foreign sales corporation (FSC) tax benefits. In prior
years, these rates differed from the federal statutory rate primarily
because of state income taxes, benefits from research and development
credits, and FSC 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 its move from leased facilities in Orange County,
California. The consolidated statement of operations for fiscal
1994 reflects a charge of $525,000, net of income tax benefits of
$175,000, to reserve for the losses related to these events. As
of September 1, 1995, there were no remaining obligations with
respect to the Company's discontinued operation. See Note 8 of Notes
to Consolidated Financial Statements.
Liquidity and Capital Resources
Net capital expenditures in fiscal years 1996, 1995, and 1994 were
$24.9 million, $32.2 million and $13.8 million, respectively, of
which $45.2 million was for building and equipping the new Micro
Products facility. The remaining capital expenditures were used to
expand manufacturing capacity for the Company's core laminate
materials and flexible interconnect operations. Over the past three
fiscal years, the Company has financed its capital expenditures
through equity proceeds of $45.2 million from public offerings of
common stock and stock option exercises, debt financing of $7.7
million, and cash flow from operations of $18.1 million. The
Company expects capital expenditures in fiscal 1997 to be approximately
$25 million. The Company believes that its cash flow from operations
and funds available under its current revolving credit agreement
will be sufficient to meet its operating and investment needs through
fiscal 1998.
During fiscal 1996, 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 with a $35.0 million revolving line
of credit. The line of credit is secured by the Company's
inventories, accounts receivable, and fixed assets. Interest accrued
under the line of credit is at the prime or LIBOR rates. During
fiscal 1996, the weighted average interest rate was 8.24%. As of
August 30, 1996, the Company's outstanding borrowings under this
revolving credit agreement were $15.2 million and the weighted
average interest rate was 7.75%.
Financial Derivatives
The Company has limited foreign currency risks from its international
sales. Major contracts have "risk sharing" arrangements with the
customer, allowing repricing in the event of long-term and/or
significant foreign currency fluctuations.
To deal with short-term fluctuations, the Company will use a variety of
natural and contractual hedging techniques from time to time to
prudently reduce, but not eliminate, its exposure to foreign
currency fluctuations. Historical transactions have not been material
in nature. The Company expects its foreign currency contracts to
increase during fiscal 1997 and will increase its hedging activities
accordingly.
Effect of Changes in Accounting Principles
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109), effective August
28, 1993. The adoption of SFAS No. 109 resulted in a cumulative one-
time favorable adjustment of $1.4 million. The Company also adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for
Postretirement Benefits Other Than Pensions" (SFAS No. 106). The Company
provides certain medical and other postretirement benefits to qualified
employees. The adjustment made in the first quarter of fiscal 1994
resulted in a cumulative one-time charge against income of $875,000, net
of income tax benefits of $525,000. Effective September 3, 1994, the
Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS No. 112). The
effect of adoption of SFAS No. 112 did not have a significant impact on
the Company. See Notes 6 and 7 of Notes to Consolidated Financial
Statements.
New Accounting Pronouncements
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 adoption will not have a significant impact on the
Company's operating results or financial condition.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." This statement encourages, but does
not require, a fair value-based method of accounting for employee
stock options, the sale of stock under any company's employee stock
purchase plan, or similar equity instruments. The Company has elected
to continue to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" as
was previously required, and to comply with pro forma disclosure of
net income and earnings per share as if the fair value-based method
of accounting had been applied, beginning in fiscal 1997.
Cautionary Statement
Statements included in this management's discussion and analysis of
financial condition and results of operations, in the letter to
shareholders, elsewhere in this annual report, in the Company's Form
10-K and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases, and oral
statements made with the approval of an authorized executive officer
that are not historical, or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Certain risks
and uncertainties could cause actual results to differ materially
from historical earnings and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases
have affected and in the future could affect the Company's actual
results and could cause the Company's actual financial performance
to differ materially from that expressed in any forward-looking
statement: (i) the Company's ability to begin full production at
its Micro Products facility is dependent upon product validation and
product acceptance of the Company's micro products, neither of which
has occurred; (ii) delays in achieving full volume production at
the Micro Products facility will have a material adverse impact on
the Company's results of operations; (iii) a general downturn in the
automotive market, the Company's principal market, could have a
material adverse effect on the demand for the electronic components
supplied by the Company to its customers; and (iv) the extremely
competitive conditions that currently exist in the automotive and
datacommunications markets are expected to continue, including
development of new technologies, the introduction of new products,
and the reduction of prices. The foregoing list should not be
construed as exhaustive and the Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect
the events or circumstances after the date of such statements or
to reflect the occurrence of anticipated or unanticipated events.
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 1995 and
1996 is set forth in Note 12 to the Consolidated Financial Statements
included with this report.
Item 9. Changes in and Disagreements with Accountants
None
<PAGE>
PART III
Pursuant to General Instruction G(3) Registrant omits Part III, Items 10
(Directors and Executive Officers of Registrant), 11 (Executive Compensation),
12 (Security Ownership of Certain Beneficial Owners and Management) and 13
(Certain Relationships and Related Transactions), except that portion of Item
10 relating to Executive Officers of the Registrant, which is set forth in
Part I of this report as a definitive proxy statement will be filed with the
Commission pursuant to Regulation 14(a) within 120 days after August 30, 1996,
and such information required by such items is incorporated herein by reference
from the proxy statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as a part of the report:
Form 10-K
Page Reference
1. Consolidated Financial Statements:
Report of Independent Public Accountants F-2
Consolidated Statements of Operations for the Fiscal Years
Ended august 30, 1996, September 1, 1995 and September 2, 1994 F-3
Consolidated Balance Sheets as of august 30, 1996
and September 1, 1995 F-4
Consolidated Statements of Changes in Shareholders' Investment
for the Fiscal Years August 30, 1996, September 1, 1995 and
September 2, 1994 F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
August 30, 1996, September 1, 1995 and September 2, 1994 F-6
Notes to Consolidated Financial Statements F-7
2. Consolidated Financial Statement Schedules
Form 10-K
Description Page Reference
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).
4.3 Rights Agreement dated as of June 16, 1996 between the Company and
Norwest Bank Minnesota, N.A., is incorporated by reference to Exhibit
1 to the Company's Form 8-A dated June 20, 1996.
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 (change of control) Agreement for Executive Officers
of the Registrant.
10.5 Employment (change of control) Agreement between James E. Donaghy and
the Registrant dated March 1, 1988, as amended August 21, 1996.
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 second quarter ended March
3, 1995.
10.15 Third Amendment to Amended and Restated Credit and Security Agreement
dated January 24, 1995 among the Registrant, Norwest Bank Minnesota,
N.A., Harris Trust and Savings Bank, and NBD Bank, N.A., incorporated
by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the
quarter ended March 3, 1995.
10.16 Loan Authorization dated October 1, 1994 between South Dakota Board of
Economic Development Registrant, incorporated by reference from
Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended
February 25, 1994.
10.17 Agreement Relating to Employment dated October 1, 1994 between the
South Dakota Board of Economic Development and the Registrant,
incorporated by reference from Exhibit 10.2 of the Registrant's
Form 10-Q for the quarter ended February 25, 1994.
10.18 Promissory Note dated October 4, 1993 due to the South Dakota Board of
Economic Development, incorporated by reference from Exhibit 10.3 of
the Registrant's Form 10-Q for the quarter ended February 25, 1994.
10.19 Note Purchase Agreement dated as of August 31, 1995 between the
Registrant and Northern Life Insurance Company, incorporated by
reference to Exhibit 10.19 to Registrant's Form 10-K for the fiscal
year ended September 1, 1995.
10.20 Agreement dated January 10, 1994 between the MCM-L Consortium and the
Advanced Projects Research Agency, incorporated by reference from
Exhibit 10.4 of the Registrant's Form 10-Q for the quarter ended
February 25, 1994.
10.21 Articles of Collaboration dated November 30, 1993 for the MCM-L
Consortium, incorporated by reference from Exhibit 10.5 of the
Registrant's Form 10-Q for the quarter ended February 25, 1994.
10.22 Joint Marketing Agreement dated June 14, 1995 between the Registrant
and Mentor Graphics Corporation incorporated by reference from
Exhibit 10.22 of the Registrant's Form 10-K for the fiscal year
ended September 1, 1995.
10.23 Agreement relating to Joint Venture dated August 1, 1995 between
Registrant, Jiangxi Changjiang Chemical Plant, Hong Kong Wah Hing
(China) Development Co., Ltd. and Jiujiang Flex Co., Ltd. incorporated
by reference from Exhibit 10.23 of the Registrant's Form 10-K for the
fiscal year ended September 1, 1995.
10.24 Agreement relating to payments dated August 1, 1995 between Registrant
and Jiangxi Changjiang Chemical Plant, Hong Kong Wah Hing (China)
Development Co., Ltd. and Jiujiang Flex Co., Ltd. incorporated by
reference from Exhibit 10.24 of the Registrant's Form 10-K for the
fiscal year ended September 1, 1995.
10.25 Manufacturing Agreement dated August 1, 1995 between Registrant and
Jiujiang Flex Co., Ltd. incorporated by reference from Exhibit 10.25
of the Registrant's Form 10-K for the fiscal year ended
September 1, 1995.
10.26 Marketing and License Agreement dated August 1, 1995 between Registrant
and Jiujiang Flex Co., Ltd. incorporated by reference from Exhibit
10.26 of the Registrant's Form 10-K for the fiscal year ended
September 1, 1995.
10.27 Technology Development Agreement dated August 15, 1995 between Low Cost
Flip Chip Consortium and the Advanced Projects Research Agency
incorporated by reference from Exhibit 10.27 of the Registrant's Form
10-K for the fiscal year ended September 1, 1995.
10.28 Articles of Collaboration dated July 10, 1995 for the Low Cost Flip
Chip Consortium incorporated by reference from Exhibit 10.28 of the
Registrant's Form 10-K for the fiscal year ended September 1, 1995.
10.29 Technology Development Agreement dated March 23, 1995 between Plastic
Packaging Consortium and the Advanced Projects Research Agency
incorporated by reference from Exhibit 10.29 of the Registrant's Form
10-K for the fiscal year ended September 1, 1995.
10.30 Articles of Collaboration dated March 17, 1995 for the Plastic
Packaging Consortium incorporated by reference from Exhibit 10.30
of the Registrant's Form 10-K for the fiscal year ended September
1, 1995.
10.31 License Agreement dated June 20, 1994 between Sidrabe and Registrant
incorporated by reference from Exhibit 10.31 of the Registrant's Form
10-K for the fiscal year ended September 1, 1995.
10.32 Amendment One to License Agreement dated September 14, 1994 between
Sidrabe and Registrant incorporated by reference from Exhibit 10.32 of
the Registrant's Form 10-K for the fiscal year ended September 1, 1995.
10.33 Fourth Amendment to Amended and Restated Credit and Security Agreement
dated January 29, 1996 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.
10.34 Fifth Amendment to Amended and Restated Credit and Security Agreement
dated March 1, 1996 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.
11 Statement Regarding Computation of Per Share Earnings.
18 Statement Regarding Accounting Change.
22 Subsidiary of Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule
<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: November 5, 1996 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 November 5, 1996 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
resubmission, 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 d
ocuments 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 an 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 James E.
Donaghy and Director
(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
<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 August 30, 1996 and September
1, 1995 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 August 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit 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 August 30, 1996 and September 1, 1995 and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended August 30, 1996 in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidatedfinancial statements taken as a whole. The schedule listed in
the index toconsolidated financial statements is presented for purposes of
complying with theSecurities and Exchange Commission's rules and are not part
of the basic financialstatements. This schedule has been subjected to the
auditing procedures appliedin the audit of the basic financial statements and,
in our opinion, fairly statesin all material respects the financial data
required to be set forth thereinin relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
October 11, 1996
Page F-2
<PAGE>
Sheldahl, Inc. and Subsidiary
Consolidated Statements of Operations
(in thousands, except per share data)
For The Fiscal Years Ended
August 30, September 1, September 2,
1996 1995 1994
Net sales $114,120 $95,216 $88,346
Cost of sales 89,171 74,752 69,273
______ ______ ______
Gross profit 24,949 20,464 19,073
______ ______ ______
Expenses:
S & M 9,254 9,090 8,014
G & A 5,129 3,895 4,153
R & D 2,755 2,270 2,366
Interest 539 875 946
______ ______ ______
Total expenses 17,677 16,130 15,479
______ ______ ______
Income from continuing operations
before provision for income
taxes and cumulative effect
of changes in methods of
accounting 7,272 4,334 3,594
Provision for income taxes 2,500 1,200 800
______ ______ ______
Income from continuing operations
before cumulative effect
of changes in methods of
accounting 4,772 3,134 2,794
Cumulative effect of change in
method of accounting for
income taxes (Note 6) - - 1,422
Cumulative effect of change in
method of accounting for
postretirement benefits
(Note 7) - - (875)
Loss from discontinued operation
Note 8) - - (525)
______ ______ ______
Net income $ 4,772 $ 3,134 $ 2,816
====== ====== ======
Income per common share:
Continuing operations $ .55 $ .45 $ .52
Accounting change
- income taxes - - .26
Accounting change
- postretirement
benefits - - (.16)
Discontinued operation - - (.10)
______ ______ ______
Net income per common share $ .55 $ .45 $ .52
====== ====== ======
Weighted average common shares
and common share
equivalents outstandin 8,686 6,925 5,418
====== ====== ======
Page F-3
<PAGE>
Sheldahl, Inc. and Subsidiary
Consolidated Balance Sheets
(in thousands, except share and per share data)
August 30, Sept 1,
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 904 $ 1,045
Accounts receivable, net of allowances
for doubtful accounts of $244 in 1996
and $267 in 1995 21,091 17,637
Inventories 11,525 12,509
Deferred taxes 1,660 849
Prepaid expenses and other current assets 390 732
______ ______
Total current assets 35,570 32,772
______ ______
Plant and equipment:
Land and buildings 24,718 15,924
Machinery and equipment 64,754 52,748
Construction in progress 37,650 32,654
Accumulated depreciation (47,630) (41,471)
______ ______
Net plant and equipment 79,492 59,855
______ ______
Other assets 825 1,559
______ _ _____
$115,887 $94,186
====== ======
Liabilities and Shareholders' Investment
Current liabilities:
Current maturities of long-term debt $ 466 $ 4,179
Accounts payable 9,824 9,113
Accrued salaries 1,390 1,262
Other accrued liabilities 1,839 1,886
______ ______
Total current liabilities 13,519 16,440
______ ______
Long-term debt 21,858 33,864
______ ______
Other non-current liabilities 2,269 2,683
______ ______
Deferred taxes 2,904 247
______ ______
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; 8,912,695 and 6,831,576 shares
outstanding 2,228 1,708
Additional paid-in capital 51,404 22,311
Retained earnings 21,705 16,933
______ ______
Total shareholders' investment 75,337 40,952
______ ______
$115,887 $94,186
====== ======
Page F-4
<PAGE>
Sheldahl, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Investment
For the Fiscal Years Ended Sept 2, 1994, Sept 1, 1995 and August 30, 1996
(in thousands, except share data)
Common Stock Addtl Total
Paid-In Retained Share
Shares Amount Capital Earnings Invest
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
Net income - - - 4,772 4,772
Stock options exercised 68,619 17 599 - 616
Net proceeds from common
stock offering 2,012,500 503 28,494 - 28,997
________ _____ ______ _____ _____
Balance August 30, 1996 8,912,695 $2,228 $51,404 $21,705 $75,337
======== ===== ====== ====== ======
Page F-5
<PAGE>
Sheldahl, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(in thousands)
For The Fiscal Years Ended
August 30, Sept 1, Sept 2,
1996 1995 1994
Operating activities:
Net income $ 4,772 $ 3,134 $ 2,816
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 6,783 4,845 4,014
Cumulative effect of accounting
changes - - (547)
Deferred income tax provision 1,846 1,008 565
Loss from discontinued operation - - 525
Net change in other operating activities:
Accounts receivable (3,454) (3,174) (1,029)
Inventories 984 (1,941) (1,246)
Prepaid expenses and other
current assets 342 (254) (175)
Other assets 734 (635) (533)
Accounts payable and accrued
liabilities (708) (481) 366
Other non-current liabilities (414) (188) 156
______ ______ ______
Net cash provided by operating
activities 10,885 2,314 4,912
______ ______ ______
Investing activities:
Capital expenditures, net (24,920) (32,182) (13,841)
Net cash flow used in discontinued
operation - (489) (1,044)
______ ______ ______
Net cash used in investing activities (24,920) (32,671) (14,885)
Financing activities:
Net borrowings (repayments) under
revolving credit facility (15,290) 10,533 (9,233)
Net proceeds from other long-term debt - 23,466 11,000
Repayments of other long-term debt (429) (5,941) (4,446)
Net proceeds from of stock offering 28,997 - 13,864
Net proceeds from stock option exercises 616 1,336 354
______ ______ ______
Net cash provided by financing activities 13,894 29,394 11,539
______ ______ ______
Net increase (decrease) in cash and cash
equivalents (141) (963) 1,566
Cash and cash equivalents at beginning of period 1,045 2,008 442
______ ______ ______
Cash and cash equivalents at end of period $ 904 $ 1,045 $ 2,008
====== ====== ======
Supplemental cash flow information:
Interest paid $ 2,221 $ 2,204 $ 1,266
====== ====== ======
Income taxes paid $ 131 $ 114 $ 60
====== ====== ======
Page F-6
<PAGE>
Sheldahl, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Business Description and Fiscal Year:
Sheldahl, Inc. (the Company) is a leading producer advanced laminate
materials and materials-based components, primarily for sale to the
automotive electronics and datacommunications markets. The Company
primarily sells to original equipment manufacturers in the United
States, Europe, and the Pacific Rim. The Company's fiscal year ends
on the Friday closest to August 31. Fiscal years 1996 and 1995
consisted of 52 weeks. Fiscal year 1994 consisted of 53 weeks.
(2) Summary of Significant Accounting Policies:
Basis of Presentation -
The consolidated financial statements have been prepared in accordance
with Generally Accepted Accounting Principles and include the accounts
of the Company and its subsidiary. All significant intercompany
accounts have been eliminated. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant Customers -
The Company's largest customers accounted for sales of $15,549,000
and $13,944,000 in 1996, $15,053,000 in 1995, and $13,771,000 in 1994.
No other customers accounted for more than 10% of net sales.
Export Sales -
The Company had export sales of $11,968,000 in 1996, $11,100,000 in
1995, and $7,592,000 in 1994.
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 -
Inventories are stated at the lower of cost or market, with cost
determined on the first-in first-out (FIFO) method. Cost included
the cost of materials, direct labor, and applicable manufacturing
overhead. During the fourth quarter of fiscal 1996, the Company
changed its method of accounting for inventories from the last-in
first-out (LIFO) method to the FIFO method. Management believes
that the change in accounting for inventories is preferable because
it will more accurately measure operating results by reflecting the
effect of productivity improvements in cost of sales and to better
match current costs and revenues. The impact of the change was not
material to the Company.
The components of inventories are as follows (in thousands):
August 30, September 1,
1996 1995
Raw material $ 2,599 $ 3,930
Work-in-process 5,572 5,205
Finished goods 3,354 3,374
______ ______
Total $11,525 $12,509
====== ======
Plant and Equipment -
Plant and equipment are stated at cost and include expenditures that
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 $1,605,000
in 1996, $1,215,000 in 1995, and $405,000 in 1994. 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.
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 Pronouncements -
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), adoption of which is required for fiscal
years beginning after December 31, 1995. Although the Company has not
fully analyzed the effects of SFAS No. 121, the Company expects that
its ultimate adoption will not have a significant impact on the
Company's operating results or financial condition.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation". This statement encourages, but does not
require, a fair value-based method of accounting for employee stock
options, the sale ofstock under the Company's employee stock purchase
plan, or similar equity instruments. The Company has elected to
continue to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" as
was previously required, and to comply with proforma disclosure of
net income and earnings per share as if the fair value based method
of accounting had been applied, beginning in fiscal 1997.
(3) Financing:
Long-term debt consisted of the following (in thousands):
August 30, Sept 1,
1996 1995
Revolving credit agreement $15,243 $30,533
Note payable to insurance company, secured
by real estate mortgage interest, at 8.3%
with monthly payments of $52, including
principal and interest, remaining balance
due September 2002 5,555 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 728 833
Note payable to a bank, secured by real estate
mortgage, interest at 8.0% with monthly
payments of $9, including principal and
interest through February 1999 240 326
Other 558 651
______ ______
22,324 38,043
Less current maturities (466) (4,179)
______ ______
$21,858 $33,864
====== ======
During fiscal 1996, the Company renegotiated its revolving credit
agreement, resulting in a $35 million revolving line of credit. This
line of credit is secured by the Company's inventories, accounts
receivable, real estate, and equipment. Commitment fees are charged at
0.25% of the unused portion of the line of credit. Interest accrues at
the prime or LIBOR rates. During fiscal 1996, the weighted average
interest rate under revolving credit agreements was 8.24%. As of August
30, 1996, borrowings under the revolver were $15,243,000 at a weighted
average interest rate of 7.75% and $19,757,000 was unused and available.
The revolving credit agreement expires on December 31, 1998.
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, or has obtained waivers, with
respect to these covenants for the fiscal year ended August 30, 1996.
Future maturities of debt are as follows (in thousands):
Fiscal 1997 $ 466
Fiscal 1998 390
Fiscal 1999 16,025
Fiscal 2000 220
Fiscal 2001 239
Thereafter 4,984
______
$22,324
======
(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,
vest over a six-month to three-year period, 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, 30 days after termination of
service as a Director. As of August 30, 1996, the Plans authorize the
future granting of options to purchase up to 118,000 shares of common
stock.
Stock option transactions during 1994, 1995, and 1996 are summarized as follows:
Shares Price per Share
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
Granted 475,090 $16.500 to $22.125
Exercised (68,888) $4.875 to $16.500
Lapsed (5,000) $18.375
_______
Outstanding at August 30, 1996 970,910 $5.000 to $22.125
=======
Options exercisable were 569,660 as of August 30, 1996, 391,931 as of
September 1, 1995, and 655,977 as of September 2, 1994.
The options outstanding as of August 30, 1996 expire as follows:
Number of Options
Fiscal Years That Expire
1997 48,445
1998 7,000
1999 7,000
2000 7,000
2001 58,145
2002 100,000
2003 69,033
2004 142,284
2005 68,913
2006 463,090
_______
970,910
======
(5) Commitments and Contingencies:
Lease Commitments -
The Company has noncancelable operating lease commitments for certain
manufacturing facilities and equipment that expire at various dates
through 2001. Minimum rent commitments under operating leases are
$2,330,000 in 1997, $2,047,000 in 1998, $1,953,000 in 1999, $1,048,000
in 2000, and $257,000 in 2001. In accordance with the terms of the
lease agreements, the Company is required to pay maintenance and real
estate taxes related to the leased property. Operating lease expense
relating to continuing operations was $2,353,000 in 1996, $2,394,000
in 1995, and $2,128,000 in 1994.
Employment Agreements -
The Company has employment with various officers which are renewable
in successive one-year terms after August 21, 1999, requiring minimum
severance benefits following a change in control of the Company, as
defined.
Litigation -
The nature of the Company's operations expose it to the risk of certain
legal and environmental claims in the normal course of business.
Although the outcome of these matters cannot be determined, management
believes that final disposition of these matters will not have a
material adverse effect on the Company's operating results 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 bases of assets and liabilities 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 provision for income taxes from continuing operations consisted of
the following (in thousands):
August 30, Sept 1, Sept 2,
1996 1995 1994
Currently payable $ 654 $ 192 $ 235
Deferred 1,846 1,008 565
______ ______ ______
Provision for income taxes $2,500 $1,200 $ 800
====== ====== ======
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):
August 30, Sept 1, Sept 2,
1996 1995 1994
Federal statutory rates $2,472 $1,474 $1,222
Tax benefit of foreign sales
corporation (182) (222) (133)
Research and development tax
credits - (200) (210)
State income taxes, net of
federal benefit 90 37 42
Other 120 111 (121)
______ ______ ______
$2,500 $1,200 $ 800
====== ====== ======
As of August 30, 1996, the Company had net operating loss carryforwards
of $102,000 and income tax credit carryforwards of approximately
$1,309,000 that expire through 2009.
Temporary differences and carryforwards which result in net deferred
income taxes as of August 30, 1996 and September 1, 1995 were as
follows (in thousands):
August 30, Sept 1,
1996 1995
Deferred tax assets (liabilities)
Income tax credit carryforwards $ 1,309 $ 1,138
Post retirement benefits 499 494
Inventories 436 433
Deferred compensation 411 349
Medical reserves 170 131
Vacation reserve 126 120
Net operating loss carryforwards 102 1,246
Bad debts reserve 100 99
Other 302 423
______ ______
Deferred tax assets 3,455 4,433
______ ______
Deferred tax liabilities - depreciation (4,494) (3,376)
______ ______
Valuation allowance (205) (455)
______ ______
Net deferred taxes $(1,244) $ 602
====== ======
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 during 1996 was due to the
expiration of certain income tax credit carryforwards.
(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):
August 30, Sept 1, Sept 2,
1996 1995 1994
Service cost $ 184 $ 164 $ 163
Interest cost on projected benefit
obligation 337 286 262
Return on plan assets (282) (232) (89)
Net amortization and deferral 61 45 (81)
______ ______ ______
Net periodic pension cost $ 300 $ 263 $ 255
====== ====== ======
Funding information with respect to the Northfield Plan is as follows
(in thousands):
August 30, September 1,
1996 1995
Actuarial present value of:
Vested benefit obligation $4,217 $4,200
===== =====
Accumulated benefit obligation $4,282 $4,281
===== =====
Projected benefit obligation $4,451 $4,552
===== =====
Plan assets at fair value $4,291 $3,556
===== =====
Projected benefit obligation in excess
of plan assets $ 160 $ 996
Unrecognized transition amount (60) (70)
Unrecognized prior service cost (715) (760)
Unrecognized net gain 915 100
_____ _____
Accrued pension cost 300 266
Additional minimum liability - 459
_____ _____
Net pension liability $ 300 $ 725
===== =====
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 was determined using
an assumed discount rate of 8.0% in 1996 and 7.5% in 1995. The assumed
long-term rate of return on assets is 8.0% in 1996 and 7.5% in 1995.
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 sheet as of
September 1, 1995. This additional liability is an estimate of cash
contributions required to be made to the plan in the future. An asset
of $459,000 related to this liability is included in other assets in
the accompanying consolidated balance sheet as of September 1, 1995.
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.
The Company's contribution to the employee savings plan equals 2.0% 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
4.0% of each participant's salary. The Company's expense related to
the employee savings plan was $1,014,000 in 1996, $900,000 in 1995,
and $674,000 in 1994.
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 service, have access to the same
medical plan as active employees.
Net periodic postretirement benefit cost is as follows (in thousands):
August 30, September 1,
1996 1995
Service cost $ 33 $ 30
Interest cost on accumulated
benefit obligation 66 54
_____ _____
Net periodic postretirement
benefit cost $ 99 $ 84
===== =====
Funding information related to the Company's plan is as follows
(in thousands):
August 30, September 1,
1996 1995
Accumulated benefit obligation $ 1,347 $ 1,364
Plan assets at fair value - -
______ ______
Projected benefit obligation
in excess of plan assets 1,347 1,364
Unrecognized net gain - (28)
______ ______
Accrued postretirement benefits $ 1,347 $ 1,336
====== ======
An 11.5% annual rate of increase in the health care cost trend rate
was assumed with rates decreasing gradually to 6.0% by 2007, and
remaining at that level thereafter. The health care cost trend rate
assumption has an 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 3.1%
and the net periodic postretirement benefit cost by 2.1% each year.
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.0% as of August 30, 1996 and 7.5% as of
September 1, 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 consolidated 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 August 30, 1996, there are
no remaining obligations with respect to the Company's discontinued
operation.
(9) Consortium for the Development of Multi-Chip Modules (MCMs):
On January 10, 1994, the Company entered into a consortium agreement
sponsored by the Advanced Projects Research Agency (ARPA), a United
States Government Agency. The purpose of the consortium is to
accelerate the development and commercialization of the Company's
chip-carrier substrates for multi chip modules (MCMs). As a
consortium member, the Company expects to receive approximately
$12.2 million in funding through August of 1997 from ARPA to further
test, design, and develop the manufacturing processes for the Company's
Novaclad-based chip-carrier substrates and Z-Link(R) products, which
are to be used in constructing MCMs. The Company incurred
$3,235,000 in 1996, $5,030,000 in fiscal 1995, and $3,079,000 in
fiscal 1994 in costs related to this project that were reimbursable
by ARPA. As of August 30, 1996, $8,333,000 of these costs have been
reimbursed by the consortium, with the remaining $3,011,000 included
in accounts receivable in the accompanying consolidated balance sheet.
(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 has licensed certain technology to
the joint venture and is providing certain technical support. In
return, the Company has received a 20% ownership interest in the
joint venture and will receive $900,000 in cash over a three-year
period, subject to completion of certain milestones; and royalties,
based upon a percentage of products sold by the joint venture, as
defined. The joint venture has been 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. The Company has received $545,000 in
cash from the joint venture since its inception.
(11) Quarterly Results of Operations (Unaudited):
The consolidated results of operations for the four quarters of 1996
and 1995 are as follows (in thousands, except per share data):
Fiscal 1996
First Second Third Fourth Total
Net sales $26,097 $28,954 $29,690 $29,379 $114,120
Cost of sales
and expenses 24,874 26,630 27,589 27,755 106,848
______ ______ ______ ______ _______
Income from continuing
operations before
provision for income
taxes 1,223 2,324 2,101 1,624 7,272
Provision for income
taxes 365 700 630 805 2,500
______ ______ ______ ______ _______
Net income $ 858 $ 1,624 $ 1,471 $ 819 $ 4,772
====== ====== ====== ====== =======
Net income per common
share $ 0.12 $ 0.18 $ 0.16 $ 0.09 $ 0.55
====== ====== ====== ====== ======
Fiscal 1995
First Second Third Fourth Total
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 common
share $ 0.08 $ 0.02 $ 0.11 $ 0.24 $ 0.45
====== ====== ====== ====== ======
<PAGE>
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from
the August 30, 1996 financial statements and is qualified in its entirety
by reference to such financial statements.
[LEGEND]
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] YEAR YEAR
[FISCAL-YEAR-END] AUG-30-1996 SEP-01-1995
[PERIOD-END] AUG-30-1996 SEP-01-1995
[CASH] 904 1045
[SECURITIES] 0 0
[RECEIVABLES] 21335 17904
[ALLOWANCES] 244 267
[INVENTORY] 11525 12509
[CURRENT-ASSETS] 35570 32772
[PP&E] 127122 101326
[DEPRECIATION] 47630 41471
[TOTAL-ASSETS] 115887 94186
[CURRENT-LIABILITIES] 13519 16440
[BONDS] 0 0
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[COMMON] 2228 1708
[OTHER-SE] 73109 39244
[TOTAL-LIABILITY-AND-EQUITY] 115887 94186
[SALES] 114120 95216
[TOTAL-REVENUES] 114120 95216
[CGS] 89171 74752
[TOTAL-COSTS] 17138 15255
[OTHER-EXPENSES] 0 0
[LOSS-PROVISION] 0 0
[INTEREST-EXPENSE] 539 875
[INCOME-PRETAX] 7272 4334
[INCOME-TAX] 2500 1200
[INCOME-CONTINUING] 4772 3134
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 4772 3134
[EPS-PRIMARY] .55 .45
[EPS-DILUTED] .55 .45
</TABLE>
Exhibit 10.4
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this ____ day of ______________, ____ by and between
Sheldahl, Inc., a Minnesota corporation with its principal offices at
Northfield, Minnesota ("Sheldahl") and _________________________________
(the "Executive").
WHEREAS, Sheldahl considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best
interests of Sheldahl and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to Executive's
intimate knowledge of the business and affairs of Sheldahl, its policies,
methods, personnel and problems, a significant contribution to the
profitability, growth and financial strength of Sheldahl; and
WHEREAS, Sheldahl, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist and that such possibility and the
uncertainty and questions which it may raise among management, may result in
the departure or distraction of the Executive in the performance of the
Executive's duties to the detriment of Sheldahl and its shareholders; and
WHEREAS, Executive is willing to remain in the employ of Sheldahl upon the
understanding that Sheldahl will provide income security if the Executive's
employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of Sheldahl and its stockholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction
and to ensure the continued availability to Sheldahl of the Executive in the
event of a Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until August 21, 1999. After August 21,
1999, this Agreement shall automatically renew for successive one-year
periods unless Sheldahl notifies the Executive of termination of the
Agreement at least sixty (60) days prior to the end of the initial term
or any renewal term. Notwithstanding the preceding sentence, if a
Change in Control occurs, this Agreement shall continue in effect for
a period of 36 months from the date of the occurrence of a Change in
Control. Notwithstanding anything herein to the contrary, the
Executive's employment shall be at all times at the will of Sheldahl,
and nothing in this Agreement shall prohibit or limit the right of
Sheldahl or Executive, prior to a Change in Control, to terminate the
employment of Executive for any reason or for no reason.
2. Change in Control. No benefits shall be payable hereunder unless there
shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of Sheldahl
shall mean a change in control which would be required to be reported
in response to Item 1 of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
Sheldahl is then subject to such reporting requirement, including,
without limitation, if:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
Sheldahl representing 20% or more of the combined voting power of
Sheldahl's then outstanding securities;
(ii) there ceases to be a majority of the Board of Directors comprised of:
(A) individuals who on the date hereof constituted the Board of
Sheldahl, and (b) any new director who subsequently was elected
or nominated for election by a majority of the directors who held
such office immediately prior to a Change in Control; or
(iii) Sheldahl disposes of at least 75% of its assets, other than to an
entity owned 50% or greater by Sheldahl or any of its subsidiaries.
(b) A Change in Control which arises from a transaction or series of
transactions which are not authorized, recommended or approved by
formal action taken by the Board of Directors as determined in Section
2(a)(ii) above shall be referred to as an "Unapproved Change in
Control." A Change in Control which has been authorized, recommended
or approved by the Board of Directors as determined in Section 2(a)
(ii) above shall be referred to as an "Approved Change in Control."
(c) Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a Change in Control of Sheldahl occurring
after the date hereof, Executive will remain in the employ of Sheldahl
for a period of 12 months from the occurrence of such Change in Control
of Sheldahl.
3. Termination Following Change in Control. If a Change in Control shall
have occurred during the term of this Agreement and Executive's
employment is thereafter terminated, Executive shall be entitled to
the benefits provided in subsection 4(d) unless such termination is
(A) because of Executive's Death or Retirement, (B) by Sheldahl for
Cause or Disability, or (C) by Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due to
physical or mental illness, the Executive shall have been absent from
the full-time performance of Executive's duties with Sheldahl for six
consecutive months, and within 30 days after written Notice of
Termination is given the Executive shall not have returned to the full-
time performance of the Executive's duties, Sheldahl may terminate
Executive's employment for "Disability". Any question as to the
existence of Executive's Disability upon which Executive and Sheldahl
cannot agree shall be determined by a qualified independent physician
selected by Executive (or, if the Executive is unable to make such
selection, it shall be made by any adult member of the Executive's
immediate family), and approved by Sheldahl. The determination of
such physician made in writing to Sheldahl and to Executive shall be
final and conclusive for all purposes of this Agreement. Termination
by Executive of Executive's employment based on "Retirement" shall
mean retirement at or after the date the Executive has attained age 65.
(b) Cause. Termination by Sheldahl of Executive's employment for "Cause"
shall mean: (i) the willful and continued failure of Executive to
perform his essential duties; (ii) the willful engaging by Executive
in illegal conduct, or (iii) gross misconduct materially injurious to
Sheldahl, which, in the case of clause (i) and (iii), the Executive
has not cured, in the sole opinion of the Board, determined in good
faith, within 10 days of receipt of the Notice of Termination.
(c) Good Reason. Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without Executive's express written consent, any of the following:
(i) the assignment to Executive of any duties inconsistent with Executive's
status or position with Sheldahl, or a substantial reduction in the
nature or status of Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(ii) a reduction by Sheldahl in Executive's annual base salary in effect
immediately prior to a Change in Control;
(iii) the relocation of Sheldahl's principal executive offices to a location
more than fifty miles from Northfield, Minnesota or Sheldahl requiring
Executive to be based anywhere other than Sheldahl's principal
executive offices except for required travel on Sheldahl's business
to an extent substantially consistent with Executive's prior business
travel obligations;
(iv) the failure by Sheldahl to continue to provide Executive with benefits
a least as favorable to those enjoyed by Executive under any of
Sheldahl's pension, life insurance, medical, health and accident,
disability, deferred compensation, incentive awards, incentive stock
options, or savings plans in which Executive was participating at the
time of the Change in Control, the taking of any action by Sheldahl
which would directly or indirectly materially reduce any of such
benefits or deprive Executive of any material fringe benefit enjoyed
at the time of the Change in Control, or the failure by Sheldahl to
provide Executive with the number of paid vacation days to which
Executive is entitled at the time of the Change in Control, provided,
however, that Sheldahl may amend any such plan or programs as long as
such amendments do not reduce any benefits to which Executive would
be entitled upon termination;
(v) the failure of Sheldahl to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as
contemplated in Section 5; or
(vi) any purported termination of Executive's employment which is not made
pursuant to a Notice of Termination satisfying the requirements of
subsection (e) below; for purposes of this Agreement, no such purported
termination shall be effective.
(d) Voluntary Termination Deemed Good Reason. Notwithstanding anything
herein to the contrary, Executive may voluntarily terminate his
employment for any reason during the period commencing on the first
anniversary of the Change in Control and ending 30 days thereafter.
If an Unapproved Change in Control occurs, Executive may, in addition
to the opportunity provided in the preceding sentence, voluntarily
terminate his employment for any reason during the period commencing
on the 91st day following a Change in Control and ending on the 180th
day following a Change in Control. Any such termination shall be
deemed "Good Reason" for all purposes of this Agreement.
(e) Notice of Termination. Any purported termination of Executive's
employment by Sheldahl or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 7. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth the facts
and circumstances claimed to provide a basis for termination of
Executive's employment.
(f) Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean:
(i) if Executive's employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties
during such 30 day period); and
(ii) if Executive's employment is terminated pursuant to subsections (b),
(c) or (d) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a
termination pursuant to subsection (b) above shall not be less than
10 days, and in the case of a termination pursuant to subsection (c)
or (d) above shall not be less than 10 nor more than 30 days,
respectively, from the date such Notice of Termination is given).
(g) Dispute of Termination. If, within 10 days after any Notice of
Termination is given, the party receiving such Notice of Termination
notifies the other party in good faith that a dispute exists concerning
the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement
of the parties, or by a final judgement, order or decree of a court
of competent jurisdiction in accordance with subsection 11(a) (which
is not appealable or the time for appeal therefrom having expired and
no appeal having been perfected); provided, that the date of Termination
shall be extended by a notice of dispute only if such notice is given
in good faith and the party giving such notice pursues the resolution
of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, Sheldahl shall continue to pay Executive
full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, base salary) and continue
Executive as a participant in all compensation, benefit and insurance
plans in which the Executive was participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved
in accordance with this subsection. Amounts paid under this
subsection are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts
under this Agreement.
4. Compensation Upon Termination or During Disability. Following a Change
in Control of Sheldahl, as defined in subsection 2(a), upon termination
of Executive's employment or during a period of Disability, Executive
shall be entitled to the following benefits:
(a) During any period that Executive fails to perform full-time duties with
Sheldahl as a result of a Disability, Sheldahl shall pay Executive the
base salary of the Executive at the rate in effect at the commencement
of any such period, until such time as the Executive is determined to
be eligible for long term disability benefits in accordance with
Sheldahl's insurance programs then in effect.
(b) If Executive's employment shall be terminated by Sheldahl for Cause or
by Executive other than for Good Reason or Retirement, Sheldahl shall
pay to Executive his full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given and
Sheldahl shall have no further obligation to Executive under this
Agreement.
(c) If Executive's employment shall be terminated by Sheldahl for
Disability or by Executive for Retirement, or by reason of Death,
Sheldahl shall immediately commence payment to the Executive (or
Executive's designated beneficiaries or estate, if no beneficiary is
designated) any and all benefits to which the Executive is entitled
under Sheldahl's retirement and insurance programs then in effect.
(d) If Executive's employment by Sheldahl shall be terminated (A) by
Sheldahl other than for Cause or Disability or (B) by Executive for
Good Reason, then Executive shall be entitled to the benefits provided
below:
(i) Sheldahl shall pay Executive the Executive's full base salary through
the Date of Termination at the rate in effect at the time the Notice
of Termination is given;
(ii) In lieu of any further salary payments for periods subsequent to the
Date of Termination, Sheldahl shall pay a severance payment (the
"Severance Payment") equal to the amount described in (A) or (B)
below, whichever is applicable: (A) if an Unapproved Change in Control
occurs, 2.99 times the average of the annual compensation paid to
Executive by Sheldahl (or any corporation ("Affiliate") affiliated
with Sheldahl within the meaning of Section 1504 of the Internal
Revenue Code of 1986, as amended (the "Code")) and includable in
Executive's gross income for federal income tax purposes for the five
calendar years (or, if Executive has been employed by Sheldahl for less
than five years, the number of complete calendar years of employment)
(the "Base Period") preceding the earlier of the calendar year in which
a Change in Control of Sheldahl occurred or the calendar year of the
Date of Termination; or (B) if an Approved Change of Control occurs,
1.5 times such compensation. Such average shall be determined in
accordance with the temporary or final regulations promulgated under
Section 280G(e) of the Code. For purposes of this Section 4, except
as provided in the next sentence, compensation payable to Executive by
Sheldahl (or an Affiliate) shall include every type and form of
compensation includable in Executive's gross income for federal income
tax purposes. Compensation shall exclude compensation recognized as
the result of the exercise of stock options or sale of the stocks
acquired or any payments actually or constructively received with
respect to a plan of deferred compensation between Sheldahl and
Executive. The Severance Payment shall be made within 60 days after
the Date of Termination.
(iii) For the period of time after the Date of Termination on which the
Severance Payment is determined in accordance with paragraph (ii)
above, Executive shall be entitled to continue participation in the
life, disability, accident and health insurance benefit plans of
Sheldahl substantially similar to those which the Executive is
receiving or entitled to receive immediately prior to the Notice of
Termination. Sheldahl and Executive shall share the cost associated
with such coverage as if Executive were still actively employed by
Sheldahl. If Executive cannot be covered under any of Sheldahl's group
plans or policies, Sheldahl shall reimburse Executive for his full cost
of obtaining comparable alternative group or individual coverage
elsewhere, less any contribution that Executive would have been
required to make under Sheldahl's group plans or policies. Benefits
otherwise receivable by Executive pursuant to this paragraph (iii)
shall be reduced to the extent comparable benefits are actually
received by Executive during such period, and any such benefits
actually received by Executive shall be reported to Sheldahl.
(iv) The Severance Payment shall be reduced by the value of benefits
actually provided in (iii) above and by the amount of any other
payment or the value of any benefit received or to be received by
Executive in connection with the termination of employment or
contingent upon a Change in Control of Sheldahl (whether payable
pursuant to the terms of this Agreement, any other plan, agreement
or arrangement with Sheldahl or an Affiliate) unless (1) Executive
shall have effectively waived receipt or enjoyment of such payment or
benefit prior to the date of payment of the Severance Payment, (2) in
the opinion of tax counsel selected by Sheldahl and acceptable to
executive, such other payment or benefit does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the
Code, or (3) in the opinion of such tax counsel, the Severance Payment
(in its full amount or as partially reduced, as the case may be) plus
all other payments or benefits which constitute "parachute payments"
within the meaning of section 280G(b)(2) of the Code are reasonable
compensation for services actually rendered, within the meaning of
section 290G(b)(4) of the Code, and such payments are deductible by
Sheldahl. The value of any non-cash benefit or any deferred cash
payment shall be determined by Sheldahl in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
(v) If it is established pursuant to a final determination of a court or
an Internal Revenue Service proceeding that, notwithstanding the good
faith of Executive and Sheldahl in applying the terms of this
Subsection 4(d), the aggregate "parachute payments" paid to or for
Executive's benefit are in an amount that would result in any portion
of such "parachute payments" not being deductible by Sheldahl or its
Affiliates by reason of section 280G of the Code, then Executive
shall have an obligation to pay Sheldahl upon demand an amount equal
to the sum of (1) the excess of the aggregate "parachute payments" paid
to or for the Executive's benefit over the aggregate "parachute
payments" that would have been paid to or for the Executive's benefit
without any portion of such "parachute payments" not being deductible
by reason of section 280G of the Code; and (2) interest on the amount
set forth in clause (1) of this sentence at the applicable Federal
rate (as defined in section 1274(d) of the Code) from the date of
Executive's receipt of such excess until the date of such payment.
(vi) The Severance Payment shall be in lieu of and offset the amount of
any payment to which the Executive may be entitled to in connection
with the termination of employment pursuant to the provisions of
Sheldahl's Severance Pay Plan, Document No. HR04.14, as amended from
time to time, or any successor to such policy.
(e) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by
Executive as the result of employment by another employer or by
retirement benefits after the Date of Termination, or otherwise
except as specifically provided in this Section 4.
(f) In addition to all other amounts payable to Executive under this
Section 4, Executive shall be entitled to receive all benefits payable
to the Executive under the Sheldahl, Inc. Employee Savings Plan and
any other plan or agreement relating to retirement benefits or
otherwise generally applicable to executive employees.
5. Employee Agreement. Executive entered into an Employee Agreement with
Sheldahl in May 1996. The Employee Agreement contains certain
provisions regarding confidentiality and assignment of inventions
and non-compete provisions. If there is an Unapproved Change in
Control and thereafter Executive's employment with Sheldahl shall be
terminated (A) by Sheldahl other than for Cause or Disability, or (B)
by Executive for Good Reason (other than under Section 3(d) of this
Agreement), then the Executive shall be released from his non-compete
obligations under Section IV.B of the Employee Agreement. If there
is an Approved Change in Control and thereafter Executive's employment
with Sheldahl shall be terminated (A) by Sheldahl other than for Cause
or Disability, or (B) by Executive for Good Reason (other than under
Section 3(d) of this Agreement), then the Executive shall be released
from his non-compete obligations under Section IV.B of the Employee
Agreement following 12 months from the Date of Termination. All other
obligations of Executive under the Employee Agreement shall continue.
The Severance Payment shall constitute an offset against payments to
which Executive may be entitled to in connection with the Employee
Agreement and acceptance of such Severance Payment shall constitute
a waiver of such payments required under the Employee Agreement but
only up to the amount of the Severance Payment.
6. Funding of Payments. In order to assure the performance by Sheldahl
or its successor of its obligations under this Agreement, Sheldahl may
deposit in trust an amount equal to the maximum payment that will be
due the Executive under the terms hereof. Under a written trust
instrument, the Trustee shall be instructed to pay to the Executive
(or the Executive's legal representative, as the case may be) the
amount to which the Executive shall be entitled under the terms hereof,
and the balance, if any, of the trust not so paid or reserved for
payment shall be repaid to Sheldahl. If Sheldahl deposits funds in
trust, any payment therefrom shall be made within five days after the
occurrence of any event giving rise to Sheldahl's obligation to make
such payment hereunder. If and to the extent there are not amounts
in trust sufficient to pay Executive under this Agreement, Sheldahl
shall remain liable for any and all payments due to Executive. In
accordance with the terms of such trust, at all times during the term
of this Agreement Executive shall have no rights, other than as an
unsecured general creditor of Sheldahl, to any amounts held in trust
and all trust assets shall be general assets of Sheldahl and subject
to the claims of creditors of Sheldahl.
7. Successors; Binding Agreement.
(a) Sheldahl will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of Sheldahl to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that Sheldahl would be required to perform it if no such
succession had taken place. Failure of Sheldahl to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle
Executive to compensation from Sheldahl in the same amount and on the
same terms as he would be entitled hereunder if he terminated his
employment for Good Reason following a Change in Control, except that
for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, successors, heirs, and
designated beneficiaries. If executive should die while any amount
would still be payable to Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's designated beneficiaries, or, if there is no such
designated beneficiary, to the Executive's estate.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt requested,
postage pre-paid, addressed to the last known residence address of the
Executive or in the case of Sheldahl, to its principal office to the
attention of each of the then directors of Sheldahl with a copy to
its Secretary, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
9. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the parties. No waiver by either party
thereto at anytime of any breach by the other party to this Agreement
of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or
similar time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of
Minnesota.
10. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceablity of any other
provision of this Agreement, which shall remain in full force and
effect.
11. Arbitration and Award of Attorneys' Fees.
(a) Any dispute arising between the parties relating to this Agreement
shall be resolved by binding arbitration held in the City of
Minneapolis pursuant to the Rules of the American Arbitration
Association, except as hereinafter expressly modified. If the
disputing and responding parties are unable to agree upon a resolution
within forty-five business days after the responding party's receipt
of written notice from the disputing party setting forth the nature
of the dispute, within the following ten business days the disputing
and responding parties shall select a mutually acceptable single
arbitrator to resolve the dispute or, if the parties fail or are
unable to do so, each shall within the following ten business days
select a single arbitrator, and the two so selected shall select a
third arbitrator within the following ten business days. Such single
arbitrator or, as the case may be, panel of three arbitrators acting
by majority decision, shall resolve the dispute within sixty days
after the date such arbitrator, or the last of them so selected, is
selected, or as soon thereafter as practicable. If either party
refuses or fails to select an arbitrator within the time therefor,
the other party may do so on such refusing or failing party's behalf.
The arbitrators shall have no power to award any punitive or exemplary
damages but may construe or interpret but shall not ignore or vary
the terms of this Agreement and shall be bound by controlling law.
The parties acknowledge the Executive's failure to comply with any
confidentiality, non-solicit, and non-compete provisions of any
agreement to which the Executive is bound will cause immediate and
irreparable injury to Sheldahl and that therefore the arbitrators,
or a court of competent jurisdiction if an arbitration panel cannot
be immediately convened, will be empowered to provide injunctive
relief, including temporary or preliminary relief, to restrain any
such failure to comply. The arbitration award or other resolution
may be entered as a judgment at the request of the prevailing party
by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event Sheldahl fails to pay Executive any amounts owing to
Executive under this Agreement or to provide Executive any benefits
to which Executive is ultimately determined, by settlement, mediation,
arbitration, or by any court or other decision making body with
jurisdiction, to be entitled to under this Agreement, Sheldahl shall
pay the legal expenses (including reasonable attorneys' fees, court
costs and other out-of-pocket expenses), incurred by Executive to
enforce his rights under this Agreement and collect or obtain such
amounts or benefits.
12. Prior Agreement. This Agreement supersedes and replaces in its
entirety all prior agreements related to a change in control of
Sheldahl, including any prior Employment Agreement between Sheldahl
and Executive.
SHELDAHL, INC.
By /S/ James E. Donaghy
President and Chief Executive Officer
<PAGE>
Exhibit 10.5
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this 21st day of August, 1996 by and between Sheldahl,
Inc., a Minnesota corporation with its principal offices at Northfield,
Minnesota ("Sheldahl") and James E. Donaghy (the "Executive").
WHEREAS, Sheldahl considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interests of Sheldahl and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to Executive's
intimate knowledge of the business and affairs of Sheldahl, its policies,
methods, personnel and problems, a significant contribution to the
profitability, growth and financial strength of Sheldahl; and
WHEREAS, Sheldahl, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist and that such possibility and
the uncertainty and questions which it may raise among management, may
result in the departure or distraction of the Executive in the performance
of the Executive's duties to the detriment of Sheldahl and its shareholders;
and
WHEREAS, Executive is willing to remain in the employ of Sheldahl upon the
understanding that Sheldahl will provide income security if the Executive's
employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of Sheldahl and its stockholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction
and to ensure the continued availability to Sheldahl of the Executive in the
event of a Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until August 21, 1999. After August 21,
1999, this Agreement shall automatically renew for successive one-
year periods unless Sheldahl notifies the Executive of termination
of the Agreement at least sixty (60) days prior to the end of the
initial term or any renewal term. Notwithstanding the preceding
sentence, if a Change in Control occurs, this Agreement shall
continue in effect for a period of 36 months from the date of the
occurrence of a Change in Control. Notwithstanding anything herein
to the contrary, the Executive's employment shall be at all times at
the will of Sheldahl, and nothing in this Agreement shall prohibit
or limit the right of Sheldahl or Executive, prior to a Change in
Control, to terminate the employment of Executive for any reason or
for no reason.
2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of Sheldahl
shall mean a change in control which would be required to be reported
in response to Item 1 of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
Sheldahl is then subject to such reporting requirement, including,
without limitation, if:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) becomes a "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of Sheldahl representing 20% or more of the combined voting power
of Sheldahl's then outstanding securities;
(ii) there ceases to be a majority of the Board of Directors comprised
of : (A) individuals who on the date hereof constituted the Board
of Sheldahl, and (b) any new director who subsequently was elected
or nominated for election by a majority of the directors who held
such office immediately prior to a Change in Control; or
(iii) Sheldahl disposes of at least 75% of its assets, other than to an
entity owned 50% or greater by Sheldahl or any of its subsidiaries.
(b) A Change in Control which arises from a transaction or series of
transactions which are not authorized, recommended or approved by
formal action taken by the Board of Directors as determined in
Section 2(a)(ii) above shall be referred to as an "Unapproved Change
in Control." A Change in Control which has been authorized,
recommended or approved by the Board of Directors as determined in
Section 2(a)(ii) above shall be referred to as an "Approved Change
in Control."
(c) Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a Change in Control of Sheldahl occurring
after the date hereof, Executive will remain in the employ of Sheldahl
for a period of 12 months from the occurrence of such Change in
Control of Sheldahl.
3. Termination Following Change in Control. If a Change in Control
shall have occurred during the term of this Agreement and Executive's
employment is thereafter terminated, Executive shall be entitled to
the benefits provided in subsection 4(d) unless such termination is
(A) because of Executive's Death or Retirement, (B) by Sheldahl for
Cause or Disability, or (C) by Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due
to physical or mental illness, the Executive shall have been
absent from the full-time performance of Executive's duties with
Sheldahl for six consecutive months, and within 30 days after
written Notice of Termination is given the Executive shall not have
returned to the full-time performance of the Executive's duties,
Sheldahl may terminate Executive's employment for "Disability".
Any question as to the existence of Executive's Disability upon
which Executive and Sheldahl cannot agree shall be determined by
a qualified independent physician selected by Executive (or, if the
Executive is unable to make such selection, it shall be made by
any adult member of the Executive's immediate family), and approved
by Sheldahl. The determination of such physician made in writing
to Sheldahl and to Executive shall be final and conclusive for all
purposes of this Agreement. Termination by Executive of Executive's
employment based on "Retirement" shall mean retirement at or after
the date the Executive has attained age 65.
(b) Cause. Termination by Sheldahl of Executive's employment for "Cause"
shall mean: (i) the willful and continued failure of Executive to
perform his essential duties; (ii) the willful engaging by Executive
in illegal conduct, or (iii) gross misconduct materially injurious
to Sheldahl, which, in the case of clause (i) and (iii), the
Executive has not cured, in the sole opinion of the Board,
determined in good faith, within 10 days of receipt of the Notice
of Termination.
(c) Good Reason. Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without Executive's express written consent, any of the
following:
(i) the assignment to Executive of any duties inconsistent with
Executive's status or position with Sheldahl, or a substantial
reduction in the nature or status of Executive's responsibilities
from those in effect immediately prior to the Change in Control;
(ii) a reduction by Sheldahl in Executive's annual base salary in effect
immediately prior to a Change in Control;
(iii) the relocation of Sheldahl's principal executive offices to a
location more than fifty miles from Northfield, Minnesota or
Sheldahl requiring Executive to be based anywhere other than
Sheldahl's principal executive offices except for required travel
on Sheldahl's business to an extent substantially consistent with
Executive's prior business travel obligations;
(iv) the failure by Sheldahl to continue to provide Executive with
benefits a least as favorable to those enjoyed by Executive under
any of Sheldahl's pension, life insurance, medical, health and
accident, disability, deferred compensation, incentive awards,
incentive stock options, or savings plans in which Executive was
participating at the time of the Change in Control, the taking of
any action by Sheldahl which would directly or indirectly materially
reduce any of such benefits or deprive Executive of any material
fringe benefit enjoyed at the time of the Change in Control, or the
failure by Sheldahl to provide Executive with the number of paid
vacation days to which Executive is entitled at the time of the
Change in Control, provided, however, that Sheldahl may amend any
such plan or programs as long as such amendments do not reduce any
benefits to which Executive would be entitled upon termination;
(v) the failure of Sheldahl to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement, as
contemplated in Section 5; or
(vi) any purported termination of Executive's employment which is not
made pursuant to a Notice of Termination satisfying the requirements
of subsection (e) below; for purposes of this Agreement, no such
purported termination shall be effective.
(d) Voluntary Termination Deemed Good Reason. Notwithstanding anything
herein to the contrary, Executive may voluntarily terminate his
employment for any reason during the period commencing on the first
anniversary of the Change in Control and ending 30 days thereafter.
If an Unapproved Change in Control occurs, Executive may, in addition
to the opportunity provided in the preceding sentence, voluntarily
terminate his employment for any reason during the period commencing
on the 91st day following a Change in Control and ending on the 180th
day following a Change in Control. Any such termination shall be
deemed "Good Reason" for all purposes of this Agreement.
(e) Notice of Termination. Any purported termination of Executive's
employment by Sheldahl or by Executive shall be communicated by
written Notice of Termination to the other party hereto in
accordance with Section 7. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon
and shall set forth the facts and circumstances claimed to provide
a basis for termination of Executive's employment.
(f) Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean:
(i) if Executive's employment is terminated for Disability, 30 days
after Notice of Termination is given (provided that the Executive
shall not have returned to the full-time performance of the
Executive's duties during such 30 day period); and
(ii) if Executive's employment is terminated pursuant to subsections
(b), (c) or (d) above or for any other reason (other than Disability),
the date specified in the Notice of Termination (which, in the case
of a termination pursuant to subsection (b) above shall not be
less than 10 days, and in the case of a termination pursuant to
subsection (c) or (d) above shall not be less than 10 nor more than
30 days, respectively, from the date such Notice of Termination is
given).
(g) Dispute of Termination. If, within 10 days after any Notice of
Termination is given, the party receiving such Notice of Termination
notifies the other party in good faith that a dispute exists
concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
written agreement of the parties, or by a final judgement, order or
decree of a court of competent jurisdiction in accordance with
subsection 11(a) (which is not appealable or the time for appeal
therefrom having expired and no appeal having been perfected);
provided, that the date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any
such dispute, Sheldahl shall continue to pay Executive full
compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, base salary) and continue
Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when
the notice giving rise to the dispute was given, until the dispute
is finally resolved in accordance with this subsection. Amounts
paid under this subsection are in addition to all other amounts
due under this Agreement and shall not be offset against or reduce
any other amounts under this Agreement.
4. Compensation Upon Termination or During Disability. Following a
Change in Control of Sheldahl, as defined in subsection 2(a), upon
termination of Executive's employment or during a period of
Disability, Executive shall be entitled to the following benefits:
(a) During any period that Executive fails to perform full-time duties
with Sheldahl as a result of a Disability, Sheldahl shall pay
Executive the base salary of the Executive at the rate in effect at
the commencement of any such period, until such time as the Executive
is determined to be eligible for long term disability benefits in
accordance with Sheldahl's insurance programs then in effect.
(b) If Executive's employment shall be terminated by Sheldahl for Cause
or by Executive other than for Good Reason or Retirement, Sheldahl
shall pay to Executive his full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination
is given and Sheldahl shall have no further obligation to Executive
under this Agreement.
(c) If Executive's employment shall be terminated by Sheldahl for
Disability or by Executive for Retirement, or by reason of Death,
Sheldahl shall immediately commence payment to the Executive (or
Executive's designated beneficiaries or estate, if no beneficiary
is designated) any and all benefits to which the Executive is
entitled under Sheldahl's retirement and insurance programs then
in effect.
(d) If Executive's employment by Sheldahl shall be terminated (A) by
Sheldahl other than for Cause or Disability or (B) by Executive for
Good Reason, then Executive shall be entitled to the benefits
provided below:
(i) Sheldahl shall pay Executive the Executive's full base salary
through the Date of Termination at the rate in effect at the time
the Notice of Termination is given;
(ii) In lieu of any further salary payments for periods subsequent to
the Date of Termination, Sheldahl shall pay a severance payment (the
"Severance Payment") equal to the amount described in (A) or (B)
below, whichever is applicable: (A) if an Unapproved Change in
Control occurs, 2.99 times the average of the annual compensation
paid to Executive by Sheldahl (or any corporation ("Affiliate")
affiliated with Sheldahl within the meaning of Section 1504 of
the Internal Revenue Code of 1986, as amended (the "Code")) and
includable in Executive's gross income for federal income tax
purposes for the five calendar years (or, if Executive has been
employed by Sheldahl for less than five years, the number of
complete calendar years of employment) (the "Base Period") preceding
the earlier of the calendar year in which a Change in Control of
Sheldahl occurred or the calendar year of the Date of Termination;
or (B) if an Approved Change of Control occurs, 1.5 times such
compensation. Such average shall be determined in accordance with
the temporary or final regulations promulgated under Section 280G(e)
of the Code. For purposes of this Section 4, except as provided in
the next sentence, compensation payable to Executive by Sheldahl
(or an Affiliate) shall include every type and form of compensation
includable in Executive's gross income for federal income tax
purposes. Compensation shall exclude compensation recognized as
the result of the exercise of stock options or sale of the stocks
acquired or any payments actually or constructively received with
respect to a plan of deferred compensation between Sheldahl and
Executive. The Severance Payment shall be made within 60 days
after the Date of Termination.
(iii) For the period of time after the Date of Termination on which the
Severance Payment is determined in accordance with paragraph (ii)
above, Executive shall be entitled to continue participation in the
life, disability, accident and health insurance benefit plans of
Sheldahl substantially similar to those which the Executive is
receiving or entitled to receive immediately prior to the Notice
of Termination. Sheldahl and Executive shall share the cost
associated with such coverage as if Executive were still actively
employed by Sheldahl. If Executive cannot be covered under any of
Sheldahl's group plans or policies, Sheldahl shall reimburse
Executive for his full cost of obtaining comparable alternative
group or individual coverage elsewhere, less any contribution that
Executive would have been required to make under Sheldahl's group
plans or policies. Benefits otherwise receivable by Executive
pursuant to this paragraph (iii) shall be reduced to the extent
comparable benefits are actually received by Executive during such
period, and any such benefits actually received by Executive shall
be reported to Sheldahl.
(iv) The Severance Payment shall be reduced by the value of benefits
actually provided in (iii) above and by the amount of any other
payment or the value of any benefit received or to be received by
Executive in connection with the termination of employment or
contingent upon a Change in Control of Sheldahl (whether payable
pursuant to the terms of this Agreement, any other plan, agreement
or arrangement with Sheldahl or an Affiliate) unless (1) Executive
shall have effectively waived receipt or enjoyment of such payment
or benefit prior to the date of payment of the Severance Payment,
(2) in the opinion of tax counsel selected by Sheldahl and acceptable
to executive, such other payment or benefit does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the
Code, or (3) in the opinion of such tax counsel, the Severance
Payment (in its full amount or as partially reduced, as the case
may be) plus all other payments or benefits which constitute
"parachute payments" within the meaning of section 280G(b)(2) of
the Code are reasonable compensation for services actually rendered,
within the meaning of section 290G(b)(4) of the Code, and such
payments are deductible by Sheldahl. The value of any non-cash
benefit or any deferred cash payment shall be determined by Sheldahl
in accordance with the principles of sections 280G(d)(3) and (4) of
the Code.
(v) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding
the good faith of Executive and Sheldahl in applying the terms
of this Subsection 4(d), the aggregate "parachute payments" paid
to or for Executive's benefit are in an amount that would result
in any portion of such "parachute payments" not being deductible
by Sheldahl or its Affiliates by reason of section 280G of the Code,
then Executive shall have an obligation to pay Sheldahl upon demand
an amount equal to the sum of (1) the excess of the aggregate
"parachute payments" paid to or for the Executive's benefit over
the aggregate "parachute payments" that would have been paid to
or for the Executive's benefit without any portion of such
"parachute payments" not being deductible by reason of section
280G of the Code; and (2) interest on the amount set forth in
clause (1) of this sentence at the applicable Federal rate (as
defined in section 1274(d) of the Code) from the date of
Executive's receipt of such excess until the date of such payment.
(vi) The Severance Payment shall be in lieu of and offset the amount
of any payment to which the Executive may be entitled to in connection
with the termination of employment pursuant to the provisions of
Sheldahl's Severance Pay Plan, Document No. HR04.14, as amended
from time to time, or any successor to such policy.
(e) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided
for in this Section 4 be reduced by any compensation earned by
Executive as the result of employment by another employer or by
retirement benefits after the Date of Termination, or otherwise
except as specifically provided in this Section 4.
(f) In addition to all other amounts payable to Executive under this
Section 4, Executive shall be entitled to receive all benefits
payable to the Executive under the Sheldahl, Inc. Employee Savings
Plan and any other plan or agreement relating to retirement benefits
or otherwise generally applicable to executive employees.
5. Employee Agreement. Executive entered into an Employee Agreement
with Sheldahl in May 1996. The Employee Agreement contains certain
provisions regarding confidentiality and assignment of inventions
and non-compete provisions. If there is an Unapproved Change in
Control and thereafter Executive's employment with Sheldahl shall
be terminated (A) by Sheldahl other than for Cause or Disability,
or (B) by Executive for Good Reason (other than under Section 3(d)
of this Agreement), then the Executive shall be released from his
non-compete obligations under Section IV.B of the Employee
Agreement. If there is an Approved Change in Control and
thereafter Executive's employment with Sheldahl shall be terminated
(A) by Sheldahl other than for Cause or Disability, or (B) by
Executive for Good Reason (other than under Section 3(d) of this
Agreement), then the Executive shall be released from his non-compete
obligations under Section IV.B of the Employee Agreement following
12 months from the Date of Termination. All other obligations of
Executive under the Employee Agreement shall continue. The
Severance Payment shall constitute an offset against payments to
which Executive may be entitled to in connection with the Employee
Agreement and acceptance of such Severance Payment shall constitute
a waiver of such payments required under the Employee Agreement but
only up to the amount of the Severance Payment.
6. Funding of Payments. In order to assure the performance by Sheldahl
or its successor of its obligations under this Agreement, Sheldahl
may deposit in trust an amount equal to the maximum payment that will
be due the Executive under the terms hereof. Under a written trust
instrument, the Trustee shall be instructed to pay to the Executive
(or the Executive's legal representative, as the case may be) the
amount to which the Executive shall be entitled under the terms
hereof, and the balance, if any, of the trust not so paid or
reserved for payment shall be repaid to Sheldahl. If Sheldahl
deposits funds in trust, any payment therefrom shall be made within
five days after the occurrence of any event giving rise to Sheldahl's
obligation to make such payment hereunder. If and to the extent
there are not amounts in trust sufficient to pay Executive under
this Agreement, Sheldahl shall remain liable for any and all payments
due to Executive. In accordance with the terms of such trust, at all
times during the term of this Agreement Executive shall have no
rights, other than as an unsecured general creditor of Sheldahl,
to any amounts held in trust and all trust assets shall be general
assets of Sheldahl and subject to the claims of creditors of Sheldahl.
7. Successors; Binding Agreement.
(a) Sheldahl will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of Sheldahl to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that Sheldahl would be required to perform it if no
such succession had taken place. Failure of Sheldahl to obtain
such assumption and agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from Sheldahl in the same amount
and on the same terms as he would be entitled hereunder if he
terminated his employment for Good Reason following a Change in
Control, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, successors, heirs,
and designated beneficiaries. If executive should die while any
amount would still be payable to Executive hereunder if the Executive
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to the Executive's designated beneficiaries, or, if there is no
such designated beneficiary, to the Executive's estate.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or
mailed by United States registered or certified mail, return
receipt requested, postage pre-paid, addressed to the last known
residence address of the Executive or in the case of Sheldahl, to
its principal office to the attention of each of the then directors
of Sheldahl with a copy to its Secretary, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall
be effective only upon receipt.
9. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the parties. No waiver by
either party thereto at anytime of any breach by the other party
to this Agreement of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or similar time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota.
10. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceablity of
any other provision of this Agreement, which shall remain in full
force and effect.
11. Arbitration and Award of Attorneys' Fees.
(a) Any dispute arising between the parties relating to this Agreement
shall be resolved by binding arbitration held in the City of
Minneapolis pursuant to the Rules of the American Arbitration
Association, except as hereinafter expressly modified. If the
disputing and responding parties are unable to agree upon a
resolution within forty-five business days after the responding
party's receipt of written notice from the disputing party setting
forth the nature of the dispute, within the following ten business
days the disputing and responding parties shall select a mutually
acceptable single arbitrator to resolve the dispute or, if the
parties fail or are unable to do so, each shall within the following
ten business days select a single arbitrator, and the two so
selected shall select a third arbitrator within the following ten
business days. Such single arbitrator or, as the case may be, panel
of three arbitrators acting by majority decision, shall resolve the
dispute within sixty days after the date such arbitrator, or the
last of them so selected, is selected, or as soon thereafter as
practicable. If either party refuses or fails to select an
arbitrator within the time therefor, the other party may do so
on such refusing or failing party's behalf. The arbitrators
shall have no power to award any punitive or exemplary damages
but may construe or interpret but shall not ignore or vary the
terms of this Agreement and shall be bound by controlling law.
The parties acknowledge the Executive's failure to comply with
any confidentiality, non-solicit, and non-compete provisions of
any agreement to which the Executive is bound will cause immediate
and irreparable injury to Sheldahl and that therefore the arbitrators,
or a court of competent jurisdiction if an arbitration panel cannot
be immediately convened, will be empowered to provide injunctive
relief, including temporary or preliminary relief, to restrain any
such failure to comply. The arbitration award or other resolution
may be entered as a judgment at the request of the prevailing party
by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event Sheldahl fails to pay Executive any amounts owing to
Executive under this Agreement or to provide Executive any benefits
to which Executive is ultimately determined, by settlement,
mediation, arbitration, or by any court or other decision making
body with jurisdiction, to be entitled to under this Agreement,
Sheldahl shall pay the legal expenses (including reasonable attorneys'
fees, court costs and other out-of-pocket expenses), incurred by
Executive to enforce his rights under this Agreement and collect
or obtain such amounts or benefits.
12. Prior Agreement. This Agreement supersedes and replaces in its
entirety all prior agreements related to a change in control of
Sheldahl, including the Employment Agreement between Sheldahl
and Executive, except the provisions of Section 7 of the First
Amendment to Employment Agreement related to deferred compensation
shall remain in full force and effect and shall continue in effect
so long as Executive is employed by Sheldahl, even if this Agreement
terminates in accordance with the provisions of Section 1.
SHELDAHL, INC.
By /s/ James S. Womack
James S. Womack
<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
Sept 2, Sept 1, August 30,
1994 1995 1996
Primary Earnings Per Share:
Weighted average number of issued
share outstanding 5,155 6,692 8,414
Effect of exercise of stock options
under the treasury stock method 263 233 272
_____ _____ _____
Weighted average shares outstanding used to
compute primary earnings per share 5,418 6,925 8,686
===== ===== =====
Net income $2,816 $3,134 $4,772
===== ===== =====
Net income per share $ 0.52 $ 0.45 $ 0.55
===== ===== =====
Fully Diluted Earnings Per Share:
Weighted average number of issued
share outstanding 5,155 6,692 8,414
Effect of exercise of stock options
under the treasury stock method 278 279 223
_____ _____ _____
Weighted average shares outstanding used to
compute primary earnings per share 5,433 6,971 8,637
===== ===== =====
Net income $2,816 $3,134 $4,772
===== ===== =====
Net income per share $ 0.52 $ 0.45 $ 0.55
===== ===== =====
<PAGE>
Exhibit 18
October 11, 1996
Mr. John V. McManus
Vice President, Finance
Sheldahl, Inc.
1150 Sheldahl Road
Northfield, MN 55057
Re: Form 10-K Report for the Year Ended August 30, 1996
Dear Mr. McManus:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, effective August 30, 1996, the Company changed from
the LIFO cost method of accounting for inventories to the FIFO cost method of
accounting for inventories. According to management of the Company, this change
was made as management believes FIFO will more accurately measure operating
results by reflecting the effect of productivity improvements in cost of sales
and to better match current costs and revenues.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our opinion
stated below is based on our determination made in this method.
We are of the opinion that the Company's change in method of accounting is to
an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under
the circumstances in this particular case. In arriving at this opinion, we
have relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period subsequent to August 30, 1996, nor as of any interim period within
the three years ended August 30, 1996.
Very truly yours,
Arthur Andersen L.L.P.
<PAGE>
Exhibit 22
Sheldahl, Inc.
Subsidiary of Registrant
State or Jurisdiction of Incorporation Name of Subsidiary
U.S. Virgin Islands Sheldahl International Sales, Inc.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statement Nos. 2-75088, 2-96293,
33-22154, 33-33703, 33-40729 and 33-57888.
Arthur Andersen LLP
Minneapolis, Minnesota,
November 11, 1996
<PAGE>
