<PAGE>
SCHEDULE 14a
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box: / / Confidential, for Use of the
/ / Preliminary Proxy Statement Commission Only (as permitted
/X/ Definitive Proxy Statement by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to / / Rule 240.14a-11(c) or / / Rule
240.14a-12
Sheldahl, Inc.
_______________________________________________________________________________
(Name of Registrant as Specified in Its Charter)
_______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / $125 per Exchange Act Rule o-11(c)(1)(ii), 14a-6(i)(1) or Item
22(a)(2) of Schedule 14A
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[SHELDAHL, INC. LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 14, 1998
Notice is hereby given that the Annual Meeting of Shareholders of Sheldahl,
Inc. will be held at the Radisson Plaza Hotel, 35 South Seventh Street,
Minneapolis, Minnesota, on Wednesday, January 14, 1998 at 3:00 p.m., Central
Standard Time, for the following purposes:
1. To approve a proposal to amend the Company's Bylaws to reduce the
number of directors to seven.
2. To elect seven directors to hold office until the next Annual Meeting
of Shareholders or until their successors are elected.
3. To ratify and approve the Sheldahl, Inc. Employee Stock Purchase Plan.
4. To ratify and approve amendments to the Sheldahl, Inc. 1994 Stock
Plan.
5. To ratify and approve the selection of independent public accountants
for the Company for the current fiscal year.
6. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on November 19, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting.
By Order of the Board of Directors
Gerald E. Magnuson, SECRETARY
Northfield, Minnesota
December 5, 1997
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND
IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND
VOTE IN PERSON IF THEY SO DESIRE. THIS PROXY IS SOLICITED ON BEHALF OF THE
COMPANY.
<PAGE>
[SHELDAHL, INC. LOGO]
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Sheldahl, Inc.
(the "Company") in connection with the solicitation of proxies by the Board of
Directors of the Company to be voted at the Annual Meeting of Shareholders to be
held on January 14, 1998 or any adjournment or adjournments thereof. The cost
of this solicitation will be borne by the Company. In addition to solicitation
by mail, officers, directors and employees of the Company may solicit proxies by
telephone, telegraph or in person. The Company may also request banks and
brokers to solicit their customers who have a beneficial interest in the
Company's Common Stock registered in the names of nominees and will reimburse
such banks and brokers for their reasonable out-of-pocket expenses.
Any proxy may be revoked at any time before it is voted by receipt of a
proxy properly signed and dated subsequent to an earlier proxy, or by revocation
of a written proxy by request in person at the Annual Meeting; if not so
revoked, the shares represented by such proxy will be voted. The Company's
principal offices are located at 1150 Sheldahl Road, Northfield, Minnesota
55057, and its telephone number is (507) 663-8000. The mailing of this proxy
statement to shareholders of the Company commenced on or about December 5, 1997.
The total number of shares outstanding and entitled to vote at the meeting
as of November 19, 1997 consisted of 9,045,480 shares of $0.25 par value Common
Stock. Each share of Common Stock is entitled to one vote. Shareholders have
cumulative voting rights in connection with the election of directors by giving
written notice of intent to cumulate votes to any officer of the Company before
the meeting or to the presiding officer at the meeting. A shareholder may
cumulate votes for the election of directors by multiplying the number of votes
to which the shareholder may be entitled by seven (the number of directors to be
elected) and casting all such votes for one nominee or distributing them among
any two or more nominees. Only shareholders of record at the close of business
on November 19, 1997 will be entitled to vote at the meeting. The presence in
person or by proxy of the holders of a majority of the shares entitled to vote
at the Annual Meeting of Shareholders constitutes a quorum for the transaction
of business.
Under Minnesota law, each item of business properly presented at a meeting
of shareholders generally must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote on that item of business. However, if the shares
present and entitled to vote on that item of business would not constitute a
quorum for the transaction of business at the meeting, then the item must be
approved by a majority of the voting power of the minimum number of shares that
would constitute such a quorum. Votes cast by proxy or in person at the Annual
Meeting of Shareholders will determine whether or not a quorum is present.
Abstentions will be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of the matter submitted to the shareholders for a vote.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table includes information as of November 19, 1997 concerning
the beneficial ownership of Common Stock of the Company by (i) the only
shareholders known to the Company to hold more than five percent of the Common
Stock of the Company, (ii) each of the directors of the Company, (iii) each
executive officer named in the table on page 6, and (iv) all officers and
directors of the Company as a group. Unless otherwise indicated, all beneficial
owners have sole voting and investment power over the shares held.
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT OF CLASS
------------------------------------ ------ --------
Mellon Bank Corporation
One Mellon Center
Pittsburgh, PA 15258 918,000 (1) 10.15%
Trust Company of the West
865 S. Figero St., 21st Floor
Los Angeles, CA 90017 854,100 (1) 9.44%
Peter B. Cannell and Co., Inc.
919 Third Avenue
New York, NY 10022 716,238 (1) 7.92%
Ardsley Advisory Partners
646 Steamboat Road
Greenwich, CT 06830 467,500 (1) 5.17%
James E. Donaghy(2)(3) 216,634 (4)(5) 2.35%
James S. Womack(2) 68,658 (4) *
John G. Kassakian(2) 12,997 (4) *
Gerald E. Magnuson(2) 20,342 (4) *
William B. Miller(2) 22,000 (4) *
Kenneth J. Roering(2) 21,000 (4) *
Richard S. Wilcox(2) 109,155 (4)(6) 1.21%
Beekman Winthrop(2) 276,800 (4) 3.06%
Keith L. Casson(3) 54,200 (4) *
Edward L. Lundstrom(3) 62,502 (4) *
John V. McManus(3) 53,034 (4) *
Roger D. Quam(3) 74,040 (4) *
All Officers and Directors
as a Group (17 persons) 1,101,613 (4) 11.52%
2
<PAGE>
___________________________
* Less than one percent.
(1) Based upon information filed with the Securities and Exchange Commission on
Schedule 13G.
(2) Serves as a director of the Company and, except for Mr. Wilcox, has been
nominated for re-election.
(3) Serves as an executive officer of the Company and appears in the table on
page 6 hereof.
(4) Includes shares which may be purchased within sixty days from the date
hereof upon exercise of outstanding stock options in the amount of 163,377
shares for Mr. Donaghy, 13,143 shares for Mr. Womack, 54,200 shares for Mr.
Casson, 57,669 shares for Mr. Lundstrom, 39,578 shares for Mr. McManus,
53,721 shares for Mr. Quam, 6,000 shares for each of Messrs. Kassakian,
Magnuson, Miller, Roering and Wilcox, and 2,000 shares for Mr. Winthrop and
513,852 shares for all officers and directors as a group.
(5) Includes 44,701 shares held by the Donaghy Limited Partnership, of which
Mr. Donaghy is the General Partner and 8,556 shares held by the Donaghy
Living Trust, of which Mr. Donaghy is the trustee.
(6) Includes 35,400 shares held by a trust for the benefit of Mr. Wilcox's
daughter, for which he is trustee. Mr. Wilcox disclaims beneficial
ownership of the 35,400 shares.
REDUCTION OF THE NUMBER OF DIRECTORS
(PROPOSAL 1)
The present size of the Board of Directors is fixed at eight persons. Mr.
Richard S. Wilcox, a director since 1972, will not stand for re-election.
Consequently, the Board has determined that it would be in the best interests of
the Company to reduce the size of the Board to seven persons. Under provisions
of the Company's Bylaws and Minnesota law, the size of the Board may only be
reduced by a vote of the shareholders.
The following resolution will be presented to the shareholders for
approval.
RESOLVED, that Article II, Section 2 of the Bylaws of this corporation
be amended to read as follows:
"The Board of Directors of this corporation shall consist of seven
Directors, and a majority of the Directors then holding office shall
constitute a quorum."
Approval of this resolution requires the affirmative vote of a majority of
the shareholders present in person or by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THIS AMENDMENT
TO THE BYLAWS.
ELECTION OF DIRECTORS
(PROPOSAL 2)
Seven directors will be elected at the Annual Meeting to serve until the
next Annual Meeting of Shareholders or until their successors are elected. The
Board of Directors has nominated for election the seven persons named below.
All of the nominees are currently directors and all were elected by the
shareholders. It is intended that proxies will be voted for the named nominees.
Unless otherwise indicated,
3
<PAGE>
each nominee has been engaged in his present occupation as set forth below, or
has been an officer with the organization indicated, for more than the past five
years. The Board of Directors believes that each nominee named below will be
able to serve, but should any nominee be unable to serve as a director, the
persons named in the proxies have advised that they will vote for the election
of such substitute nominee as the Board of Directors may propose.
The names of the nominees, their principal occupations and other
information is set forth below, based upon information furnished to the Company
by the nominees.
PRINCIPAL OCCUPATION DIRECTOR
NAME AND AGE AND OTHER DIRECTORSHIPS SINCE
------------ ----------------------- -----
James E. Donaghy (63) Chief Executive Officer 1988
of the Company; prior to
1988, Director of
Planning and Development
for Dupont Electronics,
Wilmington, Delaware
(electronics
manufacturer); Director
of Hutchinson Technology,
Inc.
John G. Kassakian (54) Professor of Electrical 1985
Engineering and Director,
Laboratory for
Electromagnetic and
Electronic Systems,
Massachusetts Institute
of Technology, Cambridge,
Massachusetts; Director
of Ault Incorporated and
ISO New England.
Gerald E. Magnuson (67) Of Counsel, Lindquist & 1975
Vennum P.L.L.P.,
Minneapolis, Minnesota
(law firm); Partner of
Lindquist & Vennum
P.L.L.P. until December
1994; Secretary of the
Company; Director of
PremiumWear, Inc.,
Research, Incorporated
and Washington Scientific
Industries, Inc.
William B. Miller (65) Partner, Miller & 1991
Company, Ayr, Scotland
(business consulting);
prior to 1991, Managing
Director and Chairman,
Prestwick Holdings plc,
Ayr, Scotland (electronic
component manufacturer);
Director of Magnum Power
plc, Prestwick Aviation
Holdings Ltd., and
Stathclyde University
Incubator Ltd.
Kenneth J. Roering (55) Professor, School of 1988
Management, University of
Minnesota, Minneapolis,
Minnesota; Director of
TSI, Inc., Mountain Parks
Financial Group, Inc.,
Transport Corporation of
America, Inc. and Arctic
Cat, Inc.
4
<PAGE>
Beekman Winthrop (56) Private Investor; 1992
President of Woodwin
Management, Inc.
(investment advisor);
President and Director of
Central Coal & Coke
Corporation, Kansas City,
Missouri (management of
interests in coal, gas
and oil properties).
James S. Womack (69) Chairman of the Board of 1968
the Company; Director of
General Securities, Inc.
and Zytec Corp.
The Board of Directors met 14 times during fiscal year 1997. Each director
attended more than 75% of the meetings of the Board of Directors and Board
committees on which he served.
The Compensation Committee, which is currently comprised of Messrs. Roering
(Chairman), Magnuson and Womack, met three times during fiscal year 1997. The
Compensation Committee reviews and makes recommendations to the Board of
Directors regarding salaries, compensation and benefits of officers and key
employees.
The Audit Committee, which is currently comprised of Messrs. Wilcox
(Chairman), Kassakian, Magnuson, Miller, Roering, Winthrop and Womack, met once
during fiscal year 1997. Among other duties, the Committee reviews and
evaluates significant matters relating to the audit and internal controls of the
Company, reviews the scope and results of audits by, and the recommendations of,
the Company's independent auditors and approves additional services to be
provided by the auditors. The Committee reviews the activities of the Company's
internal audit staff and reviews audited financial statements of the Company.
The Nominating Committee, which is currently comprised of Messrs. Kassakian
(Chairman), Winthrop and Roering, met once in fiscal 1997. The Nominating
Committee was established at the end of fiscal 1995 to consider nominees for
election to the Board of Directors and to evaluate the performance of the Board
of Directors and individual directors. The Nominating Committee will consider a
nomination by a shareholder of a candidate for election as a director of the
Company. The Company's Bylaws provide that a notice of proposed shareholder
nominations for the election of directors must be timely given in writing to the
Secretary of the Company prior to the meeting at which directors are to be
elected. To be timely, the notice must be given by such shareholder to the
Secretary of the Company not less than 45 days nor more than 60 days prior to a
meeting date corresponding to the previous year's Annual Meeting. The Company's
Bylaws provide that the Annual Meeting shall be held on the second Wednesday in
January of each year. The notice to the Company from a shareholder who intends
to nominate a person at the meeting for election as a director must contain
certain information about such shareholder and the person(s) nominated by such
shareholder, including, among other things, the name and address of record of
such shareholder, a representation that the shareholder is entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting, the
name, age, business and residence addresses and principal occupation of each
nominee, such other information as would be required to be included in a proxy
statement soliciting proxies for the election of the proposed nominee(s), and
the consent of each nominee to serve as a director if so elected. The Company
may also require any proposed nominee to furnish other information reasonably
required by the Company to determine the proposed nominee's eligibility to serve
as director. If the presiding officer of a meeting of shareholders determines
that a person was not nominated in accordance with the foregoing procedure, such
person will not be eligible for election as a director.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending August 29, 1997,
August 30, 1996 and September 1, 1995, the cash compensation paid by the
Company, as well as certain other compensation paid or accrued for those years,
to James E. Donaghy, the Company's Chief Executive Officer, and to each of the
four other most highly compensated executive officers of the Company in office
at the end of fiscal year 1997, whose total cash compensation exceeded $100,000
during fiscal year 1997 (together with Mr. Donaghy, the "Named Executive
Officers") in all capacities in which they served:
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------
Securities All Other
Name and Underlying Compensa-
Principal Position Year Salary ($) Bonus ($) Options (1) tion($) (2)
- ------------------ ---- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
James E. Donaghy 1997 280,556 0 29,733 5,539
Chief Executive 1996 261,620 0 40,000 11,939
Officer 1995 256,203 0 7,719 8,998
Edward L. Lundstrom 1997 171,862 0 58,693 3,756
President 1996 159,812 0 35,000 8,286
1995 131,053 0 3,985 6,348
John V. McManus 1997 146,739 0 18,182 2,589
Vice President- 1996 134,458 0 30,000 5,743
Finance 1995 121,378 3,671 5,172
Keith L. Casson 1997 145,148 0 31,318 3,063
Vice President- 1996 118,433 0 30,000 6,420
Micro Products 1995 108,009 0 3,261 5,503
Roger D. Quam 1997 138,430 0 13,332 2,999
Vice President- 1996 132,985 0 30,000 6,805
Composite Materials 1995 124,577 0 3,762 6,071
</TABLE>
________________________
(1) Includes options granted in August 1997, subject to shareholder approval of
the amendments to the 1994 Stock Plan. See Proposal 4 for additional
information about the terms of these options and the Target Grant Program
under which such options were granted.
(2) These amounts represent the Company's basic and matching contributions to
the Company's 401(k) plan on behalf of such employees.
6
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's stock option plans to the Named Executive Officers
during the last fiscal year:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDER- GRANTED TO APPRECIATION
LYING EMPLOYEES EXERCISE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(1) YEAR PER SHARE DATE 5% 10%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James E. Donaghy 8,943 2.2% $15.38 10/31/06 $86,472 $219,137
20,790 5.1 22.00 08/19/07 287,644 728,946
Edward L. Lundstrom 5,529 1.4 15.38 10/31/06 53,461 135,481
53,164 13.0 22.00 08/19/07 735,560 1,864,054
John V. McManus 4,716 1.2 15.38 10/31/06 45,600 115,560
13,466 3.3 22.00 08/19/07 186,311 472,149
Keith L. Casson 4,543 1.1 15.38 10/31/06 43,927 111,321
20,000 4.9 21.00 03/18/07 264,136 669,372
8,300 2.0 22.00 08/19/07 114,836 291,017
Roger D. Quam 4,553 1.2 15.38 10/31/06 44,024 111,566
8,779 2.2 22.00 08/19/07 121,463 307,812
</TABLE>
___________________________________
(1) Options granted on August 19, 1997 represent options granted under the
Target Grant Program to bring the number of options of the Named Executive
up to the applicable Target Level. These options were granted subject to
shareholder approval of the amendments to the 1994 Stock Plan. See
Proposal 4 for additional information about the terms of these options and
the Target Grant Program under which such options were granted.
(2) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
market conditions, as well as the option holder's continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
7
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of fiscal year 1997:
<TABLE>
<CAPTION>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised In-the-Money
Underlying Options at
Unexercised Options at Fiscal Year-End
Fiscal Year-End
_________________________ ________________________
Shares
Acquired on Value
Name Exercise Realized(1) Exercisable Unexercisable Exercisable(2) Unexercisable(2)
- ---- -------- ----------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
James E. Donaghy 0 $0 155,044 44,956 $2,004,314 $118,491
Edward L. Lundstrom 0 0 51,003 73,997 534,893 144,547
John V. McManus 0 0 44,034 30,966 454,703 75,971
Keith L. Casson 4,121 36,059 29,200 45,800 208,871 148,997
Roger D. Quam 0 0 48,721 26,279 527,060 69,816
</TABLE>
_______________________
(1) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(2) Based on a per share price of $23.313 which is the average of the high and
low prices for the Company's Common Stock on August 29, 1997. Value is
calculated on the difference between the option exercise price and $23.313
multiplied by the number of shares of Common Stock underlying the options,
but before taxes associated with exercise.
BOARD COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Company's executives are generally made by
the three member Compensation Committee of the Board consisting of Messrs.
Roering (Chairman), Womack and Magnuson. All decisions by the Compensation
Committee relating to the compensation of the Company's executive officers are
reviewed by the full Board. Pursuant to rules designed to enhance disclosure of
companies' policies toward executive compensation, set forth below is a report
submitted by Messrs. Roering, Womack and Magnuson in their capacity as the
Board's Compensation Committee addressing the Company's compensation policies
for fiscal year 1997 as they affected the executive officers. The following
report shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 (the "1933 Act") or the Securities Exchange Act of 1934
(the "1934 Act"), except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under the 1933 Act or the 1934 Act.
COMPENSATION PHILOSOPHY. The Company's primary objective is to enhance
long-term shareholder value by safely and profitably providing products of the
highest value and quality for key markets. In furtherance of this objective,
the Company is committed to a strong, positive link between its business and
strategic goals and its compensation programs. The financial goals for
compensation plans are reviewed and approved by the Board in conjunction with
its approval of the Company's strategic and operating plans.
The Company's total compensation philosophy is designed to support its
overall objective of creating value for its shareholders. Key objectives of
this philosophy are:
8
<PAGE>
- Attract and retain key executives critical to the long-term success of
the Company.
- Support a performance-oriented environment that rewards performance
with respect to the Company's short and long-term financial goals.
- Emphasize pay for performance by having a significant portion of
compensation "at-risk," particularly for senior executives.
- Encourage maximum performance through the use of appropriate incentive
programs.
- Encourage employee stock ownership to enhance a mutuality of interest
with other shareholders.
The Company has designed its executive compensation programs around these
objectives. The Compensation Committee believes the Company's programs
consistently meet these goals. Following is a description of the Company's
current programs and how each design element relates to the objectives outlined
above.
BASE SALARY. The Compensation Committee annually reviews each officer's
salary, including those of the Named Executive Officers. In determining
appropriate salary levels, the Compensation Committee considers level of
responsibility, experience, individual performance, internal equity, as well as
external pay practices.
ANNUAL INCENTIVES. Annual incentive (performance bonus) award
opportunities are made to managerial and executive employees to recognize and
reward corporate and individual performance. Each year, the Compensation
Committee will approve the performance measures selected, as well as specific
financial targets used. The Compensation Committee believes these goals drive
the future success of the Company's business and enhance shareholder value.
The amount individual executives may earn is directly dependent upon the
individual's position, responsibility and ability to impact the Company's
financial success. Additionally, external market data is reviewed annually to
determine competitive incentive opportunities. Awarded amounts are related to
performance.
The short-term incentive plan is dependent on measured financial
performance. Every payout depends on results, not on efforts. Bonuses are paid
based upon attainment of financial goals for earnings growth. No bonuses were
paid to management in fiscal year 1997.
LONG-TERM INCENTIVES. The Company's overall long-term compensation
philosophy is that long-term incentives should be related to improvement in the
creation of long-term shareholder value. In furtherance of this objective, the
Company awards to its executive officers stock options.
STOCK OPTIONS. Stock options encourage and reward effective management
that results in long-term corporate financial success, as measured by stock
price appreciation. Stock options only have value for the executive officers if
the price of the Company's stock appreciates in value from the date the stock
options are granted. Shareholders also benefit from such stock price
appreciation.
In August 1997, the Committee approved, subject to shareholder approval,
the Company's Target Grant Program under the 1994 Stock Plan (the "Plan") and
established specific levels ("Target Levels") of options to be held by officers
and key employees (the "Participants"). Those levels were established based on
9
<PAGE>
the individual's position, level of responsibility and ability to impact the
Company's financial success. Options were granted in August 1997, subject to
shareholder approval, to bring the number of options held by Participants in the
Plan to their respective Target Level. Upon exercise of these options by the
Participants, new options will automatically be granted in order to maintain the
established Target Level. The Target Grant Program (the "Program") is intended
to increase the number of shares owned by the Company's executive officers and
key employees. The Program encourages option exercises by permitting an
optionee to exercise an option and be restored with a new option which replaces
the opportunity for future appreciation which that optionee would otherwise
lose. The Committee feels that this Program will more adequately align the
interests of officers and key employees with those of the shareholders and will
place greater emphasis on shareholder value creation and continued growth and
performance of the Company.
Under the terms of the Program, it is not intended that additional stock
options will be granted by the Board to the Participants except for changes in
responsibilities which may increase a Participant's Target Level or as otherwise
determined by the Board. Rather, new options (the "Replacement Options") will
be granted automatically up to an individual's Target Level as current options
are exercised. The Replacement Options will vest over three years and will have
an option exercise price equal to the fair market value on the date of grant.
The Committee believes this Program is consistent with the Company's objectives
to more heavily direct total compensation toward a long-term equity interest for
officers and key employees, with greater opportunity for reward if long-term
performance is sustained.
CHIEF EXECUTIVE OFFICER COMPENSATION. The salary and bonus of the Chief
Executive Officer is set by and subject to the discretion of the Compensation
Committee with Board approval. The compensation for James E. Donaghy, the Chief
Executive Officer, was determined by using a process and philosophy similar to
that used for all executives. For fiscal year 1997, Mr. Donaghy received no
bonus but was awarded options under the Company's Target Grant Program to
purchase 29,733 shares, subject to shareholder approval, thereby establishing
his Target Level at 200,000 options. None of the 29,733 options vested in
fiscal 1997. All of these options vest in increments through August 2000.
Submitted by the Compensation Committee of the
Company's Board of Directors
Kenneth J. Roering Gerald E. Magnuson James S. Womack
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Magnuson, a Director and a member of the Compensation Committee and the
Company's Secretary, is Of Counsel to the law firm of Lindquist & Vennum
P.L.L.P. which was paid for legal services rendered to the Company during the
last fiscal year. Mr. Magnuson receives no financial benefit on account of
amounts paid by the Company to Lindquist & Vennum P.L.L.P. for such services.
It is anticipated that Lindquist & Vennum P.L.L.P. will continue to perform
legal services for the Company during the current fiscal year. Mr. Womack,
Chairman of the Board and a member of the Compensation Committee, served as an
employee and the Chief Executive Officer of the Company prior to his resignation
in January 1992.
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this Proxy Statement a line graph presentation comparing cumulative, five-year
shareholder returns on an indexed basis with a broad market index and either a
nationally-recognized industry standard or an index of peer companies selected
by the Company. The Company has chosen the use of the Nasdaq Stock Market (U.S.
Companies)
10
<PAGE>
Index as its broad market index and the Nasdaq Electronic Component Stock Index
as its peer group index. The table below compares the cumulative total return
as of the end of each of the Company's last five fiscal years on $100 invested
as of August 28, 1992 in the Common Stock of the Company, the Nasdaq Stock
Market Index and the Nasdaq Electronic Component Stock Index, assuming the
reinvestment of all dividends. The performance graph is not necessarily
indicative of future investment performance.
[GRAPH]
<TABLE>
<CAPTION>
Aug. 28, Aug. 27, Sept. 2, Sept. 1, Aug. 30, Aug. 29,
1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sheldahl, Inc. 100 160.00 235.00 380.00 373.12 466.26
Nasdaq
Electronic
Component 100 198.12 208.32 415.35 421.50 855.52
Stocks Index
Nasdaq Stock
Market Index
(U.S.) 100 131.92 137.32 184.93 208.53 290.97
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees of the Company (currently all directors
except Mr. Donaghy) were paid during fiscal year 1997 an annual retainer of
$12,000 and a fee of $800 for each day of meetings of the Board of Directors or
any committee and Committee Chairmen were paid an additional $2,000 during
fiscal 1997. Each non-employee director currently receives an automatic grant of
options to purchase 2,000 shares on each date such director is elected or
re-elected to the Board. If Proposal 4 is adopted, the non-employee directors
will no longer receive annual automatic option grants. Instead, each
non-employee director will, upon approval of Proposal 4, receive a one-time
automatic grant of a number of options which when added to the number of options
owned by such director at the Annual Meeting will equal 25,000. These options
will be granted pursuant to the Target Grant Program described in Proposal 4.
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<PAGE>
Mr. Womack, receives, in addition to the director fees and stock options
noted above, a $10,000 annual retainer for serving as the Chairman of the Board.
In addition, the Company and Mr. Womack entered into a Consulting Agreement
during fiscal year 1988 which provides that the Company will retain Mr. Womack
as an independent consultant from the date immediately following his termination
of employment until his 75th birthday, unless another date is agreed upon by the
parties. This Agreement is currently in effect and Mr. Womack receives as
annual compensation under the Consulting Agreement $66,000, equaling 50% of the
average of his annual cash compensation for the five calendar years preceding
termination of employment (but not less than $125,000), less an amount equal to
an annual annuity that could be purchased with the principal in his retirement
accounts at the date of retirement provided from all retirement contributions by
the Company. The Consulting Agreement also restricts Mr. Womack from
competitive employment and disclosure of trade secrets and confidential
information.
Mr. Miller received $10,639 during fiscal year 1997 representing fees
relating to international consulting work performed on behalf of the Company.
Mr. Magnuson received $5,000 during fiscal year 1997 for his services as
Secretary of the Company.
In fiscal year 1982, the Company established a retirement program for
directors not covered by another retirement plan of the Company which provides
for the payment of an annual benefit equal to the annual retainer paid to
directors during the full fiscal year preceding retirement. The retirement
benefit, which is payable to directors who have served five years or more, will
commence at the later of the time of retirement or when the director becomes 65
years old and will be subject to proportionate reduction if the director has
served the Company less than 15 years. The maximum number of years that the
benefit is payable is ten years.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with all of its
executive officers. The employment agreements provide, among other things, for
a lump sum cash severance payment to such individuals equal to approximately
three times the individual's average annual compensation over the preceding five
years plus certain fringe benefits under certain circumstances following a
change in control of the Company if the change in control is not formally
approved by the Board of Directors and 1.5 times that compensation amount if the
change in control is approved by the Board of Directors and the officer
continues in the employ of the Company for a period of at least one year
following the change in control. In general, a "change in control" would
include a change resulting from the acquisition of 20% or more of the Company's
outstanding voting stock by any person, a change in the current members of the
Board of Directors or their successors elected or nominated by such members
whereby they cease to be a majority of the Board of Directors, or the Company
disposing of 75% or more of its assets, other than to an entity owned 50% or
more by the Company or one of its subsidiaries. The employment agreement with
Mr. Donaghy also requires the Company to pay Mr. Donaghy a salary of not less
than $185,600 annually, certain portions of which may be deferred. If a change
in control which was not approved by the Board of Directors had occurred at the
end of fiscal year 1997, the following individuals would have received the
approximate payment indicated pursuant to the employment agreements: Mr.
Donaghy, $763,929; Mr. Lundstrom, $414,069; Mr. Casson, $328,066; Mr. Quam,
$389,175; Mr. McManus, $362,268; and all current executive officers as a group,
$3,600,827.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. These
insiders are
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<PAGE>
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file, including Forms 3, 4
and 5.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended August 29, 1997, all Section
16(a) filing requirements applicable to its insiders were complied with.
ADOPTION OF
SHELDAHL, INC. EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL 3)
The Board of Directors adopted the Sheldahl, Inc. Employee Stock Purchase
Plan (the "Plan"), subject to approval by the shareholders. The purpose of the
Plan is to facilitate the purchase by employees of shares of Common Stock in the
Company in order to provide a greater community of interest between the Company
and its employees. In general, the Plan permits employees to purchase shares of
Common Stock of the Company at a price equal to the lesser of 85% of the value
of the Common Stock on the commencement date of a period (the "Commencement
Date") or 85% of the value of a share of Common Stock on the date of termination
of a period (the "Termination Date"). Each year during the term of the Plan
shall reflect two periods, the first commencing on January 1 and terminating on
June 30 and the second period commencing on July 1 and terminating on December
31 (each a "Period"). The effective date of the Plan is January 1, 1998 and it
shall terminate on January 1, 2003.
There are 250,000 shares of the Company's Common Stock, $.25 par value,
reserved for issuance under the Plan and eligible employees will not pay any
consideration to the Company in order to receive the options.
TERM OF THE PLAN. The Plan shall terminate on January 1, 2003. No Period
may run concurrently, but a Period may commence immediately after the
termination of a preceding Period.
ELIGIBILITY. Any employee of the Company who has completed at least six
months of continuous service on or prior to the Commencement Date of the
applicable Period shall be eligible to participate in the Plan. Notwithstanding
anything to the contrary in the Plan, no employee may be granted an option under
the Plan to purchase shares of Common Stock if such employee, immediately after
the grant of the option, would own stock (including shares subject to the
option) possessing 5% or more of the total combined voting power or value of all
classes of issued and outstanding stock of the Company. In addition, no
Participant may be granted an option to purchase shares of Common Stock that
permit the Participant to purchase shares in any calendar year under the Plan
with an aggregate fair market value in excess of $25,000. By action of the
respective boards of directors, employees of any subsidiary of the Company also
may participate.
PARTICIPATION. Eligible employees elect to participate in the Plan by
completing payroll deduction authorization forms on the Commencement Date of the
applicable Period of the Plan. Payroll deductions are limited to 7% of a
Participant's base pay for the term of the Plan and the minimum authorization is
2% of a Participant's pay per pay period.
TERMS AND CONDITIONS OF OPTIONS. As of the Commencement Date of the
applicable Period of the Plan, an eligible employee who elects to participate in
the Plan shall be granted an option for as many full shares as he or she will be
able to purchase pursuant to the payroll deduction procedure. The option price
for employees who participate on a particular Commencement Date shall be the
lesser of: (i) 85% of the fair
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<PAGE>
market value of the shares on the Commencement Date, or (ii) 85% of the fair
market value of the shares on the Termination Date of the applicable Period of
the Plan.
EXERCISE AND WITHDRAWAL. Exercise of the option occurs automatically on a
particular Termination Date, unless a Participant gives written notice prior to
such date as to an election not to exercise. A Participant may, at any time
during the term of the Plan, give notice that he or she does not wish to
continue to participate, and all amounts withheld will be refunded without
interest accrued thereon.
ADMINISTRATION AND AMENDMENT. The Plan shall be administered by a
Committee consisting of not less than two members who shall be appointed by the
Board of Directors. Each member of such Committee shall be either a director,
officer or an employee of the Company. The Board of Directors may at any time
amend the Plan, except that no amendment may make changes in options already
granted which would adversely affect the rights of any Participant.
INCOME TAX CONSEQUENCES AND REGISTRATION WITH SEC. The Company believes
that the Plan is a "qualified" plan under Section 423 of the Internal Revenue
Code of 1986, as amended. Under the Internal Revenue Code, no income will
result to a grantee of an option upon the granting or exercise of an option, and
no deduction will be allowed to the Company. The gain, if any, resulting from a
disposition of the shares received by a Participant will be reported according
to the provisions of Section 423 of the Internal Revenue Code and will be taxed
in part as ordinary income and in part as capital gain.
The Company has filed with the SEC, pursuant to the Securities Act of 1933,
as amended, a registration statement covering the offering of shares under the
Plan, and a prospectus has been or will be delivered to each eligible employee
prior to the time when an election to participate must be made.
CERTAIN BENEFITS. Because the Plan has not yet commenced and employees
determine their own levels of participation, the Company cannot determine the
benefits or amounts that will be received by or allocated to eligible employees.
SHAREHOLDER APPROVAL. The affirmative vote of the holders of a majority of
the Common Stock of the Company, voting at the meeting in person or by proxy, is
required for the approval of the Employee Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL AND RATIFICATION OF
THE SHELDAHL, INC. EMPLOYEE STOCK PURCHASE PLAN.
AMENDMENTS TO THE 1994 STOCK PLAN
(PROPOSAL 4)
GENERAL INFORMATION
On October 14, 1994, the Company's Board of Directors adopted, and on
January 11, 1995 the shareholders of the Company approved and ratified the
adoption of, the Sheldahl, Inc. 1994 Stock Plan (the "1994 Plan"). The purpose
of the 1994 Plan is to enable the Company and its subsidiaries to retain and
attract key employees, consultants and non-employee directors who contribute to
the Company's success by their ability, ingenuity and industry, and to enable
such key employees, consultants and non-employee directors to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company. The 1994 Plan authorizes the granting of awards in any
of the following forms: (i) stock options, (ii) stock appreciation rights, (iii)
restricted stock, and (iv) deferred stock.
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<PAGE>
The principal features of the 1994 Plan are summarized below.
SHARES AVAILABLE UNDER 1994 PLAN. The maximum number of shares of Common
Stock reserved and available under the 1994 Plan for awards is 1,000,000
(subject to possible adjustment in the event of stock splits or other similar
changes in the Common Stock). Included in Proposal 4 is an amendment to
increase the number of shares reserved under the 1994 Plan by 200,000 shares
currently and to provide for further automatic increases in such reserved shares
in the future. Shares of Common Stock covered by expired or terminated stock
options and forfeited shares of restricted stock or deferred stock may be used
for subsequent awards under the 1994 Plan.
ELIGIBILITY AND ADMINISTRATION. Officers and other key employees of the
Company and its subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
subsidiaries, as well as consultants and non-employee directors, are eligible to
be granted awards under the 1994 Plan. The 1994 Plan is administered by the
Board or, in its discretion, by a committee of not less than three "non-employee
directors," as defined in the 1994 Plan (the "Committee"), who are appointed by
the Board of Directors. The term "Board" as used in the 1994 Plan refers to the
Board or, if the Board has delegated its authority, the Committee. The Board
has the power to make awards, determine the number of shares covered by each
award and other terms and conditions of such awards, interpret the 1994 Plan,
and adopt rules, regulations and procedures with respect to the administration
of the 1994 Plan.
AMENDMENTS TO THE 1994 PLAN
The proposed amendments to the 1994 Plan are as follows:
INCREASE IN THE NUMBER OF SHARES AVAILABLE UNDER THE 1994 PLAN. The 1994
Plan authorizes the issuance of 1,000,000 shares of Common Stock pursuant to
stock options, restricted stock and deferred stock granted under the 1994 Plan.
On August 19, 1997, the Board of Directors amended the 1994 Plan, subject to
ratification and approval of the shareholders, to increase the total number of
shares available under the 1994 Plan by 200,000 shares to a total of 1,200,000
shares. There were outstanding on November 11, 1997 options to purchase 796,582
shares under the 1994 Plan. Therefore, absent shareholder approval of this
amendment to the 1994 Plan, only 185,181 shares remain available under the 1994
Plan for awards. The Board of Directors has deemed it advisable to increase the
shares available for grant under the 1994 Plan by 200,000 shares to facilitate
future stock option grants, restricted stock awards and deferred stock awards.
INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR FUTURE GRANTS. On August 19,
1997, the Board adopted, subject to ratification and approval of the
shareholders, an amendment to the 1994 Plan providing that the number of shares
reserved for issuance pursuant to awards granted under the 1994 Plan shall be
increased each time the number of shares available for grant shall have been
fully granted (the "Reset Date"). On each Reset Date, the number of shares
reserved for issuance under the 1994 Plan shall be automatically increased to an
amount equal to 12% of the total number of shares of Common Stock outstanding on
such date minus the number of shares subject to outstanding awards on such date.
The Company believes this amendment will give it the necessary flexibility of
having additional shares available for granting of awards under the 1994 Plan
primarily to be used in connection with the Target Grant Program described
below. Therefore, the Board believes that this proposal is the in the best
interests of the Company and its shareholders.
ADOPTION OF TARGET GRANT PROGRAM. On August 19, 1997, the Compensation
Committee (the "Committee") of the Board of Directors established, subject to
approval and ratification by the shareholders, the Target Grant Program (the
"Program"). Under the Program, the Committee established the minimum
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<PAGE>
level of Options to be held (the "Target Level") by each officer and key
employee of the Company (each, a "Target Optionee"). Each Target Optionee's
Target Level, which is subject to change, is based on the position held by the
Target Optionee and the level of responsibility, as determined by the Committee.
On August 19, 1997, options were granted, subject to shareholder approval, to
bring each Target Optionee to the Target Level (options equal to the Target
Level are referred to as "Target Options"). Because many of the Target
Optionees already hold options, 190,051 options were granted in August to 26
employees under the Program to bring the Target Optionee's total number of
Options to the Target Level. Existing pre-Program options of each Target
Optionee will continue to be exercisable in accordance with their original
terms. All other Target Options will vest equally over three years, and have an
option exercise price of fair market value on the date of grant.
Target Optionees are granted new options ("Replacement Options") to
maintain their Target Level automatically on each date a Target Option is
exercised. The exercise price of each Replacement Option is the fair market
value on the date of grant of the Replacement Options. These Replacement
Options expire ten years from the date of grant and are subject to various
restrictions, including the following: (a) availability of sufficient shares
for grant under the Plan or shareholder approval of an increase in shares
reserved under the Plan to cover such grant; (b) no optionee shall receive
grants of stock options which exceed 200,000 shares during any fiscal year of
the Company; (c) the Target Optionee must be employed by the Company (or be a
director) at the time the grant of a Replacement Option is made; (d) Replacement
Option provisions terminate upon a public announcement of a change of control;
(e) no optionee shall receive option grants in addition to the Replacement
Option, except for changes in responsibilities which increase the Target Level
or as otherwise determined by the Board; (f) Target Levels may decrease as a
result of a decrease in responsibilities, non-performance or change in title, as
determined by the Board. If this Proposal is approved by the shareholders,
Messrs. Donaghy, Lundstrom, McManus, Casson and Quam will hold options under the
Company's Target Grant Program to purchase 200,000, 125,000, 75,000, 75,000 and
75,000 shares, respectively.
GRANT OF TARGET OPTIONS TO NON-EMPLOYEE DIRECTORS. Under the Program, each
non-employee director who is first elected at an annual or special meeting of
shareholders of the Company, shall, as of the date of such election,
automatically be granted an option to purchase 25,000 shares of stock at the
option price per share equal to the fair market value of the Company's stock on
such date. All such options include the automatic grant feature of Replacement
Options and shall be subject to the same terms and provisions as are in effect
with respect to the granting of options with Replacement Options to officers and
employees of the Company under the Program, except that (i) all Target Options
expire one year after such non-employee director's departure from the Board (or
such longer period as shall be specified by the Committee at such director's
departure); and (ii) the Target Level for non-employee directors shall be 25,000
shares. Subject to shareholder approval of the Program, on the date of the
Annual Meeting each non-employee director shall be automatically granted an
option to purchase such number of shares which, when added to the number of
options currently held by such director, equals 25,000 shares of stock. The
options shall be granted at an option exercise price equal to the fair market
value of the Company's stock on such date and shall vest equally over thee
years. If this Proposal is approved by the shareholders, assuming no further
option exercises by the directors prior to the Annual Meeting, Messrs.
Kassakian, Magnuson, Miller and Roering will each receive options to purchase
19,000 shares, Mr. Womack will receive options to purchase 11,857 shares and Mr.
Winthrop will receive options to purchase 23,000 shares, bringing each of them
to their Target Level of 25,000 options. If this Proposal is approved by the
shareholders, non-employee directors will no longer receive automatice grants of
options to purchase 2,000 shares on each date they are elected or re-elected to
the Board.
INCREASE IN ANNUAL CAP ON GRANTS. Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") limits the Company's deduction for federal
income tax purposes of compensation in
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excess of $1 million per individual paid to the Company's Chief Executive
Officer and its four highest paid executive officers. Compensation plans which
have an annual cap on the number of shares that may be granted to any given
individual will not be subject to the deduction limit. The 1994 Plan currently
has an annual cap of 100,000 on the amount of shares subject to an option grant.
In October 1997, the Board of Directors amended the 1994 Plan, subject to
ratification and approval of the shareholders, to increase the annual cap to
200,000 shares. By adopting this change, the Company may deduct any
compensation expense resulting from the grant or exercise of options issued
under the Plan without regard to the limitations under Code Section 162(m),
including options to the individuals described above.
SUMMARY OF THE 1994 PLAN
STOCK OPTIONS. The Board may grant stock options that either qualify as
"incentive stock options" under the Code or are "non-qualified stock options" in
such form and upon such terms as the Board may approve from time to time. Stock
options granted under the 1994 Plan may be exercised during their respective
terms as determined by the Board. The purchase price may be paid by tendering
cash or, in the Board's discretion, by tendering promissory notes or Common
Stock. The optionee may elect to pay all or part of the option exercise price
by having the Company withhold upon exercise of the option a number of shares
with a fair market value equal to the aggregate option exercise price for the
shares with respect to which such election is made. No stock option is
transferable by the optionee or exercisable by anyone else during the optionee's
lifetime.
Stock options may be exercised during varying periods of time after a
participant's termination of employment, depending upon the reason for the
termination. Following a participant's death, the participant's stock options
may be exercised to the extent they were exercisable at the time of death by the
legal representative of the estate or the optionee's legatee for a period of one
year or until the expiration of the stated term of the option, whichever is
less. The same time periods apply if the participant is terminated by reason of
disability. If the participant retires, the participant's stock options may be
exercised to the extent they were exercisable at the time of retirement or for a
period of three months (or such longer period as determined by the Board at the
time of retirement) from the date of retirement or until the expiration of the
stated term of the option, whichever is less. If the participant is
involuntarily terminated without cause, the participant's options may be
exercised to the extent they were exercisable at the time of termination for the
lesser of three months or the balance of the stated term of the option. If the
participant's employment is terminated for cause, the participant's stock
options immediately terminate. These exercise periods may be reduced by the
Board for particular options. The Board may, in its discretion, accelerate the
exercisability of stock options which would not otherwise be exercisable upon
death, disability or retirement.
No incentive stock option may be granted under the 1994 Plan after October
14, 2004. The term of an incentive stock option may not exceed 10 years (or 5
years if issued to a participant who owns or is deemed to own more than 10% of
the combined voting power of all classes of stock of the Company, any subsidiary
or affiliate). The aggregate fair market value of the Common Stock with respect
to which an incentive stock option is exercisable for the first time by an
optionee during any calendar year may not exceed $100,000. The exercise price
under an incentive stock option may not be less than the fair market value of
the Common Stock on the date the option is granted (or, in the event the
participant owns more than 10% of the combined voting power of all classes of
stock of the Company, the option price must be not less than 110% of the fair
market value of the stock on the date the option is granted). The exercise
price for non-qualified options granted under the 1994 Plan may be less than
100% of the fair market value of the Common Stock on the date of grant.
STOCK APPRECIATION RIGHTS. The Board may grant stock appreciation rights
("SARs") in connection with all or part of any stock option (with the exception
of options granted to non-employee directors), either
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<PAGE>
at the time of the stock option grant, or, in the case of non-qualified options,
later during the term of the stock option. SARs entitle the participant to
receive from the Company the same economic value that would have been derived
from the exercise of an underlying stock option and the immediate sale of the
shares of Common Stock. Such value is paid by the Company in cash, shares of
Common Stock or a combination of both, in the discretion of the Board. SARs are
exercisable or transferable only at such times and to the extent stock options
to which they relate are exercisable or transferable. If an SAR is exercised,
the underlying stock option is terminated as to the number of shares covered by
the SAR exercise.
RESTRICTED STOCK. The Board may grant restricted stock awards that result
in shares of Common Stock being issued to a participant subject to restrictions
against disposition during a restricted period established by the Board. The
Board may condition the grant of restricted stock upon the attainment of
specified performance goals or service requirements. The provisions of
restricted stock awards need not be the same with respect to each recipient.
The restricted stock will be held in custody by the Company until the
restrictions thereon have lapsed. During the period of the restrictions, a
participant has the right to vote the shares of restricted stock and to receive
dividends and distributions unless the Board requires such dividends and
distributions to be held by the Company subject to the same restrictions as the
restricted stock. Notwithstanding the foregoing, all restrictions with respect
to restricted stock lapse 60 days (or less as determined by the Board) prior to
the occurrence of a merger or other significant corporate change, as provided in
the 1994 Plan.
If a participant terminates employment during the period of the
restrictions, all shares still subject to restrictions will be forfeited and
returned to the Company, subject to the right of the Board to waive such
restrictions in the event of a participant's death, total disability, retirement
or under special circumstances approved by the Board.
DEFERRED STOCK. The Board may grant deferred stock awards that result in
shares of Common Stock being issued to a participant or group of participants
upon the expiration of a deferral period. The Board may condition the grant of
deferred stock upon the attainment of specified performance goals. The
provisions of deferred stock awards need not be the same with respect to each
recipient.
Upon termination of employment for any reason during the deferral period
for a given award, the deferred stock in question will be forfeited by the
participant, subject to the Board's ability to waive any remaining deferral
limitations with respect to a participant's deferred stock. During the deferral
period, deferred stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered and any dividends declared with respect to the number of
shares covered by a deferred stock award will either be immediately paid to the
participant or deferred and deemed to be reinvested in additional deferred
stock, as determined by the Board. The Board may allow a participant to elect
to further defer receipt of a deferred stock award for a specified period or
until a specified event.
FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTIONS. An optionee will not realize taxable compensation income
upon the grant of an incentive stock option. In addition, an optionee generally
will not realize taxable compensation income upon the exercise of an incentive
stock option if he or she exercises it as an employee or within three months
after termination of employment (or within one year after termination if the
termination results from a permanent and total disability). The amount by which
the fair market value of the shares purchased exceeds the aggregate option price
at the time of exercise will be alternative minimum taxable income for purposes
of applying the alternative minimum tax. If stock acquired pursuant to an
incentive stock option is not disposed of prior to the date two years from the
option grant date or prior to one year from the option exercise date (the
"Applicable Holding Periods"), any gain or loss realized upon the sale of such
shares will be characterized as
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<PAGE>
capital gain or loss. If the Applicable Holding Periods are not satisfied, then
any gain realized in connection with the disposition of such stock will
generally be taxable as ordinary compensation income in the year in which the
disposition occurred, to the extent of the difference between the fair market
value of such stock on the date of exercise and the option exercise price. The
Company is entitled to a tax deduction to the extent, and at the time, the
participant realizes compensation income. The balance of any gain will be
characterized as a capital gain. Under current law, net capital gains are taxed
at a maximum federal rate of 28% while compensation income may be taxed at
higher federal rates.
An optionee will not realize taxable compensation income upon the grant of
a non-qualified stock option. As a general matter, when an optionee exercises a
non-qualified stock option, he or she will realize taxable compensation income
at that time equal to the difference between the aggregate option price and the
fair market value of the stock on the date of exercise. The Company is entitled
to a tax deduction to the extent, and at the time, the participant realizes
compensation income.
SARs. The grant of an SAR would not result in income for the participant
or in a deduction for the Company. Upon receipt of shares or cash from exercise
of an SAR, the participant would generally recognize compensation income, and
the Company would be entitled to a deduction, measured by the fair market value
of the shares plus any cash received.
RESTRICTED STOCK AND DEFERRED STOCK. The grant of restricted stock and
deferred stock should not result in immediate income for the participant or in a
deduction for the Company for federal income tax purposes, assuming the shares
are nontransferable and subject to restrictions or to a deferral period which
would result in a "substantial risk of forfeiture" as intended by the Company
and as defined in applicable Treasury regulations. If the shares are
transferable or there are no such restrictions or significant deferral periods,
the participant will realize compensation income upon receipt of the award.
Otherwise, a participant generally will realize taxable compensation when any
such restrictions or deferral period lapses. The amount of such income will be
the value of the Common Stock on that date less any amount paid for the shares.
Dividends paid on the Common Stock and received by the participant during the
restricted period or deferral period also will be taxable compensation income to
the participant. In any event, the Company will be entitled to a tax deduction
to the extent, and at the time, the participant realizes compensation income. A
participant may elect, under Section 83(b) of the Code, to be taxed on the value
of the stock at the time of award. If the election is made, the fair market
value of the stock at the time of the award is taxable to the participant as
compensation income and the Company is entitled to a corresponding deduction.
WITHHOLDING. The 1994 Plan requires each participant, no later than the
date as of which any part of the value of an award first becomes includible as
compensation in the gross income of the participant, to pay to the Company any
federal, state or local taxes required by law to be withheld with respect to the
award. The Company, to the extent permitted by law, has the right to deduct any
such taxes from any payment otherwise due to the participant. With respect to
any award under the 1994 Plan, if the terms of the award so permit, a
participant may elect to satisfy part or all of the withholding tax requirements
associated with the award by (i) authorizing the Company to retain from the
number of shares of Company Common Stock which would otherwise be deliverable to
the participant, or (ii) delivering to the Company from shares of Company Common
Stock already owned by the participant that number of shares having an aggregate
fair market value equal to part or all of the tax payable by the participant.
In that case, the Company would pay the tax liability from its own funds.
19
<PAGE>
REGISTRATION WITH THE SEC
Upon approval of the amendment to the 1994 Plan by the shareholders, the
Company intends to file a registration statement covering the offering of the
additional shares of Common Stock issuable under the 1994 Plan with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
VOTE REQUIRED
Shareholder approval of the amendments to the 1994 Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL AND RATIFICATION OF
THE AMENDMENTS TO THE 1994 STOCK PLAN.
APPROVAL OF AUDITORS
(PROPOSAL 5)
Arthur Andersen LLP, independent public accountants, have been auditors for
the Company since 1955. They have been reappointed by the Board of Directors,
upon recommendation of its Audit Committee, as the Company's auditors for the
current fiscal year, and shareholder approval of the appointment is requested.
In the event the appointment of Arthur Andersen LLP is not approved by the
shareholders, the Board of Directors will make another appointment to be
effective at the earliest feasible time.
A representative of Arthur Andersen LLP will be present at the Annual
Meeting of Shareholders, will have an opportunity to make a statement if he or
she desires to do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF ARTHUR
ANDERSEN LLP.
SHAREHOLDER PROPOSALS
The proxy rules of the Securities and Exchange Commission permit
shareholders of a company, after timely notice to the company, to present
proposals for shareholder action in the company's proxy statement where such
proposals are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by company action in accordance
with the proxy rules. The Sheldahl, Inc. 1999 Annual Meeting of Shareholders is
expected to be held on or about January 13, 1999, and proxy materials in
connection with that meeting are expected to be mailed on or about December 1,
1998. Shareholder proposals prepared in accordance with the proxy rules must be
received by the Company on or before August 2, 1998.
20
<PAGE>
GENERAL
The Board of Directors of the Company knows of no matters other than the
foregoing to be brought before the meeting. However, the enclosed proxy gives
discretionary authority in the event that any additional matters should be
presented.
The Company's Annual Report to Shareholders for the fiscal year ended
August 29, 1997 is being mailed to shareholders with this Proxy Statement.
Shareholders may receive without charge a copy of the Company's Annual Report on
Form 10-K, including financial statements and schedules thereto, as filed with
the Securities and Exchange Commission, by writing to: Sheldahl, Inc., 1150
Sheldahl Road, Northfield, Minnesota 55057, Attention: John V. McManus, or by
calling the Company at: (507) 663-8210.
By the Order of the Board of Directors
Gerald E. Magnuson, SECRETARY
21
<PAGE>
[LOGO]
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
JANUARY 14, 1998
The undersigned hereby appoints James E. Donaghy, Gerald E. Magnuson and
James S. Womack, or any one or more of them, proxies with full power of
substitution to vote in their discretion cumulatively all shares of stock of
Sheldahl, Inc. of record in the name of the undersigned at the close of business
on November 19, 1997, at the Annual Meeting of Shareholders to be held in
Minneapolis, Minnesota on January 14, 1998, or at any adjournment or
adjournments, hereby revoking all former proxies.
1. AMENDMENT OF BYLAWS TO REDUCE THE NUMBER OF DIRECTORS TO SEVEN.
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as indicated to the contrary) to vote for all nominees listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE FOR BOX AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
James E. Donaghy, John G. Kassakian, Gerald E. Magnuson, William B. Miller,
Kenneth J. Roering, Beekman Winthrop, James S. Womack
<PAGE>
3. PROPOSAL TO RATIFY AND APPROVE THE SHELDAHL, INC. EMPLOYEE STOCK PURCHASE
PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO RATIFY AND APPROVE AMENDMENTS TO THE SHELDAHL, INC. 1994 STOCK
PLAN.
/ / FOR / / AGAINST / / ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS.
/ / FOR / / AGAINST / / ABSTAIN
6. IN THEIR DISCRETION UPON ANY OTHER MATTERS COMING BEFORE THE MEETING.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED ON PROPOSALS (1), (2),
(3), (4) AND (5) IN ACCORDANCE WITH THE SPECIFICATIONS MADE AND "FOR" SUCH
PROPOSALS IF THERE IS NO SPECIFICATION.
Dated: ________________________, 19
___________________________________
___________________________________
Please sign name(s) exactly as
shown at left. When signing as
executor, administrator, trustee or
guardian, give full title as such;
when shares have been issued in
names of two or more persons, all
should sign.
<PAGE>
Effective January 1, 1998
SHELDAHL, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN. SHELDAHL, INC. (hereinafter referred to as the
"Company") proposes to grant to certain employees of the Company the opportunity
to purchase common stock of the Company. Such common stock shall be purchased
pursuant to the plan herein set forth which shall be known as the "SHELDAHL,
INC. EMPLOYEE STOCK PURCHASE PLAN" (hereinafter referred to as the "Plan"). The
Company intends that the Plan shall qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended, and shall be
construed in a manner consistent with the requirements of said Section 423 and
the regulations thereunder.
2. PURPOSE. The Plan is intended to encourage stock ownership by
employees of the Company and any of its Subsidiaries to which the Company and
such respective Subsidiaries by action of their Boards of Directors shall make
this Plan applicable. The Plan is further intended as an incentive to them to
remain in employment, improve operations, increase profits, and contribute more
significantly to the Company's success, and to permit the Company to compete
with other corporations offering similar plans in obtaining and retaining the
services of competent employees.
3. ADMINISTRATION.
(a) The Plan shall be administered by a stock purchase committee
(hereinafter referred to as the "Committee"), consisting of two or more
directors or employees of the Company, as designated by the Board of
Directors of the Company (hereinafter referred to as the "Board of
Directors"). The Board of Directors shall fill all vacancies in the
Committee and may remove any member of the Committee at any time, with or
without cause.
(b) Unless the Board of Directors limits the authority delegated to
the Committee in its appointment, the Committee shall be vested with full
authority to make, administer, and interpret such rules and regulations as
it deems necessary to administer the Plan. For all purposes of this Plan
other than this Paragraph 3(b), references to the Committee shall also
refer to the Board of Directors.
(c) The Committee shall select its own chairman and hold its meetings
at such times and places as it may determine. All determinations of the
Committee shall be made by a majority of its members. Any decision which
is made in writing and signed by a majority of the members of the Committee
shall be effective as fully as though made by a majority vote at a meeting
duly called and held.
(d) The determinations of the Committee shall be made in accordance
with its judgment as to the best interests of the Company, its employees
and its shareholders and in accordance with the purposes of the Plan;
provided, however, that the provisions of the
<PAGE>
Plan shall be construed in a manner consistent with the requirements of
Section 423 of the Internal Revenue Code, as amended. Such determinations
shall be binding upon the Company and the participants in the Plan unless
otherwise determined by the Board of Directors.
(e) The Company shall pay all expenses of administering the Plan. No
member of the Board of Directors or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
option granted under it. The Company shall indemnify each member of the
Committee against any and all claims, loss, damages, expenses (including
counsel fees approved by the Committee), and liability (including any
amounts paid in settlement with the Committee's approval) arising from any
loss or damage or depreciation which may result in connection with the
execution of his or her duties or the exercise of his or her discretion, or
from any other action or failure to act hereunder, except when the same is
judicially determined to be due to gross negligence or willful misconduct
of such member.
4. DURATION AND PERIODS OF THE PLAN.
(a) The Plan will commence on January 1, 1998 or such later date
specified by the Committee, and will terminate January 1, 2003, except that
any Period commenced prior to such termination shall, if necessary, be
allowed to continue beyond such termination until completion.
Notwithstanding the foregoing, this Plan shall be considered of no force or
effect and any options granted shall be considered null and void unless the
holders of a majority of all of the issued and outstanding shares of the
common stock of the Company approve the Plan within twelve months after the
date of its adoption by the Board of Directors.
(b) The Plan shall be carried out in one or more Periods, each Period
being for a period of six months, or such shorter or longer period of time
as may be determined by the Committee prior to the commencement of a
Period. No Period shall run concurrently with any other Period but a
Period may commence immediately after the termination of the preceding
Period. The existence and date of commencement of a Period (the
"Commencement Date") shall be determined by the Committee and shall
terminate on a date (the "Termination Date") which is not more than one
year from a Commencement Date, provided that the commencement of the first
Period shall be within six months before or twelve months after the date of
approval of the Plan by the shareholders of the Company. In the event all
of the stock reserved for grant of options hereunder is issued pursuant to
the terms hereof prior to the commencement of one or more Periods scheduled
by the Committee or the number of shares remaining is so small, in the
opinion of the Committee, as to render administration of any succeeding
Period impracticable, such Period or Periods shall be canceled. Periods
shall be numbered successively as Period 1, Period 2, Period 3, etc.
(c) The Board of Directors may elect to accelerate the Termination
Date of any Period effective on the date specified by the Board of
Directors in the event of (i) any consolidation or merger of the Company in
which the Company is not the continuing or
2
<PAGE>
surviving corporation or pursuant to which shares would be converted into
cash, securities or other property, other than a merger of the Company in
which shareholders immediately prior to the merger have the same
proportionate ownership of stock in the surviving corporation immediately
after the merger; or (ii) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or
substantially all of the assets of the Company. Subject to any required
action by the shareholders, if the Company shall be involved in any merger
or consolidation, in which it is not the surviving corporation, and if the
Board of Directors does not accelerate the Termination Date of the Period,
each outstanding option shall pertain to and apply to the securities or
other rights to which a holder of the number of shares subject to the
option would have been entitled.
(d) A dissolution or liquidation of the Company shall cause each
outstanding option to terminate, provided in such event that, immediately
prior to such dissolution or liquidation, each Participant shall be repaid
the payroll deductions credited to his account without interest.
5. ELIGIBILITY. All Employees, as defined in Paragraph 18 hereof, who
have completed six or more months of employment with the Company prior to the
Commencement Date of a Period shall be eligible to participate in such Period.
6. PARTICIPATION. Participation in the Plan is voluntary. An eligible
Employee may elect to participate in the Plan, and thereby become a
"Participant" in the Plan, by completing the Enrollment Form provided by the
Company and delivering it to the Company or its designated representative at
least five days prior to an Enrollment Date and five days prior to the
Commencement Date of that Period. The Enrollment Date shall be established by
the Committee, which shall be no less often than annual and shall coincide with
one, but need not coincide with each, Commencement Date. Payroll deductions for
a Participant shall commence on the first payday after the Commencement Date of
the Period and shall terminate on the last payday immediately prior to or
coinciding with the Termination Date of that Period unless sooner terminated by
the Participant as provided in Paragraph 9 hereof. A Participant who ceases to
be an eligible Employee, although still employed by the Company, thereupon shall
be deemed to discontinue his or her participation in the Plan and shall have the
rights provided in Section 9.
7. PAYROLL DEDUCTIONS.
(a) Upon enrollment, a Participant shall elect to make contributions
to the Plan by payroll deductions (in full dollar amounts and in amounts
calculated to be as uniform as practicable throughout the period of the
Period), in the aggregate amount not in excess of seven percent (7%) of
such Participant's Pay (as determined in accordance with Paragraph 18
hereof) for the term of the Period. The minimum authorization shall be two
percent (2%) of a Participant's Pay per pay period.
(b) In the event of a change in the pay period of any Participant,
such as from bi-weekly to monthly, an appropriate adjustment shall be made
to the deduction in each new pay period so as to ensure the deduction of
the proper amount authorized by the Participant.
3
<PAGE>
(c) A Participant may discontinue his participation in the Period and
terminate his payroll deduction authorized at such times as determined by
the Committee and shall have the rights provided in Section 9. No change
can be made during a Period of the Plan which would either change the time
or increase or decrease the rate of his payroll deductions.
(d) All payroll deductions made for Participants shall be credited to
their respective accounts under the Plan. A Participant may not make any
separate cash payments into such account.
8. OPTIONS.
(a) GRANT OF OPTION.
(i) A Participant who is employed by the Company as of the
Commencement Date of a Period shall be granted an option as of such
date to purchase a number of full and fractional shares of Company
common stock to be determined by dividing the total amount to be
credited to that Participant's account under Paragraph 7 hereof by the
option price set forth in Paragraph 8(a)(ii)(A) hereof, subject to the
limitations of Paragraph 10 hereof.
(ii) The option price for such shares of common stock shall be
the lower of:
A. Eighty-five percent (85%) of the Fair Market Value of
such shares of common stock on the Commencement Date of the
Period; or
B. Eighty-five percent (85%) of the Fair Market Value of
such shares of common stock on the Termination Date of the
Period.
(iii) Stock options granted pursuant to the Plan may be
evidenced by agreements in such form as the Committee shall approve,
provided that all Employees shall have the same rights and privileges
and provided further that such options shall comply with and be
subject to the terms and conditions set forth herein. The Committee
may conclude that agreements are not necessary.
(iv) Anything herein to the contrary notwithstanding, no Employee
shall be granted an option hereunder:
A. Which permits his rights to purchase stock under all
employee stock purchase plans of the Company, its Subsidiaries or
its parent, if any, to accrue at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) of the Fair Market Value of such stock
(determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time; or
4
<PAGE>
B. If immediately after the grant such Employee would own
and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company, its parent, if any, or of
any subsidiary of the Company. For purposes of determining stock
ownership under this Paragraph, the rules of Section 424(d) of
the Internal Revenue Code, as amended, shall apply.
(v) The grant of an option pursuant to this Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its
business or assets.
(b) EXERCISE OF OPTION.
(i) Unless a Participant gives written notice to the Company
pursuant to Paragraph 9 prior to the Termination Date of a Period, his
option for the purchase of shares will be exercised automatically for
him as of such Termination Date for the purchase of the number of full
and fractional shares of Company common stock which the accumulated
payroll deductions in his account at that time will purchase at the
applicable option price, but in no event shall the number of full and
fractional shares be greater than the number of full and fractional
shares to which a Participant would have been eligible to purchase
under Section 8(a)(i), and subject to the limitations set forth in
Paragraph 10 hereof.
(ii) The Company shall, in addition, return to the Participant a
cash payment equal to the balance, if any, in his account which was
not used for the purchase of common stock, without interest, as
promptly as practicable after the Termination Date of any Period.
(iii) The Committee may appoint a registered broker dealer to
act as agent for the Company in holding and performing ministerial
duties in connection with the Plan, including, but not limited to,
maintaining records of stock ownership by Participants and holding
stock in its own name for the benefit of the Participants. No trust
or escrow arrangement shall be express or implied by the exercise of
such duties by the agent. A Participant may, at any time, request of
the agent that any shares allocated to the Participant be registered
in the name of the Participant or in joint tenancy with the
Participant, in which event the agent shall issue a certificate for
the whole number of shares in the name of the Participant (and his
joint tenant, if any) and shall deliver to the Participant any cash
for fractional shares, based on the then Fair Market Value of the
shares on the date of issuance.
(c) DIVIDEND REINVESTMENT. Unless the Committee designates
otherwise, and except as provided in this section, dividends on a
Participant's shares will automatically be
5
<PAGE>
reinvested in additional shares of stock of the Company. If a Participant
desires to receive dividends in the form of cash, he must request that a
certificate for such shares be issued in the name of the Participant by
filing an appropriate form with the Company. Any shares purchased through
the reinvestment of dividends may be issued from the shares authorized
under this Plan or purchased on the open market, as directed by the
Committee. If the shares are purchased directly from the Company, the
purchase price shall be the Fair Market Value of a share or the date such
dividends are paid. Otherwise, the purchase price may be an average of
shares purchased on the open market with the aggregate amount of dividends.
9. WITHDRAWAL OR TERMINATION OF PARTICIPATION.
(a) A Participant may, at any time prior to the Termination Date of a
Period, withdraw all payroll deductions then credited to his account by
giving written notice to the Company. Promptly upon receipt of such notice
of withdrawal, all payroll deductions credited to the Participant's account
will be paid to him without interest accrued thereon and no further payroll
deductions will be made during the Period. In such event, the option
granted the Participant under that Period of the Plan shall lapse
immediately. Partial withdrawals of payroll deductions hereunder may not
be made.
(b) Notwithstanding the provisions of Section 8(a) above, if a
Participant files reports pursuant to Section 16 of the Securities Exchange
Act of 1934 (at the Commencement Date of a Period or becomes obligated to
file such reports during a Period) then such a Participant shall not have
the right to withdraw all or a portion of the accumulated payroll
deductions except in accordance with Sections 8(c) and (d) below.
(c) In the event of the death of a Participant, the person or persons
specified in Paragraph 14 may give notice to the Company within sixty days
of the death of the Participant electing to purchase the number of full
shares which the accumulated payroll deductions in the account of such
deceased Participant will purchase at the option price specified in
Paragraph 8(a)(ii) and have the balance in the account distributed in cash
without interest accrued thereon to the person or persons specified in
Paragraph 14. If no such notice is received by the Company within said
sixty days, the accumulated payroll deductions will be distributed in full
in cash without interest accrued thereon to the person or persons specified
in Paragraph 14.
(d) Upon termination of Participant's employment for any reason other
than death of the Participant, the payroll deductions credited to his
account, without interest, shall be returned to him.
(e) The Committee shall be entitled to make such rules, regulations
and determination as it deems appropriate under the Plan in respect of any
leave of absence taken by or disability of any Participant. Without
limiting the generality of the foregoing, the Committee shall be entitled
to determine:
6
<PAGE>
(i) whether or not any such leave of absence shall constitute a
termination of employment for purposes of the Plan; and
(ii) the impact, of any, of any such leave of absence on options
under the Plan theretofore granted to any Participant who takes such
leave of absence.
(f) A Participant who discontinues his participation during a Period
shall not be permitted to recommence participation until the next
Enrollment Date. A Participant's withdrawal will not have any effect upon
his eligibility to participate in any succeeding Period of the Plan that
commences after the next Enrollment Date or in any similar plan which may
hereafter be adopted by the Company.
10. STOCK RESERVED FOR OPTIONS.
(a) The maximum number of shares of the Company's common stock to be
issued upon the exercise of options to be granted under the Plan shall be
Two Hundred Fifty Thousand (250,000). Such shares may, at the election of
the Board of Directors, be either treasury shares, shares authorized but
not issued or shares acquired in the open market by the Company. Shares
subject to the unexercised portion of any lapsed or expired option may
again be subject to option under the Plan.
(b) If the total number of shares of the Company common stock for
which options are to be granted for a given Period as specified in
Paragraph 8 exceeds the number of shares then remaining available under the
Plan (after deduction of all shares for which options have been exercised
or are then outstanding) and if the Committee does not elect to cancel such
Period pursuant to Paragraph 4, the Committee shall make a pro rata
allocation of the shares remaining available in as uniform and equitable a
manner as it shall consider practicable. In such event, the options to be
granted and the payroll deductions to be made pursuant to the Plan which
would otherwise be effected may, in the discretion of the Committee, be
reduced accordingly. The Committee shall give written notice of such
reduction to each Participant affected.
(c) The Participant (or a joint tenant named pursuant to Paragraph
10(d) hereof) shall have no rights as a shareholder with respect to any
shares subject to the Participant's option until the date of the issuance
of a stock certificate evidencing such shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such stock certificate is actually issued, except as
otherwise provided in Paragraph 12 hereof.
(d) The shares of the Company common stock to be delivered to a
Participant pursuant to the exercise of an option under the Plan will be
registered in the name of the Participant or, if the Participant so directs
by written notice to the Committee prior to the Termination Date of that
Period of the Plan, in the names of the Participant and one other person
the Participant may designate as his joint tenant with rights of
survivorship, to the extent permitted by law.
7
<PAGE>
11. ACCOUNTING AND USE OF FUNDS. Payroll deductions for each Participant
shall be credited to an account established for him under the Plan. Such
account shall be solely for bookkeeping purposes and no separate fund or trust
shall be established hereunder and the Company shall not be obligated to
segregate such funds. All funds from payroll deductions received or held by the
Company under the Plan may be used, without limitation, for any corporate
purpose by the Company.
12. ADJUSTMENT PROVISION.
(a) Subject to any required action by the shareholders of the
Company, the number of shares covered by each outstanding option, and the
price per share thereof in each such option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of the
Company common stock resulting from a subdivision or consolidation of
shares or the payment of a share dividend (but only on the shares) or any
other increase or decrease in the number of such shares effected without
receipt of consideration by the Company.
(b) In the event of a change in the shares of the Company as
presently constituted, which is limited to a change of all its authorized
shares with par value into the same number of shares with a different par
value or without par value, the shares resulting from any such change shall
be deemed to be the shares within the meaning of this Plan.
(c) To the extent that the foregoing adjustments relate to shares or
securities of the Company, such adjustments shall be made by the Committee,
and its determination in that respect shall be final, binding and
conclusive, provided that each option granted pursuant to this Plan shall
not be adjusted in a manner that causes the option to fail to continue to
qualify as an option issued pursuant to an "employee stock purchase plan"
within the meaning of Section 423 of the Code.
(d) Except as hereinbefore expressly provided in this Paragraph 12,
the optionee shall have no right by reason of any subdivision or
consolidation of shares of any class or the payment of any stock dividend
or any other increase or decrease in the number of shares of any class or
by reason of any dissolution, liquidation, merger, or consolidation or
spin-off of assets or stock of another corporation, and any issue by the
Company of shares of any class, or securities convertible into shares of
any class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to the option.
13. NON-TRANSFERABILITY OF OPTIONS.
(a) Options granted under any Period of the Plan shall not be
transferable except under the laws of descent and distribution and shall be
exercisable only by the Participant during his lifetime and after his death
only by his beneficiary of the representative of his estate as provided in
Paragraph 9(b) hereof.
8
<PAGE>
(b) Neither payroll deductions credited to a Participant's account,
nor any rights with regard to the exercise of an option or to receive
common stock under any Period of the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by the Participant. Any such
attempted assignment, transfer, pledge or other disposition shall be null
and void and without effect, except that the Company may, at its option,
treat such act as an election to withdraw funds in accordance with
Paragraph 9.
14. DESIGNATION OF BENEFICIARY. A Participant may file a written
designation of a beneficiary who is to receive any cash to the Participant's
credit without interest thereon under any Period of the Plan in the event of
such Participant's death prior to exercise of his option pursuant to Paragraph
9(b) hereof, or to exercise his option and become entitled to any stock and/or
cash upon such exercise in the event of the Participant's death prior to
exercise of the option pursuant to Paragraph 9(b) hereof. The beneficiary
designation may be changed by the Participant at any time upon receipt of a
written notice by the Company.
Upon the death of a Participant and upon receipt by the Company of proof
deemed adequate by it of the identity and existence at the Participant's death
of a beneficiary validly designated under the Plan, the Company shall in the
event of the Participant's death under the circumstances described in Paragraph
9(b) hereof, allow such beneficiary to exercise the Participant's option
pursuant to Paragraph 9(b) if such beneficiary is living on the Termination Date
of the Period and deliver to such beneficiary the appropriate stock and/or cash
after exercise of the option. In the event there is not validly designated
beneficiary under the Plan who is living at the time of the Participant's death
under the circumstances described in Paragraph 9(b) or in the event the option
lapses, the Company shall deliver the cash credited to the account of the
Participant without interest to the executor or administrator of the estate of
the Participant, or if no such executor or administrator has been appointed to
the knowledge of the Company, it may, in its discretion, deliver such cash to
the spouse (or, if no surviving spouse, to any one or more children of the
Participant), or if no spouse or child is known to the Company, then to such
relatives of the Participant known to the Company as would be entitled to such
amounts, under the laws of intestacy in the deceased Participant's domicile as
though named as the designated beneficiary hereunder. The Company will not be
responsible for or be required to give effect to the disposition of any cash or
stock or the exercise of any option in accordance with any will or other
testamentary disposition made by such Participant or in accordance with the
provision of any law concerning intestacy, or otherwise. No designated
beneficiary shall, prior to the death of a Participant by whom he has been
designated, acquire any interest in any stock or in any option or in the cash
credited to the Participant under any Period of the Plan.
15. AMENDMENT AND TERMINATION. The Plan may be terminated at any time by
the Board of Directors provided that, except as permitted in Paragraph 4(c) with
respect to an acceleration of the Termination Date of any Period, no such
termination will take effect with respect to any options then outstanding.
Also, the Board may, from time to time, amend the Plan as it may deem proper and
in the best interests of the Company or as may be necessary to comply with
Section 423 of the Internal Revenue Code of 1986, as amended, or other
applicable laws or regulations; provided, however, that no such amendment shall,
without prior approval of the shareholders of the Company (1) increase the total
number of shares for which options may be granted under the Plan (except as
provided in Paragraph 12 herein), (2) permit aggregate payroll
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deductions in excess of ten percent (10%) of a Participant's compensation as of
the Commencement Date of a Period, or (3) impair any outstanding option.
16. NOTICES. All notices or other communications in connection with the
Plan or any Period thereof shall be in the form specified by the Committee and
shall be deemed to have been duly given when received by the Participant or his
designated personal representative or beneficiary or by the Company or its
designated representative, as the case may be.
17. PARTICIPATION OF SUBSIDIARIES. The Employees of any Subsidiary of the
Company shall be entitled to participate in the Plan on the same basis as
Employees of the Company, unless the Board of Directors determines otherwise.
Effective as of the date of coverage of any Subsidiary, any references herein to
the "Company" shall be interpreted as referring to such Subsidiary as well as to
SHELDAHL, INC.
In the event that any Subsidiary which is covered under the Plan ceases to
be a Subsidiary of SHELDAHL, INC., the employees of such Subsidiary shall be
considered to have terminated their employment for purposes of Paragraph 9
hereof as of the date such Subsidiary ceases to be such a Subsidiary.
18. DEFINITIONS.
(a) "Subsidiary" shall include any corporation defined as a
subsidiary of the Company in Section 424(f) of the Internal Revenue Code of
1986, as amended.
(b) "Employee" shall mean any employee, including an officer, of the
Company who as of the day immediately preceding the Commencement Date of a
Period is customarily employed by the Company for more than twenty hours
per week and more than five months in a calendar year.
(c) "Fair Market Value" shall mean, if the common stock of the
Company is registered, the Fair Market Value of the shares shall be the
closing price of the stock on the applicable date or the nearest prior
business day on which trading occurred on the NASDAQ National Market. If
the common stock is not registered, the Fair Market Value of shares of
common stock of the Company shall be determined by the Committee for each
valuation date in a manner acceptable under Section 423 of the Internal
Revenue Code of 1986.
(d) "Pay" shall mean the regular or base salary or wages, bonuses,
overtime and shift premiums received by the Participant during the Period,
including salary reduction contributions by the Participant under any plan
of the Employer pursuant to Code Sections 125 or 401(k).
19. MISCELLANEOUS.
(a) NO EMPLOYMENT RIGHTS. The Plan shall not, directly or
indirectly, create any right for the benefit of any Employee or class of
Employees to purchase any shares
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under the Plan, or create in any Employee or class of Employees any right
with respect to continuation of employment by the Company, and it shall not
be deemed to interfere in any way with the Company's right to terminate, or
otherwise modify, an Employee's employment at any time.
(b) EFFECT OF PLAN. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in
bankruptcy, or representative of creditors of such Employee.
(c) GOVERNING LAW. The law of the State of Minnesota will govern all
matters relating to this Plan except to the extent it is superseded by the
laws of the United States.
(d) REGISTRATION AND QUALIFICATION OF SHARES. The offering of the
shares hereunder shall be subject to the effecting by the Company of any
registration or qualification of the shares under any federal or state law
or the obtaining of the consent or approval of any governmental regulatory
body which the Company shall determine, in its sole discretion, is
necessary or desirable as a condition to or in connection with, the
offering or the issue or purchase of the shares covered thereby. The
Company shall make every reasonable effort to effect such registration or
qualification or to obtain such consent or approval.
(e) PLAN PRECONDITIONS. The Plan is expressly made subject to (i)
the approval by shareholders of the Company, and (ii) at its election, the
receipt by the Company from the Internal Revenue Service of a determination
letter or ruling, in scope and content satisfactory to counsel, respecting
the qualification of the Plan within the meaning of Section 423 of the
Code. If the Plan is not so approved by the shareholders and if, at the
election of the Company, the aforesaid determination letter or ruling from
the Internal Revenue Service is not received on or before one year after
this Plan's adoption by the Board of Directors, this Plan shall not come
into effect. In such case, the accumulated payroll deductions credited to
the account of each Participant shall forthwith be repaid to him without
interest.
Approved by Board of Directors: October 14, 1997.
Approved by Stockholders: January ___, 1998.
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