SHELDAHL INC, S-3/A, 1998-12-03

SHELDAHL INC
S-3/A, 1998-12-03
PRINTED CIRCUIT BOARDS

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As filed with the Securities and Exchange Commission on December 3, 1998
Registration No. 333-64273

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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SHELDAHL, INC.
(Exact name of registrant as specified in its charter)

Minnesota 41-0758073
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1150 Sheldahl Road
Northfield, Minnesota 55057
(507) 663-8000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)

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James E. Donaghy
Chief Executive Officer
Sheldahl, Inc.
1150 Sheldahl Road
Northfield, Minnesota 55057
(507) 663-8000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)

COPIES TO:
Charles P. Moorse, Esq.
Kristin L. Johnson, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
Minneapolis, Minnesota 55402
Telephone: (612) 371-3211
Fax: (612) 371-3207

Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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__________________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

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SUBJECT TO COMPLETION, DATED DECEMBER 2, 1998
UP TO 6,484,544 SHARES

SHELDAHL, INC.
COMMON STOCK

The up to 6,484,544 shares of Common Stock of Sheldahl, Inc., a
Minnesota corporation ("Sheldahl" or the "Company"), offered hereby (the
"Common Stock") may be sold from time to time by the stockholders identified
herein or their transferees, pledgees, donees or other successors in interest
(the "Selling Shareholders").

The shares of Common Stock to which this Prospectus relates (the
"Shares") may be issued to the Selling Shareholders (i) upon conversion of
the Company's Series D Convertible Preferred Stock held by the Selling
Shareholders (the "Series D Preferred Stock"), (ii) as accrued dividends on
the Series D Preferred Stock and (iii) upon the exercise of outstanding
warrants held by the Selling Shareholders (the "Warrants"). The Company will
not receive any of the proceeds from the sale of the Shares offered hereby,
but the Company will receive proceeds from the exercise of the Warrants by
the Selling Shareholders. There can be no assurance, however, that the
Warrants will be exercised.

Offers and sales of the Shares by the Selling Shareholders may be made
from time to time during the effectiveness of this registration, on one or
more exchanges, in the over-the-counter market, or otherwise, at prices and
on terms then prevailing, or at prices related to the then-current market
price, or in negotiated transactions or in a combination of any such methods
of sale. See "Plan of Distribution." The filing by the Company of this
Prospectus in accordance with the requirements of Form S-3 is not an
admission that any person whose Shares are included herein is an "affiliate"
of the Company.

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol SHEL. On December 1, 1998, the last reported sales price of the Common
Stock as reported on the Nasdaq National Market was $6.50 per share.

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------

No dealer, salesperson or any other person has been authorized to give
any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell or solicitation of an offer to buy any security other than securities
offered by this Prospectus, or an offer to sell or a solicitation of an offer
to buy any securities by any person in any jurisdiction in which such offer
or solicitation is not authorized or is unlawful. The delivery of this
Prospectus shall not, under any circumstances, create any implication that
the information herein is correct as of any time subsequent to the date of
this Prospectus.

DECEMBER __, 1998

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TABLE OF CONTENTS

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PAGE
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RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . .26
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RISK FACTORS

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE SECURITIES, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, ALONG WITH
OTHER INFORMATION REFERRED TO HEREIN. NO INVESTOR SHOULD PARTICIPATE IN THIS
OFFERING UNLESS SUCH INVESTOR CAN AFFORD THE LOSS OF HIS OR HER ENTIRE
INVESTMENT.

BECAUSE OF THE VARIETY AND UNCERTAINTY OF THE FACTORS AFFECTING THE
COMPANY'S OPERATING RESULTS, PAST FINANCIAL PERFORMANCE AND HISTORIC TRENDS
MAY NOT BE A RELIABLE INDICATOR OF FUTURE PERFORMANCE. THESE FACTORS, AS
WELL AS OTHER FACTORS AFFECTING THE COMPANY'S OPERATING PERFORMANCE, AND THE
FACT THAT THE COMPANY PARTICIPATES IN A HIGHLY DYNAMIC AND COMPETITIVE
INDUSTRY, MAY RESULT IN SIGNIFICANT VOLATILITY IN THE COMPANY'S COMMON STOCK
PRICE.

LIQUIDITY AND POSSIBLE NEED FOR ADDITIONAL FINANCING

The impact of improving performance from the Company's Northfield
operations along with reduced capital spending, a strengthened balance sheet
from the new credit facility, and the proceeds from the Series D Preferred
Stock should provide adequate liquidity to fund operations over the next nine
to twelve months. Liquidity would significantly deteriorate if the
anticipated improvement in the Company's Northfield operations is not
realized or the ramp up of revenue from Micro Products extends beyond the
third quarter of fiscal 1999. Management believes with planned operating
improvements that the Company has adequate liquidity to provide uninterrupted
support for its business operations during fiscal 1999. Nevertheless, the
Company is in the process of seeking additional debt or equity capital to
ensure the necessary capital to support the ongoing operations of the
Company. This is based on the uncertainty of achieving expected improved
operating results, including realizing significant sales growth in fiscal
1999 from the Company's Micro Products business, and is necessary to meet the
covenants under the Company's credit and security agreement. The Company is
required to raise additional equity capital of $5 million by February 26,
1999 and another $5 million of equity capital by August 27, 1999. At its
1999 Annual Meeting of Shareholders, the Company is seeking shareholder
approval to increase the authorized shares of the Company, thereby
facilitating the Company's ability to raise such additional equity capital.
In the event the Company does not receive such approval, it may be unable to
issue shares representing such capital. In the event the Company is unable
to raise the capital, the Company would be in technical default under its
credit and security agreement enabling the Company's lenders to require
immediate repayment of the borrowings under the credit and security
agreement. If the Company does not achieve its projected operating results
and/or it does not have borrowings available under its current credit and
security agreement, management believes that it has options available to
obtain necessary additional new capital, including the issuance of additional
new debt or additional new equity financing. There can be no assurance,
however, that the Company will be successful in its attempt to issue
additional debt

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or to raise additional capital on terms acceptable to the Company. In
addition, the Company is seeking shareholder approval to issue additional
shares of Common Stock for current and future conversions of shares of its
Series B Preferred Stock, see "Risk Factors -- Possible Volatility of Stock
Price", and if it is unable to obtain such approval it may be required to
redeem such shares at an estimated redemption value as of October 30, 1998 of
$2.0 million. There can be no assurance that the Company will receive
shareholder approval to issue shares for conversions of the Series B
Preferred Stock and any resulting redemptions would significantly affect the
Company's liquidity.

MARKET ACCEPTANCE OF NEW PRODUCTS OF MICRO PRODUCTS' BUSINESS

A significant portion of the Company's anticipated future success in the
data communication market and a significant portion of future revenue growth
of the Company will depend on market acceptance of its Novaclad-based
ViaArray and Via-Thin-TM- products as marketed by the Company's Micro
Products business. Although the Company believes that these products have
attractive performance characteristics and utility in a potentially broad
range of products, sales of its Novaclad-based products will depend on the
Company's ability to (i) convince potential customers that the advantages and
applications of these products justify the expense and production changes
necessary to incorporate the Company's products into the customer's
manufacturing process; (ii) work with designers of integrated circuit ("IC")
packages and electronics to incorporate these products; (iii) qualify these
products for inclusion in the customer's products within the time
requirements of the customer's design cycle and (iv) produce sufficient
quantities of these products in a timely manner. Moreover, these products
will compete with certain other thin film laminates or alternative materials
offered by other manufacturers and such materials may achieve wider market
acceptance than the Company's products. Failure of the Company's
Novaclad-based ViaArray and Via-Thin-TM- products to achieve timely or
sufficient market acceptance has had and will continue to have a material
adverse effect on the Company's results of operations until efficient volume
production and related sales revenue is achieved.

DEVELOPMENT OF MICRO PRODUCTS BUSINESS; UTILIZATION OF LONGMONT FACILITY

The Company originally expected to commence production in the Longmont
Facility in April 1996. However, the realization of full volume production has
been delayed, initially due to late deliveries of certain production equipment
as a result of financial difficulties of a supplier, Micro Plating Systems,
Inc., as well as a longer than anticipated installation period and more recently
due to a far more rigorous and lengthy process qualification and product
acceptance (validation) by the Company's customers and their customers. During
the last eighteen months, the Company has identified additional equipment
suppliers so that the design and delivery of future key production equipment can
be improved. As of the date hereof, Texas Instruments and Vitesse Semiconductor
have qualified VIATHIN substrates for their operations. Shipments of small
volume production orders have begun and the Company expects that their initial
orders will lead to larger orders from these and other customers as demonstrated
by new designs and prototype orders currently in process from these and other
customers. The adverse financial impact with respect to developing the Micro
Products business has been and will continue to be significant. In 1998, the
Micro Products business resulted in a pretax loss prior to restructuring costs
and impairment charges of $19.4 million as compared with a $15.5 million and
$6.0 million loss in 1997 and 1996, respectively. Such significant losses are
expected to continue until efficient volume production and related sales revenue
is achieved. As of October 30, 1998, the Longmont Facility is operating at less
than 5% of stated production capacity with projected breakeven at 45% of factory
utilization or some $24 million to $26 million of annual revenue of ViaThin and
ViaArray products. Breakeven volume at Longmont is not expected until the
fourth quarter of fiscal 1999 at the earliest, and the fourth quarter of fiscal
2000 at the latest. There can be no assurance, however, that validation
problems or difficulties will not materialize once full volume production has
commenced or that the Company will be able to achieve breakeven production in
the time specified.

DEPENDENCE ON AUTOMOTIVE MARKET

Sales to the automotive market as a percentage of total sales were
approximately 67.5% in fiscal 1997 and 68.7% in fiscal 1998. The Company's
production of component products for the automotive market fluctuates as
automotive manufacturers begin production of new models and end production of
others. A decrease in the number of the Company's electronic components
included in new models could have a material adverse effect on the Company's
results of operations. A general downturn in the automotive market, such as the
General Motors labor strike, could have and has had a material adverse effect on
the demand for the electronic components supplied by the Company to its
customers in the automotive market. For example, during the Company's fourth
quarter, the Company's sales to the automotive market were adversely impacted by
the General Motors strike by an amount equal to approximately $2.0 million. In
addition, as the automotive industry continues to qualify and reduce the number
of suppliers and demand higher performance products at a lower cost, there can
be no assurance that the Company will be able to maintain its current sales
volumes at existing profit margins to automotive manufacturers and their
suppliers.

CUSTOMERS' PRODUCT OBSOLESCENCE AND STANDARDS

The Company supplies component products primarily to the automotive
electronics and data communication markets. Substantially all of the products
in these markets which incorporate the Company's component products are subject
to technological obsolescence, performance standards and pricing requirements.
The Company's future success in these markets will depend upon its ability to
(i) work closely with manufacturers to design end products or applications which
incorporate the Company's products and achieve market acceptance, (ii) develop
technologies to meet the evolving market requirements of its customers, (iii)
continue to deliver high-performance, cost-effective

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products and (iv) expand its sales and marketing efforts domestically and
internationally. There can be no assurance that the Company will continue to
meet the current qualification requirements of its major customers, meet new
qualification requirements imposed by its customers or continue to be
selected as a supplier by new customers.

CAPITAL INTENSIVE BUSINESS

The Company's business is capital intensive. In the past four years, the
Company has invested approximately $112 million in total capital expenditures,
including approximately $65.6 million in the Longmont Facility. In order to
remain competitive, the Company must continue to make significant expenditures
for capital equipment, expansion of operations and research and development.
The Company has had initial success with introducing its Novaclad-based products
but further penetration is required. If the Company is successful in its
Novaclad-based products, it may be required to make additional capital
investments to increase manufacturing capacity before sufficient positive cash
flow can be derived from the initial investment in the Longmont Facility.
Presently, however, capital expenditure plans in fiscal 1999 are planned at $7
million, significantly lower than in the recent past. Reduced capital spending,
along with anticipated improving cash flow from operations, funds available
under its credit and security agreement, and proceeds from future sales of
additional equity capital are expected to provide adequate funds to meet these
needs of the Company. There can be no assurance, however, that the Company will
have adequate funds to support its capital expenditure plans in fiscal 1999 or
that the Company will be able to raise additional equity capital on terms
acceptable to the Company.

CUSTOMER CONCENTRATION

The Company's customer base is concentrated. The Company's ten largest
customers for the 1998 fiscal year accounted for approximately 64.1% of net
sales, and 15.4%, 10.2% and 10.3% of the Company's net sales during fiscal 1998
were to Motorola, Inc., Ford Motor Company and Siemens, respectively. The
Company expects that sales to a relatively small number of customers will
continue to account for a significant portion of sales for the foreseeable
future, and the loss of, or a significant decline in orders from, one of the
Company's key customers could have a material adverse effect on the Company's
results of operations.

VARIABILITY OF QUARTERLY RESULTS

Historically, the Company's quarterly results of operations have
fluctuated significantly primarily because of the timing of orders from its
larger customers and mix of products manufactured and sold, as impacted from
time to time by work stoppages in the automotive industry and other broad
economic events. Due to this and the inherent uncertainty associated with
the development of new products and production facilities, the Company
expects that its quarterly results of operations will continue to be subject
to significant fluctuations.

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INTENSE COMPETITION

The Company's business is highly competitive with principal competitive
factors being product quality, price, distribution and service. The Company
believes its vertical integration, which allows it to control product quality
and manufacturing efficiencies better than many of its competitors, is a
competitive advantage. Sheldahl's competitors include materials suppliers,
flexible and rigid circuit manufacturers, as well as electronics
manufacturers who produce their own materials and interconnect systems. Some
of the Company's competitors have substantially greater financial and other
resources than the Company. The Company's primary competitors with respect
to its flexible printed circuitry and interconnect systems include Pressac
Limited (a U.K. company) and Parlex Corp. in the automotive electronics
market and Mektec Corp., Fujikura Ltd. (a Japanese company) and ADFlex
Solutions, Inc. in the datacommunications market. The Company's primary
competition for its laminate materials includes Rogers Corporation and GTS
Flexible Materials, Ltd. (a U.K. company). Specifically addressing the
Company's high-density ViaArray (formerly "ViaGrid") and ViaThin products,
the Company offers not only a unique via generation capability along with
Novaclad-based material, but the products provide two layers of copper for
increased linear inches of circuit traces while maintaining an equal or small
physical size to the substrate when compared to competitor's one metal layer
product such as that supplied by 3M. Additionally, IBM has chosen to exit
the two metal tape business and they're leading customer, Vitesse, is
converting to use Sheldahl's ViaThin. Therefore, the Company feels it has a
competitive advantage or strength versus its major competitors with its
ViaArray and ViaThin products. Although the Company believes performance and
price characteristics of its Novaclad-based products will provide competitive
solutions for its customers' needs, there can be no assurance that its
customers will not choose other technologies due to such customers'
familiarity with the competing technology, the financial resources of the
supplier or the ease of incorporating alternative technology into customers'
manufacturing processes. In addition, there can be no assurance that other
competitors will not enter the markets served by the Company. The Company's
results may be adversely affected by the actions of its competitors,
including the development of new technologies, the introduction of new
products or the reduction of prices. There also can be no assurance that the
Company will be able to take actions necessary to maintain its competitive
position.

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POSSIBLE VOLATILITY OF STOCK PRICE

Factors such as unexpected market activity in the Company's Common Stock,
announcements by the Company or its competitors, fluctuations in the Company's
operating results, general conditions in the automotive and data communication
markets or the worldwide economy, and changes in earnings or estimates by
analysts could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. Also, prices for many technology company stocks,
including the Common Stock, may fluctuate widely for reasons that are not always
related to the operating performance of such companies.

Sales of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of the Common Stock. As of December 1, 1998, the Company had
outstanding 10,890,729 shares of Common Stock, 913 shares of Series B Preferred
Stock, 32,917 shares of Series D Preferred Stock convertible into certain of the
shares offered hereby, and warrants to purchase 496,982 shares of Common Stock.
The number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock changes depending upon the lowest sale prices of the Common
Stock during the applicable measurement period immediately preceding the date of
conversion. There is no `minimum conversion price and thus no maximum number of
shares of Common Stock into which the Series B Preferred Stock may be converted.
Nevertheless, pursuant to the terms of the Certificate of Designation of the
Series B Preferred Stock, the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock is limited to 1,805,335 (the
"Issuable Maximum"), unless the stockholders of the Company approve the issuance
of a greater number of shares (as required by Nasdaq) or Nasdaq waives the
requirement for stockholder approval. Pursuant to conversion notices submitted
by holders of the Series B Preferred Stock in September and October 1998, the
Issuable Maximum was reached and the Company is seeking shareholder approval on
January 13, 1999 at its 1999 Annual Meeting of Shareholders to issue shares in
excess of this amount for outstanding and future conversions of the Series B
Preferred Stock. In addition, as of December 1, 1998, the Company had granted
options to purchase 1,472,813 shares of Common Stock under its 1987 Stock Option
Plan, 1994 Stock Option Plan, and Employee Stock Purchase Plan (collectively,
the "Stock Option Plans"). Almost all of the Company's outstanding shares of
Common Stock may be sold without substantial restrictions. All of the shares
purchased under the Stock Option Plans are available for sale in the public
market, subject in some cases to volume and other limitations.

Sales in the public market of substantial amounts of Common Stock,
including sales of Common Stock issued upon conversion of the Series B Preferred
Stock or the Series D Preferred Stock, or the perception that such sales could
occur, could depress prevailing market prices for the Common Stock. The
conversion terms of the Series B Preferred Stock, which allow holders of the
Series B Preferred Stock to convert their shares of Series B Preferred Stock
into shares of Common Stock at a discount to the current market price of the
Common Stock, and then immediately resell such shares at market prices, could
result in downward pressure on the price of the Common Stock, making it
difficult for a sustained rise in the price of the Common Stock to occur, if
such a rise occurs at all. For example, if the holders of the 913 shares of the
Company's Series B Preferred Stock were to request conversion as of December 1,
1998, such shares would convert into shares representing 1.4% of the Company's
currently outstanding Common Stock, or 147,656 shares of Common Stock, which
includes 8,795 shares representing dividends related to such shares.

The existence of the private warrants and any other options or warrants may
prove to be a hindrance to future equity financing by the Company. Further, the
holders of such warrants and

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options may exercise them at a time when the Company would otherwise be able
to obtain additional equity capital on terms more favorable to the Company.

RELIANCE ON SPECIALIZED MANUFACTURING FACILITIES

The Company has separate manufacturing and assembly facilities, certain of
which perform processes dependent upon products produced at its other
facilities. The Company's flexible laminates are produced at facilities in
Longmont and Northfield, Minnesota and further processed into printed circuitry
in a separate facility, also located in Northfield, Minnesota. In addition, the
Company also fabricates ViaArray and ViaThin-TM- at the Longmont Facility.
Further assembly is performed at one facility in South Dakota, two in Mexico and
one in Canada. Delays or disruption at its flexible laminate facility may
result in an insufficient supply of materials for its flexible printed circuitry
facility and its assembly facilities. The Company's Novaclad-based ViaArray and
Via-Thin-TM- products will be manufactured primarily at the Longmont Facility.
Each of these facilities contains or will contain specialized equipment which
may not be quickly replaceable. While the Company carries business interruption
insurance, any natural or other event affecting any one of these facilities or
the manufacturing equipment could materially and adversely affect the Company's
position in its markets and results of operations.

DEPENDENCE ON CERTAIN SUPPLIERS

The Company qualifies strategic suppliers through a Vendor Certification
Program, which limits the number of suppliers to those who provide the Company
with the best total value and quality. The Company closely monitors product
quality and delivery schedules of its supply base. Certain raw materials used
by the Company in the manufacture of its products are currently obtained from
single sources. The Company has not historically experienced significant
problems in the delivery of these raw materials. The Company currently depends
on one supplier for its polyimide supply, which serves as the base material for
the Company's NOVACLAD family of products. This supplier currently
manufacturers this polyimide film in the United States and Japan through
multiple production lines. There have been no interruptions of supply from this
vendor over the last three years. The Company continues to evaluate other
sources of supply for polyimide film as well as other single sourced raw
materials. Although the Company believes that other manufacturers' products are
available, there can be no assurance that any interruption in supply from these
vendors would not have a material adverse effect on the Company's operations.

DEPENDENCE ON KEY PERSONNEL

The Company's business is dependent on the efforts and abilities of its
executive officers and key personnel, especially in the development, marketing
and manufacturing of its Novaclad-based ViaArray and Via-Thin-TM- products. The
Company's continued success will also depend on its ability to continue to
attract and retain qualified employees. The loss of services of any key
personnel could have a material adverse effect on the Company. The Company does
not have key-person life insurance on any of its employees.

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DIVIDENDS

Pursuant to its current credit and security agreement, the Company is
restricted from declaring or paying cash dividends without the consent of the
Company's lenders. The Company has never declared or paid any dividends on its
Common Stock. The Company currently intends to retain any earnings for use in
its operations and expansion of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.

PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS

The Company's success depends, to a large extent, on its ability to
maintain a competitive proprietary position in its product areas. The Company
has received certain patents with respect to its products and processes and has
several other patent applications pending. There can be no assurance that
patents will be issued on the basis of the Company's applications, that any
patent issued to the Company will not be challenged, invalidated or circumvented
or that the rights granted under any patent will provide significant benefits to
the Company. The Company is aware of a patent which may cover certain plated
through holes of double-sided circuits made of the Company's Novaclad material.
Although no claims have been made against the Company under this patent, the
owner of the patent may attempt to construe the patent broadly enough to cover
certain Novaclad products manufactured currently or in the future by the
Company. The Company believes that prior commercial art and conventional
technology, including certain patents of the Company, exist which would allow
the Company to prevail in the event any such claim is made under this patent.
Any action commenced by or against the Company could be time consuming and
expensive and could result in requiring the Company to enter into a license
agreement or cease manufacture of any products ultimately determined to infringe
such patent. In addition to patent protection, the Company also attempts to
protect its trademarks through registration and proper use. The Company also
attempts to protect its proprietary information as trade secrets by taking
security precautions at its facilities. Further, the Company maintains
confidentiality through the use of secrecy or confidentiality agreements and
other measures intended to prevent the public dissemination of trade secret
information. There can be no assurance that these steps will prevent
misappropriation of the Company's proprietary rights or that third parties will
not independently develop functionally equivalent or superior non-infringing
technology.

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ENVIRONMENTAL MATTERS

The Company is subject to various federal, state and local environmental
laws relating to the Company's operations. The Company's manufacturing and
assembly facilities are registered with the U.S. Environmental Protection Agency
and are licensed, where required, by state and local authorities. The Company
has agreements with licensed hazardous waste transportation and disposal
companies for transportation and disposal of its hazardous wastes generated at
its facilities. The Longmont Facility has been specifically designed to reduce
water usage in the manufacturing process and employs a sophisticated waste
treatment system intended to substantially reduce discharge streams. Compliance
with federal and state environmental laws and regulations did not have a
material effect on the Company's capital expenditures, earnings or competitive
position during fiscal 1998. Similarly, fiscal 1999 capital expenditures to
comply with such laws and regulations are not expected to be material. The
Company believes it is in material compliance with federal and state
environmental laws and regulations. As of August 28, 1998, the Company was not
involved in any significant specific action, legal or regulatory, regarding
environmental regulations. An inadvertent mishandling of materials or similar
incident, however, could adversely affect the operations of the Company and
result in costly administrative or legal proceedings. In addition, future
environmental regulations could add to overall costs of doing business.

ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation and the Minnesota Business
Corporation Act include certain "anti-takeover" provisions. These provisions,
including the power to issue additional stock and to establish separate classes
or series of stock, may, in certain circumstances, deter or discourage takeover
attempts and other changes in control of the Company not approved by the Board.
At its 1999 Annual Meeting of Shareholders, the Company is seeking shareholder
approval to (i) issue shares for current and future conversions of its Series
B Preferred Stock, and (ii) increase the authorized shares of the Company. If
the Company receives such approval, it will improve the Company's ability to
take the actions described above. In addition, in June 1996, the Board of
Directors of the Company adopted a Rights Agreement (the "Rights Agreement"),
commonly called a poison pill. Pursuant to the terms of the Rights Agreement,
one right (a "Right") was issued in respect of each share of the Company's
Common Stock outstanding. Such Rights also attach to each share of Common
Stock issued subsequent to the adoption of the Rights Agreement, including
the Shares offered hereby. Each Right entitles the holder thereof to
purchase a fraction of a share of the Company's Series A Preferred Stock or,
in certain instances, Common Stock of the Company or stock of an Acquiring
Person (as defined below) in the event that (i) a third party or a group (an
"Acquiring Person") acquires beneficial ownership of 15% or more of the
Common Stock or (ii) a tender offer or exchange offer that would result in a
person or group becoming an Acquiring Person is commenced. On July 30, 1998,
the Company amended Section 1(a) of the Rights Agreement to provide that when
applied to Molex Incorporated ("Molex") and any of its affiliated parties the
15% threshold for beneficial ownership shall be 22%. The Company increased
this threshold with respect to Molex in connection with Molex's investment in
the Series D Preferred Stock which otherwise would have resulted in Molex
triggering provisions of the Rights Agreement. The Rights Agreement will be
in effect through June 2006 and could have the effect of discouraging tender
offers or other transactions which could result in shareholders receiving a
premium over the market price of Common Stock.

THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN
FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS WHICH INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER
MATERIALLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS DUE TO A
NUMBER OF RISK FACTORS, INCLUDING THOSE SET FORTH BELOW. THE COMPANY HAS TRIED,
WHEREVER POSSIBLE, TO IDENTIFY

<PAGE>

THESE FORWARD-LOOKING STATEMENTS BY USING WORDS SUCH AS "BELIEVE,"
"ANTICIPATE," "ESTIMATE," "EXPECT" AND SIMILAR EXPRESSIONS. THE COMPANY
UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO
ANY SUCH FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS PROSPECTUS OR TO REFLECT THE OCCURRENCE
OF UNANTICIPATED EVENTS.

<PAGE>

THE COMPANY

SEE "RISK FACTORS" FOR INFORMATION PROSPECTIVE INVESTORS SHOULD CONSIDER.
UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS TO
"SHELDAHL" OR THE "COMPANY" REFER TO SHELDAHL, INC. AND ITS SUBSIDIARY.
NOVACLAD-Registered Trademark-, NOVAFLEX-Registered Trademark-, VIATHIN-TM-,
VIAARRAY, AND NOVAFLEX VHD ARE REGISTERED TRADEMARKS OF THE COMPANY.

Sheldahl is a leading producer of high quality flexible printed circuitry
and laminate materials, principally for sale to the automotive electronics and
data communication markets. Flexible circuitry is used to provide electrical
connection between components and electronic systems and also as a substrate to
support electronic devices. Flexible circuits consist of polyester or polyimide
film to which copper foil is laminated and processed through various imaging,
etching and plating processes. Flexible circuits can be further processed by
surface mount attachment of electronic components to produce an interconnect
assembly. Flexible circuits provide advantages over rigid printed circuit
boards by accommodating packaging contour and motion and reducing size and
weight.

Over the past four years, the Company has introduced high performance
products based on proprietary thin film laminate technology: VIAARRAY and
VIATHIN (high-density substrates). VIAARRAY, a higher-value form of NOVACLAD,
has predrilled small holes (vias) that allow printed circuit manufacturers to
produce interconnects to meet the changing need of the market. The Company uses
VIAARRAY to manufacture chip-carrier substrates (VIATHIN) primarily for IC
packages. These NOVACLAD-based products provide substantial benefits compared
to traditional flexible circuits and IC substrates, including the capability for
very fine circuit traces (down to 1 mil, or .001 inch) as well as greater heat
tolerance and dissipation. The Company has designed these products to enable IC
manufacturers to package future generations of ICs economically by attaching the
silicon die to VIATHIN or high-density substrates manufactured by other
circuitry manufacturers using the Company's NOVACLAD or VIAARRAY products. As
ICs are becoming increasingly powerful, they produce more heat and require a
greater number of connections to attach the silicon die, placing substantially
greater demands on IC packaging materials. These products support the
industry's drive for increasing functional performance at a decreasing cost per
function. Additionally, NOVACLAD is used to manufacture the Company's NOVAFLEX
VHD and NOVACLAD HD product lines. NOVACLAD and NOVACLAD-based products
accounted for $25.2 million or 21.5% of the Company's net sales in fiscal 1998.

Through August 28, 1998, the Company had invested approximately $65.6
million in an advanced new production facility in Longmont, Colorado to produce
VIAARRAY and VIATHIN products in commercial volumes. As of November 1995, the
Company anticipated investing approximately $38 million in the Longmont
Facility. Changes in the product characteristics of high density substrates
relating to precious metal plating, solder mask overcoat and testing, plus the
installation of assembly equipment not originally anticipated, significantly
increased the original investment to bring the Longmont Facility on line.
Recent purchases of land and equipment needed to increase originally anticipated
capacity also contributed to the total investment in the Longmont Facility.

<PAGE>

Company's customers and their customers. During the last eighteen months,
the Company has identified additional equipment suppliers so that the design
and delivery of future key production equipment can be improved. As of the
date hereof, Texas Instruments and Vitesse Semiconductor have qualified
VIATHIN substrates for their operations. Shipments of small volume
production orders have begun and the Company expects that their initial
orders will lead to larger orders from these and other customers as
demonstrated by new designs and prototype orders currently in process from
these and other customers. As of October 30, 1998, the Longmont Facility is
operating at less than 5% of stated production capacity with projected
breakeven at 45% of factory utilization or some $24 million to $26 million of
annual revenue of ViaThin and ViaArray products. Breakeven volume at
Longmont is not expected until the fourth quarter of fiscal 1999 at the
earliest, and the fourth quarter of fiscal 2000 at the latest.

The Company is a Minnesota corporation and its principal executive offices
are located at 1150 Sheldahl Road, Northfield, Minnesota 55057. Its telephone
number is (507) 663-8000.

RECENT DEVELOPMENTS

SERIES D PREFERRED STOCK. On July 2, 1998, the Board of Directors of the
Company authorized a private placement of its newly created Series D Convertible
Preferred Stock, $1.00 par value per share, and warrants (the "Warrants") to
purchase shares of the Company's common stock, $.25 par value per share (the
"Preferred Stock"), to a group of accredited investors (the "Investors"). On
July 25, 1998 the Board approved the pricing for the private placement. The
Board also authorized granting the Investors certain registration rights with
regard to the shares of Common Stock underlying the Preferred Stock and the
Warrants. The closing of the private placement occurred on July 30, 1998.
Based on the manner of sale and representations of the Investors, the Company
believes that pursuant to Rule 506 of Regulation D, the private placement was a
transaction not involving any public offering within the meaning of section 4(2)
of the Securities Act of 1933, as amended, and was, therefore, exempt from the
registration requirements thereof.

The Company sold an aggregate of 32,917 shares of the Preferred Stock to
the Investors for an aggregate purchase price of $32,917,000, pursuant to a
Convertible Preferred Stock Purchase Agreement among the Company and the
Investors (the "Agreement"). Conversion of all of the Shares at the conversion
price of $6.15 per share would result in the issuance by the Company to the
Investors of a total of 5,352,358 shares of its Common Stock in the aggregate.
The conversion price is subject to adjustment for certain dilution events.

The Preferred Stock is entitled to 5% dividends, payable annually and upon
conversion, in shares of Common Stock or cash, at the option of the Company.
The Preferred Stock is convertible into shares of the Company's Common Stock at
any time. Each holder of Preferred Stock is entitled to convert each share of
Preferred Stock into that number of shares of Common Stock that equals $1,000
plus accrued dividends divided by the conversion price.

The Company may require holders of Preferred Stock to convert to Common
Stock provided that the Company's Common Stock trades at certain pre-set price
levels and trading volumes.

The Agreement between the Company and the Investors, and the Certificate of
Designation for the Preferred Stock, are incorporated herein by reference as
Exhibits 4.1 and 4.2 to the Company's current report on Form 8-K filed August
18, 1998.

<PAGE>

In connection with the sale of the Preferred Stock, on July 25, 1998, the
Company's Board of Directors amended the Company's Rights Plan to increase the
threshold percentage from fifteen (15%) to twenty-two (22%), subject to certain
conditions with respect to one of the Investors, Molex Incorporated ("Molex")
and also approved Molex's acquisition under the Minnesota Business Combination
Act ("MBCA"). The MBCA precludes certain business combinations with interested
shareholders whose acquisition of beneficial ownership of 10% or more is not
approved by a committee of disinterested directors.

WARRANTS. In connection with the issuance of the Preferred Stock, the
Company also granted to each Investor a Warrant to purchase shares of the
Company's Common Stock. The aggregate amount of shares of Common Stock the
Company is obligated to issue under the Warrants is 329,170 at an exercise price
of $7.6875 per share. The form of Warrant issued by the Company to the
Investors is incorporated herein by reference as Exhibit 4.3 to the Company's
Current Report on Form 8-K filed August 18, 1998.

REGISTRATION RIGHTS. The Company granted the Investors certain
registration rights. The registration rights cover all shares of Common Stock
issuable to the Investors upon conversion of the Preferred Stock and upon
exercise of the Warrants. The Company is obligated to file a shelf Registration
Statement on Form S-3 within twenty-five (25) days of July 30, 1998.

The Registration Rights Agreement between the Company and the Investors
specifying the terms of the registration rights is incorporated herein by
reference as Exhibit 4.4 to the Company's Current Report on Form 8-K filed
August 18, 1998.

ADDITIONAL AGREEMENTS. In connection with the transactions contemplated by
the Agreement, the Company granted Molex the right to select one representative
for nomination to the Board of Directors of the Company, a right of first
refusal to purchase the Company in the event that the Board of Directors elects
to sell the Company and certain preemptive rights with respect to future equity
or debt offerings.

USE OF PROCEEDS. The proceeds from the private placement were used by the
Company to repay a $19 million bridge facility and to improve the Company's
liquidity position. The Company will not receive any proceeds from the resale
of the shares of Common Stock issuable to the Investors upon conversion of the
Preferred Stock. If the warrants issued to the Investors are exercised in full,
the Company will receive approximately $2,530,494. Such amount is intended to
be used by the Company for working capital purposes. There can be no assurance,
however, that any of the Warrants will be exercised.

MOLEX JOINT VENTURE. On July 28, 1998, the Company and Molex Incorporated
("Molex") formed a joint venture to design, market and assemble modular
interconnect systems to replace wiring harnesses in primarily the automotive
market. The new company was named Modular Interconnect Systems, L.L.C. and it
is a Delaware limited liability company ("Origin"). Origin will utilize
proprietary flexible products developed by the Company and proprietary
connectors developed by Molex in the development of the new modular interconnect
system as an alternative to conventional automotive wiring harnesses and flex
circuit assemblies. The Company and Molex will supply their respective products
to Origin pursuant to long-term supply contracts. The Company owns 40% and
Molex owns 60% of Origin. Each party has a right of first refusal with respect
to the other party's ownership interest. Origin is being funded by
contributions from the Company and Molex. Certain development costs of those
components to be designed and developed by Sheldahl for the new systems

<PAGE>

will also be reimbursed by Molex and other development costs may be funded by
loans from Molex. Both the Company and Molex granted Origin a non-exclusive
license to certain of their intellectual property for purposes of producing
the new modular interconnect systems. Each license takes effect and is
contingent upon a change of control of the Company or Molex and the purchase
of such person's membership interest in Origin.

Modular Interconnect is managed by five managers, three of whom are
designated by Molex and two by Sheldahl. Certain transactions require the
approval of the majority of managers designated by each party.

The Limited Liability Company Agreement of Modular Interconnect (the "LLC
Agreement") is filed as Exhibit 10.1 to the Company's current report on
Form 8-K filed on August 28, 1998. The Company has requested that certain
portions of the Agreement be granted confidential treatment by the Commission.
Accordingly, certain portions of the Agreement have been deleted and replaced
by brackets with asterisks.

There can be no assurance that the joint venture will be successful or that
the new products will gain market acceptance or be commercialized, if at all, in
a profitable manner by Modular Interconnect. In addition, some statements made
herein may be forward-looking and subject to risks and uncertainties such as
those included in the Company's annual report, 10-K, 10-Q and other SEC filings,
as well as the risks and uncertainties inherent in embarking upon a new joint
venture for the purpose of developing a new product.

YEAR 2000 ISSUES

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment, software, devices and products with imbedded technology that
are time-sensitive may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a shut down in the
Company's manufacturing operations, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.

STATE OF READINESS. The Company has undertaken various initiatives to
evaluate the Year 2000 readiness of the products sold by the Company
("Products"), the information technology systems used in the Company's
operations ("IT Systems"), its non-IT systems, such as power to its facilities,
HVAC systems, building security, voicemail and other systems, as well as the
readiness of its customers and suppliers. The Company has identified eleven
Year 2000 target areas that cover the entire scope of the Company's business and
has internally established teams committed to completing an 8-step Compliance
Validation Process ("CVP") for each target area. Each team is expected to fully
complete this process on or before September 1, 1999. The table below
identifies the Company's target areas as well as the 8-step CVP with its
expected timeline. Although some Phase 2 remediation activities have been
started or completed, most team activity is currently focused towards the
process of completing Phase 1.

<PAGE>

<TABLE>
<CAPTION>
Year 2000 Target Areas Compliance Validation Process
---------------------- -----------------------------
<S> <C>
1. Business Computer Systems PHASE 1
2. Technical Infrastructure 1. Team Formation Expected Completion:
3. End-User Computing 2. Inventory Assessment
4. Manufacturing Equipment 3. Compliance Assessment End of Q2 Fiscal 1999
5. Test Lab 4. Risk Assessment
6. Telecommunications
7. Research & Development
8. Logistics
9. Facilities
10. Customers
11. Suppliers/Key Service Providers

PHASE 2
5. Resolution/Remediation Expected Completion:
6. Validation
7. Contingency Plan End of Q4 Fiscal 1999
8. Sign-Off Acceptance
</TABLE>

With respect to the Company's relationships with third parties, the Company
relies both domestically and internationally upon various vendors, governmental
agencies, utility companies, telecommunications service companies, delivery
service companies and other service providers. Although these service providers
are outside the Company's control, the Company has mailed letters to those with
whom it believes its relationships are material and has verbally communicated
with some of its strategic customers to determine the extent to which interfaces
with such entities are vulnerable to Year 2000 issues and whether products and
services purchased from or by such entities are Year 2000 ready. The Company is
currently evaluating the sufficiency of the responses received from these third
parties. The Company intends to complete follow-up activities, including but
not limited to site surveys, phone surveys and mailings, with significant
vendors and service providers as part of the Phase 2 validation.

COSTS TO ADDRESS YEAR 2000 ISSUES. To date, the Company has not incurred
any material expenditures in connection with identifying or evaluating Year 2000
compliance issues. The Company has incurred the majority of its costs from the
recent installation of a business computer system consisting primarily of the
Enterprise Requirements Planning (ERP) System as well as the opportunity cost of
time spent by employees of the Company evaluating Year 2000 compliance matters
generally. Because the Company did not accelerate the installation of the ERP
System, it does not consider the costs related thereto to be charges for Year
2000 compliance. Presently, the Company does not have specific estimates for
the cost of other upgrades and enhancements to its IT Systems but will provide
such by the completion of Phase 1 when they are expected to be available. The
Company does anticipate that these estimates will be reasonable and presently
expects such to be within the Company's fiscal 1999 budget. At this time, the
Company does not possess information necessary to estimate the potential
financial impact of Year 2000 compliance issues relating to its non-IT Systems,
Products, vendors, customers and other third parties. Such impact, including
the effect of a Year 2000 business disruption, could have a material adverse
impact on the Company's financial condition and results of operations.

<PAGE>

RISKS OF YEAR 2000 ISSUES. Because the Company is still in the discovery
and evaluation phase of assessing its overall Year 2000 exposure, it cannot at
this time state with certainty that the Year 2000 issues will not have a
material adverse impact on its financial condition, results of operations and
liquidity. Although the Company considers them unlikely, the Company believes
that the following several situations, not in any particular order, make up the
Company's "most reasonably likely worst case Year 2000 scenarios":

1. DISRUPTION OF A SIGNIFICANT CUSTOMER'S ABILITY TO ACCEPT PRODUCTS OR
PAY INVOICES.

The Company's significant customers are large, well-informed customers,
mostly in the automotive field, who are disclosing information to their
vendors that indicates they are well along the path toward Year 2000
compliance. These customers have demonstrated their awareness of the
Year 2000 issue by issuing requirements of their suppliers and
indicating the stages of identification and remediation which they
consider adequate for progressive calendar quarters leading up to the
century mark. The Company's significant customers, moreover, are
substantial companies that the Company believes would be able to make
adjustments in their processes as required to cause timely payment of
invoices. Because of lengthy lead times in the industry, disruption of
orders from the Company is not likely a problem. Any deliveries
occurring in the first half of 2000 will be those resulting from orders
placed in 1999, while any disruptions of the order process early in 2000
will concern deliveries made many months later, with adequate
opportunity for correction (or manual handling) of the order process
before the timing becomes critical.

2. DISRUPTION OF SUPPLY MATERIALS.

Several months ago, the Company began an ongoing process of surveying
its vendors with regard to their Year 2000 readiness and is now in the
process of assessing and cataloging the first responses to the survey.
Having revised its methods of inquiry in recent weeks, the Company is
hopeful of receiving adequate responses from critical vendors and many
non-critical vendors within the first two quarters of fiscal 1999. The
Company expects to work with vendors that show a need for assistance or
that provide inadequate responses, and in many cases expects that survey
results will be refined significantly by such work. Where ultimate
survey results show that the need arises, the Company will arrange for
back-up vendors before the changeover date.

3. DISRUPTION OF THE COMPANY'S IT SYSTEMS.

The Company is proceeding with a scheduled upgrade of its current
hardware and software IT systems to state-of-the-art systems and such
process has required Year 2000 compliance in the various invitations for
proposals. Year 2000 testing is occurring as upgrades proceed and, in
addition, will occur after all upgrades are complete, sometime during
fiscal 1999. For this reason, the Company considers that disruption of
its IT Systems is unlikely.

4. DISRUPTION OF THE COMPANY'S NON-IT SYSTEMS.

The Company is currently conducting a comprehensive assessment of all
non-IT systems, including among other things its manufacturing systems
and operations, with respect to both embedded processors and obvious
computer control. For some systems, upgrades are already scheduled and
it is expected that the Phase 1 assessments will highlight by the end of
the

<PAGE>

second quarter of fiscal 1999 any further remediation needs.
Considering the nature of the equipment and systems involved, the
Company expects that the timing of assessment to be such that it will be
able to complete any remediation efforts on a reasonably short schedule,
and in any case before arrival of the Year 2000. The Company also
believes that, after such assessment and remediation, if any disruptions
do occur, such will be dealt with promptly and will be no more severe
with respect to correction or impact than would be an unexpected
breakdown of well-maintained equipment.

5. DE-LISTING OF COMPANY AS A VENDOR TO CERTAIN CUSTOMERS.

Several of the Company's principal customers, through the intermediary
of an automotive industry information agency, have required updated
reports in the form of answers to an extensive multiple-choice survey on
the Company's Year 2000 compliance efforts. According to these
customers, failure to reply to the readiness survey would have led to
de-listing as a supplier at the present time, resulting in possible
current inability to bid on procurements requiring deliveries two years
or more in the future. Although the Company did respond to these
reports on a timely basis, the substance of the Company's answers to the
readiness surveys have placed it in a "red" or "danger" zone with
respect to those customers' guidelines. One of the Company's two
largest customers involved in the efforts of the independent audit
agency had also already presented a survey directly to the Company, and
as a result had arranged at its own expense for an independent audit of
the Company's Year 2000 readiness. The independent audit agency had
reported, in the third quarter of fiscal 1998, that although the
Company's level of readiness placed it in the "red" or "danger"
category, the Company (i) was proceeding rapidly with its evaluation and
remediation efforts, (ii) was expected to reach the ultimate compliance
goals of the survey in adequate time, and (iii) should not be considered
a risk to the customer's sources of supply. As a result, the Company
has not been de-listed as a supplier to that customer. Rather, the
customer has merely scheduled monitoring meetings in the first and
second quarters of fiscal 1999. The Company expects but cannot
guarantee that responses from other customers will be similar. In
addition, the Company does not know whether other customers'
expectations will or will not be as stringent as those referred to above
and whether the Company's current schedule will meet or exceed such
expectations.

CONTINGENCY PLANS. While the Company recognizes the need for contingency
planning, it has not yet developed any specific contingency plans for potential
Year 2000 disruptions. The aforementioned 8-step Compliance Validation Process,
however, does include contingency planning by each team and such plans, as
developed, will be carefully reviewed by the Company. The Company does
anticipate developing contingency plans for its most critical areas, but details
of such plans will depend on the Company's final assessment of the problem as
well as the evaluation and success of its remediation efforts. Future
disclosures will include contingency plans as they become available.

CHANGES IN PERSONNEL. A vice president of the Company who was responsible
for the Company's Year 2000 compliance efforts, among other matters, left the
Company in the fourth quarter of fiscal 1998. With respect to covering the
Company's Year 2000 issues, the Company has replaced this former employee with a
senior-level manager with an engineering background who is familiar with the
technological issues and challenges involved with the Year 2000 and who has
accepted both responsibility and authority for all aspects of the Company's
compliance. Regarding the Year 2000, the Company's new Director of Information
Technology, who serves as the Company's

<PAGE>

Year 2000 Compliance Manger, reports directly to the Company's Chief
Financial Officer and works closely with legal and, where needed, technical
advisors.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholders. With respect to the proceeds from the private
placement of the Series D Shares, see "Recent Developments -- Series D Preferred
Stock; Use of Proceeds." If the Warrants are exercised in full, the Company
will receive approximately $2,531,000. Such amount is intended to be used by
the Company for working capital purposes. There can be no assurance, however,
that the Warrants will be exercised.

SELLING SHAREHOLDERS

The Shares of Common Stock offered hereby by the Selling Shareholders
are issuable (i) upon conversion of the Series D Preferred Stock held by the
Selling Shareholders, (ii) as accrued dividends on the Series D Preferred
Stock and (iii) upon the exercise of outstanding warrants held by the Selling
Shareholders (the "Warrants"). A total of 32,917 shares of Series D
Preferred Stock and Warrants to purchase up to 329,170 shares of the
Company's Common Stock at an exercise price of $7.6875 per share were issued
to the Selling Shareholders in connection with a private placement in July
1998. Through September 24, 1998, no shares of the Series D Preferred Stock
have been converted.

The number of Shares registered on the registration statement of which
this Prospectus is a part and the number of Shares offered hereby have been
determined by agreement between the Company and the Selling Shareholders.
The Series D Preferred Stock may be converted into shares of Common Stock
from time to time at a conversion price equal to $6.15. The Warrants are
exercisable for an aggregate of 329,170 Shares of Common Stock.

The amount of Common Stock shown in the following table represents the
amount into which the 32,917 shares of Series D Preferred Stock might have
been converted on September 1, 1998 based on the conversion price of $6.15.
The amount of Common Stock shown in the table also includes 802,920 shares of
Common Stock representing accrued dividends for three years on the shares of
Series D Preferred Stock based on the conversion price of $6.15, as well as
329,170 shares of Common Stock issuable to the Selling Shareholders upon
exercise of the Warrants:

<TABLE>
<CAPTION>
Common Stock Number of Owned After
Beneficially Shares of Offering(1)(2)
Owned Prior to Common Stock ----------------------
Selling Shareholder Offering Offered(1) Number Percent
------------------- -------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Molex Incorporated 2,703,903 2,363,903 340,000 2.1
AO Capital Corporation 109,249 49,249 60,000 *
Jerry D. Armstrong 45,550 29,550 16,000 *

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Common Stock Number of Owned After
Beneficially Shares of Offering(1)(2)
Owned Prior to Common Stock ----------------------
Selling Shareholder Offering Offered(1) Number Percent
------------------- -------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Anvil Investment Associates, LP 295,489 295,489 0 *

Joseph H. Bander 14,621 9,851 4,770 *

Bander Family Partnership 14,081 9,851 4,230 *

Robin W. Brooksbank CF 11,821 11,821 0 *
John S. Brooksbank UTMA MN

Robin W. Brooksbank CF 13,791 13,791 0 *
Julia O. Brooksbank UTMA MN

Rex James Bates 78,798 78,798 0 *

Dr. Edward Blender 19,701 19,701

Ray O. Brownlie 26,201 19,701 6,500 *

Brownlie Family Partnership 13,851 9,851 4,000 *

F. Hudnall Christopher, Jr. 40,951 9,851 31,100 *
c/o Wachovia Capital Management

Colorado State Bank & Trust as 9,851 9,851 0 *
Trustee for George F. Wood IRA

Maurice Cunniffe 18,851 9,851 9,000 *
c/o Fiduciary Trust International

Deephaven Opportunity Master 196,993 196,993 0 *
Fund LP

Susan S. Elemendorf 78,798 78,798 0 *
c/o Fiduciary Trust Company

First Busey Trust & Investment 133,798 78,798 55,000 *
Company as Custodian for
Davis U. Merwin

John A. Fischer 19,701 19,701 0 *

Alexander F. Giacco, Sr. 25,729 9,851 15,878 *
c/o Fiduciary Trust International

Edward M. Giles 90,400 39,400 51,000 *
c/o Fiduciary Trust International

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Common Stock Number of Owned After
Beneficially Shares of Offering(1)(2)
Owned Prior to Common Stock ----------------------
Selling Shareholder Offering Offered(1) Number Percent
------------------- -------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Edward M. Giles (IRA #1) 100,099 59,099 41,000 *
c/o Fiduciary Trust International

Robert H. Harper 77,920 39,400 38,520 *
Harris Associates

Richard A. Hassel (3) 38,701 19,701 19,000 *

JB Partners 191,083 191,083 0 *
c/o Peter B. Cannell & Co. Inc.

KA Management Limited 137,896 137,896 0 *

KA Trading LP 59,099 59,099 0 *

John Kassakian (4) 69,958 19,701 50,257 *

Larson Capital 179,798 98,497 81,301 1.1

LaSalle Adams Fund 98,497 98,497 0 *
c/o Fiduciary Trust Company

Edward Lundstrom (5) 18,178 9,851 8,327 *

Dennis M. Mathisen (6) 579,586 354,586 225,000 1.4

William R. Miller (UPIT) 4,926 4,926 0 *

Model Charitable Lead Trust 260,095 157,595 102,500 *
c/o Peter Model

Leo Model Foundation 175,297 98,497 76,800 *
c/o Peter Model

Peter Model Trust #2 43,100 39,400 3,700 *

Montrose Investment L. P. 196,993 196,993 0 *
Mr. William E. Rose

Patrick R.D. Paul 87,149 49,249 37,900 *
c/o Fiduciary Trust International

Roger Quam and Judy Quam (7) 30,484 9,851 20,633 *

Kenneth J. Severinson 20,701 19,701 1,000 *

</TABLE>

<PAGE>

Pike H. Sullivan 99,400 39,400 60,000 *
c/o Bank of New York

Wallace Family Partnership 15,351 9,851 5,500 *
Colorado State Bank

Westover Investments L.P. 196,993 196,993 0 *
Mr. William E. Rose

Charles W. Wilcox 64,099 59,099 5,000 *

Julia May Wilcox 118,196 118,196

Kevin Garner Wilcox 19,701 19,701 0 *

Kevin Garner Wilcox CF 19,701 19,701 0 *
Benjamin D.. Raker UTMA ME

Kevin Garner Wilcox CF 9,851 9,851 0 *
Katherine Bess Raker UTMA ME

Kevin Garner Wilcox CF 19,701 19,701 0 *
Samuel H. Raker UTMA ME

Richard S. Wilcox Jr. (8) 175,791 102,436 73,355 *

Richard S. Wilcox Jr. TTE 212,694 177,294 35,400 *

Thomas Patrick Wilcox 39,400 39,400 0 *

6/17/42 Trust b/o Beekman Winthrop 226,948 68,948 158,000 *
U.S. Trust Company of New York

Beekman Winthrop Birthday Trust 76,400 39,400 37,000 *
U.S. Trust Company of New York

Dudley Winthrop WMI Trust 90,948 68,948 22,000 *
U.S. Trust Company of New York

Winthrop Holdings, L.P. 29,701 19,701 10,000 *
U.S. Trust Company of New York

George F. Wood 49,249 49,249 0 *

</TABLE>

<PAGE>

John C. Beck 19,851 9,851 10,000 *
c/o Beck Mack & Oliver LLC (9)

Joanne C. Kanzler 9,851 9,851 0 *
c/o E. Birke Jr. (9)

John C. Beck GST Trust 1,971 1,971 0 *
c/o Beck Mack & Oliver LLC (9)

John C. Beck Trust 11,351 9,851 1,500 *
c/o Beck Mack & Oliver LLC (9)

Kenneth J. Roering 63,900 39,400 24,500 *

Thaddeus E. Beck, Jr. GST Trust (9) 1,971 1,971 0 *

Thaddeus E. Beck, Jr. Trust (9) 4,456 2,956 1,500 *

Arnold M. Berlin (9) 2,956 2,956 0 *

David P. Bicks 1,971 1,971 0 *
LeBoeuf, Lamb, Leiby & MacRae (9)

Alan I. Brown 3,656 2,956 700 *
c/o Tannenbaum Dubin &
Robinson (9)

Paul C. Bruning (9) 2,956 2,956 0 *

Bemidge L. Copen 9,851 9,851 0 *
Huddleston, Bolen, Beatty, Porter
& Copen (9)

Copen Family Tr. 1,971 1,971 0 *
Huddleston, Bolen, Beatty,
Porter & Copen (9)

Warren R. Crane 13,791 13,791 0 *
c/o Roberta Belpanno (9)

</TABLE>

<PAGE>

Horace I. Crary, Jr. (9) 3,941 3,941 0 *

Susan P. Crary (9) 2,571 1,971 600 *

Day, Beery & Howard as 1,483 1,183 300 *
Trustee of Retirement Plan
F/B/O Robert J. Miller (9)

Cleveland H. Dodge Foundation, 15,761 15,761 0 *
Inc. (9)

Christopher J. Elliman (9) 3,656 2,956 700 *

Richard A. Freytag (9) 989 789 200 *

Randall A. Hack (9) 3,941 3,941 0 *

Francine L.R. Haskell (9) 19,701 19,701 0 *

Huddleston Money Purchase 6,111 5,911 200 *
Pension Plan
c/o Mr. and Mrs. B.P. Huddleston (9)

Anne O. Jackson (9) 1,977 1,577 400 *

J.C. Kellogg Foundation 1,971 1,971 0 *
Spear, Leeds & Kellogg (9)

Mr. and Mrs. Vito Lenoci (9) 989 789 200 *

Mannie L. Johnson 19,701 19,701

C/F Aubrey T. Linen (9) 395 395 0 *

C/F Ethan M. Linen (9) 395 395 0 *

Christopher T. Linen (9) 2,471 1,971 500 *

Jonathan S. Linen (9) 6,026 4,926 1,100 *

Leila Jones Linen (9) 3,856 2,956 900 *

Robin E. Linen (9) 1,186 986 200 *

</TABLE>

<PAGE>

Robert C. Loehlin Trust (9) 989 789 200 *

Edgar M. Masinter (9) 8,866 8,866 0 *

Margery F. Masinter (9) 986 986 0 *

Alexander H. Massad IRA (9) 9,851 9,851 0 *

Trust F/B/O Collin A. McNeil 12,651 9,851 2,800 *
c/o Robert W. Cruckshank (9)

Trust F/B/O Joanna P. McNeil 12,651 9,851 2,800 *
c/o Robert W. Cruckshank (9)

Trust F/B/O Mary V. McNeil 11,851 9,851 2,000 *
c/o Robert W. Cruckshank (9)

Trust F/B/O Nancy M. McNeil 12,651 9,851 2,800 *
c/o Robert W. Cruckshank (9)

Richard Miller 6,326 4,926 1,400 *
c/o Simpson Thacher & Bartlett (9)

Robert J. Miller (9) 1,977 1,577 400 *

Osprey Partners (9) 9,851 9,851 0 *

Peacock Family Inv. Co.(9) 7,881 7,881 0 *

Frederick H. Sherley (9) 1,971 1,971 0 *

Robert P. Sherley (9) 1,971 1,971 0 *

Robert S. Sherley (9) 9,851 9,851 0 *

Mr. and Mrs. Alan Siegel (9) 4,447 3,547 900 *

James C. Taylor (9) 1,971 1,971 0 *

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Common Stock Number of Owned After
Beneficially Shares of Offering(1)(2)
Owned Prior to Common Stock ----------------------
Selling Shareholder Offering Offered(1) Number Percent
------------------- -------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Daniel K. Thorne 2,956 2,956 0 *
c/o Theodore S. Lynn (9)

Peter Thornton, President 1,186 986 200 *
Stern & Stern Industries (9)

Renke B. Thye (9) 986 986 0 *

Tolten Ltd. Partnership 11,821 11,821 0 *
c/o Mr. James Billingsley (9)

Alexander B. Trevor (9) 7,511 5,911 1,600 *

C/F Alexander B. Trevor (9) 2,471 1,971 500 *

Ann Wood Trevor Trust (9) 4,447 3,547 900 *

Ellen R. Trevor (9) 1,483 1,183 300 *

Susan Unterberg (9) 7,411 5,911 1,500 *

Harriet Van Vleck (9) 7,411 5,911 1,500 *

Roy T. Van Vleck (9) 4,941 3,941 1,000 *

Tielman Van Vleck (9) 5,141 3,941 1,200 *

Susan B. Wasch GST Trust (9) 1,971 1,971 0 *

Susan B. Wasch Trust (9) 4,456 2,956 1,500 *

Watertown Foundation #2 4,447 3,547 900 *
c/o Dr. Dwight J. Miller (9)

Stephen L. Way, President 3,656 2,956 700 *
HCC Insurance Holdings (9)

</TABLE>

- ---------------------------
* Less than 1%.

(1) Represents the maximum number of Shares that may be sold by each Selling
Shareholder pursuant to this Prospectus; provided, however, that pursuant
to Rule 416 under the Securities Act of 1933, as amended, the Registration
Statement of which this Prospectus is a part shall also cover any
additional shares of Common Stock which become issuable in connection with
the Shares registered for sale hereby by reason of (i) any stock dividend,
stock split, recapitalization or other transaction effected without the
receipt of consideration which results in an increase in the Company's
number of outstanding shares of Common Stock or (ii) decreases in the
conversion price applicable to

<PAGE>

the Series D Preferred Stock. In the event Rule 416 is not available, the
Company is obligated to register such additional shares of Common Stock.

(2) Assumes the sale of all Shares offered hereby to unaffiliated third
parties. The Selling Shareholders may sell all or part of their respective
Shares.

(3) Includes 1,000 shares held by Mr. Hassel's spouse in an IRA.

(4) Includes 7,997 shares held with his spouse as joint tenants.

(5) Includes 30 shares held by Mr. Lundstrom indirectly.

(6) Includes 65,000 shares held by Marshall Financial Group, Inc. of which Mr.
Mathisen is president and sole shareholders; 30,000 shares held by Mr.
Mathisen's sons. Mr. Mathisen disclaims beneficial ownership of such
shares.

(7) Includes 20,319 shares held by Mr. Quam with his spouse as joint tenants.

(8) Includes 26,455 shares held by Mr. Wilcox in his IRA.

(9) These shares were purchased on behalf of the investor listed by Beck, Mack
& Oliver LLC.

PLAN OF DISTRIBUTION

The Shares of Common Stock of the Company offered hereby may be sold by
the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest thereof.

Offers and sales of the Shares may be made from time to time on one or
more exchanges or in the over-the-counter market, or otherwise, at prices and
on terms then prevailing or at prices related to the then-current market
price, or in negotiated transactions. The methods by which the Shares may be
sold may include, but not be limited to, the following: (a) a block trade in
which the broker or dealer so engaged will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account in accordance with any
method of sale described herein; (c) an exchange distribution in accordance
with the rules of such exchange; (d) ordinary brokerage transactions in which
the broker solicits purchasers; (e) privately negotiated transactions; (f)
short sales; and (g) a combination of any such methods of sale. In effecting
sales, brokers and dealers engaged by the Selling Shareholders may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from the Selling Shareholders or from the purchasers
in amounts to be negotiated prior to the sale. The Selling Shareholders may
also sell such Shares in accordance with Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), if available.

From time to time the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver
the Shares in connection therewith. From time to time Selling Shareholders
may pledge their Shares pursuant to the margin provisions of their respective
customer agreements with their respective brokers. Upon a default by a
Selling Shareholder, the broker may offer and sell the pledged Shares of
Common Stock from time to time.

The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the Shares being offered hereunder for
two years from the date of this Prospectus or such earlier date when all of
the Shares being offered hereunder have been sold or may be sold without
volume or other restrictions pursuant to Rule 144 under the Securities Act,
as determined by counsel to the Company pursuant to a written opinion letter.

<PAGE>

The Selling Shareholders and any brokers participating in such sales may
be deemed to be underwriters within the meaning of the Securities Act. There
can be no assurance that the Selling Shareholders will sell any or all of the
Shares of Common Stock offered hereunder.

All proceeds from any such sales will be the property of the Selling
Shareholder who will bear the expense of underwriting discounts and selling
commissions. The Company is required to pay all fees and expenses incident
to the offering and sale of the Shares, but not including fees and
disbursements of counsel to the Selling Shareholders. The Company has agreed
to indemnify the Selling Shareholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota. Gerald E. Magnuson, a retired partner of Lindquist &
Vennum P.L.L.P., is a director, officer and holder of Common Stock of the
Company.

EXPERTS

The audited financial statements and schedule incorporated by reference
in this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and the Commission's
regional offices located at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and other information regarding the Company
filed electronically with the Commission at http://www.sec.gov. The
Company's Common Stock is quoted on the Nasdaq National Market of the
National Association of Securities Dealers Automated Quotations system
("Nasdaq"), and such reports, proxy statements and other information
regarding the Company can be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Shares offered hereby. This Prospectus does not contain all information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Shares offered hereby,
reference is made to such Registration Statement, copies of which may be
inspected in the public

<PAGE>

reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies of which may be obtained from
the Commission upon payment of the prescribed fees.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions of documents heretofore filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference: (1) Annual Report on Form 10-K for the year
ended August 28, 1998; (2) Proxy Statement for Annual Meeting of Shareholders
held on January 14, 1998 (except to the extent portions of such document are not
deemed incorporated by reference into any filing under the Securities Act or the
Exchange Act); and (3) the description of the Company's Common Stock contained
in the Company's Registration Statement on Form S-3 filed with the Commission
under the Exchange Act on October 12, 1995, declared effective on November 15,
1995 (No. 33-63373), and as such description is supplemented by Form 8-A, filed
with the Commission on June 21, 1996, and amended on July 30, 1998.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such reports and
documents (except to the extent portions of such document are not deemed
incorporated by reference into any filing under the Securities Act or the
Exchange Act).

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Written requests
for such copies should be directed to John V. McManus, Vice
President-Finance, Sheldahl, Inc., 1150 Sheldahl Road, Northfield, Minnesota
55057. Telephone requests may be directed to John V. McManus at (507)
663-8000.

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*

<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . $ 13,448
Nasdaq listing fee. . . . . . . . . . . . . 17,500
Accounting fees and expenses. . . . . . . . 2,000
Legal fees and expenses . . . . . . . . . . 2,500
Printing expenses . . . . . . . . . . . . . 0
Blue Sky fees and expenses. . . . . . . . . 0
Transfer agent and registrar fees . . . . . 500
Miscellaneous . . . . . . . . . . . . . . . 552
---------
Total . . . . . . . . . . . . . . . . . . . $ 36,500
---------
---------
</TABLE>

__________________
*Except for the SEC registration fee and Nasdaq listing fee, all of the
foregoing expenses have been estimated.

ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 302A.521 of Minnesota Statutes requires the Registrant to
indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person with respect
to the Registrant, against judgments, penalties, fines, including reasonable
expenses, if such person (1) has not been indemnified by another organization
or employee benefit plan for the same judgments, penalties, fines, including,
without limitation, excise taxes assessed against the person with respect to
an employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements, incurred by the person in connection with
the proceeding with respect to the same acts or omissions; (2) acted in good
faith; (3) received no improper personal benefit, and statutory procedure has
been followed in the case of any conflict of interest by a director; (4) in
the case of a criminal proceeding, had no reasonable cause to believe the
conduct was unlawful; and (5) in the case of acts or omissions occurring in
the person's performance in the official capacity of director or, for a
person not a director, in the official capacity of officer, committee member
or employee, reasonably believed that the conduct was in the best interests
of the Registrant, or, in the case of performance by a director, officer or
employee of the Registrant as a director, officer, partner, trustee, employee
or agent of another organization or employee benefit plan, reasonably
believed that the conduct was not opposed to the best interests of the
Registrant. In addition, Section 302A.521, subd. 3, requires payment by the
Registrant, upon written request, of reasonable expenses in advance of final
disposition in certain instances. A decision as to required indemnification
is made by a disinterested majority of the Board of Directors present at a
meeting at which a disinterested quorum is present, or by a designated
committee of the Board, by special legal counsel, by the shareholders or by a
court. The Registrant's Bylaws provide for indemnification of officers,
directors and employees to the fullest extent provided by Section 302A.521.

As permitted by Section 302A.251 of the Minnesota Business Corporation
Act, the Amended and Restated Articles of Incorporation of the Registrant
eliminate the liability of the directors of the Registrant

II-1

<PAGE>

for monetary damages arising from any breach of fiduciary duties as a member
of the Registrant's Board of Directors (except as expressly prohibited by
Minnesota Statutes, Section 302A.251, subd. 4).

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
referenced in Item 15 of this Registration Statement or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

In addition, the Registration Rights Agreement, filed as an Exhibit
hereto, contains provisions for indemnification by the Selling Shareholders
of the Registrant and its officers, directors, and controlling persons
against certain liabilities under the Securities Act.

ITEM 16. EXHIBITS

Exhibit
Number Description
------- -----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference from Exhibit 3.1 of the Registrant's Form 10-Q for the
quarter ended December 2, 1994.

3.2 Bylaws, as amended, incorporated by reference from Exhibit 3.2 of
the Registrant's Form 10-K for the fiscal year ended August 28,
1998.

4.3 Rights Agreement dated as of June 16, 1996 and amended July 25,
1998 between the Company and Norwest Bank Minnesota, N.A., is
incorporated by reference to Exhibit 1 to the Company's Form 8-A
dated June 20, 1996 and Amendment No. 1 thereto dated July 30,
1998.

4.4 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock, incorporated by reference
from Exhibit 1 of Registrant's Form 8-A dated June 20, 1996.

4.5 Convertible Preferred Stock Purchase Agreement dated August 27,
1997, among the Registrant and Southbrook International
investments, Ltd., HBK Cayman LP, HBK Offshore Fund Ltd., and Brown
Simpson Strategic Growth Fund LP, incorporated by reference from
Exhibit 4.1 of the Registrant's Form 8-K filed September 10, 1997.
</TABLE>

II-2

<PAGE>

<TABLE>

<C> <S>
4.6 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock dated August 27, 1997, incorporated by
reference from Exhibit 4.2 of the Registrant's Form 8-K filed
September 10, 1997.

4.7 Form of Warrant dated August 25, 1997, incorporated by reference
from Exhibit 4.3 of the Registrant's Form 8-K filed September 10,
1997.

4.8 Registration Rights Agreement dated August 27, 1997, among the
Registrant and Southbrook International investments, Ltd., HBK
Cayman LP, HBK Offshore Fund Ltd., and Brown Simpson Strategic
Growth Fund LP, incorporated by reference from Exhibit 4.4 of the
Registrant's Form 8-K filed September 10, 1997.

4.9 Convertible Preferred Stock Purchase Agreement among the Company
and the Purchasers listed in Exhibit A thereto, incorporated by
reference from Exhibit 4.1 of the Registrant's Form 8-K filed
August 18, 1998.

4.10 Certificate of Designation, Preferences and Rights of Series D
Convertible Preferred Stock, incorporated by reference from Exhibit
4.2 of the Registrant's Form 8-K filed August 18, 1998.

4.11 Form of Warrant issued to the Purchasers, incorporated by reference
from Exhibit 4.3 of Registrant's Form 8-K filed August 18, 1998.

4.12 Registration Rights Agreement among the Company and the Purchasers
listed in Exhibit A thereto, incorporated by reference from Exhibit
4.4 of Registrant's Form 8-K filed August 18, 1998.

4.13 Agreement Relating to Sheldahl between Molex Incorporated and the
Registrant dated November 18, 1998, incorporated from Exhibit 4.13
of the Registrant's Form 10-K for the fiscal year ended August 28,
1998.
5.1 Opinion and Consent of Lindquist & Vennum, counsel to the Company.

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of Lindquist & Vennum P.L.L.P. (included in Exhibit 5.1 to
the Registration Statement).

24 Power of Attorney (included in the signature page of the
Registration Statement).

27 Financial Data Schedule
</TABLE>

ITEM 17. UNDERTAKINGS

II-3

<PAGE>

The undersigned Registrant hereby undertakes, in accordance with Item
512 of Regulation S-K:

(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering;

(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and

(e) To deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 and Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is not set
forth in the Prospectus, to deliver, or cause to be delivered to each person to
whom the Prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the Prospectus to provide such interim
financial information.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

(i) The undersigned Registrant hereby undertakes that:

II-4

<PAGE>

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe it meets all
of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Northfield, State of Minnesota, on
the 2nd day of December, 1998.

SHELDAHL, INC.

By /s/ James E. Donaghy
-----------------------------------------
James E. Donaghy, Chief Executive Officer

By /s/ Edward L. Lundstrom
-----------------------------------------
Edward L. Lundstrom, President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints James
E. Donaghy and John V. McManus, and each of them (with full power to act
alone), such person's true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as such person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on December 2,
1998 in the capacities indicated.

Signature Title
- --------- -----
<S> <C>

* Chairman of the Board and Director
- -------------------------
James S. Womack

/s/ James E. Donaghy Chief Executive Officer and
- ------------------------- Director (principal executive officer)
James E. Donaghy

/s/ John V. McManus Vice President Finance (principal financial
- ------------------------- and accounting officer)
John V. McManus

</TABLE>

II-6

<PAGE>

<TABLE>

<S> <C>
/s/ Edward L. Lundstrom President
- -------------------------
Edward L. Lundstrom

* Director
- -------------------------
John G. Kassakian

* Director
- -------------------------
Gerald E. Magnuson

- ------------------------- Director
Dennis M. Mathisen

* Director
- -------------------------
William B. Miller

* Director
- -------------------------
Kenneth J. Roering

- ------------------------- Director
Raymond C. Wieser

* Director
- -------------------------
Beekman Winthrop

</TABLE>

* By:/s/ John V. McManus
--------------------
John V. McManus
ATTORNEY-IN-FACT

II-7

<PAGE>

[LINDQUIST & VENNUM P.L.L.P. LETTERHEAD]

Exhibit 5.1

December 1, 1998

Sheldahl,Inc.
1150 Sheldahl Road
Northfield, MN 55057

Re: Registration Statement on Form S-3

Ladies and Gentlemen:

In connection with the Registration Statement on Form S-3 filed by
Sheldahl, Inc. (the "Company") with the Securities and Exchange Commission,
relating to a public offering of up to 6,484,544 shares of Common Stock, $.25
par value ("Common Stock"), to be offered and sold by certain Selling
Shareholders (as defined therein), please be advised that as counsel to the
Company, upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes of this opinion, it is our
opinion that:

1. The Company is a validly existing corporation in good standing under
the laws of the State of Minnesota.

2. The shares of Common Stock being offered by the Selling Shareholders
are duly authorized and, when issued to the Selling Shareholders and paid for as
contemplated by the Purchase Agreement and the Warrants, as applicable, included
in the Registration Statement as Exhibits 4.9 and 4.11, respectively, will be
legally and validly issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement.

Very truly yours,

/s/ Lindquist & Vennum PLLP
---------------------------
LINDQUIST & VENNUM P.L.L.P.

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report and to all references to our firm included in or made a part of
this registration statement.

/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
November 30, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUGUST
29, 1997 AND AUGUST 28, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> AUG-29-1997 AUG-28-1998
<PERIOD-END> AUG-29-1997 AUG-28-1998
<CASH> 5,567 1,005
<SECURITIES> 0 0
<RECEIVABLES> 15,880 15,727
<ALLOWANCES> 0 0
<INVENTORY> 13,078 15,488
<CURRENT-ASSETS> 35,696 32,487
<PP&E> 157,841 168,579
<DEPRECIATION> 57,036 66,322
<TOTAL-ASSETS> 139,367 136,306
<CURRENT-LIABILITIES> 12,753 23,628
<BONDS> 0 0
0 0
15 41
<COMMON> 3,258 2,415
<OTHER-SE> 66,923 76,301
<TOTAL-LIABILITY-AND-EQUITY> 139,367 136,306
<SALES> 105,266 117,045
<TOTAL-REVENUES> 105,266 117,045
<CGS> 94,933 109,143
<TOTAL-COSTS> 21,104 33,694
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,298 2,547
<INCOME-PRETAX> 12,069 28,339
<INCOME-TAX> 4,100 2,952
<INCOME-CONTINUING> 7,969 31,291
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 5,206
<NET-INCOME> 7,969 37,186
<EPS-PRIMARY> 0.89 3.97
<EPS-DILUTED> 0.89 3.97

</TABLE>