SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 4, 1998 (October 29,
1998)
Sheldahl, Inc.
(Exact name of Registrant as specified in its charter)
Minnesota 0-45 41-0758073
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1150 Sheldahl Road
Northfield, Minnesota 55057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (507) 663-8000
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Item 5. Other Events
Background.
On August 29, 1997, the Company issued to a group of investors (the
Investors) 15,000 shares of Series B Convertible Preferred Stock (the Series B
Preferred Stock) resulting in gross proceeds to the Company of $15,000,000.
The Board of Directors authorized the sale of the Series B Preferred Stock
in order to raise proceeds which were applied principally towards the
development of the Longmont Facility for the Company's MicroProducts
Business. The Series B Preferred Stock may be converted into shares of
Common Stock from time to time at a conversion price equal to the lesser of
(i) 110% of the average closing bid price for the five consecutive trading
days immediately preceding August 29, 1997 (which was $25.34) and (ii) 101%
of the average of the lowest closing bid prices for five consecutive
trading days during the 30 consecutive trading days immediately preceding
the date of conversion of the Series B Preferred Stock. In addition, the
shares of Series B Preferred Stock accrue dividends at an annual rate of 5%
which, at the Company's option, may be paid either in cash or in shares of
Common Stock. As part of the investment, the Investors also agreed to
purchase shares of the Company's Series C Preferred Stock at an aggregate
price of $15,000,000 such purchase to be made at the Company's option,
provided the Company's stock traded above $12.00 per share through August
28, 1998. This option has expired without any shares of Series C Preferred
Stock being purchased. Copies of the relevant documents for the sale of
the Series B Preferred Stock were filed as exhibits to the Company's Report
on Form 8-K on September 10, 1997.
Nasdaq Rule 4460(i).
Rule 4460(i) of the Nasdaq Stock Market, Inc. (the Nasdaq Rule) requires
shareholder approval of the sale or issuance by a company listed on the Nasdaq
National Market of common stock (or securities convertible into or exercisable
for common stock) equal to 20% or more of the common stock or 20% or more
of the voting power outstanding before the issuance for less than the
greater of book or market value of the stock. On August 29, 1997, the date
the Series B Preferred Stock was issued (the Closing Date), there were
9,026,682 shares of the Company's Common Stock outstanding and one share
less than 20% of such number of shares is 1,805,335. On the Closing Date,
the Series B Preferred Stock was convertible into 651,155 shares of common
stock, which was equal to 7.2% of the Company's then outstanding shares.
Given the initial conversion price of the Series B Preferred Stock and the
then current trading price of the Common Stock, the Company was not
required to obtain shareholder approval for the issuance of the Series B
Preferred Stock. Because the conversion price was a floating price,
however, the conversion right of the Investors was structured so that at
any time a conversion would comply with the Nasdaq Rule.
Accordingly, the Certificate of Designation (the Certificate) governing the
rights and preferences of the Series B Preferred Stock prohibits any conversion
if the conversion price then in effect is such that the aggregate number of
shares of Common Stock that would then be issuable upon conversion of all
outstanding shares of the Series B Preferred Stock, not just those
submitted for conversion by an Investor, when aggregated with all prior or
concurrent conversions, would result in the issuance to all Investors of
shares of Common Stock equal to 20% or more of the shares of the Company's
Common Stock outstanding on the Closing Date. In other words, the
Certificate requires the Company to look at any conversion as if all
remaining shares of the Series B Preferred Stock are being converted and
only then may the Company determine whether shareholder approval under the
Nasdaq Rule is required. For this reason, one Investor could submit a
conversion notice for a small number of shares and yet still trigger the
overall 20% limitation of the Nasdaq Rule. In such an event, the terms of
the Certificate provide that the Company may issue to any Investor
submitting a conversion notice only its pro rata portion of the shares
allowed to be issued pursuant to the Nasdaq Rule. With respect to any
shares not issuable to an Investor submitting a conversion notice, the
terms of the Certificate provide that the Company is obligated, at the
option of the Investors, to either (i) obtain shareholder approval for the
remaining unconverted shares of Series B Preferred Stock as contemplated by
the Nasdaq Rule or (ii) redeem for cash that portion of the Series B
Preferred Stock that could not be converted because of the limitation.
Conversions.
During February 1998, the Investors collectively converted 7,350 shares of
Series B Preferred Stock into 575,149 shares of Common Stock, including
dividends payable in Common Stock. These conversions left 1,230,186 shares
of Common Stock available for future conversions of the remaining 7,650
shares of the Series B Preferred Stock in compliance with the Nasdaq Rule.
During September and October 1998, the Company received additional notices
from all four of the remaining Investors requesting conversion of 6,114
shares of the Series B Preferred Stock in the aggregate. Because of
substantial declines in the market price of the Company's Common Stock,
the applicable conversion price for such conversions was reduced to
approximately $4.91. Pursuant to the terms of the Certificate described
above, in order to determine whether it could satisfy the conversions,
the Company was required to calculate how many shares were issuable upon
conversion at the $4.91 conversion price of all of the remaining 7,650
shares of the Series B Preferred Stock, not just of the 6,114 shares for
which it received conversion notices. This calculation showed that the
Company would need to issue to the Investors 1,642,063 additional shares
in the aggregate to cover the remaining Series B conversion, including
dividends payable in Common Stock, which would exceed the 1,230,186 shares
available. Because of the limits of the Nasdaq Rule, the Company issued to
the Investors only a portion of the shares for which they requested
conversion. Three of the four Investors have requested that the Company
seek and obtain shareholder approval to issue the additional shares
issuable from their conversion notices as well as for future conversions.
In the event that the shareholders do not approve the issuance of such
shares, the Company will be obligated to redeem the such shares and pay
interest on the redemption amount at an annual rate of 12%, dating back to
the dates of the original conversion notices. The fourth Investor decided
on October 20, 1998 to force the Company to redeem its 623 inconvertible
shares of the Series B Preferred Stock resulting in a cash payment by the
Company to such Investor of $836,997 on October 29, 1998.
Redemption.
The redemption price for any inconvertible shares of the Series B Preferred
Stock is a cash amount equal to (i) the highest average closing bid price
for any five consecutive trading days during the period commencing on the
date of conversion and ending on the date of payment by the Company of the
full redemption price, multiplied by (ii) the ratio of the stated value of
any shares of Series B Preferred Stock, including dividends accrued
thereon, to the conversion price on the date notice of conversion is
given. In the event that the Company fails for any reason to pay the
redemption price on the conversion date, the Company will pay interest on
such amount at an annual rate of 12%. Because the redemption price depends
on the date on which the Company pays the redemption amount in full and
such date is not known, the Company cannot determine at this time the
amount it may have to pay to redeem any inconvertible shares of the Series
B Preferred Stock. Under the redemption price calculation, however, any
redemptions will be at a premium to the prevailing market price of the
Company's Common Stock. Were it to use any of its available liquidity to
redeem the inconvertible shares of the Series B Preferred Stock, the Company
would not only take cash away from Company operations, another redemption
would violate the covenants under the terms of the agreements the Company
has with its senior lender. Such violation of covenants could result in a
technical default ultimately resulting in the Company's lender calling its
note. In the event shareholder approval is not received, the Company will
be required to redeem all of the outstanding preferred shares plus those
shares converted but for which common stock has not been issued. The
estimated redemption value as of October 30, 1998 is $2.0 million.
Shareholder Approval.
The Company expects to request shareholder approval to issue the additional
shares needed for the current and future conversions of the Series B Preferred
Stock at its next annual meeting to be held on January 13, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Sheldahl, Inc.
By /s/ John V. McManus
John V. McManus, Vice President-Finance
Dated: November 4, 1998.
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