UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Amendment No. 1 to Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 28, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number: 0-45
SHELDAHL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0758073
--------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1150 Sheldahl Road
Northfield, MN 55057
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (507) 663-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value of $0.25 per share
Preferred Stock Purchase Rights
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares held by non-affiliates was approximately
$4,102,000 on April 23, 2002, when the last sales price of the Registrant's
Common Stock, as reported in the Nasdaq National Market System, was $0.34. As of
April 23, 2002, the Company had outstanding 33,040,088 shares of Common Stock.
Documents Incorporated by Reference: None.
1
Part III of the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 2001 is hereby amended to read as follows:
PART III
Item 10. Directors and Executive Officers of the Registrant
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The names of the directors, their principal occupations and other
information is set forth below, based upon information furnished to the Company
by the directors.
Name and Age Principal Occupation Director
------------ -------------------- --------
And Other Directorships Since
----------------------- -----
John D. Lutsi (61) General Partner of Morgenthaler Venture Partners V, 2000
L.P. (venture capital firm); Director of APSCO
International, Cambridge International, Warrick
Industries and American Management Partners.
Stuart A. Auerbach (44) Currently General Partner of Ampersand Ventures 2000
where he has been employed since 1991, Managing
Member of AMP-IV management Company Limited
Liability Company (venture capital firm); interim
Chief Financial Officer of AdFlex Solutions (a flex
circuit producer) in 1993, and from 1988 to 1991,
consultant at Bain Company (a management consulting
company). Currently a director of Tomah Holdings,
Inc. and several other private companies.
Donald R. Friedman (55) [Retired;] President and Chief Executive Officer of 2000
the Company from January 1, 2001 to September 4,
2001; since 1999, President of International Flex
Technologies, a subsidiary of the Company, since
December 28, 2000 (fine-line flex circuit
producer); prior to 1999, Vice President-Marketing
and Strategy, IBM.
William B. Miller (70) Partner, Miller & Company, Ayr, Scotland (business 1991
consulting); prior to 1991, Managing Director and
Chairman, Prestwick Holdings plc, Ayr, Scotland
(electronic component manufacturer); Director of
Magnum Power plc and Stathclyde University
Incubator Ltd.
Raymond C. Wieser (64) Retired; prior to 2001, Corporate Vice President of 1998
Molex Incorporated (connector manufacturer).
2
Benoit Pouliquen President and Chief Executive Officer of the 2001
Company since September 4, 2001; prior to joining
the Company served as executive officer of BMC
Industries, Inc. for a period of approximately 2
years. Prior to that he served in a variety of
senior management positions at Johnson Matthey PLC
for a period of more than 5 years.
For information as to how directors of the Registrant are selected, see
"Certain Relationships and Related Transactions - Governance Agreement, Voting
Agreement" at pages 9 and 10.
For information regarding executive officers, see "Executive Officers
of the Registrant" at page 11 of Sheldahl's Annual Report on 10-K filed on April
10, 2002.
Director Compensation
Directors who are not employees and are not affiliated with a major
shareholder ("Non-affiliate Directors") receive an annual retainer of $18,000,
50% paid in cash and 50% paid in restricted stock valued at the fair market
value of shares on the date of issuance, and a fee of $800 for each day of
meetings of the Board of Directors or any committee. Messrs. Lutsi, Auerbach and
Wieser do not receive the annual retainer nor meeting fee. See "Certain
Relationships and Related Transactions." During fiscal 2001, since resigning as
a executive officer of the Company, Mr. Friedman qualified as a Non-affiliate
Director. Pursuant to the terms of the Company's 1994 Stock Option Plan, each
Non-affiliate Director automatically receives options to purchase 25,000 shares
at such time as they are first elected as a director by the shareholders.
Non-affiliate Directors are also automatically granted options to purchase 4,000
shares at such time as such Non-affiliate Director is reelected as a director of
the Company. These options are granted at the fair market value on the date of
grant.
In fiscal year 1982, the Company established a retirement program for
directors not covered by another retirement plan of the Company which provides
for the payment of an annual benefit equal to the annual retainer paid to
directors during the full fiscal year preceding retirement. The retirement
benefit, which is payable to directors who have served five years or more, will
commence at the later of the time of retirement or when the director becomes 65
years old and will be subject to proportionate reduction if the director has
served the Company less than 15 years. The maximum number of years that the
benefit is payable is ten years. Effective December 28, 2000, this program was
terminated with respect to any person who has not served as a director of the
Company prior to such date.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
These insiders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file, including
Forms 3, 4 and 5.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended
3
December 28, 2001, all Section 16(a) filing requirements applicable to its
insiders were complied with in a timely manner.
Item 11. Executive Compensation
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The following table shows sets forth certain information concerning
cash and other compensation for services rendered to the Company in all
capacities during the periods set forth below by (i) Benoit Pouliquen, the
Company's Chief Executive Officer, (ii) each of the four other most highly
compensated executive officers of the Company in office at the end of fiscal
year 2001, whose salary and bonus exceeded $100,000 and (iii) one former
executive officer who served as Chief Executive Officer during a portion of
fiscal 2001 but who was not serving as an executive officer of the Company at
the end of fiscal 2001 (together with Mr. Pouliquen, the "Named Executive
Officers"):
Summary Compensation Table(1)
-----------------------------
Long Term
Compensation
------------
Annual Compensation Awards
-------------------------------------- ---------
Other
Annual Securities All Other
Name and Compensa- Underlying Compensa-
Principal Position Year (2) Salary ($) Bonus ($) tion($) Options tion($)(3)
- ------------------ -------- ---------- --------- ------- ------- ----------
Benoit Pouliquen 2001 98,813 0 0 0 0
President and Chief Executive
Officer
Peter Duff 2001 152,585 0 0 0 14,042
Vice President- TP00 142,011 18,750 0 0 4,744
Finance
Gregory D. Closser (4) 2001 141,399 0 0 0 15,993 (5)
Vice President-Flexible STP00 49,303 0 0 0 1,504
Interconnect 2000 150,000 0 0 0 3,002
1999 137,345 0 0 0 2,581
Donald R. Friedman (6) 2001 353,632 0 0 0 10,500(5)
President and Chief Executive TP00 31,769 32,500 0 0 13,335
Officer 1999 94,432 0 0 0 1,6460
Sidney J. Roberts 2001 128,555 0 0 0 15,705
Vice President-Materials STP00 49,519 0 0 0 4,102
Business Unit 2000 142,738 0 0 0 13,147
1999 133,317 250 0 0 12,572
William E. Offenberg 2001 226,608 75,000 00 0 18,231
President-Materials and Flex STP00 0 0 0 0
Interconnect Business Units
- ------------------------
TP00 denotes transition period of January 30, 2000 (the beginning of Holdings'
fiscal year) through December 29, 2000.
STP00 denotes transition period of September 2, 2000 (the beginning of
Sheldahl's fiscal year) to December 29, 2000.
4
(1) See "Certain Relationships and Related Transactions - Transactions'
Effect on Financial Statements and - Fiscal Year."
(2) Unless otherwise indicated, all reporting periods relate to Sheldahl's
fiscal years ended December 28, 2001, September 1, 2000 and August 27,
1999, respectively.
(3) Unless otherwise indicated, these amounts represent the Company's basic
and matching contributions to the Company's 401(k) plan on behalf of
such employees.
(4) Mr. Closser resigned effective March 15, 2002.
(5) $315,000 and 314,000 was accrued by the Company as of December 28, 2001
for severance compensation and benefits under severance agreements with
Mssrs. Friedman and Closser, repsectively. During the fiscal year ended
December 28, 2001, $75,000 was paid to Mr. Friedman.
(6) Mr. Friedman served as the President and Chief Executive Officer of
Sheldahl until September 4, 2001 when he resigned.
Stock Options
During fiscal 2001 the Company issued 2,287,000 options to purchase
common stock to Mr. Pouliquen exercisable at $1.41 per share of which 457,400
vested September 4, 2001 and an additional 457,400 vest on September 4 in each
of next four years, through September 4, 2004. A portion of these options,
787,000, are subject to shareholder approval of certain amendments to the
Company's 1994 Stock Option Plan which approval has not yet been obtained. In
addition Mssrs. Offenberg and Roberts received grants of 600,000 and 60,000
options to purchase common stock exercisable at $1.52 and $0.525, respectively.
Mr. Offenberg's options vest ratably over four years. Mr. Roberts' options vest
on October 29, 2003. There were no other grants of stock options under the
Company's stock option plans to the Named Executive Officers during the fiscal
year.
Option Exercises and Holdings
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of fiscal year 2000.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
----------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying In-the-Money Options at
Unexercised Options at Fiscal Year-End
Fiscal Year-End
-------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise Realized(1) Exercisable Unexercisable Exercisable(2) Unexercisable(2)
- ---- -------- ----------- ----------- ------------- -------------- ----------------
Benoit Pouliquen 0 $0 457,4000 1,042,600 $0 $0
Peter Duff 0 $0 116,995 55,000 $22,650 $0
Gregory D. Closser 0 $0 70,214 0 $0 $0
Donald R. Friedman 0 $0 0 0 $0 $0
Sidney J. Roberts 0 $0 0 $0 $0
William E. Offenberg 0 $0 250,000 350,000 $0 $0
- -----------------------
(1) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(2) Based on a per share price of $0.45 which is the average of the high
and low prices for the Company's Common Stock on December 28, 2001.
Value is calculated on the difference between the option exercise
5
price and $0.45 multiplied by the number of shares of Common Stock
underlying the options, but before taxes associated with exercise.
Employment and Other Agreements
The Company has employment agreements with certain officers not affiliated
with Holdings prior to the Merger which, as a result of the Merger discussed in
"Certain Relationships and Related Transactions," require severance benefits
equal to 1.5 times the individual's average annual compensation over the
preceding five (5) years plus certain fringe benefits, or a greater amount, if
any, payable under the Company's severance pay plan, which provides generally
for payment based on length of service of up to two times an employee's base pay
in effect on the date of termination if an employee is terminated at the
Company's initiative and such employee is in good standing at the time of such
termination. Benefits under the employment agreements are available upon
termination of employment if the officers continues employment with the Company
for at least one year from the date of the Merger or if certain other events
occur resulting in a termination of employment within three (3) years of the
date of the Merger.
Pursuant to a Letter Agreement with Mr. Pouliquen, in the event his
employment is terminated without cause, he will receive 52 weeks of pay at his
base salary and the Company will pay the employer's share of the cost of
healthcare insurance and long term disability insurance for a 52-week period.
Certain officers which were affiliated with Holdings prior to the Merger
have employment agreements which provide severance payments ranging from twelve
to eighteen months of an employee's base pay in the event of a termination of
employment by the Company without cause of by the employee for good reason, as
defined. Mr. Duff's severance agreement provides pay in the amount of $153,000
ratably over a one year period ending in 2003. Mr. Friedman's severance
agreement provides pay in the amount of $390,000 ratably over a period from
September 2001 through December 31, 2002. Mr. Closser's severance agreement
provides pay in the amount of $314,000 ratably over a two year period ending
March 15, 2004.
The Company and Mr. Donaghy, a former Company director and executive,
entered into a supplementary executive retirement plan agreement during fiscal
year 1997 which provides Mr. Donaghy upon his retirement or other termination of
his employment with an annual retirement pension benefit equal to $137,500, less
an amount equal to the sum of (i) the aggregate of twelve (12) monthly payments
received by Mr. Donaghy and/or his spouse under his pension or deferred
compensation plans established by Mr. Donaghy's former employer; and (ii) an
amount which equals an annual joint and survivor annuity which could be
purchased with the principal in Mr. Donaghy's retirement accounts at the date of
retirement provided from all retirement contributions by the Company. Based on
the above formula, the Company expects its obligations under the agreement to be
approximately $50,000 per annum increasing to approximately $80,000 per annum in
the event Mr. Donaghy predeceases his spouse. All benefits are payable for Mr.
Donaghy's life and, after his death, if he is survived by his spouse, his spouse
shall continue to receive such benefits for the duration of her life. The
agreement also restricts Mr. Donaghy from competitive employment and disclosure
of trade secrets and confidential information.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The following table includes information as of April 23, 2002
concerning the beneficial ownership of Common Stock of the Company by (i) the
only shareholders known to the Company to hold more than five percent of the
Common Stock of the Company, (ii) each of the directors of the Company, (iii)
each executive officer named in Item 10, and (iv) all current executive officers
and directors of the Company as a group. Unless otherwise indicated, all
beneficial owners have sole voting and investment power over the shares held.
6
Name and Address of Beneficial Owner Amount Percent
of Class
Morgenthaler Venture Partners V, L.P. 21,916,258 (1) (2) 52.8%
Terminal Tower
50 Public Square, Suite 2700
Cleveland, OH 44113
Ampersand Ventures 6,301,022 (1) (3) 17.4%
55 William Street, Suite 240
Wellesley, MA 02481
Molex Incorporated 4,727,449 (4) (5) 13.1%
2222 Wellington Court
Lisle, IL 60532
Sound Beach Technology Partners, LLC 2,679,405 (1) 8.1%
4 Vista Avenue
Old Greenwich, CT 06870
John D. Lutsi (6) (7) 21,916,258 (8) 52.8%
Stuart A. Auerbach (7) (9) 6,301,022 (10) 17.4%
Donald R. Friedman (7) (11) 2,679,405 (12) 8.1%
William B. Miller (7) 109,236 (13) (14) *
Raymond C. Wieser (7) 19,666 (13) (16) *
Benoit Pouliquen (16) 457,400 (13) 1.4%
Gregory D. Closser (17) 73,463 (13) *
Peter Duff (16) 116,995 (13) *
Sidney J. Roberts (16) 46,350 (13) *
William E. Offenberg (17) 250,000 (13) *
All Current Executive Officers and Directors 36,447,244 75.1%
as a Group (9 persons)
- ---------------------------
* Less than one percent.
(1) Based on a Schedule 13D filed with the Securities and Exchange
Commission, Ampersand IV Limited Partnership and Ampersand IV Companion
Fund Limited Partnership (the "Ampersand Funds") and AMP-IV Management
Company Limited Liability Company ("AMP-IV" and together with the
Ampersand Funds, "Ampersand Ventures"), Morgenthaler Venture Partners
V, L.P. and Sound Beach Technology Partners, LLC (the "Investors") have
shared voting and dispositive power with respect to a total of
27,181,268 shares, representing an aggregate of 68.9% of the Common
Stock of the Company. The Investors entered into a Voting Agreement
with respect to their respective shares whereby they agreed to vote for
each others Board nominees under certain circumstances. Amounts shown
in this table for each of the Investors exclude the amounts held by
each of the other Investors and as to which the Investors disclaim
beneficial ownership. Pursuant to a Governance Agreement, dated
December 28, 2000, among the Company and the Investors, the Investors
have agreed, until December 28, 2003, that they may not own more shares
of the Company's securities than they currently hold and that they and
their Affiliates
7
are restricted from taking certain actions, as more fully described in
"Certain Relationships and Related Transactions" below.
(2) Morgenthaler Ventures' holdings include 5,651,428 shares which may be
issued upon the conversion of the Company's Series G Convertible
Preferred Stock, and 2,820,319 shares which may be issued upon the
exercise of Subdebt Warrants.
(3) The Ampersand Ventures' holdings include 2,422,143 shares of Common
Stock which may be issued upon the conversion of the Company's Series G
Convertible Preferred Stock, and 713,102 shares of Common Stock which
may be issued upon the exercise of Subdebt Warrants.
(4) Based upon information filed with the Securities and Exchange
Commission on Schedule 13D.
(5) Molex Incorporated's holdings include 1,960,785 shares which may be
issued upon the conversion of the Company's Series D Convertible
Preferred Stock, 238,096 shares which may be issued upon the conversion
of the Company's Series F Convertible Preferred Stock, 43,005 shares
which may be issued upon the exercise of the Series F Warrants, and
887,931 shares which may be issued upon the exercise of Subdebt
Warrants.
(6) Mr. Lutsi is a General Partner of Morgenthaler Venture Partners V, L.P.
(7) Serves as a director of the Company.
(8) Mr. Lutsi disclaims beneficial ownership of all shares except to the
extent of his pecuniary interest in shares directly owned by
Morgenthaler Venture Partners V, L.P.
(9) Mr. Auerbach is a managing member of AMP-IV.
(10) Mr. Auerbach disclaims beneficial ownership of all shares except to the
extent of his pecuniary interest in shares directly owned by the
Ampersand Funds.
(11) Mr. Friedman is the Chief Executive Officer and significant shareholder
of Sound Beach Technology Partners, LLC.
(12) Mr. Friedman disclaims beneficial ownership of all shares except to the
extent of his pecuniary interest in shares directly owned by Sound
Beach Technology Partners, LLC.
(13) Includes shares which may be purchased within sixty days from the date
hereof upon exercise of outstanding stock options in the amount of
22,000 shares for Mr. Miller; 16,666 shares for Mr. Wieser; 70,214
shares for Mr. Closser; 116,995 shares for Mr. Duff; 46,294 for Mr.
Roberts; 250,000 for Mr. Offenberg; 457,400 for Mr. Pouliquen and
979,569 shares for all current executive officers and directors as a
group.
(14) Mr. Miller's holdings include 5,000 shares which may be issued upon the
exercise of Series E Warrants, and 81,622 shares held in a custodial
account with RBSTB Nominees Limited.
(15) Mr. Wieser is a retired officer of Molex Incorporated and disclaims
beneficial ownership of any shares held by Molex Incorporated.
(16) Serves as an executive officer of the Company.
(17) Served as an executive officer of the Company until March 15, 2002 and
March 31, 2002, respectively for Mssrs. Closser and Offenberg .
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Merger
On December 28, 2000, Sheldahl acquired all of the outstanding
securities of International Flex Holdings, Inc. (Holdings) for approximately 8.7
million shares of Sheldahl's common stock, plus shares issuable under stock
options and warrants of approximately 1.0 million shares, pursuant to a merger
agreement as amended, (the "Merger Agreement") by and among Sheldahl, IFT West
Acquisition Company, a newly formed subsidiary of Sheldahl ("West"), Holdings,
the sole shareholder of International Flex Technologies Inc., the operating
company ("IFT"), and the stockholders of Holdings (the "Stockholders"). Under
the terms of the Merger Agreement, West merged with and into Holdings, with
Holdings surviving and becoming a wholly-owned subsidiary of Sheldahl (the
"Merger"). As consideration for the Merger, holders of outstanding shares of
Holdings' common stock, Class A Stock, Class B Stock and Series A Preferred
Stock received shares of Sheldahl Common Stock. Holdings' option holders and
warrant holder received equivalent options and a warrant to purchase shares of
Sheldahl Common Stock.
8
The total number of shares of Sheldahl Common Stock issued, including shares to
be issued upon exercise of options and warrants, was approximately 9.7 million.
Common Stock and Series G Investment
Concurrent with consummating the Merger, Sheldahl completed an equity
placement pursuant to an amended stock purchase agreement (the "Stock Purchase
Agreement") by and among Sheldahl, and three accredited investors, Morgenthaler
Venture Partners V, L.P. ("Morgenthaler V"), and Ampersand IV Limited
Partnership and Ampersand IV Companion Fund Limited Partnership (collectively
the "Ampersand Funds"). Under the terms of the Stock Purchase Agreement,
Morgenthaler V and the Ampersand Funds (the "Investors") collectively invested
an aggregate of $25.0 million in equity capital in exchange for approximately
9.8 million shares of Sheldahl Common Stock and 11,303 shares of a newly created
11.06% Series G Convertible Preferred Stock of Sheldahl, par value $1.00 per
share (the "Series G Stock"), such shares being convertible at $1.40 per share
in the aggregate into approximately 8.1 million shares of Sheldahl Common Stock
(the "Equity Investment"). The cash used by the Investors to complete the Equity
Investment came from the liquid assets of the Investors.
Subordinated Notes and Warrant Purchase Investment
Concurrent with consummating the Merger and Equity Investment, Sheldahl
consummated a debt investment pursuant to an amended and restated subordinated
notes and warrant purchase agreement (the "Debt Agreement") by and among
Sheldahl, Morgenthaler V, the Ampersand Funds and Molex Incorporated ("Molex").
Under the terms of the Debt Agreement, Morgenthaler V, the Ampersand Funds and
Molex (the "Purchasers") purchased $6.5 million of 12% Senior Subordinated Notes
("Notes") and related warrants (the "Warrants") (the "Debt Investment"). In
addition, the Purchasers collectively received Warrants to purchase 1,526,814
shares of Sheldahl Common Stock. The Warrants issued under the Debt Agreement
are exercisable at $0.01 per share and are exercisable for seven years from the
date of issuance. The cash used by the Investors to complete the Debt Investment
came from the liquid assets of the Investors.
Governance Agreement
Concurrent with the closing of the Merger, the Equity Investment and
the Debt Investment (collectively, the "Transactions"), Sheldahl entered into a
governance agreement by and among it and Morgenthaler V, the Ampersand Funds and
Sound Beach Technology Partners, LLC, a former IFT stockholder ("Sound Beach")
(collectively, the "Parties") establishing the terms and conditions regarding
(i) future purchases and sales of the Company's securities, and (ii) the
Parties' relationship with the Company (the "Governance Agreement"). Donald
Friedman, the Company's former Chief Executive Officer, is a significant
shareholder and officer of Sound Beach. Molex is not a party to the Governance
Agreement.
Under the terms of the Governance Agreement, until the third
anniversary of the closing of the Transactions, the Parties and their respective
affiliates are restricted from beneficially owning any Sheldahl securities in
excess of that issued or issuable (i) in the Merger, (ii) under the Stock
Purchase Agreement, (iii) upon conversion of the Series G Stock, (iv) issuable
in respect of dividends due on the Series G Stock, and (v) upon exercise of the
Warrants issued under the Debt Agreement. The Parties are also restricted from
doing a business combination or proxy solicitation during the same period. This
restriction does not include, however, acquiring securities directly from the
Company or making business combination or tender offer proposals to the Company
or conducting a proxy solicitation in response to the same made by third
parties.
9
Also under the terms of the Governance Agreement, for one year from the
date of the closing of the Transactions, the Parties are restricted from
transferring any of their shares of Common Stock, Series G Stock and Warrants,
other than to their Affiliates or Associates. At any time prior to the third
anniversary of the closing of the Transactions, any transferees of such parties,
other than a partner or a member of a Party, must become a signatory to the
Governance Agreement. After one year, any of the Parties that is an investment
fund may distribute its shares to its partners and members.
The terms of the Governance Agreement required that the initial
composition of Board of Directors of Sheldahl as of the closing of the
Transactions be comprised of (i) three continuing directors from Sheldahl (each
a "Continuing Director"), (ii) the director appointed by Molex (the "Molex
Director"), and (iii) three directors nominated by Morgenthaler V, the Ampersand
Funds and Sound Beach. With respect to the election of directors following the
closing of the Transactions, Morgenthaler V, the Ampersand Funds and Sound Beach
together shall be entitled to nominate three directors. The number of directors
which may be nominated by Morgenthaler V, the Ampersand Funds and Sound Beach
will be reduced as their collective ownership in the Company is reduced. The
terms of the Governance Agreement require that the identity of directors to
stand for election by the Company's shareholders or to fill vacancies on the
Board of Directors be determined by a nominating committee of the Board of
Directors (the "Nominating Committee").
In the event the Company desires to enter into a transaction with any
of the holders of the Series G Stock or their affiliates, the Governance
Agreement requires that such transaction must be approved by a majority vote of
the Board of Directors, excluding any Series G Director who is a party to or
otherwise has an interest in the transaction.
Without the consent of Morgenthaler V and the Ampersand Funds, the
Company may not authorize or enter into any agreement relating to a merger, sale
or lease of substantially all of the Company's assets, set the number of
directors at a number other than seven (7), or repurchase or redeem any equity
securities of the Company, as long as such Party continues to hold at least 15%
of the shares of Common Stock issued or issuable to it pursuant to the
Transactions.
Voting Agreement
In connection with the Transactions, Morgenthaler V, the Ampersand
Funds and Sound Beach together executed a voting agreement, as amended (the
"Voting Agreement"). The Company is not a party to this Voting Agreement. Under
the terms of the Voting Agreement, Morgenthaler V, the Ampersand Funds and Sound
Beach have agreed how they will designate individuals to be nominated for
election as directors as provided under the Governance Agreement. Additionally,
provided the parties hold a certain level of ownership in the Company,
Morgenthaler V, the Ampersand Funds and Sound Beach agree to vote their shares
in favor of such nominees to the Company's Board of Directors. Lastly, the
Voting Agreement restricts the ability of Sound Beach to dispose of certain of
its shares provided Morgenthaler V and the Ampersand Funds maintain ownership of
at least 60% of the securities received in the Transactions.
Post Transactions Ownership
The beneficial ownership of the Investors, calculated in conformance
with Rule 13d-1 of the Securities Exchange Act of 1934, as amended, is
thoroughly described on page 8 under "Security Ownership of Certain Beneficial
Owners and Management."
10
Molex Transactions
Molex Incorporated ("Molex") is a customer of the Company with
purchases in the eleven month period ending December 28, 2001 of approximately
$5,343,000, representing 4.9% of the Company's gross revenues. On July 28, 1998,
Sheldahl and Molex formed a joint venture called Origin Modular Interconnects
(f/k/a Modular Interconnect Systems, L.L.C.) to design, market and assemble
modular interconnect systems to replace wiring harnesses in primarily the
automotive market. On June 6, 2001, that joint venture was dissolved. Under the
terms of the Termination Agreement, the Company and Molex each agreed that all
patents, copyrights, trademarks, trade secrets and other intellectual property
rights owned by Origin Modular Interconnects as of the date of dissolution will
be jointly owned by both the parties.
On July 30, 1998, the Company completed a private placement of shares
of its Series D Convertible Preferred Stock (the "Series D Stock"). This private
offering resulted in gross proceeds to the Company of $32,917,000 and the
issuance to accredited investors of 32,917 shares of the Series D Stock at a
price of $1,000 per share. As one of the investors in the Series D offering,
Molex purchased from the Company $12,000,000 of the total shares of the Series D
Stock. Given the current conversion price of $6.1002 per share, Molex's Series D
Stock is convertible into 1,967,149 shares of the Company's Common Stock and
carries warrants to purchase an additional 120,792 shares of Common Stock at an
exercise price of $7.6371 per share. As of the date of the closing of the Series
D offering, Molex also owned 340,000 shares of the Company's Common Stock.
On January 11, 2000, the Company completed a private placement of
shares of its Series F Convertible Preferred Stock (the "Series F Stock"). This
private offering resulted in gross proceeds to the Company of $1,800,000 and the
issuance to accredited investors of 1,800 shares of the Series F Stock at a
price of $1,000 per share. As one of the investors in the Series F offering,
Molex purchased from the Company $1,300,000 of the total shares of the Series F
Stock. Given the current conversion price of $5.46 per share, Molex's Series F
Stock is convertible into 238,096 shares of the Company's Common Stock and
carries warrants to purchase an additional 40,300 shares of Common Stock at an
exercise price of $5.46 per share.
In connection with execution of the Merger Agreement, the Stock
Purchase Agreement and the Debt Agreement, the Company and Molex agreed to
certain amendments to the parties' (i) Agreement Relating to Sheldahl dated
November 18, 1998 (the "Sheldahl Agreement"), and (ii) the Limited Liability
Company Agreement of Modular Interconnect Systems, L.L.C., dated July 28, 1998
(the "LLC Agreement"). The LLC Agreement was made in connection with a joint
venture between Sheldahl and Molex. When the joint venture was terminated on
June 6, 2001, the LLC Agreement was also terminated.
The Sheldahl Agreement was amended to provide that Molex shall have the
right to participate in future equity offerings of the Company so that Molex
retains up to a 10% ownership interest in the Company on a fully diluted basis.
Also, the Sheldahl Agreement was amended to provide that Molex shall have the
right to participate in future issuances of the Company's equity securities in
connection with an acquisition so that Molex retains up to a 5% ownership
interest in the Company on a fully diluted basis. Lastly, the Sheldahl Agreement
was amended to provide Molex with a right of first refusal on any acquisitions
of the Company by three Identified Parties (the "Right of First Refusal"). The
Right of First Refusal terminates at the earlier of the end of the thirty month
period following the date of closing of the Merger or the execution of a
mutually acceptable supply and technology agreement between Molex and Sheldahl.
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October Financing
In October 2001, the Company completed the issuance of $7.0 million of
17% Senior Subordinated Notes to Morgenthaler Partners VII, L.P., Ampersand IV
Limited Partnership and Molex Incorporated. These Notes are due and payable in
October 2006 or earlier upon certain issuances of capital stock or the sale of
assets by the Company after first applying proceeds to existing debt under the
Company's current Credit Agreement and the 12% Senior Subordinated Notes issued
in May 2001. In addition, the purchasers were issued seven-year warrants for an
aggregate of approximately 3.13 million shares of the Company's common stock at
an exercise price of $0.01 per share of common stock. The warrants are
exercisable at $0.01 per share for a period of seven years. Additionally, for
each year for which any portion of these Notes remain outstanding, the Company
will issue additional warrants to purchase an aggregate of 261,010 shares of the
Company's common stock at an exercise price of $0.01 per share. The Notes are
secured by all of the non-real property assets of the Company and its
subsidiaries, International Flex Technologies Inc. and International Flex
Holdings, Inc. The Notes are subordinate to the Company's obligations to the
lenders under the Credit Agreement.
August Financing
In August 2001, the Company completed the issuance of $3.0 million of
12% Senior Subordinated Notes to Morgenthaler Venture Partners V, L.P. and Molex
Incorporated. These Notes are due upon the earlier of the following events:
August 2006, certain issuances of capital stock or the sale of assets by the
Company after first applying proceeds to existing debt under the Company's
current Credit Agreement, the 22% Senior Subordinated Notes and the 17% Senior
Subordinated Notes discussed below. In addition, each purchaser was issued
warrants to purchase 351,000 shares of the Company's common stock. The
seven-year warrants are exercisable at $0.01 per share of common stock. The
Notes are subordinate to the Company's obligations to the lenders under the
Credit Agreement.
May Financing
In May 2001, the Company completed the issuance of $5.0 million of 22%
Senior Subordinated Notes to Morgenthaler Venture Partners V, L.P., Ampersand IV
Limited Partnership and Molex Incorporated. These notes are due at such time
that the Company repays the obligations under its current Credit Agreement, or
earlier upon certain issuance of capital stock or the sale of assets by the
company after first applying proceeds to existing debt under the Credit
Agreement. The Notes are secured by all of the non-real property assets of the
Company and its subsidiaries. The Notes are subordinate to the obligations of
the Company to the lenders under the Credit Agreement.
Transactions' Effect on Financial Statements
In the Merger, as described above, Sheldahl acquired all of the
outstanding securities of Holdings resulting in Holdings becoming a wholly owned
operating subsidiary of Sheldahl. Although Sheldahl is the legal survivor in the
Merger and remains the registrant with Securities and Exchange Commission
("SEC"), under United States generally accepted accounting principles, as a
result of the number of shares issued and sold in the Transactions, the Merger
will be accounted for as a reverse acquisition, whereby Holdings is considered
the `acquirer' of Sheldahl for financial reporting purposes. Among other
matters, this will require Sheldahl to present in all financial statements and
other public informational filings, post completion of the Transactions, prior
historical financial and other information of Holdings, and require a
retroactive restatement of Holdings historical shareholders' investment for the
equivalent number of shares of common stock received in the Merger.
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Fiscal Year
On January 5, 2001, the Board of Directors of the Company changed it's
fiscal year end to the Friday closest to December 31 of each year beginning
December 29, 2000. Therefore, fiscal 2000 consisted of a transition period from
January 30, 2000, the beginning of Holdings fiscal year.
Other
See "Executive Compensation - Employment and Other Agreements."
Chapter 11 Petition
On April 30, 2002, Sheldahl, Inc. filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Court for the District of
Minnesota ("Court").
In addition, the Company announced the intention of Morgenthaler VII,
L.P., Ampersand 1999 Limited Partnership and Molex Incorporated, (together
"Investors") (i) to provide Debtor-In-Possession financing of up to $1.5 million
and (ii) to make an offer acquire substantially all the assets of the Company,
all of which are subject to approval of the Court.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: May 3, 2002 SHELDAHL, INC.
By /s/ Benoit Pouliquen
--------------------------------------
Benoit Pouliquen
President and Chief Executive Officer
By /s/ Peter Duff
--------------------------------------
Peter Duff, Vice President-Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant on
May 3, 2002 and in the capacities indicated.
By /s/ Benoit Pouliquen President and Chief Executive Officer and
------------------------- Director (Principal Executive Officer)
Benoit Pouliquen
By /s/ Peter Duff Vice President-Finance
----------------------------------- (Principal Accounting Officer)
Peter Duff
By /s/ John D. Lutsi * Chairman of the Board of Directors
-----------------------------------
John D. Lutsi
By /s/ Stuart A. Auerbach * Director
-----------------------------------
Stuart A. Auerbach
By /s/ William B. Miller * Director
-----------------------------------
William B. Miller
By /s/ Raymond C. Wieser * Director
-----------------------------------
Raymond C. Wieser
By /s/ Donald R. Friedman Director
-----------------------------------
Donald R. Friedman
14